Profit Step Deveopment Ltd and Another v. Sun Rising Deveoping (Agriculture) Ltd and Another
Read the full judgment text of HCA 1649/2008 on BabelCite. This High Court CFI judgment was delivered on 30 November 2010.
1. In this action, the plaintiffs claim against the 1 st defendant for the outstanding sum of HK$3,600,000 due under an agreement dated 27 June 2008, alternatively under a Supplemental Supply and Logistic Services Agreement dated 23 April 2008. The plaintiffs also claim the same amount against the 2 nd defendant under two guarantees.
Cited by 4 cases · Cites 1 case
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HCA1649/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1649 OF 2008 ---------------------------- BETWEEN
------------------------------- Before : Hon Fok J in Chambers (Open to Public) Dates of Hearing : 2-5 and 8 November 2010 Date of Judgment : 30 November 2010 -------------------------- J U D G M E N T -------------------------- A. Introduction 1.In this action, the plaintiffs claim against the 1st defendant for the outstanding sum of HK$3,600,000 due under an agreement dated 27 June 2008, alternatively under a Supplemental Supply and Logistic Services Agreement dated 23 April 2008. The plaintiffs also claim the same amount against the 2nd defendant under two guarantees. 2.For their part, the defendants deny liability to the plaintiffs under the agreement dated 27 June 2008 and the Supplemental Supply and Logistic Services Agreement and raise allegations of duress and fraudulent misrepresentation by way of defence to the plaintiffs’ claims. 3.In order to put the issues in this action in their proper context, it is necessary to set out at some length the background facts out of which the plaintiffs’ claims, and the various defences, arise. B. The parties and relevant associated companies 4.The 1st plaintiff, Profit Step Development Limited, is a company incorporated in Hong Kong for the purpose of carrying out the business of trading fresh fruit and products sourced from overseas and sold through Hong Kong to the PRC. 5.The 2nd plaintiff, Jin Tao (Zhongshan) Fresh Products Logistics Co. Ltd, is a company incorporated in the PRC, whose principal activity is the provision of logistics services for fresh fruit and products through its logistics hub in Zhongshan, PRC. 6.Both plaintiffs are subsidiaries of Heng Tai Consumables Group Limited (“Heng Tai”), which is a company incorporated in the Cayman Islands and listed on the Hong Kong Stock Exchange. Heng Tai and its subsidiaries are principally engaged in the distribution of consumable goods, cosmetics and cold chain products, the provision of cold chain and logistics services, and the cultivation and distribution of agro-products. The chairman of Heng Tai is Mr Lam Kwok Hing (“Mr Lam”) and Mr Chu Ki is one of its executive directors. 7.Golden Harvest (Macao Commercial Offshore) Limited is another subsidiary of Heng Tai, whose principal activity is the import of overseas fruit for direct shipment into the PRC. 8.The 1st defendant, Sun Rising Development (Agriculture) Limited, is a company incorporated in Hong Kong. The 2nd defendant, Mr Chan Yiu Cheung, is a shareholder and director of the 1st defendant. He is also the father of Mr Daniel Chan Ho Tak (“Mr Daniel Chan”), who in turn is also a shareholder and director of the 1st defendant. 9.Cheong Lee International Trading Company Limited (“Cheong Lee”) is a company incorporated in Hong Kong, of which the 2nd defendant and his son, Mr Daniel Chan, are both shareholders and directors. C. The background facts C.1 The context of the parties’ dealings 10.In early December 2007, upon the introduction of Mr Lo Lik Sang, a consultant of the 2nd plaintiff, the 2nd defendant, his son Mr Daniel Chan and Mr Lee Yuk Hoi, a consultant of the 1st defendant, met Mr Ong Hong Hoon (“Mr Ong”), the general manager of the 2nd plaintiff, and Mr Benson Ong Chew Sheng, the sales manager of the 2nd plaintiff, at the 2nd plaintiff’s offices in Zhongshan, PRC. The purpose of this meeting appears to have been to explore the possibility of some form of business co-operation. 11.It would appear that Mr Ong then introduced the 2nd defendant and Mr Daniel Chan to Mr Lam, the chairman of Heng Tai, and Mr Horris Wong Siu Hong (“Mr Horris Wong”), its chief financial officer. One particular project discussed between the parties was a red kiwi project being pursued by the 1st defendant in the PRC. 12.Sometime in January 2008, discussions took place between the parties in respect of two possible business ventures. One possibility was an investment by Heng Tai in the red kiwi project, another was a fruit trading joint-venture enterprise between Heng Tai and Cheong Lee. The documents disclosed show that Mr Daniel Chan sent financial information about the kiwi fruit project, Cheong Lee and the 1st defendant. 13.The discussions proceeded to the point at which Mr Daniel Chan sent a draft joint-venture agreement to Mr Horris Wong on 1 February 2008. This was entitled “Heng Tai Cheong Lee Joint Venture” and related to a joint-venture business to import worldwide fruit commodities into the PRC market. The proposal included the provision of a credit line by Heng Tai in the sum of HK$80 million. On 19 February 2008, Mr Daniel Chan sent a revised version of the proposed joint-venture agreement with a cash flow plan attached to Mr Ong. He also sent Mr Ong a proposal for the acquisition of 50% of the 1st defendant by Heng Tai. Neither of these proposals was pursued by Heng Tai. 14.On 4 March 2008, Mr Ong sent a business proposal concerning the sale and purchase of durian to Mr Daniel Chan. The proposed mode of operation was that the 2nd defendant should incorporate a new company in Hong Kong to procure imports of durian to the PRC using the 2nd plaintiff as the logistics hub. It was also proposed that the new company should provide security to the 2nd plaintiff in the sum of HK$20 million and over certain land in the PRC. 15.On 18 March 2008, Mr Daniel Chan reverted to Mr Ong by e-mail indicating that Mr Ong’s business proposal for cooperation between the 2nd defendant and Heng Tai would not work since the 2nd defendant was not agreeable to providing security to the extent required. On the other hand, the e-mail indicated that a pure buying and selling relationship might work if Heng Tai simply needed fruit. 16.Mr Ong replied to Mr Daniel Chan by e-mail of the same date stating that the proposal he had forwarded on 4 March 2008 was only a draft and had lapsed. The e-mail includes the statement :
Mr Ong also indicated that a simple agreement would be forwarded to Cheong Lee in due course. 17.By a later e-mail also of 18 March 2008, Mr Freddy Lai Chi Hang (“Mr Freddy Lai”), the global sourcing manager of the 2nd plaintiff, sent a draft purchase agreement in respect of the durian trading to Mr Daniel Chan. 18.The defendants have asserted that an oral joint venture agreement came into existence on 18 March 2008, so it will be necessary to consider this assertion in due course. 19.On 19 March 2008, Mr Daniel Chan responded to Mr Freddy Lai’s draft with amendments and expressed the hope to “get into action instead of paper work status all the time”. 20.On 21 March 2008, following a telephone conversation the day before, Mr Freddy Lai e-mailed Mr Daniel Chan with an amended agreement. He referred to the fact that in a discussion with the 2nd defendant Heng Tai had indicated it would use its subsidiary Golden Harvest for the fruit trading business. He summarised the proposed operation in an accompanying diagram as being that the Thai supplier would issue invoices on a CNF Hong Kong basis to Golden Harvest, who would pay the sums invoiced to Cheong Lee for the Thai supplier’s benefit within 7 days of the invoices; for its part, Golden Harvest would then sell the shipments to Sun Rising (China) and issue invoices including a 2% commission and other handling charges payable 30 days after the delivery order. A seasonal deposit (of HK$1.25 million) was to be paid by Golden Harvest to Cheong Lee. 21.Mr Daniel Chan replied to Mr Freddy Lai by e-mail dated 24 March 2008 indicating that he accepted the proposed arrangement. 22.On 25 March 2008, Mr Freddy Lai e-mailed Mr Daniel Chan to say that Heng Tai’s board of directors had reviewed the draft agreement and wished to amend two terms, one of which was to require a personal guarantee for HK$2.5 million from the 2nd defendant and/or Mr Daniel Chan, or from the 1st defendant. 23.On 26 March 2008, Mr Daniel Chan e-mailed Mr Freddy Lai to indicate acceptance of the two new amended terms, with the 2nd defendant being agreeable to provide the guarantee for HK$2.5 million. He asked that the date for the payment of the seasonal deposit be specified. 24.On 26 March 2008, Mr Freddy Lai sent a revised purchase agreement, described as version 3.0, to Mr Daniel Chan. On 27 March 2008, Mr Freddy Lai e-mailed the final version of the purchase agreement to Mr Daniel Chan, stating that the deposit would be paid to Cheong Lee’s account on or before 1 April 2008. C2. The Purchase Agreement and Term Sheet 25.It was in these circumstances, and this context, in which the document entitled “Purchase Agreement and Term Sheet” was signed on 28 March 2008. This records an agreement between Golden Harvest and Cheong Lee and outlines the terms and conditions of trade agreed. It includes a term that the agreement supersedes any verbal or written agreement entered into by Golden Harvest and Cheong Lee or any associate companies on or before 28 March 2008. 