Kwan Yick Textile Co Ltd v. Li Lai Na

DCCJ 4817/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4817 OF 2007 

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Coram:  Deputy District Judge J. Ko in Chambers (open to public)

Date of Hearing:  23^rd April 2008

Date of Handing down of Decision:  2^nd May 2008

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DECISION

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1.This is the Defendant’s application to set aside the judgment entered on 9^th January 2008 in default of defence.  There is also the Plaintiff’s application to make the charging order nisi dated 17^th January 2008 absolute, which is still pending.

2.Concerning the default, the Defendant explains that she emigrated to the USA in 1997 and has since been residing there.  She asked her former husband, a businessman who travels frequently, to give instructions to her former solicitors in Hong Kong to prepare a defence but he failed to do so.  The Plaintiff does not seek to challenge the explanation.

3.It is common ground between the parties that the judgment is a regular judgment and the Defendant must show a defence which has a real prospect of success before the court will set the judgment aside.

4.The Plaintiff’s claim is based on an alleged personal guarantee given by the Defendant in favour of the Plaintiff.  According to the Statement of Claim:

(a) The Defendant is a person in control of a garment manufacturing company called “Allfit International Limited” (“Allfit”).

(b)In about November 2001, the Plaintiff supplied $761,000 worth of garments to Allfit at the request of the Defendant and in consideration of a guarantee given by her in favour of the Plaintiff to secure all payments by Allfit.

(c) The Plaintiff issued an invoice to Allfit on 19^th November 2001 for the amount of $711,000 for the garments sold and delivered to Allfit.  Pursuant to the guarantee, the Defendant issued a post-dated cheque for that amount to the Plaintiff as security for payment by Allfit to the Plaintiff. 

(d)Upon maturity of the post-dated cheque, the Defendant requested the Plaintiff not to present the cheque as there was insufficient fund in the account.  The Plaintiff acceded to the request but continued to ask for payment. 

(e) When the Defendant failed to make payment despite repeated requests and demands, the Plaintiff commenced this action against the Defendant to claim for $711,000.

5.The Defendant denies having given any personal guarantee to the Plaintiff.  It is her case that she has no interest or control over Allfit.  She emigrated to the USA in December 1997 and was not in Hong Kong in November 2001 when the guarantee and the post-dated cheque were allegedly given by her.  As to the cheque in question, she explains that she issued it to her former husband back in 1997 at the latter’s request for business purpose.  She simply signed the cheque and asked her former husband to fill in the other particulars such as date, name of payee and amount as she then trusted him. 

6.The Defendant has adduced evidence in support of her case:

(a) Her travel documents confirm that she emigrated to the USA in December 1997.  There is also documentary evidence to confirm that she was studying in California from 1999 to 2002.

(b)The annual returns of Allfit for 2001 confirm that the Defendant was neither a director nor a shareholder of the company.

7.Curiously, the Defendant’s case is also consistent with the evidence adduced by the Plaintiff to oppose the Defendant’s application. 

(a) As to the relationship between the Defendant and Allfit, the most that the Plaintiff’s director is prepared to commit on affirmation is that the Defendant’s former husband has a close personal relationship with one of the directors of Allfit.  The Plaintiff has offered no evidence to substantiate its pleaded case that the Defendant was in control of Allfit at the material time. 

(b) According to the Plaintiff’s director, all business dealings between Allfit and the Plaintiff were done through the Defendant’s former husband on behalf of Allfit.  No direct dealings between the Plaintiff and the Defendant is alleged.  This must be contrasted with the Plaintiff’s pleaded case that it was the Defendant who requested the Plaintiff to supply garments to Allfit, gave a personal guarantee to the Plaintiff, issued a post-dated cheque to the Plaintiff and requested the Plaintiff not to present the cheque upon maturity.

(c)Concerning the cheque, the Plaintiff’s director says she received it from the Defendant’s husband.  The cheque then bore the signature of the Defendant only and it was her who filled in the amount and post-dated it. 

