Jts Merchant Capital Ltd v. Always Online Technology Ltd
Read the full judgment text of HCA 242/2015 on BabelCite. This High Court CFI judgment was delivered on 24 May 2022.
1. The plaintiff is a licensed person under the Money Lenders Ordinance (Cap. 163), and carries on business in providing financing and factoring services to other companies.
Cites 2 cases
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HCA 242/2015 [2022] HKCFI 1463 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 242 OF 2015 _____________
_____________ Before: Deputy High Court Judge Gilchrist in Court Date of Hearing : 28 to 30 August 2017 and 5 September 2017 Date of Judgment : 24 May 2022 __________________ J U D G M E N T __________________ A. Introduction 1.The plaintiff is a licensed person under the Money Lenders Ordinance (Cap. 163), and carries on business in providing financing and factoring services to other companies. 2.The defendant carries on business in providing photo printing services to its customers. From time to time the defendant would supply services to its customers on credit and thereby accumulate certain account receivables. 3.These proceedings arise out of a written agreement dated 4 July 2013 entered into by the parties (the “Agreement”) in relation to the defendant’s account receivables. 4.By Writ of Summons issued on 29 January 2015, with Statement of Claim indorsed, the plaintiff, inter alia, sought the outstanding sum of HK$2,109,314.66, alternatively damages and a declaration that all payments in respect of certain receivables received or recovered by the defendant shall be held by it on account for the benefit of the plaintiff. 5.By Defence and Counterclaim, the defendant denied that it is indebted to the plaintiff for any sum. Further, it also, inter alia, sought to recover a sum of about HK$3 million to be returned or paid by the plaintiff, which was said to be wrongfully retained by the plaintiff. B. Factual background 6.It is common ground that the parties entered into an undated “Assignment of Account Receivables” agreement in 2012, under which the defendant agreed to pledge its account receivables from Hutchison Telephone Company Limited (“HTCL”) as security to the plaintiff effective from 5 September 2012 until the entirety of the outstanding loan balance of the defendant is repaid. This assignment agreement was referred to by the parties in the Statement of Claim and the Defence and Counterclaim. The defendant challenges the validity and enforceability of this assignment agreement on the basis that it was not supported by any consideration. Nothing turns on this because neither the plaintiff’s claim nor the defendant’s counterclaim are brought under the assignment agreement, rather they are in respect of breach allegedly committed under the Agreement. 7.The Agreement contains, inter alia, the following terms:
8.The Agreement clearly stipulates that there would be two types of account receivables, namely the approved receivables and the non-approved receivables, and each of them would be treated differently. 9.Insofar as the approved receivables are concerned, they would be assigned and sold by the defendant to the plaintiff pursuant to Clause 2.1, and the purchase price would be calculated based on the formula set out in Clause 4.1. As regards the non-approved receivables, the plaintiff would act as the defendant’s agent to administer and collect these receivables. 10.At the material time, ESD Services Limited (“ESD”), Hutchison Telecommunications (Hong Kong) Limited (“HTHK”), Hutchison Telephone Company Limited (“HTCL”) and Hutchison Telephone (Macau) Company Limited (“HT Macau”) were customers of the defendant. ESD, HTHK, HTCL and HT Macau were (and are) members of the CK Hutchison Group of companies. 11.On 4 July 2013, the plaintiff also issued to the defendant a “Notification of credit limit” relating to its customers “Hutchison Communications Group, Hutchison Telephone Company Ltd, ESD Services Ltd., (AKA. THREE, THREE MACAU)” confirming the new credit limit to be HK$2 million and the maximum payment period to be 90 days. The defendant acknowledged receipt and countersigned on this document. 12.Subsequent to the execution of the Agreement, both the plaintiff and the defendant informed ESD in writing that (i) all debts owed by ESD to the defendant had, with immediate effect, been assigned to the plaintiff, (ii) all future payments are to be made to the plaintiff, and (iii) only the payment to the plaintiff would provide a complete discharge of the debts. There were similar notices issued previously by the plaintiff and the defendant to HTHK, HT Macau and HTCL in September and October 2012. 13.During the period between 5 July 2013 and 2 December 2014, the defendant submitted disbursement forms to the plaintiff requesting for disbursement amounts, less applicable deductions, to be paid by the plaintiff. All of these disbursement forms bear the signature(s) of the authorized signatories of the defendant and the company chop of the defendant. The payee(s) as specified on some of these forms include Net Power Holdings Limited (“Net Power”), KBQUEST HK Limited, Melscreation Limited and Mr. Chan Wai Kong (“Mr. WK Chan”) who has since November 2014 been (and still is) a director of the defendant and was a witness who testified at the trial. 14.Apart from the Agreement, there were other dealings between the plaintiff, the defendant and their related parties, and they included:
