NILESH MURLI SAJNANI v. YOHAN SIMONIAN

HCA 1355/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1355 OF 2014

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JUDGMENT
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1.  This is an appeal against the summary judgment given by Master Chow on 27 February 2015 against the defendant for the sum of HK$2,700,000. The plaintiff’s summons for summary judgment referred to the sum as payable for the defendant’s breach of an agreement between the plaintiff and the defendant dated 19 November 2012, the non-payment of debts due thereunder and the dishonour of the defendant’s three cheques relating thereto.

The plaintiff’s claims

2.  The plaintiff pleaded in the statement of claim that he had at the request of the defendant procured various companies associated with him to advance various loans to the defendant.  The loans were advanced by the following companies (“the paying companies”):

(i) Emkay Industries (HK) Limited

(ii) Ontrend (HK) Limited

(iii) Manira Retail Limited

(iv) Ontrend USA LLC

3.  The loans were advanced to the defendant personally and to certain companies which received them on behalf and for the use and benefit of the defendant (“the receiving companies”).  The receiving companies were co-owned by the plaintiff and defendant.  They are:

(i) Creative Concept Electronics Limited

(ii) Magic Market Limited

(iii) Klys & Co International Limited

4.  The loans that were advanced to the defendant and paid to the receiving companies were for payment of the defendant’s half-share of the working capital of the receiving companies.  They were advanced on a short term basis, repayable on demand, interest free and without security.

5.  In order to induce the paying companies to advance the loans to the defendant, the plaintiff had given verbal guarantees to these companies that the plaintiff would be personally accountable for the loans in the event of the defendant’s default in repayment.

6.  In about July 2012, the plaintiff and defendant agreed that the loans should all be repaid by the defendant to the plaintiff as the plaintiff was responsible to reimburse the paying companies in the event of the defendant’s default and that the plaintiff had assumed responsibility to collect the loans from the defendant.  The plaintiff and the defendant further agreed to an adjusted net balance of the loans due from the defendant to the plaintiff. 

7.  The plaintiff and defendant then entered into a written agreement dated 24 July 2012 (“the 1st Agreement”) in the following terms:

(a)The defendant acknowledged being indebted to the plaintiff in respect of the sums of HK$900,951.57 (“the First Debt”) and US$295,206.13 (“the Second Debt”) respectively.

(b) The defendant acknowledged and recognized that the obligation to repay the said sums was existing and effective as of the date of execution, namely 24^th July 2012.

(c) The defendant agreed to pay the said sums in 4 equal monthly instalments on 15 July 2013, 15 December 2013, 15 July 2014 and 15 December 2014.

8.  The plaintiff alleged that the defendant had failed to pay the 1st, 2nd and 3rd instalments despite a letter of demand dated 25 April 2014 from the plaintiff’s solicitors.  Since this agreement is not included in the application for summary judgment, I will not go into its details.

9.  The plaintiff and defendant entered into another written agreement on 19 November 2012 (“the 2nd Agreement”) in the following terms:

(a) That the plaintiff was to sell his 2,500 shares in a Hong Kong company called Pampelonne International Limited (“Pampelonne”) to the defendant for HK$1,000,000 (hereinafter called “the Third Debt”).

(b) That the defendant was to repay the plaintiff the sum of HK$1,700,000 in respect of a shareholder’s loan previously advanced (hereinafter called “the Fourth Debt”).

(c) That the said sums, totalling HK$2,700,000, were to be paid in three instalments by means of post-dated cheques drawn by the defendant in favour of the plaintiff in the amounts of HK$1,000,000 payable on 12 December 2012, HK$850,000 payable on 20 December 2012 and HK$850,000 payable on 15 January 2013.

10.  The defendant then delivered to the plaintiff on 19 November 2012 the following cheques drawn on the Hong Kong Bank to pay the plaintiff the sums due under the 2nd Agreement:

	Cheque No.	Date of Cheque	Payee	Amount	Date of Presentation
(a)	021822	12th December 2012	Nilesh Sajnani	HK$1,000,000	17th December 2012
(b)	021827	20th December 2012	Nilesh Sajnani	HK$850,000	21st December 2012
(c)	021828	15th January 2013	Nilesh Sajnani	HK$850,000	17th January 2013

11.  The three cheques were however dishonoured upon presentation for payment on their respective due dates.  The 1st and 2nd cheques were returned with the remark “drawer’s chop/signature differs from specimen in our possession” and the 3rd cheque was returned with the remark “refer to drawer”.  In these circumstances, the Hong Kong Bank was not obliged to honour any of the cheques and notice of dishonour was dispensed with under section 50(2)(c)(iv) of the Bills of Exchange Ordinance, Cap 19.  Despite this, the plaintiff’s solicitors did serve notices of dishonour of these cheques on the defendant on 28 February 2013 and 25 April 2014.  The Third and Fourth Debts under the 2nd Agreement thus remained due and payable.

12.  The plaintiff and defendant then agreed that the 2,500 Pampelonne shares should be re-transferred to the plaintiff as partial security pending full payments of the defendant’s indebtedness.

13.  The plaintiff in the action claims against the defendant payment for the First and Second Debts due under the 1st Agreement and the Third and Fourth Debts due under the 2nd Agreement.  Regarding the Third and Fourth Debts, he also claims interests pursuant to section 57(a)(ii) of the said Ordinance from the presentation of the three cheques on 17 December 2012, 21 December 2012 and 17 January 2013 respectively.

The application for summary judgment

14.  In the application for summary judgment.  The plaintiff only claims payment of the Third and Fourth debts and interest due under the said Ordinance.

The plaintiff’s affirmation in support of the application

15.  The plaintiff made an affirmation to support the application.  He said the defendant had a wholesale distributorship of the clothing products of a US clothing company called Ed Hardy.  He was introduced to the defendant in 2007.  He agreed to collaborate with the defendant in 2007 over the distribution of such products in Hong Kong generally.

16.  The defendant was conducting the business through Klys & Co International Ltd (“Klys”), a receiving company.  The plaintiff acquired shares in Klys from 2007.  He became a director of Klys on 1 July 2009.  In 2011 the other shareholders had withdrawn.  He and the defendant became the only shareholders each holding 50% shares.

