HCA 2167/2020
[2022] HKCFI 2923
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 2167 OF 2020
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BETWEEN
KORITA PACKAGING LTD
1st Plaintiff
SUNSULATE (THAILAND) CO LTD
2nd Plaintiff
and
SHAHANEYS ((H.K.) LIMITED
Defendant
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Before: Deputy High Court Judge K Wong in Chambers
Date of Hearing: 8 September 2022
Date of Decision: 30 September 2022
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D E C I S I O N
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1. On 12 July 2022, I delivered a Decision refusing to give leave to the Defendant to adduce fresh evidence at the hearing of its appeal against the summary judgment entered against it on 28 January 2022. The background of the appeal and the respective cases of the Plaintiffs and the Defendant have been summarized in that Decision (which I shall not repeat here). This is the de novo hearing of the appeal.
2. I consider that the appeal should be dismissed for the reasons below.
3. Firstly, as the Plaintiffs’ application for summary judgment is properly constituted, they are prima facile entitled to judgment unless the Defendant shows cause to the contrary, paragraph 14/4/1, Hong Kong Civil Procedure, Volume 1. This can be seen from the following facts which are not disputed:
(1) The Plaintiffs produced invoices issued by the Defendant to them for prices of the goods ordered by them from the Defendant in the total sum of US$3,411,855 in January 2020 (the “Invoices ”).
(2) The Plaintiffs paid a total sum of US$3,411,855 (the “Money ”) to the Defendant in January 2020.
(3) No goods referred to in the Invoices was delivered to the Plaintiffs by the Defendant.
(4) On divers date from February to April 2020, the Defendant returned various sums totalling US$850,000 to the 1st Plaintiff.
Therefore, on the face of these facts, the Plaintiffs’ application for summary judgment in the sum of US$2,561,855 (being the balance of US$3,411,855 after deduction of US$850,000) (the “Disputed Outstanding Sum ”) is properly constituted. The burden is then passed to the Defendant to show that there is no triable issue or question or that for some other reason there ought to be a trial, see paragraph 14/4/8, Hong Kong Civil Procedure Volume 1.
4. Secondly, the Defendant has failed to discharge that burden. The Defendant’s case has no reasonable ground of defence to the Plaintiffs’ claim. There is no triable issue or question, and there is no other reason for which there should be a trial.
5. Essentially, the Defendant asserts that the Plaintiffs’ payments of the Money to the Defendant were in fact repayment of a loan owed by the 1st Plaintiff to the Defendant arising from the 1st Plaintiff's non-payment of the purchase price at US$1,225,000 for machineries sold and delivered by the Defendant to the 1st Plaintiff in 2003 and 2004 (the “Alleged 2003/04 Loan ”).
6. To overcome the difficulty that how come the Money was not paid for the Invoices but for an alleged loan arising more than 15 years ago, the Defendant says the Invoices are all sham, that they were issued at the request of the Plaintiffs to circumvent or satisfy certain remittance requirement from certain bank in Thailand, to enable the Plaintiffs to transmit monies for repayment of the Alleged 2003/04 Loan to the Defendant.
7. I agree with Mr Keith Cheung for the Plaintiffs that the Defendant’s sham argument must fail:
(1) The Invoices are sham means that the contents contained in them are false. The false contents were used to (a) enable the Plaintiffs to transmit monies out of Thailand which they would not otherwise be able to, and (b) satisfy certain requirement or circumvent certain restriction of the Plaintiffs’ bank in Thailand which would not otherwise be satisfied or circumvented[1] . In other words, the Defendant asks the Court to find, or to find a triable issue for the purpose of this summary judgment application, that there was a common intention between the Plaintiffs and the Defendant to fabricate the transactions stated in the Invoices, so as to mislead or deceive that certain requirements of the Plaintiffs’ bank in Thailand for remission of the Money have somehow been satisfied. An element of dishonesty is involved. In principle, the law should not encourage such an allegation or plea, and should strongly presume against finding or accepting a plea, or a defence as in the present case, that a document is a sham, see National Westminster Bank plc v Rosemary Doreen Jones [2001] BCLC 98 at paragraph 59 per Neuberger J (as Lord Neuberger NPJ then was). In my view, unless the evidence is overwhelming, the Court should strive not to find favour with a plea which is based on an allegation that a document is sham. In the present case, the sham allegation is a bare assertion[2] . There is no document in support. I do not consider it to be believable, not to mention overwhelming.