15.These dealings are relevant to this action because various sums arising from these dealings that were owed by the defendant or its related parties to the plaintiff and JTS Partner, were accounted for by the plaintiff in calculating the amounts payable to the defendant under the Agreement. 16.Under the terms of the business loan facilities, interest and a handling fee are to be charged by the plaintiff, and securities by way of a personal guarantee by Mr. HL Chan or Mr. WK Chan and a corporate guarantee by the defendant are generally required. The “Assignment of Account Receivables” agreement made in 2012, and mentioned above, was also one of the securities offered in relation to the business loan facilities granted by the plaintiff to the defendant. It is also to be noted that all of the investment agreements were entered into prior to the date of the Agreement, and some of these business loan facilities were granted prior to such date. 17.For the performance of the Agreement, since the amount of account receivables owed to the defendant by its customers each month was not a constant figure, the plaintiff and the defendant adopted a notional amount of HK$670,000 as the purchase price of the defendant’s monthly account receivables, which was said to be estimated based on the historical average turnover of the defendant’s account receivables from its customers per month. According to the terms of the Agreement, the plaintiff is entitled to retain a retention amount equivalent to 30% of the invoice amount before paying the purchase price to the defendant, therefore when the notional purchase price of HK670,000 was adopted, the defendant would only receive an advance in the sum of HK$469,000. Further, a factoring commission equivalent to 0.5% of the invoice amount would also be deducted from the purchase price. 18.The defendant submitted the first disbursement form to the plaintiff on 5 July 2013 requesting for HK$938,000 to be paid by telegraphic transfer to Net Power’s bank account. The said form also provided for a deduction of HK$3,350 as factoring commission and HK$3,350 as insurance premium such that the defendant would receive a net amount of HK$931,300. The plaintiff duly made payment to Net Power on the same date. It appears this sum of HK$938,000 represented the purchase price in respect of its account receivables for April and May 2013 (i.e. HK$469,000 x 2) after deducting the applicable retention amount. 19.During the period from July 2013 to December 2014, the defendant submitted 80 disbursement forms to the plaintiff, and the total amount sought under these forms was HK$15,588,794.82. It is common ground that, out of such sum, the plaintiff did not in fact pay the defendant a sum of HK$8,442,000, and only paid the defendant HK$7,146,794.82[2]. Taking into account the amount of refund paid by the plaintiff to the defendant, a total sum of HK$7,360,039.31 was paid by the plaintiff to the defendant during the said period. 20.On the other hand, and during the same period, the plaintiff received a total of HK$11,180,553.80, comprising:
21.As mentioned above, apart from the Agreement, there were other dealings between the plaintiff, the defendant and their related parties, particularly there were outstanding amounts owed by the defendant and its related parties to the plaintiff and JTS Partner which arose from these dealings. The plaintiff deducted from the amounts which were payable to the defendant under the Agreement these sums owed by the defendant and its related parties (“Deductions”) amounting to a total sum of HK$4,293,116.42[6]. 22.There is a dispute between the parties in relation to the Deductions. The defendant’s position is that it had not authorised the plaintiff to make the Deductions, and some of these amounts arose from loan agreements which are illegal and unenforceable as being in contravention of the Money Lenders Ordinance (Cap. 163). On the contrary, the plaintiff contends that the Deductions were money paid out on behalf of the defendant as per its instructions on each occasion (and there was no calculation formula), and these instructions were given either by Mr. HL Chan, Mr. WK Chan or Ms. Chiu Ka Kei or any two of them by way of disbursement form on each occasion[7] (the “Deduction Agreement”). Despite such contention, I note that neither of the parties has disclosed, or inserted in the trial bundles, any disbursement forms which tally with the amount of the Deductions items. There is, however, some reference to the breakdown of these Deductions items in emails sent by the plaintiff to the defendant that are contained in the trial bundles[8]. 