SILVER GEM INDUSTRIAL LTD v. NATIONAL PHARMACEUTICAL CO LTD

DCCJ 858 of 2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL JURISDICTION

ACTION NO.  858 OF 2009

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DCCJ 859 of 2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL JURISDICTION

ACTION NO. 859 OF 2009

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BETWEEN

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J U D G M E N T

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A.      Introduction

1.  These two actions were heard together as they are having common issues of law and fact.  The main dispute for determination at trial is whether the loan in DCCJ 858 of 2009 (“1^st action”) (“the NPCL Loans”) and the interest payment (“the NPGL Interest”) in DCCJ 859 of 2009 (“2^nd action”) were time-barred.  In addition, the Defendant in the 2^nd action contended that it did not owe any interest payment to the Plaintiff.

2.  The Plaintiff, Silver Gem Industrial Limited (“SGIL”) was and still is controlled by Mr. Sin Lam Kwong (“Sin”).  Sin invested into the respective defendants, namely National Pharmaceutical Company Limited (“NPCL”) and National Pharmaceutical (Group) Limited (“NPGL”) by making various loans in the name of Silver Gem to them.  The Plaintiff claims against NPCL for the balance of the NPCL Loans in the sum of HK$350,000 in addition to the interest accruing from 15^th January 1996 to 31^st March 2008 in the sum of $465,754.48.  It also claims against NPGL in the sum of HK$318,533.43, being the interest payment accrued between 1995 and 1997 for various loans advanced in 1995 in the total amount of $2,250,000.00.

B.           BACKGROUND

3.  NPCL was incorporated in Hong Kong in 1966.  Silver Gem was incorporated in 1989 with Sin as one of the first directors. NPGL was incorporated in 1993.   NPCL was and still is the wholly owned subsidiary of NPGL.

4.  In respect of the 1^st action, on 15^th January 1996, Silver Gem advanced a loan in the sum of HK$700,000 (“1^st NPCL Loan”) to NPCL which was for the purpose of business development of NPCL and was repayable on demand and with interest payable at 12% per annum.

5.  On 15^th April 1997, NPCL repaid HK$150,000 to Silver Gem as partial repayment of the First NPCL Loan and Silver Gem extended the outstanding amount, HK$550,000 to NPCL as a further loan on the same terms as the 1^st NPCL Loan (“2^nd NPCL Loan”).

6.  NPCL repaid HK$200,000 to Silver Gem on 26^th January 1998 as partial repayment of the Second NPCL Loan, leaving the balance of the principal, HK$350,000 and the interest outstanding.  Silver Gem alleged that since 1^st April 2003, NPCL changed and reduced the interest rate from 12% per annum to 6% per annum.  NPCL did not challenge the outstanding balance and interest but she contended that the said amount, including interest, was time-barred.  This is the main dispute of the 1^st action.

7.  In respect of the 2^nd action, on divers dates between 10^th March 1995 and 4^th December 1995, Silver Gem advanced various loans to NPGL in the total sum of HK$2.25 million.  The said loans were injected into NPGL for the purpose of financing a manufacturer in People’s Republic of China known at the material time as Pan Yu National Pharmaceutical Company Limited.  HK$2.25 million was fully repaid on or before 15^th April 1997.  However, the Plaintiff said that the loans were subject to an interest rate of 12% per annum while NPGL denied that they were subject to interest.  Further, NPGL contended that even if the loans were subject to interest payment, it was time barred as the cause of action accrued in 1995 when the loans were made (the Writ was issued on 23^rd February 2009).  These are the main disputes of the 2^nd action.

C.           ISSUES

8.  The main issue, which is common to both actions, is whether the 2^nd NPCL Loan and interest thereon and the NPGL Interest were time barred pursuant to section 4 of the Limitation Ordinance, Cap. 347, Laws of Hong Kong?

9.  In addition to the point of limitation, in respect of NPGL Interest, whether the NPGL loan was subject to a rate of interest of 12% per annum?

