LEO INNOTECH (HOLDING) LTD v. LEE SHUNG CHI

HCA 474/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 474 OF 2015

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D E C I S I O N

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Introduction

1.  This is an application for summary judgment.

Background

2.  On 6 March 2015, the plaintiff commenced the present proceedings upon 2 loan agreements both dated 28 February 2014. The plaintiff said that the defendant owed to it the total sums of $9,583,009.38 as on 10 February 2015.  There was no repayment despite a final demand letter through solicitors.  The plaintiff therefore claimed the said sum, interests and costs.

3.  The defendant contested the proceedings.  By his Defence, he averred, inter alia, that, the plaintiff, through its representatives, made false, fraudulent and dishonest representations to him in about early 2014 to induce him to endorse on the documents. Pending further discovery and interrogatories, it was the best particulars provided by the defendant. The commencement of the present action was also collectively part of the conspiracy to defraud the defendant for the own financial benefits.

4.  In the Reply, the plaintiff denied the alleged misrepresentations and/or that the defendant was induced by the same.  All commercial transactions were done at arm’s length.  The defendant ascertained all commercial values, business circumstances and risks before entering into the transactions.  There was no particulars provided and the defendant in fact had no defence at all.

Application for summary judgment

5.  The plaintiff then issued the present order 14 summons.  Mr. Lai King Lung, a director of the plaintiff prepared the supporting affidavit.  He produced copies of the 2 loan agreements.  The bigger loan represented a replacement of the earlier loan agreement dated 1 January 2010.  It was the loan lent to the defendant for his share of the investment regarding capital in the plaintiff. The smaller loan was a new standby facility of $ 1 million made available to the defendant. From 14 February 2014 to 10 March 2014, the defendant drew 4 sums totaling about $600,000.  Notwithstanding the issuance of the demand letter by the plaintiff’s solicitors on 10 February 2015, the defendant failed to repay the plaintiff anything at all.

6.  The defendant filed his affirmation in opposition.

7.  He spent some time explaining the background of the parties’ relationship. He was a pioneer in radio-frequency identification (“RFID”) system.  He set up his own business from 2003 to 2008.  He held his patent by a company called “Avanti”. In about 2008, he met the “Leo Paper Group” who expressed interest in acquiring Avanti and further developed RFID.

8.  The defendant accepted the proposal of acquisition.  Under it, he would sell Avanti at $500,000 to the plaintiff.  He further received 300 shares (representing 10% shareholdings) in the plaintiff and became a director in it.  He would also work for Avanti (name later changed to “LIT (HK)”) as an employee and receive salary.

9.  The defendant later also took up the managerial position of another subsidiary of Leo Paper Group in Guangzhou, called “LIT (GZ)”.

10.  However, the relationship of the parties later turned sour.  Briefly, the defendant developed and held another patent which Leo Paper Group insisted that it should not belong to him.  He eventually conceded.  However, despite expression of discontent and asking for return of it, Leo Paper Group never answered him.

11.  The defendant then said that parties had no intention that the subject loan agreements were legally binding.  Alternatively, they were entered into by fraud or misrepresentation on the part of the plaintiff.

12.  In about early 2014, there were financial problems in LIT (HK) and LIT (GZ).  Parties discussed restructure but it fell through as no consensus on the exact terms and related arrangements could be reached.

13.  When the defendant signed the $1 million loan agreement, he was assured repeatedly by Mr. Leung, the chairman of Leo Paper Group, that it would not be enforced. In the words of Mr. Leung, “只係門面功夫”and “你信我梁鎮華”. With hindsight, the defendant agreed that it was rather silly, but he genuinely held such belief at the time of signing the document.  The money was indeed used to pay the salary of the employees of LIT (HK) and LIT (GZ) but not to defendant himself.  

14.  As to the bigger loan, the defendant explained that Leo Paper Group decided to invest and inject $85 million.  As 10% shareholder, he was told that it would better to state on paper he was shouldering $8.5 million.  However, in fact, the whole of the investment was still paid by Leo Paper Group.  When he signed the loan agreement, Mr Leung said “只係門面功夫”, “只係俾投資者睇”. He was repeatedly assured that the agreement would not be enforced.  Of course, the so called $8.5 million was never paid to him.

15.  As it transpired later, the defendant was misled to believe that both LIT (HK) and LIT (GZ) were in financial problems at the material times.  It was said that Leo Paper Group had a history of preparing and using false instruments to deceive banks and the governments.  He stated the loan facility application from Wing Lung Bank as an example.

16.  On 14 October 2015, Mr Lai filed his affidavit in reply.  He said that the defendant was trying to portray obscure pictures which were far from true.  He agreed that the acquisition of the patent.  However, the price was at $5 million, not $500,000.  Parties’ cooperation broke up in early 2014 and they executed a separation agreement.  The bigger loan was something borrowed by the defendant from the plaintiff to be responsible for 10% contribution of his sharing of capital. Under the separation agreement, the defendant got back LIT (HK) and LIT (GZ).  The separate smaller loan of $1 million was indeed part of the separation agreement.  By the same agreement, the defendant was also no longer shareholders of the plaintiff.  The defendant chose not to exhibit the separation agreement only to mislead the court.

17.  The defendant was a very experienced businessman and was at all material times assisted by advisers and lawyers.  After the separation, the plaintiff had no obligation to pay salaries of the staff in LIT (HK) and LIT (GZ).  The defendant’s case was incredible and unbelievable.  The alleged Wing Lung bank loan and other matters were irrelevant.  Indeed, after the defendant commenced HCA 1555/2014, striking out application[1] was issued.

