XCHRX YEN KIN KONG v. MOBIL OIL HONG KONG LTD.

HCSD 42/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 42 OF 1999

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REASONS FOR DECISION

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1. The Applicants in these two actions seek an order that the statutory demand dated 4 November 1999 served on them be set aside. The grounds of their application are identical and the applications were heard together. At the end of the hearing, I made an order dismissing their applications with costs to the Respondent, Mobil Oil Hong Kong Limited ("Mobil"). I also gave leave to Mobil to present a bankruptcy petition against each Applicant forthwith. These are the reasons for my decision.

2. The Applicants, Yen Kin Kong and Tam King Fu are the shareholders and directors of Goldton Oil Trading Limited ("Goldton"), a company incorporated in Hong Kong. Between June 1996 and July 1998, Goldton entered into five loan agreements with Mobil by which substantial sums were advanced by Mobil to Goldton for the specific purpose of financing Goldton to acquire and set up facilities and outlets for the business of distributing liquefied petroleum gas ("LPG") products of Mobil in Southern China. As security for each of the loans made under the loan agreements, five deeds of guarantee were executed by Mr Yen and Mr Tam as the directors of Goldton. The total indebtedness of Goldton under the five loan agreements, as guaranteed by Mr Yen and Mr Tam and stated in the statutory demand was HK$16,064,168.38.

3. It was submitted by Mr Richard Leung, who appearred on behalf of the Applicants, that the debt is disputed on substantial grounds and there are genuine triable issues on the evidence. The grounds of the applications are as follows.

4. Firstly, the Applicants said that the guarantees should be set aside for non est factum. Secondly, they said the guarantees should be set aside because of misrepresentation. Thirdly, they said that the loan agreements were in essence "co-operative" agreements between Mobil and Goldton and it would be unfair and inequitable for Mobil to enforce the payment obligations under the loan agreements because it was Mobil's acts and omissions that had adversely affected the sales of LPG products by Goldton.

Non est factum

5. The Applicants' evidence on this is that they had never intended to sign any guarantee as such. On each of the five occasions, they were told by Mr Chow Wing Lung, the manager of LPG projects for South and Central China of Mobil, that the purpose of those documents was "to ensure that there would be no misappropriation of funds injected by [Mobil] into the Joint Venture". It was alleged by the Applicants that they had attended numerous meetings with Mobil which "led to the setting up of a joint venture in Qingyuan in the People's Republic of China, whereby [Mobil] was to inject funds into the joint venture." The Applicants claimed that on each occasion, they were shown the signing page only, or in any event not a full set of the documents they were asked to sign and had no knowledge of the exact details of the contents of the documents that they signed. Further, on each occasion after they had signed, the document was taken away by Mobil and no copy was given to them for their retention. They also claimed they had limited knowledge of English.

6. On the evidence adduced, the joint venture that was entered into by Goldton was not with Mobil but with a company in Mainland China known as Qingyuan Silverport Oil Services Company Limited. The agreements and guarantees I have referred to were not isolated transactions. They were entered into over a period of two years. Mobil has produced documents to show that the parties had engaged in considerable negotiations before the loan agreements were signed. In respect of the 1st loan agreement, there was an "Agreement Outline" produced by Mobil. In respect of the 2nd and 5th loan agreements, the parties had entered into letters of intent before the formal loan agreement was executed. The Applicants could have been in no doubt that the agreements with Mobil were for the purpose of Mobil advancing money to Goldton for specific purposes. Further, in respect of the 1st loan agreement, there was a board resolution in English prepared by Mr Yen authorising Mr Tam and Mr Yen to sign a loan agreement and a supply agreement with Mobil and that the amount of the loan to be advanced was US$1,330,000.00. Lastly, there was a letter in English from Mr Yen to Mobil dated 20 August 1996 proposing an amendment to a particular clause in the 1st loan agreement. This shows that Mr Yen must have studied the 1st loan agreement and that he must also have been provided with a copy of it, contrary to what he had said in his affirmation.

7. In my view, the plea of non est factum is bound to fail. The Applicants' assertions are contradicted by documentary evidence. Further, neither of them had taken any or any reasonable precautions to find out at least the general effect of the documents they were asked to sign, even assuming what they had said in their affirmations were true.

Misrepresentation

8. In the affirmations in reply, the Applicants had alleged that they were "induced and/or coerced" into signing the loan agreements and the guarantees. No or no adequate particulars were provided of what the inducement or coercion was. What was alleged was that Mr Ronnie Butt, the sales executive of Mobil for LPG products in China had given an assurance to the Applicants that Mobil had "never instituted any legal proceedings against its own dealers and that these documents would not be enforced by [Mobil] or words to that effect." This would seem to suggest that the Applicants did know of the nature and effect of the documents they were asked to sign and that they had signed the documents relying on Mr Butt's representation that the documents would not be enforced. This would seem to be inconsistent with the Applicants' assertions in raising the plea of non est factum.

9. In my view, the allegation of misrepresentation is inherently incredible and there is no genuine triable issue on this.

Co-operative Agreement

10. The Applicants' case on this is that there is a provision in each of the loan agreements that in any particular quarter, if Goldton should have met the target volume and other obligations pursuant to the supply agreement, the principal and interest for that quarter would be waived. It was only in or about October 1998 and due to the acts and omissions of Mobil that Goldton failed to meet the target volume and there was a drastic drop in sales. On account of this, Mobil notified Goldton that as it was unable to meet the target volume for the quarter ending December 1998, the quarterly repayment would not be waived. The Applicants claimed that it would be unfair and inequitable for Mobil to demand repayment in such circumstances.

11. The acts and omissions of Mobil complained of are as follows: the abandonment of the plant construction project in Zhuhai and other pier projects; the unstable supply of LPG products; the price was substantially higher than Goldton's competitors; and the withdrawal of technical support.

12. The Applicants had not adduced any documentary evidence to support these complaints. Moreover, their case is contradicted by the available documentary evidence. The parties here had entered into an elaborate commercial undertaking fully documented by the five loan agreements. The obligations of Mobil were set out in these agreements. They did not impose any obligation on Mobil to construct the Zhuhai plant or any pier project. The "Agreement Outline" merely stated that Mobil was to supply products to Goldton "from time to time at a competitive market price." As for technical assistance, it was provided in Clause 6 of the 1st loan agreement that Mobil "may" offer technical assistance to Mobil. The loan agreements also contained an "entire agreement" clause.

13. I am wholly unable to see any viable basis for this line of defence. It rests solely on the bare assertions of the Applicants and is contradicted by documentary evidence.

14. Lastly, I should mention that the Applicants did not in their affirmations dispute the amount of the indebtedness of Goldton. In each of the guarantees, there was a provision to the effect that any statement signed by the relevant officer of Mobil showing the amount due under the loan agreement should be accepted by the guarantors as conclusive evidence that such amount was due and owing.

15. In the circumstances, and as no genuine triable issue is raised by the Applicants, I dismiss their applications.