D.      DISCUSSION

10.  Section 4 (1) of the Limitation Ordinance provides that:-

“The following actions shall not be brought after the expiration of 6 years from the date on which the cause of action accrued, that is to say-

(a)   actions founded on simple contract or tort;

(b)   actions to enforce a recognizance …;

(c)    actions to enforce an award…;

(d)   actions to recover any sum recoverable by virtue of any Ordinance or imperial enactment… ”     

11.  The background of this case shows that the Parties did not have material factual disputes. Silver Gem called Sin to testify while NPCL and NPGL called Mr. Ho Thi Sun to testify.  They referred to some account documents and stated their views on those documents.  I do not intend to set out the factual matrix unless those are relevant to the point of limitation. 

12.  To begin with, the limitation period begins to run from the “date on which the cause of action accrued”.  Mr. Chan, Counsel for the Defendant, submitted that in a case where the date of repayment of a loan was not agreed upon or the loan was repayable on demand, the cause of action accrued when the loan was made. see: Lee Siu Fong Mary v. Ngai Yee Chai [2006] 1 HKC 157 at §10 per Cheung JA; see also McGhee, Limitation Periods (5^th Ed., 2006), §10.014; Chitty on Contracts (30^th Ed., 2008), §28-036. 

13.  In respect of the interest claims in both actions, Mr. Chan submitted that Silver Gem’s claims on interest arising from the relevant loans are also time-barred.  It is propounded that once the right to recover the principal sum is time-barred, any claim to interest arising from that principal sum is also time-barred because interest is accessory to the principal, see: Cheang Thye Phin v. Lam Kin Sang [1929] AC 670 at 676-677 per Lord Warrington; Elder v. Northcott [1930] 2 Ch 422 at 427-430 per Clauson J; Chitty on Contracts (30^th Ed., 2008), §28-038.

14.  It seems to me that on the Plaintiff’s own case, the 2^nd NPCL Loan has no fixed repayment terms and is said to be repayable on demand.  During cross-examination, Sin confirmed that this was Silver Gem’s case. 

15.  As a result, Mr. Chan submitted that whether referring to the relevant dates of the 2^nd NPCL Loan advanced on 15^th April 1997 or the last partial repayment on 26^th January 1998, the 2^nd NPCL Loan and the interest thereon were time-barred.  The same equally applies to NPGL Interest when the principal loans were advanced in 1995 and the loans were fully repaid on 15^th April 1997.

16.  Mr. Leung, counsel for the Plaintiff, did not challenge the above legal propositions.  But he submitted that the outstanding loans and interest in both actions were not subject to any limitation of time.  When the Court sought to clarify with him whether it was the Plaintiff’s case that there was an agreement between the Plaintiff and the Defendant to exclude the application of limitation period, he answered “No”.  In short, I do not see there is any legal or factual basis to suggest that the outstanding loans and interest were not subject to any limitation of time.  I do not accept his argument.

17.  That is not the end.  In respect of the 2^nd NPCL Loan, the Plaintiff sought to rely on the audit confirmation dated 4^th July 2007 and sections 23(3) and 24(1) of the Limitation Ordinance to suggest that “there was a part payment or an acknowledgment of debt” and the limitation period begins to run from 4^th July 2007 and hence the 2^nd NPCL Loan was not time barred.

18.  The point of acknowledgment of debt was not pleaded by the Plaintiff and the Defendant submitted that it amounts to “trial by ambush” and this Court should not allow the Plaintiff to take the Defendant by surprise.  See: Busch v. Stevens [1963] 1 QB 1 at 7-8 per Lawton J; Jacob & Goldrein, Pleadings: Principles and Practice (1990), p.161.

19.  It seems to be right.  However, I also note that evidence was adduced in relation to the descriptions of the said audit confirmation and the Defendant also relied on those evidence, especially the only witness for the Plaintiff, Sin confirmed that the handwritten words appear therein seems to suggest that receiver of the audit confirmation disputed the debt of HK$350,000.  I do not see the overall justice should prevent me from considering that part of evidence, which may be relevant to the point of acknowledgment of debt. 

