Fbc Construction Co Ltd v. Big Island Construction (HK) Ltd

HCA1363/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1363 OF 2008

--------------------------

BETWEEN

--------------------------

Before : Hon Burrell J in Chambers

Date of Hearing : 9 March 2009

Date of Decision : 25 March 2009

--------------------------

D E C I S I O N

------------------------

1.This is an application for summary judgment pursuant to Order 14 of the Rules of the High Court.  The matter was first listed to be heard in October 2008 but was adjourned due to the late filing of an affirmation by Mr Ben Lee, a director of the defendant company.  At all material times the defendant company was 99.9999% owned by “Big Island Asia” which, in turn, was 99.9% owned by Ben Lee.

2.Big Island Asia also owned 40% of the plaintiff company, of which Ben Lee was also a director.

3.This is also a statutory derivative action brought by a shareholder of the plaintiff, namely Wu Yi Construction Company Limited, brought on behalf of the plaintiff against the defendant for the repayment of debts.  In short, it is said, quite simply, that between 1996 and 2001 Ben Lee wrote numerous letters to the plaintiff in which he referred to the defendant as “my company” requesting to borrow specific sums of money.  On every occasion the records show that within a very short time the money was transferred to the defendant.

4.The schedule attached to the Statement of Claim, which is dated 19 July 2008, records the history of the transactions.  Between 1996 and 2001, 25 “loans” are recorded in amounts varying from $50,000 to $1 million.  The unpaid balance is adjusted downward from time to time by items referred to as “offsetting loans”.  Most of these are “offsetting loans by payment of FBC expenses”.  In other words, instead of being reimbursed expenses Mr Lee’s debt was reduced.  This happened on numerous occasions without demur.  In August 2005, the amount still outstanding was the amount now claimed, $2,698,102.

5.I shall briefly deal in due course with the plaintiff’s submissions and the defendant’s response in relation to these debts, as advanced by Mr Lawrence Ng and Mr Andrew Sheppard respectively.  Firstly, however, the plaintiff relies on two other actions in which, it is submitted, there are striking similarities with this case.  The defendant is the same.  In 2004, the defendant borrowed $500,000 from “Wu Yi Development” and $500,000 from “China Expert”.  In the first action, the plaintiff brought Order 14 proceedings in which Chu J granted leave to defend conditional on the full amount being paid into court.  The judgment makes a number of critical observations concerning the bona fides of the defence.  In the other action, the defendant eventually consented to judgment although, somewhat disingenuously, in a later affirmation relating to this case affirmed that he consented to judgment “for commercial reasons” which, as I read it, seems to infer that the consenting to judgment in that case should not be regarded as an unequivocal admission of liability.

6.In any event, Mr Ng points to these two cases, whilst acknowledging that no two cases are ever identical, in support of his submission that Ben Lee’s modus operandi in receiving loans and then seeking to avoid repayment is not confined to this case.  There is considerable force to this contention.  With that preliminary observation made I now focus on the issues surrounding the alleged debts in this case.

THE PLAINTIFF’S CASE

1.  Evidence in support of the debts

(a)  Contemporaneous documents

7.The plaintiff relies on numerous letters from the defendant company to the plaintiff company, signed by Ben Lee specifically and unequivocally requesting loans in specific amounts.  The requests were invariably approved and granted.  The schedule in the Statement of Claim identifies the vouchers, cheques and receipts relied on in respect of each advance.

(b)  Acknowledgement and admissions of the loans and debts

8.In the defendant’s own trial balances for 2004 and 2005, the plaintiff is listed as a “sundry creditor” to whom (approximately) $1.8 million in 2005 and (approximately) $2.8 million in 2006 is owed.

9.Further, Ben Lee signed and thus acknowledged the accuracy of the plaintiff’s audited accounts on numerous occasions.  For the accounts ending 31 March 1999, he signed as director that the defendant owed the plaintiff $2 million.  For the financial statements up to 31 December 1999, he acknowledged the defendant owed the plaintiff $3.17 million (approximately).  The same documents for periods ending December 2000, 2001, 2002 and 2003 show debts of $4 million, $4.3 million, $4.2 million and $3.2 million (all approximate).  The plaintiff’s balance sheets for 2005 and 2006 show the outstanding debt to be $2,698,102 (namely, the sum claimed).  Ben Lee has made no response concerning the validity of these documents in his affirmations.