26.The purpose of the agreement is recorded as being to establish a fair and profitable trade for both parties. Cheong Lee covenanted to source fresh durian from growers, suppliers and exporters in Thailand with a target volume of around 28 containers per month. Cheong Lee was to arrange shipments by sea from Thailand to Hong Kong and arrange for the collection of shipments in Hong Kong, with at least 40% of the shipments being diverted to the 2nd plaintiff’s logistic centre in the PRC. 27.For its part, Golden Harvest was to pay for the total shipment quantity 7 days after the goods were laden on board. It would then invoice Cheong Lee’s sales agent in the PRC for the agreed procurement commission, which was to be 2% of the CNF Hong Kong price, and the handling charges of the 2nd plaintiff, also to be 2% of the CNF Hong Kong price. This invoice was to be payable 30 days after the signing of the delivery order. 28.Cheong Lee was to provide a personal guarantee of the 2nd defendant in the sum of HK$2.5 million. Golden Harvest was to pay a seasonal deposit of HK$1.25 million to Cheong Lee on or before 1 April 2008, which Cheong Lee was to repay to Golden Harvest at the end of the season. 29.The Purchase Agreement and Term Sheet was signed by the 2nd defendant on behalf of Cheong Lee and by Mr James Ding Ooi Leong, business development manager of Golden Harvest, on behalf of Golden Harvest. 30.Despite the signing of the Purchase Agreement and Term Sheet, it would appear that Heng Tai, as the parent of Golden Harvest, had certain concerns about that agreement. One of the issues concerned an alleged lack of authority on the part of Mr Ding to sign the Purchase Agreement and Term Sheet on behalf of Golden Harvest. Another issue was said to be the fact that Heng Tai wished, for tax reasons, to use a Hong Kong incorporated entity as the counterparty in the fruit trading business. 31.Whatever the reasons for Heng Tai’s concerns about the Purchase Agreement and Term Sheet, the executed copy of that agreement was supplemented by an endorsement at the end of the document signed by the 2nd defendant and by Mr Chu Ki, an executive director of Heng Tai. That endorsement, which is dated 2 April 2008, reads as follows :
C3. The Loan Agreement 32.As noted above, under the Purchase Agreement and Term Sheet, Golden Harvest was to pay a seasonal deposit of HK$1.25 million to Cheong Lee on or before 1 April 2008. Due to the concerns of Heng Tai as to the validity of the Purchase Agreement and Term Sheet, this seasonal deposit was not so paid. 33.After the Purchase Agreement and Term Sheet was signed, the 2nd defendant asked Mr Ong of the 2nd plaintiff when the seasonal deposit would be paid. The plaintiff’s case is that the 2nd defendant was anxious for this to be paid as he was in need of money, apparently to repay a debt owed by him to his New Zealand partners in the kiwi enterprise. Mr Horris Wong indicated to Mr Ong that a proper formal agreement would be necessary to replace the Purchase Agreement and Term Sheet and that the seasonal deposit would not be paid to Cheong Lee until that replacement agreement had been signed and the 2nd defendant had given a personal guarantee for the return of the seasonal deposit. Mr Horris Wong informed Mr Ong that, instead of the payment of the seasonal deposit, a personal loan might be made to the 2nd defendant. 34.Be that as it may, on 2 April 2008, a letter bearing the reference “Loan of HK$1,250,000.00” was issued by Heng Tai Finance Limited to the 2nd defendant. This letter recorded that Golden Harvest as lender agreed to lend the 2nd defendant as borrower the sum of HK$1.25 million subject to and on the terms and conditions set out in the letter. The loan was to be made, on the 2nd defendant’s instructions, directly to Cheong Lee but the 2nd defendant was to be fully liable for the loan. Unless in default, the loan was to be interest free and the loan was to be repayable within 14 days of written demand by the lender. The 2nd defendant signed a separate confirmation of acceptance addressed to Heng Tai Finance Limited in which he acknowledged that he accepted, and agreed to be bound by, the terms and conditions for the grant of the loan. 35.The circumstances in which the loan agreement was executed are controversial and it will be necessary to return to them later in this Judgment. C4. Shipments of durian 36.Notwithstanding the endorsement on the executed Purchase Agreement and Term Sheet that its terms would be amended further, it would appear that Cheong Lee did proceed to procure shipments of durian from a Thai supplier, namely Farcharoen Porn Enterprise Co. Ltd (“FPE”). 37.By e-mails dated 31 March 2008, Ms Fannie Kwok, the assistant to the general manager of Cheong Lee, sent shipment schedules to Mr Freddy Lai in respect of a number of shipments of durian from Thailand. On the same date, she also e-mailed to Mr Freddy Lai invoices issued by FPE to Golden Harvest in respect of the first four shipments of durian from Bangkok to Hong Kong. By reference to the container numbers identified in those invoices, the corresponding bills of lading for those first four shipments [C3/574-577] were issued on 21 March 2008, 22 March 2008, 25 March 2008 and 29 March 2008. This would appear to indicate that at least some shipments were ordered before the Purchase Agreement and Term Sheet was signed on 28 March 2008. C5. The revised supply agreement 38.Following the loan agreement on 2 April 2008, it would appear that Heng Tai sought the assistance of solicitors to prepare a revised agreement. On 9 April 2008, Mr Horris Wong sent an e-mail to Mr Freddy Lai to inform him that he had liaised with Heng Tai’s legal counsel to redraft the agreement. He summarised the major terms to be incorporated in the revised agreement and stated that it was expected to be ready by Friday (which would have been 11 April 2008) so that the proposed cooperation scheme could then commence after the agreement was agreed and signed by both parties. 39.In the event, the draft supply agreement was not ready until 12 April 2008. By e-mail of that date, Mr Horris Wong sent a copy of this to Mr Freddy Lai for him to liaise with the 2nd defendant with a view to execution early the following week. Mr Horris Wong noted that the letter of guarantee would also be sent for review on Monday (which would have been 14 April 2008) once the 2nd defendant agreed the terms of the supply agreement. 40.The draft supply agreement was sent by Mr Freddy Lai to Mr Daniel Chan by e-mail dated 14 April 2008. The draft agreement was to be between the 1st plaintiff as importer, the 1st defendant as purchaser and the 2nd plaintiff as logistics centre. The 2nd defendant is referred to in the draft supply agreement in respect of the personal guarantee which he was to provide as a condition precedent to the agreement. 41.On 14 April 2008, Mr Horris Wong sent to Mr Freddy Lai drafts of the guarantees to be executed with the supply agreement for him to forward to the 2nd defendant for his review. The first guarantee was the guarantee required as a condition precedent to the supply agreement and to be given by the 2nd defendant in favour of the 1st plaintiff for the sum of HK$2.5 million. The second guarantee was the guarantee to be given by the 2nd defendant to the 2nd plaintiff in respect of the seasonal deposit under the supply agreement. 42.Mr Freddy Lai then forwarded the draft supply agreement and guarantees to Ms Meeling Law of Cheong Lee by two e-mails both dated 15 April 2008. 43.On 16 April 2008, Mr Freddy Lai sent an e-mail to Mr Horris Wong noting that he had contacted the 2nd defendant, who had received the draft supply agreement and guarantees and had passed them to his legal adviser for review. The e-mail noted that the 2nd defendant would revert by the coming weekend (which would have been 19/20 April) if there was any comment. C6. A change in the name of the party invoiced for the durian 44.On 19 April 2008, Ms Fannie Kwok sent an e-mail to Mr Freddy Lai in which she referred to the change of company on the part of Heng Tai from Golden Harvest to the 1st plaintiff and attaching revised invoices. An example of one of those invoices, namely invoice No.FD001-08 dated 31 March 2008, is included with this e-mail and is an invoice of FPE in respect of a shipment of durian for the account and risk of the 1st plaintiff, instead of Golden Harvest as before. 45.The change of name from Golden Harvest to the 1st plaintiff is also reflected in the commercial invoice and delivery order issued by the 1st plaintiff to the 1st defendant dated 20 April 2008 in respect of a quantity of 960 cartons of durian. The commercial invoice is addressed to the 2nd defendant as the contact person for the 1st defendant, as is the delivery order. The latter document is signed by the 1st defendant as buyer. C7. The signing of the Supply Agreement and Logistic Services Agreement and the Guarantees dated 2 April 2008 46.On 21 April 2008, Mr Daniel Chan replied to Mr Freddy Lai’s e-mail dated 14 April 2008 enclosing the draft supply agreement and guarantees, indicating that his lawyer had come back to him and made some comments. He attached the amendments proposed. He suggested that it was not necessary for there to be a guarantee from the 2nd defendant for the seasonal deposit. 