SO MUK CHUNG ROGER v. TRUE HONEST CO LTD

HCA 1727/2018

[2020] HKCFI 1269

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1727 OF 2018

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BETWEEN

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DECISION

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Introduction

1.  This is the plaintiff’s (“Plaintiff”) application by summons dated 19 December 2018 seeking summary judgment against the defendant (“Defendant”) in the sum of $3,150,000, pursuant to Order 14 and Order 29 rules 10 and 11 of the Rules of the High Court. 

2.  The Defendant is a limited company incorporated in Hong Kong.  Ms Pang Wing (“Pang”) is and was at the material time a director and sole shareholder of the Defendant.  The Plaintiff was its Chief Executive Officer.  There is no dispute that between 31 May 2013 and 31 December 2016, the Plaintiff or other entities had on his direction transferred various sums totalling $10,530,000 to the Defendant and that between August 2013 and December 2016 the Defendant had transferred to him or other entities at his direction a total sum of $7,380,000.  The Plaintiff now claims repayment of the outstanding balance.  The parties are in dispute as to the nature and purpose of the Plaintiff’s money transfers.

3.  The Plaintiff’s pleaded case is that these transfers were made pursuant to an oral loan agreement between him and Pang on behalf of the Defendant in 2013 (the “Loan Agreement”).  The terms of the Loan Agreement are that the loans are interest-free and repayable upon demand. The Plaintiff’s claim is founded on contract and in restitution.

4.  The Defendant’s case is that the loans were payments given to the Defendant pursuant to a joint venture agreement (the “Joint Venture Agreement”) initially between Pang and Xie Rong Jian (“Xie”) for investment in Sanwa Global Limited (“Sanwa”).  The Plaintiff was an agent of Xie, or alternatively has substituted Xie as an investor under the Joint Venture Agreement. The payments were not personal loans advanced by the Plaintiff but were capital contributions made by the Plaintiff or by Xie through the Plaintiff pursuant to the Joint Venture Agreement which were temporarily recorded as loans.  The Defendant counterclaims against the Plaintiff a sum of $5,198,846.22 representing his outstanding fund contribution to the Joint Venture Agreement. The Plaintiff does not admit the existence of the Joint Venture Agreement and asserted that his payments to the Defendant were not for investing in Sanwa.

The legal principles applicable to summary judgment

5.  The principles applicable to summary judgment are well-established and can be summarized as follows.

6.  First, it is for the defendant to show there is a triable issue or an arguable defence: see Hong Kong Civil Procedure 2020 [1]. Summary judgment is for clear cases.  It is not appropriate where there is any serious dispute as to matters of fact or any difficult question of law: see Hong Kong Civil Procedure 2020 [2]. In considering whether there are triable issues, the court will not take the alleged defence on its face value but will test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents and inherent probability of the defence.  It shall not conduct a mini-trial on complicated factual issues: see Paul Y Management Ltd v Eternal Unity Development Ltd [3]. In Re Safe Rich Industries Ltd [4] Bokhary JA (as he then was) said:

“ The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable. But it must be recognized — because failure to recognise it would create a debt-dodgers’ charter — that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.”

Where the circumstances are such as to require close investigation, there ought to be a trial and summary judgment would be inappropriate: see Hong Kong Civil Procedure 2020 [5] and Miles v Bull [6].

7.  Second, where a defence, though arguable, can be described as shadowy, the court may order conditional leave to defend: see Hong Kong Civil Procedure 2017 [7].

8.  Third, a counterclaim and set-off raised can be a basis for granting unconditional leave to defend up to the amount of set-off claimed.  This is regardless of whether the amount is ascertained, and whether the set-off has been pleaded as a counterclaim or not.  However, the court must assess whether the counterclaim is credible or believable: see Hong Kong Civil Procedure 2017 [8]; Ling Dai Hong v 汪裕祖[9].

9.  Fourth, whether to order interim payment is an exercise of the court’s discretion.  The test is essentially the same as that for granting conditional leave to defend, namely whether the defences and/or counterclaims raised can be said to be shadowy: see Hollywood Palace Co Ltd v Trans-Global Hong Kong Investment Ltd [10].

