Heraeus Ltd v. Chan Yun Mui and Another

HCA 878/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 878 OF 2011

________________________

________________________

Before: Deputy High Court Judge Douglas Lam SC in Chambers

Date of Hearing: 23 March 2017

Date of Decision: 23 March 2017

Date of Reasons for Decision: 12 April 2017

________________________

REASONS FOR DECISION

________________________

A. Introduction

1.By a notice of appeal to Judge in Chambers dated 22 December 2016, the 1^st defendant appealed from the decision of Mr Registrar K W Lung dated 9 December 2016 dismissing her application for leave to amend her re-amended defence and counterclaim.

2.By summons dated 2 March 2017, the 1^st defendant sought leave to adduce new evidence for the purpose of this appeal in the form of the respective affirmations of Chu Kwok Hung Thomas (“Thomas”) and Leung Wai Yee Betsy (“Betsy”), both dated 6 February 2017.

3.On 23 March 2017, after hearing submissions from counsel for both parties, I dismissed both the leave summons and the appeal with costs to the plaintiff to be assessed on a gross sum basis.  I indicated that I would hand down the reasons in writing in due course, which I now do.

4.I adopt with some minor supplementation the background set out in the decision of the Registrar.

5.By a writ indorsed with statement of claim issued on 25 May 2011, the plaintiff, a supplier of precious metal products, claimed inter alia against the 1^st defendant under a written guarantee dated 12 November 2002 (the “Guarantee”) in respect of alleged liabilities of Sing Kwong Jewellery & Gold Company Limited (“Sing Kwong”) to the plaintiff.

6.The alleged liabilities as at 11 May 2011 amounted to HK$8,321,486.94 (the “said Sum”).  Particulars of invoices and other documents evidencing the transactions totalling the said Sum were set out in paragraph 4 of the statement of claim (as amended on 4 August 2014, although no amendment was made to the transactions or the said Sum).

7.The 1^st defendant’s original defence and counterclaim was dated 10 August 2011 and settled by counsel.  It was amended by a different counsel on 3 December 2014, and then re-amended by the 1^st defendant’s solicitors on 21 January 2015.  The 2^nd defendant is separately represented in this action and has filed his own defence and counterclaim.

8.By her defence and counterclaim (and in her affirmation evidence), the 1^st defendant does not dispute that:

(1) She and her husband, the 2^nd defendant, were at all material times the directors and ultimate beneficial shareholders of Sing Kwong.

(2) Since the early 1990’s, the plaintiff supplied precious metal products, and later, precious metal cyanide metal compounds, to Sing Kwong on various credit terms.

(3) The trading volume between Sing Kwong and the plaintiff increased substantially over time, reaching at its height millions of Hong Kong dollars per day.  The amount of credit extended by the plaintiff to Sing Kwong correspondingly increased over time.

(4) Beginning in 1999, the 1^st and 2^nd defendants signed a number of personal guarantees securing the credit extended by the plaintiff to Sing Kwong, the latest being the Guarantee signed by her and a guarantee on similar terms signed by the 2^nd defendant on the same date.

(5) Sing Kwong was wound up by an order of the court on 1 December 2008 and placed into insolvent liquidation.

9.The 1^st defendant disputes her liability under the Guarantee on the grounds that:

(1) There was a collateral contract, collateral warranty or a composite agreement between the plaintiff and the 1^st defendant and that the 1^st defendant’s liability under the Guarantee was to be confined and limited to such part of the liabilities of Sing Kwong to the plaintiff which were in excess of HK$20 million, with the 1^st defendant’s liability to the plaintiff thereunder being limited to HK$10 million;

(2) The 1^st defendant was induced by the plaintiff’s misrepresentation, and the 1^st defendant is entitled to and does claim rescission of the Guarantee; and/or

(3) The plaintiff is now estopped from contradicting its representation by claiming against the 1^st defendant on the Guarantee.