17.  Since the defendant did not have the financial resources to run the import and wholesale businesses, the plaintiff provided the funds by way of personal loans.  He also provided commercial expertise to the business venture of Klys.

18.  Klys’ business was moderately profitable in 2010 and 2011.  The plaintiff and defendant took dividends out of the profits.  The business then became worse and less secure.

19.  The revenue took a downturn in 2012 due to the loss of a major customer in the mainland and theft of goods of US$400,000 worth.  Klys was unable to cover all loss and had difficulty to meet its liabilities.  The plaintiff and defendant then agreed that the plaintiff would support the business by way of loans.  The plaintiff advanced loans to pay Kly’s tax and staff salaries and bonuses. The plaintiff and defendant agreed that the defendant would owe the plaintiff half of the sums advanced by the plaintiff as they had equal shareholdings in the company and the defendant had no resources to support the business.

20.  Before Klys had encountered financial difficulties in 2012, the plaintiff and defendant had another joint venture for wholesale and retail of a swimwear brand “Scalise” in Europe and elsewhere.  They set up Pampelonne for this purpose.  The plaintiff also agreed to provide all the start up capital as a shareholder’s loan to Pampleonne.

21.  In June and July 2012, the plaintiff had discussions with the defendant on the problems of Klys as the plaintiff could not continue to be the sole provider of funds for Klys.  The plaintiff also resigned his directorship of Klys on 1 July 2012.

22.  The plaintiff exhibited in his affirmation a document with the title “statement of amount payable by (the defendant) to (the plaintiff) (up to 17 July 2012)”.  It was signed by both parties.

23.  At about that time, the defendant had found a potential investor who was prepared to take over the plaintiff’s shares in Klys and Pampelonne. He told the plaintiff that when the plaintiff’s shares were transferred, the consideration to be paid to the plaintiff would include the money due to the plaintiff for the plaintiff’s financial support to Klys and the plaintiff’s shareholder’s loan for use as the start up capital of Pampelonne.  But the investor eventually did not join the companies.

24.  The plaintiff then exhibited in his affirmation a Broad Agreement made between him and the defendant and dated 19 October 2012. It provided:

“1. THAT Mr. Yohan Simonian (the defendant) (“Second Party”) has an obligation towards Mr. Nilesh Murli Sajnani (the plaintiff) (“First Party”) for an amount of HKD 2.5 million.

2. THAT Mr. Yohan Simonian (the defendant) (“Second Party”) will arrange to pay the above amount to Mr. Nilesh Murli Sajnani (the plaintiff) (“First Party”) by any of or all of the below options:

a. Purchase of Mr. Nilesh Murli Sajnani’s shares in the companies named Scalise and Pampelonne, and/or

b. Payment of Mr. Nilesh Murli Sajnani’s loan to the companies named Scalise and Pampelonne, and/or

c. From the personal funds of Mr. Yohan Simonian

3. IT is further agreed between the parties that both are equally responsible for the payment of Profits Tax (assessment year till 2010-11) to the appropriate authority.

Other Terms & Conditions

…

2. This amount covers ALL loans to Yohan and Pampelonne and Scalise and Companies related to.”

25.  Pursuant to the Broad Agreement, the plaintiff on 22 October 2012 transferred his 500 shares in Klys to the defendant.

26.  The defendant’s indebtedness to the plaintiff continued to increase.  On 19 November 2012, the defendant agreed that he was indebted to the plaintiff at HK$2,700,000.  The parties then made the 2nd Agreement in the following terms:

“1. Definition/s:

1.1. ‘Companies’ means M/s Pampelonne International Limited and M/s Route Des Plages S.A.R.L.

1.2. ‘Sale of Shares’ means the sale of 2500 numbers of shares held by the First Party (the plaintiff) in M/s Pampelonne International Limited to the Second Party (the defendant).

1.3. ‘Shareholder Loan’ means the amounts given by the First Party (the plaintiff) to M/s Pampelonne International Limited and M/s Route Des Plages S.A.R.L. as a loan from time to time to facilitate the smooth running of the business operations of the ‘Companies’.

2. NOW IT IS HEREBY AGREED as follows:

2.1. That the First Party (the plaintiff) agrees to sell his shares (2500 nos) in M/s Pampelonne International Limited to the Second Party (the defendant) for a consideration of HKD1,000,000/- (Hong Kong Dollars One Million Only)

2.2. Further agreed between Parties that the Second Party (the defendant) is obliged to repay the Shareholder Loan, to the First Party (the plaintiff), of total amount HKD1,700,000/- (Hong Kong Dollars One Million and Seven Hundred Thousand Only)

2.3. The repayment of the amounts as per clause 2.1 and 2.2 above (total HKD2.7 Million) is agreed as follows:

2.3.1. HKD1,000,000/- on 12^th December, 2012, vide HSBC Cheque No. 021822 Dt. 12-Dec-2012

2.3.2. HKD850,000/- on 20^th December, 2012, vide HSBC Cheque No. 021827 Dt. 20-Dec-2012

2.3.3. HKD850,000/- on 15^th January, 2013, vide HSBC Cheque No. 021828 Dt. 15-Jan-2013

2.4. It is further agreed between the Parties that the Sale of Shares will be done in good faith, mutual trust and as per the various clauses of this ‘Agreement’.  Under any circumstances Mr. Yohan Simonian (the defendant) (the Second Party) is personally liable for any non-performance of any of the clauses and conditions of this ‘Agreement’.”

27.  Pursuant to the 2nd Agreement, the defendant delivered the three cheques particularized in clause 2.3 of the agreement to the plaintiff and the plaintiff transferred the 2,500 Pampelonne shares to him on 27 November 2012.  I have already mentioned that these cheques were dishonoured upon presentation.

28.  The plaintiff’s solicitors then sent a letter of demand dated 28 February 2013 to the defendant, giving the defendant notice of dishonour of the cheques and requiring payment of HK$2,700,000 by 6 March 2013.  The defendant did not respond to this letter and made no payment.

