LIN JAN v. LONG XIAOBO

HCA 1516/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1516 OF 2012

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REASONS FOR DECISION

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Introduction

1.  It is trite that on an application for summary judgment, the considerations for the court are, first, whether the case comes within the ambit of Order 14 and then, whether the defendant can satisfy the court why judgment should not be given against him. 

2.  Under Order 14 rule 2 (1) RHC, an application for summary judgment must be supported by an affidavit verifying the facts on which the claim to which the application relates is based and stating that in the deponent’s belief there is no defence to that claim.  As stated in paragraph 14/2/5 Hong Kong Civil Procedure, any defects or omissions in the original affidavit may be cured or supplemented or supplied by an affidavit made subsequently and the court looks at the matter both on jurisdiction, and on merits, on the affidavits which have been filed, but no defect or omission in the statement of claim can be made good by affidavit evidence.

Factual Background

3.  In this case, the plaintiff’s claim against the defendant is for payment of a sum of $2 million, said to be the outstanding balance due under an agreement made between the parties in June 2011 (“Agreement”).  Under paragraph 7 of the Statement of Claim, the Agreement is claimed to have been made orally, during 2 meetings held on 14 June 2011 and in late June 2011, and is evidenced by a document in writing dated 4 July 2011 (“Memorandum”) signed by the defendant.

4.  The plaintiff was until 30 June 2011 an executive director of Global Green Tech Group Limited (“Company”), and the defendant was at all material times the majority shareholder and executive director of the Company.

5.  According to paragraph 6 of the Statement of Claim, the alleged Agreement is that in consideration of the plaintiff agreeing not to take further action against David Yip (“Yip”), the Chief Executive Officer of the Company, in respect of certain allegedly defamatory statements, not to seek re-election as a director of the Company, and to forgo his entitlement to the share options under his service agreement with the Company, the defendant personally agreed to:

(1) procure Yip to apologize to the plaintiff;

(2) procure Yip to discontinue HCA 946/2011 which had been instituted by Yip against the plaintiff (“HCA 946”);

(3) procure the Company to pay to the plaintiff costs of $100,000 incurred by the plaintiff in HCA 946;

(4) issue a public notice in the name of the Company to confirm the plaintiff’s contribution to the Company; and

(5) pay to the plaintiff $4 million by 2 installments of $2 million each, the first to be paid on or before 31 December 2011 and the other to be paid on or before 30 June 2012.

6.  Paragraph 8 of the Statement of Claim pleads that following the making of the Agreement, Yip caused HCA 946 to be discontinued, apologized to the plaintiff in writing, and the plaintiff’s solicitors received $100,000 from the Company as the agreed costs to be paid by the defendant.  The plaintiff further pleads that on 6 July 2011, the Company issued a public announcement pursuant to the Agreement, and further, that the 1^st installment of $2 million was paid to the plaintiff on 31 October 2011.

7.  The defendant filed a Defence on 27 December 2012.  The defendant avers that consensus had been reached by the plaintiff, the defendant and Yip prior to 22 June 2011, for:

(1) Yip to discontinue HCA 946;

(2) the plaintiff not to make any claim against Yip;

(3) the Company to pay the plaintiff’s legal costs; and

(4) the Company to issue a clarification announcement.

8.  The defendant claims that the plaintiff offered his resignation as executive director of the Company in about June 2011, but that such resignation was not part of any agreement made between the plaintiff and the defendant.  The defendant further avers that the Company did not have any share options scheme, and denies that the plaintiff had agreed not to seek his re-election as a director of the Company and to forgo his entitlement to share options, as part of the consideration for the Agreement, as alleged by the plaintiff.

9.  According to the defendant, the payment of $4 million related to a separate agreement made between the plaintiff and the defendant on 4 July 2011. The defendant alleges that prior to his resignation as director of the Company, the plaintiff had been involved in the Company’s project in Hubei, PRC (“Hubei Project”).  After his resignation as director, the plaintiff agreed to assist and to obtain or source funding of US$60 million for the Hubei Project. In turn, the defendant agreed to pay $4 million to the plaintiff as remuneration and disbursements for his services.  Pursuant to such agreement, the defendant paid $2 million to the plaintiff on about 31 October 2011, but since the plaintiff failed to obtain the funding as agreed, the defendant claims that he is not liable to the plaintiff for payment of the balance of $2 million claimed at all.

10.  After hearing the parties on 21 August 2013, I allowed the defendant’s appeal against the decision of the Master, to grant summary judgment against the defendant.  The following are the reasons for my decision.

11.  The defendant’s opposition to the application for summary judgment is on the basis that the plaintiff has failed to verify the facts on which his claim is made in the Statement of Claim.  It was argued on behalf of the defendants that there is such a variance between the plaintiff‘s pleaded case and the case he has put forward in the affirmations filed for the Order 14 application, that there are serious doubts as to the credibility of the plaintiff’s case, that the defendant has a credible defence, and that the defendant is entitled to a trial and to have his day in court.

The plaintiff’s pleaded claim on share options

12.  The plaintiff’s pleaded claim is that the defendant agreed in June 2011 to pay $4 million to the plaintiff, in consideration (inter alia) of the plaintiff agreeing “to forgo his entitlement to the share options under his service agreement”.  One of the matters raised in the Defence filed on 27 December 2012 is that the Company did not have any share option scheme during the period when the plaintiff was the executive director of the Company (paragraph 7 (c) of the Defence).

