YUEN KAM LOK EDDY v. LAU GEORGE

DCCJ 5821/2018

[2019] HKDC 1109

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.5821 OF 2018

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DECISION

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1.  The application for summary judgment before me arose from non-payment of hiring charges due on a hire purchase agreement (the HP Agreement) to a bank (the Bank)from a joint venture company (the JV Co) beneficially owned equally by the plaintiff and the defendant. In order to secure the JV Co’s obligations under the HP Agreement, the plaintiff and the defendant have executed a guarantee in favour of the Bank (the Guarantee).

2.  Pursuant to the Guarantee, the Bank demanded the plaintiff to pay the hiring charges due from the JV Co. The plaintiff in turn demanded the defendant to share 50% of them pursuant to a deed of undertakings and indemnities (the Deed) executed by him for the purpose of the joint venture. The defendant refused. The plaintiff paid the Bank and now seeks, pursuant to the Deed, to recover from the defendant 50% of his payment to the Bank.

Two purported defence or triable issues

3.  Ms Jasmine Cheung of counsel (Ms Cheung) appearing for the defendant ran only 2 lines of defence to plaintiff’s claim before me.

(1)  It was argued that express condition precedent to defendant’s obligation to indemnify the plaintiff under the Deed has not been fulfilled, such that defendant’s payment obligation does not and cannot arise.

(2)  It was further or alternatively argued that the plaintiff has acted unreasonably in failing to mitigatehis loss and/or insisting on defendant’s continued performance of the Deed.

It is submitted that plaintiff’s application should be dismissed or that defendant should be given unconditional, or conditional, leave to defend plaintiff’s claim.

The background facts

4.  On the affirmations before me, the following facts are either common ground or admitted by the defendant.

The joint venture

5.  The plaintiffis an experienced businessman. The defendant is a registered medical doctor. In 2013, they set up a 50/50 joint-venture by way of the JV Co to run a business of, at least, a medical diagnosis center (the Business) at Unit 8A, Entertainment Building, Central, (the Premises). Each of them was and is a director of, and 50% beneficial owner of the issued share capital of, the JV Co.

The Deed

6.  On 19 June 2013, the Deed was executed by the defendant as Party A, the plaintiff as Party B and another company owned by the plaintiff as Party C.

(1)  By its recital (A), it was recorded that the plaintiff and the defendant are “going to set up a 50/50 joint-venture via [the JV Co] which shall be carrying on the business of a medical laboratory and medical diagnosis center (the Joint Venture)”.

(2)  By its recital (C), it was further recorded that, “on setting up the Joint Venture, [the plaintiff] and Party C will be or may be required to put up initial funds and assume certain obligations and liabilities including making cash deposit for the medical and diagnosis equipment and the signing of tenancy agreements for the use by the Joint-Venture and/or for and on behalf of [the JV Co]”.

(3)  By its recital (D), it was declared by the defendant that he has a material interest in, among others, the JV Co and the Joint-Venture and he has agreed to execute the Deed in favour of the plaintiff and Party C upon its terms and conditions.

7.  Under clause 2 of the Deed (Clause 2), the plaintiff and the defendant agreed that the plaintiff “shall notify the defendant in writing and obtain the prior written approval and agreement” of him on:-

(a)  any single payment or obligations to be incurredby, among others,the plaintiffthat will exceed $500,000;

(b)  any payment or obligation to be incurred by, among others,the plaintiff in any calendar month that exceeds $1,000,000 of payments and obligations that have already been incurred by Party C for that calendar month; and

(c)  anycommunication between the parties concerning and under this clause shall be done in the manners provided by clause 10 (Clause 10).

8.  Under clause 3 of the Deed (Clause 3), in consideration of $1 paid by, among others, the plaintiff to the defendant and “subject to due observation of the obligations under Clause 2”, the defendant “unconditionally and irrevocably undertakes” with, among others, the plaintiff that he “shall upon written demand of [the plaintiff]”, perform the following matters: -

(a)  “to be responsible for and reimburse [the plaintiff] 50% of all sums either in cash or in money’s worth that have been paid, discharged or advanced by [the plaintiff] for and on behalf of [the JV Co] for the purpose of setting up the Joint-Venture” (Clause 3(a));

(b)  “to discharge, make good, secure for or settle 50% of all obligations, liabilities and duties assumed or incurred by [the plaintiff] for and on behalf of [the JV Co] for purpose of setting up the Joint-Venture including but not limited to the provision of any guarantee by [the plaintiff] to any third parties for and on behalf of [the JV Co] to secure the obligations of [the JV Co] for the purpose of setting up the Joint-Venture” (Clause 3(c)).