29.  The plaintiff then instructed another firm of solicitors that gave the defendant another letter of demand dated 25 April 2014 which was more than a year after the last demand.  The solicitors demanded the defendant to repay the plaintiff not just the Third and Fourth Debts totalling HK$2,700,000, but also the First and Second Debts due under the 1st Agreement dated 24 July 2012.

30.  The defendant’s solicitors then replied on 21 May 2014 alleging that the debts under the 1st Agreement were owed by the receiving companies to the paying companies.  Hence, the 1st Agreement was void.  For the Third and Fourth Debts, the defendant’s solicitors alleged that the Stamp Duty Office had been misled about the operation and account of Pampelonne and had not been informed about a shareholder’s loan of HK$1,700,000.  Hence, the 2nd Agreement was made in bad faith and illegal for the alleged misrepresentation to the Stamp Duty Office. The defendant’s solicitors also alleged that the plaintiff had put the defendant under extreme pressure prior to his signing the 2nd Agreement such that he signed it under undue influence and duress.

The defendant’s affidavit in opposition

The defendant filed an affidavit on 6 October 2014 in opposition to the application for summary judgment.  He said in the affidavit that when he and the plaintiff first agreed to do business together in 2007, there was an informal verbal shareholders’ agreement that the plaintiff would be the financier and he the “active” partner or “worker”.  He was responsible for the management and day-to-day operation of the company.  He would also introduce customers and his connections to the company. Since he was the worker, he would be entitled to a salary.

31.  He set up Klys in 2007 to do business in fashion, clothing and distribution of goods imported from the US, Europe and Asia.  The plaintiff became a 20% shareholder of Klys in 2007 and its co-director on 1 July 2009.  The plaintiff’s shareholding increased to 40% in 2010.

32.  He obtained in 2007 an informal wholesale distributor right of US clothing giant Ed Hardy for Hong Kong, Macau and the mainland.  When the plaintiff learnt about this, the plaintiff suggested using Klys to develop this business.  The plaintiff then increased his shareholding in Klys to 50%.  However, the plaintiff refused to pay Ed Hardly US$1,000,000 for a formal exclusive distributor right.  Klys thus lost a lucrative business opportunity to work with a Chinese customer for distribution of Ed Hardy in the mainland.  Klys then could not fulfil its business potential.  Furthermore, Klys also failed to recover US$150,000 store fees from a customer.

33.  The defendant also said that whenever he took a salary from Klys as the parties had agreed at the outset for his long hours of work for 7 days a week, the plaintiff also insisted on taking the same amount of money from Klys despite the plaintiff only spent a few hours per week for Klys.  The drawings by the plaintiff were contrary to their initial understanding and shareholders’ agreement.  The plaintiff also insisted on moving office which increased the rental substantially.  He blamed the plaintiff’s refusal to pay for the formal exclusive distributor right of Ed Hardy and the consequence therefrom rather than the payment of dividends as the reasons for Klys not having retained profit.

34.  Regarding the setting up of Pampelonne in the beginning of 2012 to sell the Scalise swimwear brand, the defendant said that they had the informal shareholders’ arrangement for Pampelonne.  The plaintiff would be the financier. He would be the “active” partner dealing with the day-to-day management.  He was entitled to a salary.  He was the sole director and the plaintiff had 2,500 share or was a 25% shareholder.

35.  Later, the plaintiff told him that the plaintiff wanted a corporate divorce from the receiving companies in order to focus on his own business.  He also resigned from his directorship of Klys.

36.  Regarding the jointly signed “statement of amount payable by (the defendant) to (the plaintiff) (up to 17 July 2012)” which was exhibited by the plaintiff, the defendant alleged that the statement only showed the loans made to and repayable by Klys and not by him personally.  But he did not explain why the title of the document should be in such terms.

37.  The defendant then said that the plaintiff was increasing the pressure on him to personally repay the money owed to the plaintiff by Klys and Pampelonne.  He therefore wanted to sever his business relationship with the plaintiff.  In about July 2012, he introduced a potential investor to Klys and Pampelonne so that the plaintiff could withdraw from them.  The plaintiff also wanted to sell his shares in the two companies to the investor.  But this potential investment did not materialize.

38.  He then referred to the plaintiff’s Italian business associate one Borghetti.  He said the plaintiff had told him on several occasions that Borghetti had mafia connections.

39.  He then referred to his wife being a member of a family well known in the local business circle.  He said he did not want his wife to know about his financial difficulties and the pressure he was under.  The plaintiff was aware of this and had threatened him continuously with the disclosure to his wife of how bad his businesses were performing.  This threat was like a Damocles sword over his head.

40.  The plaintiff also knew that his wife was pregnant in around January 2012.  She gave birth to their first child in October 2012. 

41.  In around May 2012, the plaintiff tried to make him assume personal liability for the loans advanced to the receiving companies and Pampelonne.  The plaintiff threatened him by telling him of the plaintiff’s acquaintance with certain people through Italian business connections and these people would “break some legs” if the right thing was not done.  He had no doubt that this was a threat to his person as the plaintiff knew that he regularly travelled to Europe including Italy and the plaintiff had become fanatical in his desire to make him personally liable for those debts.  He was in real fear and in a state of panic. The plaintiff repeated this threat shortly before he signed the 1st Agreement on 24 July 2012.  The plaintiff also repeated this threat in October 2012 and November 2012 shortly before he signed the Broad Agreement on 19 October 2012 and the 2nd Agreement on 19 November 2012.

42.  On a day that he thought to be 24 July 2012, he went to the plaintiff’s office at the plaintiff’s urgent request.  When he was there, he found the plaintiff in an extremely aggressive and anxious state of mind.  The plaintiff talked very fast and anxiously and not gave him a chance to talk.  The plaintiff repeated the threats of violence and the threat of disclosing his business problems to his pregnant wife and her family. 

