DCCJ 4256/2019
[2022] HKDC 620
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO. 4256 OF 2019
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BETWEEN
GLOBE GROUP LIMITED
Plaintiff
and
GLOBALMAX (GROUP) LIMITED
1st Defendant
LEE YAN LAM (李昕霖)
2nd Defendant
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Before: Deputy District Judge Jason Wong in Chambers (Open to public)
Date of Hearing: 8 June 2022
Date of Decision: 8 June 2022
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DECISION
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1. This is the hearing of an appeal against the decision of Master Maurice Lam given on 27 September 2021 in relation to two applications respectively taken out firstly by the defendants on 25 March 2021 to strike out parts of the Re-Amended Statement of Claim, and to vacate the registration of the writ against a property that the 2nd defendant owns as one of the joint tenants (“Defendants’ Summons” ), and secondly by the plaintiff on 26 July 2021 to amend the Re-Amended Statement of Claim both as to the name of the plaintiff and the contents of the pleadings (“Plaintiff’s Summons” ).
2. According to the Re-Amended Statement of Claim, the underlying proceedings concerned a partnership allegedly formed between Ms Ng Lam Man (“Ms Ng” ), a director of the plaintiff, and the 2nd defendant, the sole director and shareholder of the 1st defendant, in the operation of a beauty palour in Fanling. By virtue of the partnership, both the plaintiff and the 2nd defendant were said to have expended in the setting up of that business. About a month later, the 2nd defendant sought to terminate the partnership which was agreed by the plaintiff. This gave rise to the signing of what was described as a loan agreement between the plaintiff and the 1st defendant on 17 July 2018 which, inter alia , required 1st defendant to repay the plaintiff an aggregate amount of $1,200,000 plus interest (“Loan Agreement” ). For completeness sake, the defendants deny having signed the Loan Agreement. They were not aware of the agreement until these proceedings.
3. The original Re-Amended Statement of Claim was straightforward which consisted of two pages. The plaintiff brought these proceedings against the 1st defendant as the primary debtor and against the 2nd defendant as a personal guarantor.
4. Under the Defendants’ Summons, the defendants seek to strike out the following parts of the Re-Amended Statement of Claim:-
(a) the second sentence of paragraph 2, the whole of which provides,
“The 1st Defendant (“D1”) is a company duly incorporated under the laws of Hong Kong. At all material times, the 2nd Defendant (“D2”) is the sole shareholder and director of D1.”;
(b) the whole of paragraph 4, which provides,
“D2 has in the Loan Agreement entered into a collateral contract with the Plaintiff in her personal capacity as a guarantor guaranteeing D1’s performance of its obligation in the Loan Agreement.”
(c) the whole of paragraph 5, which provides,
“D2 has also agreed in Clause 6 of the Loan Agreement that she will pledge execute a mortgage of a property registered in her name as security for her performance of her obligation as a guarantor. The said property is now situated and known as Flat A3, 27/F, Block A, Yee On Court, 79 Waterloo Road, Ho Man Tin, Kowloon, Hong Kong (“the Property”). Pursuant to Clause 6 of the Loan Agreement, should D1 failed to repay the Loan before 31 December 2018, the Plaintiff has the right to acution the property to recover the Loan. ”
(d) the whole of paragraph 11, which provides,
“D2 has failed to discharge her obligation as a guarantor under the Loan Agreement.”
(e) and the whole of paragraph 12, which provides,
“D2 has failed to discharge her obligation as a guarantor under the Loan Agreement despite repeated demands from the Plaintiff after 31st December 2018.”
5. It is apparent that the 2nd defendant is seeking to sanitise all those claims against her as a personal guarantor leaving purely a contractual monetary claim under the Loan Agreement against the 1st defendant. It follows from this that the 2nd defendant also asks for the vacation of the registration of the writ in question as these proceedings no longer touch upon an interest in land.
6. Pausing here, it is to be noted that under the Defendants’ Summons, their application is merely brought under O 18, r 19(1)(b) and (d). Upon confirmation by Mr Lawrence Ngai, counsel for the defendants, at the hearing, the defendants also make their application on the ground that those paragraphs disclose no reasonable cause of action.