9.  By Clause 10, any notice required or permitted shall be given in writing and shall be given either personally or by sending it by courier service, fax, electronic mail or similar means to addresses specified in the Deed or such other address as such party may otherwise designate by advance written notice.

The Facility Letter

10.  By a letter dated 29 Nov 2013 addressed to the JV Co (the Facility Letter), the Bank offered to it banking facilities of “H/P for $17,820,000” solely for financing the acquisition of one set of Siemens medical examination equipment (the Equipment). The hiring charges are repayable by 60 monthly rental payments of $320,226 each and the JV Co is given an option to purchase the Equipment for $100 upon full repayment.

11.  The securities specified by the Bank in the Facility Letter include an all monies continuing guarantee in its favour given by the defendant and the plaintiff jointly and severally to secure all amounts payable by the JV Co as the hirer under a hire purchase agreement in such form approved by it.

12.  The JV Co had accepted the Facility Letter and its terms by its representative putting its company chop on it as the hirer. And the plaintiff and the defendant had also signed on the Facility Letter, agreeing to be bound by its terms as the guarantors.

The HP Agreement

13.  At about the same time, the JV Co executed the HP Agreement in the Bank’s form as hirer to take on hire the Equipment from the Bank as the owner on, inter alia, following conditions:

(1)  Under condition 9.1, if the JV Co becomes insolvent, or ceases to carry on its business, or if distress or execution shall be levied upon the Equipment, then the agreement shall automatically and without notice determine.

(2)  Under condition 10.1, upon its termination, the JV Co shall no longer be in possession of the Equipment with the Banks’ consent and it shall redeliver it to the Bank, provided that if the JV Co shall fail to redeliver the Bank “may” take possession of the Equipment and enter upon the premises in which it is situated and the JV Co shall upon such termination on demand pay the Bank the hire purchase price and all other sums of money payable less the aggregate of, among others, (ii) the net proceeds of sale of the Equipment “(if any) if repossessed and sold” or if it is not sold, its value as determined by a dealer or an independent valuer appointed by the Bank.

(3)  Under condition 10.2, if the net proceeds of sale of the Equipment repossessed and the amount paid by the JV Co pursuant to the agreement exceeds in the aggregate the amount of hire purchase price and other sums payable by the JV Co thereunder, the excess shall be repaid to the JV Co.

The Guarantee

14.  At about the same time, in consideration of the Bank agreeing to enter into the HP Agreement with the JV Co as the hirer as their request, the plaintiff and the defendant executed the Guarantee in favour of the Bank as guarantors with, inter alia, the following clauses:

(1)  Under clause 1, they “unconditionally and irrevocably guarantee/jointly and severally guarantee as and for their own debts and not merely as sureties” payment to the Bank on demand of all moneys, obligations and liabilities payable or incurred by the hirer under the HP Agreement and the due and punctual discharge performance of the hirer’s obligations thereunder.

(2)  Under clause 3, the Guarantee shall be a continuing guarantee extending to the ultimate balance from time to time owing to the Bank by the hirer under the HP Agreement.

15.  The JV Co later began to run the Business at the Premises with the Equipment on hire from the Bank.

Warrant of distress obtained by landlord

16.  However, since around mid-2018, the JV Co started making default on rental payments for the Premises. On 10 Oct 2018, a warrant of distress (the Warrant) was obtained by the landlord of the Premises against goods and chattels at the Premises in the apparent possession of the JV Co for, inter alia, 3 months’ outstanding rent in the sum of $457,083.

17.  In order to execute the Warrant, on 31 Oct 2018 and 2 Nov 2018, the bailiff of the District Court twice visited the Premises. After each visit, staff of the JV Co notified the said visits to the plaintiff, who in turn notified the defendant, on the same day.

18.  On 7 Nov 2018, the plaintiff and the defendant held a board meeting of the JV Co and it was resolved to close the Business forthwith due to insolvency of the company (the Resolution).

19.  On 9 Nov 2018, plaintiff’s solicitors wrote to the defendant referring to the Resolution and indicated that the plaintiff will, inter alia, give notices of close of business from 1 Dec 2018 to customers and landlord and will also request the Bank to terminate the HP Agreement and make all arrangements for its regaining possession of the Equipment pursuant to the HP Agreement soonest the possible. They also reserved plaintiff’s rights against the defendant under the Deed.

20.  On 14 Nov 2018, the plaintiff wrote on behalf of the JV Co to notify the Bank about the closure of the Business on 1 Dec 2018 due to its insolvency. The Bank was requested to terminate the HP Agreement and to regain possession of the Equipment at the Premises in accordance with the HP Agreement soonest possible (the 14 Nov Letter).

