SINCERE SECURITIES LTD. v. LI MOU TONG, VINCENT

CACV 2177/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 2177 OF 2001

(ON APPEAL FROM HCA NO. 255 OF 2001)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a judgment and order of Kwan J given on 16 August 2001. The matter before the judge was an appeal by the defendant against a decision of the Master on the plaintiff's application for summary judgment. The plaintiff's claim was in respect of three cheques totalling HK$2,650,000 which were dishonoured. The Master gave the defendant leave to defend conditional upon the payment into court of the full amount of the claim. The judge varied that order and ordered that the defendant should pay into court HK$300,000 failing which the plaintiff would be entitled to final judgment against the defendant in the sum of HK$2,650,000 with interest at prime rate plus 1%.

Background

2. On the face of the matter the plaintiff's claim appears simple. The statement of claim refers merely to the cheques and the dishonour. The defence filed is, again, a very short document. The defence is that there was no consideration and if there were consideration it was past consideration. As matters have emerged from the evidence filed in relation to the application for summary judgment and as a result answers to interrogatories, it would appear that in addition questions as to partial failure of consideration would arise as well as defences of duress, conditional delivery of the cheques and misrepresentation.

3. The plaintiff is a stock broking company. It was formerly known as Tse's Securities Limited. The defendant had been employed by the plaintiff as an "Associate Director". Whatever that title meant, the defendant performed the functions of what was apparently an account executive. According to a letter dated 9 January 2001 signed by Mr Shum Chun Ying, the dealing director of the plaintiff, the defendant had been employed from 10 October 1997 to 15 December 2000.

4. There is no dispute, at any rate on the papers filed so far, that a client introduced by the defendant to the plaintiff, namely, Best Group Limited, defaulted on its obligations in relation to margin dealing. Judgment has been obtained by the plaintiff against Best Group Limited for the sum of HK$2,571,769.90. The judge below accepted that the plaintiff had recovered at least HK$701,143.22 in respect of that. There is an indication in the papers that perhaps more than that has been recovered.

5. The defendant's pleaded defence is that there was no consideration for the cheques or if there were consideration, it was past consideration. The basis of that is there was no obligation on the defendant to pay the amounts of the cheques. It is the plaintiff's case, yet to be pleaded, that the cheques issued by the defendant, which are the subject of this action, were in respect of the defendant's liability under the terms of his employment to indemnify the plaintiff against all claims, costs, expenses and losses whatsoever which might be suffered by the plaintiff by reason of any transaction carried out on the introduction of the defendant.

6. The defendant denies that any such term was part of the terms of his contract of employment. He claims that he was threatened by those in authority of the plaintiff, both physically and in relation to their making allegations to his subsequent employers which would prevent him from earning his living, and that, as a result of those threats, he was forced to sign a backdated contract of employment, a letter dated 28 December 2000 and the three cheques.

7. Clearly, if the terms of the defendant's employment included a requirement on the defendant's part to indemnify the plaintiff against any losses the allegations of failure of consideration would fall away. In my view, it is important first of all to look at the plaintiff's evidence on the matter.

8. At the commencement of the Order 14 application Mr Shum Chun Ying, the dealing director of the plaintiff, affirmed on 8 March 2001:

"4. At all the material time, the Defendant was an account executive of the Plaintiff. By clause 10 of the service agreement dated 1 December 1999 between the Plaintiff and the Defendant ..."

There then followed the allegation that service agreement contained the indemnity.

9. By that stage therefore the only allegation that it was a term of the defendant's contract of employment that he should indemnify the plaintiff was that it was contained in the service agreement dated 1 December 1999. It is also, perhaps, to be noted that in Mr Shum's first affirmation he referred to the letter of 28 December 2000 from the defendant to the plaintiff confirming his willingness to pay the outstanding debt of Best Group Limited.

10. In his affirmation of 23 March 2001 the defendant stated:

"10. With regard to paragraphs 4 and 5 of the Shum Affirmation, the Plaintiff is seeking to rely on a Service Agreement dated 1st December 1999. However, I feel obliged to inform this Honourable Court that no such Service Agreement between myself and the Plaintiff was ever executed on or about 1st December 1999. I stress that at all material times there was no indemnity given by me to the Plaintiff."

11. In Mr Shum's second affirmation dated 17 April 2001, two points of relevance are made in relation to the defendant's employment. In the first place, in paragraph 5, Mr Shum denies that the defendant's employment ceased on 15 December 2000. In the second place, in paragraph 12, Mr Shum makes two new allegations:

"By the service agreement made between the Plaintiff and the Defendant dated 1 December 2000, it was agreed and in any event it is the trade practice that the account executive has to bear any losses incurred by the Plaintiff by reason of or arising out of any transaction in relation to the business introduced or dealt with by the account executive."

12. By an affirmation of Mr Tse Shiu Hoi, one of the plaintiff's shareholders also dated 17 April 2001, Mr Tse denied that he had threatened the defendant and went on to refer to the defendant signing the cheques and the letter dated 28 December 2000.

13. The defendant did not specifically deny, in an affirmation, the assertion as to the trade practice contained in Mr Shum's second affirmation but he did exhibit his contract of employment with his new employer which clearly shows that there was no such indemnity contained in that contract.