43.  The plaintiff also threatened to petition for his bankruptcy so as to give him bad publicity in the media despite the absence of legal basis.  The plaintiff then thrust a document before him and demanded him to sign it.  It was an English document and his mother tongue was French.  He saw that there was no point in talking rationally to the plaintiff as the plaintiff was not in rational frame of mind.  He thus signed the document.  Two members of the plaintiff’s staff, Messrs Evren Aline and Wallack Morison witnessed his signature.  He thought it was the 1st Agreement.  But he was not given a copy of it and had no opportunity to read it subsequently.  He then explained in the affidavit the reasons why he was not liable to the plaintiff in terms of the 1st Agreement.  Since the application for summary judgment did not involve the 1st Agreement, I say no more about it.

44.  He then said that the plaintiff knew that he was going to be employed by a subsidiary of a Hong Kong listed company as the CEO to manage a luxury cosmetics business.  He was to start work on 1 October 2012.  Just before he was to sign the employment contract (dated 1 October 2012), the plaintiff threatened to tell his wife and the media that he owed the plaintiff loans and to cause him trouble by petitioning for his bankruptcy unless he signed the 1st and 2nd Agreements.

45.  On 19 October 2012, the plaintiff called him to go to the plaintiff’s office urgently.  When he was there, he again found the plaintiff in an extremely aggressive and anxious state of mind.  The plaintiff repeated the threats of violence, thrust before him the Broad Agreement and insisted that he should sign it.  This was again an English document.  He saw that there was no point in talking rationally to the plaintiff.  He thus signed the document.  His signature was then witnessed by a member of the plaintiff’s staff.  He was again not given a copy of the document and had no chance to read it afterwards.

46.  On 19 November 2012, he was again asked to go to the plaintiff’s office urgently.  When he arrived there, he again found the plaintiff in an agitated state of mind and ranted but not gave him a chance to talk.  The plaintiff again repeated the threats of using Italian contacts to harm him, telling his wife and her family about his business problems and petitioning for his bankruptcy unless he took on personal liability of the debts of the companies.  The plaintiff then suddenly presented him an English document and demanded him to sign it.  He signed it without reading or understanding its effect.  His signature was then witnessed by the plaintiff’s staff.  He did not have the chance to read the document.  He was again not given a copy of it and he was afraid to ask for one.  He thought it was the 2nd Agreement.

47.  He said the 2nd Agreement was a total sham.  He was given no consideration for assuming the obligations of Pampelonne.  The shares in Pampelonne had no value and the company was insolvent as it had current liabilities of nearly HK$1,500,000.  Its auditors had expressed in the audited financial statement ending 31 December 2012 the doubt of whether it could continue as a going concern.

48.  He was given these valueless shares in return for his assumption of the indebtedness due from Klys and Pampelonne to the plaintiff. Hence, he said that there had been a total failure of consideration for his assumption of such liability.  The 2nd Agreement and the three cheques he provided to the plaintiff pursuant thereto are therefore unenforceable.

49.  He then alleged that the Third and Fourth Debts in the 2nd Agreement were the same as the First and Second Debts.  I think this argument can stand as a defence to the plaintiff’s claims under the 1st Agreement if he should lose this appeal against the summary judgment under the 2nd Agreement and the three cheques.  But this argument alone is not a defence for the application for summary judgment.

50.  The defendant also asserted that he would not have signed the agreements in return for nothing had he not been subjected to the prolonged and sustained pressure from the plaintiff.

51.  He then dealt with his transfer of the Pampelonne shares to the plaintiff after his three cheques were dishonoured.  He said after having received the demand letter from the plaintiff’s solicitors of 28 February 2013 demanding HK$2,700,000 from him under the 2nd Agreement, he discussed with the plaintiff in June and July 2013.  They then orally agreed to cancel the 2nd Agreement.  Pampelonne would issue 330,000 shares to the plaintiff to restore the plaintiff to more or less the position before the plaintiff had sold him the 2,500 shares.  He would be released from the obligation under the 2nd Agreement and three cheques he gave the plaintiff.

52.  He then said that 330,000 shares of Pampelonne of HK$1 each were allotted to the plaintiff on 16 July 2013 and the plaintiff became a 22% shareholder.  Another 150,000 shares were allotted to a Mr Corti for an investment of HK$1,500,000 into Pampelonne.

The plaintiff’s 2nd affirmation

53.  The plaintiff filed his 2nd affirmation on 27 October 2014 to reply to the defendant’s affidavit.  The plaintiff denied all the allegations of duress and undue influence.

54.  He denied that his co-operation with the defendant was based on an informal verbal shareholders’ agreement.  He exhibited a written shareholders’ agreement dated July 2009 made between him, the defendant and two other French nationals.  The agreement recorded that the plaintiff and defendant would each hold 40% of the shares of Klys whilst each of the two French nationals would hold 10%.

55.  The relevant terms are:

“4. SALARIES AND ALLOWANCES

4.1 Party A (the defendant) is entitled to a monthly salary of HK$60,000 and a monthly housing allowance of HK$28,500.

4.2 Party B (the plaintiff) is entitled to receive a monthly management fee of HK$40,000 to be paid by the Company (Klys) to EMKAY INDUSTRIES (HK) LIMITED (“EMKAY”) monthly.

…

7. BUSINESS MANAGEMENT

…

7.2 Logistics, Merchandizing, Bookkeeping

Party B shall procure EMKAY to provide logistics, merchandizing and bookkeeping support to the Company (Klys). In consideration, the Company (Klys) will pay EMKAY a management fee of HK$20,000 per month.

…

8. ROLE & RESPONSIBILITIES OF PARTY A (the defendant) AND PARTY B (the plaintiff)

8.1 Party B (the plaintiff) shall:

(a) procure EMKAY to prepare monthly cash flow statements and quarterly financial statements of the Company (Klys) …;

(b) procure EMKAY to keep true and accurate books of account and records of the Company (Klys) in accordance with usual accounting practices and procedures and procure that such books and records are audited by the certified public accountants …

(c) procure EMKAY to provide all logistics support to the Company (Klys) including handling of shipping documents for goods shipped from suppliers and for shipment to clients.

(d) procure EMKAY to provide merchandizing support to the Company (Klys).

(e) be responsible for all matters relating to wholesale to partners in the Mainland China as well as to retail client, for the time being MANIRA RETAIL in Hong Kong and Macau.

