NG LAI KWAN FANNY v. VICO INFANT & GIFT PRODUCTS CO LTD AND ANOTHER

DCCJ5260/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5260 OF 2007

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D E C I S I O N

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1.  This is an application to set aside the judgment obtained by the Plaintiff on 11 February 2008 in default of filing of Defence.  It is common ground that the default judgment is a regular judgment, and so the Defendants are seeking the court to set aside the judgment on the ground that they have a meritorious defence to the Plaintiff’s claim.

The Plaintiff’s case

2.  The director and the shareholder of the 1st and the 2nd Defendant, Madam Ng Tsing-yan, is the niece of the Plaintiff.  It is the Plaintiff’s case that she had advanced a loan of $450,000 to the 1st Defendant.  As the 1st Defendant had made part-repayment of the loan of $70,000, the outstanding amount of the loan was $380,000.

3.  By an oral agreement made on or about 10 February 2006 (the “Agreement”) between the Plaintiff and the 1st and the 2nd Defendants, it was agreed that the 2nd Defendant would replace the 1st Defendant to repay the Plaintiff the outstanding sum of $380,000.  The Plaintiff would agree to provide a vehicle to the 2nd Defendant so that the 2nd Defendant could register the particulars of the vehicle in the Guangdong, Hong Kong and Macau Motor Vehicle Passage and Drivers’ Driving Permit (“the Permit”) and the vehicle could then be allowed to travel between Guangdong, Macau and Hong Kong under the Permit.  Thereafter, the 2nd Defendant would agree to transfer back the ownership of the vehicle to the Plaintiff and continue to allow the vehicle to be covered by the Permit.

4.  Pursuant to the Agreement, the Plaintiff purchased a private Toyota car (“the Vehicle”) and provided the Vehicle to the 2nd Defendant in or about April 2006.  After the registration of the particulars of the Vehicle, the Plaintiff used the Vehicle to travel between Guangdong and Hong Kong.  However, the 2nd Defendant failed to transfer the ownership of the Vehicle back to the Plaintiff, and so the Plaintiff claims against the 2nd Defendant for specific performance of the Agreement.  It is also the Plaintiff’s case that since the 2nd Defendant refused to transfer the ownership of the Vehicle back to the Plaintiff and the 2nd Defendant also failed to pay the licence fee of the Vehicle, the Plaintiff was unable to use the Vehicle to travel between Guangdong and Hong Kong since May 2007.

The Defendants’ case

5.  The Defendants dispute that the Plaintiff had ever advanced a loan, whether in the amount of $450,000 or otherwise, to the 1st Defendant.  In fact, the father of Madam Ng, one Mr Johnny Ng, had misappropriated various sums of money of the 1st Defendant in the total amount of $4,095,261 and deposited them in the bank accounts of the Plaintiff.  In helping Mr Ng to repay part of the misappropriated money to the 1st Defendant, the Plaintiff had repaid a total sum of $3,690,000 to the 1st Defendant.

6.  In respect of the claim for the return of the Vehicle, the 2nd Defendant denies that it had ever agreed to repay the loan of the 1st Defendant.  The 2nd Defendant was the owner of the Permit and the Permit was not transferable.  If the Plaintiff wanted to continue to use the Vehicle for crossing the border, the Vehicle need to be registered in the name of the 2nd Defendant.  Further, the 2nd Defendant denies that the Plaintiff could not use the Vehicle for crossing the border since May 2008.  In fact, the licence issued by the Hong Kong Government for the Vehicle to enter the restricted area (“the Licence”) expired on 16 May 2008.  Someone then had forged the company chop of the 2nd Defendant and applied for the renewal of the Licence from the Hong Kong Government.  As the Licence had been renewed, the Plaintiff through her agent, Mr Johnny Ng, was able to use the Vehicle to cross the border after 16 May 2008.  The Vehicle movement records actually show that the Vehicle did cross the border on a number of occasions after the expiry of the Licence on 16 May 2008.

Whether the Defendants have established a meritorious defence to the Plaintiff’s claim?

7.  In my judgment, the Defendants have managed to establish a meritorious defence to the Plaintiff’s claim, and my reasons are threefold.

8.  Firstly, I cannot fully understand the relationship between the claim for the outstanding loan and the claim for the specific performance of the Agreement, i.e. to recover the Vehicle and to return the ownership of the Vehicle to the Plaintiff.  In the Statement of Claim, it is pleaded that under the Agreement, the 2nd Defendant would replace the 1st Defendant in the repayment of the loan.  I take that it means the 2nd Defendant had assumed liability of the 1st Defendant’s loan.  Hence, if the 2nd Defendant does not perform its obligation under the Agreement, I cannot see how the Plaintiff can later come back and sue the 1st Defendant on the original loan.  If there was a default clause in the Agreement retaining the liability of the 1st Defendant, it should have been expressly pleaded in the Statement of Claim.