13.  When the plaintiff applied for summary judgment, he referred instead (in his 1^st affirmation filed in support on 20 February 2013) to the defendant agreeing in June 2011 “to transfer 1% of (the Company’s) issued shares” to him “as compensation for his leaving the Company prematurely”.  This is in stark contrast to the pleaded claim of forgoing entitlement to share options.  In his 1^st affirmation, the plaintiff also referred to the defendant having proposed on 4 July 2011 (the date of the Memorandum said to be evidencing the Agreement) to pay him $4 million in cash, instead of transferring the Company’s issued shares to him.  As Counsel for the defendant highlighted, these assertions made in the plaintiff’s 1^st affirmation constitute a deviation from the plaintiff’s case as pleaded in the Statement of Claim, that the Agreement was for him to forgo his entitlement to share options. 

14.  Also contrary to the plaintiff’s pleaded case is his service agreement with the Company, dated 7 September 2010 and exhibited to the plaintiff’s 1^st affirmation, which makes no mention of the plaintiff’s claimed entitlement to share options.  Clause 5.4 of such agreement only provides that the plaintiff may, at the discretion of the board, be granted share options under any share options scheme from time to time adopted by the company.

15.  In his 2^nd affirmation filed on 15 April 2013, the plaintiff sought to rely on a document (“exhibit LJ-17”) to support his claim of alleged entitlement to share options.  The source of exhibit LJ-17 is totally unexplained.  It does not have the Company’s letterhead, does not bear any party’s signature, but is relied upon by the plaintiff to support his assertion that it was “everybody’s intention and understanding that certain personnel of the Company would be granted a share option”, and that he was promised an option for over 52 million shares, amounting to 1% of the issued share capital of the Company. 

16.  The plaintiff’s reference to Yip’s service agreement cannot support his claim that the plaintiff himself is entitled to share options.  The terms in the 2 service agreements are different.  Yip’s agreement expressly provides for a right to be offered stock options at a rate of 1%, whereas the plaintiff’s does not.

The plaintiff’s pleaded claim on costs

17.  The plaintiff’s pleaded case in paragraph 6 of the Statement of Claim is that the defendant had in June 2011 agreed to procure Yip to apologize to the plaintiff, procure Yip to discontinue HCA 946, procure the Company to pay the plaintiff costs of $100,000 incurred by him in HCA 946, issue a public notice in the Company’s name to confirm the plaintiff’s contribution to the Company, and to pay $4 million to the plaintiff.  In his 1^st affirmation, however, the plaintiff referred to the sum of $4 million as representing the damage which Yip had caused to his reputation, the benefits that might have accrued to him in the years to come if he should continue to work as a director of the Company, and also his costs in HCA 946.  Again, this is at variance with his pleaded case.

The evidence

18.  The matter goes further than the plaintiff simply failing to verify his claim as pleaded.  The documents produced by the plaintiff himself lend support to the defence: that the discontinuance of HCA 946, the payment of the plaintiff’s legal costs, the abandonment of the plaintiff’s further claims against Yip and the issue of an announcement by the Company were the subject matter of a consensus reached between the plaintiff, the defendant and Yip prior to 22 June 2011, and that the plaintiff’s resignation as executive director of the Company as well as the alleged agreement for the defendant’s payment of $4 million to the plaintiff were separate matters, and never part of the consensus reached.

19.  The plaintiff’s case is that the oral Agreement was made in June 2011.  It is not disputed that HCA 946 was discontinued on 22 June 2011.  According to the email dated 24 June 2011 from the plaintiff to the defendant, HCA 946 had already been discontinued.  The email of 24 June 2011 then referred to the plaintiff’s “preliminary view” that Yip should pay the plaintiff’s legal costs, and compensation for the damage caused to the plaintiff’s reputation.

20.  If HCA 946 had already been discontinued on 22 June 2011, it is reasonably arguable that the discontinuance is past consideration.

21.  No mention was made in the 24 June 2011 email of any agreement to pay $4 million to the plaintiff.  According to paragraph 6 of the Statement of Claim, the parties had already agreed in June 2011 that of the $4 million to be paid to the plaintiff, $2 million was to be paid by 31 December 2011, and another $2 million by 30 June 2012.

22.  The plaintiff seeks to rely on another email dated 3 July 2011 which he sent to the defendant, to support his claim of the Agreement having been reached the week before.  However, in this email, the plaintiff referred to the issue of an apology and a clarification notice, the payment of his costs, and “the use of shares in the Company to resolve the matter of the compensation payable to the plaintiff”.  The email of 3 July 2011 makes no mention of the alleged agreement to pay $4 million (the 1^st installment of which was to be paid by 31 December 2011), but referred instead to all matters of the compromise being “completed” in the week following 3 July 2011.

23.  Eventually, despite the plaintiff’s case that the 1^st installment of $2 million was to be paid by 31 December 2011, the cheque issued by the defendant for payment of $2 million was received by the plaintiff on 31 October 2011.  Again, this does not tally with the terms of the Agreement as pleaded.

24.  As Godfrey JA emphasized in Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 at 158, it is not a proper course for the court to embark on a mini trial of the action on affidavit evidence.  The issue is not whether the defendant’s assertions are to be believed; it is whether those assertions are believable.

25.  Having considered the evidence produced by the parties, I consider that the contemporary documents lend support to the assertions made by the defendant, to make them believable and to cast doubt on the credibility of the plaintiff’s claims.  There are clearly disputes on facts relating to the oral Agreement, its terms, and the circumstances of the making of the Memorandum, which factual disputes should be tried.  The defendant is entitled to a trial at which the plaintiff can be cross examined on these matters.

26.  For all the above reasons, I allowed the defendant’s appeal against the order of the Master granting summary judgment.  The judgment is set aside, with costs of the appeal (including the costs below) to the defendant and with certificate for counsel.  The parties are to submit directions within 14 days for discovery, the filing of witness statements and for further conduct of the trial.