47.In response, on the instructions of Mr Horris Wong, Mr Freddy Lai replied to Mr Daniel Chan by e-mail on the same date to advise that the guarantee of the 2nd defendant was required also to cover the return of the seasonal deposit of HK$1.25 million and as well as the receivables of HK$2.5 million. 48.The reply from Mr Daniel Chan to this advice, also by e-mail of 21 April 2008, was “I see.” He also asked for comments on the proposed amendments to the draft supply agreement. 49.In response to this query, Mr Horris Wong replied to Mr Daniel Chan indicating that Heng Tai “would prefer to stick to our version and again [the 2nd defendant] must give guarantee for return of the seasonal deposit.” 50.It would appear that a telephone conversation then ensued between Mr Freddy Lai and Mr Daniel Chan and the 2nd defendant. This is referred to in an e-mail dated 21 April 2008 from Mr Freddy Lai to Mr Horris Wong, copied to Mr Daniel Chan. One of the points suggested by Mr Daniel Chan and the 2nd defendant was that it should be stated clearly “that the loan agreement made to [the 2nd defendant] on 2 April 2008 in respect of the loan of a sum of HK$1,250,000.00 should be set off after signing the supply agreement and the guarantee deposit for seasonal deposit”. 51.By an e-mail in response to that referred to in the preceding paragraph, Mr Daniel Chan reverted to Mr Horris Wong and Mr Freddy Lai, to indicate “we accepted to amend based on your agreement although this is not truly reflect the true transaction”. 52.On 22 April 2008, in response to a reminder from Mr Freddy Lai, Ms Fannie Kwok sent an authorisation letter on the letterhead of FPE addressed to the 1st plaintiff and dated 18 April 2008 authorising payment by the 1st plaintiff in settlement of its outstanding account with FPE to Cheong Lee. This authorisation letter was endorsed by Cheong Lee, for whom the 2nd defendant signed as authorised signatory. 53.Also on 22 April 2008, Mr Horris Wong sent to Mr Freddy Lai the revised supply agreement and guarantees as agreed between the parties. On the following day, 23 April 2008, Mr Ong e-mailed Mr Horris Wong stating that the 2nd defendant had spoken to him the previous night and was agreeable to sign the documents that day. Mr Ong added that the 2nd defendant would appreciate payment upon his signing of the documents. 54.These are the circumstances disclosed in the contemporaneous documents in which the 2nd defendant attended at the offices of Heng Tai on 23 April 2008. It is not in dispute that he signed the Supply and Logistic Services Agreement dated 2 April 2008 (“the Supply Agreement”), the guarantee to the 1st plaintiff dated 2 April 2008 (“the First Personal Guarantee”) and the guarantee to the 2nd plaintiff dated 2 April 2008 (“the Second Personal Guarantee”) on that occasion. There is an issue as to whether he also signed the Supplemental Supply and Logistic Services Agreement dated 23 April 2008 (“the Supplemental Agreement”), the guarantee to the 1st plaintiff dated 23 April 2008 (“the Additional First Personal Guarantee”) and the guarantee to the 2nd plaintiff dated 23 April 2008 (“the Additional Second Personal Guarantee”) on that occasion, to which it will be necessary to return below. More importantly, it is the defendants’ case that these documents were all executed under duress and/or by reason of fraudulent misrepresentation on the part of the plaintiffs and it will be necessary to address this issue below. 55.At the same time as signing the Supply Agreement and the First Personal Guarantee and the Second Personal Guarantee, the 2nd defendant, for and on behalf of Cheong Lee, also signed a letter dated 23 April 2008 addressed to the 1st plaintiff acknowledging receipt of a cheque payment in the sum of HK$2,376,072 received on behalf of FPE for the settlement of accounts payable for purchase orders set out in an attached schedule. The letter confirmed that the receipt was in accordance with the authorisation letter signed by FPE dated 18 April 2008. 56.Also on 23 April 2008, Heng Tai Finance Limited issued a letter to the 2nd defendant stating that it agreed to set off the debt owed pursuant to the loan agreement signed by the 2nd defendant on 2 April 2008 in respect of the loan of a sum of HK$1.25 million against the seasonal deposit of the same amount payable by the 2nd plaintiff in accordance with the Supply Agreement. The letter noted that the loan agreement would be terminated with immediate effect and any past, present and future liability of the 2nd defendant under or arising from that agreement extinguished with immediate effect. C8. The terms of the Supply and Logistic Services Agreement and the Guarantees dated 2 April 2008 57.Under the Supply Agreement, the 1st plaintiff was described as the Importer, the 1st defendant as the Purchaser and the 2nd plaintiff as the Logistics Centre. The recitals to the agreement recorded, amongst other things, that the Importer had agreed to import a variety of fresh fruit from Thailand subject to the terms of the agreement and the Purchaser had agreed to purchase fresh fruit and provide procurement services to the Logistics Centre. The recitals also recorded that it was a condition precedent that the 2nd defendant should provide two personal guarantees in favour of the Importer and the Logistics Centre. 58.The agreement defined its Effective Date as 2 April 2008 and the Supply Period as the period from 2 April 2008 to 31 October 2008. By clause 2.1, the 1st defendant agreed to purchase from the 1st plaintiff at the price specified in clause 2.5 fresh fruit from suppliers in Thailand as specified in purchase orders placed by the 1st defendant with the 1st plaintiff. The target purchase volume was to be around 28 containers per month, subject to the final consent of the 1st defendant and the 1st plaintiff. By clause 2.3, the 1st plaintiff undertook to settle payment for each shipment of fresh fruit from Thailand seven business days after the date of loading those products in Thailand, provided it received invoices for such products from the suppliers within two days after the loading date. The specified price was the purchase cost (in CNF Hong Kong terms) plus a 2% mark-up of the purchase price from the suppliers. 59.By clause 2.6, the 1st plaintiff agreed to issue invoices to the 1st defendant for the fresh fruits from Thailand on the arrival date of each shipment in Hong Kong or seven days after the loading date, whichever was the earliest. Payment for such invoices was to be made by the 1st defendant within 30 days from the date of such invoices. 60.By clause 2.7, the parties agreed and acknowledged that it was a condition precedent that the 2nd defendant should provide a first personal guarantee to the extent of HK$2.5 million in favour of the 1st plaintiff to guarantee the obligations of the 1st defendant under the agreement and all monies payable by the 1st defendant to the 1st plaintiff. 61.By clause 3, the 1st defendant agreed to deliver not less than 40% of the fresh fruit from Thailand purchased from the 1st plaintiff to the 2nd plaintiff each calendar month unless requested otherwise by the 1st plaintiff. All logistics arrangements costs and all costs and expenses incurred in relation to the delivery of the fruit to the 2nd plaintiff were to be borne by the 1st defendant. 62.By clause 4.1, it was agreed that the 2nd plaintiff would charge the 1st defendant at the prevailing rates charged to its clients for handling and processing the fresh fruit from Thailand delivered to the 2nd plaintiff if logistics services were required in accordance with clause 3.1. 63.By clause 4.2, it was agreed that, on the signing of the agreement, the 2nd plaintiff would pay a seasonal deposit in the sum of HK$1.25 million to the 1st defendant or its nominee :
Furthermore, under clause 4.2, the 1st defendant agreed to return the seasonal deposit to the 2nd plaintiff within seven days of the expiry or termination of the agreement, whichever was the earliest. 64.By clause 4.4, the parties agreed and acknowledged that it was a condition precedent that the 2nd defendant should provide a second personal guarantee to the extent of HK$1.25 million in favour of the 2nd plaintiff to guarantee the return of the seasonal deposit upon the expiry or termination of the agreement. 65.By clause 9, the parties acknowledged that the agreement constituted the entire agreement between them and that it superseded any previous oral or written agreements or understandings between them with respect to its subject matter. 66.The agreement was signed by Mr Chu Ki on behalf of the 1st plaintiff and by Mr Lam on behalf of the 2nd plaintiff. Mr Horris Wong’s name was inserted as the witness to their respective signatures. For the 1st defendant’s part, the agreement was signed by the 2nd defendant on its behalf. The name of a Mr Wong Chun, one of Heng Tai’s accounting staff, was inserted as the witness to the 2nd defendant’s signature. 