7. In response, the plaintiff seeks substantial amendments to the Re-Amended Statement of Claim under the Plaintiff’s Summons, attaching a draft Re-Re-Amended Statement of Claim which now comes up to 7 pages. By the amendments, the plaintiff wishes to bring an additional cause of action of fraud against the 1st and 2nd defendants, and to supplement its claim against the 2nd defendant as a personal guarantor.
8. In the written submissions of Mr Jackson Poon, counsel for the plaintiff, he placed great emphasis on the construction of clauses 6 and 9 of the Loan Agreement. The crux of the argument is that on a proper interpretation of the relevant parts of those clauses, the 2nd defendant effectively signed in a personal capacity such as to give rise to a written guarantee enforceable by the plaintiff. Mr Poon also argues that the Loan Agreement was a home-made agreement when the Court construes the document.
9. Mr Poon accepts that this is a new point which is not in the proposed amendments. In fact, as will be discussed further below, the plaintiff takes an entirely difference stance in the draft Re-Re-Amended Statement of Claim in that the 2nd defendant is alleged to have deliberately avoided signing the Loan Agreement in a personal capacity. It is on this basis the plaintiff founds it claim on fraud.
10. Having stood the matter down allowing further instructions to be taken, Mr Poon confirms that the plaintiff does not seek to include further proposed amendments or to rely on the new point described above.
11. Most of the amendments proposed in the Re-Re-Amended Statement of Claim are not opposed by the defendants. For the paragraphs originally specified under the Defendants’ Summons, the plaintiff makes the following amendments as crossed-out and underlined:-
(a) for paragraph 2,
“The 1st Defendant (“D1”) is a limited company duly incorporated under the laws of Hong Kong. At all material times, the 2nd Defendant (“D2”) is and was the sole shareholder and director of D1.”;
(b) for paragraph 4,
“D2 has in the Loan Agreement entered into a collateral contract with the Plaintiff in her personal capacity as a guarantor guaranteeing D1’s performance of its obligation in the Loan and Personal Guarantee Agreement.”
(c) for paragraph 5,
“D2 has also agreed in Further, being the sole director and shareholder of the D1, D1 was D2’s corporate veil and was in fact under complete and absolute control by D2. In effect, the Loan had been directly applied by D2 to her benefit. It is Clause 6 of the Loan and Personal Guarantee Agreement that she D2 will would provide a personal guarantee in favour of the Plaintiff by pledge ing execute a mortgage of a the p P roperty registered in her name as security and a guarantee for her performance of her obligation as a guarantor the due and punctual payment of the loan by D1 . The said property is now situated and known as Flat A3, 27/F, Block A, Yee On Court, 79 Waterloo Road, Ho Man Tin, Kowloon, Hong Kong (“the Property”). Pursuant to Clause 6 of the Loan and Personal Guarantee Agreement, should D1 failed to repay the Loan before 31 December 2018, the Plaintiff has the right to acution auction the p Property for sale to recover the Loan from such proceeds of sale (“甲方的股東及唯一董事李昕霖小姐，香港身份證號碼G631627(0)個人將會提供擔保扺押，同時會將名下的物業：Flat A3, 27/ F, Block A, Yee On Court, 79 Waterloo Road, Ho Man Tin, Kowloon, Hong Kong 作為擔保抵押。如甲方未能在2018年12月31日前歸還欠款給乙方，乙方有權申請拍賣有關物業以收回欠款”) .”
(d) the whole of paragraph 11, which provides,
“D2 has failed to discharge her obligation as a guarantor under the Loan and Personal Guarantee Agreement.”
(e) and the whole of paragraph 12, which provides,
“D2 has failed to discharge her obligation as a guarantor under the Loan and Personal Guarantee Agreement despite repeated demands from NLM on behalf of the Plaintiff after 31st December 2018.”
12. For the remainder of the draft Re-re-amended Statement of Claim, the defendants opposes to the following newly added paragraphs:-
(a) paragraph 5A, which provides,
“Although D2 failed to render a signature separately in her personal capacity as a personal guarantor to secure the D1’s full payment of the Loan, the Plaintiff pleas the Court to lift the corporate veil of D1 and treat D2 fully liable for her personal guarantee as provided by Clause 6 of the Loan and Personal Guarantee Agreement on just and equitable ground.”
