CHAN TING KWAN TYRONE v. PENNY FARTHING AGENTS LTD AND ANOTHER

HCA3207/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3207 OF 2003

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J U D G M E N T

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1. I would dismiss the appeal of the 2^nd defendant against the Master’s decision to enter summary judgment against him.  

Background

2. The 1^st defendant is the subsidiary company of one Surge Recreation Holding Limited (“the Holding Company”).  The 2^nd defendant is and was at all material times the chairman and a director of the Holding Company.    

3. By a loan agreement dated 6 November 2001 (“the Loan Agreement”) executed by the plaintiff and the 1^st defendant, the 1^st defendant confirmed and agreed that the plaintiff had made various loans to the 1^st defendant, totalling the sum of HK$10,698,077.69 with interest (“the Sum”).  The Sum was agreed to be repaid by the 1^st defendant to the plaintiff on 31 December 2002.

4. At the same time, by a guarantee also dated 6 November 2001, the 2^nd defendant guaranteed the repayment of the Sum to the plaintiff. 

5. By a supplemental agreement dated 10 June 2002, the plaintiff agreed to extend the repayment time under the Loan Agreement to 31 July 2003.

6. Both the 1^st and 2^nd defendants failed to repay the Sum.  In this action the plaintiff claimed the Sum and, by way of Order 14 Summons dated 14 November 2003, the plaintiff also sought summary judgment against the 1^st and 2^nd defendants.  The learned Master Au-Yeung, on 24 February 2004, gave summary judgment in terms of the Summons against both defendants.  Only the 2^nd defendant appealed against the decision of the Master. 

7. By way of defence, the 1^st and 2^nd defendants raised basically two categories of defences.  The first one is misrepresentation of the amount and the second one is set-off by way of counterclaim in respect of four sums of money.  I shall deal with each one of them hereinbelow.  

Misrepresentation

8. The first defence of misrepresentation is that the various sums of money as stated in the Loan Agreement were incorrect and therefore there was a misrepresentation in the amount due and owing to the plaintiff.  The 2^nd defendant pointed out that in respect of the list of previous advances by the plaintiff to the 1^st defendant at page 61 of the exhibit bundle and also at page 363 stating the loan to Sammy Li (i.e. the 2^nd defendant)/the Holding Company, the item of money paid by the plaintiff on behalf of the 2^nd defendant was stated to be RMB500,000 @ 1.075 exchange rate each on 17 and 30 August 2001.  I should restrict myself to page 61 for the time being.  The amount converted into Hong Kong dollar was, however, 1,009,433.96 and 943,396.23.  This is obviously arithmetically incorrect and therefore a kind of mistake.  But is it a misrepresentation which is the issue. 

9. The plaintiff explained that that was a typing error and produced page 363 and pages 103 and 104 stating clearly that the amount acknowledged and paid by the plaintiff and signed by the 2^nd defendant was RMB1.07 million and RMB1 million respectively.  The correct amount as produced in the exhibit bundle page 363 at a conversion rate of 1.06 would give the exact figures of HK$1,009,433.96 and HK$943,396.23 respectively. 

10. There was no reply from the 2^nd defendant both as to his acknowledgment of receipt of these two monies and the plaintiff’s contention that it is not true that the 2^nd defendant only received RMB500,000.  The total sum owed to the plaintiff was unequivocally acknowledged and stated in the prospectus for the Holding Company’s initial public offer dated 31 July 2002, that is exhibit bundle pages 199 and 241.  The prospectus was verified after due diligence by the directors and the auditors.  The Loan Agreement was prepared by the 1^st defendant’s solicitors themselves and the list was annexed to the Loan Agreement and the 1^st defendant acknowledged to the plaintiff that those were the various sums of money owed by the 1^st defendant to the plaintiff.  Thus I do not consider that the 2^nd defendant has any case on misrepresentation according to the documentary evidence before me. 

Set-off

11. The second set of defence was by way of set-off.  There are altogether four sums.  First, the 1^st and 2^nd defendants alleged that a sum of about HK$5 million odd was borrowed by the plaintiff from a company known as, in short, Wu Liang Yi (五粮液), which sum was allegedly paid to the 1^st defendant’s subsidiary called Fai To (飛圖).  However, the evidence in support of the first alleged set-off shows that this purported loan of HK$5 million odd had in substance nothing to do with the plaintiff.  The loan was made by Wu Liang Yi to Fai To.  In any event even the 1^st and 2^nd defendants pleaded that Fai To had already assumed the liability to repay the said loan to Wu Liang Yi.  Thus this HK$5 million odd had nothing to do with the plaintiff and the purported defence of set-off must fail. 

12. The second sum of set-off is an amount of HK$1.3 million odd allegedly advanced by the Holding Company to one Hanmark Enterprises Limited (“Hanmark”) of which the plaintiff was one of the shareholders.  The defendants alleged that in or about November 2002, the plaintiff orally agreed with the Holding Company’s Financial Controller, Leung Hon Fai (“Mr Leung”) that this sum should be set-off and/or deducted from the Sum owed by the 1^st defendant to the plaintiff.  However these allegations are only pure assertion and there is no documentary support either for the advancement of the alleged loan of HK$1.3 million or for the alleged oral agreement.  