67.The First Personal Guarantee was given by the 2nd defendant as Guarantor to the 1st plaintiff as Importer. By clause 2.1, the 2nd defendant unconditionally and irrevocably guaranteed to the 1st plaintiff the due and punctual performance and compliance with the guaranteed obligations (being the 1st defendant’s and 2nd defendant’s respective obligations under the Supply Agreement). In particular, if for any reason the 1st defendant did not pay any sum payable by it to the 1st plaintiff by the time and on the dates specified in the Supply Agreement or any invoice issued by the 1st plaintiff to the 1st defendant under that agreement for payment, the 2nd defendant agreed immediately on demand by the 1st plaintiff to pay that sum to the 1st plaintiff. 68.Under clause 3.1 of the First Personal Guarantee, the 2nd defendant agreed that he should be liable as if he were the sole principal debtor and not merely a surety. By clause 4.1, the 2nd defendant’s obligations under the guarantee were to remain in full force and effect by way of continuing security until all the guaranteed obligations had been duly complied with in full. Furthermore, the obligations of the 2nd defendant as guarantor were additional to and not instead of any security or other guarantee or indemnity in favour of the 1st plaintiff. 69.The Second Personal Guarantee was given by the 2nd defendant as Guarantor to the 2nd plaintiff as Logistics Centre. By clause (1), the 2nd defendant unconditionally and irrevocably guaranteed to the 2nd plaintiff the due and punctual return of the whole sum of the deposit defined in the Supply Agreement by the 1st defendant to the 2nd plaintiff or its nominee within seven days upon expiry or termination of the Supply Agreement, whichever was the earliest. 70.By clause (2), the 2nd defendant further unconditionally and irrevocably guaranteed to the 2nd plaintiff that if for any reason the 1st defendant was in breach of clause (1), the 2nd defendant would forthwith on demand by the 2nd plaintiff pay such sum to the 2nd plaintiff. 71.The 2nd defendant signed both of the guarantees and Mr Horris Wong’s name was inserted as the witness to his signature on both. Both guarantees were stated in fact to be signed, sealed and delivered by the 2nd defendant as guarantor, although no seal was affixed under the 2nd defendant’s signature. C9. The Supplemental Supply and Logistic Services Agreement and the Guarantees dated 23 April 2008 72.As noted above, the Supply Agreement and the two guarantees dated 2 April 2008 were in fact signed by the parties on 23 April 2008 in Heng Tai’s offices in Hong Kong. 73.According to the evidence of Mr Horris Wong, Heng Tai thought that it would be preferable if the Supply Agreement and the two guarantees were made as deeds under seal. For this reason, apparently, a Supplemental Supply and Logistic Services Agreement (“the Supplemental Agreement”) and two further guarantees were prepared for execution by the parties. 74.The Supplemental Agreement is stated to be made on 23 April 2008 and is in substantially the same terms as the Supply Agreement. However, the recitals to the Supplemental Agreement record that the 1st plaintiff’s agreement to import fresh fruit from Thailand and the 1st defendant’s agreement to purchase fresh fruit and provide procurement services to the 2nd plaintiff were on the terms of the Supply Agreement, which was defined as the First Agreement. The recitals also recorded that the Supplemental Agreement was supplemental to the First Agreement and that the parties had agreed to amend the First Agreement in accordance with the terms and conditions set out in the Supplemental Agreement. 75.The entire agreement clause, clause 8, provided that save and except for clause 7 of the First Agreement (the clause dealing with the duration and termination of the Supply Agreement), the parties acknowledged and agreed that the Supplemental Agreement should supersede any previous agreements or understandings between them and all the other provisions of the First Agreement with respect to its subject matter. 76.The parties executed the Supplemental Agreement by way of deed, intended to be delivered on 23 April 2008. For both the 1st plaintiff and the 2nd plaintiff, the Supplemental Agreement was signed by Mr Lam and sealed with the common seal of each company. For the 1st defendant, the Supplemental Agreement was signed by the 2nd defendant and sealed with its common seal. Mr Lam’s signature was witnessed by Mr Horris Wong and the 2nd defendant’s by Mr Daniel Chan. 77.The Additional First Personal Guarantee and the Additional Second Personal Guarantee, which accompanied the Supplemental Agreement, were in the same terms as the First Personal Guarantee and the Second Personal Guarantee, save that they were dated 23 April 2008 and a seal was attached under the respective signatures of the 2nd defendant on each. Again, the 2nd defendant’s signature on each of the guarantees was witnessed by Mr Horris Wong. C10. Events subsequent to the execution of the Supply Agreement and the Guarantees dated 2 April 2008 78.Following the execution of the Supply Agreement, the First Personal Guarantee and the Second Personal Guarantee, the 1st plaintiff provided a cheque in the sum of HK$2,376,072 payable to Cheong Lee on behalf of FPE for settlement of accounts payable for purchase orders in respect of 14 containers of durian that had been shipped from Thailand. The 2nd defendant signed as a director of Cheong Lee on an acknowledgement of receipt to confirm receipt of the sum in question in accordance with the authorisation letter issued by FPE to the 1st plaintiff dated 18 April 2008. The 2nd defendant also signed, on behalf of Cheong Lee, the attached schedule showing the account payable by the 1st plaintiff to FPE. 79.On 25 April 2008, Mr Freddy Lai sent an e-mail to Mr Horris Wong to relay an instruction from Mr Ong to inquire whether the collection of payment for the 14 containers from the 1st defendant would be 30 days from 23 April 2008 rather than from the corresponding invoice date and to note that payment would be made to FPE for an extra container of durian in the amount of HK$149,760. 80.On the same day, Mr Horris Wong replied to Mr Freddy Lai by e-mail to confirm that the 30 days’ credit terms for the 14 containers had been agreed between Mr Lam and the 2nd defendant to run from 23 April 2008. Mr Horris Wong went on to note that the credit limit for the 1st defendant had been set at HK$2.5 million and that since the 15th container had arrived in Hong Kong prior to the finalisation of the arrangement, payment would exceptionally be made for this container subject to Mr Lam’s confirmation. Mr Horris Wong reminded Mr Freddy Lai that no more purchases from FPE should be made unless invoice amounts had been collected from the 1st defendant to reduce the outstanding balance below HK$2.5 million. 81.On 15 May 2008, a cheque was issued to Cheong Lee in the sum of HK$149,760 in respect of the 15th container of durian. 82.On 22 May 2008, the 1st plaintiff issued a statement to the 1st defendant in respect of its invoices for the first 14 containers of durian in the total amount of HK$2,423,593.40, falling due on 23 May 2008. 83.The defendants’ evidence is that, on 26 May 2008, the 2nd defendant and Mr Daniel Chan went to Heng Tai’s offices to speak to Mr Lam. He was unavailable so instead they met with Mr Horris Wong and explained that the late payment was the result of Golden Harvest’s breach of agreement resulting in Cheong Lee’s cash flow difficulties. It is the defendants’ case that Mr Horris Wong demanded payment by way of post-dated cheques, failing which the plaintiffs would issue a writ which would have an adverse effect on the 1st defendant’s red kiwi project and also on Mr Daniel Chan’s future ability to work in a managerial position in a listed company. 84.The 1st plaintiff’s outstanding invoices were not paid either on 23 May 2008 or thereafter. Accordingly, on 4 June 2008, the 1st and 2nd plaintiffs’ solicitors wrote to the 1st defendant to state that the plaintiffs regarded the 1st defendant’s failure to pay the outstanding 14 invoices as evincing of an intention to repudiate the Supplemental Agreement. The 1st and 2nd plaintiffs thereby accepted the 1st defendant’s repudiation of the Supplemental Agreement and, in addition to the overdue invoices, demanded repayment of the seasonal deposit in the sum of HK$1.25 million pursuant to clause 4.2 of the Supplemental Agreement within seven days, failing which legal proceedings would be commenced. C11. The repayment schedule and post-dated cheques 85.By an e-mail dated Friday, 13 June 2008, Mr Daniel Chan wrote on behalf of the 1st defendant to Mr Horris Wong to state that the 1st defendant was facing financial difficulty due to previous heavy investment and the recent delayed payment record of its bank. He stated that the bank had suspended the 1st defendant’s credit line. As a result, the 1st defendant could not make payment on schedule at that stage but it was confident it could settle the outstanding balance once its credit line was reinstated by the bank. Mr Daniel Chan stated that the 1st defendant would not want to ignore the payment and damage its reputation. He stressed this was a short-term difficulty and asked Mr Horris Wong to believe that the 1st defendant would try its very best to make the payment. He asked for time and, in the meantime, Mr Daniel Chan wished to make a settlement proposal to Mr Horris Wong for his consideration. He indicated he could prepare this in the next few days and present it to Mr Horris Wong and Mr Lam “on Friday” (which, if a reference to the following Friday, would have been 20 June 2008). 