21.  On 23 Nov 2018, defendant’s former solicitors replied to plaintiff’s solicitors agreeing to plaintiff’s steps to close the Business proposed in letter dated 9 Nov 2018.

Seizure & sale of the Equipment

22.  On the same day of 23 Nov 2018, the bailiff of the District Court executed the Warrant at the Premises, seizing, among other goods, the Equipment (the Seizure). Staff of the JV Co notified the Seizure to the plaintiff and the defendant on the same day.

23.  The plaintiff on the same day emailed the Bank (P’s Email to the Bank) enclosing documents given by the bailiff, including notice of auction sale of the seized goods scheduled on 3 Dec 2018 (the Auction Notice), advising the Bank to lodge its claim for the Equipment under the HP Agreement.

24.  But the Bank did not do so.

25.  On 3 Dec 2018, the seized goods including the Equipment were sold by public auction for $234,654 (the Auction Sale).

The Bank’s demand on the Guarantee

26.  The Bank instead made demands on the plaintiff and the defendant under the Guarantee, as the JV Co started making default in hiring charges due under the HP Agreement since Aug 2018 (when, the defendant agreed, there were only 4 to 5 instalments to go as the HP Agreement was due to end in Dec 2018).

27.  On 30 Nov 2018, the Bank’s solicitors issued letter to the JV   Co demanding $1,970,902.41 being outstanding loan principal, interest and late charge calculated up to 27 Nov 2018 under the HP Agreement. On the same day, the Bank’s solicitors also issued letter to the plaintiff demanding the same sum from him as one of the guarantors under the Guarantee (the 2 Bank Demand Letters). In the 2 Bank Demand Letters, legal action was threatened against the JV Co and the plaintiff if payment was not forthcoming from them.

28.  On the same day, the Bank’s solicitors also issued similar demand letter on the defendant as one of the guarantors.

Plaintiff’s demand to defendant on the Deed

29.  Three days after the Auction Sale, on 6 Dec 2018, plaintiff’s solicitors wrote to defendant’s former solicitors enclosing, inter alia, the 2 Bank Demand Letters. They said that the plaintiff “would never allow his good reputation and creditworthiness being tarnished in case of enforcement of the Guarantee by [the Bank]” and, if the Bank chooses to enforce the Guarantee against him, the plaintiff “may consider to discharge all obligations under [the Guarantee] in its entirety and proceed with enforcement of clause 3 of [the Deed] against the defendant for an 50% indemnity (italics supplied)”. They invited the defendant to make ready a cashier order drawn in favour of the Bank for discharging his 50% liabilities (1/2 share of the said sum of $1,970,902.41 plus further interest, late charges and costs) by 17 Dec 2018.

30.  On 12 Dec 2018, defendant’s former solicitors replied plaintiff’s solicitors confirming receipt of the 2 Bank Demand Letters and advised that the defendant was interested to purchase the Equipment under the HP Agreement by putting up $2,000,000 to settle the outstanding loan principal, interest and late charges in sum of $1,970,902.41 and also costs and disbursements demanded in the sum of $10,000.

31.  On 13 Dec 2018, plaintiff’s solicitors wrote to defendant’s former solicitors pointing out, inter alia, that the Auction Sale had occurred on 3 Dec 2018 and that the defendant ought to have made his offer to purchase the Equipment direct to the Bank much earlier. They demanded again cashier order/solicitors’ cheque in sum of $1,007,128.72 in favour of the Bank be made available by defendant by 17 Dec 2018 or else the plaintiff would pay the Bank the sum of $2,014,257.44^[1] and sue defendant for breach of the Deed.

32.  On the next day i.e. 14 Dec 2018, defendant’s former solicitors wrote 2 letters to plaintiff’s solicitors (the 14 Dec Letter & the 14 Dec 2^nd Letter). In the 14 Dec Letter, they said the plaintiff had failed to inform the defendant of the Auction Sale beforehand and reserved defendant’s rights to being action against the plaintiff.

33.  Plaintiff’s solicitors replied on the same day to the 14 Dec Letter with enclosures, disagreed with the allegations raised therein and made clear to defendant’s former solicitors that they have standing instructions to commence proceedings against the defendant should he decline to assume his liability under the Guarantee.

34.  Defendant’s former solicitors later on the same day issued the 14 Dec 2^nd Letter putting on record that the plaintiff had not provided the defendant with the Auction Notice earlier. The plaintiff, they wrote, should be solely responsible for settling the outstanding liabilities owed to the Bank under the HP Agreement and the Guarantee, and the defendant would not reimburse or indemnify him for such payments, as the plaintiff had been in breach of his duties towards the defendant, the JV Co and its shareholders.

