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DCCJ 5684/2016
IN THE DISTRICT COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
CIVIL ACTION NO 5684 OF 2016
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BETWEEN
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LION ARCHER INVESTMENTS LIMITED |
Plaintiff |
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and
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IAN JOHN PEARSON |
Defendant |
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| Before: His Honour Judge MK Liu in Chambers (Open to public) |
| Date of Hearing: 24 July 2017 |
| Date of Decision: 24 July 2017 |
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DECISION
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1.This is the defendant’s appeal against the decision made by Master D To on 20 April 2017, by which the master dismissed the defendant’s application for an order striking out the plaintiff’s statement of claim on the grounds that it is frivolous or is otherwise an abuse of process of the court.
The undisputed facts
2.I would first set out the undisputed facts.
3.The defendant and Mr Nick Hill (“Mr Hill”) were working in RSM Nelson Wheeler Corporate Advisory Services Limited (“RSM”) in 2005. During July 2005, the defendant approached Mr Hill and asked Mr Hill for a loan. The defendant explained to Mr Hill that the defendant was involved in raising money for the fitting out of a spa, SE Spa and Salon, which was to be run by the defendant’s then girlfriend, Ms Susan Yarbug, and her sister, Ms. Eva Yarbug. Mr Hill agreed (“First Loan Agreement”) and lent HK$220,000 (“the 1st Loan”) to the defendant to be used for costs associated with SE Spa.
4.On 15 September 2005, Mr Hill agreed (“Second Loan Agreement”) to lend a further HK$194,324 (“the 2nd Loan”) to the defendant, also to be used for costs associated with SE Spa.
5.Save for the dates and the loan amounts, the First Loan Agreement and the Second Loan Agreement (collectively, “Loan Agreements”) are identical in terms.
6.The Loan Agreements expressly refer to the defendant’s own personal obligation to repay the First Loan and the Second Loan. Further, the particulars of the Loan Agreements are as follows:-
(a) The defendant agreed to repay Mr Hill as soon as he could, and in any event, in instalments of not less than HK$20,000 per month from November 2005 onwards (“Repayment Deadline”).
(b) After the Repayment Deadline, interest on the principal loan amounts would run at the rate of HSBC prime plus 2% (“Default Interest”).
(c) The defendant would not sell his shares in Italio Company Ltd (“Italio”) until after the loans have been repaid in full, and Mr Hill would have an equitable charge over those shares as security for the Loans.
7.The defendant has never made any repayment to Mr Hill.
8.There were some email exchanges between Mr Hill and the defendant in June 2012 (“the 2012 Emails”). The 2012 Emails bear significance in these proceedings.
(a) On 9 June 2012, Mr Hill wrote an email to the defendant, in which Mr Hill said:-
“As you may know I was in Bangkok recently and had a few drinks with Gareth Hughes, who said that you had re-joined RSM Nelson Wheeler where you are a director of Insolvency Services. Then, yesterday, I had a drink with David Kennedy and subsequently Mark Pulvirenti, Phil Rompotis and Neil Howard. David said you were expected and may have turned up later but I had to go home because my mother-in-law is unwell and I needed to speak to Lay Choo but he said you seemed well and happy.
Anyway, it sounds like it is going quite well for you. I understand from Gareth that the mother of your child has imposed some financial controls and these are paying dividends for your equilibrium. (On this point I would welcome any proposals as to how you might start a monthly repayment programme of the money you owe me, I have after all been very patient, you have repeatedly said that you will repay me and you are presumably making a steady income at RSM.)
I am in Hong Kong until tomorrow but am rather tied up until I leave. However I would enjoy catching up when we are both in the same place and will give you a call when I am next around.
Best of luck with RSM and give my best regards to Kenny.
Nick”
(b) On 12 June 2012, the defendant sent the following email (“the Subject Email”) to Mr Hill in reply:-
“Hi Nick good to hear from you.
Happy to meet next time you are in town. Yes back at RSM but on a package geared towards commissions so this will hopefully be fruitful once the work comes in. I have only been back a few months.
The mother of my child created serious problems for me in terms of access to see my son, apparently I have no custodial rights as an unmarried father.
Regarding the repayment of money invested in the spa, it might be worthwhile looking at what can be done against Susan and her sister personally as well. I am aware they have a thriving spa in Dubai. It appears they got away Scot free and left me with the burden of the debts.
Anyway let's discuss next time we meet.
Ian”
9.On 28 August 2016, Mr Hill assigned the Loans to the plaintiff.
10.An important difference between the parties is whether the Subject Email constitutes an acknowledgment for the purpose of Limitation Ordinance (“LO”) s 23(3) and s 24, so that the limitation period in respect of the plaintiff’s claim for the repayment of the Loans started to run afresh from 12 June 2012. Obviously, the plaintiff suggests that the answer to the question is “Yes”, while the defendant contends that the answer is “No”.
