Ted Ohya v. Abdo a Osman
Read the full judgment text of DCCJ 4042/2005 on BabelCite. This District Court judgment.
1. The Plaintiff is the director and chairman of Asia Pacific Precious Metals Limited (“ APPM ”). The Defendant is APPM’s director, chief executive officer and co-chairman. He was until June 2005 the director of the Consulate of Mauritius in Hong Kong and was experienced in the precious metals business in Kazakhstan, Africa, China and elsewhere.
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DCCJ4042/2005 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 4042 OF 2005 ____________ BETWEEN
____________ Before: Her Honour District Judge Marlene Ng in Chambers (Open to Public) Date of Hearing: 5th December, 2005 Date of Handing Down Judgment: 5th January, 2006 _______________ J U D G M E N T _______________ Introduction 1.The Plaintiff is the director and chairman of Asia Pacific Precious Metals Limited (“APPM”). The Defendant is APPM’s director, chief executive officer and co-chairman. He was until June 2005 the director of the Consulate of Mauritius in Hong Kong and was experienced in the precious metals business in Kazakhstan, Africa, China and elsewhere. 2.It is common ground that (a) the Plaintiff transferred HK$500,000.00 (the “Sum”) to the Defendant’s personal bank account in October 2002 and (b) the Defendant gave the following note dated 10th October 2002 (which the Plaintiff claims to be a promissory note) to the Plaintiff (the “Note”) : “PROMISSORY NOTE DATE OF ISSUE: OCTOBER 10th, 2002
3.The Plaintiff claims that despite his solicitors’ demand letter dated 3rd August 2005 (the “Demand Letter”), the Defendant has failed/refused to pay the Sum pursuant to the Note. Order 14 application 4.On 5th September 2005, the Plaintiff applied for summary judgment and verified his claim by his solicitor’s affirmation. The Defendant was previously legally represented, but no longer so at the hearing before me (the “Hearing”). He filed two affidavits in opposition under the advice of his solicitors and the Plaintiff filed an affirmation in reply. The Defendant’s former solicitors instructed counsel who lodged written submissions on the behalf of the Defendant to oppose the application for summary judgment (the “Written Submissions”). Although the Defendant did not at the Hearing refer to the Written Submissions or deal with the legal arguments of Ms Liang, solicitor for the Plaintiff, nevertheless I will in fairness consider the Written Submissions in this judgment. 5.The Defendant in his oral submissions at the Hearing referred a number of fresh factual matters not found in his affidavits (the “Oral Submissions”). Strictly speaking, such facts were not in evidence before me. However, since the Defendant is not legally represented, I will also consider his Oral Submissions in this judgment. 6.At the Hearing, with the consent of Ms Liang, the Defendant submitted two further documents, namely, a name card of a barrister and justice of peace, Mr Kenneth Ho (“Ho”), and a shareholders’ agreement dated 9th April 2005 (the “Agreement”) signed by inter alia the Plaintiff and the Defendant (the “Parties”), as part of the evidence. 7.Almost at the end of the Hearing, the Defendant again applied to adduce further evidence, namely, (a) an e-mail from the Plaintiff to the Defendant urging him to sign the Agreement, (b) evidence of the Plaintiff’s free-spending life-style and (c) evidence from the police in respect of certain thefts referred to below (the “Intended Evidence”). By a separate ruling delivered at the Hearing, I refused the Defendant’s application. Subsequent to the Hearing, the Defendant wrote to my clerk enclosing the e-mail referred to in (a) above. However, in light of my ruling, I decline to receive such evidence for the purpose of the application for summary judgment. The law on summary judgment applications 8.A plaintiff may invoke the procedure under Order 14 of the Rules of the District Court where there is no valid defence to his claim or otherwise a triable issue. The rationale is set out in Hong Kong Civil Procedure 2004 Vol.1, para.14/4/1 at p.159 as follows :
9.In Ng Shou Chun v Hung Chun San [1994] 1 HKC 155, Godfrey J noted that it was not appropriate to embark on a mini-trial of the action on affidavit evidence. The court should ask itself the question whether what the defendant says is credible or believable. If so, he must have leave to defend; if not, the plaintiff is entitled to summary judgment. 10.The Hong Kong Civil Procedure 2004 Vol.1 para.14/4/9 at pp.162-163 went on to say as follows :
The issues 11.The issues in respect of the present application are as follows :
The affidavit evidence and Oral Submissions (a) Background 12.For the purpose of the present application only, the Plaintiff did not dispute the Defendant’s description of the background. 13.The Defendant claimed that in/about December 2001, he came to know the Plaintiff who was about to retire as a banker. The Plaintiff was interested in investing in business ventures that generated an income return, particularly in possible business venture with the Defendant in the precious metal business. After some discussions, the Defendant in September 2002 brought the Plaintiff to meet certain diplomats of the Kazakh Embassy in Beijing. The Parties then went to Kazakhstan where they were eventually introduced to the Assaubayev family (the “Family”), who were the owners of the biggest mining company in Kazakhstan and who facilitated a tour of their mining sites and certain facilities. (b) The Note and formation of APPM 14.Defendant’s case During the visit to Kazakhstan, the Plaintiff represented to inter alia the Defendant that he could/would source US$120 million from the Japanese government and his business friends for a new joint venture company and to invest in mining operations in Kazakhstan (the “Representation”). 15.Relying on the Representation, the Defendant arranged business trips to Tokyo, Hong Kong, Beijing and Kazakhstan in September 2002 to explore specific business opportunities for the new joint venture company, thereby incurring substantial travelling and related expenses that exceeded the Sum (the “Expenses”). At that time the Parties had not yet acquired the new joint venture company, so the Defendant incurred the Expenses as its promoter. 