The issues

10.  The Defendant advanced three grounds in opposition to the Plaintiff’s application.  First, there are disputes whether the Plaintiff’s payments were personal loans or funding for Sanwa under the Joint Venture Agreement (“loan or investment issue”).  Second, the Defendant argues that some of the payments and repayments under the alleged Loan Agreement were not made by and to the Plaintiff, but were respectively made by and to third parties (“third party payment and repayment issue”).  Third, the Defendant argues that the terms of the alleged Loan Agreement being an oral agreement are so inadequately pleaded that summary judgment is not appropriate (“pleading issue”).  In my view, the loan or investment issue is the real determining issue.  I shall first analyse the alleged Joint Venture Agreement and some minor factual issues and then deal with the third party payment and repayment issue and the pleading issue before dealing with the loan or investment issue.

The Joint Venture Agreement

11.  The Defendant was unable to produce the original copy of the Joint Venture Agreement for inspection.  It only produced a photocopy.  It was entered into between the Defendant and 深圳市啟欣科技有限公司(“深圳啟欣”), a name very similar to the Defendant’s on the one part (“Party A”), and Sanwa on the other (“Party B”).  The Plaintiff was not a party to that agreement.  Contrary to the Defendant’s case, Xie was not a party either, though he signed the agreement as representative of Sanwa.  Clearly, the Defendant’s case cannot even get off the ground without amending its pleading and has much to explain by way of affirmation what its case really is.  

12.  There are six points in the Joint Venture Agreement.  The first two points represent the essence of the agreement.  The other four points are about operation, including appointment of the Plaintiff as the Chief Executive Officer of Sanwa.  The first two points provide as follows:

「一、 甲方承諾現其經管的業務適時注入乙方。細則由甲、乙雙方商議後确定，細則包括業務注入時問、代理協議、客戶、現職員工等。

二、 乙方股權將在本協議簽訂後進行變更，具体變更為：甲方入股持有乙方45%股權（甲方以法人股東入股或自然人股東入股待定），[Xie] 持有乙方55%股權并出任乙方董事會主席。…乙方股權變更後的股本金額由甲乙雙方共現商定。」

Translation:

“1. Party A undertakes to inject its business into Party B at the appropriate time. The details are to be determined after negotiation between the two parties. The details include the timing of the injection of the business, agency agreement, transfer of customers, and transfer of current employees.

2. The equity of Party B will be changed after the signing of this agreement.  The specific changes are as follows: Party A becomes a shareholder and holds 45% of the equity of Party B (whether Party A shall hold shares in Party B via a legal person shareholder or a natural person shareholder is to be determined), [Xie] holds 55% shareholding in Party B and shall be appointed as the chairman of the board of directors of Party B. … The amount of share capital of Party B after the change in its shareholding shall be agreed by both parties.”

13.  But details relating to the timing of the transfer of Party A’s business, execution of agency agreement, transfer of customers and employees are subject to negotiation at a later stage.  Second, upon injection of capital by Party A, ie the Defendant’s party into Sanwa, Xie shall hold 55% of the shares in Sanwa and shall be appointed as Chairman of the board of directors of Sanwa, while the Defendant’s party shall hold the remaining 45%.  The share capital of Sanwa shall be decided through negotiation between the two parties.  That would have an impact on the amount of capital contribution by the Defendant’s Party into Sanwa.  It appears that under the agreement not only is the Defendant’s Party obliged to contribute its business into Sanwa, it also has to contribute capital.  It is not entirely clear if Sanwa, as a party to the agreement has to make contribution to its own capital and how that could be effected.  But the two important questions about the business to be injected into Sanwa and its share capital were still subject to negotiation or agreement.  These important terms about asset and capital contribution by the parties remained indeterminate.  The agreement is just an agreement to agree and not a concluded agreement.  The agreement was dated 30 April 2013 and shall take effect and by now should have taken effect on 1 May 2015 under point six of the agreement.

14.  However, one interprets the agreement, Xie as a signatory of Sanwa is not required to contribute to the capital of Sanwa.  It is difficult to see how the Defendant could fairly argue that the alleged loans were in fact capital contributions made by Xie through the Plaintiff and his companies under the Joint Venture Agreement, and then argues that later the Plaintiff substituted Xie and the loans were his capital contribution under the Joint Venture Agreement.