86.On 16 June 2008, Mr Ong sent an e-mail to Mr Horris Wong indicating that the 2nd defendant and Mr Daniel Chan requested a meeting with him and Mr Lam on Friday (presumably 20 June 2008). Mr Ong sent a further e-mail on 16 June 2008 to Mr Daniel Chan indicating that he had conveyed the request for a meeting to Mr Lam but regretted to inform Mr Daniel Chan that the Board of Directors insisted that the 1st defendant should make payment by 18 June 2008 for the amount owing, failing which legal proceedings would be commenced without further reference. This demand was accompanied by a strong recommendation that payment was made “otherwise once the Court Judgment is obtained from the Court it will seriously affect your entire business operation”. 87.On 19 June 2008, Mr Daniel Chan sent an e-mail to Mr Horris Wong referring to a telephone conversation of the preceding day in which Mr Horris Wong indicated Mr Lam was reluctant to meet Mr Daniel Chan and the 2nd defendant even though they had a settlement proposal ready to discuss with him. The e-mail records that the 2nd defendant and Mr Daniel Chan attended at the 1st plaintiff’s offices the previous day but Mr Lam and Mr Horris Wong were not there. Mr Daniel Chan asked if he and his father could meet Mr Lam the next day to discuss a settlement proposal. 88.On 25 June 2008, Mr Daniel Chan again sent an e-mail to Mr Horris Wong in which he noted he had still not heard from Mr Horris Wong regarding a meeting for a settlement proposal. The e-mail continued as follows :
89.In these circumstances, Mr Daniel Chan attended at Mr Horris Wong’s office on 27 June 2008. A document entitled Payment Schedule under the name of the 1st defendant setting out 10 payments by post-dated cheques to extinguish a total indebtedness of HK$3,826,348.60, including the HK$1.25 million seasonal deposit had been prepared. This was signed by Mr Horris Wong on behalf of the 1st plaintiff to acknowledge receipt of the 10 post-dated cheques, which had been issued by the 2nd defendant, in the total sum of HK$3,826,348.60. At the foot of the document, Mr Horris Wong wrote :
90.On 4 July 2008, Mr Daniel Chan sent an e-mail to Mr Horris Wong referring to the submission of post-dated cheques on the preceding Friday. His e-mail noted that, as discussed and agreed, Mr Horris Wong would accept cheques of the 1st defendant for payment, whereupon the 2nd defendant’s personal post-dated cheques would be returned and not used. The e-mail also records that each payment dated the 30th of each month would be deferred until the beginning of the following year. 91.A cheque of the 1st defendant dated 15 July 2008 was provided to the 1st plaintiff in the sum of HK$226,348.60, which was duly honoured on presentation. However, no further cheques of the 1st defendant were provided to the 1st plaintiff in substitution for the post-dated cheques of the 2nd defendant. Accordingly, the 2nd defendant’s second post-dated cheque, dated 15 August 2008, was presented for payment but the 1st plaintiff was advised by its bank on 25 August 2008 that that cheque had been dishonoured on presentation. 92.In these circumstances, the plaintiffs’ solicitors issued letters before action to each of the 1st defendant and the 2nd defendant dated 27 August 2008 demanding the total outstanding amount due under the 27 June 2008 Payment Schedule. No payment having been received, the plaintiffs issued the writ in this action on 3 September 2008. D. The Issues 93.The following issues arise on the pleadings :
D1. Prior to the Supplemental Agreement, was there an oral Joint Venture Agreement between Cheong Lee and Heng Tai on or about 18 March 2008 incorporating an agreement for the purchase of 28 containers of durian per month from Thailand for six months? 94.The basis of the defendants’ contention that such an oral agreement was concluded on or about 18 March 2008 appears to be the contents of the e-mail dated 18 March 2008 from Mr Ong to Mr Daniel Chan in which it is stated “Peter and your Dad agreed to start with the Durian trading effective April 1.” 95.There was some dispute as to the identity of the person referred to in the e-mail as Peter. The 2nd plaintiff’s assistant general manager was Mr Peter Wong Kam Wing and it was suggested that the reference was to him. Whilst I think this may be likely, it does not follow that the e-mail records a concluded oral contract. As noted in the e-mail, an agreement was to be forwarded to Cheong Lee in due course and a draft of the Purchase Agreement and Term Sheet was in fact provided to Mr Daniel Chan by e-mail on 18 March 2008. That draft agreement included a term that the agreement superseded any verbal or written agreement entered into by the 2nd plaintiff and Cheong Lee or any associate companies on or before the date of its execution. 96.In circumstances in which the parties clearly contemplated a written agreement to supersede any oral agreement, and in which they eventually came to sign the Purchase Agreement and Term Sheet dated 28 March 2008, I do not consider that it would be reasonable to conclude that any verbal arrangement recorded in the e-mail dated 18 March 2008 constituted a binding joint venture agreement between the parties as alleged. D.2 Was that agreement to purchase durian supplemented by the Purchase Agreement and Term Sheet between Cheong Lee and Golden Harvest on or about 28 March 2008? 97.As I have found, in relation to issue (1) above, that there was no oral agreement to purchase durian, there is no question of the Purchase Agreement and Term Sheet dated 28 March 2008 supplementing such an agreement. The question remains, however, whether the Purchase Agreement and Term Sheet dated 28 March 2008 constituted a binding and concluded contract. 98.I have referred above to certain concerns of Heng Tai concerning the Purchase Agreement and Term Sheet. Although it was Mr Horris Wong’s evidence that Mr Ding was not authorised to sign on behalf of Golden Harvest, the lack of authority was not pleaded by the plaintiffs. Although it is pleaded that the Purchase Agreement and Term Sheet dated 28 March 2008 was agreed to be replaced by a proper and legally binding agreement, I do not find that the Purchase Agreement and Term Sheet when executed was not valid. I accept, however, the evidence of Mr Horris Wong that he informed Mr Ong about Heng Tai’s concerns regarding the Purchase Agreement and Term Sheet and that, from Heng Tai’s perspective, a new agreement would need to be signed by the parties. I also accept the evidence of Mr Ong that he informed the 2nd defendant that a new agreement would need to be signed by the parties. 99.This is reflected by the endorsement dated 2 April 2008 on the foot of the executed Purchase Agreement and Term Sheet dated 28 March 2008 : “The terms of this Purchase Agreement to be amended further”. The 2nd defendant’s evidence was that the endorsement was written on the document when he was asked to sign against it on 2 April 2008. He said he was told by Mr Horris Wong that there was to be some amendment to the document and that if the 2nd defendant agreed he should sign. 100.There is no plea by the 2nd defendant that he was subject to duress in signing the endorsement to the Purchase Agreement and Term Sheet. However, the endorsement to the Purchase Agreement and Term Sheet was executed at the same time at which the 2nd defendant says he was under pressure to sign the Loan Agreement dated 2 April 2008, which I shall address below. 101.Therefore, whilst I find that the Purchase Agreement and Term Sheet dated 28 March 2008 did constitute a binding contractual arrangement between Golden Harvest and Cheong Lee when it was executed on 28 March 2008, I also find that on 2 April 2008 the parties agreed to amend that contract by replacing it with other contractual arrangements. D3. Did Golden Harvest and/or the 2nd plaintiff wrongfully fail to pay Cheong Lee the deposit under the Purchase Agreement and Term Sheet on or before 1 April 2008? 102.So far as the 2nd plaintiff is concerned, the answer to this question must be in the negative. The 2nd plaintiff was never a party to the Purchase Agreement and Term Sheet dated 28 March 2008 and so never engaged in any contractual promise to pay a deposit to Cheong Lee. 103.Clause 2.1 of the Purchase Agreement and Term Sheet required Golden Harvest to pay a seasonal deposit of HK$1.25 million to Cheong Lee on or before 1 April 2008. It is common ground that this sum was not paid by Golden Harvest to Cheong Lee on or before that date. However, as I have noted above, it is clear that by 2 April 2008, the parties to the Purchase Agreement and Term Sheet agreed that it was to be amended. On 31 March 2008, Ms Meeling Law of the 1st defendant provided information relating to the 1st defendant and a copy of the 2nd defendant’s identity card to Heng Tai. The natural inference is that this information was sought with a view to amending the existing contractual arrangements. On 1 April 2008, a draft letter of guarantee was provided by Mr Freddy Lai to Mr Daniel Chan to be executed by the 2nd defendant in relation to the purchase of durian. All this points, in my judgment, to the fact that the Purchase Agreement and Term Sheet would be amended and replaced by other contractual arrangements. 