Chan Shu Kong v. Kwong Hing Trading Co Ltd and Another
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HCA 1152/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1152 OF 2006 _________________ BETWEEN
___________________ Before: Deputy High Court Judge Carlson in Chambers Date of Hearing: 18 May 2007 Date of Ruling (Handed Down): 21 June 2007 ______________ R U L I N G ______________ Introduction 1.This is an appeal by the Defendants from a refusal by Master Yu, dated 19 March 2007, to allow them to amend their defence save for some inconsequential matters. The basis of his refusal was that the proposed amendments would have served no useful purpose because they were bad in law and therefore bound to fail. 2.To understand the Master’s reasoning it is necessary to briefly set out the factual background to the action and how that background relates to the issues that the Defendants wish to raise by their proposed amendments to the defence. 3.This matter is concerned with the principle that a partner cannot set off his personal debt against a debt owed to the partnership. Presently, I will need to say a little more about this. 4.The matter itself comes about in this way. The Plaintiff, Mr Chan and the 2nd Defendant, Mr Yeung have had a business relationship which pre-dates the transactions that have resulted in this action. I will refer to both of them by name rather than by their titles in this action because that will make the factual background easier to understand. 5.Mr Chan is the owner of a flat at 1, Babington Path (“the flat”). The 1st Defendant (“the company”) is substantially owned by Mr Yeung — he owns 99% of its shares. The company has been, and may still be although that does not matter for present purposes, a customer of the Hua Chiao Commercial Bank (“the bank”), now subsumed into the Bank of China group. By virtue of a facilities letter dated 21 December 2004 the company was granted general banking facilities. These facilities were secured by a personal guarantee executed by Mr Chan on 27 October 1999 in the amount of $800,000 secured by a second legal charge on the flat and a personal guarantee executed by Mr Yeung in the sum of $10,800,000. 6.On 7 December 2005, the bank demanded by three separate letters addressed to each of Mr Chan, the company and Mr Yeung repayment of the amount of HK$295,131.14 and US$89,420, together with accruing interest which the company owed to the bank. 7.The company failed to repay its indebtedness to the bank. The bank also required Mr Yeung to pay his contribution under his guarantee with Mr Chan. Mr Yeung neglected to make such a payment. On 17 February 2006, the bank wrote to Mr Chan telling him that it proposed to enforce its charge on the flat by taking proceedings against him under RHC Order 88. Fearing the loss of his flat, on 15 March 2006, Mr Chan paid the bank the sum of $1,038,875.66 to discharge his obligations in respect of the bank’s second charge on the flat. This represented an overpayment from him of $18,404.34 which was refunded to him by the bank representing a net liability of $1,020,471.32 owed by him to the bank which the bank acknowledged that he had now discharged. 8.Having made payment to the bank in respect of the company’s indebtedness to the bank, Mr Chan by this action seeks to be indemnified by the company and/or by Mr Yeung. In the case of the company he seeks repayment of the full amount and in the case of Mr Yeung, the sum of $950,094, being the share of the joint guarantee liability between Mr Yeung and himself in the ratio of $800,000: $10,800,000. 9.It is relevant to note that this action was started on 27 May 2006. 10.Before I turn to the defence it is helpful to refer to a related action in the District Court which is, in many respects, a mirror image of the proposed amended defence in this action. The District Court Action DCCJ 4812/2005 11.This action which is earlier in time to the matter before me is dated 7 November 2005. The Plaintiff is the company in the action before me (that is to say the 1st Defendant). The Defendant in the District Court , Triumph Company (“a firm”) is a partnership between Mr Chan and his partner Mr Wong Bo Leung. The Plaintiff is suing Mr Chan and Mr Wong for $1,000,000 being money allegedly lent to them by Mr Yeung on half of the Plaintiff in respect of letter of credit transactions relating to the purchase of cloth by Mr Chan and Mr Wong trading as Triumph Company from third parties. This claim is fully particularised in the Statement of Claim which has been amended and re-amended. 12.By its defence Triumph Company denies its indebtedness and says that if there be any indebtedness that lies elsewhere. The defence, also amended and then re-amended, pleads in detail why this is so. It is not necessary for the purposes of this appeal for me to describe the various issues that are joined in this action. It is sufficient to observe that as matters presently stand this action in the District Court is yet to be tried. The Plaintiff is alleging that it is owed $1,000,000 by Mr Chan and Mr Wong trading as Triumph Company. The Defence in the Action Before Me 13.By their defences, the company and Mr Yeung say a number of things. Firstly, and this does not concern the subject matter of the appeal and the proposed amendment to the defence, the two defendants allege that Mr Chan’s guarantee on behalf of the company was one whereby he incurred a primary liability for which the company and Mr Yeung bear no liability nor any concurrent liability with him. Secondly, in respect of the charge on the property they plead, in effect, that this involved Mr Chan’s own arrangements with the bank for which they can have no liability, as a result of which he is not entitled to look to them for any indemnity or contribution. This is a perfectly good plea which will need to be tried in due course. 