SMART KEEN INTERNATIONAL LTD. v. LINK-TEC INDUSTRIAL LTD.

DCCJ5102/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 5102 OF 2002

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JUDGMENT

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1. This is an application for summary judgment under Order 14 Rule 1 of the Rules of the District Court. The plaintiff's claim is for agreed fees of HK$425,000.00 for providing financial and consultancy services to the defendant.

2. It is not in dispute that the plaintiff and the defendant entered into a consultancy agreement dated 2 January 2002 ("the Consultancy Agreement"). The main features of it were that the plaintiff was to provide financial and management consultancy services to the defendant for 6 months, from 1 January to 30 June 2002 for a monthly fee of $25,000.00, and that in addition the plaintiff would assist the defendant to obtain loans and credit facilities from banks or financiers to finance the defendant, and in consideration of such services, the defendant would pay the plaintiff a further fee equal to 6% of the amount of loan or credit facilities obtained.

3. The plaintiff assisted the defendant to obtain a loan of $10,000,000.00 from the Hong Kong and Shanghai Banking Corporation ("the Bank"). The fee at 6% would be $600,000.00. The plaintiff claims $300,000.00 in respect of the unpaid balance of that fee plus $125,000.00 being outstanding monthly fees from February to June 2002.

4. The defendant's case is that there was disagreement between the parties as to the plaintiff's entitlement to receive the fee of $600,000.00 for assisting in obtaining the grant of banking facilities. This led to an oral agreement reached some time in late February or early March 2002 that the defendant would pay the plaintiff a lump sum of $325,000.00 to discharge completely the Consultancy Agreement. The defendant paid that sum on 15 March 2002 and therefore all liabilities are at an end.

Order 14 Principles

5. Order 14 places the threshold onus on the defendant to show that there is a triable issue. The Court will test the credibility of an affidavit asserting a triable issue against the conduct of the defendant and contemporary documents. See Murjani v. Bank of India [1990] 1 HKLR 586.

6. In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 Godfrey J.A. said:

"...I would sound a note of caution about Murjani which has come to be cited in almost every case under O 14 or O 86 to justify the plaintiff in asking the court to embark on a mini trial of the action on affidavit evidence. That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question: 'Is what the defendant says credible?'. If so, he must have leave to defend, if not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant's assertions are to be believed, it is whether those assertions are believable."

7. Godfrey J.A. further put the matter in a nutshell in Man Earn Limited v Wing Ting Fong [1996] 1 HKC 225:

"Unless it is obvious that the defence put forward by the defendant is 'frivolous and practically moonshine', Order 14 ought not to be applied": see Codd v Delap (1905) 92 LT 510 per Lord Lindley at 511.

8. However, this does not mean that the court must disregard the background. To the extent that it can look at the defendant's own conduct and the contemporaneous documents, without embarking on a mini-trial on affidavit evidence, Murjani is still good law. Or, as Bokhary JA put it in Re Safe Rich Industries Limited, Civil Appeal No.81 of 1994, unreported, 3rd November 1994 :-

"The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - 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 either undisputed or beyond reasonable dispute."

9. As Yeung J put it more recently in Ng Siu Kei v Chong Mee Mee [1999] 1 HKC 693, the defence must not be "inherently impossible". I would expand that to say that if the defence is inherently impossible, when looked at in the context of so much of the background as either undisputed or beyond reasonable dispute then Order 14 must be granted. If it is not, then the defendant must have leave to defend.

10. A further useful guideline is that reiterated by Rogers JA said in Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106 at 111:

"The old adage that if you have to sit down, it is not a case for Order 14 is equally applicable today as it was when it was first coined."

11. There are lengthy affirmations from both sides. Much of what is written goes to the background to the dealings between the parties. My immediate impression on seeing them was that I was being invited to hold a trial on the affirmations. Since that cannot properly be done, I will try to keep my paraphrase of the evidence brief and will leave out what I do not consider important.

12. The evidence of the defendant's director, Mr. Ho Chak Sum ("Mr. Ho") is that Mr. Hon Tak Kwong ("Mr. Hon") of the plaintiff was introduced to him in as one who would help him to obtain bank finance for the defendant. After discussion they entered into the Agreement although Mr. Ho was not very happy about taking on a 6-month commitment to pay fees. Then Mr. Hon obtained an offer of finance from the Bank, for a loan of $10,000,000.00 against a deposit of $5,000,000.00, but Mr. Ho again was not happy with the terms of it; in particular there was a Packing Credit element which the defendant did not need. However Mr. Hon persuaded him to enter into the credit arrangement with the Bank on the basis that he, Mr. Hon, would get the terms of the arrangement amended. Mr. Ho signed a copy of the bank's offer as acceptance of the arrangement.

13. After that Mr. Hon chased Mr. Ho for the deposit of $5,000,000.00 and to sign the legal documents required by the Bank, but when Mr. Ho found that Mr. Hon could not get the terms of the credit arrangement amended, he said that the defendant would not go ahead with the matter. Later Mr. Hon came looking for his fees but Mr. Ho did not want to pay them. They had discussions and ultimately it was agreed that the defendant would pay a lump sum of $325,000.00 to the plaintiff and that the Consultancy Agreement would be terminated. Pursuant to this oral agreement the defendant paid the plaintiff $350,000.00 on about 15 March 2002; the extra $25,000.00 was interest on money loaned by Mr. Hon to the defendant. Later, however, the defendant received the plaintiff's invoices; he protested to Mr. Hon but was told that since there was nothing in "black and white" to record the termination agreement he could go back on it.