15.  Another point which immediately strikes me is that under the agreement Xie shall be appointed as Chairman of the board of directors of Sanwa if the agreement has been performed.  However, according to the annual returns of Sanwa, it began as a $1 company in 2014 with the Plaintiff as its sole shareholder.  Since April 2015, it has become a substantial company with issued share capital of $5 million.  Its shareholders are the Defendant, Speed View Limited and Subtitle Limited.  The Plaintiff ceased to be a shareholder.  Speed View Limited is a $1 company solely owned by Anny So, a staff member of the Defendant.  No evidence has been adduced by the parties about the shareholders of Subtitle Limited.  Between 2015 and 2016, Pang and Lau Tak Ming were Sanwa’s only directors.  Since 2017, Pang became its sole director.  Howsoever one views Sanwa’s shareholding structure, its board of directors and the chairmanship from 2014 to 2017, it is so inconsistent with the Joint Venture Agreement that the only inference is that the agreement even if it ever existed was but an agreement to agree pursuant to which the parties never reached any concluded agreement.

16.  In the light of the above incontrovertible factual circumstances, if the Defendant wishes to rely on the Joint Venture Agreement, it has much to explain.  Pang being the sole director of Sanwa since 2017, failed to adduce any evidence explaining how the Joint Venture Agreement could tie in with the above facts.  The Defendant has also failed to show that Sanwa received funds from the Defendant or the Plaintiff or Xie at the material time.  Sanwa’s audited reports and financial statements for the year ending 31 March 2014 to the year ending 31 March 2017 did not record any capital contribution made by the Plaintiff, the Defendant or Xie.  Though the Defendant provided its General Ledger Account Transaction Report (“Ledger Report”) with Sanwa and its bank statements evidencing its payment out in the sum of $14,868,116.80, there is no evidence to show that those payments were made to Sanwa or related to Sanwa.  There is no reason why Pang did not produce the bank statements of Sanwa to make good this issue of the Defendant’s case.

17.  As for the Defendant’s pleaded case of Joint Venture Agreement, 14 out of 17 averments pleaded are not supported by affirmation.  Only the Joint Venture Agreement, Xie’s payment through the Plaintiff and the temporary treatment of the payments as loans from the Plaintiff (paragraph 5(1), (9) and (10) respectively) are supported by Pang’s affirmation.  As I shall demonstrate below, the Defendant’s allegation about Xie’s payment and the temporary treatment of investment as loans are inconsistent with the Defendant’s Ledger Report and contemporaneous e-mails.  The Defendant’s case of Joint Venture Agreement is not even a half-baked cake.

Loans paid and repaid by third parties

18.  There is no dispute that the loans were paid from bank accounts of the Plaintiff, the Plaintiff and his wife, Lau Tak Ming and Prime World Development Limited (“Prime World”). 

19.  Prime World is a company owned by two British Virgin Islands companies, Premier Island Ltd and Tigerjet Ltd.  The Plaintiff and these two companies are directors of Prime World.  The Plaintiff and his wife are directors of Premier Island Ltd and Tigerjet Ltd.  Obviously, Prime World is a company under the Plaintiff’s control.  Its company secretary is Anny So, a member of the Defendant’s staff.  As for Lau Tak Ming, as shown in Sanwa’s Audited Report and Financial Statement, he was a co-director with Pang in Sanwa until 2017. 

20.  There is nothing peculiar about payments being made by one on behalf of another, particularly as in the case of husband and wife and related company of or a company under the control of the party bearing the payment obligation.  The Defendant made no suggestion that Lau Tak Ming and Prime World had any payment obligation towards the Defendant.  On the other hand, these payments were all acknowledged in the Defendant’s Ledger Report as loans from the Plaintiff. 