23.By reason of the Deductions, notwithstanding that the plaintiff had been receiving payments in excess of HK$11 million, the plaintiff only paid the defendant a total sum of HK$213,244.49 in addition to the sum of HK$7,146,794.82 advanced by the plaintiff. The plaintiff maintains that at all material times the defendant had (and still has) a negative balance. 24.In December 2014, the plaintiff refused to provide further factoring services to the defendant. The defendant then informed its customers that all future payments should be made to its bank account, rather than to that of plaintiff. 25.In January 2015, the plaintiff was informed by ESD and HT Macau that the defendant had notified and instructed them to make all future payments to the defendant. The plaintiff then brought this Action. C. The Issues 26.As submitted by Mr. Fung on behalf of the plaintiff, the issues which are required to be determined in this action are:
D. Determination of the Issues D1. What are the obligations under the Agreement 27.I shall first examine the parties’ obligations under the Agreement. In doing so, I have been reminded of what Lord Hoffmann NPJ said in Jumbo King Ltd v Faithful Properties Ltd & others (1999) 2 HKCFAR 279, namely that “[t]he construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve”. 28.The Agreement is a factoring agreement, which is a financial contract that details the full costs and terms of purchasing a business's outstanding invoices and the receivables due thereunder. I have already set out some of the relevant clauses of the Agreement in paragraph 7 above. 29.In gist, under the Agreement, the plaintiff’s obligations, inter alia, include:
30.On the other hand, the defendant’s obligations, inter alia, include:
31.Based on the dealings between the parties at the material time and according to the contemporaneous documents, I find that the disbursement forms submitted by the defendant were the documents which the plaintiff had agreed to accept before making payment of the “purchase prices” to the defendant under the Agreement. Therefore, upon receiving a disbursement form, the plaintiff would be required to pay the purchase price of the amount specified therein, less any permissible deductions, to the defendant. On this note, I also find that despite that the defendant had submitted disbursement forms for the sum of HK$469,000 during each calendar months from June 2013 up to November 2014, as these sums were never actually paid to the defendant (which the plaintiff accepts), I would not treat these sums as part of the “purchase prices” payable under the Agreement. 32.I should also mention that there appears to be no dispute between the parties that all receivables which form the subject of the present dispute are approved receivables because despite that Clause 5.2 of the Agreement stipulates that an administration fee is payable in respect of any non-approved receivables, the Schedule of the Agreement specifies that the administration fee shall be “NIL”. D2. Who was in breach of the Agreement 33.Having examined the respective obligations of the plaintiff and the defendant under the Agreement and the relevant factual background, I find that the plaintiff was in breach of the Agreement due to the reasons set out below. 34.First, the plaintiff wrongfully included the monthly sum of HK$469,000 as disbursements for the calendar months from June 2013 up to November 2014, and also charged factoring commissions of HK$3,350 during each of those months when no actual payment of these sums was in fact made to the defendant. In the absence of any actual payment, I am of the view that the plaintiff was not entitled to charge any factoring commission or discounting amount. 35.The fictitious and artificial nature of these payments can also been seen by corresponding “repayment” entries made and booked on the same date when the purported advancements were booked[9]. 36.Second, the Agreement expressly provides that the plaintiff shall send a monthly account current as of the end of each calendar month the defendant. I note that, in breach of such obligation, the plaintiff failed to provide monthly accounts for the months of February, September, October and November 2014 in accordance with Clause 5.3. 