NG PAK HANG PATRICK v. PENASIA LTD AND OTHERS

HCA 1678/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1678 OF 2011

_________________________

BETWEEN

_________________________

_______________

J U D G M E N T

_______________

Introduction

1.  The plaintiff seeks summary judgment against the 2^nd and 3^rd defendants for repayment of loan.  The 2^nd and 3^rd are unrepresented.

Background

2.  The plaintiff, an investor, set up C&C Global Publishing Limited, the 4^th defendant (“C&C”) with the 2^nd and 3^rd defendants, who were familiar with publishing industry.  The purpose of setting up C&C was to create a pictorial book, in both printed and electronic version, for sale.  The book is one of an issue of the Chinese National Geography (中國國家地理) featuring scenes along the route from Shanghai to Mount Qomolangma in the Western Territory in China (“the Book”).  It was understood that the 2nd and 3^rd defendants have to enter into contract with the Chinese National Geography for copyright before they can work on to create the Book. 

3.  The plaintiff being an investor without involving the operation of C&C, holds 60% of its shareholding and at all material times, a majority shareholder.

4.  The remaining 40% shareholding of C&C rests with Penasia Limited, the 1^st defendant (“Penasia”) of whom the 2^nd and 3^rd defendants are shareholders.

The Joint Venture Agreement

5.  The plaintiff agreed to invest $2 million as capital for C&C and this was meant to be a shareholder’s loan (“the Loan”). On 5^th February 2008, the plaintiff, Penasia, the 2^nd and 3^rd defendants entered into a joint venture agreement, inter alia, for the loan arrangement (“the Agreement).

6.  It was agreed that the Loan advanced to C&C shall be repaid after 18 months, together with 12% interest per annum.[1] In event of default, under Clause 6.3.2(a) of the Agreement, the plaintiff can opt for maintaining the Loan with C&C but to call for repayment from the 2^nd and 3^rd defendants under their personal guarantees.[2]

7.  It was also agreed the 2^nd and 3^rd defendants are obliged to furnish monthly reports, reports on application of funds as well as bank statements of C&C to the plaintiff on a monthly basis, in event of default, the plaintiff is also entitled to call for the repayment of the Loan under their personal guarantees.[3]

8.  The extent of repayment was stipulated in both Clause 6.3.2(a) and Clause 6.7, the 2^nd defendant personally guaranteed the Loan to full extent whereas, the 3^rd defendant’s liability was limited to 10% of the Loan.

9.  It was expressly provided in Clause 6.1 of the Agreement, the plaintiff agreed to advance the Loan to C&C in three payments.[4] In fact, the plaintiff has done so by way of four payments on 5 March 2008, 29 April 2008, 23 June 2008 and 12 February 2009 in sum of HK$500,000, RMB420,000, HK$521,200 and HK$500,000 respectively.

The Dispute

10.  It happened C&C did not repay the Loan or any part of it to the plaintiff after 18 months of the advancements, notwithstanding this, the plaintiff also complained the 2^nd and 3^rd defendants had failed to furnish the monthly reports together with reports on application of funds and bank statements to him promptly.  The plaintiff therefore exercised his right for repayment against the 2^nd and 3^rd defendants under their personal guarantees pursuant to both Clause 6.3.2(a) and Clause 6.7.  The plaintiff’s solicitors issued a demand letter to both the 2^nd and 3^rd defendants on 28^th July 2011.

11.  On 21 December 2011, the plaintiff had in fact obtained default judgment against Penasia, and now, seeking summary judgment against the 2^nd and 3^rd defendants under their personal guarantees.

The 2^nd and 3^rd defendants’ defence

12.  The 2^nd and 3^rd defendants explained, their business started off smoothly, the Book was successfully created.  Had the economic downturn did not come in 2009, their business would not have plunged to a low level.  C&C should not have cash flow problems.

13.  In resisting the plaintiff’s summons, both the 2^nd and 3^rd defendants articulated their personal guarantees were made in favour to C&C instead of the plaintiff. Even if personal guarantees were made in favour to the plaintiff, the plaintiff was barred from enforcing it because they have duly procured a contract with the Chinese National Geography and the Book has been created accordingly.

14.  The 2^nd and 3^rd defendants were not contended because, in event that they were held liable to repay the Loan, both of them should shoulder 10% of the liabilities of C&C only, not to the full extent of the Loan.

15.  Apart from that, the 2^nd and 3^rd defendants alleged the plaintiff had not advanced the Loan as agreed, the monies injected by the plaintiff were not made pursuant to the Agreement.

16.  With regard to the furnishing of monthly reports, the 2^nd and 3^rd defendants said they have duly submitted those required to the plaintiff until the operation funds of C&C became exhausted.  They said the plaintiff was alerted to the financial problems of C&C, they had come to a consensus verbally that furnishing of the monthly report and banks statements were unnecessary.

Legal Principles

17.  In this summary judgment application, the 2^nd and 3^rd defendants must demonstrate there are triable issues.  The court should assess whether their allegations are credible and believable, there must not be mere assertions.

18.  Succinctly, as stated in the Hong Kong Civil Procedure 2012 Vol.1, paragraph 14/4/1,

“The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff's claim: Man Earn Ltd v. Wing Ting Fong [1996] 1 H.K.C. 225. “Order 14 proceedings for summary judgment when there is no defence to a claim are an important feature of the legal process.  It enables plaintiffs in cases where there is no defence to obtain expeditious summary judgment to avoid unnecessary delay.  When applied for, it is for the defendant to show that there is a triable issue or an arguable defence if he is to be allowed his day in court.  To deny him his day in court, if he shows a triable issue or an arguable defence, is indeed a fearful injustice.  On the other hand, if he has no defence and he obtains leave to defend, equally, there is injustice to the plaintiff” (per Mortimer J.A. in Manciple Ltd. v. Chan On Man [1995] 3 H.K.C. 459 at 466).  The machinery of O.14 works on the basis that if the plaintiff's application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed.”

