WFM MOTORS PTY LTD. v. MALCOLM MAYDWELL

1994, No. MP 1405

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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Background

1. On 22 October 1993, a Master of the Supreme Court of New South Wales granted summary judgment against the defendant in favour of the plaintiff in the sum of HK$3,709,342.32. On 8 June 1994, the Registrar of the Supreme Court of Hong Kong ordered that this judgment be registered as a judgment of the High Court of Hong Kong under section 4 of the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319).

The Defendant's Summonses

2. On 4 July 1994, the defendant issued a summons to set aside this registration on the grounds that an appeal was pending against the judgment in the Australian courts. On 26 September 1994, leave to appeal was refused by the New South Wales Court of Appeal. On 17 October 1994, the defendant's summons of 4 July 1994 was dismissed. The defendant applied for legal aid, but this was refused on 7 December 1994. On 23 December 1994, the defendant took out another summons to set aside the registration. This is the summons now before me. The grounds stated in this summons that are still pursued are -

a) that the Supreme Court of New South Wales had no jurisdiction;

b) that the judgment was obtained by fraud of the plaintiff or its representatives;

c) that the enforcement of the judgment would be contrary to public policy; and

d) that the judgment was a nullity for failure to satisfy the requirements of natural justice.

The Foreign Judgment

3. The basis on which the plaintiff obtained judgment was a guarantee dated 20 July 1992 in terms of which the defendant undertook to pay a maximum sum of HK$3.5 million, together with interest, in respect of the indebtedness of a Hong Kong company called Skink Limited, which, in ordinary parlance, would be called the defendant's company.

4. The plaintiff applied for summary judgment by notice of motion dated 13 September 1993. On 18 October 1993, the defendant's Australian solicitors told the defendant that they had received a letter from the plaintiff's solicitors dated 13 October 1993 requiring his presence for cross-examination at a hearing on 22 October 1993. The defendant asked if it was necessary for him to attend. His solicitors replied - "As to cross-examination you are not required to appear on demand. It will be our submission that you should be given reasonable notice and three clear days, in our submission, is not reasonable." The hearing on 22 October 1993 took place in the absence of the defendant, although he was represented.

The Summary Judgment Hearing

5. It appears from the transcript of the hearing that an affidavit by the defendant dated 4 May 1993 was not allowed to be read because the defendant was not available for cross-examination. His defence to the claim, verified by a formal affidavit was admitted. This defence alleges, in one particular, that the plaintiff represented that it would procure ATD, a wholly-owned subsidiary company, to perform its obligations under an agreement with the plaintiff by causing ATD to purchase 61,000 cordless telephones from Skink Limited during 1992 and to cause letters of credit to be issued to enable ATD to pay for goods ordered from Skink Limited.

The Evidence of Mr Aitken

6. At the hearing on 22 October 1993, the plaintiff sought leave to call Mr Dennis Aitkin to depose that the defendant had no defence. This was granted subject to cross-examination by the defendant's representative. Mr Aitken gave evidence. He said that he was the secretary and a director of the plaintiff. He said he had read the defendant's defence. He was asked his view about it. He replied - "I believe that it really is a conclusion of unrelated material which really does not go to the essence of the argument." He said he believed the defendant had no defence. He was asked about the phrase "granting and continuing to grant credit and other financial accommodation" to Skink Limited that appeared in the guarantee. He said that Skink owed money to the plaintiff and "In discussions as to how that position may be reactivated, a suggestion was made that further letters of credit could possibly be given in order to offer time to reduce indebtedness to" the plaintiff. The allegation regarding the 61,000 cordless telephones was put to Mr Aitken. He was asked if he had had any conversations with the defendant himself regarding that allegation. Mr Aitken said - "Yes, there were a number of conversations held with Maydwell." He said that "During the course of a telephone conversation it was suggested by Mr Maydwell that he could (a) he admitted he owed the money and his company owed the money and secondly he suggested a possible way for that money to be repaid which would be for WFM Motors to provide further financial accommodation to Skink Limited in order that additional product could be provided and on the basis that for every dollar of additional letter of credit facility mae (sic) available $2 worth of product would be shipped." He was then asked whether he agreed or disagreed with the allegation regarding the 61,000 telephones. Mr Aitken said - "I cannot agree with 61,000 - the number, I have no recollection of that." The question was put - "Apart from that aspect?" He replied - "'That it would procure ATD to perform its obligations', I am not sure. 'Procure' is the word. Perhaps 'Facilitate' or 'Assist' in some way for the repayment of the moneys owing to be made". Mr Aitken alleged clearly that ATD was acting as the plaintiff's agent in the dealings with Skink.