16.Since the Defendant incurred the Expenses and was short of liquid funds, the Plaintiff agreed to transfer the Sum to the Defendant’s bank account in October 2002 to cover part of the Expenses. The Parties orally agreed that the Sum should only be returned if the Defendant was unable to provide any substantive business opportunities to justify the incorporation of the new joint venture company (the “1st Oral Condition”). If it was agreed that the business of the new joint venture company would be feasible, the Parties would purchase and set up a Hong Kong shell company which would take over or assume the obligation to return the Sum to the Plaintiff “when it was in funds” or when it had sufficient monies and the Plaintiff would waive all his rights against the Defendant (the “2nd Oral Condition”). The above oral agreement between the Parties will be referred to as the “Oral Agreement” below. 17.The business trips were successful with business opportunities identified, so the Parties agreed to enter into a business venture with the Family and decided to acquire a Hong Kong limited company as the corporate vehicle. In early January 2003, the Parties contacted a law firm to purchase a Hong Kong shell company (ie APPM). APPM’s place of business was at the Defendant’s office of the Consulate of Mauritius (the “Office”). The Parties became the initial directors and equal shareholders of APPM. Later shares were allotted to the Parties and other investors. APPM resolved to form a joint venture in Kazakhstan. 18.The Plaintiff, a former banker having good contacts in the Japanese community, suggested he would continue to source all the financing for APPM whilst the Defendant, with his expertise and connection in the industry, sourced the products and business opportunities for APPM. The Parties also orally agreed that the Plaintiff would be responsible for managing the administrative, operational and financial affairs of APPM’s Hong Kong office, so the Plaintiff kept the ledgers and dealt with the book-keeping activities. 19.On/about 10th October 2002, the Plaintiff produced the Note to the Defendant at the Office. The Defendant believed it was a receipt for the Sum. When APPM was acquired, the Defendant believed the Plaintiff had no further claim against him for the Sum. He assumed APPM would be responsible for returning the Sum to the Plaintiff, so he signed the Note without taking any legal advice. At that time, he never believed or understood the Plaintiff would endorse the Note to another person/entity. 20.One of the Defendant’s staff, Ms Vicky Man (“Man”), handled and retained all receipts for the Expenses. After APPM was acquired, Man was employed by APPM to continue to deal with these matters, so the Defendant from time to time submitted his travel vouchers, hotel receipts and other business related receipts to her. The Defendant believed Man would submit his vouchers/receipts to the Plaintiff for record-keeping and the Plaintiff would properly record these transactions in APPM’s ledgers. The Plaintiff also submitted his own expense vouchers to APPM for reimbursement. 21.In fact, until the Demand Letter, the Plaintiff never asked the Defendant to return the Sum. The Defendant in his Oral Submissions said he was not in Hong Kong when the Demand Letter was received. 22.The Defendant in his Oral Submissions said “we made the Note; we did not have company bank account, and [the Plaintiff] was not too confident in himself to handle this business. And [the Defendant] guess[es] [the Plaintiff] gave [the Defendant] the money in the account on a gentleman agreement, which [the Defendant regrets] that [he] made with [the Plaintiff]”. He further submitted in his Oral Submissions that the Note “was not meant for [him] personally or to take this money personally to spend on [his] own”. He argued that the whole situation of the making and signing of the Note and the acquisition of APPM as the Parties’ joint venture vehicle removed the Defendant’s alleged obligation to return the Sum. 23.Plaintiff’s case The Plaintiff denied he made the Representation. He only said he would try to raise US$120 million, so that if he failed it would be the end of the project, but if he succeeded commission would be paid. The Defendant later tried to interest the Plaintiff in another project in Kazakhstan that involved gold tailings owned by the Family and required smaller capital. The Plaintiff agreed to raise money, which he successfully did, by inviting his friends to be the shareholders of the new joint venture company. The Plaintiff’s friends paid for their shares in the new joint venture company (ie APPM). 24.The Plaintiff lent the Sum to the Defendant in October 2002. The Plaintiff denied that the Oral Agreement and the 1st and/or 2nd Oral Conditions. He never endorsed the Note to another person/entity. The Defendant also denied that the Sum was given to the Defendant as APPM’s promoter to cover the Expenses. Neither the Plaintiff nor the Defendant could claim for any expenses before APPM was set up and in respect of expenses incurred after APPM was set up, the Parties had both been reimbursed by APPM. So whether Man gave all the vouchers for the Expenses to the Plaintiff or whether APPM’s ledgers contained the Defendant’s alleged Expenses were irrelevant. (c) KPPM 25.In early February 2003, APPM entered into a joint venture known as Kazakh Pacific Precious Metals (“KPPM”) with the Family to process their tailings, ore and floatation concentrates. APPM and the Family had equal shareholdings in KPPM. APPM was responsible for raising the required capital (estimated to be US$9 million) for KPPM. The Parties further agreed that the Plaintiff would be responsible for raising such capital and the Defendant would bring business, experience and technical skills to the joint venture with the Family. (d) The proposed investors 26.Defendant’s case The Defendant was kept away from the proposed investors in that (a) he was never invited to attend any meetings between the Plaintiff and the proposed investors and (b) the Plaintiff refused to provide him with their contact details. Further, in breach of the Representation, the Plaintiff failed to raise US$120 million. 27.Plaintiff’s case The Plaintiff denied he made the Representation or refused to give the contact details of the proposed investors to the Defendant. As explained above, the Plaintiff only said he would try to raise US$120 million, so that if he failed it would be the end of the project, but if he succeeded commission would be paid. (e) Problems with KPPM 28.The Defendant in his affidavits said that in May 2003 problems arose when the Defendant discovered the tailings assigned by the Family to KPPM were subject to a pledge in favour of Bank CentreCredit (the “Bank”). Such pledge was apparently contrary to the Family’s warranty under the joint venture agreement with APPM that all properties assigned to KPPM were unencumbered and free from lien. At the Family’s request, the Parties agreed to help resolve their problems with the Bank. It was recorded in the draft minutes of APPM’s annual general meeting held on 3rd June 2005 (the “AGM”) prepared by Deacons Corporate Services and exhibited to the Plaintiff’s affirmation (the “Draft Minutes”) that the Defendant said at the AGM the Bank required APPM to help solve the Family’s financial problem. 