ELITE EXPORTS (H.K.) LTD. v. NICOLE ELIZABETH KOZMA AND OTHERS

DCCJ1282/2001 & DCCJ1283/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1282 OF 2001

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RULING

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1. In both actions, the same Defendants were joined by two different Plaintiffs. The two Plaintiffs in DCCJ 1282 of 2001 and DCCJ 1283 of 2001 are represented by the same firm of solicitors. The parties agreed the two summonses may be heard together as they are identical and the two proceedings are similar.

2. In DCCJ1282/01, the Plaintiff company through its director Sunil Sadhwani negotiated with the Defendants to purchase shares in Tigger's Treats Limited in or about December 1999. Before any agreement for purchase of shares had been reached in December 1999, the Plaintiff agreed to make a personal loan of $250,000 by 4 instalments to the Defendants. The Defendants agreed to repay the loan by two equal instalments on or before the dates of 31 December 2000 and 15 May 2001. The Plaintiff claimed that the Defendants had failed to repay any part of the loan.

3. In DCCJ 1283/01, the Plaintiff agreed to advance a personal loan in the sum of $234,000 to the Defendants paid into the Defendant's bank account on 7 April 2000. The Defendants agreed to repay the loan in full by 31 December 2000. Apart from a part payment of $25,000 on 25 November 2000, it is the Plaintiff's case that the Defendants failed to repay the balance of the loan on or before 31 December 2000 or at all.

4. It is the Defendants' defence in both actions that the Plaintiff company in DCCJ 1282/01 and the Plaintiff in DCCJ 1283/01 were investing into a limited company incorporated by the 3 named Defendants known as Tigger's Treats Limited and that the money deposited with the Defendants were capital contribution to Tigger's Treats Limited and not personal loans to the Defendants.

5. The main issue in this action is whether the money deposited by the Plaintiffs was a loan to the Defendants or paid as share capital of Tigger's Treats Limited.

6. On 1 June 2002, the two Plaintiffs took out two separate summonses for the striking out of the defence and judgment to be entered against the Defendants for failure to comply with the unless order of Master C.K. Chan of 2 May 2002.

7. Master C.K. Chan's 2 May 2002 order was granted following an earlier order of 4 January 2002 by him ordering the Defendants to file an affidavit stating whether they have or have at any time in their possession, custody or power the documents specified in the schedule and if not state when they parted with them and what had become of them. The Defendants were given 14 days to comply with the order.

8. The schedule attached to the 4 January 2002 order is as follows:

1. Books of account of the Defendants from April 2000 to October 2000.

2. Defendants Bank Statements with Citibank from the period April 2002 to May 2000.

3. Books of Account of Tigger's Treats Limited from April 2000 to October 2000.

4. Copy of any document(s) filed with the Inland Revenue Department as required under sections 51(6) of the Inland Revenue Ordinance indicating that Tigger's Treats had ceased to trade on or about 6 December 1999.

9. On 16 May 2002, the 2nd named Defendant filed an affidavit on behalf of the Defendants referring to the Defendants' list of documents filed on the same day as all the documents the Defendants have in their possession, custody or control. He further claimed that no book of accounts of the Defendants existed from December 1999 to December 2000 as the Defendants' partnership ceased trading on 6 December 1999. He claimed he had, however, supplied the Plaintiffs with a balance sheet with a statement of accounts ending 31 December 1999. He further claimed that he had "provided the Plaintiff's solicitor all the evidence that are presently in my possession"; and that "no information or documents pertaining to the cessation of business exist within the possession of any parties that are associated with this matter." In the Defendants' list of documents, the Defendants claimed privilege of item 3 of the schedule on the ground that Tiffer's Treats Limited accounts do not relate to the present matter.

10. The Plaintiffs' contention is that the Defendants had failed to fully comply with Master C.K. Chan's order in that items 1, 3 & 4 of the schedule had not been supplied.

11. The Plaintiffs' solicitor, Miss Liang, pointed out that the Defendant had at previous hearings and on affidavit admitted the documents were being prepared and were in the possession of their lawyer. As the Defendants now claimed that books of accounts from December 1999 - December 2002 of the Defendants' partnership Tigger's Treats had not been prepared and do not exist to date, the statements of the Defendants are conflicting and self-contradictory.

12. I find the Defendants' affidavit and previous admission in submission in court on the existence of the documents to have been referred to generally. The discovery of documents were requested under four areas in the schedule. The Defendants have disclosed some of the documents, and part of the accounts. Therefore, it cannot be said that they have been untruthful on their affidavits.

13. On the other hand, the 1st named Defendant admitted that their accountants were auditing the books and closing the accounts of the Defendant's business in her letter to the Inland Revenue Department on 26 May 2000, yet, by the date of hearing, the Defendant's close of business accounts were still unavailable. I am informed by the 3rd named Defendant's solicitor, that those closing accounts do not exist at the date of hearing.