21.  Some of the loans were paid by the Plaintiff and his wife to third parties instead of to the Defendant, namely Bright Creation Technologies Limited and Lau Sek Ping.  On 31 May 2013, the Plaintiff and his wife transferred $1 million from their joint account with The Hongkong and Shanghai Banking Corporation Limited to the Defendant’s account in Bank of Communications Co., Ltd.  On 15 August 2016, the Plaintiff caused Lau Tak Ming to transfer RMB110,000 (equivalent to HK$128,056) to the account of Lau Sek Ping in the Mainland via “underground remittance”.  Lau Sek Ping is a member of 深圳啟欣, a party to the Joint Venture Agreement.  Lau Tak Ming was the general manager and director of Sanwa.  The Plaintiff’s case is that these loans were paid to third parties at the instruction of the Defendant; that the Defendant knew about such payments; and with that knowledge acknowledged the loans in the Ledger Report. Lau Sek Ping, 深圳啟欣and Sanwa are all inter-related.  There was nothing unusual in the Defendant directing the Plaintiff to pay Lau Sek Ping and for the Plaintiff to do so.  Nothing is known about the Defendant’s relations with Bright Creation Technologies Limited.  While the Defendant made complaints about these payments to third parties and that Lau Sek Ping is a member of a party to the Joint Venture Agreement, it offered no theory how these payments fit into its scheme under the Joint Venture Agreement and how they could raise a triable issue.  The Defendant’s argument about payments and repayments to and by third parties is just frivolous.

Summary judgment not appropriate due to lack of particulars in the Loan Agreement

22.  Mr Li argues that there is such a complete lack of particulars in the Loan Agreement, in the form of an oral agreement, the terms of which are in dispute that summary judgment must be refused.  He submitted that other than that the loan is repayable on demand, the Plaintiff has not pleaded the following particulars:

(a) the date of the Loan Agreement;

(b) the place in which the Loan Agreement was made;

(c) the context and oral conversation under which the Loan Agreement was made;

(d) the facility amount;

(e) the duration of the loan agreement;

(f) the currency and manner of payment;

(g) any warranty, representation and covenants; and

(h) any provisions for third party payment and repayment or assignment of rights.

Mr Li referred me to the case of Crown Record Co Ltd v Eng Kin Film Co Ltd[11] and argues that the existence and the terms of the oral agreement (albeit not pleaded) depends solely on the oral evidence of the Plaintiff which was not reduced in any written instrument.  It would therefore only be fair for the Plaintiff’s case to go to trial and for the Plaintiff to be cross-examined.

23.  As submitted by Mr Yu, the Loan Agreement as pleaded contained all the essential elements which must be pleaded as set out in Atkin’s Encyclopaedia of Court Forms in Civil Pleadings[12].  It is a trite rule of pleading that only material facts need to be pleaded and not the evidence.  The date, the amount of loan outstanding, the currency, that the loan was repayable on demand, that the loan was interest free, the demand for repayment and the default have actually been pleaded.  These pleas are sufficient to support the Plaintiff’s case.

24.  I am unable to see how any triable issue could be said to have been raised by the lack of pleading of the other terms.  Mr Li’s reliance on Crown Record Co Ltd is wholly misplaced.  With the greatest respect, Mr Li’s submission is evidence of a lack of genuine defence.

25.  Mr Li complains that the Plaintiff had not pleaded any particulars concerning the negotiation and formation of the alleged oral loan agreement and it is hardly perceivable how the Defendant could have signified or authorized its offer and acceptance to the Plaintiff to form an oral agreement.  It is trite that only material facts need to be pleaded.  The terms suggested by Mr Li are irrelevant to support the Plaintiff’s case.  The Defendant has not advanced its version of any terms of the Loan Agreement or of the Joint Venture Agreement which it says are in dispute.  It has not advanced any argument that by reason of any of these terms in dispute it has a valid defence.  Negotiation and formation of an agreement may be relevant when the parties are, for example, in dispute about the construction of the agreement.  The Defendant has not raised any issue which makes the fact of negotiation and formation of the agreement material facts which are required to be pleaded.  As for the authority to accept the Plaintiff’s offer of loan, it is a matter solely within the knowledge of the Defendant and for the Defendant to plead and not for the Plaintiff.

The payments acknowledged by the Defendant

26.  While the payment of the total loan sum of $10,530,000 is not disputed, the Defendant argues that there is a triable issue as to the nature of these payments.