10.The plaintiff also relies on a minuted board meeting held on 24 March 2006, at which Ben Lee was present but abstained from voting, when the board resolved to pursue the outstanding debt from Ben Lee.  The minutes were signed by Ben Lee.

2.  Ben Lee’s defence lacks bona fides

11.The plaintiff demonstrates that the loans were made when the defendant’s financial position was parlous.  The plaintiff also relies on a lack of any real challenge to the debts at the material times.  The plaintiff also draws comparisons with the other loans, already referred to, where the modus operandi was very similar.  Adverse judicial comments have been made and Ben Lee’s response has been shown to have been disingenuous.

12.Also disingenuous in the defendant’s counterclaim in which it is claimed, inter alia, that Ben Lee’s entitlement to “management fees” has not been accounted for and, if they had, would have extinguished the loans entirely.  This claim, it is pointed out, emerged for the first time in the affirmation filed by Ben Lee after the requested adjournment before Suffiad J in October 2008.  Not only has this claim come remarkably late but also the authenticity of the documents in support is said to be dubious and is strongly challenged.

3.  Defence of limitation

13.As will be noted hereafter, the defendant raises the argument that the claims will fail because they are statute barred by the defence of limitation.  The final loan was made in January 2001.  The writ is dated July 2008.  In answer the plaintiff primarily relies on the argument that the debts have been regularly acknowledged since, in particular by signing the audited accounts in August 2003, by signing the board meeting minutes in April 2006 and by confirming the defendant’s trial balance for 2004 and 2005.

THE DEFENDANT’S CASE

1.  Defence of limitation

14.In answer to the plaintiff’s submission that the debts have been admitted, the defendant argues that Ben Lee’s signing of the plaintiff’s audited accounts does not constitute an acknowledgement or admission by the defendant company.

15.There is also much factual dispute as to the circumstances and reasons he signed the minutes of the board meeting in 2006.  He also submits there is little evidential value in a company’s own trial balance.

16.In short, it is said that answers exist to each of the matters upon which the plaintiff relies in their submission that the statute of limitations does not bite.

2.  The terms of, details of, reasons for and parties to the alleged loans

17.I do not propose to go into detail, because it is neither necessary nor helpful to do so at this stage, but the defendant raises a number of issues relating to interest, management fees, some undocumentated amounts, expenses and so on which lends some support, albeit fragile, to their submission that an account should be taken.

LEGAL PRINCIPLES

18.In the context of this case, the remarks of Bokhary JA (in 1994) in In re Safe Rich Industries, CACV81/1994 are to point:

“The test at the summary stage is whether the defendant’s assertions are believable. But it must be recognised - because failure to recognise it would create a debt-dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.”

19.The onus is on the defendant to satisfy the court that there probably is a real or bona fide defence.  Such a defence must be apparent at the Order 14 stage.  It must be particularized to the extent that it can be seen to be triable.

CONCLUSION

20.The defence submissions as to the existence of the debts are in my judgment plainly lacking bona fides.  The defendant has been muddying the waters and it is right for the court to step in to clear the way ahead at this Order 14 stage.  However, for two reasons, I think the correct order in this case is the same as that made by Chu J in HCA714/2007 in which the defendant was sued by Wu Yi Development for a substantial loan in very similar circumstances, namely that leave to defend be granted conditional upon the full value of the claim being paid into court.

21.The two reasons are firstly, that the amount of the indebtedness could be less than the full amount claimed once an account has been taken and, secondly, and more importantly, the argument concerning the limitation period cannot be confidently overlooked.

ORDER

22.Leave to defend is granted to the defendant upon the condition that $2,698,102 is paid into court within 21 days of the handing down of this judgment.

23.I make an order nisi that the costs of and occasioned by the application shall be in the cause.

Mr Lawrence Ng, instructed by  Messrs C.Y. Tsang & Co., for the Plaintiff

Mr Andrew Sheppard, instructed by  Messrs Stephenson Harwood & Lo, for the Defendant