JARDINE ONESOLUTION (HK) LTD. v. AVANTI NETWORK CONSULTANCY LTD. AND ANOTHER

DCCJ 9014/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 9014 OF 2001

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JUDGMENT

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BACKGROUND

1. On 29th May 2001 the Plaintiff issued a Writ with Statement of Claim attached claiming against the 1st Defendant for payment due under various invoices for goods sold and delivered by the Plaintiff to the 1st Defendant. The amount of the claim was HK$526,164.00 plus interest and costs. In the same action the Plaintiff also claims against the 2nd Defendant for the same amount as Guarantor under the terms of a Guarantee and Indemnity Agreement dated 7th January 2000 ("the Guarantee") guaranteeing the 1st Defendant's indebtedness owed to the Plaintiff.

2. Both the 1st and 2nd Defendants, then represented by Messrs Fairbairn Catley Low & Kong, filed Acknowledgment of Service of the Writ on 4th June 2001 stating their intent to defend the claim.

3. The Plaintiff took out application for summary judgment against both Defendants on 21st June 2001. The hearing was heard before H.H. Judge Wong on 18th April 2002 and 16th May 2002. Shortly before the hearing on 18th April 2002 Messrs Fairbairn Catley Low & Kong obtained an Order ceasing to act for the 1st and 2nd Defendants resulting the 2nd Defendant appearing in person at the hearing on 18th April 2002. Affirmations were filed on behalf of the Plaintiff in support of the application and an affirmation was made by the 2nd Defendant on 12th July 2001 and filed on 13th July 2001 on behalf of the 1st and 2nd Defendants opposing the Plaintiff's application.

4. At the hearing on 18th April 2002 submissions were made by both parties. The Plaintiff was represented by Counsel Mr Ling and the 2nd Defendant appearing in person and also represented the 1st Defendant. This hearing was adjourned to another date to be fixed and this was subsequently fixed on 16th May 2002.

5. At the adjourned hearing before H.H. Judge Wong on 16th May 2002 only the Plaintiff's Counsel, Mr Ling attended and the 2nd Defendant was absent. The Court was advised by Mr Ling at that hearing that the 1st Defendant was wound up and that a winding-up order against the 1st Defendant was made on 15th May 2002. As a result the proceedings against the 1st Defendant was stayed. The Court was also advised that the 2nd Defendant had already been served notice by the Plaintiff of the date of the adjourned hearing. There was a revised written submission handed to the Court by the Plaintiff and after a short adjournment the Court granted judgment in favour of the Plaintiff ("the Judgment") in the following terms:-

6. The 2nd Defendant filed a Counterclaim on 12th June 2002. Apart from that no steps were taken by either party to have the Defendants' Counterclaim tried as directed.

THE STRIKING-OUT APPLICATION

7. The Plaintiff took out a Summons, which was filed on 22nd June 2002 and is the subject matter of this application, to strike out the 2nd Defendant's Counterclaim under Order 18 Rule 19 of the Rules of the District Court and its inherent jurisdiction ("the Striking Out Summons"). On 20th November 2002 the Plaintiff took out another Summons seeking leave to amend the Striking Out Summons asking for a further Order to uplift the stay of execution of the Judgment given by H.H. Judge Wong on 16th May 2002 in the event the Plaintiff succeed with the Striking Out application. The Plaintiff filed two affirmations to support the Striking Out Summons and the 2nd Defendant filed one affirmation to oppose it.

8. At the hearing of these Summonses the Plaintiff was represented by Mr Ling Chun Wai of Counsel and the 2nd Defendant appearing in person.

PLAINTIFF'S SUBMISSION

9. Mr Ling submitted that in so far as the matters raised in the 2nd Defendant's Counterclaim and in his affirmation are concerned, all those "counterclaims" were claims which could only be raised by the 1st Defendant but not the 2nd Defendant who is the guarantor. Although Mr Ling submits that on the existing authorities arguably a guarantor might still rely on rights of set-off or counterclaim available to the primary debtors but such rights could be expressly excluded by the terms of the guarantee agreement. In the present case he submits that the terms of the Guarantee signed by the 2nd Defendant contained clauses, in particular, clause II and V thereof, to exclude such rights. Mr Ling refers to cases of National Westminster Bank Plc v. Skelton (1993) 1 WLR 72 and National Westminster Bank plc v Riley [1986] BCLC 268. He then refers to clause V of the Guarantee.