(b) paragraph 9A, which provides,
“The Beauty Parlour which was operated by D2 was closed on or about 14 January 2019 and all monies paid by the customers of the Beauty Parlour were misappropriated by D2.”
(c) paragraph 9B, which provides,
“The Plaintiff has suffered loss and damage as a result of the wrongful acts of D2 and D2 is liable in damages to the Plaintiff.”
(d) the last sentence “and/or allow the Plaintiff to auction the Property for sale” of paragraph 12A, the whole of that paragraph provides,
“In breach of the Oral Agreement, D2 failed to act as a guarantor and repay the Loan and/or any amount due from D1 to the Plaintiff under the Loan and Personal Guarantee Agreement and/or allow the Plaintiff to auction the Property for sale.”
(e) paragraph 12E, which provides,
“Further or alternatively, D2 is liable to repay the Plaintff the Loan and the interest under the Loan and Personal Guarantee Agreement based on deceit and property by deception.
Particulars of fraud
(a) In or around November 2018, D2 instructed Ms Kim that if NLM goes to find D2, Ms Kim should not allow NLM to enter the premises of the Beauty Palour.
(b) It has always been the intention of D2 to use D1 as a corporate vehicle to misappropriate the beauty skincare products and equipment bought by the plaintiff and wind up D1 to avoid any personal liability and debts. D2 deliberately did not sign on the Loan and Personal Guarantee Agreement separately in her personal capacity. Hence, it is D2’s intention to defraud the plaintiff.
(c) On or around 13 January 2019, D2 misappropriated all the beauty skincare products and equipment from the premises of the Beauty Palour without notice to the plaintiff when the Loan has not been repaid. D1 was a vehicle of misappropriation.
(d) Staff of D1 was dismissed by D2 without any advance notice and without repayment of salary to the staff.
13. In support of the Plaintiff’s and Defendants’ Summonses, the parties have adduced a total of 6 affirmations. In my view, it is unnecessary to consider the evidence in any great detail for the purposes of their applications. One starts obviously with the pleadings.
14. I deal first with the plaintiff’s claim against the 2nd defendant as a personal guarantor. Formerly, the circumstances giving rise to that claim was not entirely clear. The original paragraph 4 provided that the 2nd defendant “has in the Loan Agreement entered into a collateral contract with the plaintiff”. The plaintiff had not pleaded any further particulars except to generally describe that the 2nd defendant guaranteed the 1st defendant’s performance of its obligations under the Loan Agreement in the capacity as a personal guarantor. There was a further averment in the original paragraph 5 that the 2nd defendant “has also agreed in Clause 6 of the Loan Agreement that she will pledge a property” as security for her performance of her obligation as a guarantor giving the plaintiff a right to auction if the 1st defendant failed to make payment.
15. The Loan Agreement, as pleaded in the original paragraph 3, was made between the plaintiff and the 1st defendant. How then the 2nd defendant entered into a collateral contract under the Loan Agreement was not discernible, at least not from the original pleadings. Notwithstanding the ambiguity, the Plaintiff’s claim against the 2nd Defendant, as it would seem, was not founded upon the collateral agreement when the original paragraphs 11 and 12 continued to state that she failed to discharge her obligations as a guarantor “under the Loan Agreement”.
16. By removing the words “in the Loan Agreement” in the amended paragraph 4, the plaintiff’s position is much clarified in that the “collateral agreement” refers to an agreement separately entered from the Loan Agreement. The new paragraphs 4A and 4B provide further particulars of that collateral agreement which was alleged to be made orally between the plaintiff and the 2nd defendant on the same day as the Loan Agreement. Briefly speaking, the collateral agreement, which is defined as the “Oral Guarantee”, requires the 2nd defendant to guarantee personally all amounts due by the 1st defendant under the Loan Agreement and to secure the 1st defendant’s debt by “putting up” her property.