8.2 Party A shall:

(a) deal with all issues relating to supplier of goods in the United States of America or elsewhere.

(b) coordinate and manage shipment of goods from suppliers to clients personally or through distribution company.

(c) provide merchandising support in the form of merchandizing personnel.

(d) arrange all payments to suppliers.

(e) issue invoices to clients for payment and follow up collection.

(f) provide all documents necessary to allow EMKAY to prepare books of accounts and records of the Company (Klys) in good and timely manner.

(g) handle all claims and disputes with suppliers of the Company (Klys). These disputes are of a day to day nature and include internal procedures only. However if a complaint/dispute is no longer internal and bears legal costs; these said costs will be borne by KLYS AND CO INTERNATIONAL LIMITED.

(h) review and make all payments.  Party B shall make payments in the absence of Party A.”

56.  The contents of the shareholders’ agreement contradicted the defendant’s allegation of the existence of the informal verbal shareholders’ agreement that provided for the plaintiff to be the “financier” and the defendant the “active” partner or “worker”.

57.  The plaintiff also referred to some subsequent changes to the arrangements for Klys to make payments to Emkay and him.

58.  The plaintiff also said that Klys’ distributorship of Ed Hardy was a formal one but was terminated by the end of 2011.  There was however never any question of paying US$1,000,000 to Ed Hardy.  He also said that Klys had not lost the US$150,000 store fees but had received the same.  However, I do not think these are matters relevant to this appeal.

59.  Regarding the “statement of amount payable by (the defendant) to (the plaintiff) (up to 17 July 2012)”, the plaintiff reiterated the title of the document and that it was voluntarily signed by the parties.  The plaintiff also exhibited an e-mail dated 19 July 2012 from the plaintiff’s accountant to the defendant.  The accountant in the e-mail referred to the completion of the confirmation of amounts to be settled by the defendant with the plaintiff/Emkay/Ontrend and that an agreement for the settlement of amounts due by the defendant to the plaintiff/Emkay/Ontrend was pending.  The defendant replied by an e-mail of the same day and said “let me know when ready, I’ll review and sign” (pp 280 and 281).

60.  Regarding the mafia connection, the plaintiff denied that he had any business or business connection in Italy.  He agreed that Borghetti was his business acquaintance, but not a close friend.  He also denied of having mentioned or implied that Borghetti had any mafia connection.

61.  The plaintiff also said that he had never threatened the defendant or anyone else with physical violence.  He had only said to the defendant that he would seek legal redress for the non-payment of the sums due to him.  He also exhibited an e-mail from him to the defendant dated 28 August 2012 in which he threatened the defendant with legal action because the potential investor did not invest in the two companies.

62.  The plaintiff also categorically denied that he knew or had claimed to know any Italian business connection or anyone who would “break some legs” if the right thing was not done.  He said that in his meetings and correspondence with the defendant from 2012 to early 2014, the defendant had acknowledged the liability to the debts, but raised no allegation of duress or undue influence by him until after receiving his solicitor’s letter dated 25 April 2014.

63.  He also produced a bundle of e-mails that had been sent to the defendant.  I would not discuss those relating to the 1st Agreement.

64.  Regarding the Broad Agreement, the unsigned copy of it was e-mailed by the plaintiff’s accountant to the defendant on 19 October 2012.  The accountant told the defendant in the e-mail that the defendant could go to the accountant’s office on Monday 22 October 2012 at noon to sign it (pp 287-289). Hence, it was not thrust upon the defendant by the plaintiff in a moment of the plaintiff’s aggression and anxiousness.

65.  The plaintiff also produced an e-mail dated 13 November 2012 that he sent the defendant in which he set out the sums that he said the defendant owed him.  There was no challenge by the defendant to this assertion of his indebtedness to the plaintiff (pp 291-294).

66.  Regarding the 2nd Agreement, the defendant alleged in his affidavit that he had signed it under duress and undue influence and was not given a copy of it afterwards.  The plaintiff in reply exhibited an e-mail dated 20 November 2012 from the plaintiff’s accountant to the defendant attaching for the defendant a copy each of the 2nd Agreement, the bought and sold notes and instrument of transfer executed by the plaintiff, a letter to the Stamp Duty Office for stamping the transfer and the three cheques given by the defendant to the plaintiff pursuant to the 2nd Agreement (pp 295-302].  This contradicted the defendant’s allegation that he was not given a copy of the 2^nd Agreement after he had signed it.  In fact, he was given a copy each of the agreement and all the documents relevant thereto.

67.  The plaintiff also produced the e-mails exchanged between him and the defendant from 15 January 2013 to 17 January 2013 (when the 3rd cheque was dishonoured).  They read as follows:

“On 15 Jan, 2013, at 11:05 PM, “Yohan … wrote:

Nilesh,

Sorry I just came back from work, did not find the time to call you. I also feel extremely embarrassed because of the situation.

…

For that reason I have an immediate solution but I could repay you only 230,000 HKD before the end of the month and the balance by end of the year … ! I know it’s not something you want to hear but I have really no solutions, options, cash …

The Chinese potential investor would be out of Scalise and I could definitely repay you by end of the year.  We can count an interest starting from the date you wish at reasonable rate.

I really thought and check of all best solution but unfortunately there is not many, especially because I already took loans as you know to clear issues such as KLYS.

Please kindly let me know if that’s ok with you with an ASAP payment of 230,000 HKD and give me personally some time to clear the other amount.

As I mentioned to you I will repay you all, including the electronic, with a HIGH priority but you need to trust me that I really have no other solutions “at the moment”.  If you wish, we can put a dead line for the balance to pay you for Scalise earlier than end of the year such as July 31 as situation may have changed and I may be able to find funds, Loan.

You know my personal situation with no incomes but I’m re establishing business where I should get incomes shortly.

Please do let me know your thoughts and call me when ever you want and I just hope you’ll bear with my situation and give a some time and no legal action as I do not want to come to this point with you “I sincerely mean it.”

“On 17 Jan, 2013, at 2:55 PM, Nilesh Sajnani … wrote:

This is not acceptable. I have lost my patience.

