GLYNHILL INTERNATIONAL LTD v. BELFORD PACIFIC LTD AND ANOTHER

HCA 2937/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2937 OF 2002

---------------------

----------------------

------------------------

D E C I S I O N

----------------------

1.  This is an application to set aside a judgment entered on 1 August 2007 in favour of the 2^nd defendant against the Third Party.  The Third Party had failed to attend the trial.  In addition there is an application for an extension of time to file the application to set aside, it being substantially out of time.  At this hearing, the applicant has been represented by Mr Leo Remedios and the 2^nd defendant by Mr Jonathan Wong. 

2.  The 2^nd defendant’s claim can be conveniently summarized by reciting paragraph 1 of the Amended Statement of Claim in the Third Party proceedings :

“1.  In consideration of the 2^nd Defendant (‘Tse’) entering into a Settlement Agreement with Lai Sun Hotels International Limited (‘Lai Sun’) dated 29^th September 1998, the 2^nd Defendant and the Third Party (‘Chau’) entered into an agreement (‘the Agreement’) as evidenced by a Memorandum of Agreement dated 9^th October 1998 (‘the Memorandum of Agreement’).  Pursuant to the Memorandum of Agreement, the Third Party agreed, inter alia, to be liable for the repayment of 3/4 of the loan advanced by Abbeydale Investments Limited (‘the Company’) in the sum of US$195,387.27 (‘the Loan’) to the 1^st and 2^nd Defendants under a Promissory Note dated 5^th November 1997 (‘the Promissory Note’) as working funds to enable the 1^st Defendant to proceed with the Beijing project of which the Third Party and the 2^nd Defendant were interested in.  The Third Party’s 3/4 liability in the Loan amounts to HK$1,465,402.70.”

3.  In March 2003, the 2^nd defendant applied for summary judgment pursuant to Order 14.  However, unconditional leave to defend was ordered.  Matters thereafter proceeded slowly.  On 28 December 2005, the Third Party’s solicitors came off the record.  The Third Party was then ‘in person’ until this application.  The Third Party has stated on oath that he had not received any document in relation to this case for the next two years.  Judgment for the 2^nd defendant was given, after trial, in the absence of the Third Party, on 1 August 2007.  On 26 September 2008, the Third Party issued these proceedings following receipt of a statutory demand based on the judgment.

4.  No complaint is made about the method of service.  All documents were duly and properly served but, it is said, not actually received. 

The test

5.  As the judgment was regularly obtained the applicant must satisfy the court that he has a real prospect of success at trial.  When considering the overall picture, the issue of delay, if any, may be weighed in the balance.  In this case, Mr Remedios fairly concedes that he has no reasonable response to the complaint against his client that there has been inordinate delay.  What constitutes inordinate or inexcusable delay varies depending on the facts of individual cases.  In this case, the Third Party did little to advance his defence after he had been given leave to defend in 2003 and did nothing to advance it after he became unrepresented in December 2005.

6.  Having conceded the issue of delay in this case, Mr Remedios submits, correctly, that where the merits in an applicant’s favour are strong they can, and should, outweigh delay if and when the court’s discretion falls to be exercised.

The merits

7.  The Third Party’s primary submission that it has a real prospect of success is that there was no, or no sufficient, consideration for the alleged agreement and accordingly the 2^nd defendant’s claim is bound to fail.  It is submitted that such consideration as is pleaded is past consideration which will not do.  The chronology being that the settlement agreement was dated 29 September 1998 which pre-dated the memorandum of agreement, upon which the 2^nd defendant sues, by 10 days.

8.  Mr Remedios submits that the case as presently pleaded is bound to fail on this issue.

9.  I do not agree.  In my judgment simply relying on the chronology of the two agreements, namely the settlement agreement with “Lai Sun” and the memorandum agreement between the parties is an over rigid and unrealistic approach.  I think the correct analysis is that advanced by Mr Wong for the 2^nd defendant.

10.  The statement of claim was amended in September 2006 (as appears on page 1 herein).  The 2^nd defendant relies on the “agreement” between the parties not, as originally pleaded, solely on the “memorandum of agreement”.  In the amended pleading, the existence of the agreement is “evidenced by” the memorandum but is not exclusively dependent on it.

11.  In such circumstances, the chronology of the two agreements is not the sole determining factor either as to whether the consideration was ‘past’ consideration or whether it was ‘sufficient’ consideration.

