NICE TIME INTERNATIONAL LTD v. IPPAZIO ANDREA PALAMA

DCCJ 4045/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4045 OF 2007

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Dates of hearing :  24 July and 8 August, 2008

JUDGMENT

1.  The Plaintiff ("Nice Time") seeks summary judgment against the Defendant ("Andy") for the sum of HK$751,320 ("Debt"), alleged to be the total amount of money lent by Nice Time to Andy between 21 March 2001 to 31 August 2005. 

2.  It is not in dispute that Nice Time was set up in March 2001 as a joint venture between Andy and Mr. Cesare Di Falco ("Cesare").  Andy and Cesare became shareholders and directors of Nice Time.  Cesare is an experienced businessman in Hong Kong, working in the timepiece manufacturing and wholesale business.  Andy is a designer of timepieces and had been marketing his products in Europe under the brand name "NICE" when he met Cesare on a flight from Hong Kong to Rome in 2000.  The two saw promising prospects for co-operation and decided in 2001 to set up a joint venture in Hong Kong for the design, manufacture and sale of timepieces ("Joint Venture").  From the extensive evidence filed in these proceedings, it would appear that what started then in 2001 as a hopeful venture with plans for contribution from each of Andy and Cesare ended in 2006 with each party accusing the other of breach of duties, ultimately resulting in this litigation.

3.  In essence, the issue for determination in this case is whether the Debt represents a simple claim for money lent to Andy and acknowledged by him to be payable to Nice Time, as is alleged by Cesare, or whether it represents advance payments of amounts due to Andy under the Joint Venture by virtue of his contributions made to Nice Time, as Andy asserts.

4.  Cesare filed 2 lengthy affidavits in support of Nice Time's application for summary judgment and in response to a long affidavit from Andy disputing his claims.  These are in addition to the Defence and Counterclaim filed by Andy on 24 October 2007. 

5.  It is Cesare's claim that from March 2001 to July 2005, Nice Time had made loans to Andy, and that such loans were repayable on demand.  According to Cesare, these loans were admitted and acknowledged by Andy.  In support of Nice Time's claim for repayment of the Debt, Cesare relies on the following documents:

(1)  an "acknowledgment" bearing date 1 November 2003 and signed by Andy ("Acknowledgment"), for the total sum of $455,000;

(2)  a receipt dated 5 August 2003, supported by a ledger account, for the sum of $30,000;

(3)  a receipt dated 23 August 2004, with an attached statement, for the total sum of $150,000;

(4)   a receipt dated 17 November 2004, with an attached statement, for the total sum of $80,000;

(5)  a receipt dated 5 August 2004 for the sum of $34,820;

(6)  extracts from audited accounts of Nice Time as at 31 August 2005;

(7)  a document described as "Detail Trial Balance" for the period 1 September 2004 to 31 August 2005. 

6.  Whilst the parties disagree on the nature of the amounts paid and whether or when the sums are repayable by Andy, there is in fact a common thread which runs through the myriad particulars supplied by both sides: namely, the value of the watches designed by Andy and sold under the “NICE” brand name.   Andy was regarded by Cesare as a talented designer of timepieces, and his design services together with the mark "NICE" which was beneficially owned by Andy and under which he had sold his products was to be Andy's contribution to be brought into the Joint Venture.  It was agreed between Andy and Cesare that Andy would come to Hong Kong to create new designs for watches to be manufactured, to promote the "NICE" brand name and to allow Nice Time to sell these designs using the "NICE" brand name.  In return, Cesare was to permit Nice Time to use Cesare's existing office premises and staff for Nice Time's operations under the Joint Venture, and be responsible for marketing and production of the timepieces under the Joint Venture.

7.  It is Andy's defence that the amount making up the Debt was agreed by Cesare to be paid to Andy under the Joint Venture as his expenses in relocating from Italy to Hong Kong in order to render services for Nice Time under the Joint Venture, as remuneration for his salary and/or consultancy fees, and for reimbursement of expenses to be borne by Nice Time under the Joint Venture.  Thus, of the Debt claimed by Nice Time, Andy claims that $220,000 represents consultancy fees, $100,000 represents housing allowances, and about $260,000 represents reimbursement of the Joint Venture's moulding costs. 

