CHINA DAYE NON FERROUS METALS MINING LTD v. CHEN XIANG

DCCJ 1121/2017

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 1121 OF 2017

--------------------------

---------------------

DECISION

---------------------

BACKGROUND

1.  The plaintiff is and was at all material times a company listed in Hong Kong under stock code 00661, and carrying on mining business.  The defendant was employed by the plaintiff between 18 May 2009 and 22 June 2014 as follows:-

(a) Since 18 May 2009 as executive director of the plaintiff;

(b) Since 1 March 2010 as chief executive officer of the plaintiff; and

(c) Since 22 March 2012, as general manager of the administration department of the plaintiff after resigning as executive director and chief executive officer of the plaintiff.

2.  The plaintiff commenced this action to recover the sum of $254,772 from the defendant which the plaintiff alleges to be the amount that remains due and owing to the plaintiff under a loan agreement it made with the defendant.

3.  It is pleaded in the Statement of Claim (“SOC”) that the defendant applied for a loan from the plaintiff by way of an email dated 26 July 2011 (“Chen’s email”) sent by the defendant to Yuan Ping (“Yuan”) of the plaintiff (“Loan Agreement”). The loan is for RMB280,000 (“Loan”) and is for payment of the tuition fees of an executive master of business administration program at the Chinese University of Hong Kong (“CU”).  The content of the Chen’s email is set out below:-

“借款申請

中國大冶有色金屬礦業有限公司：

本人報讀香港中文大學工商管理課程，近期已收到該校入學通知書及繳費通知，現因本人在外地出差無法回港辦理繳費手續，特向公司申請借款28萬元人民幤（或等額港幤）交納學費，待返港後還款。

申請人：陳翔

2011年7月26日”

4.  It is common ground that the plaintiff paid the said sum of RMB280,000 (equivalent to HK$339,696) to CU to settle the said tuition fees on 27 July 2011.  There is also no dispute that the plaintiff deducted the sum of HK$339,696 from the salary of the defendant in December 2011.

5.  After the defendant had left his employment with the plaintiff, he commenced action in the Labour Tribunal (“LT”) LBTC 3659/2015 (“LT Action”) to sue the plaintiff for various amounts relating to his employment, including a sum of HK$254,772, being 75% of the amount of the Loan.  The presiding officer of the LT ruled that the deduction of the loan amount by the plaintiff from the salary of the defendant was in contravention of section 32(2)(f) of the Employment Ordinance (“EO”) and so the plaintiff had to pay back the amount HK$254,772 that was claimed by the defendant. 

6.  There is no appeal from this decision of the LT by the plaintiff.  The defendant has obtained leave from the Court of First Instance for appeal against the decision of the LT, but that relates to payment in lieu of notice of termination and year-end payment only, not the reimbursement of the tuition fees in question.

7.  The plaintiff made payment of the said HK$254,772 and some other amounts pursuant to the ruling of the LT.  It then commenced this action to claim for the amount of HK$254,772 which it says is outstanding and remains due and owing under the Loan Agreement.

8.  By a summons taken out on 6 June 2017 (“Order 14 Summons”), the plaintiff applied for summary judgment against the defendant.  In support, the plaintiff filed an affirmation of Yu Li (“Yu”) and an affirmation of Long Zhongsheng (“Long”).  A declaration of Yuan dated 10 August 2017 made before a PRC lawyer in Shenzhen was included as an exhibit to the affirmation of Long.  An affirmation of the defendant has been filed in opposition.

9.  The defendant did not attend the hearing but he filed skeleton submissions in writing.  Some of the matters addressed in his skeleton submissions have not been brought up in the Defence or the affirmation of the defendant.  I have nonetheless considered them all below.

10.  One preliminary matter I need to address is the Memorandum of Notification of an Application for Legal Aid by the defendant dated 11 December 2017.  The stay of proceedings under section 15 of the Legal Aid Ordinance is to apply unless otherwise ordered by the court.  Ms Yeung objected to the stay on ground that this is the second application of the defendant, and she submitted that it is a delaying tactic on the part of the defendant.

