MOK HUNG FAI v. KU MING YAN

HCA 1912/2017

[2019] HKCFI 134

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1912 OF 2017

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JUDGMENT

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Background

1.  The plaintiff claims against the defendant for repayment of a loan of RMB 1.5 million pursuant to an agreement evidenced in writing made on 19 August 2011.

2.  This is an appeal from the decision of Master K W Wong on 21 May 2018 dismissing the plaintiff’s application for summary judgment.  

3.  It is not disputed that:

(1)  The plaintiff used to engage in real estate development and property investment and the defendant has been engaged in selling agricultural food and products in Hong Kong.

(2)  The plaintiff and the defendant were introduced to each other through an official of the Department of Agriculture of the Guangdong provincial government.

(3)  The sum of the RMB 1.5 million was remitted from the bank account of the plaintiff’s son with China Construction Bank to the defendant’s bank account with the same bank on 19 August 2011.

4.  Thereafter the positions on the facts depart.

The defendant’s case

5.  It is the defendant’s case that the plaintiff and the defendant were introduced to each other around the end of 2010 together with a Mr Law who was a friend of the defendant and the three of them started to have discussions about starting a retail business selling groceries imported from China.  The defendant estimated that start-up capital of at least HK$4.5 million would be necessary and subsequently acompany was incorporated on 6 July 2011.  Since it was anticipated that each of the investors would contribute HK$1.5 million, and the plaintiff did not have a HKD account, the defendant asked the plaintiff instead to pay RMB 1.5 million.

6.  On 19 August the defendant visited the plaintiff in Guangzhou and the plaintiff agreed to invest RMB 1.5 million into the company, but since the company did not have a RMB bank account, and there were exchange control restrictions on the remittance of RMB out of China, it was agreed that the sum would be transferred to the defendant’s personal RMB account instead.

7.  It is the defendant’s case that this was the plaintiff’s investment into the company’s business which they had previously discussed. The plaintiff wanted a written record to signify this arrangement and the defendant was happy to agree this since he wanted him to feel confident about their business partnership.

8.  Accordingly, the plaintiff took the defendant to a print shop to have a written record prepared and a loan agreement template was used for this purpose.  The defendant’s case is that staff at the print shop filled in the template by typing in the personal details of the parties, the amount involved and the bank account details of the defendant and the original template, which was a loan document, had a term of three months stated on its face.

9.  It was this document which was signed by the defendant and a copy given to the plaintiff.  Subsequently the plaintiff told the defendant that he would transmit the sum of RMB 1.5 million from his son’s bank account at CCB and the defendant opened a bank account at the same bank for the purpose of receiving the funds.  He then corrected the details of the transmitting bank and bank account on the Chinese note by hand.

10.  The sum in question was then remitted to the defendant’s CCB account on 19 August 2011.  The defendant says that with that sum of money the business of the company started running; shops were rented and decorated and stocks were purchased.

11.  Subsequently—indeed just over three months later-on 22 November 2011, the plaintiff, the defendant and Mr Law signed a shareholders’ agreement (“the Shareholders’ Agreement”), which was in the Chinese language and which confirmed that each of the three of the investors would inject HK$1.5 million into the company and become a shareholder.  The Shareholders’ Agreement provided that the plaintiff would pay HK$3 million into the company and the defendant HK$1.5 million on or before 30 November 2011, the larger sum from the plaintiff being on account of the fact that Mr Law was not able to afford to invest to the same extent and the plaintiff agreed to pick up the slack so to speak.  

12.  The defendant says that the Shareholders’ Agreement did not fully reflect the arrangement between the parties and that the defendant’s contribution of his share was by way of purchasing and providing stocks and products of equivalent value to the company. In fact the plaintiff never injected any further funds into the company to make up for Mr Law’s share so that when the sum of RMB 1.5 million was eventually used up around 2013, the defendant ended up supporting the business on his own.

13.  Mr Law himself was a solicitor and he was entrusted with the task of handling all the corporate filings and the defendant thought that everything was in order so far as the plaintiff was concerned since the plaintiff was actively involved in the business and would come to Hong Kong to attend meetings and visit the shops and offices regularly.  He says he only realized that there had been no allotment of shares to the plaintiff after the commencement of this action.  Furthermore, he says that it was only after he told the plaintiff about the need to close down the shops and the business that the plaintiff first mentioned that the RMB 1.5 million he had invested was in fact a loan.

The plaintiff’s case

14.  The plaintiff’s case is that the RMB 1.5 million was a straightforward loan as confirmed by the terms of the loan note.  The plaintiff’s account of the circumstances surrounding the signature of the loan note is very different.  It is his case that on 19 August 2011, the defendant brought the loan note with him already prepared and pre-signed by the defendant.  The plaintiff says that the court should take cognizance of the fact that the defendant’s account is materially different in his second affirmation from that set out in his first affirmation and this raises valid questions as to how the defendant could, in an affirmation, have got the facts so wrong first time round.

15.  Moreover the plaintiff says the defendant in his first affirmation states that the plaintiff requested that the RMB 1.5 million be treated as a personal loan and that the defendant agreed to this, which, says the plaintiff, is really an admission as to the true state of affairs at the time, particularly given the fact that the loan amount was transmitted to the defendant’s personal account and not the Company’s account.