17. The plaintiff has added two more new paragraphs one of which is paragraph 12A seen above. The other is paragraph 7A which provides,
“The Oral Guarantee and the Loan and Personal Guarantee Agreement was witnessed by Ms. Kim Zoe (金素妍) (“Ms. Kim”), who was the staff of D2 and attended the 17 July Meeting.”
18. It is to be noted that the new paragraphs 4A, 4B, 7A and most of paragraph 12A, subject to my findings below, are not objected by the defendants. In my view, the plaintiff, given that it has now made clear its position, must therefore be allowed to bring a claim under the Oral Guarantee against the 2nd defendant which necessarily will include the amended paragraphs 2 and 4. Whether or not the claim under the Oral Guarantee can be established as alleged will be a different matter altogether.
19. For the plaintiff’s fraud claim, this can be disposed of fairly shortly. The primary complaint raised by Mr Ngai, is that the factual allegations, namely the amended paragraph 5 and the new paragraphs 5A, 9A, 9B and 12E, are insufficient to support a plea of lifting the corporate veil of the 1st defendant. In this regard, Mr Ngai points out that the insufficiency speaks for itself when a number of allegations purportedly in support of such a plea raised in the affirmations of Ms Ng and Ms Kim Zoe (“Ms. Zoe” ) filed by the plaintiff have not been pleaded in the draft Re-Re-amended Statement of Claim. These allegations are serious which include, for example, an instruction from the 2nd defendant to Ms Zoe to ban Ms Ng from attending the beauty palour, a confession by the 2nd defendant to Ms Zoe that the Loan Agreement was signed in the name of the 1st defendant to avoid personal liability, the issuing of receipts and promotional materials using a different entity, the moving of stock to a different location, the misappropriation of merchandise, the termination of staff and eventually the business without notice and so on.
20. I do not agree with Mr Ngai. Albeit the newly amended pleadings, as they now stand, may lack the same degree of particularity as described in the affirmations of Ms Ng and Ms Zoe, the basic elements are by and large present albeit the corresponding averments appeared to be scattered at different parts of the draft Re-Re-Amended Statement of Claim. It was specifically pleaded that:-
(a) the 1st defendant was under complete and absolute control of the 2nd defendant such that in effect the monies advanced by the plaintiff had been directly applied to her benefit;
(b) in reliance on the oral guarantee, the plaintiff entered into the Loan Agreement with the 1st defendant;
(c) when the beauty palour was closed on or about 14 January 2019, all monies paid by customers of the 1st defendant were misappropriated by the 2nd defendant;
(d) two months before the close of business in November 2019, the 2nd defendant instructed Ms Zoe to stop Ms Ng from entering the beauty palour;
(e) the 2nd defendant deliberately failed to render a separated signature in her personal capacity under the Loan Agreement to evade personal liability;
(f) the 2nd defendant misappropriated the skincare products and equipment belonging to the 1st defendant;
(g) the 2nd defendant dismissed the staff of the 1st defendant without advanced notice and without compensation;
(h) generally, the plaintiff suffered loss and damages as a result of the wrongful acts of the 2nd defendant using the 1st defendant as a corporate vehicle for her misappropriation.
21. In my view, it cannot be said that the plaintiff’s plea to lift the corporate veil is impossible or unarguably bad. The plaintiff now brings a new claim of fraud against the 2nd defendant that she used the 1st defendant as sham to evade liability under the Loan Agreement. The above assertions may or may not be excusable. This will be a matter for trial. In the event that the plaintiff succeeds in establishing fraud, it is not fanciful to seek to lift the corporate veil of the 1st defendant in order to hold the 2nd defendant liable for the Loan Agreement. If, as the defendants argue, there is an insufficiency in pleadings at this stage, this can be cured by further amendments. Alternatively, the defendants may seek further and better particulars for those paragraphs if they wish to understand what case they are to meet.
22. However, the same cannot be said in relation to the guarantee under the Loan Agreement. Mr Ngai refers me to the case of Prest v Petrodel Resources Ltd and Others [2013] 2 AC 415 and I accept his submissions that the plea to lift the corporate veil only entitles the plaintiff to claim a joint and several liability on the part of the 2nd defendant with the 1st defendant under the Loan Agreement. It does not give rise, even on establishing that plea, to creating a separate contract of guarantee.