29.Consequently APPM, the Family and the Bank entered into an agreement under which APPM deposited US$2.6 million to guarantee the Family’s repayment of the loan to the Bank. The Defendant said during the AGM that APPM had documents showing expenses of US$2.6 million but the Family held some files to which APPM could not gain access (see the Draft Minutes). The Defendant said in his affidavits that the Family continued to make unreasonable demands on the Parties and took advantage of them as the foreign partners. According to the Draft Minutes, the Defendant said during the AGM that no legal action would be taken against the Family who were well connected with the Kazakhstan government otherwise APPM could not do business in Kazakhstan. 30.According to background stated in the Agreement, about US$2.5 million was transferred to APPM’s Kazakhstan branch office for investing in KKPM and such monies had been used for operating expenses then under audit by a licensed Kazakhstan accounting firm. Of the sum of about US$2.6 million sent to the Bank, about US$1.9 million was still in APPM’s account with the Bank, which account was inoperative because of its association with KPPM and the Family and the Bank’s lien claim over their assets. Litigation with the Bank over this was anticipated. So far the Family had failed to account for the moneys utilised or lost and the production of gold as represented was not forthcoming. Although the Defendant had given a personal undertaking to proceed with legal action against the Family on behalf of APPM for loss and damages, the minority shareholders of APPM were warned that legal action taken at such time would jeopardise business activities in Kazakhstan because of the Family’s political connections. It was said that legal action should be taken after a new business was established and all assets and bank accounts of APPM were moved outside Kazakhstan. 31.The Defendant in his affidavits claimed that by the end of September 2003, he proposed to the Plaintiff to put an end to the joint venture with the Family because APPM had invested too much in it, and suggested to look for other joint ventures. However, the Plaintiff insisted on handling this himself although the Defendant was uncertain how he could do so given that he was unfamiliar with this field of business. 32.On the other hand, the Plaintiff in his affirmation said he was preoccupied with trying to extricate APPM from the KPPM joint venture with the Family with as little loss as possible. The Defendant was in charge of APPM’s Kazakhstan office. By that tine (ie December 2003), the Plaintiff had already sent to the Defendant and the Bank a total of US$4,164,063.00. (f) “Golden Opportunity” 33.Defendant’s case The Defendant claimed that in April 2005 the Defendant received a letter from one of the investors of APPM who revealed specific misleading and untrue representations contained in a document titled “Golden Opportunity” prepared by the Plaintiff for persuading investors to invest in APPM (the “Document”). When the Defendant (who was unaware of the Document at the material time) questioned the Plaintiff about the Document, the Plaintiff told the Defendant he prepared it to promote APPM. 34.The Document was full of misstatements about Kazakhstan and the precious metals business. It also did not mention the risks of investing in such business or doing business in Kazakhstan. The Document stated that by the end of 2005 APPM planned to return inter alia 100% of the invested amount to all shareholders and it was estimated that in 2¼ years the investors were to receive over 200% of the invested amount. Upon further questioning by the Defendant, the Plaintiff said the investors should have known that risk would be involved in any kind of investment. 35.The Defendant in his Oral Submissions claimed that the Plaintiff by the Document committed fraud in collecting monies from his Japanese friends for investment and that the Plaintiff fraudulently stated in the Document the joint venture investment was without risk when it was not. The Defendant further claimed that the misstatements, including the promised return of 200% or 300%, violated all ethical business conduct and he would on the day following the Hearing report to the Commercial Crimes Bureau. 36.Plaintiff’s case The Plaintiff claimed that the Document contained part of the Defendant’s representations to the Plaintiff (especially on the technical and profitability aspects of the joint venture), which the Plaintiff with his stepson reduced into writing. The Plaintiff had given the Document to only one shareholder, Mr McGregor, the Plaintiff’s American friend who had already agreed to invest in APPM even before he received it. The Plaintiff only orally informed all other shareholders what the Defendant had told him since they did not read English. In fact the joint venture was introduced by the Defendant who claimed to have knowledge and expertise in Kazakhstan and the gold industry and through the Plaintiff to the other investors. (g) Alleged fraud by the Plaintiff on APPM’s investors 37.Defendant’s case In February/March 2004, upon the Defendant’s enquiry, the Plaintiff informed the Defendant he had not told APPM’s investors (ie the Plaintiff’s good friends) the problems with the Family because he was worried that if they were told, they would ask for refund of their investments. The Defendant expressly told the Plaintiff that the investors ought to be informed, but the Plaintiff refused to give the Defendant their contact details. The Defendant in his Oral Submissions claimed that the Plaintiff knew APPM was cheated by the Bank and the Family, yet he never informed his investor friends but kept on misleading them. 38.It was stated in the background section of the Agreement that the Defendant was unable to contact the other shareholders except Mr Mcgregor, but was given the impression that the Plaintiff could speak on their behalf as they were his personal friends and contacts. During a telephone conference with the Plaintiff and APPM’s senior staff called by the Defendant, a new joint venture with Maikain, a non-Kazakh company, that required investments of US$6 million to US$8 million was proposed. Subsequently, the Plaintiff informed the Defendant that the other shareholders did not want to be involved in or to invest more money in the proposed joint venture. Thereafter, the Defendant concluded the new joint venture with Maikain and raised the necessary funds of US$20 million from five different syndicates. To cover the costs of accomplishing the above arrangements, the Plaintiff and the Defendant respectively raised US$800,000.00 and HK$1,500,000.00. 