Analysis

19.  Clause 6.3.2(a) and Clause 6.7 stated the repayment of the Loan unequivocally. Nothing from there indicated personal guarantees were made in favour to C&C instead of the plaintiff.  The right to exercise the option to call for the Loan was conferred to the plaintiff, not C&C.  Nowhere from those clauses denoted personal guarantees were unenforceable when the 2^nd and 3^rd defendants had duly secured a contract with the Chinese National Geography.  These are merely the 2^nd and 3^rd defendants’ bare assertions.

20.  The extent of liability, as in Clause 6.3.2(a), the 2^nd defendant provided full personal guarantee over the Loan whereas the 3^rd defendant has provided one tenth of it.  The 2^nd and 3^rd defendants argued, Clause 6.3.2(a) should read as both the 2^nd and 3^rd defendants jointly and severally to bear one tenth of the liability of the Loan only.  I do not agree.  Had it been the case, the clause should have added the word “collectively” instead of specifying the one tenth liability for the 3^rd defendant.  Ms Fong, counsel for the plaintiff alerted me that although Clause 6.7 did not specify the disparity of the extent of liability, I accept, as Ms Fong as fairly submitted 3^rd defendant should be regarded to bear one tenth of it.

21.  I find the 2^nd and 3^rd defendants’ were not interpreting the relevant clauses correctly, on one hand the 2^nd and 3^rd defendants said their extent of liability was merely one tenth of the Loan, on the other hand, they said it was one tenth of the liabilities of C&C. At the hearing, as I have pointed out the exact clause, both the 2^nd and the 3^rd defendant could not explain but said that they were misrepresented by the plaintiff’s solicitors at the time of signing of the Agreement. This is not believable.

22.  The 2^nd and 3^rd defendants alleged the plaintiff had failed to advance $2 million.  I disagree. The plaintiff deposited monies by 4 installments to different bank accounts as requested by the 2^nd defendant. All of them were made in the course of business and were evidenced by 2^nd defendant’s emails from 5 March 2008 until 12 February 2009.  It is illogical to say the plaintiff had deliberately deposited the monies for some other purposes other than the shareholder’s loan.

23.  It is indisputable that the Loan was not repaid on time.  The plaintiff has every right to demand for the repayment of the Loan from C&C, the 2^nd and/or the 3^rd defendants.  Notwithstanding a default judgment has been entered against Penasia, the plaintiff was also entitled to seek repayment pursuant to personal guarantees given by the 2^nd and 3^rd defendants as well.  As submitted by Ms Fong, it is reasonable and sound for the plaintiff, as an investor to minimize his risks over the joint venture by introducing personal guarantees against the 2^nd and 3^rd defendants.

24.  From that, a breach of Clause 6.3.2(a) is more than sufficient for the plaintiff to enforce the personal guarantees made by the 2^nd and 3^rd defendants, of course, I agree it is also a ground for him to do so when the 2^nd and 3^rd defendants were also in breach of Clause 6.7.  As admitted in their 2^nd affirmations, the monthly reports were not furnished in accordance with Clause 6.7, the 3^rd defendant explained it was because at that time, C&C were running out of funds and therefore it is pointless for them to furnish the bank statements.  Although this is a technical breach, on admission by the 2^nd and 3^rd defendants, the plaintiff has every right to exercise his right to call for the Loan.

Conclusion

25.  For the above reasons, the 2^nd and 3^rd defendants have difficulties to resist this application where the plaintiff is coupled with overwhelming evidence.  They are unable to demonstrate there are triable issues and I am driven to the conclusion that the plaintiff is entitled to summary judgment.

26.  I heard costs submissions at the hearing.

Orders

27.  I make the following order:

(1)  The 2^nd Defendant do pay the Plaintiff

(i)  HK$500,000 together with interest thereon at the rate of 12% per annum from 5^th March 2008 to the date of writ.

(ii)  HK$478,800 together with interest thereon at the rate of 12% per annum from 29^th April 2008 to the date of writ.

(iii)  HK$521,200 together with interest thereon at the rate of 12% per annum from 23^rd June 2008 to the date of writ.

(iv)  HK$500,000 together with interest thereon at the rate of 12% per annum from 12^th February 2008 to the date of writ.

(v)  Interest be awarded for the sum in Para 1(i) to 1(iv) at judgment rate from date of writ until payment.

(2)  The 3^rd Defendant do pay the Plaintiff

(i)  HK$50,000 together with interest thereon at the rate of 12% per annum from 5^th March 2008 to the date of writ.

(ii)  HK$47,880 together with interest thereon at the rate of 12% per annum from 29^th April 2008 to the date of writ.

(iii)  HK$52,120 together with interest thereon at the rate of 12% per annum from 23^rd June 2008 to the date of writ.

(iv)  HK$50,000 together with interest thereon at the rate of 12% per annum from 12^th February 2008 to the date of writ.

(v)  Interest be awarded for the sum in Para 1(i) to 1(iv) at judgment rate from date of writ until payment.

(3)The costs of the Plaintiff’s summons be to the Plaintiff and be paid by the 2^nd and 3^rd defendants forthwith, with certificate of counsel, taxed if not agreed.