10.The 1^st defendant admitted in paragraph 20 of her original defence and counterclaim the amount alleged to be owed by Sing Kwong to the plaintiff.  This admission was maintained through successive versions of the document until 8 April 2016, when the 1^st defendant applied for leave by summons to re-re-amend paragraph 20 as follows:

“Save that it is admitted that the invoices referred to in paragraph 4 of the Statement of Claim were issued to Sing Kwong for the cyanide compounds delivered to Sing Kwong on the dates stated therein total outstanding liabilities of Sing Kwong to the Plaintiff amounts to not more than HK$8,321,486.94, paragraph 4 of the Statement of Claim is not admitted denied. It is averred that the outstanding amounts due to the Plaintiff, if any, can only be calculated after reconciling the “cash account” between the Plaintiff and Sing Kwong with the amount of gold and other precious metal bars or bullions delivered to Sing Kwong (for which the price had not been fixed at the time of delivery) in the “metal account” between the Plaintiff and Sing Kwong.”

11.Although the phrase “not more than” was slightly awkward, it is tolerably clear that the original plea amounted to an admission that Sing Kwong was indebted to the plaintiff for the said Sum (but not more).  On the other hand, the proposed amendment admits only that invoices totalling the said Sum were issued to Sing Kwong, and seeks to challenge Sing Kwong’s indebtedness on the grounds that the true extent of its liability could only be ascertained upon the reconciliation of so-called “cash” and “metal” accounts.

12.As mentioned above, by a decision dated 9 December 2016, the Registrar dismissed the amendment application.

B.   Leave to Adduce New Evidence on Appeal

13.RHC Order 58 rule 1(5) provides that no further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal to a judge in chambers except on special grounds.

14.As mentioned above, the new evidence sought to be adduced consisted of the respective affirmations of Thomas and Betsy.  The two affirmations had in fact been filed by the 2^nd defendant in support of his application for non-party discovery against HSBC for records of Sing Kwong’s account with the bank.  Betsy’s affirmation was also filed in support of the 2^nd defendant’s summons dated 6 February 2017 to amend his re-amended defence and counterclaim on similar terms as the 1^st defendant’s application and this appeal.

15.The 1^st defendant’s application to adduce the two affirmations was supported by her 4^th affirmation dated 1 March 2017.  The substance of the new evidence and the circumstances in which she sought leave may be summarised as follows:

(1) Thomas is the 1^st and 2^nd defendants’ son, and was apparently involved in the management of Sing Kwong in the periods from 1991 to 1998 and from 2004 to its winding up in 2008.  He was therefore familiar with the company’s business model and operations.

(2) According to Thomas, he had little involvement in assisting his parents in these proceedings until he was recently approached by the 2^nd defendant’s solicitors in December 2016, after the Registrar had dismissed the 1^st defendant’s application to amend her defence and counterclaim.  After learning of the status of the proceedings, he urged members of the family and ex-employees to search for any documents relating to the case and which might assist in rebutting the amount of Sing Kwong’s alleged debt to the plaintiff.

(3) As a result, Betsy, who is married to Thomas’ brother, Eric, and who worked at Sing Kwong as Eric’s secretary, searched through her belongings.  Around the second week of January 2017, she found a hardcover notebook which she had kept during her time at the company to record outgoing cheque payments (the “Payment Logbook”).  As it was a long time ago, she had completely forgotten that she still had the Payment Logbook. Betsy had compiled the Payment Logbook which systematically recorded outgoing payments of the company, including the names of the payees, the amounts, cheque numbers and dates, as well as any cancelled or recalled cheques.

(4) The Payment Logbook showed that during the period from 30 April 2006 to 21 February 2007, the company had made payments to the plaintiff by cheques drawn on the company’s account with HSBC totalling some HK$6,708,437.29, with respective dates, amounts of the cheques and cheque numbers.

(5) Thomas also stated in his affirmation that he was told by the 2^nd defendant that, in 2009, after the company was wound up, two of the plaintiff’s staff, “a Mr Lee and a Mr Chan”, told the 2^nd defendant that he had repaid the plaintiff HK$1.5 million on behalf of Sing Kwong.  Thomas then reasoned that if the sum of HK$6,708,437.29 were added to the sum of HK$1.5 million, that would amount to over HK$7,925,225.66 having been repaid to the plaintiff in that period alone.  It is suggested therefore that the evidence showed that the alleged indebtedness owed by Sing Kwong to the plaintiff (excluding interest, which would not arise) had been extinguished.

(6) In her affirmation, Betsy corroborated Thomas’ account of the circumstances in which the Payment Logbook was created and its recent discovery.