35.  Also, on the same day, the Bank’s solicitors wrote to defendant’s former solicitors giving defendant final notice of the Bank’s demand for $2,014,257.44 ($1,999,257.44 being outstanding sum under the hire purchase facility extended to the JV Co as of 17 Dec 2018 plus $15,000 legal costs) by 17 Dec 2018 or else proceedings would be issued against him for its recovery.

36.  Two days later, on 16 Dec 2018, defendant’s former solicitor wrote to the Bank’s solicitors (the 16 Dec Letter) and copied it to plaintiff’s solicitors by fax at 1744 hours, pointing out that the Bank took no steps to regain possession of the Equipment despite having notice of the Seizure. Had the Bank enforced its rights as owner of the Equipment and make reasonable efforts to mitigate its loss, the Equipment, they wrote, would not have fallen to a purported distressed sale, but would have been sold by the Bank at a price no less than the outstanding guaranteed liability or at such price which significantly lessen his liability as the guarantor.

Plaintiff paid the Bank as demanded

37.  Despite having been served with the 16 Dec Letter the day before, the plaintiff’s solicitor sent by way of letter at 1507 hours on 17 Dec 2018 to the Bank’s solicitors[2] their cheque of $2,014,257.44 drawn in favour of the Bank for discharging plaintiff’s liability under the Guarantee.

38.  With no delay, the plaintiff issued his writ on 19 Dec 2018 specially indorsed with a statement of claim (SOC), seeking to recover from the defendant the sum of $1,007,128.72 i.e. 50% of the said sum of $2,014,257.44 he paid the Bank 2 days ago.

Discussions

Applicable principles

39.  The applicable principles are trite and I refer to the commentary of Hong Kong Civil Procedure 2019, Volume 1, para 14/1/5 and para 14/4/1 to 14/4/12.

1^st purported defence or triable issue

40.  Ms Cheung relied on the words “subject to the due observation of the obligations under Clause 2” found at the beginning of Clause 3. Hence, she submitted, defendant’s obligations under Clauses 3(a) and 3(c) are both subject to condition precedent of plaintiff’s having observed his obligations under Clause 2.

41.  Ms Cheung emphasized that the sum of $2,014,257.44 that the plaintiff paid the Bank on 17 Dec 2018 exceeded the 2 thresholds of $500,000 and of $1,000,000 per calendar month in Clauses 2. Thus, the plaintiff was, she argued, obliged by Clause 2 to have notified defendant in writing and obtained his prior written approval in line with Clause 10 to his payment to the Bank before defendant’s obligations under Clause 3(a) and Clause 3(c) could arise.

42.  To the contrary, the defendant had refused to give such prior written approvalto the said payment made by plaintiff in Dec 2018. For such refusal of the defendant, Ms Cheung referred to para 13 of SOC. One can also refer to para 4 to 6 of defendant’s 2^nd affirmation and the 14 Dec 2^nd Letter. 

43.  Hence, defendant’s obligations under Clause 3, she argued, have not arisen.

44.  Mr Issac Chan of counsel (Mr Chan) appearing for the plaintiff did not contend before me that, by way of construction of the Deed, defendant’s obligations under both Clause 3(a) and Clause 3(c) are not subject to condition precedent of plaintiff having observed his obligations under Clause 2. Neither did he argue before me that the 2 thresholds in Clause 2 had not been exceeded in this case. Neither did he deny that the defendant had, on the evidence before me, refused in Dec 2018 to share 50% of the sum of $2,014,257.44 that the plaintiff paid the Bank on 17 Dec 2018.

45.  Hence, for present purpose, I shall proceed on these 3 points in defendant’s favour as Ms Cheung has submitted.

46.  However, Mr Chan pointed to the wordings of Clause 2 and Clause 3(c), which extended to cover not only “payment” made by the plaintiff, but also “obligations” “to be incurred” or “assumed or incurred” by the plaintiff, and also specific reference in Clause 3(c) to provision of guarantee by the plaintiff to any third parties to secure the obligations of the JV Co for the purpose of setting up the Joint Venture.

47.  Mr Chan submitted that, on the proper construction of the Deed, it suffices under Clause 3(c) for the plaintiff to have observed his obligations under Clause 2 before he incurred his “obligations” under the Guarantee in Nov 2013 and that there was no need of further or another observance in Dec 2018 when the plaintiff paid out pursuant to such “obligations” already “assumed” and “incurred”. The wordings of Clause 3(c) are, he submitted, apt to cover scenario of payment made pursuant to obligations already assumed or incurred by plaintiff.

