YAU CHUN FAI, JEFFREY v. CHAN KAM WA, EDMAN

DCCJ 786/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 786 OF 2008

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J U D G M E N T

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Background

1.    The Plaintiff (“Mr. Yau") seeks summary judgment against the Defendant ("Mr.Chan") for the sum of $488,820.23, as the outstanding balance of a loan of $600,000, claimed by Mr. Yau to have been advanced to Mr. Chan in July and September 2006.  The loan was said to have been made by Mr. Yau's transfer of 2 sums of $300,000 each into the bank accounts of Petrolub Hong Kong Company Limited ("Petrolub") on 15 July 2006 and 26 September 2006.  It is not in dispute that Mr. Chan is the majority shareholder and director of Petrolub, the other shareholder being Mr. Chan's wife.  Mr. Yau claims that Mr. Chan had made repayment to him of a total sum of $180,000, by 3 payments in January and April 2007, leaving the balance due and unpaid.  According to Mr. Yau, the loan was made by him by utilizing his own overdraft facilities, and Mr. Chan had agreed to indemnify Mr. Yau as to such interest charged.

2.    On 8 September 2008, after Mr. Chan had put in a Defence by way of bare denial, Mr. Yau applied for summary judgment.

3.    By way of opposition to the summary judgment application, Mr. Chan claims in his affirmation that the sum of $600,000 paid by Mr. Yau was not a loan made to him, but was instead money paid by Mr. Yau for investment in a joint venture business agreed to be set up by Mr. Yau and Mr. Chan for the distribution of vehicle lubricant oils ("Joint Venture Business"). 

The issues

4.  In essence, the issue for determination in this case is whether Mr. Yau is entitled to summary judgment for the sum claimed as a loan, or whether Mr. Chan has an arguable defence on the basis of the sum being Mr. Yau's investment in the Joint Venture Business.

Legal principles for Order 14

5.    The principles applicable to applications for summary judgment are clear and not in dispute.  To resist an Order 14 application, the defendant must show that there are triable issues.  A concise statement of the standard approach in an application for summary judgment is to be found in the dicta of Ma J, as he then was, in Schindler Lifts (Hong Kong) Ltd. v. Ocean Joy Investments Ltd. [2003] 1 HKC 438.  The court has to determine two questions: firstly, whether what the defendant says is believable as opposed to whether its version of events is to be believed; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law. In determining the first question, the court should not embark on a mini trial of the action on affidavit evidence.  The burden of proof is not a heavy one.  It is not the function of the court at this stage to assess if a defence will succeed at trial.  Insofar as the second question is concerned, summary judgment will not be granted if there are arguable defences or serious disputes of law.

Whether there are triable issues

6.  There is no dispute that Mr. Yau used to be the Regional Sales Manager of Castrol (China) Ltd. ("Castrol") for East and South China.  Castrol carries on the business of the wholesale of lubricants, mainly vehicle lubricants.  Mr. Yau said that he recruited Mr. Chan to work for Castrol in 1997, as a sales executive.   Mr. Chan left Castrol in 2003, and started his own business of selling lubricants in Hong Kong and China, under the name of Petrolub.  Mr. Yau also left Castrol in 2005, to join a company dealing in plastic label fasteners.

7.    According to the evidence of Mr.Chan, Petrolub had not purchased vehicle lubricant oil from Castrol before July 2006.  The main distributor of Castrol's products is another company known as Kwong Wah Hong in Hong Kong.  

8.  Mr. Chan's case is that in March 2006, he and Mr. Yau discussed a joint venture which they referred to as "Project Gold" ( “Joint Venture”).  The discussions were mainly oral, but were evidenced by some e-mails which were exhibited by Mr. Chan.  The Joint Venture proposed and discussed was to obtain vehicle lubricants from Castrol and resell them into the retail markets. Petrolub was to be employed by the Joint Venture, using its existing staff and office and other facilities, so as to reduce the operation costs of the Joint Venture.  Mr. Yau was to become a partner in the Joint Venture, and was entitled to entertainment and monthly expenses as an allowance.  The Joint Venture would pay interest at cost to Mr. Yau and Mr. Chan for the capital injected by them. 