11.Another important difference is whether Mr Hill has forgone the Loans in the way suggested by the defendant.
(a) The defendant says that he became an investor in Italio and also a 10% shareholder in Italio, which was the company running the SE Spa business. The defendant’s investment was made by way of loans to Italio and the defendant would receive repayment of his loans together with interest at bank lending rates within 2 years of the commencement of operation of the SE Spa business. As to all these, the plaintiff does not admit.
(b) In or around 2005, during a period when the defendant was in a dispute with his employer at that time, Alvarez & Marsal (“A&M”, who had acquired RSM’s business in Hong Kong), Mr Hill agreed with the defendant (“the Variation Agreement”) to forgo the defendant’s obligation to repay under the Loan Agreements in exchange for the Loans being treated as an investment in SE Spa by Mr Hill on the same terms as the defendant had invested in SE Spa. These were agreed by Mr Hill in consideration of (i) the defendant reaching an amicable settlement of his dispute with A&M; and (ii) the defendant’s continuing support, at no cost, on cases where Mr Hill was liquidator and where the defendant had previously had day-to-day conduct of such cases during his employment with RSM. As to all these, the plaintiff denies.
The issue
12.The basis of the defendant’s striking-out application is that the Subject Email cannot be an acknowledgment for the purpose of LO s 23(3). The issue in this appeal hearing is whether the defendant is correct on this.
13.There is no dispute that by the operation of Electronic Transaction Ordinance s 6(1), the Subject Email can be deemed to be having satisfied the requirements of “in writing” and “signed by the person making the acknowledgment” in LO s 24(1). The real issue is the true meaning of the Subject Email.
The principles
14.It is trite that the court would only exercise its summary power to strike out pleadings in plain and obvious cases. Striking out on the basis of time-bar should only be made in a plain and obvious case or “very clear case”: see Ronex Properties Ltd v John Laing Construction Ltd [1983] QB 398 at 405A-B per Donaldson LJ (as he then was).
15.Further, in considering a striking-out application, there should be no trial upon affidavits. Disputed facts are to be taken in favour of the party sought to be struck out. See Hong Kong Civil Procedure 2017, §18/19/4.
16.As to what would constitute an acknowledgment for the purpose of LO s 23(3), the Court of Final Appeal has given clear guidance in New World Development Co Ltd v Sun Hung Kai Securities Ltd (2006) 9 HKCFAR 403. In that case, Ribeiro PJ said:-
“89. The question which therefore calls for determination is whether the Dew letter is a sufficient acknowledgment for the purposes of s 23(3), a question on which there is guidance in the case-law.
90. First, it is clear that the question is one of construction.
91. Secondly, it is clear that in construing the document relied on, the court will look at connected documents (not necessarily expressly referred to in the document relied on) to ascertain its proper meaning ……
92. Thirdly, the object of the construction exercise is to decide whether, fairly read, the document relied on constitutes an acknowledgment by the debtor of a liability to pay outstanding amounts to the creditor. There is no need for the document to specify the amount of the debt so long as it can be ascertained by other means, including resort to extrinsic evidence, without requiring the parties’ further agreement.
93. Finally, even if the document relied on acknowledges a debt, it is not a sufficient acknowledgment for the purposes of the section if it is accompanied by words which nullify or materially qualify that acknowledgment, for instance by confessing and avoiding the debt or asserting a set-off or cross-claim which renders the document in effect a denial of liability ……”
17.In respect of finding out the true meaning of a document, context is the key. See Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351, per Ma CJ:-
“15. We have been referred to the very well-known statement of principle regarding the construction of contracts contained in the speech of Lord Hoffmann in Investors Compensation Scheme Ltd v West Bromwich Building Society, to which can be added the judgment also of Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd. What emerges from these cases-and other authorities on contractual interpretation-is the overall importance of context when construing contractual terms. The statements of principle in Investors Compensation Scheme and in Jumbo King refer time and again to the relevant background against which the relevant contract and contractual terms must be viewed. It is in my view not particularly helpful in most cases to refer to the "ordinary and natural meaning" of words because, as very often experience tells us, there can be much debate over exactly what is the ordinary or natural meaning of words. The surer guide to interpretation is context. Here, I would just add that in the area of statutory and constitutional interpretation, it is context that is key; context is the starting point (together with purpose) rather than looking at what may be the natural and ordinary meaning of words.”
In my view, what has been said by the Court of Final Appeal in Fully Profit does not only apply to construction of contracts and statutes, but also applies to the construction of other documents.
The defendant’s submissions
18.The key passage in the Subject Email is as follows:-
“Regarding the repayment of money invested in the spa, it might be worthwhile looking at what can be done against Susan and her sister personally as well. I am aware they have a thriving spa in Dubai. It appears they got away Scot free and left me with the burden of the debts.”