9.  Further, the essential terms of the Agreement are missing from the pleading.  Is that the Plaintiff’s case that the liability of the 2nd Defendant to repay the debt would be discharged under the terms of the Agreement?  If the liability can be discharged, what are the conditions for the discharge of the liability?  Would the liability be discharged if the 2nd Defendant continued to allow the Plaintiff to use the Vehicle for her own benefit to cross the border?  If yes, how long would the 2nd Defendant have to allow the Plaintiff to use such benefit?  Or is the liability discharged when the 2nd Defendant transferred the ownership of the Vehicle back to the Plaintiff?  All these essential materials and terms are missing in the Statement of Claim.  In my judgment, the pleading is defective and the default judgment should not, therefore, be allowed to stand.

10.  Secondly, I have great difficulty in understanding the so-called claim for specific performance or breach of the Agreement against the 2nd Defendant.  From the evidence of this case, it is clear that the Permit was not transferable, otherwise the Plaintiff could have asked the Plaintiff to transfer the Permit to the Plaintiff in the first place for the discharge of the alleged loan.  In other words, the Permit only allowed the registered owner of the Vehicle to use the Permit to cross the border.  If the Plaintiff wants to continue to enjoy the benefit under the Permit, the Vehicle has to be registered under the name of the 2nd Defendant.  In such circumstances, what exactly is the nature of the Plaintiff’s claim against the 2nd Defendant for not transferring the ownership of the Vehicle back to the Plaintiff?

11.  Further, the Plaintiff complains that as the 2nd Defendant refused to renew the Licence, the Plaintiff could not use the Vehicle to cross the border since May 2007.  The Vehicle movement records produced by the Defendants show that Mr Johnny Ng, who had all along been driving the Vehicle for the benefit of the Plaintiff, was able to drive the Vehicle to cross the border at least on 3 occasions after the expiry of the Licence on 16 May 2008.  The 2nd Defendant complains that the Licence was obtained by fraud on the part of the Plaintiff or her agent, Mr Johnny Ng, but at least there is no evidence to substantiate the Plaintiff’s complaint for not able to use the Vehicle to cross the border since May 2005.

12.  The claim for the return of the Vehicle is obviously crucial to the Plaintiff’s claim.  It is accepted by the Plaintiff that, if there was no breach of the Agreement on the part of the 2nd Defendant about the use of the Vehicle, there is simply no basis for the Plaintiff to claim for the repayment of the original outstanding loan.  As the nature of the claim for the return of the Vehicle is not clear, the Plaintiff’s claim for the original outstanding loan should not be allowed to stand at this stage.

13.  Thirdly, the Defendants may also have a meritorious defence about the existence of the loan.  According to the Plaintiff, she advanced various substantial amounts of loan to the 1st Defendant with a view to earn interest.  However, there is no evidence produced by the Plaintiff to prove that she had actually advanced the sum of $450,000 to the 1st Defendant.  Obviously, this was a substantial amount of money, and I expect that there should be some bank statements or written loan agreement to substantiate the making of the loan, and yet there is no such document in the present case.  The evidence shows that there was a substantial amount of the 1st Defendant’s money deposited in the bank accounts of the Plaintiff, and there is also evidence to show that the Plaintiff did deposit various sums of money into the bank accounts of the 1st Defendant.  These unusual movements of money may support the version of events by either parties, and it is very difficult for the court to form a provisional view as to which version of events would be more likely accepted by the court in case of a trial.  It is true that one of the staffs of the 1st Defendant did issue certain documents purportedly acknowledging certain loans made by the Plaintiff.  However, the 1st Defendant claims that such staff had been misled by Mr Johnny Ng that such loan did exist and that was the reason why that staff wrote those documents.  Taking into account that Mr Johnny Ng did play a significant part in the daily operation of the Defendants and the close relative relationship between the Plaintiff, Mr Johnny Ng and Madam Ng, it is very difficult for the court to dismiss such allegation by the 1st Defendant.  In these circumstances, the appropriate question to ask is whether the defence can well be established at trial.  As the Defendants’ version at events can well be believed at the trial, it follows that the defence has a real prospect of success in the present case (see: O Mark Polyethylene Product Factory Limited v Reap Star Limited [2002] 2 HKC 330 at 335 and 337).

14.  Based on the aforesaid, I allow the Defendants’ application to set aside the judgment, and I now listen to the parties’ submissions on the issue of costs.