NG TING KWOK v. NG ON KWOK AND ANOTHER

HCA 1587/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1587 OF 2017

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s application for summary judgment pursuant to Order 14 of the RHC by summons filed on 28 July 2017.

2.  It is well-established that, in an Order 14 application, the court should not conduct a mini-trial on affidavits.  The general approach is to ask first whether the plaintiff has established a prima facie sustainable case, and if so whether the defendant has discharged its burden to show there are triable issues.  In considering whether there are triable issues, the court will not take the alleged defence at face value but will test it against matters including inherent probabilities, contemporaneous documents, and the parties’ contemporaneous conduct.  The defendant bears the burden to show that he has a fair or reasonable opportunity of showing a fair or bona fide defence by condescending upon particulars.  As to the credibility of the factual defence, the question to ask is whether such defence is capable of being believed, not whether it is to be believed.  See: Hong Kong Civil Procedure (2018) Vol 1, §§14/4/1 to 14/4/16; Paul Y Management Ltd v Eternal Unity Development Ltd (unreported) CACV 16/2008; 12 August 2008 at §19; Bhagwandas Kewaleram Murjani & Ors v Bank of India [1990] 1 HKLR 586 (Court of Appeal) at 589G-590H.

Plaintiff’s Claim

3.  The plaintiff’s claim is to enforce the defendants’ payment obligations under a Master Agreement dated 29 May 2014 (“Master Agreement”) as subsequently varied by a Supplemental Deed dated 29 April 2016 (“Supplemental Deed”).

4.  Under those agreements, the defendants agreed to purchase certain shares held by the plaintiff in five companies that were engaged in the sale of handbags (“the Group”).  The consideration was agreed by the parties to be payable by instalments over a number of years.

5.  According to the Statement of Claim, the defendants had failed to pay certain instalments in the sum of HK$1,740,000.00, interest in the sum of HK$347,707.22 and default interest in the sum of HK$6,817.73.  Given that there is no dispute that the defendants have failed to pay those sums, I am satisfied that the plaintiff has established a prima facie sustainable case and shall proceed to consider the purported defences.

1^st Purported Defence – Misrepresentation

6.  The first defence relied upon is fraudulent or negligent misrepresentation on the part of the plaintiff.  In paragraph 17 of the 1^st defendant’s 2^nd affirmation, he contended that but for the plaintiff’s alleged misrepresentation, the defendants would not have agreed to acquire the relevant shareholdings in the Group “at such [a] high price”.

7.  The representation said to be false was one allegedly made by the plaintiff before the execution of the Master Agreement in relation to the audited accounts of S & W Handbags Limited (“S & W Handbags”, being the major operating entity of the Group) for the year ended 31 March 2013[1].  There is no dispute that those accounts were not prepared on a consolidated basis, and that was why the relevant auditors gave a “qualified” opinion as shown on the face of the accounts.

8.  According to the 1^st defendant, despite the non-consolidation of the accounts, the plaintiff represented that “there was no problem and the accounts were accurate”[2].  Later in the same affirmation[3], the 1^st defendant further described the same representation as “the accounts were OK and that consolidation was not necessary”.

9.  The defendants say that the representation was false because, after execution of the Master Agreement, they began to realize the various problems associated with the overseas operation of the Group, including the problems faced by the Group’s entities in the United States.  The defendants contend that the non-consolidation of the said accounts had affected the true reported financial position of S & W Handbags. 

10.  Relying on a set of consolidated audited accounts they obtained in respect of S & W Handbags for the year ended 31 March 2015, the defendants seek to demonstrate that the consolidation of accounts had resulted in the net assets and profitability of the year ended 31 March 2014 to be adjusted significantly downwards.

11.  The defendants further say that since they had reposed great trust on the plaintiff (who they say were in charge of finance and operation) and as a result of the alleged representation, they did not insist on carrying out a due diligence exercise and ask for a valuation before finalizing the acquisition price for the sale and purchase transaction.

12.  The first point I note is that the defendants have failed to properly particularize the precise contents of the alleged misrepresentation. In his own 2^nd affirmation, the 1^st defendant gave different formulations of the same representation allegedly made by the plaintiff.  In my view, this is unsatisfactory, particularly where the defendants are advancing a complaint as serious as fraudulent misrepresentation.

13.  More importantly, I am unable to accept that the defendants were only aware of the problems associated with the Group’s overseas operations until after the signing of the Master Agreement.  As submitted by Mr Dawes SC[4], there were a number of contemporaneous emails pre-dating the Master Agreement which show that the defendants were well aware of those problems.  I also observe that in the audited accounts of S & W Handbags for the years 2013 and 2014, either or both of the 1^st and 2^nd defendants did in fact sign and approve those accounts.

