XCHRX PROLINE PRODUCTS INC. v. LAM LIN TIM PATRICK

1997 No. A259

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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INTRODUCTION

1. In this action, the Plaintiff claims the repayment of the balance of various sums lent to the Defendant. It sought summary judgment against the Defendant under Ord. 14. The master took the view that the defence was "not bona fide in that it lack[ed] both credibility and completeness and was not believable". He therefore gave judgment for the Plaintiff. The Defendant now appeals against that order.

THE LOANS

2. There is no dispute that the Plaintiff lent the sums claimed either to the Defendant or to Likoton Ltd., a company of which the Defendant was a director. On 18th August 1995, the Defendant acknowledged that the sum of US$6,903.12 was owed to the Plaintiff. He claims that that debt was based on a loan which had originally been made to Likoton, and not on one which had originally been made to him (as the Plaintiff claims). There is support for that in the document in which the Defendant acknowledged the debt to the Plaintiff. However, the Defendant does not assert that that means that it is Likoton whom the Plaintiff should be suing. That is because the Defendant admits (in para.6 of his affirmation) that he agreed to be liable to the Plaintiff for the repayment of Likoton's debts. As I read his affirmation, the consideration for that was the Plaintiff's agreement to lend him a further sum of US$12,000.00. On 19th August 1995, the Defendant acknowledged that loan in writing.

THE REPAYMENT OF THE LOANS

3. The dispute between the parties is whether the Defendant repaid the sums of US$6,903.12 and US$12,000.00 to the Plaintiff. The Defendant claims that he did. His case is that at about the time that he was lent the sum of US$12,000.00, he became employed by the Plaintiff at a monthly salary of HK$20,000.00 a month. His duties were to assist the Plaintiff in setting up a joint venture company in China, and in due course to supervise its operations. The Defendant claims that it was agreed between him and Johnson Lau, a director of the Plaintiff, that the sums of US$6,903.12 and US$12,000.00 would be repaid by setting them off against his monthly salary. In other words, he would not receive his salary until the debts had been paid in that way.

4. The Defendant's case is that he continued to work for the Plaintiff until September 1996. During that time, the joint venture company had been set up, and the Defendant had been supervising its operations. He had not received any salary by September 1996. Far from him owing the Plaintiff anything, it was the Plaintiff which was indebted to him because his salary for the period during which he worked for the Plaintiff significantly exceeded the debts plus interest on them.

5. If these assertions are true, they amount to a complete defence to the Plaintiff's claim. The debts owed to the Plaintiff have been paid. However, these assertions are completely denied by the Plaintiff. Its case is that it never employed the Defendant at all, and never agreed to pay him a salary of HK$20,000.00 a month. It agrees that a joint venture company was set up in China, and that the Defendant supervised its operations. But the Defendant's interest in the joint venture is alleged to have been as an investor in it rather than as an employee of the Plaintiff. If the joint venture prospered, the Defendant would be paid bonuses, and he would be allotted shares in the Plaintiff's holding company, which, like the Plaintiff, was incorporated in the U.S. That shareholding would pave the way for an application by the Defendant for an immigration visa to the U.S. Indeed, far from repaying the debts, the Defendant borrowed various additional sums from Mr. Lau, and Mr. Lau is taking advice as to whether he has sufficient evidence to enforce in China the payment of those sums.

THE TEST TO BE APPLIED

6. Mr. Christopher Lam for the Plaintiff told me, in the course of his thoughtful and moderate submissions, that the many recent decisions of the Court of Appeal as to the test to be applied in Ord. 14 proceedings have caused uncertainty in the minds of practitioners in Hong Kong as to what the proper approach of the court should be. At the risk of adding unnecessarily to the learning in the field, I propose to add a few words of my own on the topic.

7. The mere assertion by a defendant of the facts upon which he relies is not enough to obtain leave to defend. The facts which he asserts must be credible. As Godfrey J.A. said in Ng Shou Chun v. Hung Chung San [1994] 1 HKC 155 at p.158G, the issue is not whether the defendant's assertions are to be believed at trial (by which he meant, I assume, that the issue is not whether the defendant's assertions will, or are likely to, be believed at trial). The issue is whether those assertions are believable - in the sense, I assume, that it is possible that they will be believed at trial.

8. How is that to be determined? It was accepted in Murjani v. Bank of India [1991] 1 HKLR 586 that it was necessary to consider the Plaintiff's evidence to see whether it cast such doubt on the Defendant's evidence that the Defendant's version of events could be characterised as incredible - which I take to mean that it is not possible that the defendant's assertions would be believed at trial. But in Ng Shou Chun, Godfrey, J. A. cautioned against the court embarking "on a mini trial of the action on affidavit evidence". That was not a proper course to take. He did not say why, but not doubt he had in mind that Ord. 14 proceedings are intended to be summary in nature, and are not an appropriate occasion for the detailed examination of evidence. Nor is it the appropriate occasion for the resolution of disputed issues of collateral facts. In Re Safe Rich Industries Ltd. (CA 81/94), Bokhary, J.A. (as he then was) accepted that the question whether the Defendant's assertions are believable is not to be answered merely by looking at those assertions in isolation, but he limited the facts by which those assertions might be tested to "so much of the background as [is] either undisputed or beyond reasonable dispute".

THE CREDIBILITY OF THE DEFENDANT'S ASSERTIONS

9. Mr. Lam pointed to a number of features in the Defendant's evidence which he claimed were surprising. Taken cumulatively, he contended, they made the Defendant's assertions incredible. Some of the points which Mr. Lam took were persuasive. For example, why did the Defendant not begin to claim his salary as soon as the debts would on his case have been paid? A number of Mr. Lam's other points were less compelling. For example, it is not particularly surprising that the Defendant did not record on the documents acknowledging the debts what was agreed about their repayment: it may simply have been that those documents were intended merely to record the existence of the debts, and not how the debts were to be repaid.

10. However, applying the principles which I have sought to identify, and bearing in mind that the burden is on the Defendant to establish the credibility of the facts which he asserts, I find myself unable to say that the Defendant's assertions are not believable. Since the action will, therefore, be going to trial (unless the proceedings are compromised or discontinued in the meantime), the less that I add about why I have reached that view, the better. However, I note that significant parts of the Defendant's version of events are confirmed by Mr. Lau's brother, and by a former employee of the Plaintiff. I do not overlook the allegation that they have an axe to grind against Mr. Lau, and that they have themselves been guilty of commercially reprehensible conduct and of telling untruths. But those are examples of the kind of collateral issues which I am not permitted to resolve. In any event, the weight to be attached to the evidence of those witnesses in the light of those allegations is not something which I could confidently have assessed on paper.

CONCLUSION

11. Accordingly, this appeal must be allowed, the order made by the master must be set aside, and the Defendant must be granted unconditional leave to defend the action.

(Brian Keith)

Judge of the Court of First Instance