CHEN K.F. KENETH v. CHOW WAI LAP, WILLIAM

HCA 1061/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1061 OF 2006

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Ruling on ORDER 14 APPLICATION

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1. This is an Order 14 application by the Plaintiff for judgment against the Defendant for the sum of HK$29,500,000 with interest and costs.

The Plaintiff’s Case

2. The Plaintiff averred in his Statement of Claim that in or about December 1995, the Defendant invited him to invest into a joint venture project.  The project was between Hubei Province Electricity Industrial Bureau and Global Team Investment Limited (“Global Team”), as pleaded in paragraph 1 of the Statement of Claim.  Paragraph 1 of the Statement of Claim was not denied by the Defendant, save that he added that he came to know the Plaintiff through the introduction of the Defendant’s brother H. L. Chan.

3. It is not disputed that the Defendant’s company C. William Trading Company Limited hold 10% shares in Global Team and thus hold 10% interest in the project.

4. Paragraph 3 of the Statement of Claim stated that by a written agreement between the Plaintiff of the one part, the Defendant and H. L. Chan of the other part (“the Agreement”), the Plaintiff agreed to buy and the Defendant with H. L. Chan agreed to sell to the Plaintiff 20% of the 10% interest in Global Team, namely 2% shares in Global Team, at the price of HK$30M.

5. A copy of the agreement was produced by the Plaintiff as “KC-3” and by the Defendant as “CWL-1”.  There is no dispute on the authenticity of this agreement, but the Defendant had a different interpretation of the contents, which I shall come to later.  I now set out the material clause in the agreement in Chinese –

“[被告人及H.L. Chan] 同意將 [C. William Trading Company Limited] 名下所佔 [Global Team Investment Limited] 之10%股益中的20%及其所產生這一切權益以港幣三仟萬圓的價格轉讓給 [Plaintiff].”

6. It is not disputed that the Plaintiff paid the sum of HK$30M.  The Plaintiff claimed that the Defendant failed to procure the transfer of the shares of Global Team to the Plaintiff.  The Defendant did not dispute that he had not procure the transfer of the shares.  But he stated that he only agreed to transfer the beneficial interest in the shares to the Plaintiff and not the share.  Counsel for the Defendant submitted that this is a serious issue in dispute and the case should proceed to trial.

7. Solicitor for the Plaintiff submitted that this is not the basis of the Plaintiff’s claim.  What the Plaintiff is claiming is based on a settlement agreement evidenced by the Defendant’s handwritten note (“the Settlement Agreement”).  Paragraph 6 of the Statement of Claim read –

“On or about 22^nd May 2000, the Defendant reached an agreement for repayment of the said purchase price with the Plaintiff (“the Settlement Agreement”) as contained in and evidenced by the Defendant’s handwritten note to the Plaintiff dated 22^nd May 2000.”

8. This note was produced by the Plaintiff as “KC-5” and the Defendant as “CWL-2”.  There is again no dispute that this note was written by the Defendant.

9. The note was addressed to the Plaintiff and the first paragraph read –

“此次因大陸投資失利，本人內心感到萬分抱歉並願負起一切責任，所牽涉的款項港幣叁仟萬元還款的方法如下﹕

2000/12/30            付不少於港元叁佰萬元

2001/12/30            付港元叁佰萬至伍佰萬元

2002/12/30            付港元叁佰萬至伍佰萬元

2003至2006          以此類推，付清餘數”

10. The Plaintiff claimed that the Defendant was in breach of the terms of the Settlement Agreement in failing to make full and punctual payment as set out therein.  The Defendant had only paid HK$500,000 and the balance remains unpaid.  Hence, the Plaintiff issued these proceedings to claim the balance, i.e. HK$29,500,000. 

11. In the affidavit, the Plaintiff also explained that he had demanded the Defendant for payment.  And in 2001, the Defendant in order to show his good intention to pay, issued 5 postdated cheques to him for the total sum of HK$10,000,000.  The first cheque had been honoured, representing the said repayment of HK$500,000.  The second cheque for HK$500,000 was dishonored upon presentation.  And he had not presented the other cheques for payment, as he did not believe the Defendant would honour the other cheques. 