104.On 2 April 2008, the Loan Agreement was made under which the 2nd defendant received the same sum as would have been paid by Golden Harvest by way of seasonal deposit under clause 2.1 of the Purchase Agreement and Term Sheet. I will address below the question of whether the Loan Agreement was procured by reason of duress or fraudulent misrepresentation. Subject to that issue, the fact of the agreement constituted by the Loan Agreement provides an indication that, even if Golden Harvest is to be regarded as having been in breach of the Purchase Agreement and Term Sheet after 1 April 2008 by failing to pay the seasonal deposit, any such breach was either waived or otherwise excused by the 2nd defendant’s agreement to the Loan Agreement and the subsequent contractual arrangements which replaced the Purchase Agreement and Term Sheet. 105.I therefore conclude that the failure by Golden Harvest to pay Cheong Lee the seasonal deposit under the Purchase Agreement and Term Sheet by 1 April 2008 was not wrongful. D4. Did Mr Horris Wong procure the 2nd defendant’s agreement to the 2 April 2008 Loan Agreement by means of duress or fraudulent misrepresentation? D4.1 Economic duress 106.It was the defendants’ case that the Loan Agreement was procured by duress. Although it had initially been alleged that the duress was constituted by physical duress in that the 2nd defendant was “forcibly detained in a room” and was refused to be allowed to leave the room unless and until he signed the relevant agreements (Amended Defence §24.1), this allegation was abandoned by the time of the trial. Instead, it was the defendants’ case that the act of Mr Horris Wong in refusing to pay the seasonal deposit and leaving the 2nd defendant with only the option of getting money in the form of a personal loan was illegitimate pressure in view of the Purchase Agreement and Term Sheet dated 28 March 2008 and therefore a significant cause inducing the 2nd defendant to sign the Loan Agreement. 107.Counsel for the defendants relied in this context on Chitty on Contracts (30th Ed.) Vol.1 7-029 which provides :
108.A helpful summary of the essential features of economic duress is to be found in Virgo, The Principles of the Law of Restitution (2006) at p.198 :
109.The question of whether illegitimate pressure can be constituted by a lawful act as opposed to an unlawful act is an interesting question of law as yet unresolved in Hong Kong law. Similarly, the question of whether the appropriate test of causation for economic duress is a “but for” test as opposed to a less exacting test of “predominant cause” or “significant cause” is likewise an interesting and unresolved question of law. These questions were canvassed in the course of argument in the Court of Appeal in Esquire (Electronics) Ltd v Hongkong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 but the Court did not consider it necessary to answer them given the facts of that case : see per Stock JA (as he then was) at §§153-156 and 157. 110.In the same way, I do not consider that these questions need to be resolved in the present case since the issue of whether the Loan Agreement and the later documents said to be procured by duress were in fact so procured can be answered without resolving those issues. For that reason, and also because those issues were not fully argued by counsel before me, I do not propose to address them in this Judgment. 111.In addressing the question of economic duress, it is helpful, in my view, to keep in mind what was said by Lord Scarman in Pao On v Lau Yiu Long [1980] AC 614 at 636A-B :
112.Putting the defendants’ case at its highest, the pressure brought to bear on the defendants by Heng Tai was constituted by the refusal by Golden Harvest to pay the seasonal deposit which was due to be paid on or before 1 April 2008 pursuant to clause 2.1 of the Purchase Agreement and Term Sheet. As I have found above, the parties agreed to amend the terms of the Purchase Agreement and Term Sheet and the failure of Golden Harvest to pay the seasonal deposit was not a wrongful breach of contract. There does not appear to be any written complaint emanating from Cheong Lee or the defendants asserting that Golden Harvest was in breach of contract in failing to pay the seasonal deposit. I am prepared to accept that the 2nd defendant did chase for payment of the seasonal deposit by telephone but, if he considered Golden Harvest to have been in breach of contract, it is very surprising that there is nothing in writing to this effect. 113.More significantly, the Loan Agreement which the 2nd defendant entered into gave him the equivalent sum that would have been received if Golden Harvest had paid the seasonal deposit to Cheong Lee, and at no apparent disadvantage. It was agreed that the loan would be made by a payment by “chats” directly to Cheong Lee as nominee for the 2nd defendant. So long as there was no default, the loan was interest-free. If and insofar as the 2nd defendant was facing demands from his Thai suppliers in respect of any fruit that he had already ordered in anticipation of the Purchase Agreement and Term Sheet, as to which demands there is no documentary evidence, the loan of HK$1.25 million on 2 April 2008 put him in the same position as if the seasonal deposit had been paid as originally envisaged under the Purchase Agreement and Term Sheet. 114.Furthermore, if the Loan Agreement was procured by pressure constituting sufficient economic duress to entitle the 2nd defendant to avoid the contract, the steps taken by him following the exercise of that pressure demonstrate that, far from seeking to avoid the Loan Agreement, he affirmed it. In this regard, I refer to the history of the matter reflected in the contemporaneous documentation between 2 April 2008 and 23 April 2008 which I have summarised above. Instead of raising any complaint as to the conduct of Heng Tai, Mr Horris Wong or the plaintiffs, the 2nd defendant and Mr Daniel Chan participated in a process of finalising the Supply Agreement and the First Personal Guarantee and the Second Personal Guarantee. For the defendants’ part, this was apparently done with the assistance of legal advice. 115.On the facts, therefore, I have no hesitation in concluding that the Loan Agreement dated 2 April 2008 was not procured by duress on the part of Mr Horris Wong or anyone else on behalf of the plaintiffs. D4.2 Fraudulent misrepresentation 116.If the 2nd defendant was induced to enter into the Loan Agreement by reason of a fraudulent misrepresentation made by Mr Horris Wong, this would give the 2nd defendant a legitimate basis for rescinding the Loan Agreement and, in addition, claiming damages for the tort of deceit. 117.However, a claim for deceit must be properly pleaded and proved by cogent evidence. In the present case, there is no proper pleading of the tort of deceit. The particulars under paragraph 24 of the Amended Defence which relate to the Loan Agreement do not set out (i) the representation relied upon, (ii) the manner in which that representation is said to be false, (iii) the knowledge on the part of the representor that it was untrue and (iv) reliance on the representation by the 2nd defendant. For this reason alone, in my judgment, this defence must be rejected. 118.Counsel for the defendants sought, however, to suggest that the relevant fraudulent misrepresentation in the present case was constituted by the statement of Mr Horris Wong to the 2nd defendant that the seasonal deposit would not be paid to the 2nd defendant until a proper formal agreement had been signed by the parties and the 2nd defendant had given Heng Tai a personal guarantee for the return of the deposit (see §§13 and 15 of Mr Horris Wong’s witness statement). It was suggested that this representation was false because, although new agreements were signed on 23 April 2008 and guarantees were given by the 2nd defendant on that date, Cheong Lee was never paid any seasonal deposit in accordance with the terms of the Purchase Agreement and Term Sheet dated 28 March 2008. 119.I have no hesitation in rejecting this contention. Leaving aside the fact that this case was never pleaded by the defendants, it is, in my judgment, a wholly unrealistic contention. Although not described as a seasonal deposit, the payment made to the 2nd defendant under the Loan Agreement was precisely the same amount as was originally to have been paid by Golden Harvest to Cheong Lee by way of seasonal deposit pursuant to the Purchase Agreement and Term Sheet. In due course, the loan to the 2nd defendant was extinguished and replaced by the crediting of that sum of HK$1.25 million to the 1st defendant described as a seasonal deposit and an obligation on the part of the 1st defendant to repay that amount upon the expiry or termination of the Supply Agreement. In short, the arrangements entered into in April 2008 did result in a seasonal deposit being paid. Although it was paid to the 1st defendant rather than to Cheong Lee, it was nevertheless paid to a company of the 2nd defendant’s and was for the purpose of assisting in the importation and purchase of fresh fruits by the 1st defendant. D5. Did Mr Horris Wong procure the 1st defendant’s agreement to the Supplemental Agreement and the 2nd defendant’s agreement to the Additional First Personal Guarantee and the Additional Second Personal Guarantee all dated 23 April 2008 by means of duress or fraudulent misrepresentation? 