TOPPAN PRINTING CO. (H.K.) LTD. v. CINEASTE INTERNATIONAL LTD. AND ANOTHER

HCA 4123/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4123 OF 2001

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REASONS FOR JUDGMENT

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1. This is an appeal of the 2nd defendant from the decision of Master S. Wong made on 3 April 2002 in which the Master gave summary judgment in favour of the plaintiff for the sum of HK$6,612,954.40 with interest and costs. Default judgment has been entered against the 1st defendant, Cineaste International Ltd. The 2nd defendant is a director of the 1st defendant and he owns beneficially 50% of its shares. The plaintiff brings this action against the defendants pursuant to a deed made between the plaintiff, the 1st defendant and the 2nd defendant dated 27 August 2001 ("the 2nd Deed"). By the provisions of the 2nd Deed, the 1st defendant agreed to pay its debt to the plaintiff in the total sum of HK$6,712,954.40 by 9 instalments on stipulated dates. The debt was incurred because of printing services and products provided by the plaintiff to the 1st defendant. By the 2nd Deed, the 2nd defendant unconditionally and irrevocably guaranteed, as a continuing obligation, the due and punctual payment of the debt by the 1st defendant to the plaintiff as stipulated. It was further provided that in case of default in payment of any instalment or part thereof, the whole outstanding balance of the entire debt remaining unpaid should immediately become due and payable by the defendants jointly and severally to the plaintiff.

2. There is no doubt that under the terms of the 2nd Deed, the 2nd defendant is liable to the plaintiff for the amount claimed, which is the outstanding balance of the 1st defendant's debt.

3. The 2nd defendant has filed a Defence and Counterclaim and 2 affirmations opposing the application for summary judgment. He was represented by counsel in the hearing before the Master but he acted in person in this appeal. He has made submissions to this court in English and he is fluent in English. He would have no difficulty of understanding the 2nd Deed, which is in English. The 2nd defendant claimed that he did not read this document and he was induced to sign it by the misrepresentation made by the plaintiff's senior sales manager, Wong Tak Shing, that the 2nd Deed was a mere formality and it would not be enforced in a legal action. The 2nd defendant has also alleged that he had reposed trust and confidence in Mr Wong and he executed the 2nd Deed due to the undue influence of Mr Wong over him. On these grounds, the 2nd defendant counterclaims for rescission of the 2nd Deed.

4. In considering whether the 2nd defendant has raised a triable issue on these matters, it is pertinent to have regard to the factual background and the history of the dealings between the parties leading to the signing of the 2nd Deed. These background matters are largely documented by contemporaneous documents or taken from the admission of the 2nd defendant in his affirmations and should not be regarded as matters in dispute.

The Background Matters

5. The 2nd defendant has been a director of the 1st defendant since its incorporation about 10 years ago. He admitted in his submission that he is a "very experienced businessman". Before he started to do business in Hong Kong, he had done business in other places including mainland China.

6. In 1997, the 1st defendant engaged the plaintiff as its printer for a computer magazine, which was very successful up to 1999. It was Mr Wong, as the senior sales manager, who had dealt with the 2nd defendant in all essential matters in the business relationship between the plaintiff and the 1st defendant.

7. From the start of this business relationship, the 2nd defendant was asked to provide a personal guarantee of all the printing costs invoiced by the plaintiff to the 1st defendant. This was a letter written on the letterhead of the 1st defendant dated 7 April 1997 and was signed by the 2nd defendant. Similar letters of guarantee were given by the 2nd defendant to the plaintiff by letters dated 2 October 1999 and 26 September 2000.

8. In the second half of 2000, the 1st defendant began to have serious difficulty in meeting payment of the printing charges of the plaintiff. There was a meeting between the 2nd defendant, the plaintiff's managing director James Lee Tak Wing and Mr Wong in July 2000. The debt outstanding at that time from the 1st defendant and an associated company of the 1st defendant, That's Interactive Ltd, was in the total sum of HK$8,295,682.90. As a result of the discussion at that meeting, the 1st defendant issued 6 post-dated personal cheques for the total sum of HK$3,052,224.40 to pay part of the debt owed by the 1st defendant and its associated company. I should mention that this was not the first occasion in which the 2nd defendant had issued personal cheques to the plaintiff to settle the debt of the 1st defendant. There were 5 cheques issued by the 2nd defendant dated 31 August 2000, 30 September 2000, 31 October 2000, 30 November 2000 and 30 April 2001, in the total sum of HK$2,760,000.00 and they were all honoured when presented for payment.

9. The 6 post-dated cheques issued by the 2nd defendant as a result of the meeting in July 2000 were dated 30 November 2000, 31 December 2000 (2 cheques), 31 January 2001 (2 cheques) and 28 February 2001 for the total sum of HK$3,052,224.40 as I have mentioned. These cheques were not presented for payment as the 2nd defendant had notified the plaintiff of his difficulties in obtaining funds.

10. On 2 April 2001, a deed ("the 1st Deed") was made between the plaintiff and the 2nd defendant in which the 2nd defendant agreed and undertook to pay to the plaintiff HK$3,052,224.40, being part of the indebtedness of the 1st defendant and its associated company, by 6 instalments on stipulated dates. Subsequent thereto, the 2nd defendant issued another 6 post-dated cheques of his own to replace the cheques he had issued earlier after the meeting in July 2000. There was replacement and exchange of some of these cheques issued by the 2nd defendant. The outcome of this was that the 2nd defendant met the 1st and 2nd instalment payments in the total sum of HK$1,000,000.00. No other payment was made under the 1st Deed.