20.  As a result and for completeness sake, I shall come to the point of acknowledgement of debt. Section 23 (3) of the Limitation Ordinance provides that:-

“Where any right of action has accrued to recover any debt or other liquidated pecuniary claim, or any claim to the personal estate of a deceased person or to any share or interest therein, and the person liable or accountable therefore acknowledges the claim or makes any payment in respect thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgment or the last payment…”  

21.  Section 24 (1)(2) of the Limitation Ordinance provides that:-

“(1) Every such acknowledgment as aforesaid shall be in writing and signed by the person making the acknowledgment.”

(2) Any such acknowledgment or payment as aforesaid may be made by the agent of the person by whom it is required to be made under section 23, and shall be made to the person, or to an agent of the person, whose title or claim is being acknowledged or, as the case may be, in respect of whose claim the payment is being made.

22.  I should set out the descriptions of the said acknowledgment or audit confirmation before I deal with the parties’ submissions:-

(1)  It is stated to be “Audit Confirmation” dated 4^th July 2007, sent by S. W. Lau, Certified Public Accountants regarding Silver Gem to NPCL;

(2)  NPCL’s chop appears with a purported signature next to the chop.

(3)  It also contains some pre-printed words, typed written words and handwritten words.   In so far as the pre-printed words and typewritten words are concerned.  They include:

“In the course of our regular examination of the account of the above Company [Silver Gem] we find that the balance on your account is as follows:

If the above amount agrees with your records, please confirm by signing in the space provided below and returning this letter to us.

If the above amount is not in agreement with your records, please write to us direct giving details of the difference.

We appreciate that you may have settled the above account after the date mentioned above, but we would still appreciate your confirmation that the balance is correct.

This letter is for audit verification purposes only and not a request for payment.”             

23.  In so far as the handwritten words are concerned, I note that the figure of HK$350,000 was crossed out.  The word “NIL” under “Due to you” was crossed out too.  There was an arrow pointing to “Due to you” and such words follow: “unknown … will provide calculation to you for verification”.  Next to the said chop additional words appear: “We cannot trace what has been deposited how the loan was created according to our records, Silver Gem has no payment record”

24.  Section 24 imposes formal requirements on how an “acknowledgment” or a “part payment” may be operative for the purpose of taking a time-barred claim out of section 4.

25.  In respect of the “part payment”, the last occasion when NPCL repaid part of the Second NPCL Loan was 26^th January 1998 which was more than 6 years before the date when the Writ of Summons for DCCJ 858 of 2009 was issued.

26.  In respect of the limb of “acknowledgment”, section 24 provides that: “it must be in writing and signed by the person making the acknowledgment; and it must be made by the person liable or accountable for the debt or its agent and it must be made to the person whose claim is being acknowledged.”

27.  The next question is whether the acknowledgment in question is sufficient for the purpose of section 23(3).  The leading authority on how the Court should approach this question is New World Development Co. Ltd. v. Sun Hung Kai Securities Ltd. (2006) 9 HKCFAR 403 at §§89-93 where Ribeiro PJ held that:

(1)   The question is one of construction.

(2)   In construing the document relied on, the Court will look at connected documents (not necessarily expressly referred to in the document relied on) to ascertain its proper meaning.

(3)   The object of the construction exercise is to decide whether, fairly read, the document relied on constitutes an acknowledgment by the debtor of a liability to pay outstanding amounts to the creditor.  There is no need for the document to specify the amount of the debt so long as it can be ascertained by other means, including resort to extrinsic evidence, without requiring the parties’ further agreement.

28.  Mr. Leung, Counsel for the Plaintiff, asked me to focus on the chop, the related signature and the pre-printed words only.  In effect, he asked me to ignore the handwritten words and the lines crossing out the figure of HK$350,000.00.   I do not accept this approach especially his witness also confirmed that the effect of the handwritten words amount to disputing the debt. 