10. Mr Ling also submitted that the matters raised in fact were a defence rather than a counterclaim and that the 2nd Defendant did not have any right to file a Defence. In any event, the matters raised in the 2nd Defendant's Counterclaim were essentially the same matters raised before in the 2nd Defendant's affirmation filed opposing the Order 14 application and these were heard and decided by by H.H. Judge Wong at the Order 14 hearing in respect of which Judgment had already been granted in favour of the Plaintiff.

THE 2ND DEFENDANT'S SUBMISSION

11. The 2nd Defendant explained that the document filed by him was meant to be a Counterclaim. The 2nd Defendant accepted that most of the matters raised in the Counterclaim had in fact been raised in his earlier affirmations at the Order 14 stage. However, he said that he was absent at the hearing when Judgment was granted and he was not aware of that. He said that he did not have any notice of that hearing date and because of that he did not attend. He objected that Judgment was granted against him in his absence at that stage.

12. The 2nd Defendant accepted that he has received a copy of the Judgment and filed a Counterclaim as required. He explained that he had taken no steps to set aside the Judgment because all along he thought that the Judgment was granted against the 1st Defendant only. He was not aware that Judgment was in fact granted against the 2nd Defendant until the hearing of these Summonses. He said that there was specific mention under the Judgment that the Defendants were to file a Counterclaim he therefore thought that he still has a right to defend the claim otherwise he would not have been required to file Counterclaim. He said that he did not understand the law much and it was a mistake he made and he only knew of this when he turned up in Court at this application. He said that he will take steps to set aside the Judgment.

13. On the question of enforceability of the Guarantee the following 2 points were raised:-

14. On the Jardine Matheson Point, the 2nd Defendant submits that he has always been dealing with Jardine Matheson & Co before but not the Plaintiff and he cannot understand why it is the Plaintiff who now seeks to rely on the Guarantee. The Plaintiff is not a party in the Guarantee. On the "Principal" point, he said he was only guaranteeing the indebtedness of the Principal according to the terms of the Guarantee, and that was ANC rather than the 1st Defendant.

PLAINTIFF'S REPLY

15. On the 2nd Defendant's objection to the Judgment granted against him, Mr Ling submits that the 2nd Defendant's arguments were new to him. He submits that all the documents were properly served on the 2nd Defendant and he chose not to attend the adjourned hearing. Judgment has already been given and it is not open to the 2nd Defendant to 're-open' the judgment when there is no appeal filed.

16. On the Jardine Matheson Point, Mr Ling referred me to the previous affirmations filed by the Plaintiff in the Order 14 proceedings in which the Plaintiff had already explained that Jardine Matheson & Co. Limited had assigned the benefits of the Guarantee to Jardine OneSolution (HK) Ltd and that clause X.A of the Guarantee allowed Jardine Matheson & Co. Limited to do so. This point was raised at the Order 14 proceedings and was already considered by the Court.

17. On the "Principal" point, Mr Ling referred to p.99 and 100 of the exhibits bundle. This included exchange of correspondence between the 1st Defendant and JOS Technology Group on 29th December 1999 and 7th January 2000. Mr Ling said that these correspondence suggested clearly that the reference of ANC referred to as "Principal" in the Guarantee was a typo mistake made on the part of the Plaintiff and that it was meant to mean Avanti Network Consultancy Limited i.e. the 1st Defendant in this case. Mr Ling said that it was always the intention of the Plaintiff to treat the "Principal" as the 1st Defendant but not ANC. In addition, Mr Ling said that this came as a total surprise to him because this argument was never raised at the Order 14 proceedings. He accepted that this could amount to a complete defence to the Plaintiff's claim against the 2nd Defendant as the 2nd Defendant is essentially saying that under the Guarantee he was guaranteeing ANC's liability but not the 1st Defendant's. Nevertheless Mr Ling submits that the Court should not consider this at this time because Judgment had already been granted and that this argument should have been raised at the Order 14 proceedings but was not raised.