16.Although the affirmations of Thomas and Betsy only came into existence on 6 February 2017, the evidence was plainly not as to matters which occurred only after the Registrar’s decision on 9 December 2016. The burden thus falls upon the 1^st defendant to demonstrate special grounds as to why the evidence should be admitted on appeal.  Both parties agree that the meaning of special grounds is that the evidence must satisfy the conditions laid down in Ladd v Marshall, namely, that:

(1) The evidence could not have been obtained with reasonable diligence for use at the hearing below;

(2) The evidence must be such that, if given, would probably have an important influence on the result of the case, though it need not be decisive; and

(3) The evidence must be such as is presumably to be believed.

17.In respect of the Payment Logbook, the 1^st defendant contends that the first condition is satisfied as she could not have known of its existence prior to Betsy’s search and discovery of its existence in January 2017.  There is no explanation, however, why no attempt was apparently made by the 1^st defendant to ask her sons and her daughter-in-law, all of whom were involved together with her in the management of Sing Kwong, to conduct an earlier search for records of the company.  The action was commenced in May 2011, and discovery and exchange of witness had long been completed.

18.More important, however, is the nature of the evidence contained in the Payment Logbook — that is, evidence of payments which had been made by Sing Kwong to the plaintiff in the relevant period.  The Payment Logbook, being Betsy’s own personal record, is only secondary evidence of such payments having been made.

19.Whilst the 1^st defendant may no longer be in possession of the primary records, namely, the bank records of such transactions, after Sing Kwong was wound up, there is nothing to suggest that such records could not have been obtained from HSBC or the liquidators.  Indeed, in her 4^th affirmation, the 1^st defendant indicated that HSBC informed the 2^nd defendant in response to his application that it had no objection to providing the records.  No explanation, however, has been provided as to why she or the 2^nd defendant made no attempt to seek such records earlier or why they could not have obtained them with reasonable diligence prior to the hearing before the Registrar.

20.I was not satisfied, therefore, that the first condition had been met.  

21.As to the second condition, I was also not satisfied that the evidence would probably have had an important influence on the result of her amendment application.  As mentioned above, the Payment Logbook recorded outgoing payments of the company, including the the names of the payees, the amounts, the cheque numbers and the dates.  However, no explanation is recorded as to the purpose of such payments, or to which invoice or transaction each payment is related.

22.Hence, the entries in the Payment Logbook, even assuming their accuracy, are of little if any probative value in showing that the alleged indebtedness arising from the transactions pleaded in the statement of claim have, contrary to the plaintiff’s case, been extinguished.  In any event, the Payment Logbook covered only part of the period of the transactions in the statement of claim.

23.At the highest, the Payment Logbook purports to show certain payments having been made to the plaintiff in the relevant period. It is possible that such payments related to other transactions between them not appearing in the statement of claim.  On the 1^st defendant’s own evidence, the daily turnover between Sing Kwong and the plaintiff was at its height very substantial.

24.Finally, the Payment Logbook would have little impact on the case now sought to be advanced by the 1^st defendant in the light of the conclusive evidence clause in the Guarantee discussed below.

25.As the first two conditions have not been satisfied, it is unnecessary to consider whether the Payment Logbook is such as presumably to be believed.

26.As to Thomas’ evidence concerning the 2^nd defendant’s alleged payment of HK$1.5 million, neither Thomas nor the 1^st defendant indicated when he or she first learned of this alleged incident.  In any event, there is no evidence on this issue from the 2^nd defendant, no particulars given as to the identities of “Mr Lee” and “Mr Chan”, and the evidence is vague and unsubstantiated.  I attach no weight to this aspect of Thomas’ affirmation, which Ms Lorinda Lau, counsel for the 1^st defendant, fairly did not press.

C.   Principles on Withdrawal of Admission

27.The principles concerning the withdrawal of an admission were recently considered by the Court of Appeal in Lo Li Li Lily v Liu Fung He [2016] 2 HKLRD 1460.  The approach in Hong Kong after the Civil Justice Reform follows the modern position in England.

28.In exercising its discretion, the court will consider all the circumstances of the case and seek to give effect to the underlying objectives, in particular, in RHC Order 1A rule 1(a) to (d) and (f).  Amongst the matters to be considered will be:

(1) the reasons and justification for the application, which must be made in good faith. A powerful factor in this regard will be whether there is a convincing and credible explanation of the circumstances in which the admission was made.