11.  The defendant first applied for legal aid in September 2017 and the hearing of the Order 14 Summons had already been adjourned once because of the stay of proceedings under the Legal Aid Ordinance.  Notification of the refusal of this first application of the defendant was issued by the Legal Aid Department on 4 December 2017.  So, within a week or so of this refusal, the defendant made a second application for legal aid.

12.  There is no information from the defendant as to whether he is appealing against the decision of the refusal of his first legal aid application and why a second application was filed in lieu or in addition to such an appeal.  Without justification from him on why the proceedings should be further delayed, I made the order for the stay to be lifted.  The hearing of the Order 14 Summons therefore proceeded as scheduled.

13.  Another matter I need to deal with before going to the Order 14 Summons is another summons of the plaintiff taken out on 7 November 2017 (“Order 20 Summons”) which seeks amendment of the Statement of Claim by adding a paragraph on the jurisdiction of this court, as required under paragraph 4 of Practice Direction 27.  As that is merely a technical amendment, I granted an order in terms of paragraph 1 of the Order 20 Summons, with costs of the application to be paid to the defendant in any event, to be taxed if not agreed.

LEGAL PRINCIPLES

14.  The legal principles applicable to an application for summary judgment have been helpfully summarized in the commentary in paragraph 14/4/1 of Vol 1 of Hong Kong Civil Procedure 2018:-

“The underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in case in which the defendant clearly has no defence to the plaintiff’s claim…

When applied for, it is for the defendant to show that there is a triable issue or an arguable defence if he is to be allowed his day in court…

The machinery of O.14 works on the basis that if the plaintiff’s application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed…”

15.  I accept the points as quoted by Ms Yeung from the cases she cited in her skeleton submissions.  The plaintiff has to first raise a prima facie sustainable case.  Where the plaintiff has done so, unless the defendant can show cause against the application to the satisfaction of the court, summary judgment would be entered.  The burden is on the defendant to show that he has a real or bona fide defence, that there are triable issues, or that there ought for some reason to be a trial of the plaintiff’s claim.  The application has to proceed on the case as pleaded.

16.  As noted by Ma J, as he then was, in the case of Schindler Lifts (Hong Kong) Ltd v Ocean Joy Investments Ltd [2003] 1 HKC 438, at 442C, the standard approach in Order 14 applications is:-

“1) Factually, it has to be determined whether what the defendant says is believable, rather whether its version of events is to be believed …

2) As a matter of law, even if what the defendant says is believable, does it amount to an arguable defence in law?”

17.  Mere assertions in an affidavit of a given situation does not ipso facto mean leave to defend should be granted.  Those assertions are to be assessed in the context of such parts of the background that are undisputed or beyond reasonable doubt.  In considering whether the assertions of the defendant are believable, I am also mindful of the following observations of Cheung JA in Paul Y Management Ltd v Eternal Unity Development Ltd CACV 16/2008, 12 August 2008, at paragraph 19:-

“…In considering whether there are triable issues, the Court will not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence but what the Court should not do is to conduct a mini trial on complicated factual issues.”

DEFENCE

18.  The SOC does set out a prima facie sustainable case for repayment of debt.  As for the defence, the first point raised by the defendant is that the so-called Loan Agreement is only an email from the defendant, issued at the request of Yuan of the plaintiff.  That was only an internal document of the plaintiff and there had not been payment of any money to the defendant pursuant to it. 

19.  The defendant seeks also to rely on an earlier email sent from Yuan to him on 22 July 2011 (“Yuan’s email”) to show that the plaintiff was responsible for payment of the tuition fees.  The relevant part of Yuan’s email reads as follows:-

“另：你讀書的事，公司人力資源部通知：

1. 公司同意，按規定簽定協議（有時間回去辦一下）；

2. 費用由公司（661），個人各出一半；

3. 費用先由個人全部繳納，等拿到畢業證後，公司（661）再報銷一半的學費。”

20.  Even if there was a Loan, the defendant submitted, it has been repaid already upon deduction from the defendant’s salary in December 2011.  In addition, it is alleged in the Defence filed that the LT did not require the plaintiff to pay back the amount deducted, otherwise the amount refunded by the plaintiff should be increased by HK$339,696. 