14.  It is also extremely telling that the present complaint of misrepresentation was never raised at the material times.  On the contrary, the defendants have, until recently, made full payments of the agreed instalments both before and after a court action previously brought by the plaintiff in HCA 1772/2015 to enforce the Master Agreement.

15.  Furthermore, after the defendants received the consolidated accounts of S & W Handbags on 13 October 2015, they still proceeded to sign the Supplemental Deed six months later on 29 April 2016 without complaining about the alleged misrepresentation or indeed raising any other complaint. Instead, they continued to make payments thereafter until several months before the present action was commenced. 

16.  At today’s hearing, Mr Leung for the defendants conceded that whatever might have happened prior to the signing of the Master Agreement would not affect or taint the validity or enforceability of the Supplemental Deed, which was executed after the defendants received the consolidated accounts of S & W Handbags on 13 October 2015.  This, in my view, makes the misrepresentation defence a non-starter.

17.  In any event, the defendants’ prior conduct as aforesaid casts a grave doubt on whether they actually relied on the alleged misrepresentation, even assuming that the misrepresentation was made and was capable of affecting the Supplemental Deed. 

18.  It is in my view wholly unthinkable that the defendants’ complaint of misrepresentation, if it were genuine, had not been raised earlier particularly given their present legal team’s involvement from as early as the negotiation stage of the Master Agreement, to the conduct of HCA 1772/2015 and in the present action.

19.  All in all, I am not persuaded that the misrepresentation defence is believable on the facts or carries any prospect of success in law.

2^nd Purported Defence – Breach of Non-competition Covenants

20.  The second defence is the allegation that the plaintiff has breached a non-competition covenant under section 8 of the Steps Consulting SPA (and similar provisions in relation to the other companies) which forms part of the Master Agreement.

21.  The defendants contend that, during the non-competition period of 29 May 2014 to 29 May 2015, the plaintiff took “more than preparatory steps” to form a company called Nison Concepts Limited to compete with the Group’s business, and to register a couple of “Tinic” trademarks in connection with the sale of handbags.

22.  The defendants also refer to two emails exchanged between the plaintiff and a Louis Yeo dated 28 April 2015 and 1 June 2015 in which they discussed a business plan relating to a handbag business as well as certain handbag drawings.

23.  However, there is no dispute that Nison Concepts Limited was incorporated on 19 November 2015 and the relevant trademark applications were filed on 27 January 2016 and 11 August 2016, being well after the end of the non-competition period. 

24.  The plaintiff has also adduced documentary evidence showing that, prima facie, the email exchanges between him and Louis Yeo were related to their course assignment at the Savannah College of Art and Design, as indicated by the appearance of the figures “310” on both the copy assignment and the subject line of the emails.

25.  Furthermore, although the defendants have adduced a profile of Louis Yeo showing his connection to the “Tinic” brand, that profile only shows that he was an intern in the period of August 2016 to May 2017, being again after the end of the non-competition period. The defendants have said nothing to dispute the plaintiff’s evidence that the emails exchanges were related to a course assignment at the Savannah College.

26.  Overall it seems to me the factual evidence in support of the second defence is lacking.

27.  But even assuming that the plaintiff did take “more than preparatory steps” within the non-competition period to launch a competitive business to commence after the end of the period, did that amount to a breach of the relevant non-competition covenants?

28.  Taking section 8.1 of the Steps Consulting SPA as an example, it seems to me that the restriction imposed is against the plaintiff becoming involved, directly or indirectly, in an actual business competitive with the Group within the period.  Despite this court’s enquiry, Mr Leung was unable to explain how this clause could be interpreted to prohibit the plaintiff from the taking of “more than preparatory steps”.

29.  For completeness, the defendants also complained that the plaintiff had continued to access the computer server of the relevant companies, which they say contain confidential trade secrets such as handbag designs and customer information. 

30.  Given that there is no allegation nor evidence that the plaintiff has actually misappropriated such trade secrets and information, I do not think this complaint assists the defendants either. 

31.  In any event, even if there were evidence to show actual misappropriation, the entities that stand to suffer (and hence the proper plaintiffs) should be the companies.  This would not form the basis for a defence of set off and/or a counterclaim by the defendants in their personal capacities against the plaintiff in the present action.

32.  Accordingly, I am of the view that the second purported defence is not capable of being believed on the facts or carries any fair or reasonable chance of success in law.

Disposition and Order

33.  Since the defendants have failed to discharge their burden of demonstrating any credible defence, this is a clear case for summary judgment to be entered.

34.  In these circumstances, I make an Order as follows:-

(1)   Final judgment be entered against the 1^st and 2^nd defendants in terms of relief (1) to (3) as pleaded in the Statement of Claim filed herein dated 5 July 2017; and

(submissions on costs)

(2)   Costs of this action (including the costs of and occasioned by this application) be paid by the 1^st and 2^nd defendants to the plaintiff, with certificate for one Senior Counsel, to be taxed if not agreed.