THOMAS BOVET v. SELPRO TACTICAL LTD AND ANOTHER

 DCCJ 3477/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 3477 OF 2008

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J U D G M E N T

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Background

1.  Mr. Bovet, a retired businessman, claims that he advanced a sum of $180,000 to his friend, Mr. Pinto, on the strength of their friendship and his trust in Mr. Pinto.  The money was actually paid by cheque to Selpro, a company of which Mr. Pinto is a shareholder and director.  Selpro is a company in Hong Kong which deals in law enforcement products such as bullet resistant vests, and is in the business of importing and selling these products to parties such as the Hong Kong Police.  Mr. Bovet alleges that the advance was induced by and made in reliance on representations made by Mr. Pinto personally to Mr. Bovet.  These proceedings are commenced by Mr. Bovet against Selpro and Mr. Pinto for recovery of the sum of $180,000 plus interest and liquidated damages of HK$5,000.

2.  Mr. Bovet's claims are defined by the pleadings filed in these proceedings. In paragraph 2 of the Amended Statement of Claim (drafted by the solicitors then acting for Mr. Bovet), it is pleaded that Selpro, through Mr. Pinto, asked Mr. Bovet for a loan of $180,000 ("Advance") to finance Selpro's operation.  In fact, judgment in default was entered against Selpro on 30 September 2008 for Selpro's payment of the sum of $180,000,  $13,500 as agreed interest and $5,000 liquidated damages.

3.  Mr. Bovet 's pleaded claim against Mr. Pinto is not that the loan was made to him, but that the loan made to Selpro was induced by Mr. Pinto's representations which turned out to be untrue.

4.  According to paragraph 2 of the Amended Statement of Claim, Mr. Pinto represented and warranted to Mr. Bovet that Selpro had some purchase orders from the Hong Kong Police; that "the deal was 100% secure" because Selpro had been dealing with the same supplier for 15 years and the Hong Kong Police would honour payment for the goods; and that Selpro would receive payment from the Hong Kong Government by 20 April 2008 ("Representations").  In reliance on these Representations, Mr. Bovet made the Advance to Selpro, by way of a cashier order issued to Selpro on 5 March 2008 for the sum of $180,000.  This was described in Mr. Bovet's Statement as a form of "bridging loan", to enable Mr. Pinto to make payment to his company's suppliers in order to obtain goods for delivery to the Hong Kong Police.

5.  Mr. Bovet claims that Mr. Pinto 's Representations were false and untrue, as the deal was not "secured", and Selpro did not receive payment from the Hong Kong Government in April 2008, as warranted by Mr. Pinto. He claims that the Representations were made by Mr. Pinto fraudulently, or recklessly.  Mr. Bovet therefore claims that Mr. Pinto is personally liable to pay to him the sum of $180,000, together with agreed interest of $13,500 on the Advance.

6.  By way of Defence, Mr. Pinto denies that he had ever represented to Mr. Bovet that the transaction was secure.  He further denies that there were any misrepresentations, and that at all material times, he had believed that the Representations of fact were true.  In particular, Mr. Pinto claims that he was at all material times acting for and on behalf of Selpro, and denies that he is in any way personally liable to Mr. Bovet.

The Issues

7.    The issues for determination at trial are:

(1)   whether Mr. Pinto had made the Representations to Mr. Bovet;

(2)   the meaning of the Representations;

(3)   whether the Representations were untrue, and if so, whether Mr. Pinto knew that they were untrue or was reckless not caring whether they were untrue;

(4)   whether Mr. Bovet was induced by the Representations to make the Advance; and

(5)   whether Mr. Pinto made the Representations in his personal capacity or as the representative for and on behalf of Selpro.

Whether Mr. Pinto had made the Representations to Mr. Bovet

8.  Mr. Bovet claims that the Representations were made and contained in two e-mails dated 9 January 2008 from Mr. Pinto to Mr. Bovet, an e-mail dated 2 March 2008 from Mr. Pinto to Mr. Bovet, and in oral statements made by Mr. Pinto during telephone conversations and meetings from January to March 2008 and at a meeting on 5 March 2008 in a bar in Wanchai.

9.  Mr. Pinto claims that the e-mails dated 9 January 2008 relate to an earlier transaction whereby Mr. Bovet had provided a separate loan of $200,000.  He denies that the e-mails relate to the Advance made in March 2008.