8.  Andy claims that as he had closed down his business in Italy to come to Hong Kong to set up and work under the Joint Venture, it had been agreed between Cesare and himself that he would be remunerated monthly to cover his living expenses.  The remuneration ranged from $15,000 initially to $20,000, and later to $30,000 after a formal employment contract was signed between Nice Time and Andy in late August 2002 ("Employment Contract"), under which Andy was officially appointed "designer" of Nice Time from 1 September 2002.  This came after large orders for the "NICE" watches were received by Nice Time under the Joint Venture in about May 2002.  Andy also claimed that whereas Cesare had initially paid for his hotel expenses in 2001, after the Employment Contract was signed in August 2002, Cesare agreed to pay for Andy to move to a rented flat and to furnish the flat in the form of housing allowances.

9.  It is inappropriate at this stage to comb through the evidence and exhibits to try the case on the parties' affidavits.  However, from what I have seen of the evidence, I consider that there is a ring of truth to Andy's assertions with regard to the parties’ general understanding when the Joint Venture was set up.  The Joint Venture, through Nice Time, would pay for Andy's living expenses in the form of a salary or a consultancy fee, and hotel expenses until such time as the Joint Venture is viable, in return for Andy's design services and the use of the "NICE" brand name.  When large orders materialized by May 2002, further "advances" or allowances were made to Andy as one of the Joint Venture partners, perhaps with the understanding (as is common in the use of joint venture companies) that adjustments would be made in due course between the partners to the Joint Venture by way of appropriate account entries.  Cesare's evidence also shows that after 31 August 2002, at the same time when the Employment Contract was signed and after the "advances" in housing allowances were made to Andy, PIL was paid by Nice Time for Cesare’s contributions to the Joint Venture ( PIL's role is explained below).  After hearing the parties and considering the evidence at this stage, I consider that there is a triable issue as to whether the Debt was intended to be repayable on demand.

10.  Cesare relies upon extracts of Nice Time's balance sheets and statutory accounts ("Nice Time Accounts") to establish that the Debt is due from Andy to Nice Time.  It is common ground that Cesare is the beneficial owner of a company, Project Italia Promotions SRL ("PIL").  In the Nice Time Accounts, PIL is recorded as owing a sum of $1,028,380 to Nice Time.  This tends to support that the 2 partners of the Joint Venture, Cesare and Andy, were receiving advances from the Joint Venture company at about the same period of time and adding credibility to Andy's assertions as to how Nice Time was operated under and pursuant to the Joint Venture.  Perhaps Cesare has some other explanation for the loans to PIL, and perhaps Andy may be discredited at trial, but on the face of the evidence filed at this interlocutory stage, I am unable to say that Andy's case is totally unbelievable.

11.  On the other hand, and as I have indicated at the hearing, whilst it is common ground that Cesare is the beneficial owner of PIL, PIL is stated in the extracts of the Nice Time Accounts as "a related company in which (Andy) has controlling interests".  This is obviously untrue.  The explanation from Counsel for Cesare is that such statement "must be a mistake in the accounts".  Nice Time places emphasis and reliance on the Nice Time Accounts as evidence of the Debt due from Andy to Nice Time.  If the Nice Time Accounts can contain a mistake relating to the controlling interests of PIL, it may likewise contain a mistake relating to the Debt due from Andy.  This itself is a reason for further discovery, cross-examination, and trial.

12.  In relation to the other documents relied upon by Cesare and Nice Time to prove that the Debt is due from Andy, the Acknowledgment refers to a sum of $130,000 as a loan from Nice Time to Andy.  Nice Time claims that the Acknowledgment is confirmed and signed by Andy.  However, when the Acknowledgment is considered, the amounts totaling $130,000 are described as "loan from Cesare", and not as a loan from Nice Time.  Further, Andy's note next to this description and amount is : "No OK".  I consider that the Acknowledgment cannot be said to be unequivocal, and the parties should be cross-examined on what the Acknowledgment means.  The amounts in the Acknowledgment stated to be "loan for flat" and "special loan" relate to what Andy described as the housing allowances and salary advances.  For the reasons I have indicated in paragraph 7 to 9 above, I consider that there are triable issues relating to these alleged loans, and whether they are payable.

13.    The receipt dated 5 August 2003, which is relied upon by Nice Time as evidence of Andy's receipt of a loan of $30,000 is likewise unclear.  The receipt was issued to PIL, and not Nice Time. The receipt is accompanied by a ledger from PIL recording the sum of $30,000 paid by PIL.  PIL and Nice Time are separate legal entities.