On top I am paying for your problems like missing rent for KLYS.

Enough is enough you are unable to do 1 thing you promise.

I am leaving it to my lawyers now.”

“From: Yohan …

Sent: Thursday, January 17, 2013 4:10 PM

To: Nilesh Sajnani

Subject: Re: Outstanding payment Scalise

Nilesh,

I’m settling the taxes which I received to pay from KLYS and other invoices..

Please I’m doing the best I can, I have settled most of debt in KLYS already, just give me more time for Scalise. I’m doing best I can really …

I did respect my word regarding KLYS Nilesh please …

This will bring nowhere with Lawyer as I have nothing now in hand and will just destroy everything if you take legal actions against me.

Can we just review the dates and payments dead line and I’ll respect.

Please, there’s nothing partner with me now and I’m settling issues. I find 230K already + some cash to clear some outstanding in KLYS.

Don’t bring it legal please otherwise this will be another story.  You never needed to black mail me or take me legal to have things done from me so please.”

68.  There was also an exchange of e-mails on 2 and 3 March 2013 where the defendant referred to the plaintiff’s threat of legal action as blackmail.  The e-mails are as follows:

“From: Yohan Simonian …

Sent: Saturday, March 02, 2013 1:38 PM

To: Nilesh Sajnani

Subject: Today’s meeting

Hi Nilesh,

…

As mentioned, at today, I have absolutely no incomes and no funds available, otherwise of course I would have clear the outstanding we have.

Please note that I don’t want to come to such a relationship between us and use legal. If you wish to do so as a matter of principe (sic), I don’t mind but I’ll not communicate with any of your legals (sic).

I’d appreciate if you would understand that there’s no one who will give me money just because I get pressure, Law suit of black mail that I could go to jail or even if it is possible, no one will help me … this you can be 100% sure.”

“On 3 Mar, 2013, at 6:00 PM, Nilesh … wrote:

There is no issue of blackmail.

If you have done things in the company that are fraudulent then you may need to face the consequences.

I have no ambition to get you put in jail I simply want you to follow thru with our agreement and get paid.”

69.  Regarding the transfer of 22% shares of Pampelonne by the defendant to the plaintiff on 16 July 2013, the defendant said it was done pursuant to an oral agreement between the plaintiff and defendant in consideration of which the 2nd Agreement was cancelled and the defendant was released from his obligations in the three cheques.  The plaintiff has however produced a bundle of e-mails showing that these shares were only transferred to the plaintiff as a guarantee for the defendant’s repayment of debts.  They had to be transferred back to the defendant in proportion with the amount of repayment to be made by the defendant to the plaintiff (p 307 and pp 316 to 328).  Two e-mails dated 11 April 2013 are significant.  They read:

“From: Yohan Simonian …

Sent: Thursday, April 11, 2013 11:43 AM

To: Vivian Chow

Cc: Nilesh Sajnani; Biju Nair

Subject: Pampelonne additional shareholder

Dear Vivian,

This email to inform you that Nilesh Sajnani will come back in Pampelonne and take 50% of my new available shares.

Since I now have 44% (after the transaction to Mr Marin CorTi of 6%), Mr Nilesh Sajnani will then receive 22%.

You should have all his documents.

Please kindly proceed to the transfer of share.”

“From: Nilesh Sajnani

Sent: Thursday, April 11, 2013 11:52 AM

To: Biju Nair, Yohan Simonian

Subject: FW: Pampelonne additional shareholder

Yohan we need to sign an agreement that I come back in to hold the shares only as a guarantee for Amount owing to me.

We need to set a deadline probably about 6 months for me to be paid out, I will not accept to wait forever, the main season to sell those goods in Summer for this reason I say 6 months.

I have no interest to stay in this game.

…

Biju we must check the legal implications of me taking up shares again in Pampalonne it cannot be to Diminish my position as a creditor.”

Submissions and findings

70.  This appeal is conducted by way of re-hearing.  Mr Tsang, counsel for the defendant relied on the following grounds:

“(1) The defendant’s agreement to personally undertake liability towards the plaintiff for HK$1,700,000.00 is not supported by any consideration.

(2) The 2^nd alleged Agreement and the relevant cheques were procured by duress and/or undue influence (ss 29 and 30 of the Bills of Exchange Ordinance).

(3) The defendant’s liability under the 2^nd alleged Agreement and the three relevant cheques, if any, was subsequently discharged by an oral settlement agreement.

(4) The disputes about the alleged 2^nd Agreement and cheques thereunder are inextricably linked with the disputes about the 1^st Agreement, so they should be heard and decided together after a proper trial.”

No pleading of the Broad Agreement

71.  Mr Tsang submitted that the plaintiff has not pleaded the Broad Agreement in the statement of claim.  Hence, the plaintiff is not entitled to rely on it.

72.  Mr Chen, counsel for the plaintiff submitted on the other hand that the plaintiff only relied on the Broad Agreement as evidence of the existence of debts between the parties.  The statement of claim has pleaded the existence of debts.  The evidence in support of it need not be pleaded.  Furthermore, I note that the cause of action is based on the 2nd Agreement and the three cheques under which they were drawn and not the Broad Agreement.

73.  I agree with Mr Chen.  The Broad Agreement is just part of the background of the case leading to the making of the 2nd Agreement and the drawing of the three cheques.  The plaintiff is entitled to rely on it though it has not been referred to in to statement of claim.

Consideration

74.  Mr Tsang submitted that the two cheques each for HK$850,000 or a total of HK$1,700,000 were not supported by any consideration moving from the plaintiff.  He referred to clauses 2.2 and 2.3 of the 2nd Agreement which provided that the two cheques were for repayment by the defendant of the “Shareholder Loan”.  But the “Shareholder Loan” was defined in the agreement to mean the amounts given by the plaintiff to Pampelonne and Route Des Plages SARL as loans from time to time to facilitate the smooth running of the business of the two companies. The agreement did not say that the defendant was liable for the “Shareholder Loan” or the loans to the two companies.  But it provided in clauses 2.2 and 2.3 that the defendant would be liable for them without stating any consideration in support of the liability.