(2) the balance of prejudice to the parties.

(3) whether any party has been the author of any prejudice they may suffer.

(4) the prospects of success of any issue arising from the withdrawal of an admission.

(5) the public interest, in avoiding where possible satellite litigation, disproportionate use of court resources and the impact of any strategic manoeuvring.

29.The nearer any application is to a final hearing the less chance of success it will have even if the party making the application can establish clear prejudice.  This may be decisive if the application is shortly before the hearing.

30.Above all, the exercise of any discretion will always depend on the facts of the particular case before the court. The words “will consider all the circumstances of the case” have particular resonance in this context.

D.   Discussion

31.The 1^st defendant was at all material times one of the two ultimate beneficial owners and a director of Sing Kwong until it was wound up in December 2008.  On her own evidence, after 2005, most of Sing Kwong’s staff were laid off, leaving her alone to handle all matters relating to Sing Kwong.

32.In the latter half of 2007, the 1^st defendant was closely involved in negotiations with the plaintiff concerning Sing Kwong’s outstanding indebtedness, as evidenced by the following correspondence:

(1) By an undated letter signed by the 1^st defendant on behalf of Sing Kwong and likely to have been sent shortly before 13 July 2007, she stated inter alia that:

“I am writing to follow up on our meeting last Friday regarding the issues of our old and overdue payments (approx. HK$7.5 million and $0.58 million respectively); and any proposal that [the plaintiff], with our over ten years of long standing business relations, could support Sing Kwong on its journey to restructuring and rebuilding the business.”

The 1^st defendant then proposed a repayment schedule by way of monthly instalments and further credit from the plaintiff.

(2) By a letter in reply dated 13 July 2007, the plaintiff rejected Sing Kwong’s proposal and counter-proposed terms;

(3) By a letter dated 24 July 2007 and signed by the 1^st defendant, she stated that Sing Kwong would do its best to meet some of the terms in the plaintiff’s counter-proposal and further indicated that it was considering offering a flat in Tuen Mun as collateral for the further credit.  The caption of the letter was “Re: Outstanding Amounts HK$8,051,169.72 since April 2006”;

(4) On 7 September 2007, the plaintiff’s then solicitors wrote to Sing Kwong (for the 1^st defendant’s attention) stating that Sing Kwong had failed to make the previously agreed instalments and demanded repayment of HK$7,930,610.38, being the outstanding balance as at 31 August 2007;

(5) By a facsimile letter signed by the 1^st defendant and sent on 10 October 2007, she apologised for Sing Kwong’s failure to abide by the repayment plan and offered a further proposal for repayment.  The caption of the letter was “Re: Outstanding Amounts HK$7,930,610.38 since April 2006”;

(6) By a facsimile letter in Chinese signed by the 1^st defendant and sent on 7 November 2007, she acknowledged that some HK$7 million odd remained outstanding to the plaintiff, “…至今虧欠貴司的信貸額已減至港幣七百餘萬” and sought further indulgence from the plaintiff.

33.As mentioned above, the statement of claim contained a list of the transactions totalling the said Sum, ie HK$8,321,486.94.  Leaving aside the last item of HK$396,261.28, which can be seen from an invoice dated 1 August 2010 to be overdue interest accruing from 1 September 2007 to 30 November 2008, the totals claimed by the plaintiff in respect of transactions up to July and September 2007 respectively are close to the figures admitted to have been due in the correspondence on those dates (in the region of some HK$8 million).

34.In her 2^nd affirmation dated 22 September 2016, the 1^st defendant explained the reasons and justification for her application, which may be summarised as follows:

(1) At the time her defence was prepared, she was not in possession of any documents concerning the amount owed by Sing Kwong due to the fact that Sing Kwong had been wound up on 1 December 2008.  She was therefore unable to provide to her legal advisers any documents in relation to the amounts claimed by the plaintiff.

(2) She also believed that she could not positively challenge the amount owed as the plaintiff had all the documents and that the amount of indebtedness was a matter between the plaintiff and Sing Kwong’s liquidators.

