SHEK SAU MUI v. POON'S (SUN KEE) CO LTD

HCA 2130/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2130 OF 2007

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REASONS FOR DECISION

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1.  The plaintiff is applying for summary judgment on repayment a loan made to the defendant.

2.  At the hearing, I dismissed the application.  I now give my reasons.

Background

3.  The plaintiff’s family owns and operates public mini buses.  She personally owns 2 mini buses.

4.  The defendant has 2 shareholders/directors: Mr. Poon Kam-hung, the plaintiff’s son-in-law, and Ms. Sicsic Leung, the plaintiff’s daughter-in-law (owning 50% each).

5.  Poon married the plaintiff’s daughter Wai-fong, and they have a daughter Vicky.

6.  On 19 April 2007, the plaintiff lent $1,108,952 to the defendant for the purchase of a mini bus KN 7754.  There is no dispute of the loan.  The defendant’s only asset is this mini bus.

7.  The plaintiff re-financed her 2 mini buses to obtain the fund for the loan.  The plaintiff and Poon on behalf of the defendant signed a note in Chinese acknowledging the loan.  The note set out the details of the re-finance and how the loan was used.  There is no terms as to repayment in the note.

Plaintiff’s case

8.  The plaintiff asserted that the loan was repayable on demand.  Demand was made and not satisfied, hence, the action for money due and owing in November last year.

Defence case

9.  The defendant alleged that the loan was not repayable on demand, but subject to the following conditions:

(1)   It is not repayable on or before the end or the Chinese calendar year, i.e. 6 February 2008;

(2)   Any payment should only be made upon the consent of the defendant’s shareholders and directors;

10.  Further, the defendant has acted on the representation of the plaintiff that the defendant only needs to repay the loan by instalments when its business is in order and/or Vicky has returned the mini buses held under her name to Wai-fong.

11.  The defendant alleged that the plaintiff is in fact a 50% beneficial owner of the defendant.  Sicsic Leung filed an affirmation in support of the defendant saying that she holds the 50% shares in the defendant in trust for the plaintiff because the plaintiff is going through a divorce and she does not want to be seen holding more assets.  This is denied by the plaintiff.

12.  Poon also alleged that Wai-fong was the beneficial owner of 3 mini buses held in the name of Vicky, and she had made a loan to Vicky to purchase another mini bus.  In March 2007, Vicky sold 2 of the mini buses, but only accounted for part of the proceeds, and failed to repay the loan or hand back the remaining 2 mini buses to Wai-Fong.  He claimed that the loan was made in order to induce Wai-fong not to sue Vicky and to help out Wai-fong.  Eventually, Vicky was sued in November 2007.

Legal principles

13.  The test on the application summary judgment can be found in Re Safe Rich Industries Ltd [1994] HKLY 183 as cited in the Hong Kong Civil Procedure 2008 para. 14/4/9:

“(T)he test at the summary stage is indeed as simple as whether the defendant’s assertions are believable… a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as (is) either undisputed or beyond reasonable dispute.”

Discussion

14.  The plaintiff denied beneficial ownership of 50% shares in the defendant.  Mr. Suen, for the defendant, submitted that the declaration of trust was against Sicsic’s interest, and is more likely to be true. 

15.  Without looking at the accounts of the defendant, it is not known whether the position is net in assets or liabilities.  But pima facie, the defendant owns a mini bus and there is no suggestion of default of any hire purchase instalments.

16.  Mr. Wong, for the plaintiff, assumed for the present purpose that the trust subsists as such dispute could not be resolved on paper, but argued that the condition for repayment is unbelievable in any event.

17.  Mr. Wong submitted that even if the loan were not repayable before 7 February 2008 and the cause of action had not accrued when the writ was issued in November 2007, it simply meant that the plaintiff had to issue a new writ for the money due.

18.  He also submitted that any condition that the loan is only repayable with the consent of the shareholders and directors of the borrower is highly unusual as the loan may never be repaid if the shareholders are in deadlock.  One might have to resort to winding up or the alternative remedies under s. 168A of the Companies Ordinance (Cap. 32).  The note set out in details as to the source and application of the fund, but was silent on repayment.  The defendant would have inserted the terms of repayment given its very unusual nature.  It pointed towards the loan being repayable on demand.  Hence, the defence is unbelievable.

19.  As I see it, once the issue of the plaintiff’s 50% beneficial ownership in the defendant is conceded (albeit for the present purpose), then the plaintiff and the defendant are not really lender and borrower at arm’s length.  The plaintiff is in reality lending 50% to herself.  The forming of a 50/50 partnership company suggests some relationship more involved than simply a short term loan repayable on demand.  Without investigation into to the circumstances of the partnership, it cannot categorically be said that any repayment being subject to the consent of all the shareholders of the borrower (where the plaintiff is effectively one) is ex facie unbelievable.

20.  Hence, I granted unconditional leave to defend.

Costs

21.  I also awarded costs of the application to the defendant, to be taxed if not agreed.