12. It is not disputed that 4 cheques for the total of HK$9,500,000 (and the one honoured) were issued by the Defendant to the Plaintiff.

The Defendant’s case

13. It was stated in paragraphs 3 & 4 of the Defence that C. William Investment Company Limited was allotted 10% of the issued share capital of Global Team.  The Defendant had agreed to procure the transfer by C. William Investment Company Limited 20% of the beneficial interest of its share holding in Global Team to the Plaintiff. 

14. Defense counsel drew my attention to the wording of the Agreement and remarked that the subject matter is “股益” and not the shares of Global Team.  Hence, the Defendant was not in breach of the Agreement for not transferring the shares.  And the Defendant was not in breach of the Agreement in not transferring any beneficial interest to the Plaintiff, as there was nothing to transfer, because the joint venture was a complete failure.  As the Defendant was not in breach of the Agreement, there was no consideration for the Settlement Agreement.  To say the least, there must be an issue in dispute.

15. While the Defendant did not dispute the authenticity of the note, he sought to explain why he gave it.  It was the Defendant’s evidence that he gave the note to the Plaintiff, through P. L. Chan on the request of the Plaintiff.  The Plaintiff informed him, through P. L. Chan that the investment in the project belonged to him and his partners in Taiwan and his partners demanded him to account for the loss.  As the Plaintiff was then in financial difficulty, he asked the Defendant to write a note that he was willing to bear the loss.  He wrote the note for the Plaintiff to show to his partners.

16. And the Defendant also alleged that the said cheques given to the Plaintiff was not meant to be honoured.  He explained in his evidence that in 2001, H. L. Chan came back again and told the Defendant that the Plaintiff had not resolved his matter with his partners.  H. L. Chan requested the Defendant to issue some postdated cheques for the Plaintiff to show to his partners in Taiwan.  The Defendant then issued 11 cheques drawn to the order of the Plaintiff.  He gave them to  P. L. Chan who was to pass them to the Plaintiff and he gave P. L. Chan specific instructions to tell the Plaintiff that those cheques should never be cashed in.

17. A few months later, the Plaintiff visited the Defendant personally and informed the Defendant that his partners were of the view that the payment was too small and took too long to settle.  The Defendant replaced 9 cheques with 3 cheques as produced by the Plaintiff as “KC-6”.  He urged the Plaintiff to abide by his agreement of not cashing in the cheques.

18. Subsequently, the Plaintiff asked him for loan and he agreed to allow the Plaintiff to cash in the first cheque for HK$500,000.  It was a loan and he would counterclaim the same herein.

19. In summary, what the Defendant is now saying is that the note and the cheques are all documents made up for the Plaintiff to satisfy his Taiwan partners.  They are not true.  It is noted that this is a new line of defence raised and the defence as pleaded is different.

20. In the Defence, the Defendant denied the paragraphs in the Statement of Claim on the Settlement Agreement.  The Defendant stated in paragraph 7 of his Defence, as an alternative to denial, that such proposal for settlement (represented by the said note) were made in the course of negotiation and on the without prejudice basis.  No agreement had been reached between the Plaintiff and the Defendant. 

21. And still further in the alternative, the Defendant pleaded in paragraph 8 of his Defence that after some negotiation in 2002, the Plaintiff agreed to accept in full and final settlement a sum of HK$500,000 to be paid by the Defendant which he did pay on 31^st March 2002, by the cheque payment of HK$500,000 mentioned above.

22. The Defendant had not explained in his affirmation for why he made this mistake in pleading his Defence.

The Guiding Law on Order 14

23. The burden is upon the Defendant to satisfy the Court that an arguable defence has been demonstrated on the evidence.  The mere assertion of a defence on affidavit evidence does not of itself give rise to unconditional leave to defend.

24. I remind myself of the ruling of Mr. Justice Bokhary JA. (as he then was) in Re Safe Rich Industries Ltd[1994] H.K.L.Y.183 –

“The test at the summary stage is indeed as simple as whether the defendant’s assertions are believable.  But it must be recognized - because failure to recognize it would create a debt-dodger’s charter - that whether the defendant’ assertion are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.”