27.  The Plaintiff’s Solicitors sought discovery pursuant to Order 24 rule 10 and requested for record or financial information made by the Defendant showing that the payments were “capital and/or operational funds of Sanwa that were deposited into the account(s) of the Defendant were temporarily recorded as a loan in the books of the Defendant for convenience in accounting” as pleaded in paragraph 5(10) of its Defence and Counterclaim.  In response, the Defendant produced the Ledger Report relating to the Plaintiff’s account between 31 May 2013 and 31 December 2016.  This Ledger Report was prepared by the Defendant’s staff.  It listed all the payments in and repayments out totalling $10,530,000 and $7,380,000 respectively. These payments were identified as “Payment Loan for Roger So”.  There is nothing in the Ledger Report to suggest that these payments and repayments were related to capital and/or operational funds of Sanwa.  Despite being so requested, the Defendant failed to produce any other accounting documents whether from the Defendant or from Sanwa over which Pang has control to support its assertion that these payments were temporarily recorded as loans for administrative convenience but were in fact investment sums made pursuant to the Joint Venture Agreement.

28.  Furthermore, the Plaintiff was able to produce a Request for Audit Confirmation issued by the Defendant’s auditor seeking the Plaintiff’s confirmation of his outstanding loan to the Defendant in the amount of $2,750,000 as at 31 March 2014.  This amount tallied with the Ledger Report. The request supported the Plaintiff’s case of loan in that the auditor having inspected the Defendant’s books was satisfied that there was an outstanding loan arising from these payments and repayments.

29.  The Plaintiff also produced a chain of e-mail correspondences between him and the Defendant’s accounting staff, Carrie Liao and Carol Ho, about the payment and repayment of his loans to the Defendant.  They communicated using the word “loan” and in the context of payments and repayments which corroborated with the entries in the Ledger Report in terms of time and amount. 

30.  In an e-mail dated 19 September 2016 to the Defendant, Carrie Liao wrote:

“Regarding the loan repayment in Sept, it will depend on when the payments of Accelink & Fiberhome are received. …

We fully understand your loan repayment should be paid whenever you request, ought not wait for buyers’ payments. But True Honest Group’s cash flow is too tight, so hope you understand its situation.

We’ll keep you informed of loan repayment of Nov as soon as we can.”

Mr Li argues that the first sentence quoted above indicates that the loan was not repayable on demand.  The second paragraph quoted above gave a complete answer to that argument.  It reflected a clear understanding that the loan was repayable on demand, but the writer was seeking indulgence from the Plaintiff due to the Defendant’s cash flow problems.  This e-mail also indicated a repayment schedule, but it may be easily explained by way of a standing demand.  Carrie Liao was unequivocally talking about loan repayment and not return of capital investment. 

31.  In an e-mail dated 27 February 2017 from Carol Ho to the Plaintiff, she annexed a schedule of payments in and repayments out showing an outstanding balance of $3,150,000.  She wrote:

“…現時公司還欠你HK$3,150,000元款項 ，因過年關係 ，1、2 月都沒有還款。而暫時預計4、5月份資金緊拙，要支付古河大金額貸款，等你回來後，再詳述及相討資金及還款安排。

另外，你早前存入的HK$2.75M，我司在12月份賬上已轉入三和股東欠款上。

(Translation:

At present, the company still owes (you) HK$3,150,000. Because of the New Year, it has not repaid in January and February. It is provisionally anticipated that the funds will be tight in April and May, and (the Company) has to repay a huge loans owing to Koo Ho. After your return, (we) will discuss the funds and repayment arrangements in detail.

In addition, the HK$2.75M you deposited earlier has been entered into our accounts for the month of December as loans due from Sanwa shareholders.”

This e-mail acknowledged the amount of outstanding loan owing by the Defendant to the Plaintiff.  All the transactions mentioned in the e-mail tallied with the entries in the Ledger Report, including the Plaintiff’s deposit of $2.75 million on which the Defendant raised a big issue.  It referred to the payments in as loans.  There was not the slightest suggestion that the payments in were for investment and that the repayment out was return of investment.  It is consistent with and supports the Plaintiff’s case. Mr Li argues that if the parties were discussing about loan there was no reason why the Plaintiff should be concerned about the Defendant’s cash flow problem and its obligation to pay another creditor.  He submits that this is indicative that the parties were talking about investment.  The simple answer is to be found in the previous e-mail from Carrie Liao.  In my view, the Defendant was pleading for indulgence.