120.As noted above, there was an issue between the parties as to whether the Supplemental Agreement, the Additional First Personal Guarantee and the Additional Second Personal Guarantee were signed on 23 April 2008, as the defendants maintained, or one or two days thereafter, as the plaintiffs maintained. I do not think the outcome of that issue is material to the outcome of the action. Nevertheless, since the issue arose on the evidence, I shall address it briefly. 121.The background I have related above, based on the contemporaneous documentation, shows that for some time before 23 April 2008, Mr Daniel Chan had been involved in settling the terms of the Supply Agreement, the First Personal Guarantee and the Second Personal Guarantee. The evidence discloses that legal advice was apparently obtained by the defendants in relation to these documents. The manner of execution of the Supply Agreement, the First Personal Guarantee and the Second Personal Guarantee, which it was common ground were executed on 23 April 2008, make it unlikely that they were executed at the same time as the Supplemental Agreement, the Additional First Personal Guarantee and the Additional Second Personal Guarantee. This is because it is highly unlikely, in my opinion, that Mr Daniel Chan would not have been asked to sign his name as a witness to his father’s signature on the Supply Agreement if he had truly been present at the time that document was executed. 122.Furthermore, although the contents of the two sets of agreements were substantially the same, as was common ground, it is self-evident that the Supplemental Agreement, the Additional First Personal Guarantee and the Additional Second Personal Guarantee had minor amendments made to them to reflect the fact that they were subsequent to the Supply Agreement, the First Personal Guarantee and the Second Personal Guarantee. The explanation of Mr Horris Wong that the reason for the preparation of the Supplemental Agreement, the Additional First Personal Guarantee and the Additional Second Personal Guarantee was that the plaintiffs’ legal advisors considered that it would be preferable for the documents to be executed as deeds is entirely plausible and one which I accept. That being the case, there would have been no purpose in asking the defendants to execute the Supply Agreement, the First Personal Guarantee and the Second Personal Guarantee on 23 April 2008 if the Supplemental Agreement, the Additional First Personal Guarantee and the Additional Second Personal Guarantee had already been prepared and were ready for execution on that same date. As a matter of logic and common sense, I find that the Supplemental Agreement, the Additional First Personal Guarantee and the Additional Second Personal Guarantee must have been executed subsequent to the Supply Agreement, the First Personal Guarantee and the Second Personal Guarantee. I accept the evidence of Mr Horris Wong that this was one or two days after 23 April 2008 and I reject the evidence of the 2nd defendant and Mr Daniel Chan that those documents were all signed together on 23 April 2008. 123.Be that as it may, the allegations of duress and fraudulent misrepresentation in regard to the documents executed on 23 April 2008 remain to be considered. 124.It was the defendants’ case that, by 23 April 2008, more than 15 containers of durian had been shipped from Thailand and the 2nd defendant was under tremendous pressure to settle Cheong Lee’s indebtedness to its Thai supplier. It was submitted that Golden Harvest was obliged to pay Cheong Lee for goods sold and delivered on its behalf by Cheong Lee, so that the act of withholding payment until new agreements were signed constituted illegitimate financial pressure which was significant in inducing or pressurising the 2nd defendant and Mr Daniel Chan to sign the documents on 23 April 2008. 125.I have a number of difficulties in accepting the validity of this argument on behalf of the defendants.
126.For the above reasons, I reject the contention that the defendants’ agreement to the Supplemental Agreement, the Additional First Personal Guarantee and the Additional Second Personal Guarantee was procured by duress on the part of Mr Horris Wong or the plaintiffs. 127.As for the allegation of fraudulent misrepresentation, I reject this defence for the same reasons I rejected it in respect of the Loan Agreement dated 2 April 2008 (see Section D4.2 above). D6. Did the 1st defendant repudiate the Supplemental Agreement so that the sums of $2,423,593.40 and $1,250,000 became due and owing by the 1st defendant to the 1st plaintiff and the 2nd plaintiff respectively under the Supplemental Agreement as at 11 June 2008? 128.The answer to the question posed by this issue is, in my opinion, clearly in the affirmative. Under clause 2.6 of the Supplemental Agreement, the 1st defendant was obliged to pay the invoices issued by the 1st plaintiff within 30 days from the dates of the invoices. The outstanding invoices as at 4 June 2008, when the plaintiffs’ solicitors made demand for payment, were in some cases dated considerably longer than 30 days before that date. 129.Counsel for the defendants appeared to raise an argument in closing submissions to the effect that the Supplemental Agreement should be held to have failed for want of intent. The basis of this argument appears to have been that after the execution of the Supplemental Agreement a credit hold was put on the 1st defendant. The contention appears to be that, on the footing the Supplement Agreement was not in fact executed until one or two days after 23 April 2008, the act of the plaintiffs immediately putting a credit hold on the 1st defendant, as evidenced by Mr Horris Wong’s e-mail of 25 April 2008, had the effect that the Supplemental Agreement was never effective since its only purpose would have been to create a liability on the part of the defendants for what should have been a liability of Cheong Lee under the Purchase Agreement and Term Sheet dated 28 March 2008. It was submitted that this meant the Supplemental Agreement failed for want of intent or common intent, alternatively that it was latent and un-performed. 130.In my opinion, this argument is misconceived. The Supplemental Agreement was still operative notwithstanding the credit hold that was imposed on 25 April 2008. The effect of the credit hold was that no further credit limit would be made available to the 1st defendant until the outstanding balance was reduced below HK$2.5 million. If that had happened, there is nothing to suggest that fresh shipments of durian could not have been entered into on the terms of the Supplemental Agreement. D7. Did Mr Horris Wong procure the 1st defendant and the 2nd defendant’s agreement to a repayment schedule for $3,826,348.60 by 10 instalments on the terms of a Payment Schedule dated 27 June 2008 by means of duress or fraudulent misrepresentation? 131.Although this issue was raised on the pleadings, counsel for the defendants did not seek to argue that the defendants were entitled to avoid the agreement constituted by the Payment Schedule on the grounds of duress. On that basis, the answer to the question posed is in the negative. This obviates the need to consider whether the statements alleged to have been made by Mr Horris Wong to the 2nd defendant on 26 May 2008 were sufficient to constitute illegitimate pressure amounting to duress. For my part, I doubt that a threat to issue proceedings or a statement as to the adverse consequences of such proceedings, in the circumstances of this case, would be sufficient to constitute such pressure. 132.However, counsel for the defendants sought to argue a different point in relation to the agreement constituted by the Payment Schedule. It was said that the settlement reached on 27 June 2008 was misconceived. The basis of this contention appears to be an allegation that the settlement agreement was vitiated by mistake. The mistake in question was said to be that the underlying claim of the plaintiffs was enforceable or that the seasonal deposit had been paid and that durian had been delivered and sold to the 1st defendant but not paid for. 133.I will deal with the factual premises on which these arguments advanced by the defendants were based, although I would preface what I say by observing that, since none of these matters were pleaded by the defendants by way of defence, it is questionable whether these arguments are open to the defendants. 134.As to the allegation that no seasonal deposit was ever paid by the 2nd plaintiff to the 1st defendant, the argument appears to proceed on the basis that the set-off in clause 4.2 of the Supplemental Agreement did not amount to an effective assignment of any debt by the lender under the Loan Agreement dated 2 April 2008. Counsel for the defendants also suggested that the sum credited to Cheong Lee was not in fact a payment under the Loan Agreement so that there was no loan made. Finally reference was made to the fact that Golden Harvest appears to have been identified as the lender in the Loan Agreement. On the basis of these various contentions, it was submitted that the 1st defendant was not paid the seasonal deposit in law or in fact so that it had no obligation to return that seasonal deposit to the 2nd plaintiff. 