14. The final matter which should be referred to is the answer made on 8 August 2001 by Mr Shum to interrogatories which had been served. That answer says that:

"In or about late December 2000 or early January 2001, the Plaintiff and the Defendant signed the Service Agreement dated 1 December 1999 ('the Agreement') at the office of the Plaintiff. When the Defendant was approved by the Stock Exchange of Hong Kong as a sale representative of the Plaintiff on 10 July 1998, the Defendant entered into a service agreement, the terms of which are identical to the Agreement. There is now produced and shown to me a copy of the letter from the Stock Exchange of Hong Kong dated 10 July 1998 marked 'SCY-11'. On 1 December 1999, owing to the change of name of the Plaintiff, all the account executives including the Defendant was requested to sign another service agreement, the terms of which are identical to the Agreement on that day. There are now produced and shown to me copies of service agreements of three account executives of the Plaintiff dated 1 December 1999 marked 'SCY-12'. However, subsequently, both service agreements were lost. As a result, the fresh Agreement with terms identical to the one signed by the parties previously was signed in or about the late December 2000 or early January 2001 and back-dated to 1 December 1999."

15. It is to be noted, however, that the judge carefully examined the defendant's evidence and commented:

"What the defendant did not say in his first affirmation is that he had in fact signed the Service Agreement that was exhibited by the plaintiff but it was far later than 1 December 1999 and that he did so under duress."

16. Importantly, in my view, the judge did not scrutinize the plaintiff's evidence. As is evident from the above, Mr Shum has now given three different versions as to the defendant signing service agreements. If his first affirmation were to be taken as accurate, the document which he presented to the court had been signed on or about 1 December 1999. In his second affirmation, he puts the signing of the document to be a year later without so much as one word of explanation. By the time he answers the interrogatories he avers that the document was a replacement document for an earlier document which itself replaced another document.

17. The assertion that the earlier versions of the defendant's service agreement were lost, in my view, needs close examination. The plaintiff has been able to exhibit a copy of the defendant's employment application dated 18 March 1998 as well as a copy of the letter from the Stock Exchange dated 10 July 1998 relating to the defendant's registration as a Sales Representative of the plaintiff. That the plaintiff should be able to produce these documents and indeed copies of other account executives' service agreements but not a service agreement signed by the defendant, in my view, requires explanation. That explanation would have to go as to how records were kept, who by and where. Once there is a dispute that any document had been signed, evidence as to that document from people who had seen it would be relevant.

18. The matter does not quite end there because other evidence of the plaintiff in relation to the defendant's employment also, in my view, raises doubts about the approach to factual accuracy. As noted above, in paragraph 5 of Mr Shum's second affirmation it is denied that the defendant's employment with the plaintiff ceased on 15 December 2000. That conflicts directly with the terms of the letter of 9 January 2001 referred to above. It should also be noted that the defendant made an affirmation on behalf of the plaintiff on the basis of which the plaintiff obtained an ex parte mareva injunction against Best Group Limited, which affirmation commences "I left the plaintiff's employment on 15 December 2000."

19. Clearly, one of the matters which will require to be considered very carefully at the trial are the terms of the defendant's employment. The first question which will arise is whether there were any written terms. On the present state of the plaintiff's evidence I consider that a court cannot proceed for the purposes of summary judgment on the basis that there were written terms. As regards the custom in the trade the plaintiff has simply asserted the matter. Evidence of custom in the trade has yet to be given and again would have to be considered with extreme care. That terms might be frequently found in contracts is one thing, but the establishment of a custom of the trade giving rise to implication of terms requires a high level of proof. Hence if it cannot be established that there were written terms of indemnity, the plaintiff's claim to summary judgment, must in my view fail because the plaintiff cannot overcome the objection of lack of consideration.

20. When the judge below criticised the defendant's evidence in relation to the terms of the contract of employment it seems to me that there was a failure to give proper regard to the state of the plaintiff's evidence as to the existence of the contractual terms. This, as indeed the judge appreciated, was also an important point in the consideration of the defendant's allegations as to duress. Whereas the judge indicated at paragraph 19 of her judgment that she would consider the question of the service agreement under the heading of duress, that she did, but she came to no clear conclusion. In relation to the question of duress the judge was not prepared to disbelieve the defendant but said that the manner in which the evidence had emerged was suspicious.

21. Be that as it may, I consider that the judge's approach to the evidence was flawed to the extent that the plaintiff's evidence as to the formation of the contract was inconsistent and unreliable. I consider therefore it is open to this court to exercise its own discretion in the matter and, in my view, the defendant should be given leave to defend. On the face of the matter the plaintiff has to establish a clear contractual term giving rise to liability on the part of the defendant and this therefore is not a matter on which the plaintiff is entitled to say it has a clear and indisputable case. This is quite irrespective of the defence of duress. That is often a difficult matter to prove. Nevertheless it has to be observed that the judge considered that the defendant had an arguable case in this respect.

Hon Le Pichon JA:

22. I agree.

Hon Rogers VP:

23. The appeal will therefore be allowed. The defendant will have unconditional leave to defend. There will be an order nisi that the costs up to and of the hearing before the Master will be costs in the cause and thereafter, in the Court of First Instance and in this court, the costs will be to the defendant.