BEST JOINT INVESTMENTS LTD v. KAGANI LTD

HCA 2608/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2608 OF 2006

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D E C I S I O N

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Introduction

1.  Three applications, all taken out by the defendant, require my determination:

(1)	an appeal dated 29 August 2007 against the master’s order dated 22 August 2007 dismissing his application to set aside the default judgment dated 15 January 2007;
(2)	a summons dated 27 October 2007 to dismiss or stay the action on the ground that there is no authority for the plaintiff to commence this action;
(3)	a summons dated 4 December 2007 seeking leave to cross-examine the deponents of the plaintiff’s affirmations.

2.  For convenience, references below to “Ron Lau” may include references to the defendant (controlled by Ron Lau) where appropriate.

The Plaintiff’s Case

3.  The case of C N Lau can be summarised as follows.  Mr Lau Cheuk Nam (“C N Lau”) came to know Mr Lau Kwok Leung Ron (“Ron Lau”) in April 2005.  At that time, the plaintiff company (“Best Joint”) owned a flat and a carpark in Hanking Court, Cloud View Road, Hong Kong (“the suit property”).

4.  C N Lau’s case is that in early 2006, Ron Lau said his company, a Calgo Asia Ltd, was unable to repay its loan of about $7.3 million to Citic Ka Wah Bank Ltd.  Ron Lau suggested that he could sell the suit property to C N Lau for $14 million.

5.  Because Best Joint, which was also one of Ron Lau’s companies, owed C N Lau about $3.6 million at the time, C N Lau has had good reason to be concerned with Ron Lau’s financial well-being. He finally decided to help Ron Lau.

6.  The parties agreed that C N Lau was to purchase the suit property for $14 million, but the transaction was to be carried out through:

(1)	the transfer of Best Joint’s shares to C N Lau at a nominal sum; and
(2)	C N Lau was to procure Nanyang Bank to pay off the loan owed to Citic Ka Wah Bank by Ron Lau (or, more precisely, his company).

C N Lau would also have to take up some other financial obligations (which totalled about $12 million together with the $7.3 million bank loan).

7.  It is undisputed that the Citic Ka Wah Bank loan was in fact paid off by Nanyang Bank.  As between Nanyang Bank and C N Lau, the obligation for repayment of the loan falls on Biotech International Ltd, one of C N Lau’s companies.

8.  Ron Lau wrongfully occupies the suit property and failed to pay rent to C N Lau.

The Defendant’s Case

9.  Ron Lau denies the above arrangements.  His case is that Best Joint is still his own company.  All the documents relied on by C N Lau in support of this action including:

(1)	the tenancy agreement dated 28 September 2006;
(2)	the instruments of transfer;
(3)	the sale of shares to C N Lau; and
(4)	the board meeting minutes of Calgo Development Ltd. (a director of Best Joint) approving the said,

are forged documents.

10.  Ron Lau’s defence as regards the plaintiff’s claim for possession of the suit property is in short that the plaintiff has no authority to sue.  His defence as regards the plaintiff’s claim for rents or mesne profits is in short that the rents are to be set off against the director’s loan owed to him by Best Joint.

Determination of the Issues Raised at the Hearing

11.  Ron Lau argues that the decision in Kammy Town Ltd v. Super Glory Corporation Ltd, HCA 3524/2003 (14 January 2005), decided that any dispute over the plaintiff’s authority to sue must be determined first.  This case also decided that any dispute involving conflicting factual evidence must be resolved through cross-examination before a proper determination can be made by the court.

12.  C N Lau disagrees with that approach.  He submits that Ron Lau’s allegation of forgery, which is the basis for the alleged lack of authority, should be looked at as part of Ron Lau’s application to set aside the default judgment.  Analysed that way, it is Ron Lau’s burden to establish a defence with a real prospect of success.  If Ron Lau fails to establish such a defence, his application to set aside must be dismissed.

13.  C N Lau contends that Ron Lau’s allegation of forgery lacks merit.  He points out that, if the allegation were true, it effectively means C N Lau has obtained no benefit for shouldering up the loan advanced by Nanyang Bank in Ron Lau’s favour (as well as other financial obligations).

14.  Ron Lau has in effect been unable to put forth any satisfactory answer to this contention.  His arguments in reply to the above contention are:

(1)	if C N Lau’s claim is true, C N Lau has purchased the suit property which was said to worth $14 million in consideration for about $12 million only (that is, a discount in value was given to C N Lau);
(2)	there is no written document evidencing C N Lau’s contention;
(3)	further to (1) above, C N Lau also obtained other financial benefits, such as the director’s loan owed to Ron Lau and the loan owed by Calgo Asia Ltd to Best Joint.

15.  I agree with C N Lau as regards the approach to be adopted when deciding the appeal and the summons.  The alleged lack of authority (para. 9 above) and the merits of the defence (para. 10 above) are, in the factual context of this case, so closely related that they should be treated as merely different facets of the same subject-matter.

16.  For the reasons put forth by C N Lau (see para. 13 above), I also agree that Ron Lau’s story is inherently impossible and is therefore not believable.  Accordingly, I find that it does not have merits which show a real prospect of success.

17.  For the record, although Ron Lau contends that service of the court document was irregular, very sensibly, he accepts that I am bound by the Court of Appeal’s decision in Ho Kong Wah v. Group Jewellery Arts Ltd & Ors, (2000) Vol. 3 HKC 595.  As a result, for the purpose of the hearing before me, he does not dispute that service is regular; therefore, the judgment entered was a regular judgment.

18.  In the end, both the appeal and the summons are dismissed.

The Interim Stay Application

19.  There is yet another summons taken out by the defendant on 25 October 2007 for an interim stay of execution of the default judgment pending the outcome of the appeal and the summons referred to in para. 1(2) above.  Because both have now been dismissed, the interim stay application should also be dismissed.

Note

20.  The summons referred to in para. 1(3) above has not been expressly mentioned at the time of the extemporary judgment.  But it was in fact already considered and dealt with at the time (see para. 11 to 15 above).