21.  Another point relied on by the defendant is that the plaintiff should file an appeal against the decision of the LT if it does not agree with it, and not commence the present action in the District Court.  It is also the defendant’s case that the matter has already been adjudicated in the LT, and hence the present proceedings is an abuse of process and a waste of resources of the judiciary. 

22.  The defendant places great emphasis on the fact that the course at CU was taken up by him at the request of the plaintiff and its holding company 大冶有色金屬集團控股有限公司(“Holding Company”).  He refers to the 培養研究生合同(“Studies Agreement”) dated 13 August 2011 that was signed between him and the Holding Company. 

23.  Under the Studies Agreement, the Holding Company agreed to pay for 75% of the tuition fees of the said graduate course of the CU.  Hence, the defendant submitted that the amount of HK$254,772 ordered by LT to be paid by the plaintiff was the percentage of the tuition fees that the plaintiff should be responsible for, and not the 75% of the amount of the Loan that the plaintiff is now claiming repayment in the present proceedings.  In support, the defendant pointed to the part of the written decision of the LT, where it was stated that the presiding officer found in favour of the defendant in respect of his claim relating to the tuition fees.

24.  The defendant disagrees with the proposition that the Holding Company and the plaintiff are separate legal entities, in view of the control exercised by the Holding Company and the board of the plaintiff being appointed by the Holding Company.  He submits that the two companies cannot really be independent of each other.  

25.  The defendant also alleges that, in March 2011, Long has promised to reimburse the tuition fees according to the Studies Agreement.  He points to paragraph 11 of the decision in the LT Action in support and submits that there was no challenge of this by the plaintiff or Long.  

DISCUSSIONS

26.  I will first deal with a preliminary point raised in the affirmation of the defendant – his challenge regarding the truthfulness and objectivity of Yu.  According to the defendant, Yu was not involved in the matter of the studies at CU undertaken by the defendant and what she deposed to could only be hearsay.  I do not understand how objectivity comes into play here.  Yu was giving evidence on behalf of the plaintiff and she would not be required to take into account the interest of the defendant in doing so.

27.  As for Yu not having a role to play in the arrangement for the defendant to take up the graduate course at CU, hearsay evidence is not precluded from admission, although the weight to be given to such evidence is a matter for the court.  Yu did specify the source of her knowledge in her affirmation and she had referred to her review of the documents in the possession of the plaintiff.  I see no reason to doubt her truthfulness simply on such basis.

28.  The position with the declaration of Yuan is however different.  The declaration was made before a PRC lawyer in Shenzhen.  Without information on the legal status of such a declaration and the legal consequences, if any, for making a false declaration under the laws of Mainland China, the reliability of the declaration is unclear.  One other thing to note is the possibility of applying for the deponent of an affidavit to be cross-examined under the Rules of the District Court.  It is not clear that such procedure is similarly available to a declaration like that of Yuan.  For the aforesaid reason, I will not give weight to the declaration of Yuan.

29.  The main issue in the defendant’s case is that the studies at CU were undertaken by him at the request of the plaintiff.  Ms Yeung has made submissions about the enrollment of the defendant with the CU for the said course being solely for the personal benefit of the defendant.  It is therefore the plaintiff’s case that the defendant, being a director, had to have the approval of the Board to unconditionally pay for the tuition fees and the defendant would have to declare his interest to the Board in the first place, but he had not done so.

