Profit Step Development Ltd and Another v. Sun Rising Development (Agriculture) Ltd and Another

CACV 279/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 279 OF 2010

(ON APPEAL FROM HCA NO. 1649 OF 2008)

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BETWEEN

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Before: Hon Tang VP and Chu JA in Court

Date of Hearing: 22 July 2011

Date of Judgment: 2 August 2011

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Hon Tang VP:

Introduction

1.The Plaintiffs' claimed against the 1^st Defendant the sum of HK$2,576,348.60 (evidenced by 15 invoices) for fresh fruits sold and delivered to the 1^st Defendant pursuant to a Supplemental Supply and Logistic Services Agreement dated 23 April 2008 made between the 1^st and 2^nd Plaintiffs on one part, and the 1^st Defendant on the other part ("the Supplemental Agreement").

2.It was a term of Supplemental Agreement that the 2^nd Defendant should provide a first personal guarantee to the extent of HK$2.5 million in favour of the 1^st Plaintiff to guarantee the obligations of the 1^st Defendant under the Supplemental Agreement and all moneys payable by the 1^st Defendant to the 1^st Plaintiff.  Also that upon the signing of the Supplemental Agreement, the 2^nd Plaintiff should pay a seasonal deposit of HK$1.25 million to the 1^st Defendant by way of a set off for a debt owed pursuant to a loan agreement signed by the 2^nd Defendant on 2 April 2008 in favour of Heng Tai Finance Limited.  And that the 2^nd Defendant should provide a second personal guarantee to the extent of HK$1.25 million in favour of the 2^nd Plaintiff to guarantee the return of the deposit upon expiry or termination of the Supplemental Agreement.

3.Thus, there was also a claim by the 1^st Plaintiff against the 2^nd Defendant in respect of the first personal guarantee; and the 2^nd Plaintiff against the 2^nd Defendant in respect of the second personal guarantee.

4.After trial before Fok J (as he then was), judgment was entered for the 1^st and 2^nd Plaintiffs against the 1^st and 2^nd Defendants jointly and severally to pay the sum of HK$2,350,000 to the 1^st Plaintiff; and the sum of HK$1,250,000 to the 2^nd Plaintiff, together with interest at prime rate plus 1% from 25 August 2008 to the date of full payment and costs.

5.There was a counterclaim by the Defendants against the Plaintiffs.  It is unnecessary to go into any detail regarding the counterclaim. It has been dismissed by Fok J.

6.The first 28 pages of Fok J's judgment contained a careful narration of the background to the proceedings.  At para. 93, he listed a total of 10 issues which he had to decide, and which he then went on to decide.

7.Because of Fok J's detailed judgment, I can deal with the background briefly. 

8.The 1^st and 2^nd Plaintiffs are subsidiaries of Heng Tai Consumables Group Limited ("Heng Tai"), a company listed on the Hong Kong Stock Exchange.  A company called Golden Harvest (Macao Commercial Offshore) Limited, is another subsidiary of Heng Tai.

9.The 1^st Defendant is a Hong Kong company. The 2^nd Defendant is a shareholder and the director of the 1^st Defendant.  He is the father of Mr Daniel Chan Ho Tak ("Mr Daniel Chan"), who is also a shareholder and director of the 1^st defendant.  A company called Cheong Lee International Trading Company Limited ("Cheong Lee") is another Hong Kong company of which the 2^nd Defendant and his son, Mr Daniel Chan, are both shareholders and directors.

10.On 4 October 2010, the 1^st and 2^nd Defendant applied, together with Cheong Lee, for joinder of Cheong Lee and three other parties (as proposed 4^th, 5^th and 6^th Defendants) to the action.  The purpose of the application was so that Cheong Lee could counterclaim against the proposed 4^th, 5^th and 6^th Defendants, companies which were closely related to the Plaintiffs.

11.The application was dismissed by Fok J on 8 October 2010.  On 19 October 2010, he refused leave to appeal.

12.On 28 October 2010, Tang Ag CJHC and Stone J, dismissed the 1^st and 2^nd Defendants and Cheong Lee's application for leave to appeal from the order of 8 October 2010.

13.The trial then took place as scheduled and Fok J's judgment was handed down on 30 November 2010 with the result narrated above.

14.A Notice of Appeal was filed on 24 December 2010.  On 20 January 2011, the Plaintiffs applied for security for costs in respect of the appeal in the sum of HK$456,200.

15.The application for security was set down for hearing before Le Pichon JA on 24 February 2011.

16.By summons dated 15 February 2011, though not filed until 17 February 2011, the 1^st and 2^nd Defendants applied for a stay of execution.  That stay summons was made returnable on the same date and time, which had been allotted for the hearing of the security for costs application.