12.  In addition, had the Third Party been present at the trial he would have been under no illusion as to what the entirety of the case against him was.  It was clearly contained in the witness statement of Philip Tse which itself was not inconsistent with the pleaded case.  It makes it perfectly clear that the case against the Third Party was that he requested Mr Tse to enter into the settlement agreement.  The events were part of a single transacton; the order in which they actually occurred is neither here nor there.

13.  Contrary to Mr Remedios’s submission that if this matter proceeded the 2^nd defendant would be bound to amend his pleading (to add the alleged ‘request’) Mr Wong replied that he saw no necessity to make further amendments.

14.  In my judgment, the Third Party’s task in showing it has a real prospect of success a formidable one.

15.  Mr Wong points to two further matters in opposition to the argument that the consideration was past and therefore invalid.  Firstly, the 2^nd defendant’s liability under the settlement agreement was a continuing liability.  The consideration, as a matter of practical common sense, was not merely the entering into the agreement but also being bound by it throughout the period of its terms, namely until December 1999.

16.  Secondly, he submits that, in this application, the court is entitled to come to the view that the Third Party lacks credibility.  This is not the same as making findings of fact on disputed issues in a setting aside application which the court should not do.

17.  An example relied on is as follows.  In the court’s written decision dated 1 August 2007, it said :

“…the 2^nd defendant, out of an excess of caution, relies on a subsequent variation to the agreement between himself and Chau.

5.  He relies on a fax dated 26 April 1999 in which Chau replied to a proposal from the plaintiff’s solicitors in which he said :

‘Enclosed please find the signed copies of the Lai Sun document.  I have counter-termed the proposal to the level I can manage.  I don’t think it is right for you to carry on with the liabilities.’

6.  His ‘counter-terms’ deleted the 2^nd defendant’s name from the proposal altogether and re-dated the proposed schedule of repayments (which fully paid off the outstanding principal) to give himself an extra six months to repay.

7.  On 30 June 1999 the plaintiff’s solicitors wrote to Chau setting out the same proposals which Chau duly accepted and signed.”

18.  This fax setting out the Third Party’s own varied proposal is a contemporaneous document which is wholly inconsistent with his case as revealed in his witness statement dated some years later.  In this application, the Third Party makes no attempt to deal with this particular example of an important inconsistency.

19.  I have thus concluded that, as the Third Party’s primary argument does not have a realistic prospect of success and bearing in mind that the submissions advanced by Mr Remedios must be viewed in an atmosphere of unchallenged inordinate delay, the applications must fail.  I so order with a costs order in favour of the 2^nd defendant.

20.  Mr Wong has informed the court that the sum claimed, pursuant to the statutory demand dated 16 April 2008, was $921,596.60 plus costs to be taxed if not agreed.

HCA2937/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2937 OF 2002

---------------------

---------------------

------------------------

J U D G M E N T

------------------------

1. This is a third party action.  In the main action the plaintiff has secured a judgment against the 2^nd defendant dated 13 May 2003 for the repayment of a loan in the sum of US$195,387.27 lent by the plaintiff’s predecessor in title to the 1^st and 2^nd defendants in November 1997.

2. The 2^nd defendant has alleged in the third party proceedings that the third party, Chau Hong Ming Peter (“Chau”), entered into an agreement, as evidenced by a memorandum dated 9 October 1998, whereby he agreed to be liable for 75% of the loan.  The terms of the memorandum, signed by the 2^nd defendant and Chau, are :

“	A.	Pursuant to Promissory Note dated 5 November 1997, Belford Pacific Limited and Tse jointly and severally promise to pay to Abbeydale Investments Limited the outstanding loan of US$195,387.27 (the ‘Loan’) and the interest thereon.
	B.	By a letter dated 29 September 1998 from Boughton Peterson Yang Anderson, Solicitors, to Tse and countersigned by Tse on 29 September 1998 (the ‘Settlement Agreement’), Tse agreed to pay Lai Sun Hotels International Limited and the Loan by various instalments as scheduled therein.
	NOW IT IS AGREED that in consideration of Tse entering into the Settlement Agreement for repayment of the Loan, the parties hereto covenant and agree as follows :
	1.	Chau shall personally be liable for three-fourths of the Loan which is approximately HK$1,465,402.70 (‘Chau’s liability’) and Tse shall personally be liable for one-fourth of the Loan which is approximately HK$488,470.00 (‘Tse’s liability’).
	2.	Tse shall on or before 30 September 1998 deliver to Lai Sun Hotels International Limited 2 cheques for the amounts of US$25,687.27 and US$12,800.00.
	3.	The sum of the amounts referred to in Clause 2 above for US$38,487.27 shall be taken into account as credit in discharging Tse’s liability and Tse shall pay the balance of US$10,359.73 so as to discharge the balance of Tse’s liability.
	4.	Chau shall reimburse Tse in respect of any sum which Tse pays in excess of Tse’s liability.”