11. It was in those circumstances that the 2nd Deed was entered into by the plaintiff, the 1st defendant and the 2nd defendant on 27 August 2001. By July 2001, the 1st defendant's debt had grown to HK$6,712,954.40. A revised payment schedule was provided in the 2nd Deed. After the 2nd Deed was executed, the plaintiff returned to the 2nd defendant the personal cheques of the 2nd defendant that were not presented for payment and given to the plaintiff pursuant to the 1st Deed. In return, the 2nd defendant issued to the plaintiff a new set of personal cheques. The 1st cheque in the sum of HK$500,000.00 was due for payment on 31 August 2001. This was replaced by 2 cheques dated 1 September 2001 and 5 September 2001 in the respective sums of HK$100,000.00 and HK$400,000.00. The cheque for HK$100,000.00 was paid but the other cheque was dishonoured when presented for payment on 5 September 2001. As a result, the plaintiff issued the writ on 15 September 2001.

Misrepresentation

12. In his oral submission, the 2nd defendant has laid particular emphasis that in all his years of business, it was not the practice in the commercial world that where there is an agreement in writing, the party would enforce his right strictly in accordance with the agreement. He submitted that if there were strict insistence on legal rights, it would not be possible to do business "in a big way". It was because of this that the 2nd defendant had acquired the understanding that the 2nd Deed that he was asked to sign would be just a formality and no enforcement action would be taken by the plaintiff if he should be in default.

13. As for the circumstances in which his personal cheques were issued, the 2nd defendant stated in his 2nd affirmation that in the meeting in July 2000, to help ease the pressure on Mr Wong and Mr James Lee from the plaintiff's head office in Japan, the 2nd defendant "voluntarily offered" to issue the post-dated cheques to coincide with the repayment schedule of the 1st defendant. He alleged that it was agreed by Mr James Lee, Mr Wong and himself that the personal cheques were issued "only as a token of [the 2nd defendant's] readiness to assist the 1st defendant in payment of its printing charges" and if an instalment should fall due, the plaintiff would contact the 2nd defendant to ascertain whether the plaintiff would be authorised to present the 2nd defendant's personal cheque to pay a particular instalment and the 2nd defendant "could then decide whether or not to voluntarily settle the instalment".

14. In my view, the 2nd defendant's allegations are wholly incredible and does not make any commercial sense. There is no reason why the plaintiff should incur expenses of engaging a solicitor to prepare the 1st Deed and the 2nd Deed if the documents would be treated as a mere formality and not be enforced at all. If the repayment schedules in these 2 deeds were not to be enforced or not to be enforced strictly, there is no reason why the 2nd defendant or his staff should make amendments to the repayment dates of the instalments in the 1st Deed and to the amounts of the instalments in the 2nd Deed and the 2nd defendant should countersign these alterations to signify his acceptance. Further, if the personal cheques were issued to the plaintiff on the basis that when they were due for payment, the 2nd defendant would then decide whether or not to meet the payment, this would render the personal cheques entirely worthless. The fact is that since early 2001, the beneficial owner of the other 50% of the 1st defendant, the Skynet Group, was insolvent and unable to support the 1st defendant. The 1st defendant was clearly unable to discharge its indebtedness to the plaintiff for the past invoices. If there was no revised repayment schedule agreed with the plaintiff, the plaintiff would refuse to continue to provide goods and services to the 1st defendant. There was every good reason why the defendants had executed the 2nd Deed, so as to get some respite from the pressure to discharge the debt of over HK$6,000,000.00. What the 2nd defendant might not have expected was that the plaintiff did not give him another chance or further indulgence on this occasion when the cheque for HK$400,000.00 was dishonoured.

15. In my view, there is no triable issue on the alleged misrepresentation.

Undue Influence

16. Here, it is alleged by the 2nd defendant that he had a close relationship with Mr Wong for about 5 years and he had reposed trust and confidence in Mr Wong in his dealings with the plaintiff. It is alleged that Mr Wong had insisted that the 2nd Deed must be signed by the 2nd defendant and the 2nd defendant was led to believe he had no choice but to comply. Further, it is alleged that the various letters of guarantee and the 1st Deed were also executed by the 2nd defendant due to the undue influence of Mr Wong.

17. In my judgement, this defence cannot get off ground because there is no evidential basis to lay a foundation that the relationship between Mr Wong and the 2nd defendant was such that the 2nd defendant had placed trust and confidence in Mr Wong or that Mr Wong had acquired an ascendancy or domination over the 2nd defendant. A bald assertion of reposing trust and confidence would not do. Further, the transaction entered into by the 2nd defendant is readily explicable by the relationship of the parties. The 2nd defendant was a substantial shareholder of the 1st defendant and he obviously had an interest in protecting the 1st defendant's business when he executed the 2nd Deed. There is no triable issue on undue influence.

Order

18. For the above reasons, the appeal of the 2nd defendant must fail. I dismiss the 2nd defendant's appeal. The plaintiff has sought costs of the appeal against the 2nd defendant on an indemnity basis, there being a provision for costs on such basis in the 2nd Deed and the plaintiff has sought costs on that basis in the summons for summary judgment. I think it is right for the Master to order costs of the application before him on that basis and I also order the 2nd defendant to pay the plaintiff's costs of the appeal on that basis, to be taxed if not agreed.