(3) Paragraph 20 of the Defence was “…not meant… to be an admission of the claim amount of HK$8,321,486.94”.  She believed that the plaintiff had the burden of proving the sum and “paragraph 20 of the defence was drafted in such a way that the total outstanding liabilities of Sing Kwong could be anything from HK$0.00 to HK$8,321,486.94 such that [she] could challenge the actual amount by any documents disclosed in these proceedings in due course”.

(4) After the exchange of witness statements in June 2014, she saw a table attached to the witness statement of one Poon Dick Wah, the plaintiff’s product manager at the time, setting out for each month the accounts receivable balance from Sing Kwong in the period from December 1995 to December 2010.  For some months, the accounts receivable balance was stated to be negative due to the fact that Sing Kwong had paid for goods delivered but had not yet fixed the final price for the goods.

(5) Upon seeing the table, the 1^st defendant realised that “the account summary was not correct and was misleading as it only showed the cash position but not the amount of precious metal delivered to Sing Kwong by the plaintiff.” On 9 January 2015, she filed a supplemental witness statement where she sought to explain that inter alia:

“The column of “AR outstanding” in the account summary only describes the cash position. In fact, the account summary does not show the amount of precious metal delivered to Sing Kwong by the Plaintiff. Consistent with market practice, if the price of gold went up, Sing Kwong would not fix the price of precious metals delivered by the Plaintiff at the time of delivery and so [a] large credit balance appeared in the account summary. On the other hand, if the price of gold went down, Sing Kwong would fix the price beforehand, resulting in a debit balance in the column of “AR outstanding”. Therefore, the account summary misrepresented the outstanding account of Sing Kwong at the time stated. A correct account should show the amount of gold delivered to Sing Kwong… Correct amount outstanding can only be calculated by reference to the amount of metal delivered and the cash received.”

(6) In January 2015, her solicitors also sought specific discovery from the plaintiff for “metal account” documents, including accounts, ledgers, notes or other records of the precious metal delivered to Sing Kwong.  The plaintiff provided the documents on 18 November 2015 pursuant to a consent order dated 16 October 2015.

(7) Only upon disclosure of the plaintiff’s metal account documents was she able challenge the said Sum on the basis that the true accounting relationship between Sing Kwong and the plaintiff would involve reconciling the “cash account” and the “metal account”.

(8) Further, “from the invoices referred to in paragraph 4 of the statement of claim… it can be seen that they include finance charges without showing the basis of such charge, including the relevant rate and the time period”.

35.As I have noted above, the plaintiff’s case as pleaded in the statement of claim is not based upon a simple accounts receivable balance, but upon specific transactions totalling the said Sum. Presumably (although it is not entirely clear from her evidence), it is the 1^st defendant’s case that the sums claimed by the plaintiff for those transactions may also be inaccurate due to potential disputes as to the proper dates on which the metals delivered should have been valued.

36.I am not persuaded that a credible or convincing explanation has been given for the admission in paragraph 20 of the 1^st defendant’s defence and counterclaim.

37.As mentioned above, the 1^st defendant was not only one of the ultimate beneficial owners of Sing Kwong, but was also closely involved in the management of the company as a director.  As can be seen from the correspondence, she was involved in both face to face meetings and negotiations by correspondence with the plaintiff in relation to the company’s indebtedness.

38.The 1^st defendant said that she is unable to read English. However, given that she personally signed the letters from Sing Kwong, it is hardly be open to her to argue that she was incognisant of their contents.  In any event, as mentioned above, the facsimile letter sent on 7 November 2007 was written in Chinese.

39.These negotiations took place in the latter half of 2007, over a year before Sing Kwong was wound up, and there is nothing to suggest that 1^st defendant did not at the time have access to the company’s accounts and records.  Indeed, it would be highly improbable for her to have conducted those negotiations without verifying the amount claimed by the plaintiff with the company’s own records.

40.In her 3^rd affirmation dated 21 November 2016, the 1^st defendant sought to explain her admissions of Sing Kwong’s indebtedness in the correspondence.  In short, it was suggested that as the company required the plaintiff to continue providing credit for its business, although she was aware that the claimed indebtedness was not correct, she did not “positively challenge” the plaintiff at the time.  Suffice it to say that I do not find that assertion credible.