39.Plaintiff’s case In order not to panic the investors, the Plaintiff did not inform them of the difficult situation with KKPM, hoping that the Defendant would be able to find another venture that might help in recovering the money back for the shareholders. The Plaintiff denied he refused to give the Defendant the addresses of the other shareholders since such information was publicly available by company search. 40.Due to the problems with KPPM, the Defendant proposed either (a) to wind up APPM (but the Parties preferred not to since it would cause loss to all concerned) or (b) to find other legitimate business and source new funds to finance such new business. The Parties adopted option (b). 41.At about this time the Defendant started to negotiate with London Capital Market Limited (“LCML”) which he said would be willing to finance a second project with a Kazakh corporation, Maikain, and the Defendant would see to it that the monies paid by the Plaintiff’s friends (ie APPM’s shareholders) would be repaid over three years and their equity would become debt due from APPM. 42.As recorded in the Draft Minutes, the Defendant disclosed at the AGM the background for the second project. APPM’s engineers explored 17 sites in Kazakhstan and managed to find a large mine held by Maikain, a copper mining company 75% owned by East Point of Cypress and 25% owned by the Kazakhstan government. Maikain held 13 metric tons of encumbrance-free tailings worth US$215 million as evaluated by SRK (UK) Ltd. The new joint venture would be set up in the name of Top Point LLP (“Top Point”) with APPM and Maikain respectively holding 75% and 25% interests. It would take nine months for Top Point to produce from the mine. Maikain did not have (but the Defendant had) the technology to extract gold and silver ores. 43.The Draft Minutes went on to record the Defendant further disclosed at the AGM that he sourced investments by three merchant banks and two individual investors under LCML’s management to finance the new Top Point joint venture, including renting the pilot plant, hiring consultants, buying equipment from Japan etc. APPM was authorised by Top Point’s board of directors to pledge the mine to LCML. LCML also required a shareholder’s guarantee since Top Point was a new company and the Defendant gave the shareholder’s guarantee. According to the Draft Minutes, the Defendant further disclosed that LCML would release US$22.7 million to APPM within 4-6 weeks after completion of the formalities and the Defendant was authorised to manage the fund (ie the credit line from LCML).There would be guaranteed future income for APPM from a five-year contract with Johnson Matthew for gold and silver and from a contract with East Point for copper and zinc. 44.According to the Draft Minutes, the Plaintiff at the AGM expressed concern over inter alia the Defendant’s sole control of the fund provided by LCML, the Plaintiff’s inability to gain access to the loan agreement between the Defendant and LCML and the fact that the sale contract with Johnson Matthew was concluded in the Defendant’s name. The Defendant explained that Top Point’s account with Johnson Matthew had to be opened in his name because Top Point had no track record. The Plaintiff was worried that income from such contract would be deposited in the Defendant’s personal account, but the Defendant gave assurance he would transfer the money to APPM (which he claimed to hold 80% interest under the Agreement) which in turn was obliged to pay Maikain. Nevertheless, the Plaintiff and the other shareholders at the AGM considered an account could be opened in the name of “Osman and APPM”. 45.The approved minutes of the AGM were not produced. Ms Liang submitted that the Draft Minutes and not the Defendant’s assertions reflected the true position. (h) Agreement 46.Defendant’s case The background to the Agreement was the joint venture with Maikain and its purpose was to guarantee a return of the money to the Plaintiff’s Japanese friends. According to the Agreement, the Plaintiff and the Defendant agreed to restructure APPM’s existing shareholding on the ratio of 20% and 80% to the Plaintiff and the Defendant respectively. They also resolved to keep the shareholders abreast of developments in general meetings and monies spent would be duly audited and reported in general meetings. It was proposed that upon the other shareholders receiving repayment of their investments with interest and bonus over a three year period (to be agreed by such shareholders and approved by a shareholders’ general meeting), they would assign their shares to the Plaintiff so that their shares would combine with the Plaintiff’s shares to form 20% of the share capital of APPM whilst the Defendant would hold 80% of APPM’s share capital. The other shareholders would also relinquish their rights and privileges in APPM to the Plaintiff and the Defendant in exchange for the aforesaid repayment undertaking. 47.The Defendant claimed he did not press the Agreement on the Plaintiff, but rather it was the Plaintiff who submitted the Agreement drafted by the Plaintiff’s friend Ho to be signed by all APPM’s shareholders. The Defendant in his Oral Submissions claimed that the new distribution of APPM’s shares with 80% to the Defendant and 20% to the Plaintiff and his Japanese friends reflected the Plaintiff’s incompetence in running the business and his fear and unwillingness to go to Kazakhstan. But after signing the Agreement, the Plaintiff changed his mind since he thought he was losing control. I note from the Agreement that although the Plaintiff, the Defendant and one Souken Company Limited signed, there were no signatures by the other shareholders. 