BECTIC FINANCE CO LTD v. CALGO ASIA LTD AND OTHERS

CACV 384/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 384 OF 2005

(ON APPEAL FROM HCA NO. 2333 OF 2004)

___________________________________

___________________________________

Date of Hearing: 1 March 2006

Date of Judgment: 1 March 2006

Date of Reasons for Judgment: 6 March 2006

___________________________________

REASONS  FOR  JUDGMENT

___________________________________

Hon Tang JA (giving the reasons for judgment of the Court):

1.  The appellant is a licensed money lender and sues the 1^st defendant as borrower and the 2^nd and 3^rd defendants as guarantors, in respect of a loan of $1 million payable on 8 July 2004.  The loan is the 13^th in a series of loans.

2.  The appellant’s application for summary judgment was successful before Master Au Yeung who in a carefully prepared judgment said:

“34.   In summary, I find the Defendants’ case so lacking in documentary evidence, self-contradictory, and inherently improbable that it is incapable of belief.”

3.  In relation to the counterclaim, she said it is:

“… based on facts which I find incapable of belief.  There is no chance of success on it.” (para. 36)

4.  On appeal, Deputy Judge Muttrie granted the defendants unconditional leave to defend, although he shared the scepticism of the master over the defence and said that it provoked in him “a strong reaction of disbelief”.

5.  However he concluded as follows:

“35. I tend to agree with the learned master’s view of the defence and potential counterclaim which the 2^nd defendant has put forward.  I would certainly regard it as “not to be believed”.  At the same time, I do not see that the whole story of the collateral agreements can be dismissed.  There appears to be a background to this whole case which has not been fully and properly explained.  It seems to me that there are circumstances which require to be closely investigated and for this reason there ought to be a trial; see Miles v. Bull [1969] 1 QB 258.”

6.  The matters which influenced the judge have been identified by Ms Elaine Liu, counsel for the appellant as follows:

1)  The 3 mortgages;
2)  No explanation regarding the earlier 7 loans;
3)  Share allotments.

7.  Of the three, the 1^st and 3^rd are the more important.

8.  The 3 mortgages were 3 properties which were provided by persons related to Mr Pang, a director of the plaintiff, for use as security in respect of banking facilities granted by the Dah Sing Bank in favour of the 1^st defendant.

9.  As the facility letter of the 14 April 2003 shows, the 3 properties were mortgaged to secure a total of $4.8 million of general banking facilities.

10.  The only explanation provided by the plaintiff in relation to these mortgages was that, they were independent and totally separate and distinct from the plaintiff’s claim.

11.  As for the share allotments, they concerned the allotment of $10 million shares with a nominal value of $10 million, to the plaintiff.  However, these shares were on about 6 July 2004, transferred by the plaintiff to an associate company of the 1^st defendant.

12.  The plaintiff has not explained the allotment nor the subsequent transfer, apart from saying that they were unrelated to the loan.

13.  The other point relating to the 7 loans, did not figure prominently in the judge’s reason.

14.  This is what the judge said about these matters:

“32. However, there are various questions left unanswered. In the first place there is the share allotment.  There is no doubt that the shares were allotted to the plaintiff and later transferred to Calgo Development Ltd.  It is not normal for a borrower to allot shares to a money lender, unless perhaps there is some sort of security arrangement.  However, Mr Pang in his affirmation, though he says why the suggestion was made in the first place, and that he rejected it, does not say why or when his objections were overcome and why the plaintiff accepted the allotment.  What we see instead is legal argument about when the plaintiff would be obliged to pay for the allotment.  That is of no use.  It is not for a layman to set out his lawyer’s arguments in evidence.  He should address the facts.  On this matter, Mr Pang does not.

33. Then there is the fact that, although the 2^nd defendant gives lengthy and detailed evidence about what the plaintiff calls the “earlier loans” up to no. 2113, there is nothing from the plaintiff to explain this and indeed no figures given for these loans.  I do not see that all this can be disregarded.

34. Finally there is the rather strange situation where the plaintiff’s own witness apparently mortgaged property as security for the 1^st defendant’s bank loans.  This is also unexplained.”

15.  We are concerned with the judge’s exercise of discretion.  On the material before us, we see no basis on which we can interfere with the judge’s exercise of discretion.

16.  The judge has not seen fit to impose conditions.  We do not believe we should do so.

17.  For the above reasons, the appeal was dismissed with costs.