VASHDEO GAGOOMAL 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.

DCCJ1283/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 1283 OF 2001

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J U D G M E N T

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1. This is an Order 14 summons whereby the plaintiff seeks judgment in the sum of $209,000, being the amount allegedly owing to him by the defendants arising out of a payment of $234,000 advanced by him on 7 April 2000.

2. It is said by the plaintiff that this sum was to be repaid in full by 31 December 2000. A part-payment of $25,000 was made on 25 November.

3. The fact of the payment and that it should by now have been repaid are not in issue. The only question that needs to be determined is whether the payment had been made by the plaintiff to the defendants trading as Tigger's Treats or whether it had been made to a limited company which they had formed called Tigger's Treats Limited. This is of real practical importance because the Limited Company is now insolvent and therefore incapable of repaying the amount owing.

4. The plaintiff's case is that the loan was to the firm, as represented by these individual defendants.

5. The defendants contend that payment was to the Limited Company as an investment in that company.

6. There is another identical action before me, 1282 of 2001, brought by a limited company owned by a friend of this plaintiff for a slightly larger sum of money in which the issue is the same.

7. I have heard the applications in turn on the same occasion and I will need to deliver a separate judgment in that other action in a moment.

8. The parties are agreed, and this must be so on the evidence, that given the identity of issues, both applications will attract the same outcome.

9. It is helpful to set out the background to this matter. On 28 October 1998, the firm of Tigger's Treats was registered as a business. The defendants who traded under this name are Nicole Kozma, her husband, Rajesh Thimothy and Nicole's father, Paul Kozma. Tigger's Treats' principal business was the sale of toys and similar products for use at children's parties. At the end of 1999, Tigger's Treats ceased trading when Tigger's Treats Limited was incorporated in order that the business might be expanded and put on a more formal footing. The assets of the old business were then taken over by the Limited Company.

10. The payment by the plaintiff was made on 7 April 2000, which if the defendants are right was some 4 months after the business of Tigger's Treats had ceased trading.

11. As against that, the plaintiff draws attention to the fact that the payment itself went, not into the Limited Company's bank account, but into Tigger's Treats' account.

12. The background to this payment by the plaintiff is that he is a friend of a Mr Sunil Sadhwani and his wife Karune. They had met Nicole Kozma on The Peak during the fete that takes place at the Matilda Hospital around the annual Sedan Chair Race. Mrs Sadhwani was looking to establish a business baking and selling cakes and pastries. Much of this sort of business would look to sell birthday cakes for children's parties. It made sense for Mrs Sadhwani to see if she might link up with Tigger's Treats that already had an entrée into this market.

13. According to Nicole Kozma, the Sadhwani's approached her again more formally in November 1999 with a view to their investing in Tigger's Treats' business. Nicole Kozma said that it was then agreed that Elite Exports Hong Kong Limited, Mr Sadhwani's company, would invest $500,000 in Tigger's Treats Limited over a period of 6 months and take a 30 per cent shareholding in that company. Mr Sadhwani is friend of the plaintiff in this action who he introduced to the defendants.

14. On 6 April 2000, following a meeting with the defendants, the plaintiff agreed to provide the sum of $234,000. It is clear that Mr Sadhwani was either unable or unwilling to advance the entire $500,000 and so he approached the plaintiff who expressed an interest in taking part of this transaction.

15. Was this payment to the business of Tigger's Treats or was it to the Limited Company? I can only enter summary judgment provided I am persuaded on the evidence that there is no arguable defence to this claim. Such a finding is simply not open to me on the evidence as it presently stands.

16. The plaintiff says that the cheque was paid into Tigger's Treats' account. This is, of course, a factor but only one amongst a number which I must have regard to.

17. Nicole Kozma deposes in her affidavit of 30 March 2001, starting at page 32 of the Bundle, that the plaintiff was aware that he was making an investment into the Limited Company. At page 33, she explains in some detail that the sort of questions he was asking during their meeting prior to the advance of the money were only consistent with an understanding by him that this was an investment in the Limited Company.

18. It is quite plain that these are all matters which give rise to a triable issue. They cannot be resolved on the basis of disputed affidavits. A judge would require to hear the various witnesses examined and cross-examined in order to determine where the truth lies. Order 14 is not appropriate in such circumstances.

19. I am satisfied that the defendants must have unconditional leave to defend. In coming to this conclusion, I have not had regard to the fact that the original writ had been issued against Tigger's Treats Limited. Normally such a course would almost of itself give rise to a triable issue but having regard to Ms Liang's affidavit explaining why she originally took that course, I am prepared to leave this feature of the case out of account.

20. So that is my ruling. The defendants will have unconditional leave to defend.

21. I propose to make an order nisi of costs in the cause in respect of this matter and I shall also direct that the defendants file their defence within 28 days of today.