32.  In another e-mail dated 4 August 2017 from Carol Ho to Anny So forwarded to the Plaintiff, Carol Ho listed the payments in making up the total loan of $3 million as mentioned in the Plaintiff’s e-mail dated 14 September 2016 and a further loan of $650,000 paid in on 19 December 2016.  Carol Ho asked Anny So to confirm “amount loan for Roger private or company.”  This e-mail also indicates that the payments in were loans and not investment.

33.  These e-mails are consistent with and support the Plaintiff’s case of a loan and inconsistent with the Defendant’s case of investment.  Mr Li argues that these e-mails are selective and may not be the entire e-mail chain.  This is a desperate argument.  Pang has control of the Defendant.  If there are any e-mails in the chain which would rebut the Plaintiff’s case, she should have exhibited them instead of advancing such a speculative suggestion. 

The Plaintiff’s pre-action letter

34.  Mr Li argues that the Plaintiff’s pleaded case and affirmation in support are contradicted by the pre-action letter dated 2 January 2018 issued by the Plaintiff’s Solicitors, which he quoted as follows:

“We are instructed that there are three shareholders in Sanwa Global Limited（三和環球實業有限公司）(“Sanwa”), namely Speed View Limited（捷望有限公司）(‘Speed View’) currently holding 2,400,000 shares Subtitle Limited （以恩有限公司）currently holding 1,000,000 shares and True Honest currently holding 1,600,000 shares.

We have instructions that, in or about May 2013, our client orally agreed with Ms Pang Wing (彭穎) (‘Ms Pang’), the director of True Honest that our client would personally lend money or put up funds (without interest or conditions attached) to support True Honest in order to resolve its cash flow problem and starting up of the business of Sanwa.  Ms Pang agreed to repay our client the loan amount as soon as possible or upon our client’s request.  Since then, our client from time to time injected further and put up additional funds to True Honest up to 31^st December 2016 as show below …”

(High-lighted in bold and italic prints by the Defendant)

35.  Mr Li submits that the high-lighted parts indicate that the payments were investment funds for starting up the business of Sanwa.  With respect, that is an extremely strained interpretation of the letter.  According to the Cambridge Dictionary[13], “fund” means an amount of money saved, collected, or provided for a particular purpose; whereas “loan” means an amount of money that is borrowed, often from a bank, and has to be paid back, usually together with an extra amount of money that one has to pay as a charge for borrowing.  “Fund” is a word of general purport.  The word “loan” has a specific meaning.  It means funds borrowed by the borrower or lent to the borrower with an obligation of repayment.  The phrase “put up funds” in the second paragraph quoted above has to be read subject to the meaning that the funds were borrowed funds, ie loans. 

36.  It is trite that construction of a document is to ascertain the meaning which the document read as a whole conveys to a reasonable reader who has knowledge of the surrounding factual matrix.  It is not the same as finding out the meaning of a particular word or phrase in the document.  The document has to be construed as a whole.  Mr Li cannot read the phrase “in order to resolve its cash flow problem and starting up of the business of Sanwa” in isolation without having regard to the words “to support True Honest” which immediately preceded it.  In my view, the meaning which the entire paragraph or letter gives to a reasonable reader is that the loan was lent to True Honest, ie the Defendant, to enable the Defendant to resolve its cash flow problem and enable it to fulfil its commitment in starting up the business of Sanwa.  By no reading of the letter as a whole can one come to any view that the payments, to use a neutral word, by the Plaintiff were investment funds or capital contribution to Sanwa which need not be repaid.

37.  Likewise, the phrase “injected further and put up additional funds” must be read together with the words “to True Honest”. The word “funds” must mean loans and the loans were to be advanced to the Defendant and were not contributions to Sanwa as capital.

