STERLING SERVICES LTD v. TAN KEE CHEANG & ANOTHER

HCCL 72/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.72 OF 2002

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J U D G M E N T

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The application

1. This is an application for summary judgment pursuant to the plaintiff's summons dated 9 May 2002. The plaintiff seeks an order that the defendant pay the sum of US$4,231,602.22, together with interest and costs.

The background

2. This is a claim under two guarantees, respectively dated 2 January 1998 and 20 March 1998, whereby the defendant, Tan Kee Cheang, and the third party, Patrick Ko, guaranteed the payment of advances made by the plaintiff to Yazaki International Ltd and to Luckmate Protein Trading Ltd, (which later changed its name to Anais Protein Trading Ltd).

3. It is not disputed that monies were advanced under the two loan agreements, nor is there dispute as to the commercial transactions underlying the execution of the loan agreements (also signed by Messrs Tan & Ko) and of the guarantees in question.

4. What is strongly disputed, however, is that the obligations inherent under these two guarantees continue to subsist. Shorn of detail, and there is a considerable amount of that, the fundamental case put forward is that the guarantees which had been so signed were released in consideration of the transfer of the business of APTL, in which Mr Ko and Mr Tan had shareholdings of 70% and 2% respectively, to one GC Luckmate Trading Ltd, a company controlled by the family of Mr John Ho Ming Tak, director and authorized deponent of the plaintiff.

5. The factual situation leading to the alleged transfer, and the agreement of July/August 1998 which led to the release of the liabilities of APTL, are matters set out in detail in the 2nd Affirmation of the defendant, dated 23 June 2003, and are further reflected in the Defence, filed herein on 18 January 2003, as amended in a draft Amended Defence, a copy of which has been placed in the papers before me on this application.

The argument

6. The thrust of the argument of Mr Hart, appearing for the plaintiff, was that an arguable defence had not been disclosed, and that, in a nutshell, that which had been placed before the court by the defendant consisted of no more than incredible and inconsistent allegations unsupported by contemporaneous documentation. In a full skeleton argument filed in support of the application, Mr Hart analysed the defences raised, which included arguments of a technical nature additional to the main case, and sought to respond, in some detail, setting out the plaintiff's position with regard to the various assertions made by the defendant.

7. In response Mr Harris, for the defendant, adopted a broader and, if I may say so, a more realistic approach. He noted that the events with which this action is concerned took place between four and five years ago, and that the defendant no longer had any relevant documents in his possession. Nor had there been an explanation, he said, as to why demand for payment under the guarantees had not been made until October 2002, some three years after the borrowers under the loan agreements had been wound up, nor for that matter why this allegedly straightforward action under these guarantees had not been commenced until 26 October 2002.

8. As to the substantive defence now put forward, he argued that it could not be disputed that the business of APTL was indeed transferred to Luckmate, citing here the judgment of the High Court in BNP Paribas v. GC Luckmate Trading Ltd, [2002] 2 HKLRD 156, and noting that the court in that case also had taken the view that the business appeared, on the face of the documents, to have value. Mr Harris further pointed out that although in his evidence the plaintiff's deponent, Mr Ho, denies that it was ever intended to transfer the business, he did acknowledge that "certain assets of various companies within the Luckmate Group" were indeed transferred to GC Luckmate Ltd, although significantly no explanation was produced of why there was such a transfer. The obvious conclusion, suggested Mr Harris, was that as asserted by the defendant, namely that there had been a transfer of the business in return for the release of the guarantees signed by his client and by Mr Ko.

Decision

9. I have no idea of where the truth in this dispute actually lies, and equally I have no intention of attempting to speculate. This will be a matter for trial, and for examination of these gentlemen in the witness box.

10. On the limited evidence before me, however, it is abundantly clear that there is an issue or question in dispute which ought to be tried, and I do not consider, as Mr Hart asserted, that this is a case where the evidence of the defendant is "so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that his defence is a sham" : see Manciple Limited v. Char On Man [1995] 3 HKC 459 at 466.

11. I am quite unable to accept Mr Hart's characterization to the effect that the arguments advanced by the defendant meet this test, and that as a result summary judgment should follow. To the contrary, in the circumstances revealed on the evidence, if ever a case cried out for full discovery, in my judgment this is it. Given the background, I have little doubt that more occurred in this case than initially meets the eye.

12. On an Order 14 application the court is not assisted by the type of close argument and nice distinction to which Mr Hart aspired to subject the evidence. It seems to me, with respect, that the fundamental problems confronting the plaintiff upon an application of this summary nature cannot be circumvented by that which Mr Harris, in my view not unjustifiably, characterized as the "minute forensic exercise" upon which the plaintiff now sought to embark.

13. As was indicated at the hearing, it strikes me that at the end of the day the only question which required resolution was whether this application should be dismissed, or whether it was more appropriate that there should be unconditional leave to defend. Certainly there is no question, in my view, of entering summary judgment in this case, and it is unclear to me how this could have been regarded as a serious possibility. Nor do I consider it appropriate, in the circumstances revealed by the evidence, to entertain what became an application for conditional leave, which represented Mr Hart's fallback position.

14. Whatever the truth of this dispute as ultimately revealed at trial, the courts in this jurisdiction have said time without number that summary judgment applications are to be narrowly regarded if I may say so, the Commercial Court has been more than usually emphatic in this regard so that it follows that, in the celebrated phrase of Lord Lindley adopted by Godfrey JA in Man Earn Ltd v. Wing Ting Fong [1996] 1 HKC 225 at 228, unless it is obvious that the defence is "frivolous and practically moonshine", Order 14 simply ought not to enter the litigation equation. As Bingham LJ crisply observed in Crown House Engineering v. Amec Projects Ltd (1990) 6 Const LJ 141 at 154 : "The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact." The objective observer may be forgiven for wondering how many times this litany has to be repeated before the message gets through.

15. After reflecting further on the evidence, I have concluded that this indeed is a case wherein dismissal of the application is justified, with the attendant costs consequences. There is no doubt that in embarking upon this application the plaintiff knew the substance of the principal defence raised, given that the pleaded Defence antedated the institution of the summary judgment application by almost four months. As such, therefore, Mr Harris was entitled to invoke the provisions of Order 14, rule 7(1), RHC.

16. I order that this application is to be dismissed with costs in any event, such costs to be taxed if not agreed.

17. I have discussed the issue of consequential directions with counsel. I note in passing that Mr Hart now accepts that he will need to amend his Points of Claim to more accurately reflect the position with regard to the advances made, and clearly it is desirable that this be done prior to the filing of the proposed Amended Points of Defence. I am confident, however, that on the basis of what has been said clearly it will prove possible to agree the relevant procedural directions up to the stage of witness statements, and I anticipate that the parties will enter a consent order in this regard.

18. I see no reason why this case should not proceed to trial with expedition, at which time the serious factual disputes which exist between these parties can be swiftly resolved.