14.The matter that gives rise to the application to amend which the Master declined to allow concerns the debt allegedly owed by Mr Chan and Mr Wong trading as Triumph Company to the company for which they have been sued in the District Court action which I have just referred to. By the proposed amendments, the company and Mr Yeung seek to set off that debt (a debt allegedly owed by the two partners and not by Mr Chan alone) against Mr Chan’s claim against the company in this action. 15.What the proposed amendment seeks to do is to repeat the detail of how this debt has arisen, substantially therefore a repetition of the Re-amended Statement of Claim in the District Court action. 16.This having been said it is important to understand that in its original form paragraph 9 of defence had already raised the set off of this debt. The plea is in these terms:
17.What one has therefore is, by incorporation by reference, all the matters pleaded in detail in the Amended Statement of Claim in the District Court action. 18.The proposed amendments to the amended defence are very much a re-run of the District Court pleading. Mr Chai, on the Defendant’s behalf, says that the real purpose of the amendments is to provide proper particulars of the set off that is being advanced. The Master’s Refusal to Allow the Amendments 19.As I indicated at the start of this ruling, the Master took the view that this proposed plea was one that was bound to fail. The objection to the plea comes from section 11 of the Partnership Ordinance (Cap.38) which is to the effect that the liability of the partners is joint but not several:
What the Defendants are seeking to do by the amendments is to advance the set off of a debt allegedly owed by Mr Chan and Mr Wong against their liability to Mr Chan alone. The subject matter of the action by Mr Chan against which a set off is claimed does not concern Mr Wong at all. As the liability of partners is in law only a joint one and not several such as set off is said not to be a competent one in these circumstances. In this regard, I have heard very helpful argument from both Mr Chai, in support of the amendments and from Mr Ho who seeks to resist the application. Case Management 20.It strikes me that even if the appeal is dismissed with the consequence that the amendments are not allowed there will still remain the very same issue of this set off as originally pleaded in the way that I have recited above. Now that I have had time to reflect on the matter it strikes me that the stance adopted on behalf of Mr Chan is, if not inconsistent, somewhat irregular. What use is it to resist these amendments which are really no more than particulars of the plea in support of the set off on the basis that a set off in these circumstances is not available in law and is therefore bound to fail, and yet leave in place as originally pleaded the very set off that is objected to. The opposition to the amendments becomes a futile and meaningless exercise. It seems to me that those advising Mr Chan must get their house in order in this regard. Once the original plea of set off appeared in the defence they should have taken out a summons under RHC O.18 r.19 to strike it out as one that is bound to fail. Reluctantly, because this will cause some delay, I am not going to rule on the appeal now. I am going to adjourn it for a period of 28 days to give Mr Chan’s solicitors an opportunity to consider their position as to whether they ought to be taking out a summons under O.18 r.19 to strike out all references to the set off. If they do, then that summons and this appeal will be restored to be heard together. As the point of this appeal and an application to strike out the plea based on the set off are, I would have thought, identical I do not believe the argument will have to last very long especially in view of fact that the ground has already been covered on the appeal. The two matters could be listed for a hearing lasting one hour which should be ample. 21.I cannot oblige Mr Chan’s solicitors to take out a summons under O.18 r.19, but it must be plain from the remarks that I have just made that this must be the logical course to take. If they succeed then there is no question of a set off being entertained in such circumstances. If the Defendants succeed then the matter will proceed to trial on the basis that the amendments to be amended defence will be allowed and they will be permitted to argue for a set off. The matter should go forward on an all or nothing basis and that is why I have decided to take this course. The Order 22.This being so the order will be that the appeal will be adjourned for 28 days from the date of this ruling and is to be restored on the first open date thereafter before me with a one-hour time estimate. Any summons under O.18 r.19 that the Plaintiff may wish to take out will be listed on the same occasion and be heard together with the restored appeal. The Plaintiff will file and serve any affidavit in support of the O.18 r.19 summons together with the summons itself and the Defendants may reply thereto, if so advised, within 14 days thereafter, although I am bound to say that given the identity of issues between this application to amend and a summons by the Plaintiff under O.18 r.19, that perhaps no evidence needs to be filed. At all events, I will leave that to the parties’ solicitors to decide. As I have adjourned my ruling on the appeal to a further hearing no order for costs in the appeal is necessary at this stage, the appeal remaining part heard to the restored date once that is appointed.
Matthew Ho, instructed by Messrs D S Cheung & Co., for the Plaintiff Michael Chai, instructed by Messrs Eli K K Tsui & Co., for the 1st and 2nd Defendants |
Further hearings and rulings under HCA 1152/2006