17.On 24 February 2011 Le Pichon JA ordered that the 1^st and 2^nd Defendants, on or before 24 March 2011, to give security in the sum of HK$300,000 and in default of the 1^st and 2^nd Defendants

"… making such lodgment as aforesaid within the time specified above or within such further time as the Court may for special reasons allow, the said appeal do … stand dismissed out of this Court without further order;"

18.On 7 March 2011, Le Pichon JA dismissed the application for a stay and handed down the Reasons for Decision on 9 March 2011.  There, Le Pichon JA explained:

"3.        At the hearing on 24 February 2011, Mr Kwok (who appeared for the defendants) submitted that as the outcome of the stay application would affect the security application, the court should hear the stay application first.  In my view, that submission was conceived [sic]: the security for costs application and the stay application address different matters and are not interdependent. Neither one is contingent on the outcome of the other.  Further, it was clear that the defendants effectively were seeking to ‘hijack’ the plaintiffs’ appointment.  Parties should take note that the court deprecates and will not countenance such conduct."

19.By a summons dated 14 March 2011, issued pursuant to Order 59 Rule 14(12) of Rules of the High Court (Cap. 4A), and section 35(3) of The High Court Ordinance (Cap. 4) on 14 March 2011, the Defendants asked that the aforesaid orders of Le Pichon JA be discharged on the ground that:

"(1) ……

(a) in exercising discretion to grant security to the Plaintiffs, the learned Justice of Appeal erred in principle and gave no reason or effective reason of her Ladyship's decision;

(b) when exercising discretion to refuse stay, the learned Justice of Appeal erred in principle;

(2) There be stay of execution on judgment of the Honourable Mr Justice Fok, dated 30 November 2010."

20.The summons was set down for hearing before us on 22 July 2011.

21.The Defendants' skeleton arguments dated 7 July 2011 bore the names of Mr Kam Kwok and Mr Dan Chung, who had appeared before Fok J at trial.  On the hearing on 22 July 2011, Mr Edward Chan, SC appeared (leading Mr Kwok and Mr Chung).  Presumably, Mr Chan was instructed at the last moment in an attempt to salvage the Defendants' position.

22.I should add, in the meantime, security, not having been provided, the appeal has been struck out.

23.The summons issued on 14 March 2011 was out of time in relation to the security for costs order which was made on 24 February 2011.  There was no application for leave to apply out of time.

Stay of Execution

24.Mr Chan submitted that unless a stay of execution is granted, the 1^st and 2^nd Defendants would suffer irrevocable damage because, in the meantime, the Plaintiffs have already initiated winding-up proceedings against the 1^st Defendant, and bankruptcy proceedings against the 2^nd Defendant.

25.The difficulty with such submission is that there is no evidence from either Defendant that they are not in a position to satisfy the judgment.  It also appeared that neither Defendant was keen to supply evidence relating to their means.  I do not believe that they can simply rely on the fact that they have failed to satisfy the judgment as evidence of their inability to pay.  If they are able to pay, they would be in a position to avoid liquidation or bankruptcy.

26.I should add there has been an attempt on behalf of the 1^st and 2^nd Defendants to adduce fresh evidence relating to the position of the Plaintiffs.  However, the requirements of Ladd v Marshall [1954] 1 WLR 1489 are admittedly not satisfied in relation to such new evidence.  That being the case, I shall ignore them.

27.In short, there is no basis to interfere with Le Pichon JA's decision.

Security for Costs

28.On the basis that the 1^st and 2^nd Defendants had not satisfied the judgment, the learned judge was entitled to proceed on the basis that there would at least be undue delay or expense in obtaining payment of the costs of the appeal.

29.However, it was submitted that Le Pichon JA, in ordering security, had not given any reasons.

30.I have listened to the recorded proceeding.  It appeared that Mr Kwok had suggested, in a wide ranging submission, that the ordering of security should depend on whether the execution of the judgment would be stayed.  That was rejected by the learned judge, who had adjourned the hearing of the stay application to a later date.  As the learned judge made clear in the course of the submissions, on the basis that the Defendants had not satisfied the judgment, and there being no evidence from the Defendants relating to their financial position, she should order security.  Indeed, when asked, Mr Kwok told Le Pichon JA, he had no idea whether the Defendants were in a position to satisfy the judgment.  The learned judge went on to hear Mr Kwok on quantum.  Then, she made the order complained of.  Whilst it is true that when she made the order she had not repeated her reasons, it is quite clear that she was satisfied that on the basis that the Defendants had not satisfied the judgment and the Defendants, not having offered any evidence of their financial position, there were special circumstances which rendered it just to order security.

31.It follows that, I do not believe it could be said that Le Pichon JA had failed to give reasons such that we are free to exercise our discretion.