10.  According to Mr. Bovet, Mr. Pinto first raised the bridging loan which he required for his business in December 2007, when he explained to Mr. Bovet that his suppliers required full payment in advance before starting production of goods, whereas under the orders which his company received from the Hong Kong Government, payment would only be made around two weeks after delivery.  Mr. Bovet said that he agreed to make advances to Mr. Pinto based on his personal trust and on Mr. Pinto's personal guarantee and representation that the loan would be repaid within the agreed time.  Mr. Bovet explained that as he had retired from business over 10 years ago, he had no regular income and was only living off the proceeds from the investments of his savings.  On Mr. Bovet 's case, he had explained to Mr. Pinto that he could not afford the slightest risk, and that repayment of his loan must be guaranteed by the agreed time period.  Mr. Bovet claims that Mr. Pinto had agreed that if a loan was required, Mr. Pinto would give Mr. Bovet a cheque, postdated to the "latest agreed date of payment", presumably referring to the payment date agreed with Selpro's buyers.

11.  According to the e-mail dated 9 January 2008 from Mr. Pinto to Mr. Bovet, he referred to a batch of orders for goods of a total value of $600,000.  He said that they were short of $200,000, and asked if Mr. Bovet was interested to "come in with the $200,000".

12.  In reply, Mr. Bovet responded by e-mail, saying that he understood the trade, but asked Mr. Pinto to "make sure it's secure".  Mr. Pinto responded to this with an e-mail to Mr. Bovet which reads:

"It's great to have you aboard, and I hope this will be the first of many opportunities for us to work together.  The deal is 100% secure because we've been dealing with the same supplier for 15 years. …. I can bring a post-dated cheque with me."

13.  The loan of $200,000 referred to in the January e-mails was made, and duly repaid to Mr. Bovet with agreed interest of $15,000.

14.  On 2 March 2008, Mr. Pinto sent the following e-mail to Mr. Bovet :

"As I thought, we only need HK $180,000 this time and we'd pay back the capital plus interest of HK $13,500 by way of a post-dated cheque dated 30 April. Note that we expect we’ll actually receive payment by 20 April, but we just want to cover postal delays and weekends."

15.  Mr. Bovet claims that on 5 March 2008, when he handed to Mr. Pinto a cashier order for $180,000, Mr. Pinto had repeated the same representations that the deal covered by his loan "was secured" and that the Hong Kong Government would honor payment in April 2008.  Mr. Pinto gave Mr. Bovet a cheque for $193,500, postdated to 30 April 2008.

16.  I accept, on a balance of probabilities, that the Representations were made by Mr. Pinto in his e-mail of 9 January 2008, and on 5 March 2008, that the deal covered by Mr. Bovet's loan is "100% secure", and that the Hong Kong Government would make payment in April 2008.  I accept that Mr. Pinto's e-mail of 9 January 2008 extended to the Advance in March 2008, as his e-mail referred to their future opportunities of working together on loans of a similar nature.

17.  What the Representations mean, whether there were misrepresentations, and the capacity in which the Representations were made by Mr. Pinto would be separately addressed below.

The meaning of the Representations

18.  The onus or burden of proof is on Mr. Bovet, as Plaintiff, to prove that Mr. Pinto had made misrepresentations, or that the Representations were untrue.

19.  On the face of the Representations as made in the e-mail correspondence and repeated in oral discussions, it is unclear what is meant by "the deal is 100% secure".

20.  On Mr. Bovet's own case, he pleads in paragraph 2(b) of the Amended Statement of Claim that one of the Representations was that "the deal was 100% secure because Selpro had been dealing with the same supplier for 15 years and the Hong Kong Police would honour payment for the goods".  On its face, the Representation of "100% secure" would appear to be confined to the matters stated expressly as the basis of the warranty: that it was secure because Selpro had been dealing with the same supplier, and that the Hong Kong Police would honor its payments.

21.  Can the Representation amount to Mr. Pinto's guarantee that the Advance would be repaid in full?  Although Mr. Bovet referred in his Statements to his request for Mr. Pinto's "personal guarantee", and that the repayment of the Advance "must be absolutely guaranteed by the agreed time period", he only went on to say that what Mr. Pinto agreed was that if a loan was required, he would give Mr. Bovet a post-dated cheque.  I am not satisfied that what Mr. Pinto had agreed amounts to a guarantee of payment being received by Mr. Bovet.  On Mr. Bovet 's own case, Mr. Pinto had only agreed to give a post-dated cheque.