16.  However, having said that the loan note should be taken at face value, it is the plaintiff’s case that the alleged loan was for a term of one month whereas the term under the loan note is three months.  Similarly it is the plaintiff’s case that there is an agreement to charge interest which again is not reflected in the loan note.

17.  What appears to be clear is that there was an urgent need for funds at the time since the defendant visited Guangzhou to see the plaintiff, they made the agreement they did (whatever its terms may be), sought to document the arrangement between them in some way and the defendant opened a bank account to receive the money from the plaintiff all on the same day.

18.  The plaintiff accepts being party to the Shareholders’ Agreement dated 22 November 2011 but says that his agreement to invest in the company was made sometime after the loan had been made to the defendant, albeit I note here that this is just a little over three months after the loan note was signed, such that if the plaintiff’s case is that the sum was due and repayable by the defendant after one month or even after three months, it is on the face of it surprising that he was prepared to enter into a further agreement with the defendant.  It is also strange that the plaintiff appears to have overlooked the terms of the Shareholders’ Agreement requiring him to contribute HK$3 million which suggests that the parties did not place great store on the terms of their written documents and at least arguably that they were not a complete record of the arrangements concluded between them.

19.  On the other hand the plaintiff submits that the defendant’s case that the RMB 1.5 million loan represented the equivalent of HK$1.5 million for the purposes of the Shareholders’ Agreement is difficult to accept at face value given the exchange rate difference which was 22% at the material time would have been material for any business person.

20.  Further the plaintiff says that if the RMB1.5 million was an integral part of the plaintiff’s investment, then he asks rhetorically why that was not referred to in the Shareholders’ Agreement.  He also takes the point that the Shareholders’ Agreement followed an allotment of shares that had taken place on 12 September 2011 and that at that time shares were only allotted to the defendant and Mr Law.

21.  Numerous detailed factual discrepancies are deposed to by the plaintiff, all of which are designed to demonstrate that the defendant has changed its story and that its defence is disingenuous and really a sham. Significantly he says the Shareholders’ Agreement was never executed, and the failure to allot shares to the plaintiff was not an oversight, as the defendant contends, but rather a reflection of the fact that the RMB 1.5 million was intended to be a loan and never intended to be an investment in the company.

The law

22.  The principles on which the court may grant summary judgment to the plaintiff are too well known to need to be stated in detail. The principles are derived from Order 14 of the Rules of the High Court and in summary the court may grant summary judgment to the plaintiff unless the defendant satisfies the court that:

(1)  there is an issue or question in dispute which ought to be tried; or

(2)  there ought for some other reason to be a trial of the claim.  (Order 14, rule 3)

23.  The plaintiff referred me in particular to the statement of Jessel MR in Anglo-Italian Bank v Wells (1878) 38 LT 197 at 201: “When the judge is satisfied not only that there is no defence but no fairly arguable point to be argued on behalf of the defendant, it is his duty to give judgment for the plaintiff.”

24.  The plaintiff’s case is that there is no issue to be tried or alternatively that what the defendant says in his affirmations is not credible and there is no fair or reasonable probability of his having a real or bona fide defence.

25.  Against that the defendant draws the court’s attention in particular to Hong Kong Civil Procedure §14/4/9 and the following statement:

“ Order 14 is for clear cases; that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise …. The procedure is entirely inappropriate where the plaintiff’s entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. …”: Crown House Engineering v Amec Projects Ltd (1990) 6 Const LJ 141 at 154, per Bingham LJ.

26.  Ms Kwok refers me to the statement of Godfrey JA (as he then was) in Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 at 158E–G where he had this to say:

“ … 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.”

27.  On this basis it is the defendant’s case that leave to defend should be given because there is a genuine factual dispute.  The defendant maintains that there are serious triable issues including whether the loan note reflects the true nature of the transaction and whether the Shareholders’ Agreement is related to the sum of the RMB 1.5 million provided by the plaintiff.

The Court’s decision

28.  I am unable to conclude that there is no fairly arguable point to be argued on behalf of the defendant notwithstanding the unsatisfactory nature of the evidence to date in terms of the defendant’s story changing and there being no evidence before the court from Mr Law who is the third alleged investor.

29.  The defendant’s case is believable even if I entertain doubts on the present state of the evidence as to whether it will actually be believed at trial.  The testimony of both parties is best tested by the forensic cross examination and further discovery a trial will bring and is an exercise inappropriate at the summary judgment stage.  The facts alleged are not straightforward; indeed there are nearly 30 pages of evidence before the court and whilst quantity alone hardly suffices to justify the refusal of an application for summary judgment the fact that the vast majority of the evidence relates to factual points being taken with the other side’s affirmations and that both parties skeletons are each so extensive and focused almost exclusively on disputed facts reinforces my conclusion that it would be inappropriate to shut the defendant out at the summary judgment stage.

30.  I note too that the plaintiff is seeking summary judgment in respect of a document executed in August 2011 without any explanation for the delay in pursuing this matter in the interim.  During part of this time, namely from 22 November 2011 to 5 June 2013 the plaintiff was a director of China Prestige Food (HK) Ltd, the company in which the investments were allegedly made.

31.  Accordingly, I dismiss the plaintiff’s summons and make a costs order nisi that the plaintiff should pay the defendant’s costs.