32.In any event, on the material before Le Pichon JA, security was rightly ordered, there is no reason why I should exercise the discretion differently.

33.As noted, because of the Defendant's failure to provide the security, the appeal has been struck out.

34.Mr Chan, on his feet, asked that we extend time for the payment of the security.  There was no proper application for that purpose.  Nor was there any acceptable explanation why security had not been provided.  The only explanation offered was that the Defendants wanted to appeal the order.

35.Mr Chan submitted that since an appeal from Fok J's judgment was as of right, therefore we should be more ready to grant an extension of time to provide the security for costs. Also that the Plaintiffs would suffer no prejudice which cannot be compensated by the payment of costs. 

36.Having regard to the underlying objectives of the Civil Justice Reform, I doubt whether an extension of time should be so readily given.  But it is unnecessary to decide the matter on this basis.

37.I am satisfied that the appeal has no reasonable prospect of success.

38.In Le Pichon JA's reasons of 9 March 2011, she said:

"10. … Mr Kwok’s argument, far from showing that he has strong grounds of appeal, amounts to nothing more than that he should be given a third bite at the cherry. Accordingly, leave was refused, no strong grounds of appeal having been shown."

39.I believe a third bite at the cherry referred to Mr Kwok's attempt to resurrect Cheong Lee.

40.Although the Notice of Appeal runs to 8 pages and contained 15 grounds, I do not believe it has any reasonable prospect of success. With respect, I find the Notice of Appeal difficult to understand.  Indeed, the pleadings were not models of clarity.

41.This is how Fok J summarised the defence of the Defendants. 

"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."

42.These issues of fact were resolved by the learned judge after trial against the Defendants. 

43.Mr Chan, of course, is not responsible for the Notice of Appeal.  He had not sought to address us on any of the grounds in the Notice of Appeal.  Quite rightly so, since, with respect, insofar as I can understand them, they raised issues of fact which have been resolved by the learned judge against the Defendants.  Insofar as it is claimed that some of the findings of fact made by the learned judge is inconsistent with the documentary evidence, I can see no basis for such complaint.

44.Mr Chan sought to raise a new point, one of novation.  He submitted that essentially, the learned judge's judgment was based on novation, but that has not been pleaded by the Plaintiffs, and he has referred us to para. 11 of the Reply.  Mr Chan did not fully develop the argument.

45.Presumably, the novation argument concerned Cheong Lee, and related to Issue 1, 2 and possibly 3 of the 10 issues identified by the learned judge in para. 93 of the judgment.  These issues were:

"93. ……

(1) 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?  (Amended Defence §§12-13)

(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?  (Amended Defence §18)

(3)   Did Golden Harvest and/or the 2^nd plaintiff wrongfully fail to pay Cheong Lee the deposit under the Purchase Agreement and Term Sheet on or before 1 April 2008?  (Amended Defence §20)"

46.As described above, the Plaintiffs relied on the Supplemental Agreement signed by the 1^st Defendant and the two personal guarantees signed by the 2^nd Defendant.  However, the Defendants also sought to rely on an earlier alleged oral Joint Venture Agreement made between Heng Tai and Cheong Lee and/or a Purchase Agreement and Term Sheet between Cheong Lee and Golden Harvest.  I will refer to them collectively as "these agreements".  The Defendants sought to rely on these agreements to avoid liability on the Supplemental Agreement and the personal guarantees.  It will be recalled that an attempt to join Cheong Lee at the 11^th hour was rejected.  Nor were Heng Tai or Golden Harvest allowed to be joined as additional defendants in aid of or in connection with these agreements.  Fok J held that the Supplemental Agreement and the personal guarantees are binding on and enforceable against the 1^st and 2^nd Defendants respectively.  It is not very clear how these agreements help the Defendants, that despite the non-joinder it seems that these agreements were part of the defence of duress or misrepresentation.  It seems also absence of considerations were all resolved by the learned judge in his judgment in the Plaintiffs' favour.

47.As I have said, Mr Chan did not fully develop the novation argument, which apparently only occurred to him, when he perused the pleadings.  With respect, I see nothing in the point.

48.The appeal has no reasonable prospect of success, and for that reason, in any event, I do not believe we should grant leave to appeal against the order for security out of time, or grant an extension of time for payment of security for costs into court.

49.I would therefore dismiss the Defendants' summons and make an order nisi that the Defendants pay the Plaintiffs costs, to be taxed if not agreed.

Hon Chu JA:

50.I agree.

Mr Edward Chan, SC, Mr Kam K Kwok & Mr Dan Chung, instructed by Messrs Johnnie Yam, Jacky Lee & Co., for the Defendants

Mr William Chan & Ms Sylvia Lee, instructed by Messrs Fred Kan & Co., for the Plaintiffs