41.The 1^st defendant has been legally advised since the commencement of these proceedings, and her defence and counterclaim has already undergone two revisions settled by two different counsel.  The admission in paragraph 20 of her defence and counterclaim, which has been maintained from the original defence and counterclaim, was plainly intentional and consistent with her stance in the earlier negotiations.

42.Moreover, given the 1^st defendant’s close involvement in Sing Kwong’s management, she would have been well aware all along that precious metals delivered to Sing Kwong may not have been valued on the delivery date.  Indeed, on her own evidence, this was “market practice”.  If such practice did in fact impact upon the amount owed to the plaintiff, this is a matter that she would have known of long ago and certainly by the time she filed her original defence and counterclaim.

43.In any event, whilst the 1^st defendant complains that she had no access to Sing Kwong’s documents after the winding up, there is no suggestion of any attempt or effort made to obtain copies of such documents from Sing Kwong’s liquidators.  To the contrary, in a letter from Sing Kwong’s liquidators to the plaintiff’s solicitors dated 17 October 2016, there would appear to be a lack of cooperation from Sing Kwong’s directors in the liquidation.

44.I also have no hesitation in rejecting her explanation that at the time of her defence and counterclaim, she did not believe it was open to her to challenge the amount owed by Sing Kwong, or that paragraph 20 was not intended to be an admission.  I did not understand Ms Lau to have pressed this point in her submissions.

45.More importantly, I also have strong doubts as to the prospects of success in the case that the 1^st defendant now seeks to advance by the proposed amendment to paragraph 20 of the defence and counterclaim.

46.The plaintiff has made clear that if the proposed amendment were allowed, it would plead and rely upon clause 2.02 of the Guarantee, which provides as follows:

“Any statement of account purporting to show an amount due from [Sing Kwong] or from [the 1^st defendant] under this Guarantee and signed as correct by a duly authorised officer of [the plaintiff] shall, in the absence of manifest error, be conclusive evidence of the amount so due.”

47.The plaintiff submits that any one of the following documents could amount to a “statement of account” within the meaning of the clause and is therefore binding on the 1^st defendant: (1) the writ of summons issued on 25 May 2011 annexed with statement of claim; (2) the amended statement of claim dated 4 August 2014; or (3) the witness statement of Kupka Uve dated 9 June 2014 verifying the amount of indebtedness and particulars in the statement of claim.

48.The validity of conclusive evidence clauses such as clause 2.02 is well established in Hong Kong and other common law jurisdictions. The authorities were recently reviewed by DHCJ Le Pichon in Ho Ming Pui Andy v Midland Realty (Strategic) Limited (unreported) HCA 1699/2012, 30 May 2016 at §§18 to 25.

49.Ms Lau did not dispute these principles or the validity of clause 2.02.  She reminded the court, however, of the caution expressed by Chow J in an earlier decision in Ho Ming Pui Andy (unreported) HCA 1699/2012, 6 August 2014 at §20 that:

“…a conclusive evidence clause may operate in a draconian way… I consider that before [a party] can rely on a conclusive evidence clause of this nature, [the party] must show, fairly and squarely, that all the condition precedents for triggering the operation of the clause has been satisfied.”

50.Ms Lau’s response to clause 2.02 is, in summary, that:

(1) First, the plaintiff did not plead that it was relying upon clause 2.02 in its amended statement of claim;

(2) Second, the plaintiff did not provide a valid “statement of account” within the meaning of the clause; and

(3) Third, even if such a statement had been provided, there were manifest errors sufficient to vitiate the clause.

51.As to the argument that clause 2.02 had not been pleaded in the amended statement of claim, there is nothing to the point. The plaintiff’s cause of action in the present case is the 1^st defendant’s breach of her obligations under the Guarantee.  Clause 2.02 is not a necessary ingredient to the plaintiff’s cause of action.  Rather, it is a plea to be raised in reply to any non-admission or denial of the amount of indebtedness by the 1^st defendant.  In the present case, until the amendment application, the amount of indebtedness had of course been admitted.  Now that the 1^st defendant seeks to resile from such an admission, and the conclusive evidence clause having been raised by the plaintiff, it is necessary for her to demonstrate that there is at least a serious prospect of overcoming it.

52.Ms Lau submits, however, that (1) the statement of claim (which I shall mean to refer to both the statement of claim indorsed to the writ as well as the amended statement of claim) was not a valid statement of account as it post-dated[1] the commencement of the action, and (2) in any event, it fails to inform the defendants of the amount of the principal and interest.