22.  Considering the entirety of Mr. Bovet 's evidence, it appears to me that the assurances of "security" discussed and given by Mr. Pinto were only that the transaction underlying the Advance was secure, or not risky, because Mr. Pinto and Selpro had been dealing with the same supplier of the products in question for many years, because the buyer from Selpro is the Hong Kong Police which carries some guarantee of payment, and that the date of repayment of the Advance would be secured by a post-dated cheque issued by Selpro, which corresponds to the date when payment was expected to be made to Selpro.

23.  Even if the Representation that "the deal was 100% secure" should constitute some absolute guarantee from Mr. Pinto that the Advance would be repaid by Selpro to Mr. Bovet, the issue of Mr. Pinto's liability for such Representation will still have to be considered under the final issue.

Whether the Representations were untrue

24.  Of the 3 Representations pleaded in paragraph 2 of the Amended Statement of Claim, there is no evidence that the first Representation, that Selpro had some purchase orders from the Hong Kong Police, was untrue.

25.  To the extent that the second Representation is to be construed to mean that the transaction underlying the Advance was secure because Selpro had been dealing with the same supplier for 15 years, again, there is no evidence that it was untrue that Selpro had been dealing with the same supplier for the stated period.

26.  To the extent that the transaction was 100% secure because the Hong Kong Police would honour payment for the goods to be supplied by Selpro, Mr. Pinto 's evidence is that he believed at the time that the material facts relating to the transaction were true: that the Hong Kong Police would honor payment for the goods to be supplied, and that payment would be received from the Hong Kong Government by 20 April 2008 (the third Representation pleaded in paragraph 2(c)) of the Amended Statement of Claim).

27.  Apart from Mr. Bovet 's submissions, that Mr. Pinto must have moved funds between his personal account and Selpro 's account to pay his personal bills and expenses, that Selpro's financial condition must be known to Mr. Pinto, and that the circumstances of the case suggest that Selpro was in dire financial state before the dates of the loans from Mr. Bovet, there is no evidence before the Court in relation to Selpro's  finances.   In my Judgment, there is simply insufficient evidence for me to conclude that Mr. Pinto had no basis to believe, in March 2008 when he requested the Advance, that the Hong Kong Police would not be making payment to Selpro for the goods, or that Selpro would not expect to receive payment by 20 April 2008, such that these Representations were untrue.

Whether Mr. Bovet was induced by the Representations to make the Advance

28.  I accept, on the evidence, that Mr. Bovet was indeed induced by the Representations to make the Advance.

Whether Mr. Pinto made the Representations in his personal capacity or as the representative for and on behalf of Selpro

29.  Even if Mr. Pinto had represented that the Advance would be repaid by Selpro, such that it was "100% secure" for Mr. Bovet, the key issue is whether Mr. Pinto can at law be held personally liable to Mr. Bovet, either for misrepresentation, or for repayment of the Advance.

30.  There can be no dispute that in all the e-mails from Mr. Pinto which are relied upon by Mr. Bovet as evidence of the request for and discussions on the Advance, Mr. Pinto had throughout referred to Selpro, and the business of Selpro. Mr. Pinto refers to "our annual problem with the Hong Kong Police placing last minute orders”, "our bank details", and the fact that "we've been dealing with the same supplier".

31.  In his e-mail of 2 March 2008, Mr. Pinto states:

"… we only need HK $180,000 this time and we'd pay back the capital plus interest of HK $13,500 by way of a post-dated cheque dated 30 April. Note that we expect we’ll actually receive payment by 20 April, but we just want to cover postal delays and weekends.

You should also give us your bank account name and account details so that we can add you as a payee with our online banking."

32.  It is Mr. Pinto's case that he had throughout been acting for and on behalf of Selpro, as Selpro’s director, and that Mr. Bovet was dealing throughout with Selpro.  Mr. Bovet's pleaded case is also that the loan was made to Selpro.  Mr. Pinto’s defence is that any representation which he had made to Mr. Bovet was made by him as director and on behalf of Selpro.

33.  On the evidence, I accept that Mr. Pinto issued the e-mails of 9 January 2008, 2 March 2008 and 4 March 2008 as agent and director of Selpro.