29.  In the present case, the fair reading of the audit confirmation itself reflects that NPCL was disputing the debt on the ground that their record did not show the debt.  It does not constitute an acknowledgment by the debtor of a liability to pay outstanding amounts to a creditor for the purpose of section 23(3).  If, according to what Mr. Leung said it is an acknowledgment, it seems to me that it is a qualified or equivocal acknowledgment that is not sufficient for the purpose of section 23(3).  The Plaintiff’s contention on the acknowledgment of debt under section 23(3) must fail too.

30.  For all the above reasons, both of the Plaintiff’s claims were time barred.

31.  The Defendant also contended that leaving aside the limitation point, on evidence, the NPGL Loans were not subject to interest as alleged by the Plaintiff.   My view is this.  Firstly, the Plaintiff relied on a time loan record that Sin said that he retrieved from NPGL or it was prepared by NPGL.  In that document, in so far as the NPGL loans are concerned, the heading of 7^th column is “interest” and “12%” appears in the rows below.  However, the last column is “interest payable” and “0” appears in the rows below.  I also note that the last 11 rows of the last column of “interest payable” state the amount ranges from $24,000 to $456,000 that apparently showing interest payment owed to some other shareholders.  But in so far as the interest payable to Silver Gem, it is stated to be “0”.  I do not see how the Plaintiff could rely on this document to support its claim when it is also clear that the interest payable is “0” in relation to NPGL Loans, bearing in mind that interest payable to some creditors ranges from $24,000 to $456,000.  None of the party called the person who prepared the time loan record.   On plain reading of the document, unless I ignore the last column, that I should not, I am of the view that there is insufficient evidence to show that the NPGL Loans were subject to a rate of 12% per annum and therefore interest is payable on the basis on 12%.  In so far as the Plaintiff’s reliance on some receipts showing 10% interest rate was chargeable on the NPGL Loans, it is unknown who prepared the receipts dated between March and December 1995.  They also conflict with the Plaintiff’s pleaded version of 12%.  I do not attach weight to those receipts. 

32.  Further, the Audited accounts of NPGL for the years ended 31^st March 1999, 31^st March 2000 and 31^st March 2001 do not show that NPGL owed Silver Gem any interest.  Sin accepted this during cross-examination.

33.  Moreover, Sin gave a statement to the police on 10^th January 2006 where he acknowledged that NPGL no longer owed Silver Gem any money.  While Sin tried to explain during re-examination that by “money”, he meant the principal debt and not the interest, I am of the view that as a matter of logic and common sense, when a debtor still owes him interest payment, he should not have said: “the debtor does not owe me any money”, bearing in mind that he was an experienced businessman.  I do not accept his explanation.

34.  Against the weight of the objective documentary evidence, there is only Sin’s evidence that the interest is outstanding and payable by NPGL to Silver Gem.  In the circumstances, the only reasonable conclusion is that NPGL does not owe any interest to Silver Gem either as alleged or at all.

35.  In respect of the credibility and reliability of the Parties’ witnesses, by reason of the above analysis, I do not accept Sin’s evidence and I accept the evidence of the Defendant’s witness unless there is no conflict between the parties.  Sin’s evidence was unreliable.  He relied so much on the documentary evidence that he did not know who prepared them.  Nor those documentary evidence advanced his case. 

E.           CONCLUSION

36.  By reason of the matters aforesaid, my conclusion on the framed issues are:-

(1)  the 2^nd NPCL Loan and interest thereon and the NPGL Interest were time barred pursuant to section 4 of the Limitation Ordinance, Cap. 347, Laws of Hong Kong.

(2)  NPGL Loans were not subject to the rate of 12% per annum as alleged by the Plaintiff or at all.

F.      ORDERS

37.  I hereby give the following orders:-

(1) The Plaintiff’s claims in both DCCJ 858 of 2009 and DCCJ 859 of 2009 are dismissed.

(2) Costs order nisi that the Plaintiff do pay the costs of both actions to the Defendant with certificate for counsel to be taxed if not agreed.  Unless any of the parties applies by summons to vary it, the costs order nisi shall be made absolute 14 days from today.