75.  Regarding the plaintiff’s evidence that there was mutual agreement that the defendant was responsible to repay the plaintiff half of such loans, Mr Tsang submitted that this was a hotly disputed issue.  He reiterated the defendant’s case that in their business joint venture, the plaintiff was the “financier” and the defendant the “worker”.  Hence, the defendant had no personal liability to repay the loans.  He also pointed out that the plaintiff’s alleged mutual agreement was not mentioned in the 2nd Agreement.  He thus submitted that the plaintiff should be cross-examined at the trial on the existence of the alleged mutual agreement.

76.  He attacked the cheque for HK$1,000,000 on the basis of manifest unfairness.  He also submitted that the shares of Pampelonne was of negligible value as shown by the audited account up to 31 December 2012 and could not be of any worth near HK$1,000,000.  The consideration for the HK$1,000,000 cheque was thus wholly absent.

77.  Mr Chen responded by submitting that if there was the mutual agreement, the consideration moving from the plaintiff was clearly the advancing of loans to the company which was to the detriment of the plaintiff and benefited the defendant as a director and 50%-shareholder of the company.  The 2nd Agreement was the arrangement whereby the defendant agreed to repay a pre-existing debt to the plaintiff and for the plaintiff to exit from the company.

78.  Mr Chen further submitted that if the whole background is taken into consideration, the mutual agreement was the good reason for the defendant to have entered into the 2nd Agreement.

79.  Mr Chen also submitted that the mutual agreement was a reasonable arrangement at that time as the defendant had no funds to advance to Klys.  If there was no mutual agreement, the plaintiff would not have kept injecting funds into Klys.

80.  Regarding the defendant’s attempt to justify his case that the plaintiff was the financier and he the worker, Mr Chen referred to the written shareholders’ agreement produced by the plaintiff which contradicted his case.  Under the written shareholders’ agreement, the plaintiff and defendant had their respective duties and remunerations, but there was no provision requiring the plaintiff to finance the company by advancing loans to it continuously.

81.  The Broad Agreement dated 19 October 2012 also stated that the defendant had an obligation towards the plaintiff for HK$2,500,000 (as at 19 October 2012) and the sum covered all loans advanced to the defendant and Pampelonne and Scalise companies.  There are also many e-mails from the defendant in 2013 and 2014 where he had admitted liability to repay the loans to the plaintiff.

82.  The plaintiff also referred to the defendant’s e-mail dated 19 February 2014 in which he proposed a scheme that the 22% of Pampelonne shares could be transferred by the plaintiff back to him in proportion to his repayment to the plaintiff of the HK$6,000,000 debt.  On 12 March 2014, he was still proposing to pay the plaintiff HK$1,510,000 for the plaintiff to transfer back to him some of the 22% Pampelonne shares (pp 305-306 and 316-318).  Nowhere in these e-mails did he suggest that the sums were due from the companies and not from him or that he only became liable by signing the various agreements.  He also did not say that he was repaying for the companies.  It was only when his solicitors replied on 21 May 2014 to the plaintiff’s demand letter that they alleged that the loans were only due from the companies and not from him. 

83.  I think Mr Chen’s submissions are reasonable and I agree with them. 

84.  Furthermore, Mr Chen also referred to the defendant as an experienced businessman.  He had at least been in business joint venture with the plaintiff since 2007.  This is not to count what he did before the joint venture. If the loans were only due from the companies and not from him, there was no reason why he would have written all these e-mails, executed the Broad Agreement and 2nd Agreement and drew the three cheques payable to the plaintiff.  Mr Tsang submitted that he did all these because of duress and undue influence.  I will deal with this issue below.  However, if I should hold against him on duress and undue influence, then he has no explanation on why he had written all the e-mails, signed the agreements to assume a liability which he said was not his and drew the three cheques to discharge such liability. 

85.  If I should be against him on duress and undue influence, the necessary conclusion must be that he had signed the agreements to confirm his pre-existing liability and drew the three cheques to discharge such liability.  His e-mails that I have referred to above were consistent with the terms of the agreements and the drawing of the cheques.  On the basis of the above analysis, the success of the defence of lack of consideration depends on the success of the defence of duress and undue influence.

Duress/undue influence

86.  Mr Tsang submitted that the terms of the Broad Agreement and 2nd Agreement were manifestly unfair so that the defendant would not have signed them unless he was under duress or undue influence.  He submitted that on the face of the Broad Agreement, the defendant was undertaking personal liability to pay the plaintiff HK$2,500,000 for nothing.  Furthermore, clause 2 of the agreement purportedly gave the defendant an option to purchase the shares in Pampelonne and a company Scalise.  But the plaintiff had no share in Scalise.  Clause 2(b) of the agreement also referred to the loan which was advanced to Pampelonne and Scalise. Mr Tsang repeated that Pampelonne had negligible value in 2012 because of its indebtedness. There was no reason for the defendant to have assumed personal liability for the loans due from the companies.

87.  I note that the defendant in his affidavit did not raise any query or dispute about the reference to Scalise or its shares in the Broad Agreement.  I therefore would not consider this submission by Mr Tsang.  Regarding the alleged manifest unfairness to the defendant, I repeat my view that either there was duress and/or undue influence or that the defendant must have signed the agreements and drawn the cheques pursuant to his pre-existing liability.

88.  Mr Tsang also referred to the alleged acts of duress or undue influence as:

(i) the plaintiff’s threat of disclosing to the defendant’s pregnant wife of how bad the defendant’s businesses were performing;

(ii) the threat of physical violence that if the defendant did not assume the personal liability for the loans, the mafia connection of the plaintiff’s Italian friend would break the defendant’s legs; and

(iii) the commencement of legal action to bankrupt the defendant.

89.  It is the defendant’s allegation that these threats were made to him shortly before 24 July 2012 when he signed the 1st Agreement. They were repeated in October and November 2012 shortly before he signed the Broad Agreement and 2nd Agreement.

90.  Mr Tsang also referred to the circumstances of execution of the Broad Agreement and 2nd Agreement as alleged by the defendant.  He submitted that the circumstances should be canvassed and resolved through cross-examination of witnesses.

