TADANO SOUTH CHINA CO. LTD. v. BRIGHTFORD LTD. AND ANOTHER

BETWEEN

BETWEEN

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(Consolidated)

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J U D G M E N T

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1.  On 5 December 2005, a Master gave leave to the 2^nd defendant in HCA 9630/1999 (Lam Chi Biu) to amend his defence, but then in an Order 14 RHC application brought by the plaintiff entered judgment against him for the full amount claimed, being JP¥42,560,000 or its Hong Kong equivalent, interest and costs.  This is an appeal by way of rehearing against that judgment.

2.  As a prelude I was asked to give leave for the defence to be further amended and for further evidence to be filed.  I gave leave with consequential orders and costs to the plaintiff, and then proceeded to deal with the Order 14 application de novo. 

Background

3.  Mr Lam was at the material time, that is from 1997, a director and employee of the 2^nd defendant in HCA 16180/1998 whom I shall refer to hereafter as Shenzhen Mak Kee.  He was asked by the management of a company based in Zhang Jiang, PRC to source a 70-ton hydraulic crane for use in Zhang Jiang.  The prospective customer was called South Sea Western Oil and Resources Company (South Sea Western Oil).  A suitable crane was found to be the Japanese made Tadano TG 700E crane. 

4.  The upshot was a series of contracts for sale and purchase of such a crane.  The primary vendor was the plaintiff in HCA 9630/1999 whom I shall refer to hereafter as Tadano South China.  At the time it was a company recently incorporated in Hong Kong, being a joint venture of the manufacturer Tadano and a Hong Kong dealer in cranes, headed by a man called Henry Luk.  Tadano South China agreed to sell the crane to an importer, called Brightford Limited (Brightford) for JP¥44,800,000.  Brightford features as a party in both actions.  Brightford agreed to sell to Shenzhen Mak Kee for HK$3,000,000, which at the time allowed for a mark up to Brightford of about $300,000.  Finally, there was the sale from Shenzhen Mak Kee to South Sea Western Oil.

5.  Payment by Brightford to Tadano South China was to have been by letter of credit; however that did not work because delivery, which took place in February 1998, was late, and the LC lapsed.

6.  Shenzhen Mak Kee could only pay Brightford when it was paid by its customer South Sea Western Oil.  But that company refused to pay because the documentation was not in order and it could not get a licence to operate the crane.  Furthermore, some of the parts were missing.  When news of this reached Tadano South China, it declined to co-operate because it had not been paid.

7.  Mr Lam sought to resolve the impasse and called on Mr Luk, whom he regarded a friend and with whom he was on good terms.  The result was that on 30 April 1998 he signed a form of guarantee which on its face was a guarantee by him to Tadano South China of the unpaid purchase price but up to a maximum of JP¥42,560,000.  The consideration was stated to be “to assist the User in the implementation of use of the Good”.  This translates to mean that Tadano South China would provide the crane’s certificate of title and missing parts and such after-sale service that was needed to get the crane licensed and operational.  This is the guarantee upon which Tadano South China applied for and was awarded summary judgment.

8.  Mr Lam was informed that the licence was pending in May 1998 and caused Shenzhen Mak Kee to draw a post-dated cheque for the outstanding purchase price of $2,970,000 in favour of Brightford.  But in the event Brightford had failed to complete the PRC import procedure by the deadline and he stopped payment.  This gave rise to the suit by Brightford brought under HCA 16180/1998 in which the parent company Mak Kee Limtied was also joined.

9.  In October 1998, Shenzhen Mak Kee received sufficient of the sale price from South Sea Western Oil to settle the amount due to Brightford and thus the amount due by Brightford to Tadano South China.

10.  But, on Mr Lam’s account, Mr Luk would not play ball.  In the intervening time there had been a devaluation of the Japanese yen which would have caused a significant loss to Tadano South China.

11.  In December 1998, again on Mr Lam’s account, Tadano South China proposed a scheme where the debt due it by Brightford was to be assigned to Shenzhen Mak Kee as trustee which would then proceed to recover the debt for Tadano South China.  A deed was duly drawn up and executed. 