18.  On 26 November 2015, the defendant started to act for himself in the proceedings herein.

Other applications

19.  On 1 December 2015,

(a) In the present proceedings, the defendant issued 2 summonses for leave to adduce further affidavit evidence and consolidation with HCA 1555/2014.

(b) In HCA 1555/2014, he issued one summons for consolidation of the present proceedings.

20.  All 3 summonses were adjourned to be dealt with at the substantive hearing of the application for summary judgment.

The hearing

21.  Parties appeared before me on 17 December 2015.  Mr Richard Leung of Counsel acted for the plaintiff and the defendant appeared in person.  Having heard from them, I adjourned my decision to be handed down. Here it is.

Leave to adduce further affirmation in opposition?

22.  At the hearing, to save time and costs, I allowed on a de bene esse basis the defendant to rely on his affirmation filed on 26 November 2015. Upon thought, I have decided to decline his application, with costs in the assessed sum of $1,600 to the plaintiff.  

23.  There is no formal summons before the court. There is also no affidavit evidence filed to explain for such application. The defendant was legally represented throughout the present proceedings until 26 November 2015. He had the benefit of legal advice to prepare for the defence and detailed affidavit evidence to oppose the application for summary judgment.

24.  Upon being orally enquired at the hearing, he appeared to lay the blame on his former solicitors, including that there was problem of communication and his instructions were not fully expressed.

25.  As rightly pointed out by Mr. Leung, such oral explanation was far from satisfactory. The essence of the further affirmation in opposition is to bring the claim of $12 million by the defendant within the present proceedings. However, one of course does not forget that it was indeed raised by the defendant in HCA1555/2014 as early as in 11 August 2014. The matters could and should have been raised much earlier.

26.  Last but not least, as I will demonstrate later in this decision, the fatal point is that I take the view the defence is unbelievable with or without the further affirmation in opposition.

Discussions

27.  I start to remind myself of the underlying policy for summary judgment. It aims at preventing the defendant from delaying the plaintiff to obtain judgment in a case where the defendant clearly has no defence. Facing the application, the court asks 2 questions.

(a) Factually, is what the defendant says believable in light of the undisputed or indisputable circumstances? In so doing, the court is entitled to take into account of the commercial reality as well as contemporaneous documents. However, mini-trial on affidavit evidence shall not be embarked. Bare assertion is insufficient and the defendant must condescend upon particulars.

(b) Legally, if what the defendant says is believable, does it amount to a defence in law?

28.  Upon consideration, I take the view that the defence is unbelievable in the circumstances of the case.

29.  The defendant is well-educated.

30.  Both subject loan agreements were prepared in Chinese and headed “貸款合同”. Not only that they were duly executed, but parties also went on to initial on each and every page of the agreements.

31.  The parties did also sign “協議書” on 14 February 2014 to end their relationship amicably. Such agreement was also prepared in Chinese, signed and initialed. The preamble stated that “…各協議方本著自願之原則訂立本協議書…，以供履行，各協議方同意、明白及理解本協議具備法律效力…”. However, the defendant deposed (by his affirmation in opposition herein) that “…the 2014 Agreement eventually fell through and was never formally agreed…” . It is directly contrary to the contemporaneous document, and in the words of the plaintiff, the defendant misled the court.     

32.  On 11 August 2014, the defendant commenced HCA 1555/2014. He sued Leo Paper Group, Mr. Leung and others for $12 million damages, and so forth.

33.  When the plaintiff issued a formal demand letter through solicitors on 10 February 2015, the defendant made no response, himself or through solicitors.

34.  When the defendant filed his defence herein, he pleaded false, fraudulent and dishonest misrepresentations. However, in substance, no particulars were provided. He deposed that he could only do so after discovery and interrogatories. 

35.  However, facing with the application of summary judgment, the defendant came up more and more particulars as time went on, including those in his skeleton submissions before this court. All in all, the case of the defendant boils down to the complaint that he was cheated from the outset when he met the Leo Paper Group. He was a humble inventor. Leo Paper Group was a substantial business entity. The defendant trusted Leo Paper Group. He did whatever Leo paper Group told him to do so. Ultimately, it turned out that it was a conspiracy to defraud him who lost everything in the transactions.

36.  As right pointed out by Mr. Leung, the present claim of the plaintiff is simple recovery of loans supported by documents. The original loan of $8.5 million represented loan made to the defendant for his payment of share capital. The $1 million facility is to be understood from the separation agreement to help the liquidity problem after parties’ amicable breakup.

37.  Against these, the defendant made bare allegation, ran contradictory cases against contemporaneous documents, and raised quite some irrelevant matters.

Costs

38.  At the end of the hearing, Mr. Leung also handed up the costs statement to this court for the purpose of summary assessment, if applicable. I see no reason not to follow the general rule that costs follow the event. The costs statement is largely reasonable save that the communications under Part C and perusal of documents at Part D are a bit on the high side. I will therefore deduct a total of 12 hours from the solicitor.

Conclusion

39.  To conclude, I allow the application for summary judgment and make orders in the followings.  

(a) The defendant do pay the plaintiff the sums of $9,583,009.38 and interests thereof at the rate of 5.25% per annum from 11 February 2015 until payment.

(b) The defendant do also pay the plaintiff costs of the application (including costs reserved and certificate of counsel for hearing on 17 December 2015) in the assessed sum of $128,899.  Such order nisi will be made absolute within 14 days from today.

Consolidation

40.  As the present action has come to an end by the granting of summary judgment to the plaintiff, the 2 summonses (one in the present action and another in HCA 1555/2014) before me for consolidation are to be dismissed with costs against the defendant herein, including costs reserved, both summarily assessed at $1,600 each.

Interpretation

41.  To assist the defendant to fully understand the decision herein, arrangement will be made with the court interpreter when the same is handed down.