3. Mr Jonathan Wong, counsel for the 2^nd defendant, rightly observes that it is possible to construe this document against the 2^nd defendant in the sense that the primary obligation to repay the debt to the plaintiff remains with the 2^nd defendant and Chau’s liability only arises if the 2^nd defendant discharges his liability to pay 25%.  In fact, the 2^nd defendant has only paid a sum approximately US$10,000 short of 25%.

4. With this in mind and bearing in mind also that Chau has made no appearance in this action, the 2^nd defendant, out of an excess of caution, relies on a subsequent variation to the agreement between himself and Chau.

5. He relies on a fax dated 26 April 1999 in which Chau replied to a proposal from the plaintiff’s solicitors in which he said :

“	Enclosed please find the signed copies of the Lai Sun document.  I have counter-termed the proposal to the level I can manage.  I don’t think it is right for you to carry on with the liabilities.”

6. His “counter-terms” deleted the 2^nd defendant’s name from the proposal altogether and re-dated the proposed schedule of repayments (which fully paid off the outstanding principal) to give himself an extra six months to repay.

7. On 30 June 1999 the plaintiff’s solicitors wrote to Chau setting out the same proposals which Chau duly accepted and signed.

8. In these circumstances I am satisfied that the Memorandum of Agreement, as varied by subsequent correspondence, binds Chau in the terms as sought by the 2^nd defendant in this action.

9. The plaintiff commenced proceedings against the defendants in July 2002.  The 2^nd defendant issued the Third Party Notice on 2 September 2002.  On 6 September 2003, the 2^nd defendant and the plaintiff agreed, by a consent order, that judgment having been entered against the 2^nd defendant all further proceedings be stayed upon terms set out in a schedule which included the following paragraph :

“

Subject to paragraph 4 hereinafter, the Judgment Sum and costs be paid by equal consecutive monthly instalments each in the sum of HK$14,000.00, the first of such instalments to commence on 25th July 2003 and subsequent instalments to be due and payable on the 25th day of each and every succeeding calendar month, to be paid by way of cheques to the Plaintiff through the Plaintiff’s Solicitors all drawn on a licensed bank in Hong Kong and in favour of the Plaintiff, until the entire Judgment Sum and costs shall have been repaid in full.”

10. Prior to this consent order the 2^nd defendant had issued 24 post-dated cheques to the plaintiff, each for HK$14,000.

11. Finally, by virtue of the contents of the Affirmation of Cheung Wing Kit affirmed on 25 July 2007, I am satisfied that the attempted service of these proceedings on Chau has been sufficient.

12. In all the circumstances, I make the following order :

(1)	The court declares that the Memorandum of Agreement dated 9 October 1998 made between the 2nd defendant and the third party in the pleadings mentioned ought to be rectified such that Clause 1 shall read as follows :
	“	Chau shall personally be liable for three-fourths of the Loan which is approximately US$146,540.27 (‘Chau’s liability’) and Tse shall personally be liable for one-fourth of the Loan which is approximately US$48,847.00 (‘Tse’s Liability’).”
(2)	It is ordered that the said Memorandum of Agreement be rectified in the manner set out in paragraph (1) above and it is further declared that the said Memorandum of Agreement so rectified as aforesaid ought to take effect in like manner as if the said rectification had been made in the said Memorandum of Agreement at the time of execution thereof by the parties thereto.
(3)	The court declares that :
	(i)		the 2nd defendant is entitled to be indemnified by the third party of any sums paid pursuant to the Consent Order in this action between the plaintiff and the 2nd defendant dated 6 September 2003 amounting to US$244,972.79 (“Settlement Sum”) to be paid by the 2nd defendant in equal consecutive monthly installments each in the sum of HK$14,000.00, the first of such installments to commence on 25 July 2003 and subsequent installments to be due and payable on the 25th day of each succeeding calendar month until the entire Settlement Sum shall have been repaid in full; and
	(ii)		upon the 2nd defendant making such payment(s) as set out in paragraph 3(i) above, the third party do pay to the 2nd defendant the equivalent amounts in respect of such payment(s).
(4)	It is further ordered that the third party do pay interest on the sums paid by the 2nd defendant pursuant to and/or as set out in paragraph 3(i) above at half the judgment rate from the date of the issuance of the Third Party Notice until judgment and thereafter at the judgment rate and that the third party do pay the 2nd defendant’s costs of this action, to be taxed if not agreed.