48.  Ms Cheung recognized that Clause 3(a) is more apt to cover defendant’s reimbursement of 50% payment made by the plaintiff after the event while Clause 3(c) seems to require defendant to share 50% of such payment to be made by the plaintiff under obligations he had already assumed or incurred.

49.  But Ms Cheung disagreed with Mr Chan’s construction of the Deed at para 47. She submitted that it is arguable that, even for obligations incurred by plaintiff having obtained defendant’s written approval, the plaintiff is still required by Clause 2 to notify the defendant in writing and obtain defendant’s prior written approval again before defendant’s obligations under Clause 3(c) to share 50% of such plaintiff’s payment made pursuant to such obligations to arise.

50.  She submitted that Mr Chan’s construction of the Deed at para 47 is unreasonable and contrary to business common sense. She argued that the fact that the defendant had consented to an obligation being entered into by the plaintiff does not necessarily mean that he would or should consent to plaintiff’s payments made in purported compliance with those obligations.

51.  For the 2^nd defence she ran and to be discussed below, the defendant had, she further argued, also legitimate grounds to refuse to consent to plaintiff’s payment of the sum demanded by the Bank purportedly under the Guarantee as there was, she argued, good or arguable defence to the Bank’s claim.

52.  She also argued that it would not be fair to force the   defendant to reimburse the plaintiff for substantial payment that he had not consented, bearing in mind that the whole commercial purpose of providing for Clause 2 in the Deed was to ensure that the defendant had a say before substantial payments and/or obligations were incurred by the plaintiff, for which the defendant would then have to reimburse.

53.  She further submitted that the defendant had also denied given prior written consent in line with Clause 10 to plaintiff’s entry to (or incurring obligations under) the Guarantee in Nov 2013. Thus, Clause 2 had also not been observed by the plaintiff in incurring his obligations under the Guarantee in the first place.

54.  Mr Chan countered to submit that the plaintiff had already obtained defendant’s prior written consent in line with Clause 10 to have entered (or to have incurred obligations under) the Guarantee in Nov 2013, as the defendant had signed on the Facility Letter as one of the 2 guarantors and agreed to provide the Guarantee as security. Thus, Clause 2 had been observed by plaintiff in incurring his obligations under the Guarantee in the first place.

55.  Mr Chan further submitted that the defendant had nowhere in his affirmations denied giving prior written consent to plaintiff’s entry to the Guarantee in Nov 2013. Neither had defendant’s former solicitors so denied in correspondences put before me on affirmations. Hence, Ms Cheung has, he argued, no evidential foundation or basis to run her submissions at para 53.

56.  Ms Cheung replied by submitting that defendant’s signature on the Facility Letter did not comply with Clause 10.

57.  And she submitted that it is not necessary for the defendant to raise such denial on evidence in order for her to run her submissions at para 53.

58.  I accept Mr Chan’s submissions at para 55 and reject Ms Cheung’s submissions at para 57 for the reasons below.

(1)     The machinery of O.14 works on the basis that, if the plaintiff’s application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary. The defendant normally shows cause on the merits by affidavit, which must condescend upon particulars and state clearly and concisely what facts are relied upon to support the alleged defence: Hong Kong Civil Procedure 2019, supra, para 14/4/1 to 14/4/4.

(2)     Under O.18, r.7(4), Rules of District Court, due performance of any condition precedent is implied in pleadings. Hence, plaintiff’s application is properly constituted in this case (and Ms Cheung has not contended otherwise) and the burden is on the defendant to show cause on the merits by affidavit that there is triable issue of facts that condition precedent in Clause 2 had not been observed with respect to defendant’s obligations at Clause 3(c).

59.  Flowing from my conclusion at para 58, I do not find it necessary to rule on whether or not the plaintiff had observed his obligations under Clause 2 in line with Clause 10 by reference to defendant’s signature on the Facility Letter as one of the 2 guarantors.

60.  As for Ms Cheung’s construction of the Deed at para 49, I find it unarguable at all.

(1)  I do bear in mind that the Deed was drafted by plaintiff’s solicitors[3] as noted by Ms Cheung and I also have regard to the contra proferentum rule she reminded me of.

(2)  But one must give effect to the clear and unambiguous wordings of the Deed referred to in para 46 and 48.

(3)  One must also consider the Deed as a whole in its proper context of the plaintiff and the defendant setting up a 50/50 joint venture via the JV Co.

(4)  As its recital indicates, not only certain “sums” were envisaged to be paid out by the plaintiff on the setting up of the joint venture, but certain “obligations” were also envisaged to be incurred by the plaintiff. Such “obligations” plainly entail possible or even recurrent “payments” to be made by plaintiff in the future.