30.  The declaration of Yuan was submitted in support of this argument of the plaintiff.  I have already indicated that I will not give weight to the declaration.  In any event, I do not see a need to refer to it, as I do not agree that the defendant’s enrollment with the CU course was solely for his own personal interest.  The preamble of the Studies Agreement clearly refers to the upgrading of the quality of the management personnel[1].  Clause 5 of the Studies Agreement also requires the defendant to continue to serve the Holding Company for over 10 years after completion of the course and, in the event of early termination of the employment by the defendant, to repay such part of the training fees that have been paid by the Holding Company, spread over a 10 years’ period[2].  I find the training to be for the benefit of both sides and the agreement is certainly not one of unconditional payment of the tuition fees.

31.  I also do not accept the plaintiff’s argument that the message in Yuan’s email was merely passed on by Yuan on behalf of the human resources department of the Holding Company or that Yuan was not otherwise acting on behalf of the plaintiff.  Nonetheless, whether Yuan’s email was a notification or not does not matter here, because the defendant is not relying on it as the agreement between the plaintiff and him on the payment of tuition fees for the CU course.  That he is claiming for 75% of the tuition fees in the LT Action means that he goes by the arrangement struck with the Holding Company under the Studies Agreement, and not that under Yuan’s email.  Even if Yuan’s email was a record of the discussions between the parties about the fees payment for the CU course or an earlier agreement on the matter, it had been superseded by the Studies Agreement.

32.  In any event, the defendant’s position under Yuan’s email had not been prejudiced by the Loan Agreement or the eventual Studies Agreement.  The defendant was required to pay the tuition fees upfront under Yuan’s email and the plaintiff would only be reimbursing the defendant half of the amount upon his obtaining the graduation certificate.  Hence, by the time of the Loan Agreement, the defendant would still have to come up with the full tuition fees himself under the terms of Yuan’s email.

33.  As regards the relatively minor point about Chen’s email not being a legal agreement, it is important to note that to give rise to legal obligations, there is no requirement that a loan agreement has to be in a particular format, or that it has to be in writing.  Even oral agreement can be legally binding on the parties entering into the agreement.  The request for the loan and the undertaking to repay in Chen’s email clearly point to it being a loan agreement.  The defendant may be disputing it now, but I note that the defendant had actually acknowledged to there being a loan[3].  This is therefore a non-issue.  The same goes for the defendant’s question (in his skeleton submission) about the lack of any provision on interest.  A promise to repay a loan is itself enforceable even if it is interest free. 

34.  The defendant also challenges the plaintiff’s stance that Chen’s email is a loan agreement on the ground that an advance of money to senior management without consideration would not be consistent with the interest of minority shareholders.  The suggestion that the Loan Agreement provided no return to the plaintiff is not entirely correct given that the loan was advanced to facilitate a staff member’s enrollment with a training course which would be beneficial to both the employer and the employee.  Furthermore, the Loan was expected to be repaid within a very short time, upon defendant’s return to Hong Kong after a business trip.  In addition, whether the Loan had been approved via the necessary corporate procedure goes to the question of whether there had been any breach of fiduciary duties by the personnel involved, the ability of the plaintiff to pursue repayment is not affected.  

35.  The fact that the defendant had not received the money himself also does not raise any triable issue.  The money was paid to the CU at the direction of the defendant.  There is no requirement that the money borrowed under a loan agreement has to be paid to the borrower direct before the borrower can be liable for its repayment.

36.  I do not see how the defendant’s argument about the Loan having been repaid by the deduction from his salary in December 2011 can work.  By his own conduct in suing for the 75% of the deducted amount in the LT Action and eventually being successful with such claim, he has reversed the repayment in respect of that 75%.  The 75% therefore remains outstanding. 

37.  The allegation that the LT did not require the plaintiff to pay back the amount HK$254,772 flies directly against the documentary evidence in file.  The Order of the LT dated 8 July 2016 has clearly set out the amount to be paid by the plaintiff, which included the said sum of HK$254,772.  That the amount ordered to be paid back by the plaintiff was HK$254,772, and not HK$339,696, is because the defendant only claimed for 75% of the Loan in the statement of claim filed in the LT Action dated 30 November 2015.