The Defendant's Case

7. The only evidence I have before me is contained in affidavits of the defendant. This evidence is totally uncontradicted before me, and nothing Mr Aitken said at the summary judgment hearing is inconsistent with it. For these reasons, and because what the defendant says is corroborated by contemporaneous documents and is consistent with the probabilities, I must, for the purpose of these proceedings, accept what he says.

8. The evidence of the defendant is that, in early July 1992, ATD made it clear to him that ATD was not going to be able to order telephones in accordance with an agreement between them under which ATD agreed to accept a certain number of telephones during particular periods. He was told that the market in Australia for these products was bad, and ATD could not move its existing stock. ATD was Skink's major customer, and the defendant was very worried about this. It was made clear to the defendant that the only hope of further orders was if the plaintiff would issue letters of credit, and the plaintiff would not do this unless the defendant's existing indebtedness was secured and acceptable proposals made to pay this off. The defendant proposed that ATD order 61,000 telephones for production by mid-November 1992, letters of credit would be issued, Skink would draw on these letters of credit only to the extent of 50% of goods shipped, so that the balance of 50% would be credited against the indebtedness, and the debt would be "brought to zero" by that date. Negotiations on this proposal took place in July 1992. On 10 July 1992, the defendant sent a fax to ATD, with a copy to the Chairman of the plaintiff, saying that he was prepared to enter into a personal guarantee for a maximum amount of HK$3.5 million. This offer was said to be "subject to ATD's undertaking to open the further L/Cs as discussed and relevant orders associated with them". There were further negotiations on the terms of the guarantee. On 17 July 1992, the defendant faxed the plaintiff, for the attention of Mr Aitken and Mr Jackson, saying that "Under the arrangements we have put together, the last of the indebtedness is going to be the red clause L/C. . . . Subject to receiving ATD's purchase commitments for next year's deliveries to the L/C existing value, the retirement of this is planned by the end of June next year." On 20 July 1992, the defendant spoke to Mr Aitken over the telephone. They discussed the terms of the guarantee. The defendant said to Mr Aitken, in effect, that he "would be totally dependent on you ensuring Skink gets all the orders for 61,000 pieces of cordless as well as sufficient orders to cover the red clause letter of credit in the first half of 1993. And, you will have to make sure all the letters of credit for the 61,000 pieces come through." The defendant says that Mr Aitken replied to the effect that "That's all been agreed, so I can't see what problem you have with it." The defendant then faxed Mr Aitken saying - "Thank you for your assurances. . . . I would appreciate your release of the first L/C, if at all possible today." The defendant signed the guarantee.

9. On 21 July 1992, a letter of credit was opened in favour of Skink, and another one on 17 August 1992. Both letters, in conformity with the agreement, provided that drafts were to be drawn for only 50% of the invoice value. ATD did not place any further orders until 1 September 1992, and these were cancelled on 30 September 1992. The defendant immediately faxed ATD saying "It is essential that you withdraw your fax cancellation of today. If you were to cancel your orders 1790 and 1791 it would contradict everything that was agreed and leave us in the position, if we accepted the cancellation, that the only means to repay ATD would be by cash settlement. This was never envisaged by anyone. A proposal was made and accepted that the inter-company balance would be repaid by the supply of cordless telephones which would be paid for by ATD at the rate of 50 per cent. There must not be any doubt about the fact that your issuing those orders was totally in accordance with everything agreed and known to all parties. I suggest this message should be brought to the attention of your board."No further orders were placed by ATD; in particular, ATD failed to place orders for the 61,000 telephones as agreed. Skink went into liquidation.

