Ues International (HK) Ltd v. Maritima Maruba Sa

HCA 632/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 632 OF 2011

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BETWEEN

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Before : Deputy High Court Judge M Chan in Chambers

Date of Hearing : 26 March 2012

Date of Decision : 12 April 2012

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D E C I S I O N

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Background

1.The plaintiff (“UES”) seeks summary judgment to be entered against the defendant (“Maruba”) for sums due under a letter of guarantee dated 26 December 2006 (“Guarantee”), whereby Maruba guaranteed the due payment and full performance of the obligations of South Atlantic Container Line Ltd (“South Atlantic”) and of Nexxus Leasing Co Ltd (“Nexxus”) under and pursuant to leasing agreements made between UES, Atlantic and Nexxus (“Leases”).

2.UES claims that as at 31 March 2011, South Atlantic and Nexxus owed UES the sums of US$9,064,354.52 and US$1,333,179.40 respectively, representing rental charges and contractual interest due under the Leases.  UES further claims that recovery charges of US$262,347.17 and repair charges of US$857,963.15 are payable by South Atlantic and Nexxus to UES under the Leases.  It is pleaded in the Amended Statement of Claim filed in this action that Maruba is liable to UES for all these amounts under the Guarantee.

3.Maruba does not dispute the existence of the Guarantee and the Leases.  However, it denies that it is liable to UES for the amounts claimed and has raised the following grounds of defence :

(1) In respect of 7 of the Leases, South Atlantic had received notice of UES’ assignment of all its rights, title, and interest in the Leases, the amounts payable under the Leases and any guarantee or other security held in respect of the Leases.  By virtue of the assignment, UES has no further rights or claims against South Atlantic and Maruba ;

(2) South Atlantic and Nexxus had entered into a Creditors Agreement with other parties on 29 September 2010 (“Creditors Agreement”), which constituted a new agreement to replace the Leases, such that the Creditors Agreement is not covered by the Guarantee, or constituted material variations to the Leases so as to discharge Maruba’s liability under the Guarantee ;

(3) The recovery charges and repair charges are not payable under the Leases.

Legal principles for Order 14

4.The principles applicable to applications for summary judgment are clear.  To resist an Order 14 application, the defendant must show that there are triable issues.  A concise statement of the standard approach in an application for summary judgment is to be found in the dicta of Ma J, as he then was, in Schindler Lifts (Hong Kong) Ltd v Ocean Joy Investments Ltd [2003] 1 HKC 438.  The court has to determine two questions : first, whether what the defendant says is believable as opposed to whether its version of events is to be believed; and second, if it is, whether what the defendant says amounts to an arguable defence in law.  In determining the first question, the court should not embark on a mini trial of the action on affidavit evidence.  The burden of proof is not a heavy one.  It is not the function of the court at this stage to assess if a defence will succeed at trial. Insofar as the second question is concerned, summary judgment will not be granted if there are arguable defences or serious disputes of law.

Whether there are triable issues as to the assignment of debt

5.It is not disputed that after the date of the Leases, UES served written notice on South Atlantic of its assignment of “all its right, title, benefit and interest whatsoever, present and future, actual and contingent under, in and to” 7 of the Leases; all monies payable under or pursuant to the relevant Leases and “any guarantee, indemnity, … remedy or other security” which UES may hold or be entitled to in respect of South Atlantic’s obligations under the relevant Leases.  The notice of assignment was undated, but was signed by UES and served on South Atlantic.  At the same time, South Atlantic signed an acknowledgment of receipt of the notice of assignment and of the interest of the assignee in the specified Leases, and acknowledged that “apart from the security interests granted in favor of the assignee”, no encumbrance or other security interest may be created with respect to the Leases.

6.It was argued on behalf of UES that the assignments in question affected only 7 of the Leases, and that in 6 of these 7 notices of assignment, the name of the assignee was left blank.  It has not been disclosed how much of the total debt is covered by the 7 Leases.

7.It was pointed out that the notices of assignment expressly provide that South Atlantic should continue to pay to UES all monies assigned until either UES or the assignee should notify South Atlantic of the occurrence of an event of default under the assignment.  Hence, UES argued that the assignments were only by way of security, that the assignments had not crystallized since no notice of default has been given to South Atlantic, and that the assignments do not affect UES’ right to seek payment from Maruba under the Guarantee for the sums owing under the Leases.