8.The Defendant’s counsel observes, correctly in my view, that the evidence now adduced by the Plaintiff is inconsistent with the Plaintiff’s pleaded case.  The Plaintiff’s counsel tries to salvage the situation by arguing that the Defendant’s husband had apparent or ostensible authority to provide the personal guarantee to the Plaintiff on the Defendant’s behalf.  He specifically relies on the following facts:

(a) the Defendant issued a blank cheque to her former husband “for business purpose” and the Defendant’s former husband’s represented to the Plaintiff’s director that “the Defendant being his former wife is willing to provide a personal guarantee to the Plaintiff”; and

(b)the Defendant asked her former husband to give instructions to her lawyers to handle this case.

9.The Defendant’s husband does not feature in the Statement of Claim and his role in this case is never pleaded.  In my view, it is not open to the Plaintiff now to justify the judgment by asserting a case which is different from its pleaded one. 

10.The Plaintiff’s counsel submits that the Defendant has suffered no prejudice from the fact that the role of the Defendant’s husband is not specifically pleaded.  I disagree.  Properly particularized pleadings should inform the other side of the nature of the case that has to be met, limit the generality of the pleadings, and prevent the other side from being taken by surprise at the trial.  It is one thing for the Plaintiff to plead that the Defendant requested for the supply of garments, provided a personal guarantee, issued a post-dated cheque and requested for a postponement of presentment of the cheque, but quite a different thing for the Plaintiff to run a case at trial that all was done through the Defendant’s former husband. 

11.The Plaintiff’s counsel then observes that the Defendant has not filed any evidence from her former husband in support of her case and to refute the Plaintiff’s case.  He invites me to draw an adverse inference against the Defendant.  There can be many innocent reasons why the Defendant has not adduced evidence from her former husband.  One is reminded of the Defendant’s explanation for the default.  Given the nature of the application before me, parties have not fully explored the explanation for not adducing such evidence.  In such circumstances, it would be premature to infer from the absence of an affidavit from the Defendant’s former husband that his evidence would not support the Defendant’s case.

12.In any event, whether the Plaintiff will eventually succeed in establishing apparent or ostensible authority on the part of the Defendant’s former husband depends on the circumstances of this case.  The court will have to consider matters such as:

(a) the circumstances of the issuance of the cheque by the Defendant to her former husband; and

(b) the circumstances of the representation made by the Defendant’s former husband to the Plaintiff’s director.

13.The Plaintiff will also have to establish that it acted on the faith of such representation.  The fact that the Defendant has subsequently asked her former husband to instruct lawyers could not have operated on the mind of the Plaintiff’s director at the time when she decided to accept the alleged guarantee on behalf of the Plaintiff.  There is also evidence that the Defendant is all along indebted to the Plaintiff’s director and the Plaintiff’s director has registered a charging order against the Defendant’s property since 1997.  The judgment debt has accumulated to some $1.3 million.  The Defence counsel points out that it would be unreasonable for the Plaintiff’s director to accept any personal guarantee of the Defendant given this outstanding debt.  All these will have to be canvassed at trial.

14.All in all, I am satisfied that the Defendant’s defence has a real prospect of success. 

15.The Plaintiff’s counsel has invited me to impose condition for setting aside the judgment.  I do not think that is appropriate.  The Plaintiff has not doubted the Defendant’s explanation on her default and there is nothing to indicate that the defense is shadowy.

16.The judgment is therefore set aside.  The charging order nisi, which is founded on the judgment, should be discharged. 

17.The Defendant’s counsel has conceded costs in the event that I decide to set aside the judgment.  This may be due to the default on the part of the Defendant in filing a defence.  Given the fact that the evidence now adduced by the Plaintiff is inconsistent with its pleaded case, I do not think the concession is appropriate.  In all the circumstances, I think a fair order should be that the costs of and incidental to the setting aside of the judgment and the application for charging order (including all reserved costs) should be in the cause and I so order.  There shall also be certificate for counsel.

Mr. Kevin Li, instructed by Messrs. Hui & Lam, for the Plaintiff

Mr. Dickson Li, instructed by Messrs. Eli K.K. Tsui & Co., for the Defendant