YUE XIU ANIMAL BY-PRODUCTS CO. LTD v. SHING YUK YING AND ANOTHER

HCA 10463/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO.10463 OF 2000

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REASONS FOR JUDGMENT

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Introduction

1. The 1st named defendant ("D1") appealed against the order of the Master made on 20 December 2001 whereby the learned Master entered judgment in the sum of $6,562,021.96 in the plaintiff's favour together with interest and costs. The said judgment was entered upon the plaintiff's application made under RHC Ord. 27 and Ord. 14. At the end of the hearing on 7 March 2002, I allowed the appeal, set aside the judgment and gave unconditional leave for D1 to defend the claim. The following are the reasons.

The Plaintiff's Case

2. The plaintiff's case is set out in its statement of claim. In essence, it is claimed that the defendants are partners. They are allegedly liable to repay to the plaintiff the unpaid balance of a debt advanced pursuant to an agreement. Para. 3 of the statement of claim pleads that:-

"... certain finance and trading arrangements were made between the Plaintiff and the Defendants ...".

According to the pleading, the "finance and trading arrangements" were such that the plaintiff:-

"would finance and/or supply merchandize"

to the defendants.

3. In the "Answer to Request for Further and Better Particulars" dated 21 March 2001, the plaintiff stated that:-

(a) the said agreement was made orally in about June 1995;

(b) the main terms of the agreement were that, apart from financing the operation of the defendants' business, the plaintiff was also to (1) make and receive payments in relation to the defendants' businesses, and (2) handle the defendants' books and accounts.

According to the plaintiff, interest on the loans advanced would be charged at 2 to 3% above the bank overdraft interest rate. In the Answer to Request for Further and Better Particulars, the plaintiff stated that the interest was charged "for [the] services provided [set out in sub-para. (b) above]".

D1's Case

4. In the defence filed on 26 February 2001, the defendants deny the plaintiff's claim. Their case is that there was a written joint-venture agreement between the plaintiff and the defendants. According to D1, the company used in the contract document, 廣州畜產進出口公司, was claimed by the plaintiff's agent to be an associated company of the plaintiff.

5. The defence also pleads that the plaintiff and the defendants were each to own 50% of the shares in the joint-venture and the profit and loss would likewise be equally shared. Under the joint-venture agreement, the plaintiff was to provide the initial capital. Since the income and expenses were to be cared for by the plaintiff, the plaintiff was to keep the books and accounts of the joint-venture. On the other hand, the defendants were to be responsible for obtaining purchase orders, arranging for the supply of the goods and supervising production. According to the defendants, no joint-venture company was in fact set up and the name of their partnership was used for operating the joint-venture business.

6. The defendants' defence is in short that since the joint-venture has incurred loss in the course of its business, the capital injected by the plaintiff (the subject-matter of the claim) has already been used up. Alternatively, if the plaintiff should still be entitled to any payment, an account should first be taken as between the plaintiff and the defendants in order to find out the amount owed to the plaintiff.

Relevant Legal Principles

7. The applicable legal principles are undisputed. In relation to judgment on admission, the admission relied upon must be express or implied, but it must be clear and unambiguous: see, for example, Re Chung Wong Kit [1999] 1 HKC 684, 686G. Further, whereas the court may in appropriate cases draw inferences from primary facts in an application for summary judgment (under Ord. 14), the court must consider the actual admission (albeit in some cases the admission was made by implication) in an application for judgment on admission.

8. In relation to summary judgment, the principles stated in the following cases are applicable:-

(a) Mass International Ltd v. Hillis Industries Ltd [1996] 1 HKC 434, 439D-E;

(b) Re Safe Rich Industries Ltd, CA No. 81 of 1994;

(c) The China and South Sea Bank Ltd v. Infinity Development (Holdings) Co. and others, HCA No. 5 of 2001;

(d) Man Earn Ltd v. Wing Ting Chun [1996] 1 HKC 225;

(e) Microsoft Corporation v. Electro-Wide Ltd [1997] FSR 580, 593.

So that there is no doubt the basic principle applicable to an application for summary judgment where factual disputes are raised has been kept in mind, I shall recite what was said in Microsoft Corporation (which is indicative of the kind of approach to be adopted in such applications):-

"So here the court has to ask whether there is a fair or reasonable probability of the defendants having a real or bona fide defence ...

In answering that question it is not sufficient just to look at each factual issue one by one and to consider whether it is possible that the defendant's story in relation to that issue is credible. The court must look at the complete account of events put forward by both the plaintiff and the defendant and ... look at the whole situation ...

If, having regard to the inconsistency with contemporaneous documents, inherent implausibility and other compelling evidence, the defence is incredible, the court must say so ... ".

9. It should also be mentioned that although both Ord. 14 and Ord. 27 are relied upon by the plaintiff in the appeal, the application made under these 2 rules should stand or fall together and there is insufficient difference to justify granting relief in the plaintiff's favour in relation to one rule while refusing relief under the other rule.

The Appeal

10. It is obvious that factual disputes were involved in the present appeal. The salient and specific matters raised by the parties in the appeal will be referred to separately in the paragraphs below. However, this does not mean that the need to consider the overall situation has been overlooked.