37.Further, I agree with the defendant that there was an implied term by reason of business efficacy that the plaintiff shall provide reasonable details showing the particulars of the receivables, retention amount, discounting amounts held and/or received by the plaintiff from the defendant’s customers, and the factoring commissions, purchase prices, charges and/or payments made or deducted by the plaintiff due to the nature of the arrangement as agreed between the parties under the Agreement. The plaintiff, being the person receiving payments from the defendant’s customers, would be the only person who is in a position to give proper account of any sums received and then calculate the amount of refund payable to the defendant. In these circumstances, the defendant relies entirely on the plaintiff to gather and supply all relevant information and perform the calculation. Without such information, the arrangement simply would not work as the defendant would not be able to find out how much the plaintiff had received from its customers and what sums need to be refunded to the defendant. This is particularly the case when only one of the defendant’s customers, HT Macau, was in the habit of issuing credit notes[10] and no other third party evidence, apart from the actual payment records, were available to the defendant. In this regard, I find that the plaintiff failed to discharge its obligation to provide such information to the defendant. 38.For the sake of completeness, I shall also deal with the plaintiff’s argument that, pursuant to Clause 5.3, absence of any challenge within 30 days after the provision of the monthly current accounts, they shall be deemed to be accepted and become conclusive and binding on the defendant. As explained by Chow J (as he then was) in Ho Ming Pui Andy v Midland Realty (Strategic) Limited, unreported 6 August 2014, HCA 1699 of 2012, a conclusive evidence clause would normally be enforced if all the conditions precedent for triggering its operation have been satisfied. Since I find that the plaintiff failed to comply with its obligation under Clause 5.3, it is not open to the plaintiff to argue that the conclusive evidence clause is engaged as the conditions precedent for triggering its operation have not been satisfied. 39.Third, I find that the plaintiff has wrongfully retained sums which were payable to the defendant by making the Deductions, and therefore it has failed to pay the retention amount less the discounting amount to the defendant in accordance with Clause 4.2. 40.I find as a matter of fact that the parties did not enter into the Deduction Agreement and there is no evidence to suggest that such an agreement was made. According to the plaintiff, the Deductions were made as per the instructions of the defendant by way of disbursement forms. However, as I have mentioned above, there are no disbursement forms which tally with the amount of the Deductions items. I note that in the course of giving evidence for the plaintiff on the first day of the trial, Put Hin Chung told the Court that, although it was not required by the contract, to avoid disputes the consent of the defendant would be sought and obtained in writing, which would be the disbursement form. Put Hin Chung gave evidence that it would be noted down on each occasion in a disbursement form, which would be among the exhibits, and each time the defendant would sign and the sum would be supported by the figures in the emails. However, Put Hin Chung gave further evidence that his daily work did not involve bookkeeping and he therefore deferred to his colleague on such matters. The second witness for the plaintiff, Wong Siu Fung, who gave evidence on the second day of the trial and was the accounting clerk of the plaintiff and had been for over 5 years at that time, accepted in cross-examination that disbursements forms signed by the defendant were not obtained for the Deductions, but that such payments were mentioned in emails and were not disputed by the defendant. Such evidence supports the above finding. Additionally and in any event, I find it difficult to accept the plaintiff’s aforementioned contention because by the time when the parties entered into the Agreement, some of these dealings between the plaintiff, the defendant and their related parties were in place and so, if there was any intention on the part of the parties for the amounts owed under these dealings to be accounted for in the Agreement, they would no doubt have made provision for the same in the Agreement. 