19.Counsel for the defendant, Mr Sebastian Hughes, submits that the true meaning of the passage should be the following:-
(a) The money in question was invested into the spa business and not provided to an individual. The beginning sentence of the passage provides no suggestion that the money invested was in any way linked to the defendant personally, and the money was only related to the spa business.
(b) The middle part of the passage is a suggestion that Mr Hill might consider to do something to chase the money from the 2 sisters.
(c) The last sentence in the passage contains a confirmation by the defendant that he had been left with the burden of the debts of the spa business. The sentence does not suggest that any investments made in the spa are the defendant’s personal liability. Those debts are the debts of the spa business.
(d) On reading the passage as a whole, there is no acknowledgment at all that the responsibility for repaying the debts of the spa business or for repaying Mr Hill’s investment in the spa business falls with the defendant.
(e) The Subject Email does not satisfy the requirements for acknowledgment of personal liability under the Loan Agreements for the purposes of LO s 23(3).
The plaintiff’s submissions
20.Counsel for the plaintiff, Mr Christopher Chain, submits that:-
(a) In considering the defendant’s striking-out application, any disputed facts should be taken in favour of the plaintiff. Accordingly, as to whether the Variation Agreement is true, the answer should be assumed to be “no” for the purpose of considering the defendant’s striking-out application.
(b) The plaintiff’s submissions are made on an incorrect basis, ie, assuming that the Variation Agreement is true.
(c) Taking the disputed facts in favour of the plaintiff, the Loans were the only debts owed by the defendant to Mr Hill at the time of the Subject Email. That being the case, at the very least, it would be arguable that “left me with the burden of the debts” in the Subject Email is referring to the defendant’s liability to repay the Loans.
(d) The fact that the defendant used the words “invested in the spa” is neither here nor there. The defendant has used the Loans to invest into the spa. That was the defendant’s personal investment, not Mr Hill’s investment.
(e) The references to “Susan and her sister” were made “as well” – ie in addition to the repayment by the defendant.
My view
21.I agree with Mr Chain. For the purpose of considering this striking-out application, I have to proceed on the basis that the Variation Agreement does not exist at all. Mr Hill has never forgone the Loans in the way suggested by the defendant. On that basis, with respect to Mr Hughes, the defendant’s submissions must be rejected. Further, on that basis, the construction suggested by Mr Chain is certainly an arguable construction.
22.Whether the Variation Agreement exists is an important question which would affect the context against which the Subject Email should be construed. This is a fact-sensitive issue which cannot be resolved on affidavits and has to be resolved in trial. Only after resolving that issue, the court can ascertain the context of the Subject Email and make a final adjudication on the true meaning of the Subject Email.
23.In my view, it is not plain and obvious that the Subject Email cannot be an acknowledgement of the defendant’s liability to repay the Loans for the purpose of LO s 23(3). The defendant’s striking-out application must fail. The master’s decision of refusing the application is correct and must be upheld.
Disposition
24.For the reasons above, I dismiss the defendant’s appeal.
25.Having heard submissions on costs, I am of the view that costs should follow the event. I order that costs of the defendant’s appeal be to the plaintiff, with a certificate for counsel.
26.The plaintiff’s solicitors have provided me a skeleton bill of costs. Having heard submissions on that skeleton bill, I summarily assessed the total of the costs payable to the plaintiff at HK$75,000.
(a) The total of the costs claimed by the plaintiff is HK$140,092, in which HK$90,000 is the brief fee to counsel and the others are the fees and disbursements to the solicitors.
(b) The costs awarded to the plaintiff are awarded on party and party basis and should be assessed on District Court scale.
(c) The proper measure for counsel’s fee is the hypothetical counsel test, ie what fee a hypothetical counsel, capable of conducting the case effectively but unable or unwilling to insist on the high fees sometimes demanded by counsel of pre-eminent reputation, would be content to take on the brief. With no disrespect to Mr Chain (and I have to say that Mr. Chain has provided very helpful assistance to this court), adopting the hypothetical counsel test, I am of the view that the counsel’s fee allowed by the court should be HK$60,000.
(d) The skeleton bill provided by the plaintiff’s solicitors shows that there are two solicitors and one trainee solicitor doing works relating to this appeal. In my view, this is not a complicated appeal. One solicitor and one trainee solicitor would certainly be sufficient to take care the solicitors’ works relating to the appeal. Further, since the plaintiff’s solicitors have retained an experienced counsel to take care of the appeal and there is no new affidavit in this appeal, the time allowed in the assessment of costs should be less than those stated in the skeleton bill. Taking a broad-brush approach, the total of the costs in relation to the works done by the plaintiff’s solicitors should be HK$15,000.
27.I thank Mr Hughes and Mr Chain for the helpful assistance provided to the court.
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( MK Liu )
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District Judge |
Mr Christopher Chain, instructed by Howse Williams Bowers, for the plaintiff
Mr Sebastian Hughes, instructed by Munros, for the defendant
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