38.  The Defendant refers to the third last paragraph of that letter before action, which reads:

“We are instructed that, on 31^st December 2016, a sum of HK$2,750,000.00 was transferred to Sanwa as capital investment or share price from Speed View and also a repayment to the personal loan to our client as mentioned above. However, on the facts and company registry records, Speed View is and was only holding a total of 2,400,000 ordinary shares of HK$1 each. Thus, the total capital injection or share price for the said shares should be HK$2,400,000. The difference of HK$350,000 was over transferred and made without our client’s consent.”

(High-lighted in bold and italic prints by the Defendant)

In the Plaintiff’s affirmation, the Plaintiff averred that a sum of $2,750,000 was transferred by the Defendant to Sanwa as repayment of part of the loan. 

39.  Mr Li argues that what the Plaintiff averred is not true.  Relying on the high-lighted part of the above quotation, Mr Li argues that the transfer was not a repayment of the loan, but the Plaintiff’s contribution to the capital of Sanwa.  This argument is contrary to the way the transfer was treated in the Ledger Report and some of the e-mails discussed above.  Again, the first high-lighted phrase should be read together with the phrase that immediately follows, ie “and also a repayment to the personal loan to our client as mentioned above”.  The fair meaning conveyed by this sentence is that the sum transferred was a repayment of the loan which was to be transferred to Sanwa instead of to be paid to the Plaintiff and to be applied as Speed View’s contribution to the share capital of Sanwa.  The sentence could have been better written.  

40.  Mr Li also relies on the phrase “total capital injection or share price” in the second high-lighted portion of the above quote as evidence of the Plaintiff’s capital contribution to Sanwa. With respect, this interpretation is wholly nonsensical.  I repeat my observation that such interpretation is contrary to the Defendant’s own Ledger Report and e-mails.  Furthermore, if that were the case, the Ledger Report should have shown the repayment of $350,000 instead of $2,750,000.  If that were the case, Pang, being the sole director of the Defendant and of Sanwa, should have been able to produce documents evidencing such capital contribution by the Plaintiff, whether on his own behalf or on behalf of Xie.  Such evidence is totally absent.  It is common ground that Speed View is a shareholder of Sanwa.  According to the annual reports of Speed View, Anny So who is also a staff of the Defendant, is the sole shareholder and company secretary of the company and So Chung Kwan is its sole director.  It is not related to the Plaintiff.  There is no reason why the Plaintiff should personally contribute to the share capital of Sanwa.  Looking at the way the transfer was treated in the Ledger Report and in the e-mails, it is obvious that the transfer was a repayment of the loan owed to the Plaintiff which the Plaintiff directed the Defendant to pay to Sanwa as Speed View’s capital contribution.  The last sentence of that paragraph was only a complaint of over-transfer which later came to the knowledge of the Plaintiff or his solicitors.

41.  Mr Li also referred me to Carol Ho’s e-mail dated 27 February 2017 which I have quoted above.  Carol Ho wrote:

「另外，你早前存入的HK$2.75M，我司在12月份賬上已轉入三和股東欠款上。」

Translation:

“In addition, the HK$2.75M you deposited earlier has been entered into our accounts for the month of December as loans due from Sanwa shareholders.”

Again, Mr Li relied on the above sentence as evidence that the entire amount of $2,750,000 was the Plaintiff’s contribution to the share capital of Sanwa.  The meaning of that sentence is ambiguous.  It appears to mean that the funds had been entered into the books of the Defendant as shareholders’ loan.  Whatever it means, in the light of the discussion above, it could not have the meaning suggested by Mr Li.