DECISION

18. The first issue before me is whether I should consider the matters raised in the 2nd Defendant's Counterclaim. Mr Ling said that such is in fact not a "Counterclaim" but is a defence and that the 2nd Defendant does not have any right to file any defence for judgment had already been granted against him. Secondly Mr Ling submits that the issues raised in the 2nd Defendant's Counterclaim had already been raised before and decided upon at the Order 14 proceedings and that the 2nd Defendant should not be allowed to 're-open' the Judgment.

19. First, I do not think that all the matters raised in the Counterclaim were raised at the Order 14 hearing. Mr Ling accepts that at least the "Principal" point is a new issue which was not raised at the Order 14 proceedings. This was not considered and decided upon by H.H. Judge Wong at that stage. Secondly, at that hearing H.H. Judge Wong granted leave to the 2nd Defendant to file a Counterclaim and that indicated that H.H. Judge Wong took the view that on the matters raised in the 2nd Defendant's affirmations filed at the time there were merits with the 2nd Defendant's counterclaim otherwise she would not have granted leave to the 2nd Defendant to file a Counterclaim. There is nothing wrong for the 2nd Defendant to rely on those matters now as part of his counterclaim. In any event, paragraph 18/19/11 of the Hong Kong Civil Procedure 2002 Vol. 1 states:

In the present case, taking into account that the 2nd Defendant acting in person and considering the circumstances when the Judgment was granted in the absence of the 2nd Defendant. I do not think the 2nd Defendant is abusing the process of the court by raising this argument now although such could have been raised at the Order 14 hearing but was not raised.

20. By reason of the above, I do not see any reason why I cannot consider the matters raised in the 2nd Defendant's Counterclaim for the purpose of considering the Plaintiff's present Striking Out application.

21. In relation to the 2nd Defendant's objection to the Judgment made against him, I note that the terms of the sealed copy Judgment were slightly confusing in that although it stated that judgment was entered against the 2nd Defendant it also stated that leave was granted to the Defendants (my emphasis) to file a Counterclaim. I therefore do not think that the 2nd Defendant's mistaken belief of the meaning of the Judgment is wholly unbelievable. The 2nd Defendant is free to set aside the Judgment if he thinks he has grounds to do so.

22. I now turn to the matters raised in the 2nd Defendant's Counterclaim.

23. I do not think there is any dispute on the applicability of the legal principles cited by Mr Ling in this case. On the question of enforceability of the Guarantee, however, it is clear that at the time when the Guarantee was signed i.e. on 7th January 2000 ANC was still in existence. The 2nd Defendant said that he had signed similar Guarantee Agreements with Jardine Matheson guaranteeing ANC's liability prior to the Guarantee in question. The 2nd Defendant said in this particular case he never signed the Guarantee Agreement to guarantee the 1st Defendant's liability. It had always been his intention to guarantee ANC's liability as was the case in the past. Although the Plaintiff's submission is that all along it was the Plaintiff's intention to treat the 1st Defendant as the "Principal" in the Guarantee but from the 1st Defendant's correspondence i.e. their fax dated 7th January 2000 it was unclear as to whether the 2nd Defendant accepted that. According to the 2nd Defendant, ANC was set up by his brother Mr Lee Sung Kit in or about 1993 and it had been in business since. ANC went into restructuring in about December 1999 and was due to be incorporated into a limited company i.e. to become the 1st Defendant in about January 2000. In that fax it was suggested that the restructuring of the company i.e. from ANC to the 1st Defendant could not complete by mid January 2000 suggesting that the 1st Defendant was not ready to become the "Principal" under the terms of the Guarantee. This argument was also raised by the 2nd Defendant at the hearing. He said he never intended to guarantee the 1st Defendant's indebtedness.

24. The principles laid down under Order 18 Rule 19 of the Rules of the District Court are that striking out application should only be allowed in "plain and obvious cases". Para 18/19/4 of the Hong Kong Civil Procedure 2002 Vol. 1 also states:

25. The evidence is clear to me that the 2nd Defendant does have a prima facie case as to whether the Guarantee is legally enforceable against him. The question of whether he genuinely meant to guarantee ANC's indebtedness but not the 1st Defendant's is a matter of evidence which should be decided at trial.

26. I think this is one of those cases that fall within the above principle where the Court should not exercise its jurisdiction to strike out the Counterclaim and I would therefore dismiss the Summonses taken out by the Plaintiff with costs.