14. Mr. Hon's says that Mr. Ho did indeed query why he should be paying $25,000 per month. He told him that it was a kind of "after sales service". He denied most of what Mr. Ho says about being unhappy with the terms of the bank's offer. He says that after the Chinese New Year the defendant wanted to increase the clean export loan limit given in the Bank's offer. However Mr. Ho did not follow up his inquiries about this. Ultimately the Bank facility was never activated.

15. Mr. Hon says that there was no agreement to discharge or terminate the Agreement at all. In February 2002, the plaintiff issued the debit note for the January fee and on 6 February it issued another debit note being 50% of the fee for arranging the banking facilities. He did not issue it for the full amount because Mr. Ho told him that the defendant was short of money and could not pay all at once. These debit notes were settled on 15 March 2002. Before the Chinese New Year, Mr. Hon on behalf of the plaintiff lent the defendant $600,000.00 because the defendant was short of money; the principal was repaid on 8 March 2002, and agreed interest of $25,000.00 was also paid on 15 March 2002.

16. On 1 March 2002, the plaintiff had issued the debit note for the monthly fee for February 2002. It was not settled. Then on 15 May 2002 the plaintiff issued debit notes for the fees for March and April 2002, and for the balance of the consultancy fee amounting to $300,000.00. On 1 June 2002, the plaintiff issued its debit note for the fees for May 2002, and on 1 July the debit note for the fees for June 2002. None were settled. Solicitors were then instructed. Payment was demanded by 30 July 2002 otherwise the plaintiff would sue; payment was not forthcoming. Proceedings were issued.

17. There were negotiations for settlement. I admitted evidence of these "without prejudice" negotiations after argument because they went precisely to the question of whether there had been any agreement to settle in the first place. The point of them, and the documents generated between July and September 2002, is that there is nowhere any mention of the agreement claimed by the plaintiff to discharge the Consultancy Agreement.

Evaluation

18. The defendant's defence is that there was an oral agreement to discharge the Consultancy Agreement. The question is whether that is believable, not whether or not it is to be believed. It is argued for the plaintiff that while the existence of such an oral agreement is not unbelievable by itself, in the light of the background it is not believable. The plaintiff relies particularly on the facts that the alleged oral agreement was never reduced to writing; in spite of the continued issuing of fee notes and demand letters, the plaintiff never protested that the oral agreement had been made, and particularly the fact that the defendant never raised the matter of the alleged oral agreement in negotiations.

19. There has been a lot of argument about what is credible and what is not credible in what the defendant says about the negotiations with the Bank, why the facility letter was signed and so on. I do not want to get into that. To do so would be to hold a trial on the affirmations. I have to look at the evidence against what appears in the background as either undisputed or beyond reasonable dispute.

20. What is not in dispute it this. The plaintiff and the defendant entered into the Consultancy Agreement. The plaintiff's Mr. Ho was never happy about buying into a continuing consultancy agreement; what he wanted was a "one-off" but in any event did enter into it. The plaintiff under the Consultancy Agreement procured a credit facility for the defendant, but for whatever reason it was never taken up. The defendant has not in practical terms had much value for the fees which the plaintiff seeks; and none at all for the monthly fees from March onwards. Some time around the Chinese New Year, i.e. 12 to 15 February 2002 the plaintiff or Mr. Ho lent the defendant $600,000.00 without any documentation; and it was paid back in full with usurious but just legal interest of $25,000.00. On about 15 March 2002, the defendant paid the plaintiff a total of $350,000.00 which covered one month's consultancy fees, half the fee for the bank facility, and the interest on the separate loan. After that everything went silent until about May when the plaintiff demanded more money and started to chase the plaintiff for it; but the plaintiff never either directly or through solicitors protested that it did not owe the rest of the money.

21. In the classic Order 14 situation, it is some contemporaneous document proceeding from the defendant which gives the lie to his defence. Here the argument is that the defence cannot be believed, not because there is a document inconsistent with it, but because there is no document consistent with it, and no oral or written denial consistent with it. I think it would be dangerous to come to that conclusion in the situation here where the dealings between the parties were, even on the plaintiff's evidence, informal; they must have been, or else there would have been a demand a the outset for the full amount of the fee for procuring the bank facility, and there would not have been any casual loan of $600,000.00.

22. It is of course argued that that was before the Chinese New Year, when all was going well, and Mr. Ho and Mr. Hon had no reason to mistrust one another; but by mid-March, self-preservation should have led Mr. Ho to get his agreement, if there was one, in writing. That is all very well and good but quite often businessmen do not have the good sense to put agreements in writing when they should. It is also argued, with more force I think, that if there had been an agreement, the solicitors would have said so. But again, sometimes even solicitors do not do the obvious thing, perhaps because the client has failed to give proper instructions, or perhaps for some other reason.

23. The defendant's case may well not be believed if the matter goes to trial but I cannot say that it is not believable. I therefore do not see that this is a proper case for a summary judgment. The plaintiff's summons is therefore dismissed with costs (nisi) to the defendant, to be taxed if not agreed.