38.  The plaintiff actually agrees, rather than disagrees, with the decision of the LT that its deduction from the salary of the defendant for repayment of the Loan was not in compliance with the EO.  The corollary of the decision of the LT is that the plaintiff will have to separately claim against the defendant for repayment which it now does with this action.

39.  I also agree with the submissions of Ms Yeung that the LT was not called upon to determine whether there was a valid loan agreement between the parties and whether the Loan was due and owing by the defendant to the plaintiff.  The presiding officer of LT had simply worked on the admission of the defendant to the Loan, as recorded in the transcript of the LT Action.  Also, as pointed out by Ms Yeung, there is no collateral attack on the earlier decision.  The plaintiff’s claim in this action is in line with the decision of the LT.  There is thus no substance in the defendant’s allegations of res judicata or abuse of process.

40.  As for the Studies Agreement, the plaintiff was not a party to it.  It is also important to note that the Studies Agreement was signed after the Loan Agreement.  This means that the Holding Company had not agreed to pay for 75% of the tuition fees when the defendant borrowed the money from the plaintiff to pay for the fees.

41.  The control that the Holding Company has over the plaintiff arises from its shareholding status.  That will be the case even if the shareholders are individuals and not corporate bodies.  That does not per se have any effect on their status as two separate legal entities.  In normal circumstances, the rights and liabilities of one cannot be equated as the rights and liabilities of the other.  With the Studies Agreement entered into between the Holding Company and the defendant, any rights the defendant wants to assert under that agreement have to be asserted against the Holding Company.  Similarly, with the Loan Agreement made between the plaintiff and the defendant, it is the plaintiff that can sue for the repayment of the Loan and not the Holding Company.    

42.  The defendant seems to have mistaken independence as a prerequisite for the status of separate legal entities.  There is in fact no such requirement. The defendant’s submission on the close relationship of the Holding Company and the plaintiff does not therefore take his case any further.

43.  As regards the promise allegedly made by Long, as pointed out by Ms Yeung, the defendant was misquoting the passage from the decision in the LT Action. The presiding officer was recapping the stance of the defendant at the hearing in paragraphs 3-11 of the decision.  The plaintiff’s stance on the matter, as noted in paragraph 12 of the decision, was that the payment of the tuition fees was governed by the agreement between the defendant and the Holding Company and had nothing to do with the plaintiff.

44.  It is also clear from the relevant part of the transcript[4] that Long did not refer to any promise being made at all.  All he said was the request of the defendant would be considered.  There is no substance in this averment of the defendant.

45.  In paragraphs 18 and 19 of his skeleton submissions, the defendant refers to a number of matters, including the reference letter, the consent letter and the oral testimony of Long in the LT Action, to support his submission that the plaintiff, although not a signatory to the Studies Agreement, had confirmed and approved that agreement and to the training arrangement with the defendant being handled by the Holding Company.  I cannot see the relevance of this argument since even if that is true, the approval or endorsement by the plaintiff of the Studies Agreement does not render it liable under it.

46.  At the end of the defendant’s skeleton submissions, he also raised concerns about the truthfulness of the declaration of Yuan and the parts of the affirmation of Long about the training arrangement requiring Board approval but had not been so approved.  I have already set out in paragraph 28 why I will not give weight to Yuan’s declaration.  As for the affirmation of Long, my finding that the training of the defendant is for the benefit of both sides indicates that I do not accept or pay heed to those allegations.

47.  Having gone through all the points raised in the affirmation of the defendant and in the defence filed, I do not find the points of defence raised by the defendant to be believable and even if they were believable, they would be unarguable in law.  The defendant has failed to satisfy the court that he has any triable issues.  I therefore order as follows:-

(a) final judgment be entered against the defendant for the sum of HK$254,772;

(b) interest on the sum of HK$254,772 at 5% from the date of the Writ until date of judgment and thereafter at judgment rate until payment;

(c) on a nisi basis, costs of this action including the costs of and incidental to this application be to the plaintiff, to be taxed if not agreed.