12.  But there was no satisfactory resolution.

13.  In June 1999, Tadano South China issued its writ against Brightford, under HCA 9630/1999.  It was not until May 2001, nearly two years later, that it applied to join Mr Lam as a defendant and then sued him on the guarantee.  The application for summary judgment emerged more than four years after that, in September 2005.

Order 14 RHC Principles

14.  These are well known and not in dispute.  A plaintiff is entitled to judgment by this means when there is no defence.  When applied for it is up to the defendant to show that there is a triable issue or an arguable defence if he is to be permitted to go to trial.  Evidence is filed in support and in opposition.  The defendant will generally have done enough if his allegations are believable, in the context of the conduct of the defendant and the background.

15.  It is not for the court to embark on a trial to resolve disputes of fact in the affidavit.

16.  And as Lord Linley famously remarked more than a century ago :

“	Unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine, O. 14 ought not to be applied.”  (Cadd v Delap (1905) 92 LT 510, at p. 511)

17.  More recently Bingham LJ said in Crown House Engineering v Amec Projects Ltd (1990) 6 Const. LJ 141 at p. 154 :

“

Order 14 is for clear cases; that is cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily or otherwise … 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.”

18.  And as Mortimer JA said in Manciple Ltd v Chan On Man [1995] 3 HKC 459 at 466 :

“	To deny [the defendant] his day in court, if he shows a triable issue or an arguable defence is indeed a fearful injustice.”

19.  It has been said of Order 14 proceedings that they :

“	are eminently suitable for claims on dishonoured guarantees, when the primary facts are not in doubt and the only result of letting the case go to trial would be to delay the plaintiff further in the recovery of the money plainly due to him.”

Per Godfrey JA in Bank of Credit and Commerce Hong Kong Ltd (in liquidation) v Quadrutec Hotel Management and Development Ltd [1996] 4 HKC 316 at 324.

The Evidence

20.  Mr Lam’s account of events comes in, for the first time in some detail, in his 3^rd affidavit of 21 March 2006.

21.  The first complaint he has is that he signed the form of guarantee because his friend Mr Luk misrepresented to him why he was calling for an indemnity from him.  He told him that with the muck up with the LC, a senior executive was at risk as was the joint venture with the Japanese manufacturer; that the guarantee was for sight only and would not be called upon.

22.  The second was that he was put under enormous duress and/or undue influence in that without the guarantee, the impasse would be unresolved; thus he was pressured to sign whilst obtaining no benefit for himself in return.

23.  The third is that he takes issue with the authenticity of the document.  He was not given to take away a copy, nor did he want one since he was assured it was for sight only.  Now that he is being sued on it he has come to believe it may have been doctored, with indications of cutting and pasting.  He calls for it to be forensically examined. 

24.  The fourth is that Tadano South China could and should have resolved the indebtedness by the principal debtor in October 1998 but declined to do so, to the effect that it was thereafter inequitable to call in the guarantee.

25.  The fifth is that the purported assignment of debt of December 1998 amounted to a change in position as between the principal parties, effectively estopping Tadano South China from enforcing the guarantee. 

26.  And the sixth is that the subject matter being a debt due under a LC which had lapsed through the conditions precedent not having been fulfilled, amounted to the guarantee failing through want of consideration.

27.  A seventh complaint emerged in the submissions; namely, that whilst in its terms the guarantee could be called up on demand, there was never any formal demand made by Tadano South China of Mr Lam.

28.  The primary affidavit in support of the application for summary judgment was made by a director of Tadano South China called Mr Kazuumi Hiwatashi.  He recounted the history and then went to the guarantee and the circumstances of how it came to be signed.  He said it was Mr Lam who suggested it, he having expressed confidence that the end buyer, a state owned or controlled enterprise, would be good for the money.  He denied there was any representation made then or subsequently that the guarantee was for show only and would not be acted on.