Was There Fraud?

10. In his judgment on the claim for summary judgment, the Master of the Supreme Court of New South Wales found that the defendant had no arguable defence. He decided that on the evidence adduced by the plaintiff.

11. What would have been the position if the Master hearing the application for summary judgment had been told, openly and frankly, without equivocation, by the plaintiff that, in exchange for the defendant's guarantee, the plaintiff had agreed that it would arrange for its wholly-owned subsidiary, ATD, to purchase 61,000 telephones from the defendant's company and cause letters of credit to be issued to pay for 50% of the price of these, and, by this mechanism, the indebtedness would be settled, but that it had failed to do this? Surely, there can be little doubt, the Master would have said to the plaintiff - "But, then, how can you seek enforce a guarantee given by the defendant, as one side of a bargain, when you have failed to perform your undertaking, which is the other side of the same coin? Summary judgment is refused."

12. The plaintiff must have well known that what I have outlined was the substance of the defendant's defence. Mr Aitken, who gave the evidence for the plaintiff at the summary judgment hearing, was directly involved in the negotiations that led the agreement. How, then, could Mr Aitken have said honestly that the defendant had no defence? It is true he says this only after the plaintiff's representative gives him a second chance, but he says it. What on earth he meant by "I believe that it [the defence] really is a conclusion of unrelated material which really does not go to the essence of the argument", I do not know. It looks very much like waffle to me. He waffles elsewhere too. He says essentially what the defendant says about the proposal the defendant made to the plaintiff, but stops short of saying that this was agreed. He also prevaricates about the allegation regarding the agreement to take 61,000 telephones. Firstly, he seems to disagree only with the number of 61,000, or that he cannot recall this number. Then he quibbles about the wording, seeming to say that he would have preferred to say that the plaintiff agreed to "facilitate" or "assist" ATD to perform its obligations, rather than "procure", although what difference he thinks this would make is far from clear, having regard to the fact that ATD is the plaintiff's wholly-owned subsidiary company. All in all, I left with the strong impression that Mr Aitken knew perfectly well what defence the defendant had, but, by obfuscation, he sought to avoid saying that what the defendant alleged was indeed the agreement between him and the plaintiff. At the very least, Mr Aitken must have known that, arising from the agreement, in the formation of which he himself participated, the defendant had a "defence"; not necessarily a defence that he thought would succeed at the end of the day, but a defence. Mr Aitkin did not have the right to say, and should not have said, that he believed that the defendant did not have a defence; he could not honestly have believed that.

Conclusion

13. In these circumstances, I conclude, on the evidence put before me, that the plaintiff misled, and deliberately misled, the Master in the summary judgment application through the evidence of Mr Aitken in which he deliberately avoided telling the full truth. That amounts to fraud.

14. Section 6 (1) (a) (iv) of the Foreign Judgments (Reciprocal Enforcement) Ordinance (Cap. 319) says -

"On an application in that behalf duly made by any party against whom a registered judgment may be enforced, the registration of the judgment -

(a) shall be set aside if the registering court is satisfied -

(iv) that the judgment was obtained by fraud;"

15. It follows that the registration of the judgment must be set aside.

The Other Grounds

16. My finding on the allegation of fraud disposes of the matter. I will say, however, that, even applying English rules, I would have been reluctant to find that the courts of New South Wales did not have jurisdiction in this matter. I believe that the defendant did voluntarily submit to jurisdiction, and not only to protect his property. On the allegation of a failure of natural justice, I believe there may be some substance in this. On the defendant's case, he was given very little notice that he was required to attend the summary judgment hearing, and he was advised by his solicitor that he need not attend. In the event, his attendance might have made a difference to the outcome in that his case would have been put to the Master in evidence. I am uncomfortable with what happened here, but there is no need to decide the matter.

Costs

17. It seems that the defendant is entitled to his costs, both here and before the Registrar, and I make an order nisi accordingly.

(J.K. FINDLAY)

Judge of the High Court