23. In any event, as explained above, the claim by the plaintiff against the 2nd defendant as a personal guarantor is based on an oral guarantee. There is no pleading about the entering of a written guarantee between the plaintiff and the 2nd defendant. Accordingly, I disallow paragraphs 11, 12, and the words “and/or allow the plaintiff to auction the Property for sale” in the new paragraph 12A of the Re-Re-amended Statement of Claim.
24. It follows from this, as I also accept the submissions of Mr Ngai, the oral guarantee fails to satisfy s.3 and s.5 of the Conveyancing and Property Ordinance , Cap 219 and will be unenforceable in so far as the security in the property of the 2nd defendant is concerned. The argument that the Loan Agreement constitutes a written memorandum of the oral guarantee must also fail for being insufficient for the purpose of Conveyancing and Property Ordinance . The plaintiff has not pleaded that the Loan Agreement constituted a written memorandum as such in the first place. The claims in these proceedings therefore do not touch upon an interest in land and therefore the registration of the writ must accordingly be vacated.
25. That disposes both the Plaintiff’s and the Defendants’ Summonses. It will be unnecessary to deal with the other points raised by parties including the arguments on jurat of the plaintiff’s affirmations raised by Mr Ngai. I must make the remark that it is surprising for parties to have filed affirmations comprising hundreds of pages of documents in applications of this nature. Most of these documents have not been referred to either in oral or written submissions by either party.
26. As for costs, having heard submissions from Counsel and considering the matters in the round, I order that the costs of the Plaintiff’s Summons and the Defendants’ Summons, including the costs of the hearing before Master, to be in the cause. Costs of the amendments of course will be borne by the Plaintiff in any event.
27. In summary, I make the follow orders:-
(a) the Order of Master Maurice Lam dated 27 September 2021 be set aside;
(b) the registration of a sealed copy of the Amended Writ of Summons in this action by Memorial No. 190891301140018 against Flat A3 on 27th Floor of Block A, Yee On Court, No. 79H Waterloo Road, Kowloon, Hong Kong be vacated;
(c) Leave to the plaintiff to amended the Re-Amended Writ of Summons and the Re-Amended Statement of Claim by changing its name from “GLOBE GROUP LIMITED” to “UNIVERSE LIMITED (formerly known as GLOBAL HOLDINGS LIMITED and GLOBE GROUP LIMITED (中國人民控股有限公司)” and in the manner marked and underlined in purple as per the draft annexed to the Summons filed herein on 26 July 2021, save and except that the following are to be deleted:-
1. the sentence “and treat D2 fully liable for her personal guarantee as provided by Clause 6 of the Loan and Personal Guarantee Agreement on just and equitable ground” in the proposed new paragraph 5A;
2. the proposed new paragraph 11;
3. paragraph 12;
4. the sentence “and/or allow the plaintiff to auction the Property for sale” in the proposed new paragraph 12A.
(d) The plaintiff do file and serve the Re-Re-Amended Writ of Summons and the Re-Re-Amended Statement of Claim within 14 days from this Order;
(e) The Acknowledgment of Service of the Re-Amended Writ of Summons of the 1st and 2nd defendants do stand;
(f) Leave to the 1st and 2nd defendants to file and serve respectively an Amended Defence and an Amended Defence and Counterclaim within 28 days thereafter;
(g) Leave to the plaintiff to file and serve an Amended Rely and Defence to Counterclaim within 28 days thereafter;
(h) Costs of the 1st and 2nd Defendants’ Summons filed on 25 March 2021 and the costs of the Plaintiff’s Summons filed on 26 July 2021, including the hearing before Master Maurice Lam and the hearing today, be in the cause with certificate for Counsel;
(i) Costs of and occasioned by the amendment be to the 1st and 2nd defendants in any event, to be taxed if not agreed.
( Jason Wong )
Deputy District Judge
Mr Jackson Poon, instructed by B Mak & Co, for the plaintiff
Mr Lawrence Ngai, instructed by Chung & Kwan, for the 1st and 2nd defendants