53.Clause 2.02 does not specify when the statement needs to be issued or served on the guarantor.  As I pointed out to Ms Lau at the hearing, the statement of claim indorsed on the writ was in fact dated 20 May 2011 with the statement of truth signed by one Adam Chu, the plaintiff’s financial controller, on the same date.  The writ was not issued until 5 days later on 25 May 2011.  Hence, on the facts of the present case (perhaps by accident rather than by design), the statement of account in the form of the original statement of claim plainly pre-dated the action.

54.In any event, there is nothing in clause 2.02 or the Guarantee to the effect that the issue of the statement of account is a condition precedent to liability under the Guarantee.  There is in principle no reason why such a statement could not be issued after the commencement of proceedings and be binding pursuant to clause 2.02, provided that liability for the said Sum arose prior to the date of issue of the writ.

55.For instance, in Chong Hing Bank Limited v Perfecta Dyeing, Printing & Weaving Works Limited & Ors (unreported) HCA 956/2008, 5 February 2009 at §§15 to 17, DHCJ Carlson accepted that an affirmation filed by a bank officer setting out the amount due in support of a summary judgment application was sufficient to constitute a “statement of amount owing” for the purpose of the conclusive evidence clause in that case. See also e.g. Bank of Credit and Commerce Hong Kong Limited (In Liquidation) v Asian Winner Limited & Anor (unreported) HCCL 7/1997, 3 January 2001.

56.As to Ms Lau’s submission that the statement of claim did not inform the defendants of the principal and interest, there is nothing in clause 2.02 stipulating any such requirement or indeed the form of the statement of account.  The statement of claim sets out the individual transactions giving rise to the said Sum.  It is not in dispute that some of these items are interest or finance charges.  Although it cannot be seen from the statement of claim the manner in which the interest is calculated, I am satisfied that it is sufficient on its face to constitute a statement of account within the meaning of clause 2.02.

57.As mentioned above, the statement of truth for the original statement of claim indorsed on the writ was signed by the plaintiff’s financial controller.  The statement of truth for the amended statement of claim was signed by one Jack Lu, a director of the plaintiff.  There can be no serious dispute that both were duly authorised officers of the plaintiff.  I reject Ms Lau’s suggestion that the statement of account must be signed by “someone from the plaintiff preferably from the account department or sales department who deals with Sing Kwong”.  There is plainly no such requirement in clause 2.02.

58.The conditions for triggering the operation of the clause have thus been satisfied.  In the circumstances, in the absence of manifest error or any other vitiating circumstances, the amount of the said Sum as stated must be conclusive against the 1^st defendant.

59.The 1^st defendant contends, however, that the statement of claim does contain manifest errors.  In support of her submission, Ms Lau annexed to her skeleton argument two spreadsheets which seek to show that:

(1) The basis and calculations of the interest or finance charges, being some of the items claimed in the statement of claim, were unclear or unexplained in the invoices issued by the plaintiff.

(2) In the month of June 2006, there were purchases amounting to HK$2,696,085, whereas the accounts receivable for the months of June and July 2006 showed a decrease of HK$271,149.

(3) For the month of May 2006, there was a finance charge of HK$46,303.30, when the price of goods purchased was HK$912,049. It is said therefore that the interest charged was 5.1% per month or an effective rate of over 60% per annum, which would render the facility unenforceable under section 24 of the Money Lenders Ordinance (Cap 163) (the “MLO”).

60.In my view, neither of the matters complained of in (1) and (2) shows a manifest error.  A manifest error is an error which is plain, or at least easily demonstrable without extensive investigation (see eg North Shore Ventures Ltd v Anstead Holdings Inc [2011] 2 All ER (Comm) 1024 at §51). Indeed, the purpose of clause 2.02 is to avoid precisely such complaints.  As the High Court of Australia held in Dobbs v National Bank of Australasia 53 CLR 643 at 651:

“…the manifest object of the clause was to provide a ready means of establishing the existence and amount of the guaranteed debt and avoiding an inquiry upon legal evidence into the debits going to make up the indebtedness. The clause means what it says, that a certificate of the balance due to the Bank by the customer shall be conclusive evidence of his indebtedness to the Bank.”