(2) Importantly, as Neuberger J remarked earlier in paragraph 59 of National Westminster Bank , subject to questions of mistake (which can give rise to rectification or rescission), there is a very strong presumption that parties intended to be bound by the provisions of agreements into which they entered, and, even more intended the agreements they entered into to take effect. Based only on bare assertion, I do not consider the Defendant has rebutted the presumption that the Invoices were intended to be binding and acted upon by both the Plaintiffs and the Defendant.
(3) The sham allegation is devoid of particulars. No particulars have been provided in the Defence (or draft Amended Defence) as to what the relevant requirement of the bank[3] was, what the relevant restriction was, how it affected the intended remittance, why and how the sham Invoices helped solving the problem, and whether there were other alternatives and if so, why they were not deployed.
(4) Apart from oral assertion from the Defendant’s representative, there is no other evidence adduced by the Defendant to support the sham allegation.
8. Bearing in mind the scantiness of evidence in support, and particularly the law’s scepticism against such allegation, I find the Defendant’s sham allegation not believable and such defence not arguable.
9. As the sham allegation failed, the contents of the Invoices can only mean what they mean. As such, I agree with Mr Keith Cheung that the factual foundation for the Defendant’s case also falls away. The Money was not used to repay the Alleged 2003/04 Loan. The Plaintiff used it to pay the Invoices. The defence fails as a result.
10. On this ground alone, the appeal shall have to be dismissed.
11. For completeness, I shall deal with the 3 arguments raised by Mr Felix Ng for the Defendant.
12. Firstly, Mr Ng submits that the Plaintiffs’ contention, that D was the preparer of the alleged Machinery Funding & Loan Agreement[4] , was contradicted by e-mail records.
13. This submission is a red herring, because
(1) This agreement is at best a draft agreement. It is not legally binding. The Plaintiffs never signed it. Only the Defendant has appended signature to it.
(2) This agreement did not contain any recital or reference to the history of the matter or the Alleged 2003/04 Loan. It did not refer to the alleged unpaid invoices for the goods sold and delivered in 2003 and 2004, their purchase orders, the fire incident which caused the 1st Plaintiff unable to pay or the alleged agreement between the parties that the 1st Plaintiff should settle those invoices with insurance compensation received for the fire incident.
(3) The Defendant said this agreement reflected the Alleged 2003/04 Loan, and the Money was the Plaintiffs’ repayment of the Alleged 2003/04 Loan to the Defendant. However, as submitted by Mr Cheung for the Plaintiffs, the sum calculated to be due under the Alleged 2003/04 Loan and under this agreement simply does not match with the amount of the Money paid by the Plaintiffs to the Defendant:
(a) According to this agreement and the alleged invoices issued in 2003 and 2004, the outstanding principal sum was US$1,225,000. Interest was said to be accrued at 7.5% per annum from the date of the agreement, i.e. 25 November 2003.
(b) According to this agreement, the Alleged 2003/04 Loan together was due to be paid on or before 24 November 2010.
(c) According to the Defendant’s own calculation, the total sum due accrued up to December was US$3,521,875[5] .
(d) However, the Money paid by the Plaintiffs to the Defendant (almost 10 years later in 2022) amounted to US$3,411,855, which was US$110,020 less than the Alleged 2003/04 Loan.
(e) The Defendant sought to explain that this shortfall of US$110,020 was a waiver of some interest at the Plaintiffs’ request[6] . But this is a bare and bald assertion. There is no written record in support.
(f) The Defendant further said because of the Plaintiffs’ complaint that the Defendant should not have charged them so much interest, the Defendant, by 9 instalments, returned a total of US$850,000 to the Plaintiffs as rebates of the interest paid[7] .
(g) In my view, the Defendant’s story is incredible. The Defendant is effectively saying that in the beginning it waived the Plaintiffs’ payment of US$110,020 interest, and then it went further to return US$850,000 interest rebate to the Plaintiffs. This was extraordinary. I agree with Mr Cheung that, if this were true, in total the Defendant wrote off US$960,020 and 27% of the Alleged 2003/04 Loan. And the Defendant did that just at two simple requests from the Defendant (a request for waiver and a complaint that the Defendant should not have charged so much interest), for a loan which was due for almost 10 years. This was not believable.