14. The 3rd named Defendant had on his own behalf and those of the 1st and 2nd named Defendant sworn an affidavit on 16 May 2002 to the effect that no books of accounts of the Defendants' Tigger's Treats between December 1999 and December 2000 existed for the reason that the Defendant ceased trading as a partnership business from 6 December 1999 (para. 4 of the affidavit of 3rd named Defendant). Furthermore, on para. 3 of the Defendant's list of documents it claimed privileged of the documents ordered under item 3 of the schedule.

15. In para. 10 of the affidavit of the 1st named Defendant dated 30 June 2001, however, the 1st named Defendant admitted that Tigger's Treats Limited trade as Tigger's Treats. The solicitor for the 3rd named Defendant also admitted at the hearing that Tigger's Treats Limited continued to use the same bank account at Citibank of Tigger's Treats after 6 December 1999. These admissions are sufficient indications that the Defendants apparently made no clear distinction after 6 December 1999 of the partnership business of Tigger's Treats or the newly incorporated Tigger's Treats Limited. Hence, the admission "Tigger's Treats Limited still continued to trade as Tigger's Treats." Further evidence is found in the Defendants' further admission that no document of notification to the Inland Revenue Department existed (see para. 6 of the 3rd named Defendant's 16 May 2000 affidavit).

16. If that be the case, the Defendants are not entitled to claim privilege of the accounts of Tigger's Treats from December 1999 up to October 2000. For this reason, I am satisfied the Defendants should disclose documents under item 3 of the schedule and I so order. Such discovery should be made within 14 day of this order. Should the Defendants failed to comply with this order within 14 days hereof, the defence shall be struck out and the Plaintiff be at liberty to enter judgment with costs.

17. Costs nisi on the costs of the application, the hearing including all previous hearings to be borne by the Defendants.

Representation:

Mrs. Liang of Messrs. Susan Liang & Co. for Plaintiff.

1st named Defendant Nicole Elizabeth Kozma was represented by the 2nd named Defendant.

2nd named Defendant Rajesh Thimothy Yemothy appearing in person.

Mr. P.E. Firmin of Messrs. Oldham, Li & Nie assigned by Director of Legal Aid for the 3rd named Defendant.

DCCJ1282/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1282 OF 2001

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J U D G M E N T

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1. This action is related to case 1283 of 2001 in which I have just delivered judgment giving the defendants unconditional leave to defend. This is also an Order 14 summons.

2. The issue is identical. Did the plaintiff company advance the $250,000 now claimed in the writ to the defendants trading as Tigger's Treats or was this payment made to Tigger's Treats' successor, namely Tigger's Treats Limited? These payments were made by means of four cheques, three made out in favour of Tigger's Treats and one dated 23 February 2001 to Tigger's Treats Limited. These cheques are at page 24 of the Bundle.

3. The plaintiff is a company controlled by Mr Sunil Sadhwani. He and his wife, Karune, met Nicole Kozma, one of the defendants, at the fete on the occasion of the annual Sedan Chair Race at the Matilda Hospital in October 1999. Karune Sadhwani was interested in pursuing a business in the baking and sale of cakes and pastries. The defendants operated a business providing toys and other children's favours, largely, but not exclusively, for children's parties. It was thought that a cake business would go well with the existing Tigger's Treat business.

4. The defendants were about this time looking to expand this business and considered that this could be done more effectively by forming a limited company, which they did on 6 December 1999, and which they registered as Tigger's Treats Limited. One of the advantages of taking that course was that they might invite other investors to inject capital to assist expansion and to take shares through their capital investment.

5. The issue in this matter is whether the sums paid by the plaintiff were merely a loan to the defendants trading as Tigger's Treats or whether this was an investment in Tigger's Treats Limited. As I shall demonstrate in a moment, the evidence is simply far too uncertain to permit of an answer that would justify summary judgment against these defendants.

6. The Exhibits SS5 to SS9, pages 246 to 285 of Mr Sadhwani's affidavit, clearly demonstrate the intention that the plaintiff should invest in Tigger's Treats Limited. It may be, but it cannot be put any higher than that, that there was an intention to initially advance this sum to the defendants rather than to the company but such a view is no more than arguable. The whole thrust of the discussions and of the contemporaneous documentation show a clear intention for the plaintiff to take up a 30 per cent shareholding in Tigger's Treats Limited.

7. The plaintiff company has come nowhere near to showing that the defendants have no arguable defence. The issues are clearly very much in the air and cannot be resolved in this summary procedure.

8. The matter must go to trial for resolution in the conventional way. The defendants, therefore, must have unconditional leave to defend.

9. In this case as well, I shall order that the defendants file their defence within 28 days and I make an order nisi that the costs of this proceeding be costs in the cause.

Representation:

Present: Ms S Liang, of Susan Liang & Co., for the Plaintiff

Mr Healy, of Messrs Oldham, Li & Nie, for the Defendants

Present: Ms Agnes Wan, of Susan Liang & Co., for the Plaintiff

Ms Randall, of Messrs Oldham, Li & Nie, for the Defendants