42.  Mr Li argues that it is incredible that the Plaintiff would have on the basis of an oral agreement lent such a huge sum of money to the Defendant, which is a limited liability company, without interest or collateral and for an indefinite period of time.  He argues that the loan would bring no benefit to the Plaintiff but would expose him to tremendous risk of default over an extended period of time.  Objectively, the loan was a huge sum of money.  But money has different values to different people.  Though there is no evidence of the Plaintiff’s financial standing, it is obvious that the Plaintiff and Pang share a special relationship.  The Plaintiff is the Chief Executive Officer of the Defendant of which Pang is the sole shareholder and director.  Apparently, they are close friends and business associates and in a position of trust vis-a-vis one another.  The Plaintiff probably has much financial benefit to gain arising from his position as the Chief Executive Officer of the Defendant and therefore has an interest to keep the Defendant afloat.  Though the total amount advanced was over $10 million, there were repayments every now and then.  On a running account basis, the outstanding loan ranged from $1,750,000 to $6,580,000 only.  As the Chief Executive Officer of the Defendant, the Plaintiff could monitor the financial position of the Defendant.  His knowledge of the financial position of the Defendant is as good as a collateral.  The e-mails, the payments in and repayments out show that the Plaintiff has in fact been supporting the Defendant in order to resolve its cash flow problem and starting up of the business of Sanwa as asserted in the letter before action.  Unfortunately, time has come when the relations between the Plaintiff and Pang turned sour or that the Plaintiff felt he was at risk and hence commenced the action.  I need not speculate what was the reason.  In the face of the incontrovertible evidence, I consider the oral Loan Agreement credible.

The internal practice of temporarily recording the Plaintiff’s capital contributions as loans

43.  Pang sought to explain away the Ledger Report saying that it was the Defendant’s internal practice to temporarily record the Plaintiff’s payments in as loans.  Other than a bald assertion to that effect, the Defendant adduced no evidence of such a practice or documentary evidence to support the existence of such a practice.  On the contrary, as the Ledger Report shows, the payments in had been treated for three and half years as loans. That is too long a duration to be called “temporary”.  Pang’s assertion is also rebutted by the audit confirmation issued by the Defendant’s auditor.  Lastly, Xie affirmed on oath that he was not the source of funds for those payments in also discredited Pang’s case.  Pang’s assertion is far from being credible.

Loan or investment issue

44.  In conclusion, the Plaintiff’s case of loan is overwhelmingly supported by the Defendant’s Ledger Report and contemporaneous e-mails, which acknowledged the receipt of the payments in as loans and payments out as repayment of loans.  The so called “temporary arrangement of recording investment as loans” was too long term to be temporary.  It is also contrary to Xie’s affirmation that he never paid any contributions. 

45.  On the other hand, the terms of the Joint Venture Agreement suggest it was only an agreement to agree and not a binding agreement.  It also appears that the agreement has never been performed because had the agreement been implemented, Xie would have been appointed as the Chairman of the board of director of Sanwa, but he has not.  On the other hand, prior to 2017 Pang and Lau Tak Ming were two directors of Sanwa.  Since 2017 Pang has become the sole director.  The terms of the Joint Venture Agreement are so inconsistent with the shareholding structure of Sanwa that the only reasonable inference is that the agreement even if it ever existed was but an agreement to agree pursuant to which the parties never reached agreement.

46.  Pang, being a director of the Defendant and sole director of Sanwa should be in a good position to produce documentary evidence from the books of these companies evidencing the capital contribution to Sanwa and explain how the Joint Venture Agreement could tie in with the shareholding structure of Sanwa.  Apart from Pang’s bald assertion, there is no supporting evidence, documentary or otherwise, of the Joint Venture Agreement. 

47.  Applying the test in Re Safe Rich, when the Plaintiff’s case and the Defendant’s case are tested against one another and against the incontrovertible evidence and evidence not in dispute, I am well satisfied that the Plaintiff’s case of Loan Agreement is credible and well supported by incontrovertible documentary evidence but the Defendant’s case of Joint Venture Agreement is not capable of belief. 

Conclusion

48.  For the above reasons, I find that the Plaintiff has made out a prima facie case that he is entitled to judgment, and that the Defendant has failed to show any bona fide defence or raise any triable issue.  The Defendant has a counterclaim against the Plaintiff.  Mr Li said that the Plaintiff was in default of filing a defence.  That is a non-issue as the Plaintiff had obtained extension of time to file defence after conclusion of these proceedings.  The Defendant’s counterclaim is founded on the Joint Venture Agreement, which for reasons as explained above is very shadowy.  In the circumstances, it is appropriate to enter summary judgment in favour of the Plaintiff on the claim with costs and certificate for counsel.  Such costs are to be determined by way of summary assessment on paper.  The Defendant shall be at liberty to proceed with its counterclaim separately.