14. I do not consider necessary to examine the Plaintiffs’ explanation on this matter (that this was a document prepared to facilitate the Defendant in obtaining a bank loan, which was not related to the subject Invoices). The burden is on the Defendant to show that this draft agreement was relevant to the dispute. It failed. I do not find this question has bearing in this appeal. Particularly, I do not find it is in any way capable of assisting the Defendant in the presumption that the Invoices were intended by the Plaintiffs and Defendant to be binding and acted upon.
15. Secondly, Mr Ng for the Defendant submitted that the Plaintiffs’ explanation as to why the 2nd Plaintiff was named as a party to the said draft Machinery Funding & Loan Agreement was contradicted by WhatsApp records.
16. This point is again, beside the point. It seems to me the Plaintiffs’ point[8] is that the 2nd Plaintiff did not exist in 2003 and so it was not party to the purchase orders in 2003. The Plaintiffs’ representative then surmised that the Defendant might have forgotten this fact when including the 2nd Plaintiff in the said draft Machinery Funding & Loan Agreement. Mr Ng referred to a WhatsApp message to say this was contradicted. Assuming the surmise is incorrect for the purpose of this argument, it cannot in my view save the day for the Defendant. There is no dispute that the 2nd Plaintiff did not exist in 2003. And I have held above that the Defendant has failed to persuade me that the draft Machinery Funding & Loan Agreement is relevant to the issue in dispute. This point is outside the periphery.
17. The third point submitted by Mr Ng for the Defendant is an invitation to the Court to investigate why and how the track changes were made to the said draft Machinery Funding and Loan Agreement. Mr Ng submitted that the track changes were made by Mr Choksi, the Plaintiffs’ representative and they did not make any sense if the draft agreement was just to facilitate the Defendant to obtain a bank loan as alleged by the Plaintiffs, as they refined the terms of the loan[9] and went on to impose some prohibition against disposal of the machinery.
18. I do not consider those track changes are relevant to the issue in this appeal. They cannot demonstrate or support the Defendant’s case that the Alleged 2003/04 Loan existed, that they were binding on the parties, that they were intended to be acted upon by particularly the Plaintiffs, that the Invoices were sham, and that the Money was paid in accordance with this draft agreement instead of the Invoices.
19. All in all, the Plaintiffs’ case is simple – refund of goods paid but undelivered. I do not consider the Defendant has raised any triable issue which could shake the Plaintiffs’ ground.
20. In conclusion, this Appeal is dismissed. I order that the Defendant shall pay the Plaintiffs costs of this appeal, the amount of which is to be summarily assessed, with the following directions:
(1) The Plaintiffs shall submit their statement of costs of the appeal within 14 days from the date of this Judgment.
(2) The Defendant shall submit its list of objection within 14 days thereafter.
(3) The Plaintiffs shall submit their reply to the list of objection within 7 days thereafter.
21. I thanks counsel for their assistance.
(K. Wong)
Deputy High Court Judge
Mr Keith K.Y. Cheung, instructed by Robertsons, for the 1st and 2nd plaintiffs
Mr Felix L.H. Ng, instructed by Titus, for the defendant
[1] In law, a sham exists where acts done or documents executed by the parties are intended by them to give third parties or to the court the appearance of creating legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create: Snook v London and West Riding Investments Ltd [1967] 2 QB 786 at 802C-F per Diplock LJ.
[2] See paragraph 5(8)-(10) of Defence dated 29 April 2021 and paragraph 5(8)-(10) of draft Amended Defence, Exhibit “RGS-9” to Affirmation of Rajesh Gobind Shahani.
[3] In the Defence, the Defendant identified the bank as the Bank of Thailand. In the draft Amended Defence, it was changed to Bangkok Bank. There is no document in support.
[4] The alleged Machinery Funding & Loan Agreement was, according to the Defendant’s case, a document which the parties agreed in about 2019 to reduce the terms of the Alleged 2003/04 Loan into writing, and which the parties agreed to backdate it to 25 November 2003.
[5] Affirmation of Rajesh Gobind Shahani filed on 20 December 2021, paragraphs 30 and 31
[6] Affirmation of Rajesh Gobind Shahani, paragraph 52
[7] Affirmation of Rajesh Gobind Shahani, paragraphs 55 to 66
[8] 2nd Affirmation of Nilkesh Choksi affirmed on 1 January 2022, paragraph 14
[9] The track changes do not refer to the Alleged 2003/04 Loan. As explained above, the Defendant argued that the loan mentioned in the draft agreement was in fact the Alleged 2003/04 Loan but, in my view, an effective link is missing.