135.In my opinion, this argument is untenable. By the Loan Agreement, a sum of HK$1.25 million was advanced to the 2nd defendant by way of loan. There is some question as to whether it was intended by Heng Tai that Heng Tai Finance Limited rather than Golden Harvest was intended to be the lender of that loan but, in the event, it is Golden Harvest that is identified as the lender. It was in any event expressly agreed that the 2nd defendant as borrower instructed the lender to make the loan by chats directly to its nominee, Cheong Lee, and that the 2nd defendant would be fully liable for the loan. 136.At the same time the Loan Agreement was entered into, the parties had agreed to amend the Purchase Agreement and Term Sheet dated 28 March 2008. Something different, therefore, was anticipated to replace the Purchase Agreement and Term Sheet. It is unrealistic therefore to regard the parties as having proceeded on the basis of the Purchase Agreement and Term Sheet, since it was acknowledged on 2 April 2008 that its terms would have to be amended. Eventually, the Supply Agreement, and then the Supplemental Agreement, were concluded between the parties. Clause 4.2 of the Supply Agreement (which was in the same terms as clause 4.2 of the Supplemental Agreement) replaced the Purchase Agreement and Term Sheet and provided for the 2nd plaintiff to pay a seasonal deposit in the sum of HK$1.25 million to the 1st defendant. This was to be achieved by way of what was described as a set-off of the debt owed by the 2nd defendant under the Loan Agreement. Heng Tai Finance Limited, the signatory of the Loan Agreement signed a letter addressed to the 2nd defendant dated 23 April 2008, agreeing to set-off the debt owed pursuant to the Loan Agreement against the seasonal deposit payable by the 2nd plaintiff under the Supply Agreement. 137.The clear effect of the arrangements referred to in the preceding paragraph is that the loan obligation of the 2nd defendant under the Loan Agreement was discharged and in its place clause 4.2 of the Supply Agreement created a new obligation on the part of the 1st defendant to repay the sum of HK$1.25 million within seven days of the expiry or termination of the Supply Agreement. The benefit of receipt of the HK$1.25 million had been enjoyed by the 2nd defendant as from Cheong Lee’s receipt of that sum by way of chats transfer on 3 April 2008. 138.In the circumstances, there is nothing, in my view, in the contention of the defendants that the seasonal deposit was not paid to the 1st defendant. 139.As to the defendants’ argument that the durian sold and delivered before 23 April 2008 constituted completed transactions so that these transactions were not covered by the Supply Agreement, the answer to that argument is that the Supply Agreement covered a defined Supply Period commencing on 2 April 2008. It was clearly intended to cover the shipments already arranged and covered by the various invoices that had been submitted by FPE, initially to Golden Harvest, and subsequently to the 1st plaintiff. Even if the commencement of the Supply Period on 2 April 2008 was subsequent to the earliest shipments, the documentation passing between the parties shows clearly, in my opinion, that they were all intended to be subject to the terms of the Supply Agreement. Given the entire agreement clause in the Supply Agreement, the Purchase Agreement and Term Sheet was superseded and no longer had any effect. Any shipments and invoices to the 1st plaintiff would fall to be dealt with under the Supply Agreement instead. 140.Finally, in this regard, I reject the argument that the settlement agreement constituted by the Payment Schedule dated 27 June 2008 was misconceived by virtue of a mistaken belief that the 1st defendant was under a liability to pay back the seasonal deposit and for the durian under the 1st plaintiff’s invoices. Even if there was some technical reason for suggesting that this was not the case, it is trite law that the compromise of a claim which is doubtful in law is binding as a contract : see Chitty on Contracts (30th Ed.) Vol.1 at §3-051. It was never suggested that the plaintiffs did not in good faith believe that the sums shown in the Payment Schedule dated 27 June 2008 were not properly due and owing by the 1st defendant to the 1st plaintiff. In those circumstances, I see no reason why the agreement evidenced by the Payment Schedule dated 27 June 2008 and the post-dated cheques tendered by the 2nd defendant is in any way misconceived or not supported by consideration. D8. By reason of the dishonour of the 2nd post-dated cheque on 15 August 2008, did the 1st defendant and the 2nd defendant breach the repayment agreement of 27 June 2008 so that the balance sum of $3,600,000 became immediately due and payable to the 1st plaintiff and the 2nd plaintiff? 141.In my judgment, the dishonour of the second post-dated cheque dated 15 August 2008 had the effect that the remaining balance of the total debts would become immediately due and payable. This was the express consequence stipulated in the manuscript amendment at the foot of the Payment Schedule dated 27 June 2008, countersigned by Mr Daniel Chan. The purpose of the agreement reflected in the Payment Schedule was to settle the outstanding sum which the 1st plaintiff was claiming was due from the 1st defendant, payment of which the 2nd defendant had guaranteed. In the circumstances, I hold that the intention of the agreement evidenced by the Payment Schedule dated 27 June 2008 and the tendering of the post-dated cheques by the 2nd defendant was that the defendants should be jointly and severally liable for the entire outstanding sum in the event any of the post-dated cheques was dishonoured on presentation. The answer to the question posed in this issue is therefore in the affirmative. D9. Did the 1st plaintiff and the 2nd plaintiff breach the oral Joint Venture Agreement or Purchase Agreement and Term Sheet so that the 1st defendant and the 2nd defendant are entitled to damages? 142.For the reasons set out above, I find that there was no oral joint venture agreement as alleged by the defendants. 143.Similarly, for the reasons set out above, I have concluded that the Purchase Agreement and Term Sheet was superseded by the Supply Agreement and then the Supplemental Agreement so that no liability on the part of the plaintiffs could arise thereunder. In any event, the parties to the Purchase Agreement and Term Sheet were Golden Harvest, and not the plaintiffs, on the one part and Cheong Lee, and not the defendants, on the other part. 144.There is therefore no question of any liability on the part of the plaintiffs to the defendants on either of these bases. D10. The appropriate relief to which either the 1st plaintiff and/or the 2nd plaintiff or the 1st defendant and/or the 2nd defendant are entitled? 145.As I have held in respect of issue (9) above, there is no liability on the part of the plaintiffs to the defendants. 146.So far as the defendants’ liability to the plaintiffs is concerned, I have concluded above that the dishonour of the second post-dated cheque had the consequence of making the 1st defendant and the 2nd defendant jointly and severally liable for the remaining balance of the total debt reflected in the Payment Schedule dated 27 June 2008. 147.In the circumstances the plaintiffs are respectively entitled to judgment against the 1st defendant and the 2nd defendant jointly and severally as to HK$2,350,000 to the 1st plaintiff and as to HK$1,250,000 to the 2nd plaintiff. 148.It was argued by counsel for the defendants that, by maintaining a claim under the settlement agreement evidenced by Payment Schedule dated 27 June 2008, the plaintiffs were estopped from maintaining claims under the Supplemental Agreement, the Additional First Personal Guarantee and the Additional Second Personal Guarantee. Since I have concluded that the plaintiffs are entitled to succeed under the settlement agreement, this argument is academic and need not be considered further. However, the plaintiffs were entitled, in my opinion, to maintain claims in the alternative under the Supplemental Agreement, the Additional First Personal Guarantee and the Additional Second Personal Guarantee, in case its claims under the settlement agreement were not upheld. E. Disposition and costs 149.For the reasons set out above, I would enter judgment in favour of the plaintiffs, as to HK$2,350,000 to the 1st plaintiff and as to HK$1,250,000 to the 2nd plaintiff, jointly and severally against the 1st defendant and the 2nd defendant. 150.Interest on the above sums should run as from 25 August 2008, the date on which the second post-dated cheque was dishonoured, at prime plus 1%, being the usual commercial rate of interest awarded. 151.The defendants’ counterclaim is dismissed. 152.I see no reason why costs should not follow the event and I make an order nisi that the defendants pay the plaintiffs’ costs of the action, to be taxed if not agreed.
Mr William Chan and Ms Sylvia Lee, instructed by Messrs Fred Kan & Co., for the 1st and 2nd Plaintiffs Mr Kam K. Kwok and Mr Dan Cheung, instructed by Messrs Johnnie Yam, Jacky Lee & Co., for the 1st and 2nd Defendants Application to Court of Appeal by the 1st and 2nd Defendants for a stay of execution refused. Please refer to CACV279/2010 dated 9 March 2011 |
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