41.Despite that the plaintiff is seeking to rely on the Deduction Agreement to assert a right to make the Deductions, I note that the Deduction Agreement was never in fact pleaded in the pleadings nor explained in the witness statements adduced on behalf of the plaintiff. The Deduction Agreement was only mentioned in the plaintiff’s answer to interrogatories raised by the defendant[11]. In fact, when the defendant’s solicitors wrote to JTS Partners[12] on 18 December 2014 raising issues, inter alia, about the Deductions, the plaintiff did not offer any explanation by making reference to the Deduction Agreement, and it simply chose to commence these proceedings. 42.Despite the argument put forward by Mr. Fung on the plaintiff, I do not accept the argument that the phrase “any reserves which [the plaintiff] may have established” under Clause 4.1 provides a proper legal basis for the Deductions. Even though the meaning of the word “reserves” could include “sums of money” as suggested, this phrase must be construed in the context of the Agreement to mean that any reserves which the plaintiff may established under the Agreement, rather than under any other agreements or dealings. 43.Since I have rejected the plaintiff’s contention as regards the Deduction Agreement, it is not necessary for me to decide on the issue as to whether the business loan agreements and investment agreements concerned are illegal and unenforceable by virtue of the Money Lenders Ordinance (Cap. 163). 44.Further, in light of my determination of the issues, it is also not necessary for me to deal with the submission by Mr Li on behalf of the defendant that the plaintiff sought to rely on 2 clauses under the Agreement which were not pleaded. 45.In relation to the plaintiff’s contention that the defendant was in breach of the Agreement by giving notices to its customers, I find that by the plaintiff’s aforementioned breach of the Agreement, together with its refusal to further perform the Agreement in December 2014[13], the defendant was entitled to elect to terminate the Agreement, and the defendant has done so by giving notice to its customers instructing them to make further payments to the defendant’s bank account. I find that the defendant therefore did not commit a breach of the Agreement as alleged. D3. What was the loss suffered 46.In view of the my finding above, I shall proceed to determine the amount of loss suffered by the defendant. 47.The following figures were produced by the parties, and are relevant for the present purpose:
48.I therefore find that the plaintiff has wrongfully retained a sum of HK$3,233,807.41, being HK$11,180,553.80 less HK$586,707.08 less HK$7,360,039.31. 49.For the sake of completeness, I should add that since I have decided that the sums of HK$469,000 were not paid under the Agreement during the period from June 2013 up to November 2014, I also find that the plaintiff is not entitled to charge any factoring commission or discounting amounts in relation to these sums. E. Disposition 50.The plaintiff’s claim is hereby dismissed, and I enter judgment for the defendant’s counterclaim in the sum of HK$3,233,807.41. I also award interest thereon from the date of the Writ to the date of this judgment at HSBC Prime interest rate + 1%, and thereafter at judgment interest rate until the date of payment. 51.I see no reason why costs shall not follow the event, and make a costs order nisi that costs of this Action, including any reserved costs, be to the defendant, to be taxed if not agreed. 52.I thank Counsel, the Solicitors and the interpreter for their assistance.
Mr Henry LW Fung, instructed by Anthony Kwan & Co, for the Plaintiff Mr Kevin Li, instructed by YL Yeung & Co, for the Defendant [1] “Delcredere Event” is defined in Clause 1.1 Definitions as one that “shall occur if a customer fails to pay a debt (or part thereof) in relation to an Approved Receivable within 210 days after its due date”. [2] Annexure 3 to the Affirmation of Put Hin Chung filed on 20 June 2016 and paragraph 2a of the 2nd Affirmation of Put Hin Chung filed on 23 August 2016. [3] Annexure 1 to the Affirmation of Put Hin Chung filed on 20 June 2016. [4] Annexure 2 to the Affirmation of Put Hin Chung filed on 20 June 2016. [5] Annex A to Reply and Defence to Counterclaim. [6] Annex to the 2nd Affirmation of Put Hin Chung filed on 23 August 2016. [7] Answer to Requests 9 and 10 in the Affirmation of Put Hin Chung filed on 20 June 2016 to answer the Interrogatories made by the defendant dated 10 May 2016 . [8] See, for instance, Bundle B pages 55, 268, 270 and 272. [9] See Annex A to Reply and Defence to Counterclaim. [10] See paragraphs 28 and 29 of the Witness Statement of Put Hin Chung dated 14 April 2016. [11] Answer to Requests 9 and 10 in the Affirmation of Put Hin Chung filed on 20 June 2016 to answer the Interrogations made by the defendant dated 10 May 2016. [12] I accept that JTS Partner is not a party to the Agreement, and the letter should have been addressed to the plaintiff. [13] See email at Bundle B pages 289 to 290 |