(5)  After the defendant is notified by plaintiff in writing, and his written approval obtained for plaintiff to incur such “obligations” in the first place, one imagines the defendant would already have the chance to consider and have considered, inter alia, the possibility of such future “payments”, and their amounts, to be made pursuant to such “obligations”.

(6)  As such, I consider it nothing unfair or unreasonable for the plaintiff to require the defendant to discharge his obligations at Clause 3(c) to settle 50% of such payments made by the plaintiff thereunder without requiring again the same process of notifying the defendant and obtaining his approval in writing to such payment.

(7)  In the event of frequent and recurrent future payments required by obligations so consented to and assumed (if the 2 thresholds in Clause 2 are exceeded), such repeated or repetitive processes above argued by Ms Cheung could be wasteful of time and costs and is, in my view, contrary to business common sense and the purpose of the Deed, which, I agree with Mr Chan, was to require the plaintiff and the defendant to share the financial exposure in setting up the joint venture via the JV Co equally among themselves.

(8)  It should also be noted that, by the opening words of Clause 3, subject to plaintiff’s observance of his obligations under Clause 2, the defendant “unconditionally and irrevocably” undertook with the plaintiff that he “shall” perform his obligations under Clause 3(c) “upon written demand” of the plaintiff.

(9)  Considering the above wordings, Clause 3 does not, I think, envisage or allow the defendant,after receiving plaintiff’s written demand, to have a second say, or having second thought, on payments made by the plaintiff pursuant to such obligations entered by him with defendant’s prior written consent.

61.  For the above reasons, I have no hesitation to agree with Mr Chan’s construction of the Deed at para 47.

62.  On such construction of the Deed I accept above, it is, I think, neither here nor there that the defendant had refused to give approval in Dec 2018to plaintiff’s payment to the Bank pursuant to the Guarantee he entered in Nov 2013.

63.  The defendant has therefore failed on the evidence before me to raise any triable issue by reference to this 1^st purported defence. This 1^st purported defence fails.

2^nd purported defence or triable issue

64.  Ms Cheung developed before me her 2^nd purported defence to plaintiff’s claim as follows.

65.  Prior to 17 Dec 2018, the defendant had, she observed, already indicated unequivocally through his former solicitors that he would not share plaintiff’s payment to the Bank.

66.  Knowing D’s stance, it was argued that P acted unreasonably in proceeding to pay the Bank as demanded.

67.  Indeed, the defendant had suggested in his affirmation that the plaintiff paid the Bank “out of his own motive” for his having other loans with the Bank and liable for call on them if he failed to pay the Bank as demanded.

68.  It is further argued by Ms Cheung that the Bank could have repossessed the Equipment to sell it and that, having failed to do so, the Bank had arguably failed to mitigate its loss under the HP Agreement, such that this arguably affords a complete or partial defence to the Bank’s demand for payment under the Guarantee given the substantial market value of the Equipment.

69.  Conditions 10.1 and 10.2 of the HP Agreement, it was argued, oblige or impose a duty on the Bank to repossess and sell the Equipment to mitigate its loss. Further or alternatively, Ms Cheung relied on the common law doctrine of mitigation to supply the same duty as it is arguable that the Bank’s claim under the HP Agreement sounds in damages and not in debt. She submitted that condition 10 is analogous to liquidated damages clause for which the common law doctrine of mitigation applies.

70.  And, according to the defendant on his affirmation, the Equipment constituted the most valuable asset of the JV Co and it had an estimated market value of about $8 million in Nov 2018 based on offers of about $10 million he received from various potential buyers for the JV Co. In any event, according to audited financial statements of the JV Co for the year ended 31 Mar 2017, the net book value of the Equipment in Nov 2018 should, he said, be $6,393,716.67.

71.  Ms Cheung in her oral submissions prayed in aid the 14 Nov Letter, whereby the Bank was advised of the closure of the Business from 1 Dec 2018 due to insolvency of the JV Co and asked to repossess the Equipment at the Premises as soon as possible.

72.  She also pointed to P’s Email to the Bank whereby the Bank was advised to lodge its claim for the Equipment under the HP Agreement after the Seizure.

73.  She further relied on the 16 Dec Letter copied to plaintiff’s solicitors the day before the plaintiff paid the Bank. Claims were then made by defendant’s former solicitors that the Bank had failed to mitigate by repossessing the Equipment such that it was sold at a distressed sale at the Auction Sale.

74.  Hence, it was argued that the factual basis of, and the complaint of, the Bank having failed to mitigate its loss was known, and made known, to the plaintiff before he paid the Bank such that he should have taken legal advice and joined with the defendant in instituting a claim against the Bank in the name of the JV Co and/or defending the Bank’s claim in the name of the JV Co.