9.  Mr. Yau does not dispute that there were such discussions, as evidenced by the e-mails and various documents, but he claims that he was only assisting Mr. Chan to develop his business, and was acting simply as a consultant.  He admitted that at the very beginning, he and Mr. Chan had explored the idea of a Joint Venture, but Mr. Yau finally decided against it, and played the role of a part-time consultant instead.  He denies that the sum of $600,000 represented his capital injection into the Joint Venture.  He claims that he had never seen any books and accounts of Petrolub.  Mr. Yau also denies Mr. Chan's claim that Mr. Yau had not wanted his name to appear as shareholder of any company or any new business, because of Mr. Yau's close relationship with Castrol and the staff working at Castrol.  Mr. Yau maintains that he had no restriction of competition clause in his contract with Castrol, and that the business of his current employer is totally unrelated to lubricants.

10.  At this stage, the court should not embark on a mini trial of the parties' evidence.  On the face of the affirmations filed, I find that Mr. Chan's assertions in relation to Joint Venture Business and Mr. Yau's interests in the Joint Venture Business to be believable and supportable by the documents exhibited.  It awaits to be established at trial, after further discovery and cross-examination of the witnesses, whether the payments made by Mr. Yau to Petrolub represents his investment in the Joint Venture Business or, as he asserts, simple loans made to Mr. Chan on a personal basis.

11.  My reasons for finding that Mr. Chan's assertions are believable are as follows. 

12.  The e-mails exhibited by Mr. Chan clearly show Mr. Yau's close involvement with the setting up of the Joint Venture.  Put bluntly, the e-mails show that Mr. Yau was assisting Mr. Chan to obtain sensitive business information from a senior Sales Manager of Castrol (Mr. Yau's former colleague) relating to Kwong Wah Hong's distribution of Castrol products, for the purpose of setting up a business which could compete with Kwong Wah Hong.  Mr. Yau's e-mail of 22 March 2006 spoke of the capital needed for setup, his and Mr. Chan's share of 50%, their collection of market information, their preparation of a marketing plan, etc..  Mr. Yau even prepared a power point presentation for the launch of Petrolub's business in Castrol products.  These are consistent with Mr. Yau taking an interest and an actual share of the Joint Venture Business.

13.  Mr. Yau admits that the idea of the Joint Venture had been explored, but that he had finally decided against it.  However, he never explained when he so decided to abandon taking up a share in the Joint Venture.  Mr. Yau's explanations of his alleged role as a mere consultant are contradictory and inconsistent.  He claims that he was helping Mr. Chan to develop a further line of business based on the Castrol products.  However, he claims that he was acting as a part-time consultant to Petrolub. Despite being a consultant to Petrolub, Mr. Yau claims that it was Mr. Chan personally who agreed to indemnify Mr. Yau for his entertainment expenses incurred for the Joint Venture. 

14.  Mr. Yau's payments of $300,000 into Petrolub's bank accounts in July and September 2006 are consistent in timing with the proposed launch of the Joint Venture Business in July 2006 (as mentioned in the draft power point slides), and with the reference to "kick off at Q3 (third quarter)" in Mr. Yau's e-mail of 22 March 2006.

15.  Mr. Chan has produced documents to show that Mr. Yau had sought reimbursement of entertainment expenses incurred between August and October 2006.  Mr. Yau relies on the fact that the document shows that he was seeking payment of interest on his overdraft facility, in the sum of $11,548, which he had used to advance his loan to Mr. Chan.  It is Mr. Chan’s case that it had been agreed that the Joint Venture Business would pay interest at cost to both Mr. Yau and himself all the capital injected by them into the Joint Venture Business, so the payment of interest on Mr. Yau’s overdraft is equivocal at this stage.  The parties will have to be cross-examined at trial before this can be clarified.  However, Mr. Chan explains that the payment of $40,000 made in January 2007 was Petrolub's settlement of Mr. Yau's claims for interest, entertainment expenses and other expenses incurred for the Joint Venture Business, and not as partial repayment of Mr. Yau's alleged loan, as claimed.

16.  Mr. Chan further relies on documents prepared by Mr. Yau which refer to "capital payback" to Mr. Yau.  Whether these payments represent distribution of Mr. Yau's entitlement to the profits of the Joint Venture Business, repayment of capital injected, or repayment of the loan capital,  can only be determined at trial.  The issue of what Mr. Yau's agreed share in the Joint Venture was will also have to be determined at trial.

17.  On the whole, I am satisfied that Mr. Chan's assertions are believable at this stage, and that they constitute an arguable defence to Mr. Yau's claims in these proceedings.  I therefore grant unconditional leave to Mr. Chan to defend these proceedings. 

18.  The Order 14 Summons is accordingly dismissed.  The costs of the Order 14 application, including the costs reserved on 2 October 2008, are in the cause, with Certificate for Counsel.