48.Plaintiff’s case The Plaintiff claimed the Parties asked his friend Ho to draft the Agreement. In fact the Defendant amended the Agreement before it was signed by the Plaintiff and the other shareholders. At that time the Plaintiff did not know the Agreement was unenforceable at law. After it was signed, the Defendant told the Plaintiff that LCML required the Plaintiff to step down as executive director. The Plaintiff sought legal advice in respect of his dispute with the Defendant over APPM and then became aware that the Agreement was unenforceable because equity could not be converted into debt. The Plaintiff believed the Defendant knew of the Agreement’s illegality, which explained why the Defendant continued to remain as a minority shareholder and did not take action to enforce the Agreement. 49.Further, although the Plaintiff paid for his one million shares of APPM, the Defendant did not pay for any of his shares. Three million shares of APPM were purportedly allotted to each of the Parties, but such allotment was unlawful since the Parties never paid for such shares. In the circumstances, the Defendant was not an 80% shareholder of APPM. 50.By a letter dated 24th June 2005 from the Plaintiff’s solicitors to the Defendant, the Plaintiff complained of irregularities in the Defendant’s management and administration of APPM and of the Defendant’s failure to pay US$1 million for his shares in APPM. The letter also challenged the Defendant’s attempt to implement the Agreement. The letter stated inter alia that (a) the provisions in the Agreement for reducing APPM’s subscribed share capital and converting the shareholdings of its registered members into shareholders’ loans repayable by APPM without the sanction of the Companies Court was unlawful under the Companies Ordinance Cap.32 and (b) the provisions in the Agreement for transferring the shares of APPM’s minority shareholders and the majority of the shares of the paid up majority shareholder of APPM (ie the Plaintiff) to the Defendant, a director of APPM, without consideration was legally inefficacious and prima facie fraudulent. (i) Alleged cessation of business in Kazakhstan 51.The Defendant claimed that APPM’s business operation in Kazakhstan had ceased. The Defendant in his Oral Submissions said that the Kazakhstan court had ordered all APPM assets in Kazakhstan be transferred to his personal name because he had proof that he spent US$5.2 million in cash and equipment for APPM. The Plaintiff said he was unaware that the business of APPM in Kazakhstan had ceased. (j) Closure of the Hong Kong office 52.Defendant’s case By the end of June 2005 when the Defendant was on a business trip to Kazakhstan, the Plaintiff dismissed all staff of APPM’s Hong Kong office and prohibited them from entering the Office. The staff said the Plaintiff told them APPM would soon close its business and in the afternoon of 6th July 2005 some furniture and articles (including APPM’s books and ledgers) and certain items belonging to the Consulate of Mauritius were removed from the Office. The Defendant in his Oral Submissions said that on 6th July 2005 the Plaintiff instructed his purported wife (the “Wife”), the Defendant not having seen any evidence of marriage, to forge a stamp and issue certain documents and to commit the thefts referred to below. The police had arranged for the Defendant to identify the stolen items. The Defendant said the police were investigating the matter, but the Wife was not in Hong Kong and the police told the Defendant she refused to come forward and make a statement. 53.The Defendant visited the Office upon returning to Hong Kong on 13th July 2005 and found the furniture and other articles as well as his personal chequebooks with some cheques already signed by him missing. The Defendant immediately notified his banker. He was also informed by a staff member that the Plaintiff, a signatory of APPM’s bank account, ordered the staff to give him APPM’s chequebook with no less than 25 blank cheques already signed by the Defendant for paying APPM’s bills and staff salaries during his absence. The Defendant through a staff member demanded the Plaintiff to return APPM’s chequebook. When it was returned, 18 of the said signed blank cheques were missing. 54.The Plaintiff removed APPM’s books, ledgers and accounting records when the Defendant was out of Hong Kong, so the Defendant was unable to access them. Such exclusion from participation in APPM’s management was contrary to the agreement/understanding on which APPM was formed. Since the Plaintiff was in possession of APPM’s books and records, which should have recorded the Expenses and explained why the Defendant’s obligation to return the Sum had ceased, the Defendant was unable to obtain the materials that would have supported his defence. 55.The Defendant in his Oral Submissions said the Plaintiff knew (a) the Defendant and APPM had something against him and (b) the records would show airline tickets, hotels and everything the Defendant had spent personally prior to the Note. He added that he was told by the police that two computers were missing from the warehouse where the Plaintiff stored APPM’s properties and submitted that the Plaintiff would wipe out the data to conceal his misdeeds. 56.Reports were made to the police in respect of the theft of APPM’s property, the Defendant’s personal property and the property of the Consulate of Mauritius. The Defendant in his Oral Submissions claimed that the Plaintiff committed the thefts to cover his misdeeds and his dissipation of other people’s funds and because he changed his mind after signing the Agreement. The Defendant submitted that the Plaintiff had severely abused APPM by the thefts and also abused APPM’s staff by dismissing them without proper procedure or authorisation by the board of directors. The Defendant further claimed he had a much more substantial claim against the Plaintiff for the Plaintiff’s aforesaid fraudulent actions. 57.Plaintiff’s case The Plaintiff admitted he did terminate the employment of all APPM’s Hong Kong staff and surrender the office tenancy as there was no longer any money to pay anyone. He had arranged to put all belongings of APPM except the chattels in the Defendant’s room and the Defendant’s personal belongings in storage for the purpose of preparing the management accounts and audit for APPM’s extraordinary general meeting (the “EGM”) to explain how the money was spent. The Plaintiff was limited by the Defendant’s failure to account for all the money the Plaintiff had sent to him or on his instructions. Since the Defendant had not paid for his shares in APPM, his shares would be forfeited as soon as an additional director is appointed at the forthcoming EGM. But the Plaintiff was unable to proceed whilst APPM was deadlocked. (k) Plaintiff’s alleged free-spending lifestyle 58.The Defendant in his Oral Submissions said the Plaintiff used APPM’s funds for his personal entertainment by submitting his monthly credit card statements to APPM for settlement. He also caused APPM to pay for his trips with his girlfriends all over the world and for his golf games. He would submit bills to the order of US$4,000.00-US$4,500.00 to APPM. Is the Note a promissory note? 59.Section 89 of the Bills of Exchange Ordinance Cap.19 (the “Ordinance”) defines a promissory note as follows :