34.  It is trite law that for a director acting on behalf of a company to incur personal liability, there has to be an assumption of responsibility by the director, and the plaintiff seeking to recover from the director must show that he had reasonably relied upon such assumption of personal responsibility by the director (Williams v. Natural Life Health Foods Ltd. [1998] 1 WLR 831; Wycombe Investment Ltd. v. Edwin Leong Siu Hung HCCL 66/2004, 18 July 2005).

35.  In paragraph 88 of his Judgment in Wycombe, Stone J referred to the observations of Hirst LJ in the Court of Appeal in Williams, to the effect that having regard to the importance of the status of limited liability, a company director is only to be held personally liable for negligent misstatements if the plaintiffs can establish "some special circumstances setting the case apart from the ordinary", and that in the instance of a one-man company, "particular vigilance is needed, lest the protection of incorporation should be virtually nullified".  Stone J pointed out that in the same case in the House of Lords, Lord Steyn had observed that the category of case in which a director will be fixed with personal liability for negligent misstatement "is a rare category, and a severely restricted one", and that if this were not so, "representees could set at naught the protection which limited liability is designed to confer on those who incorporate their business activities".  The conclusion drawn by Stone J was that a court should hesitate before finding that a director has assumed personal responsibility for an act attributed by law to his company.

36.  On these legal principles, and bearing in mind that the legal and evidential burden is on Mr. Bovet as plaintiff to establish that Mr. Pinto had assumed personal responsibility at law for the acts of his company, I am unable to find from the limited evidence available any representation by Mr. Pinto that he would be prepared to assume personal responsibility, either for repayment of the Advance or for any of the Representations made.

37.  It is indeed a difficult burden to discharge, when a plaintiff seeks to establish that a defendant had assumed personal liability for the acts of a limited company.  More for the sake of the parties to this case who are not legally represented, I set out the judgment of Buckley J in Ojjeh v. Waller Queen's Bench Division, unreported, Lexis transcript dated 14 December 1998, which was quoted in the case of Wycombe Investment Ltd. :

"Apart from cases in which the third party reasonably thought that he was dealing with an individual, it must be difficult to find circumstances, short of an express personal warranty, where the director has assumed personal responsibility.  Particularly in the case of a small, effectively one-man undertaking, all the sales talk, all the expertise will necessarily come from the proprietor.  However extravagant, it cannot, without more, lead to the personal liability of the individual. If it did there would be no protection in incorporation.  There must be something to show that the proprietor is taking off his corporate hat so that the third party not only relies on his expertise but it is reasonable for him to look to the proprietor's personal pocket book as opposed to the company's …

It is inherently unlikely either that the proprietor will wittingly do so or that the third party will believe him to have done so …

The prima facie position must be that by incorporating his business, the proprietor not only intended to keep his "pocket book" in his own pocket but has manifested that intention to those with whom he trades thereafter so that it cannot be reasonable for third parties to rely or subsequently to profess reliance upon a personal assumption of responsibility, save in unequivocal circumstances.  The onus must be firmly on the third party who wishes to displace the manifest intention of the proprietor."

38.  Mr. Bovet had appreciated that the Advance was to be made to Selpro, for Selpro's business of supplying products to the Hong Kong Police.  I am not able to see any unequivocal evidence of Mr. Pinto's representation of personal involvement.  There is nothing in the evidence that can establish that Mr. Pinto had agreed or said anything to indicate that he would be prepared to agree to give a personal undertaking to Mr. Bovet that the Advance would be repaid, or that it was "100% secure".  The e-mails relied upon by Mr. Bovet are inadequate as they are not clearly and sufficiently distinguishable from Mr. Pinto's routine involvement in the business affairs of Selpro.  In my judgment, there is "no singular feature which would justify the belief that (Mr. Pinto) was accepting a personal commitment, as opposed to a known company obligation" (adopting, as Stone J did, the words of McGechan J in Trevor Ivory Ltd. v. Anderson [1992] 2 NZLR 517).

39.  It follows that I must reject Mr. Bovet's contention as to any assumption of personal responsibility by Mr. Pinto. 

Conclusion

40.  This is an unfortunate case of a breakdown of trust and confidence between friends. Nevertheless, I must dismiss the action against Mr. Pinto, with costs to be paid by Mr. Bovet, to be taxed if not agreed.