75.  And, in light of the above, the plaintiff ought, she argued, not to have paid the Bank on 17 Dec 2018 or to have insisted on defendant’s continued performance of his obligations under the Deed.

76.  Ms Cheung pointed to SOC and suggested that it looked as if the plaintiff had framed his claim against the defendant as one for loss and damages for breach of the Deed. And clauses 4 and 5 of the Deed also refer to “loss and damages”. Hence, she submitted that the plaintiff was, like the Bank, equally under a duty to take reasonable steps to mitigate his loss and he cannot recover such loss of his that he could have reasonably avoided. It is arguable that the plaintiff had so failed in paying the Bank as he did.

77.  Ms Cheung emphasized that what was reasonable for a person to do by way of mitigation is a question of fact depending on the circumstances of each case.

78.  If, however, plaintiff’s claim under SOC is treated as one for an agreed sum or debt, Ms Cheung alternatively submitted that the   defendant could be treated to have repudiated on the Deed, and the plaintiff could have treated himself as discharged and claim for damages against the defendant. Nonetheless, the plaintiff chose to affirm the Deed and insisted on holding defendant to its terms. This is, however, not permissible where it can be shown that the plaintiff had no legitimate interest, financial or otherwise, in performing the contract rather than claiming damages.

79.  It is, she submitted, arguable that the plaintiff did not have any legitimate interest in paying the Bank as he did and keeping the Deed alive as between him and the defendant.

80.  On either analysis of para 76 or para 78, Ms Cheung submitted that it is arguable that plaintiff’s decision to pay the Bank or to hold the defendant to the Deed was unreasonable and that defendant should not be held liable for the whole or any part of plaintiff’s claim which was due to his own unreasonable acts. Alternatively, this is a matter that ought to go for trial.

81.  I do not agree with either analysis of Ms Cheung.

82.  I first agree with Mr Chan that the HP Agreement in the Bank’s form has never by its terms imposed any duty or obligation on the Bank to repossess the Equipment to sell it.

(1)  The heading of condition 10 reads: “HIRER’S LIABILITY ON TERMINATION” and not the Bank’s obligations on termination.

(2)  Its condition 10.1 merely provides that the Bank “may” (not “shall”) take possession of the Equipment should the JV Co fail to redeliver it to the Bank.

(3)  Its condition 10.1 merely provides for the net sale proceeds of the Equipment “(if any) if repossessed and sold (emphasis added)” to be taken into account.

(4)  Looking at its wordings, condition 10 is, I think, not a liquidated damages clause or an analogous clause as suggested by Ms Cheung.

83.  The provisions of the HP Agreement, I agree with Mr Chan, are consistent with the general law that a creditor could choose to enforce whichever remedies were open to him: he could sue the debtor, sell the mortgage security or sue the surety. All these remedies could be exercised simultaneously or contemporaneously or successively or not at all: HSBC Bank (China) Co Ltd v Yip Kim Po [2008] 4 HKLRD 583, para 16. As such, the Bank could sue the JV Co, repossess the Equipment and sell it, and/or sue the plaintiff and the defendant on the Guarantee as it sees fit to elect.

84.  And Mr Chan is, in my view, absolutely right to submit that the Bank’s claim against the JV Co under the HP Agreement (and in turn, for reasons explained below, against the plaintiff and the defendant on the Guarantee) in the circumstances of this case before me sounds in debt only and not in damages at all.

85.  As solicitors for the parties and for the Bank had seen fit to describe them in correspondences exchanged in Nov and Dec 2018, these “outstanding sums (emphasis added)” were in respect of outstanding hiring charges already due and legal costs and disbursements.

86.  Confirmation of that can, as Mr Chan had submitted, be found in letter dated 11 Dec 2018 from the Bank’s solicitors, who explained that the sum of $2,014,257.44 as at 17 Dec 2018 comprised of outstanding amount of $1,999,257.44 and $15,000 for legal costs and disbursements. Particulars of the said outstanding amount of $1,999,257.44 in Schedule 1 thereof show that they were the 55^th to 60^th   installments of overdue monthly hiring charges of $320,226 each (with the last overdue date being 30 Nov 2018), overdue interest and late charges.

87.  A debt is a definite sum of money fixed by the agreement of the parties as payable by one party to the other in return for the performance of a specified obligation by the other party or on the occurrence of some specified event or condition; whereas damages may be claimed from a party who has broken his primary contractual obligation in some way other than by failure to pay such a debt: Jervis v Harris [1996] Ch 195, 202G.