61.In respect of the unclear or unexplained finance charges, the 1^st defendant is unable to point to any obvious errors on the face of the statement of claim (or indeed the invoices referred to therein).  There is no complaint that the amounts in the statement of claim do not correlate with the amounts in the invoices (they do), or that there is any arithmetical error.  Rather, the complaint is that neither the invoices nor the statement of claim set out the calculations for the amount of the interest being charged, such as the rate of interest, interest period or the amount of the principal debt upon which interest was being charged.  That is not a manifest error.

62.There appears in any event to be a disconnect between the proposed amendment to the defence and counterclaim and the case now sought to be advanced to overcome clause 2.02.  There is no mention of any wrongful charging or overcharging of interest in the amendment summons, nor has any draft amendment been placed before the Registrar or this court containing such a plea.  Rather, the case advanced in the proposed amended pleadings is that the true amount of indebtedness can only be shown upon a reconciliation between the “cash” and “metal” accounts.  Even in her evidence (whether in the affirmations before the registrar or those which she sought to file in this appeal), the 1^st defendant has advanced no positive case that no interest was chargeable by the plaintiff for the credit facilities extended to Sing Kwong[2] or that the finance charges claimed were manifestly wrong.  The complaint, rather, is merely that the basis for the amounts charged is unclear.

63.The present case is thus distinguishable from North Shore Ventures upon which the 1^st defendant sought to rely.  In that case, the court accepted the guarantor’s case that there had been a variation of the loan agreement with the effect of reducing the amount of interest due under the agreement, but such variation was plainly not reflected in the certificate of the amount of the indebtedness issued by the lender.  The English court of appeal held that this amounted to a manifest error, even if such error would not have been manifest at the time of the certificate.  Here, there is no case advanced that no finance charges were payable or that the finance charges were manifestly wrong: that is not the basis upon which the said Sum is sought to be challenged.

64.Finally, whilst illegality of the indebtedness may constitute a valid challenge to a conclusive evidence clause (see eg Dobbs at 651), again, the proposed amendment makes no mention of illegality or reference to the MLO.  In any event, there is scant evidence to support such an argument.  The calculation of the rate of interest which appears only in Ms Lau’s submissions is based upon the unsupported assumption that the finance charge of HK$46,303.30 related solely to the outstanding sum of HK$912,049, being the total amount of the invoices issued in May 2006 in the statement of claim.  As Ms Lau accepted, on the evidence before the court, there is nothing to show that the finance charge of HK$46,303.30 could not have related, whether in whole or in part, to amounts which were subsequently repaid and therefore do not form part of the sums claimed in the statement of claim. Indeed, there is no mention at all in the 1^st defendant’s evidence (whether in the affirmations before the Registrar or the affirmations sought to be adduced in this appeal) that excessive interest was being charged, whether or not in breach of section 24 of the MLO.

65.For the above reasons, I find that the prospects of success of the proposed amendment to be highly doubtful, if not hopeless.

66.In his decision, the Registrar noted that apart from the 1^st defendant’s amendment application, the matter was ready to be set down for trial.  Although I bear in mind that there remains pending the 2^nd defendant’s amendment application issued after the Registrar’s decision, I agree with the Registrar that if the amendment were allowed, there would inevitably be substantial delay to the progress of this action. As explained above, that is a matter to be taken into account as part of the overall circumstances of the case.

67.Having regard to all of the circumstances, the proposed amendment should be refused.  I therefore dismissed the appeal.

Mr Adrian Lai, instructed by Lam, Lee & Lai, for the plaintiff

Ms Lorinda Lau, instructed by Yung, Yu, Yuen & Co, for the 1^st defendant

Mr Forest Fong, instructed by David Fong & Co, for the 2^nd defendant

[1] There appears to be a typographical error in §49 of Ms Lau’s skeleton argument where the word “pre-dated” should read “post-dated”.

[2] In a letter from Messrs S.C. To & Co, CPA, dated 15 November 2016 and exhibited to the 1^st  defendant’s 3^rd affirmation, it is asserted that, “There was no consent obtained from [Sing Kwong] for overdue interest charged on the “AR balances”.  It is unclear what is the basis of such an assertion, which cannot be found in the 1^st defendant’s own evidence.  I attach no weight to it.