XCHRX ROSEFORD RESOURCES LTD. v. DATO LIM HUI BOON

1998, No. A21850

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 21850 OF 1998

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J U D G M E N T

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1. This is an appeal by the Defendant from the order of Master Sweeney made on 15th September 1999 giving the Defendant leave to defend this action on condition that HK$21,500,000 be paid into court within 28 days from the date of his order. The Plaintiff had applied for summary judgment under O.14, Rules of the High Court for the amount claimed in the Statement of Claim.

2. The background to this matter is that the Defendant had approached Mr. Chan Boon Teong ("Mr. Chan"), a businessman in Hong Kong and South East Asia, through a Mr. Lam Chung, for a loan in December 1997. The Defendant was known to be an investor in the stock market in Malaysia and in the Asian markets.

3. Mr. Chan says that various proposals were made as to how he might assist the Defendant one of which was that he would provide funds for investment in Malaysian shares and that profits or losses would be shared equally. He says that the proposal of him providing a loan to the Defendant was also discussed but that he told the Defendant that he would have to seek legal advice. He says that after consulting his solicitor he was advised not to make a loan. He, therefore, decided to join the Defendant for making an investment. He says that it was in those circumstances that the principal deed between Kings Crown Holdings Ltd. ("Kings Crown") and the Defendant was entered into on 18th December 1997. Mr. Chan is a director of Kings Crown which is a BVI company.

4. Under the deed, the Defendant was provided with HK$30,000,000 for the purpose of investment. Kings Crown was to receive HK$3,000,000 as guaranteed profit. The Defendant warranted that the total sale proceeds of the investments at the maturity date, i.e. 23rd March 1998, should be more than HK$33,000,000. Kings Crown's profit was to be half of the excess over and above HK$34,500,000 if the aggregate value of the sale proceeds of shares which had been sold and the market value of unsold shares as at the maturity date exceeded HK$34,500,000. All payments to be made by the Defendant carried interest at 2% per annum above Hong Kong and Shanghai Banking Corporation's best lending rate.

5. The Defendant says that the transaction was in fact a loan. He says that he was told by Mr. Chan that the company extending the loan did not possess a money lending licence and that his legal and financial advisers may be able to devise a plan so that the Defendant may be able to obtain a loan of HK$30,000,000. He says that he also agreed to pay HK$8,000,000 interest which was to be deducted at source from the sum disbursed. He says that Mr. Lam Chung was acting as the agent of Mr. Chan. There is an issue as to this. According to him, HK$8,000,000 was deducted at source and he says that he only received HK$21,500,000. Support for this is found in the remittance advice exhibited. He says that HK$500,000 was deducted without his knowledge or consent.

6. The Defendant was unable to make any payment by the maturity date of 23rd March 1998. He requested an extension of time to pay and was told that he had to pay interest of HK$3,000,000 for a one month extension. He was desperate and had no choice but to agree. He says that it was in those circumstances that the principal deed and the supplemental deed of 28th March 1998 were signed. By the supplemental deed of 28th March 1998, Kings Crown also assigned to the Plaintiff, a related BVI company, all its rights in the principal deed. The Defendant was also given an extension by a variation of the maturity date to 30th April 1998.

7. The Defendant says that he still could not make payment by the 30th April 1998 and sought a further extension. It was proposed that he pay a further sum of HK$3,000,000 and he agreed as he had no choice. It was in those circumstances that the second supplemental deed of 22nd June 1998 was signed which extended the maturity date to 30th June 1998.

8. Once again, the Defendant says that he was unable to make repayment of the loan on 30th June 1998 and sought further indulgence which resulted in correspondence between the parties.

9. The Defendant was unable to meet the Plaintiff's demands. The Plaintiff instituted these proceedings and sought summary judgment under O.14. The Defendant says that the principal deed and the later deeds were a guise for alleged investment when in fact they were contracts for money lending in breach of S.7(1) and S.24(1) of the Money Lenders Ordinance, Cap. 163, and therefore illegal, void and unenforceable.

10. The principles governing O.14 applications are well known and clear. It is useful to bear in mind what Godfrey J. (as he then was) said in Unic Co. v. Centus Development Ltd. [1988] HKC 643 at 647:

"The power to give summary judgment under Order 14 is intended to apply only to cases where there is no reasonable doubt that the Plaintiff is entitled to judgment and where therefore it is inexpedient to allow the Defendant to defend for mere purposes of delay: see Jones v. Stone [1894] AC 122.