11. The documents which have been relied upon heavily by the plaintiff in this appeal (and the hearing before the Master) are 2 Chinese letters from the defendants respectively dated 26 June 2000 and 18 July 2000 (about 3 weeks apart). On the face, these letters can fairly be described as "admissions" made by the defendants. D1's explanation about these letters is that the plaintiff's representative:-

"... told [her] that he needed the contents of the said two letters for his report to his seniors in the Plaintiff's company ... ".

D1 further asserts that the letters were only written as dictated by the plaintiff's representative, Chen, and she was misled at the time. This kind of explanation is no stranger to the courts and, if bare assertion like this is made without other support, it is often rejected without difficulty or hesitation when confronted with inconsistent and incontrovertible evidence.

12. The whole situation has been considered when determining whether D1's explanation regarding these letters is believable. A closer look at these letters would show some rather remarkable feature. It was observed above that they were about 3 weeks apart. The letter dated 26 June 2000 was printed in Chinese. It basically stated that the defendants agreed to repay to the plaintiff the debt of $7,182,430.56 but asked for repayment by 9 instalments. The specific instalment sums and repayment dates were set out. About 2 weeks later, by a letter dated 10 July 2000, the plaintiff informed D1 that the proposal in the letter of 26 June 2000 was unacceptable and asked for immediate repayment of the whole sum. The second "admission" letter was dated 18 July 2000 (8 days after the plaintiff's letter). Not only was it a repetition of the earlier proposal, it was also printed in Chinese (but in different font and layout) and contains (apart from the date and the signature) word for word the exact same content as the earlier "admission" letter.

13. In relation to the second "admission" letter, it appears someone copied its content from the first letter despite the plaintiff's earlier indication that the plaintiff would not accept the proposal. D1 asserted that the letters were brought about by the suggestion of the plaintiff's representative that they were needed basically "for record purposes". I consider that in the context of this appeal this assertion is believable.

14. Further, the plaintiff's case about its role in (a) making and receiving payments and (b) keeping books and accounts, for the defendants is rather unusual. If this part of the plaintiff's case is ignored, the relationship between the plaintiff and the defendants (according to the plaintiff) was essentially one of creditor and debtor. It is understandable for interest to be charged by a creditor for having lent money to its debtor. But I agree with the submission of D1's counsel that it is a rather strange arrangement that a creditor should somehow be involved in matters like payment of the debtor's business debts and undertake the work of maintaining the debtor's books and accounts. Further, to some extent there is force in D1's argument that despite the plaintiff's assertion that interest was chargeable for the services it provided to the defendants, the plaintiff was in fact providing the services gratuitously (because interest was chargeable for the loan).

15. On the other hand, D1 relied heavily on a written joint-venture agreement signed between the defendants and 廣州畜產進出口公司. Strangely, there was no evidence from someone having personal knowledge of this matter from the plaintiff's side either explaining this document or denying that this evidenced a joint-venture between the plaintiff and the defendants.

16. There is no need to go into the other finer points such as the accuracy of the plaintiff's accounts or the intimacy of the relationship between the plaintiff/plaintiff's representative and the businesses allegedly associated with the defendants. Suffice it to say that the circumstances show that this action ought to be tried to enable the full picture to be properly investigated.

17. In the view of the above matters, D1 has established that there is a real or bona fide defence and she should be given unconditional leave to defend the plaintiff's claim.

Propriety of this Action in Law

18. It is unnecessary for the purpose of this appeal to consider whether the alleged joint-venture was in the nature of a partnership, and, if so, whether it has been terminated. The issue may however become relevant if the court should at trial find that the alleged joint-venture has been established.

19. This is because it has been decided that no action could be brought by one partner against other partner(s) individually for money lent to the partnership because the liability of partner(s) was joint and that such sum could be recovered only in proceedings for taking accounts in accordance with the Partnership Act, 1890 (the Partnership Ordinance in Hong Kong): see, for example, Green v. Hertzog [1954] 1 WLR 1309. It was also said that the question as to when an action can be maintained between partners without taking a general account of all the partnership dealings and transactions depends on the circumstances and whether justice can really be done without taking such an account: see, for example, Plaza Co. and Others v. Tso Kar Yin [1959] HKLR 390, 396-98 citing Lindley on Partnership, 11th Ed., p. 664. The author of Lindley (1995) 17th Ed. stated at para. 23-72 that:-

"Account normally required between partners

It is a well recognised rule that, whenever money allegedly belonging or owing to the firm in respect of a partnership transaction is sought to be recovered from a partner, an action for an account is required, unless an account has already been taken between the partners or, exceptionally, taking an account would serve no useful purpose. In such an action, it will, of course, be open to the defendant partner to show that the money is his or even that a larger sum is due to him."

20. When the above was raised by the court at the end of the appeal hearing, counsel for the parties indicated that the parties would consider if this issue needs to be raised in this action and if so, whether it needs to be incorporated in the pleadings. In fact, after the appeal hearing, counsel was kind enough to provide me with the above-quoted authorities in relation to this point.