25. I also remain myself that I should not embark on a trial on affidavit.

My Ruling

26. The Plaintiff’s case is simple and straightforward.  He relied on the Settlement Agreement, which was supported by the written note of the Defendant.  The Defendant never challenged the authenticity of the notes. 

27. The Defendant’s primary defence was that the note was not meant to have any legal effect.  It was only for the Plaintiff to show to his partner.  What the Defendant is asking the Court to believe is that he gave a false statement with the intention to assist the Plaintiff to default his partner.  Having considered his affirmation, it is clear that the Defendant was an experienced businessman.  It is unbelievable that he would assist the Plaintiff to default his partner, and more that he would expose himself to liability of HK$30M.  Such assertion is just unbelievable.

28. Further, it is the averment of the Defendant in his Defence that the note was given in the cause of a negotiation.  There is no suggestion that this note is meant to be false statement.  And indeed, the Defendant avers that HK$500,000 had been paid to the Plaintiff pursuant to such agreement.  This part of the Defence had not been amended, and the Defendant had not explained in his affirmation why he made this averment that he now claims to be wrong.  This is clearly in conflict with his new line of defence. 

29. And looking at the note, that there is no suggestion on the note that it is a without prejudice negotiation.  If it was an offer, it must be for the Plaintiff to accept, which was confirmed by the Plaintiff in his affirmation.  Then there is no defence to the Plaintiff’s claim on the Settlement Agreement.

30. Further, the Defendant had issued cheques in the total of HK$10,000,000 to the Plaintiff.  The Plaintiff said they were in part settlement of the terms of payment.

31. The Defendant said in his affirmation that the cheques were issued on the understanding that the Plaintiff should not present them for payment and was for the Plaintiff to show to his partner.  Subsequently, the Plaintiff requested him to help him out on cash flow and therefore the first cheque for HK$500,000 was cashed.  It was a loan to the Plaintiff.

32. Cheque is as good as money.  It is difficult to believe the Defendant was prepared to issue cheques to the Plaintiff.  There was no written agreement on the allegation that the cheques would not be honoured.  He was handing out cash.  It is unbelievable that the Defendant would put himself at such risk.  And more, it is unbelievable that he would forget to claim the loan when he prepared his Defence.  Further, as noted above, he contended that this was a payment to the Plaintiff in settlement of all claims between him and the Plaintiff.  The Defendant’s Defence is just unbelievable.

33. Counsel for the Defendant raised a legal point that there is a serious matter for trial on whether there is consideration for the Settlement Agreement as I have set out above.  He submitted that if there were a triable issue on whether the Defendant were in breach of the Agreement, there would be a triable issue on whether the Settlement Agreement was supported by consideration.

34. The Agreement is an agreement to transfer.  Even on the case of the Defendant’s interpretation, he agreed to transfer the beneficial interest to the Plaintiff.  But there is no overt act or conduct of transfer alleged by the Defendant.  It must be on the Defendant to prove that he had complied with the terms of the Agreement.

35. The main argument of the Defense counsel was that there was no beneficial interest for transfer.  But the Defendant had not notified the Plaintiff directly of the loss.  He only stated in paragraphs 11 to 12 of his affirmation that the Plaintiff told P. L. Chan that he accepted the loss.  P. L. Chan had not given an affirmation.  The suggestion that the Plaintiff accepted the loss is hearsay and bears little weight.  And further, there is no evidence that the project is a complete loss.

36. The allegation of a complete loss is a bare allegation and hence the argument that there is no beneficial interest transferable is moonshine.  This is unbelievable and I therefore rule that there is no substance in the legal argument of Defense counsel.

37. The third line of defence was a full and final settlement reached.  This had been abandoned by the Defendant.  I therefore make no further reference to this ground of defence.  Suffice for me to say that this line of defence is in direct conflict of the new line of defence.

38. I do not consider there are any other grounds for refusing the O.14 judgment.  There be judgment to the Plaintiff for HK$29,500,000 with interest thereon at judgment rate from the date of writ until payment.  I also give an order nisi that the Plaintiff do have costs of this action including this application to be taxed if not agreed, such order to be made absolute within 14 days.