As a general principle, where a Defendant shows that he has a fair case for defence or reasonable grounds for setting up a defence, or even a fair probability that he has a bona fide defence, he ought to have unconditional leave to defend. Leave to defend must be given unless it is clear that there is no real substantial question to be tried, or that there is no dispute as to the facts or law which raises a reasonable doubt that the Plaintiff is entitled to judgment. Order 14 is not intended to shut out a Defendant who can show that there is a triable issue applicable to the claim as a whole from laying his defence before the court, nor to make him liable in such a case to be put on terms of paying into court as a condition of leave to defend."

11. It has also been said that it is not a proper course for the court to embark at this stage on a mini-trial of the action on affidavit evidence. It is sufficient for the court to ask itself whether the Defendant's assertions are believable. (Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155)

12. It was also helpfully said by Godfrey J.A. in the Court of Appeal in the case of Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225 at 228:

"Unless it is obvious that the defence put forward by the Defendant is 'frivolous and practically moonshine, Order 14 ought not to be applied': see Codd v. Delap [1905] 92 LT 510, per Lord Lindley at 511."

13. It is important to see the way the Plaintiff's case is pleaded in the Statement of Claim. The claim is based on an investment joint venture agreement between Kings Crown and the Defendant with a subsequent assignment to the Plaintiff. This is the only basis on which the claim is made and on which judgment was sought. It is not based on a loan made to the Defendant. There is as yet no alternative claim made by the Plaintiff based on a loan. I cannot regard the failure to so plead as being a technical point as Mr. Lucas has submitted. After all, the court can only give judgment to a Plaintiff on his pleading. The Plaintiff's case as pleaded in the Statement of Claim is on the basis of a joint venture agreement and not on a loan granted to the Defendant.

14. Issues of fact have been raised which must be resolved at trial. I should, of course, not embark on a mini-trial of the action. There is, in my judgment, clearly a triable issue raised as to whether the agreements were part of a joint venture investment or a loan to the Defendant.

15. An unusual feature about the joint venture investment agreement is that the Defendant was never asked to provide a list of investments he was to make. Also, throughout the period when the deed and the supplemental deeds were signed and when the Defendant was seeking more time to pay, there is no evidence to show that the Plaintiff, Kings Crown or Mr. Chan ever even inquired about what the investments were which the Defendant had allegedly made under the joint venture arrangement and how they were performing. That is surprising if indeed it was a joint venture agreement instead of a loan. There may well be an adequate explanation for this but these are matters to be resolved at trial.

16. Equity looks at the substance and not the form of transaction (Ng Shou Chun v. Hung Chun San, supra). The Defendant's contention that this was a money lending transaction in contravention of the Money Lenders Ordinance, Cap. 163 and, therefore, unenforceable is a matter which requires investigation at trial.

17. Mr. Lucas submitted that there was no evidence that the Plaintiff or Kings Crown carried on the business of money lending. However, that is a matter which ought to be resolved at trial. In my view, the issue has been sufficiently raised and pleaded in the amended Defence. I would also observe that in Ng Shou Chun v. Hung Chun San (supra) there did not appear to be any evidence that the Plaintiff there was in the business of money lending. Yet the Court of Appeal held that since there was something in the nature of a loan to suggest that the Plaintiff might be a money lender, the Defendant ought to be given unconditional leave to advance that defence at trial.

18. There is also an issue raised as to what interest was charged for the loan and the extensions sought. On the Defendant's case, only HK$21,500,000 was advanced with interest of HK$8,000,000 being deducted at source. From the figures supplied to me, the interest on that sum would be prohibited under S.24(1) of the Money Lenders Ordinance and hence the agreement for the repayment of the loan or interest would be unenforceable. There is, of course, a dispute between the parties about how interest should be calculated and what the effective rate of interest should be for the loan and for the extensions. These are, however, in my view matters to be investigated at trial.

19. In my judgment, the Defendant is entitled to unconditional leave to defend. The appeal is allowed. Master Sweeney's order is set aside and I order that the Defendant be given unconditional leave to defend this action.

[After hearing submissions]

20. Costs of the hearing before Master Sweeney are to be costs in the cause with certificate for counsel. Costs of the appeal should follow the event in my view. Costs of the appeal to the Defendant in any event.