8.According to the notice of assignment signed by UES and served on South Atlantic, UES had “assigned” its rights, benefit and interest to the Lease and all monies due under the Lease.  Although there was a direction in the notice to South Atlantic to continue to pay to UES the amounts due and assigned, until the notification of the occurrence of an event of default, the assignment is not expressed to be conditional upon the occurrence of such an event of default.  As Mr Brown acting for Maruba pointed out, the direction to South Atlantic to continue to make payment to UES is not by itself inconsistent with there being an assignment of the debt, as UES may be collecting the debt as agent for, but on behalf of, the assignee.  I accept Mr Brown’s argument that if there was an absolute assignment, the direction to pay which came from UES and not the assignee would not even bind the assignee, and UES would have no power to give a good discharge for the payment.

9.The notice itself does not purport that the assignment was by way of charge only in favor of the assignee.  Only the document signed by South Atlantic to acknowledge receipt of the notice of assignment contains an acknowledgment of the security interest granted in favor of the assignee.  Such acknowledgment was signed by South Atlantic only.

10.In order to determine whether an assignment is absolute, or purports to be by way of charge only, all the terms of the instrument must be considered, and whatever may be the phraseology adopted in some particular part, the intention must be determined on consideration of the whole document (Halsbury’s Laws of England, vol 13 paragraph 76, citing Hughes v Pump House Hotel Co [1902] 1 KB 190).  The fact that the assignment is expressed to be by way of security is not by itself sufficient to make it purport to be by way of charge only.

11.The assignments in question have not been produced by UES.  Before the question of whether UES’ assignment of its rights under the Leases was an absolute assignment within s 9 of the Law Amendment and Reform (Consolidation) Ordinance, the assignments themselves and the terms used in the documents have to be examined.  At this stage, I am satisfied that it is arguable that there was an absolute assignment by UES of all its rights under the Leases assigned, as well as of the Guarantee which UES held or was entitled to in respect of South Atlantic’s obligations under the Leases.  There is a triable issue whether there was an absolute assignment under s 9, such that the right to recover the amounts due under the Lease and the Guarantee no longer vests in UES.

12.If there is a defence in law that UES has lost the right, after the assignment, to sue for the debts due under the Leases and the Guarantee, the fact that South Atlantic and Nexxus had on 29 September 2010 acknowledged the amounts of their debts due to UES under the Creditors Agreement is not a complete answer to whether UES is entitled to judgment at this summary stage.

Whether there are triable issues as to the Creditors Agreement

13.Under the Guarantee, UES had the express right to grant extensions of time to South Atlantic and Nexxus to perform any acts, without terminating or affecting the validity of the Guarantee.  The Guarantee further provides that its validity and Maruba’s liability thereunder shall not be terminated or adversely affected or impaired by reason of any extension, modification or amendment of the Lease.

14.In gist, the parties to the Creditors Agreement had agreed to make amendments to the Lease, whereby the Creditors including UES agreed to reduce the debts acknowledged by South Atlantic and Nexxus to be due by them under the Leases as at 31 May 2010, provided that South Atlantic and Nexxus made payment of the debts by agreed installments and otherwise in accordance with a payment schedule.  If there should be default in payment in accordance with the agreed schedule, the Creditors have the express right under the Creditors Agreement to cancel the Creditors Agreement and to take action in respect of the acknowledged debts due under the Leases.

15.Having found that there is a triable issue on the assignment, it is in my judgment unnecessary and inappropriate to deal with the arguments concerning the Creditors Agreement in detail.  Suffices it to say at this stage that it is at least arguable that upon execution of the Creditors Agreement, the rights and liabilities of South Atlantic, Nexxus and UES were governed by the Creditors Agreement and not the Leases.  I will say no more on whether the obligations of South Atlantic and Nexxus under the Creditors Agreement or the consequent variations to their obligations under the Lease remain within the general purview of the original Guarantee and the obligations secured thereunder, so as to discharge the Guarantee.

Conclusion

16.By reason of the triable issues which I have found, I grant unconditional leave to Maruba to defend the action, and make an order nisi that the costs of the O14 summons be in the cause.

17.The parties should make discovery within 28 days from the date of the sealing of the orders made, and file and exchange witness statements within 35 days thereafter.

Mr Clifford Smith SC, instructed by Tsui & Co, for the plaintiff

Mr Toby Brown, of Kennedys, for the defendant