88.  The plaintiff who claims payment of a debt need not prove anything beyond the occurrence of the event or condition on the occurrence of which the debt became due. He need prove no loss; the rules as to remoteness of damage and mitigation of loss are irrelevant. It is not necessary that the amount of the debt should be ascertained at the date of the contract; it is sufficient if it is ascertainable when payment is due: Jervis v Harris, supra, 202H-203A.

89.  Under a hire-purchase agreement, a claim for arrears of instalments already due is a claim in debt quite distinct from a claim fordamages for breach of the contract as a whole: Chitty on Contracts, 33^rd Edition, Volume 1, para 26-009.

90.  Hence, in the circumstances of this case, I do not think the common law doctrine of mitigation applies to the Bank’s claim against the JV Co under the HP Agreement for installments of monthly hiring charges already due plus legal costs.

91.  Considering the wordings of clauses 1 and 3 of the Guarantee against the context of all its clauses, in the circumstances of this case, I further agree with Mr Chan that the plaintiff and the defendants are both liable to the Bank as principal debtors (and not merely as sureties) to pay on demand as their own debts to the Bank such installments of monthly hiring charges already due from the JV Co under the HP Agreement plus legal costs.

92.  Therefore, the Bank’s claim against the plaintiff under the Guarantee in this case, I think, also sounds in debt (and not in damages) with no obligation to mitigate. 

93.  Hence, irrespective whether it was reasonable or not for the Bank to repossess the Equipment to sell it and the amount of sale proceeds the Bank could have so fetched, the JV Co had, I think, no arguable defence to the Bank’s claim under the HP Agreement and the plaintiff, I agree with Mr Chan, had also no arguable defence to the Bank’s claim on the Guarantee.

94.  And, applying the legal principles in para 87 and 88 against the wordings of Clause 3 in the context of the Deed as a whole, defendant’s obligations that he undertook under Clause 3(c)[4], I think, also sounds in debt and not in damages. On the occurrence of the events and conditions provided for in the Deed, including plaintiff’s written demand, he shall be required to pay plaintiff a definite sum of money whose amount shall be ascertainable when payment is due i.e. 50% of such payment made pursuant to obligations plaintiff had assumed.

95.  As plaintiff’s solicitors had demanded the defendant to honor his obligations under Clause 3(c) as they did in Dec 2018 by demanding him to pay a fixed sum of money in cashier order or cheque drawn in favour of the Bank, the substance of the plaintiff’s claim pleaded in SOC, I also agree with Mr Chan, is one of debt, all the more when one finds in prayer (a) of SOC a claim against the defendant for the definite sum of $1,007,128.72 and not damages.

96.  There is, I think, no plea or allegation in SOC of “repudiation” of the Deed by the defendant, let alone plaintiff “treating himself as discharged” or “choosing to affirm the Deed” as Ms Cheung had suggested. Her submissions at para 78 and 79 are, with respects, misconceived.

97.  All in all, the plaintiff is, I think, under no duty to mitigate at common law in the circumstances of this case as submitted by Ms Cheung.

98.  In any event, for my conclusion at para 93, there was nothing unreasonable for the plaintiff to pay the Bank on demand and to hold the defendant to his obligations under the Deed.

99.  It is, I think, neither here nor there that the plaintiff might have other loans with the Bank or that he might have paid the Bank out of his own motive.

100.  It was, I think, most reasonable for the plaintiff to pay up (and not to institute a claim, or to defend, in the name of the JV Co) when he (and the JV Co) had no arguable defence to the Bank’s claim.

101.  And it was, I think, also most reasonable for the plaintiff to require the defendant to perform his obligations under Clause 3(c) as they have formed a 50/50 joint venture and that the plaintiff has entered into the Guarantee for the purpose of setting up the joint venture via the JV Co. The defendant is now required to perform exactly what he had undertaken himself in the Deed and no more.

102.  For the above reasons, this 2^nd purported defence also fails.

Conclusion

103.  I therefore conclude on the evidence before me that the defendant has raised no arguable defence to plaintiff’s claim on the Deed. He has not raised any triable issue and there is no other reason the matter should go to trial.

Disposition

104.  Accordingly, I allow plaintiff’s application and enter final judgment in plaintiff’s favour against the defendant in the sum of $1,007,128.72 together with interest thereon at HSBC best lending rate(s) from 17 Dec 2018 to the date of this judgment and thereafter at judgment rate until full payment.

Costs

105.  I also order the defendant to pay the plaintiff the costs of this action inclusive of all reserved costs and the costs of this application with certificate for counsel, to be taxed if not agreed.

106.  Finally, I thank Mr Chan and Ms Cheung for their submissions.