29.  He went on to affirm that the claim was not actively pursued for some time because his company had issued a like writ in the PRC and, after trial, obtained judgment against Mr Lam for the full amount of the debt.  That was appealed but upheld on appeal. 

30.  The content of that affidavit was confirmed by Mr Luk.

31.  With new material forthcoming from Mr Lam a few days before the rehearing before me, dealing in fact with the challenges I have listed as the fourth to the sixth, Mr Luk made a further affidavit in response.

32.  He denied there were settlement proposals in October 1998.  In any event, Tadano South China would not have agreed to release Mr Lam from his guarantee until it was certain that it would be paid.

33.  Going then to the deed of assignment of or around December 1998, he said this was a proposal made not by Tadano South China but by Mr Lam acting on legal advice.  He said he was told that Shenzhen Mak Kee was willing to pay Tadano South China direct but that the litigation brought against it by Brightford prevented that course.  The deed once executed and acted on would give Shenzehn Mak Kee a defence, and the debt to Tadano South China would be met once the action by Brightford was dismissed.  The deed was prepared by Shenzhen Mak Kee’s solicitors.  And there was no agreement to release Mr Lam from his guarantee.

34.  But the action was not dropped; hence the suit brought by Tadano South China against Brightford in June 1999.  Again this was proposed by Mr Lam, again on legal advice, entitling he said Tadano South China to apply for a garnishee order against Brightford’s debtor Shenzhen Mak Kee.  Mr Lam was joined only after it became apparent Shenzhen Mak Kee had no intention of paying anything.

35.  And as of now Shenzhen Mak Kee has been paid by its customer but is not paying anybody.

36.  The point about whether or not demand on the guarantee was made before action was answered with the submission that the proceedings brought prior in China represented notice and thus demand.

Discussion

37.  In the course of submissions made other matters were advanced by Mr Lam’s counsel to weigh against summary judgment, including the somewhat technical one going to the adequacy of the affidavit filed verifying the facts stated in the statement of claim, and the not inconsiderable passage of time between the cause of action, then writ, and then application for summary judgment.

38.  But there are matters weighing against Mr Lam as well; in particular, that much of the matters put forward as evidence and amended pleadings did not surface until a few days before the hearing before me.  And there was one example of the evidence adduced not matching the pleading as amended. 

39.  Should there be an Order 14 summary judgment?

40.  There are issues of fact which perhaps do need to be resolved, and the resolution of those might lead to questions of law to be answered as well.

41.  But given Mr Lam’s conduct, and a certain paucity of contemporaneous material supporting the allegations he has so lately raised, it seems to me that his assertions that he has arguable grounds of defence, some of which could legitimately be described as shadowy, in my view need to be backed up by money, or money’s worth.

42.  Prior to rising I invited counsel to take instructions on whether Mr Lam was good for an amount that matched the claim to be paid into court.  The response was that he did not have the wherewithal personally, but would talk to his employer and do his best to persuade them to do so on his behalf.

43.  I assume, given that he is a director of Shenzhen Mak Kee who on behalf of his employer had conduct of the transaction and its history, and because he was presumably acting in that capacity when he signed the guarantee, that Shenzhen Mak Kee should and in the circumstances will assist.

Determination

44.  The order of the Master of 5 December 2005 is set aside.  In its stead I order leave to defend conditional upon Mr Lam paying into court an amount in Hong Kong dollars which represents the current value of JP¥42,560,000 as determined by HSBC being the mid-market rate on the date of this judgment, payment to be made within 30 days, or otherwise by that time he must give security to the satisfaction of a Master. 

45.  Liberty to apply for directions as to trial and generally.

46.  Costs are nisi.  The material before me upon which I have given conditional leave to defend should have been before the Master.  Had it been so he may well have not entered judgment.  The costs incurred before him are thus wasted costs.  The order as to costs made by him is accordingly not disturbed.  As for the costs of this rehearing; in the event the condition is satisfied they shall be in the cause.  In the event the condition is not satisfied and judgment is entered they are to Tadano South China.