Byles on Bills of Exchange and Cheques 27th ed. (2002) para.24-03 at pp.360-361 states inter alia that “[no] precise words of contract are essential in a promissory note, providing that the legal effect is an unconditional promise to pay and also that there is evidence of the intention of the parties to make a promissory note”. 60.In respect of the Note, there can be no doubt that the requirements that it be (a) in writing, (b) made by one person to another, (c) signed by the maker, (d) a sum certain in money and (e) paid to a specified person are satisfied. There is also no dispute that Note was delivered to the Plaintiff. The questions here are (i) whether the Note amounts to an unconditional promise and (ii) whether the Defendant engaged to pay at a fixed or determinable future time. 61.In respect of the requirement that there be an unconditional promise, the actual word “promise” need not be used and any other words which clearly constitute a promise to pay are sufficient, but a mere acknowledgment of indebtedness, though it imports a promise to pay, is not a promissory note (Chalmers and Guest on Bills and Exchange, Cheques and Promissory Notes 16th ed. (2005) para.15-004 at pp.689-690 and Akbar Khan v Attar Singh [1936] 2 All ER 545, 549-550). Further, the promise to pay contained in a promissory note must be unconditional. 62.It was suggested in the Written Submissions that the Note “contains(s) no promise by the Defendant engaging to pay” and that the provision in the Note that money “will be returned” but not by whom was a point significant on the facts. In my view, the Note should be read as a whole and not in narrow or separate phrases. Bearing in mind that no precise words are required and that it is unnecessary to adhere to any usual format so long as the unconditional promise is clear, I consider the whole provision that “I hereby confirm that the said amount will be returned to [the Plaintiff] within 30 calendar days from the date of this note” (my emphasis) makes it quite plain it is the Defendant (ie the maker of the Note) who will repay the Sum to the Plaintiff. It is clearly a promise by the Defendant engaging to pay the Plaintiff and it is not subject to any condition. 63.Further, the intention of the parties is apparent from the title of the Note, namely, “promissory note”. I find the Defendant’s suggestion in his affidavits that he thought the Note was a receipt for the Sum incredible. There is no suggestion that he was unable to read or understand the contents of the Note, so whether he had any legal advice at that stage and whether he drafted the Note or not are irrelevant. The Defendant also did not explain how he, an experienced businessman for many years who operated internationally and was involved in substantial transactions, could have regarded the Note clearly labelled as a “promissory note” and clearly containing a promise to repay the Plaintiff as a receipt only. If the Defendant had the Oral Agreement and the 1st and/or 2nd Oral Conditions in mind, it is unbelievable that he would simply proceed to sign the Note without querying the said label and/or why he should give the Note to the Plaintiff at all when the Parties contemplated forming a joint venture company which, according to him, would take up the responsibility of repaying the Sum to the Plaintiff. 64.In respect of the requirement of engaging to pay at a fixed or determinable future time, section 95(1) of the Ordinance provides that “[subject] to the provisions in this Part and except as by this section provided, the provisions of this Ordinance relating to bills of exchange apply, with the necessary modifications, to promissory notes”. Section 11(1) of the Ordinance provides that “A bill is payable at a determinable future time within the meaning of this Ordinance which is expressed to be payable - (a) at a fixed period after date or sight ……”. 65.In Chevalier (E&M Contracting) Ltd v Rotegear Developments Ltd & ors [1994] 3 HKC 457, 462, Barnett J held that where the words “on or before” were used in a bill or promissory note, it was difficult to see how it could be said that there was not a fixed or determinable time. There was a specified date at which, if payment had not been made, the holder could sue the promisor. Likewise in the present case, the provision in the Note for “within 30 calendar days from the date of this note” amounts to a fixed or determinable time because on expiry of the period of 30 calendar days from 10th October 2002, the holder (ie the Plaintiff) could sue the promisor (ie the Defendant). 66.The Defendant in his affidavits also claimed he never believed or understood the Plaintiff would endorse the Note to another person/entity. However, such assertion is irrelevant since the present proceedings were issued by the Plaintiff as holder of the Note and not by any other third party. 67.I therefore conclude that the Note is a promissory note within the meaning of the Ordinance. The Oral Agreement and 1st and 2nd Oral Conditions 68.The Defendant claimed that the Sum given to him was not for his own personal purpose and that prior to his signing and delivering the Note to the Plaintiff the Parties made the Oral Agreement with the 1st and/or 2nd Conditions. The question here is whether the oral evidence in relation thereto is admissible at all. It is trite that a person to whom a bill or note is delivered is entitled to assume that each party’s promise is absolute and unqualified unless it is otherwise indicated on the instrument itself. In Chalmers and Guest (supra) para.2-155 at pp.124-125, it is stated as follows :