91.  Regarding the plaintiff’s case that the defendant did not complain about the alleged duress and undue influence in his e-mails, Mr Tsang submitted that since the defendant was in fear of his safety, the disclosure of his business problems to his wife and the petition for his bankruptcy, it is perfectly understandable why he did not confront the plaintiff about the duress and undue influence in the e-mails.

92.  Mr Tsang also referred to the defendant’s allegation of threats by the plaintiff at about the time when he signed the employment contract to work for a cosmetics company.  That should be shortly before 1 October 2012, the date of the employment contract.  However, the threats were allegedly made to cause the defendant to sign the 1st and 2nd Agreements.  The 1st Agreement had in fact been signed on 24 July and the 2nd Agreement was only signed on 19 November. There was also the signing of the Broad Agreement on 22 October.  Hence, this allegation of the defendant is inherently doubtful as the time of the making of the threats did not tally with the dates when the 1st and 2nd Agreements were executed.

93.  Mr Chen for the plaintiff also emphasised the absence of any evidence of the duress or threats against the defendant’s person.  There were many e-mails exchanged between the plaintiff and defendant from 2012 to 2014. The defendant had acknowledged his indebtedness to the plaintiff on many occasions. He had also repeatedly asked the plaintiff for time to pay.  But he had never mentioned any duress or threat.  He also did not mention that the plaintiff had threatened to disclose his business problems to his wife or her family.  He only referred to the plaintiff’s intimation of commencing legal proceedings against him as blackmail.  But such threat is absolutely legitimate.

94.  Regarding the defendant’s allegation of hostile circumstances in which the Broad Agreement was thrust before him and he was told to sign it but not given a copy afterwards, there was the e-mail dated 19 October 2012 from the plaintiff’s accountant attaching the unsigned Broad Agreement for his reference. The e-mail also advised him to go to the accountant’s office on 22 October at noon to sign it.  Hence, he was given ample time to consider the terms of the agreement before signing it.  This contradicted his case of the agreement being thrust before him in a hostile atmosphere and he was told to sign it there and then.

95.  The defendant alleged more or less the same circumstances in which he was told to sign the 2nd Agreement.  He also alleged that he was not given a copy of it after signing and had no chance to read what he had signed.

96.  However, there was the e-mail from the plaintiff to him dated 13 November 2012 in which the plaintiff had told him that the amount he owed the plaintiff was nearly HK$2,700,000.  Hence, he was aware that the plaintiff was seeking about HK$2,700,000 from him before he signed the 2nd Agreement.

97.  Furthermore, the numbers, dates and amounts of the three cheques that he gave the plaintiff pursuant to the 2nd Agreement had all been typed in clause 2.3 of the 2nd Agreement.  This is clear evidence of his participation in the preparation of the agreement and his willingness to pay the plaintiff HK$2,700,000 by the three cheques on specific dates.

98.  There was then an e-mail dated 20 November 2012 from the plaintiff’s accountant to him attaching a copy each of the 2nd Agreement, the documents for transfer of shares by the plaintiff to him and the three cheques that he had given the plaintiff.  Such evidence contradicts his case of execution of the 2nd Agreement under duress and undue influence or that he could not read it after he had signed it.

99.  There is thus no question that the plaintiff had forced him to execute documents in hostile circumstances without giving him a chance to read the documents beforehand and not giving him a copy of the same after signing. Such allegations by the defendant are absolutely unbelievable.

100.  I also repeat that the defendant had not complained about any duress or undue influence subsequently save and except the plaintiff’s intimation of legal proceedings which he on one occasion described as a blackmail by the plaintiff against him.

101.  Considering the contemporaneous documentary evidence adduced by the plaintiff and the bare allegations by the defendant, I find the defendant’s allegations of duress and undue influence in relation to his execution of the Broad Agreement and 2nd Agreement and his drawing of the three cheques unbelievable.

102.  Regarding the defendant’s assertion that the Broad Agreement and 2nd Agreement were English documents that had been thrust before him without forewarning and his mother tongue was French, I find that not only had he been given prior notice and opportunity to consider these documents before signing, he also had no difficulty in expressing himself fully and clearly in English and in handling documents composed in English as shown in the many e-mails he wrote. I also find that he was aware of and understood the contents of the Broad Agreement and 2nd Agreement before signing.

103.  I also find that the defendant was indebted to the plaintiff in the total sum of HK$2,700,000 as stated in the 2nd Agreement and he voluntarily signed the 2nd Agreement and delivered the three cheques to the plaintiff pursuant to the agreement.  The consideration for the cheques is the pre-existing indebtedness due from the defendant to the plaintiff.

Alleged settlement

104.  Regarding the defendant’s allegation that the Third and Fourth Debts totalling HK$2,700,000 and the liability in the three cheques were settled by an oral agreement that the defendant would transfer 22% of the Pampelonne shares to the plaintiff, the two e-mails exhibited by the plaintiff which were exchanged between the plaintiff and the defendant and dated 11 April 2013 are clear rebuttals of such allegation.  The e-mails show that the shares were transferred to the plaintiff as a guarantee for the defendant’s repayment of the debt to the plaintiff.

105.  Furthermore, the reply letter by the defendant’s solicitors dated 21 May 2014 to the plaintiff’s demand letter dated 25 April 2014 did not mention about the alleged settlement at all.  This makes the alleged settlement even more unbelievable.  I find that the alleged settlement is an untruth fabricated by the defendant after the plaintiff had applied for summary judgment against him.

The 1st and 2nd Agreements interlinked

106.  On Mr Tsang’s submission that the 1st and 2nd Agreements are the plaintiff’s construct to recover from the defendant monies that the plaintiff had advanced to the receiving companies and that the agreements are interlinked and should both be resolved at the trial, I consider that in the light of my analyses and findings above, there is no basis to defer the claim under the 2nd Agreement and the three cheques to the trial as the defendant has no defence to such claim.

Decision

107.  I therefore dismiss the defendant’s appeal against the summary judgment ordered by Master Chow on 27 February 2015.  I also make a costs order nisi that the defendant do pay the plaintiff the costs of the appeal.