13. Further, the alleged oral agreement for set-off was never recorded and reflected in the accounts and/or books or records of the 1^st defendant.  In any event, the plaintiff was only a shareholder of Hanmark and Mr Leung was only the Financial Controller of the Holding Company.  There is no evidence to show that either the plaintiff (vis-à-vis Hanmark) or Mr Leung (vis-à-vis the Holding Company) had the necessary authority to enter into such an oral agreement.  In the end, the allegation, in my view, is just moonshining shadow and incredible.  The defence must fail on this second alleged set-off.

14. The third alleged set-off sum of $900,000 odd was alleged to be part of the professional fees incurred for the Holding Company’s initial public offer and payable by the plaintiff.  However the defendants averred that these professional fees were payable by the plaintiff and/or one Mr Wong Sai Kit (“Mr Wong”).  It was also alleged that in or about November 2002, the plaintiff orally agreed with the aforesaid Mr Leung that the said sum be set-off and/or deducted from the Sum owed by the 1^st defendant and due to the plaintiff.  The defendants were not even sure by their pleadings whether it was the plaintiff and/or Mr Wong were/was liable for these fees.

15. Of course, the defendants also alleged that Mr Wong was a nominee or agent of the plaintiff.     However, the documentary evidence provided by the defendants clearly and unequivocally showed that it was Mr Wong who was liable to pay the said sum.  The subsequent allegation by way of Mr Li’s affidavit that Mr Wong was the plaintiff’s nominee or agent is just a bare assertion and apparently an afterthought.  I consider that the evidence is again a moonshine defence.

16. The fourth sum of money pleaded by way of set-off was a sum of HK$1.8 million allegedly an amount of investment made by one Mr Chung Tung Sau (“Mr Chung”) in the 1^st defendant’s associated company, which was used as a partial payment to the plaintiff for the facilities granted by the plaintiff to the 1^st defendant.  However, as pointed out by Mr Thomas Au counsel for the plaintiff, the allegation in the defence is different from the affidavit evidence of the 2^nd defendant.

17. Originally in paragraph 11 of the defence, it was pleaded that in or about July 2001, Mr Chung had invested the sum of HK$1.8 million in a company called Bright Prospectus Associate Limited which is an associate company of the 1^st defendant.  The said sum of HK$1.8 million was paid to the plaintiff on or about 31 July 2001 by Mr Chung in partial payment of the facilities then granted to the 1^st defendant.  Accordingly, the 1^st and 2^nd defendants claimed to set-off by this sum.  That was October 2003 when the defence and counterclaim was filed. 

18. On 14 November 2003, the plaintiff took out this Order 14 Summons for summary judgment.  Thereafter Mr Li’s version in his affidavit changed into another different allegation.  He said that prior to the first attempt of the public listing of the 1^st defendant, the plaintiff had introduced a buyer, i.e. Mr Chung for a portion of the 2^nd defendant’s shares at the price of HK$1.8 million.  The deal was that the said price of HK$1.8 million was first to be paid by Mr Chung to the 2^nd defendant and then after the said listing, the corresponding shares of Mr Li with the 2^nd defendant would be transferred to Mr Chung.  However, the plaintiff then requested the 2^nd defendant to pay HK$1.8 million first to the plaintiff as the plaintiff was then in need of the money.  Thus, the 2^nd defendant allowed Mr Chung to make the payment of HK$1.8 million to the plaintiff instead of to the 2^nd defendant himself. 

19. In other words the original defence was that the 1^st defendant’s company would deduct HK$1.8 million from the Sum due and owing to the plaintiff after the 1^st defendant had received the money from Mr Chung.  But afterwards this allegation changed to another version and that is Mr Chung paid the plaintiff directly instead of to the 2^nd defendant and therefore the 2^nd defendant is entitled to set-off this sum of money from the Sum due and owing to the plaintiff.  In this second version and only in this changed version the 2^nd defendant could afford a defence of set-off against the plaintiff himself.  Otherwise it would remain, as alleged in the defence, a set-off by the 1^st defendant company only.  Consequently, this inconsistent and change of version lacks credibility and therefore must also fail. 

The 1^st defendant’s position

20. Finally I also accept Mr Au’s submission that the 1^st defendant lost the summary judgment entered against it and it was not appealing against that decision of the learned Master below.  Thus, for all intents and purposes, the 1^st defendant is now adjudged to owe the plaintiff the said Sum.  Consequently it is not open to the 2^nd defendant to make any contrary contention in the form of the first, second and third alleged set-off defences.  The original defence by way of the fourth set-off as I have stated before was related to the 1^st defendant only but of course the 2^nd defendant changed this version to one which related to he himself.  For that I have already said that these inconsistent versions could not be helpful to the 2^nd defendant anyway.  (I was later informed that the 1^st defendant has obtained leave to appeal out of time and its appeal will be heard later.)

21. Lastly, the notice of appeal was filed out of time and the 2^nd defendant was actually seeking leave to appeal out of time first and his explanation was that he had financial difficulties.  However, there was no concrete evidence apart from his bare assertion that he was in financial difficulty.  It is also a bare fact, as pointed out by Mr Au, that the 2^nd defendant through his wholly owned company, one Super Master Holdings Limited had sufficient means to issue litigation which went through a full trial of three days in early March 2004 in HCA4573/2003 and that company had the sufficient means to instruct two counsel to appear for it in the trial before Reyes J on 26 March 2004.

22. I do not consider the 2^nd defendant has made out an acceptable ground in his application for leave to appeal out of time.  However in any event I do not consider there is any ground of appeal herein for the aforesaid reasons.  Therefore the appeal of the 2^nd defendant is dismissed with costs to the plaintiff, to be taxed if not agreed.