69.Ms Liang referred to Hoven International Ltd v Mass Resources Development Ltd & anor [1997] 1 HKC 38 (which is a case on a dishonoured cheque) in support of the above proposition. In that case, the first defendant contended that the post-dated cheque requested by the plaintiff as security for the loan was not to be presented until all the properties with which the plaintiff and the first defendant were involved were sold, so that its liability had not arisen when the plaintiff demanded repayment. Cheung J followed Great Sincere Trading Co v Swee Hong & Co [1968] HKLR 660 and disallowed the introduction of such extrinsic oral evidence to contradict the express term of the cheque, namely, payment on the drawing date. The evidence related to the term of repayment which was an essential term of the agreement and could not be regarded as evidence of a collateral contract. 70.The above proposition has been affirmed in a line of dishonoured cheque cases by Recorder Kenneth Kwok SC in S Y Chan Ltd v Choy Wai Bor [2001] 4 HKC 285 and by the Court of Appeal in Lin Hsien Tseng v So Sin Mui Bonnie CACV162/2002 (unreported, 19th September 2002) and Po Yuen (To’s) Machinery Fty Ltd v Chan Siu King CACV209/2002 (unreported, 19th November 2002). Such proposition is also applicable to promissory notes (Hennabun Capital Limited v Wong Chun Hung Vincent HCA340/2001, Sakhrani J (unreported, 9th January 2002)). 71.In the present case, the effect of the Oral Agreement with the 1st and/or 2nd Oral Conditions is to render the Note meaningless (ie the Defendant need not pay the Sum to the Plaintiff at all) if and when APPM was acquired. According to such allegations, firstly, the Note was not to be effective against the Defendant if APPM was acquired and secondly, it was not to take effect against APPM until APPM had monies to repay the Sum. This is not a condition suspending the operation of the Note but in defeasance of the express undertaking to pay in the Note and therefore falls foul of the parol evidence rule. Hence, as a matter of law, the Oral Agreement does not amount to any triable or arguable defence against the Plaintiff’s claim. 72.The Defendant also complained he was unable to access APPM’s books, ledgers and accounting records which would evidence the Expenses. There was some suggestion there were other documents in Kazakhstan and the United States, but no particulars of such documents were given. However, on the above analysis, even if such books, ledgers, accounting records and other documents record and evidence the Expenses, they do not support any arguable defence. 73.But Ms Liang goes further to say that the Oral Agreement with the 1st and/or 2nd Oral Conditions was not real or bona fide and that it was nothing but a bare assertion which the Plaintiff denied. She reminded that the Sum was transferred to the Defendant’s personal bank account. The Defendant did not give any particulars as to the time, place and consideration for the Oral Agreement, which contradicted the plain wording of the Note. Further, the Oral Agreement (in contra-distinction to the Expenses) was unsupported by any contemporaneous document. 74.Ms Liang argued that if the Defendant’s assertions were true, there would have been a board resolution to such effect since the Parties were the only directors of APPM. Further, if the Parties did make the Oral Agreement, either the Note would have referred to such agreement or it would have been amended to reflect the Oral Agreement or delivered up for cancellation. But despite the assertions in respect of the Oral Agreement and the acquisition of APPM, there was no such board resolution and the Note, which made no mention of the Oral Agreement, remained in the Plaintiff’s possession. 75.In the circumstances, I have reservations whether a case of bona fide dispute on substantial grounds has been made out on the basis of the Oral Agreement even on the Defendant’s evidence. The sense of unreality is heightened by the fact that the Japanese investors (ie APPM’s shareholders) had contributed their investments and paid for their shares in APPM. According to the Plaintiff, funds totalling US$7.73 million came in from the investors. The Agreement referred to contribution of US$6.73 million from the other shareholders. In any event, it was a substantial sum in excess of HK$450,000.00. In such circumstances, if the Oral Agreement and the 2nd Oral Condition were true, APPM should have long since repaid the Sum to the Plaintiff. 76.I also note there was no subsequent reply by the Defendant to the Demand Letter irrespective of whether the Defendant was in Hong Kong at the moment of receipt of the Demand Letter. By that time, the Parties were in serious dispute over the affairs of APPM, yet there was no expression of denial or outrage on the part of the Defendant over the demand for repayment of the Sum pursuant to the Note. 77.Upon considering the evidence and the Written and Oral Submissions, I agree with the Plaintiff that the Note was what the Defendant offered to sign and it was intended to be a promissory note amounting to the Defendant’s personal engagement to repay the Sum to the Plaintiff as well as a receipt evidencing the Plaintiff’s initial transfer of the Sum to the Defendant. Alleged counterclaim and defence of set-off 78.It has been suggested in the Written Submissions that the Oral Agreement amounted to a novation of APPM’s pre-incorporation Expenses, so that with the acquisition of APPM, the Expenses incurred by the Defendant (partially covered by the Sum from the Plaintiff) were passed to and accepted by APPM. It was further suggested that APPM had ratified the contract and adopted the advance from the Plaintiff, so the Defendant was discharged. If the Defendant were not so discharged, he would have suffered loss and damage by reason of the Plaintiff’s breach of his warranty and would have had a counterclaim equivalent to the Sum which he was entitled to set-off against the Plaintiff’s claim. 79.It seems to me that such argument is again premised on the Oral Agreement. Even assuming that the evidence sought to be introduced by the Defendant regarding the Oral Agreement is admissible (which I have held to be otherwise), the burden is on the Defendant to establish a defence on substantial grounds. I bear in mind that although collateral contracts must be strictly proved, the Defendant will be able to discharge the burden for present purpose if he satisfies the test of whether his case is believable, rather than to be believed (China Everbright Holdings Co Ltd v Synergy Finance Ltd & anor HCA933, 934& 935/2002, Deputy Judge Poon (unreported, 18th December 2002) and Bectic Finance Company Limited v Calgo Asia Limited & ors HCA2333/2004, Deputy Judge Muttrie (unreported, 17th October 2005)). However, I am not satisfied the Defendant has discharged that burden. I repeat my reservations in respect of the Oral Agreement above. 