14.  The receipt dated 23 August 2004 is relied upon by Nice Time as evidence of a loan of $150,000.  The receipt describes the payment as "loan as per attached statement".  The statement which is attached is described as "Cesare loan to Andy".  Against the amount of "150,000" shown is the note : "pay back to Cesare on 23/8/04".  What this means is unclear.  I do not regard this as clear and obvious evidence of Andy's debt to Nice Time.

15.  As to a sum of about $260,000, Andy claims that this relates to a set of moulds for the manufacture of components for timepieces.  Prior to the Joint Venture, a company by the name of Kam Kwong Plastic Mfy.  Ltd. ("Kam Kwong") manufactured a set of moulds for Andy and his company, Timeway Company ("Timeway").  A sum of $153,450 was owed by Timeway to Kam Kwong.  Components had to be manufactured for the timepieces to be sold by the Joint Venture, and instead of having a new set of moulds to be produced at the cost of approximately $300,000, Andy claims that it was decided that Cesare would advance the money required by Andy and Timeway to discharge the debt of $153,450 due to Kam Kwong, so that the moulds which were held by Kam Kwong could be used instead to manufacture the components for the timepieces to be sold by the Joint Venture.  Eventually, ownership of the moulds was vested in Nice Time, and Andy claims that the costs of procuring the moulds from Kam Kwong should be borne by the Joint Venture company, Nice Time.

16.  Although Cesare denies that he or Nice Time had ever authorized or instructed Andy to purchase any equipment for Nice Time, the documents produced by Nice Time contradict this denial.  For example, in the document titled "Detail Trial Balance" of Nice Time for the period 1 September 2004 to 31 August 2005, there is an item "PIL expenses paid by Andy" in the sum of $100,000.  Further, although Cesare denies that there was any agreement for Nice Time to pay the purchase price of the moulds, the evidence he produced confirms that Nice Time had, through PIL, placed orders with Kam Kwong to produce components from March 2004 to December 2004.  The evidence produced by Nice Time clearly shows that the moulds had been used by the Joint Venture to produce components for its watches.  Again, all such evidence adds credibility to Andy's claims, at least at this interlocutory stage.

17.  With regard to the amount of $34,820, Nice Time claims that this was a loan extended to Andy to pay Kinetic Corporation Services Ltd. ("Kinetic") for services rendered.  According to Andy, the "NICE" trade marks are registered in the name of Pacific Brave Ltd. ("Pacific Brave"), a company beneficially owned by Andy and his wife.  Andy's case is that it was agreed between Andy and Cesare under the Joint Venture that the watches were to be sold under the "NICE" brand, but service fees, Annual Return fees and penalties were outstanding and due to Kinetic in respect of Pacific Brave.  It was accordingly agreed in 2001 that the Joint Venture would pay off the debt due to Kinetic, so that Pacific Brave could be revived and maintained, and the "NICE" trade marks could be used by the Joint Venture. 

18.  I accept that the "NICE" mark was Andy's contribution to the Joint Venture, pursuant to the agreement between Cesare and Andy with regard to the setting up and operation of Nice Time.  Andy's explanation with regard to the expenses of $34,820 is consistent with such agreement, and constitutes an arguable defence as to whether such expenses were agreed to be borne by the Joint Venture.

19.  Counsel for Andy has urged the Court to bear in mind that the differences which had arisen between Andy and Cesare by 2006 were ultimately settled by the parties' execution of a Settlement Agreement and by Nice Time's payment to Andy of a sum of $120,000 in full and final settlement.  Counsel argued that if, as Nice Time now claims, Andy indeed owed the Debt to Nice Time, it would have been natural that the Debt would be taken into consideration when calculating the amount Andy was to receive under the Settlement Agreement. The fact that it was not suggests that the Debt is not as Nice Time claims it to be. This makes logical sense.  There may have been reasons why the Debt was not taken into consideration when the settlement sum was negotiated in 2006, but in respect of any balance of Nice Time's claim for the Debt which is not explained by Andy, I am satisfied on the whole that sufficient issues have been raised in relation to Nice Time's claim, which lead me to conclude that there are good reasons for trial, to enable full discovery to be made and for the parties to be properly examined.

20.  Nice Time's Order 14 Summons is accordingly dismissed. The fact that this case is inappropriate for summary judgment to be entered should have been clear to Nice Time and those advising it by the time Andy’s 1^st Affidavit was filed in June 2008, if not before.  I will make an order nisi that Nice Time is to bear the costs of and occasioned by the Order 14 application as are incurred after 6 June 2008, with certificate for Counsel.  The balance of the costs of the Order 14 Summons, including the costs reserved on 18 April 2008, should be in the cause.