80.At the Hearing, the Defendant asked me to ignore the authorities cited by Ms Liang because the court should make its own decision and not be constrained by previous cases, which were totally different. Whilst I agree with the Defendant the earlier authorities do not involve allegations about “a Japanese citizen committing theft and fraud”, I disagree that I should ignore their rationes decidendi which are applicable to the present situation. 81.The Defendant further submitted at the Hearing that it was necessary for me to consider the total chain of the relationship and of the dispute between the Parties. He referred to the many illegal actions allegedly committed by the Plaintiff and suggested that the present proceedings were an attempt by the Plaintiff “when he was cornered” to retaliate against him because the Plaintiff conveniently held the Note. 82.In his Oral Submissions, the Defendant asked me to bear in mind the “dirty actions” of the Plaintiff which included stealing the Defendant’s property, APPM’s property and the property of the government of Mauritius, causing the Wife to run out of town and approaching his Japanese friends with fraudulent representations that their investments in APPM would generate a return of 200% or 300%. The Defendant submitted that these actions were plainly not those of an honest person. He argued that I could not safely trust the Plaintiff’s assertions when the Plaintiff failed to tell his own solicitors the whole truth (ie the Plaintiff misled his own solicitors) and committed fraudulent and illegal acts. The Defendant urged that the court could only determine which party was lying upon considering the whole picture. He said he was taking the present proceedings very seriously and he should be given an opportunity to proceed further with his defence to prove that the Plaintiff was lying. 83.I have carefully considered the Defendant’s evidence and arguments. I have also read the Agreement as he asked me to. Even assuming that the Defendant should be able to establish a cross-claim against the Plaintiff based on any or all of the matters raised in his affidavits and/or in his Oral Submissions, free-standing cross-claims in respect of any or all of the Plaintiff’s other alleged misdeeds (eg failing to satisfy the Representation, keeping the Defendant away from the proposed and eventual investors in APPM, preparing the Document that contained misleading and untrue representations, misleading his Japanese friends into investing in APPM by making misstatements and groundless yield projections as well as failing to properly disclose the relevant risks and problems about KKPM and the Family, changing his mind after signing the Agreement without good and sufficient reason, wrongfully closing APPM’s Hong Kong office and dismissing its staff, stealing or removing properties of the Defendant, APPM and the government of Mauritius, causing the Wife to commit the aforesaid alleged thefts and fraudulent acts and then to abscond from Hong Kong, wiping out data from stolen computers of APPM, maintaining a free-spending life-style at APPM’s expense, etc) would not constitute a reason why the Plaintiff should not be paid on the Note. 84.In Fielding and Platt, Ltd v Najjar [1969] 2 All ER 150, Lord Denning MR said at p.152 that “[we] have repeatedly said in this court that a bill of exchange or a promissory note is to be treated as cash. It is to be honoured unless there is some good reason to the contrary”. Chalmers and Guest (supra) at para.4-010 at pp.233-236 states as follows :
85.I note that some of the Defendant’s complaints could at best only be maintained by APPM (eg the alleged theft of APPM’s property) and not by the Defendant, so they cannot constitute any viable cross-claim by the Defendant against the Plaintiff. I also note that the Plaintiff refutes the alleged misdeeds and there is acute controversy between the parties over those matters. But even if there are valid cross-claims by the Defendant against the Plaintiff, they go to the underlying relationship between the parties and not to the Note, which is a separate and distinct contract. In my view, the Plaintiff should still have judgment on the Note, but, needless to say, the alleged cross-claims may be pursued by the Defendant by separate action. Some other reason for trial 86.The Defendant in his Oral Submissions said it would be necessary to call the police, Ho and other witnesses to give evidence and to cross-examine the Plaintiff at the trial of this action. He further submitted he could produce his passport to prove he and the Plaintiff went on business trips to Kazakhstan, Beijing and Tokyo. The Defendant also claimed he would produce a tape recording in which the Plaintiff said “I am coward, have no self-confidence, I don’t know anything about this business, that is why I’m hiding behind Ms Susan Liang”. 87.However, on the above analysis, these documents/recordings and witnesses, even if available and their contents or evidence are as described by the Defendant, at best support the alleged cross-claims by the Defendant and are insufficient to raise an arguable or triable defence to the Plaintiff’s claim. By the same token, the Intended Evidence, which I have rejected for the purpose of the present application, is also irrelevant. Conclusion 88.In the circumstances, there is no triable or arguable defence that ought to be left for trial. I therefore grant final judgment for the Plaintiff against the Defendant for the sum of HK$500,000.00 together with interest thereon at the rate of 8.245% pa from the date of the writ of summons to the date of judgment and thereafter at judgment rate until payment. It does not appear to me there are exceptional circumstances in which the court may have granted a stay of execution pending the determination of any of the alleged cross-claims by the Defendant. 89.There is no reason why costs should not follow event. I grant a costs order nisi that the Defendant do pay to the Plaintiff costs of the action and of the application for summary judgment (including all costs reserved, if any) to be taxed if not agreed. At the request of the Defendant and with the consent of Ms Liang, I hereby enlarge time under Order 42 rule 5B(3) of the Rules of the District Court so that the above costs order nisi will not become absolute until 14th February 2006.
Ms Susan Liang of Messrs Susan Liang & Co for the Plaintiff. The Defendant acting in person and present. |
Cases cited in this judgment
Further hearings and rulings under DCCJ 4042/2005