CACV 235/2010 & CACV 236/2010
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NOS 235 AND 236 OF 2010
(ON APPEAL FROM HCA NO 16459 OF 1998)
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| BETWEEN | | |
| | HUNG FUNG ENTERPRISES
HOLDINGS LIMITED
(雄豐企業控股有限公司) | 1st Plaintiff |
| | HUNG FUNG HOLDINGS (SHENZHEN) COMPANY LIMITED
(雄豐集團(深圳)有限公司) | 2nd Plaintiff |
| | And | |
| | THE AGRICULTURAL BANK OF CHINA
(中國農業銀行) | Defendant |
____________
| Before: Hon Yeung VP, Kwan JA and Lam J in Court |
| Dates of Hearing: 21 to 25 May 2012 |
| Date of Judgment: 14 June 2012 |
______________
JUDGMENT
______________
Hon Yeung VP:
1. I agree with the judgment of Kwan JA.
Hon Kwan JA:
Introduction
2. To J gave judgment on 4 October 2010 after a trial of 33 days dismissing the claim of the 1st and 2nd plaintiffs and giving judgment for the defendant on its counterclaim. On 1 November 2010, the plaintiffs filed a notice of appeal being CACV 235/2010 against those parts of the order dismissing their claims. On the same day, the defendant filed a notice of appeal being CACV 236/2010 against those parts of the order relating to the award of interest on its counterclaim. This is the hearing of both appeals.
3. The plaintiffs belong to the same group of companies. The group carried on business in property investment, engineering, construction, glass and aluminium products. The holding company, Hung Fung Holdings Limited (“HF Holdings”), was wound up by the Hong Kong court in November 2000. Chan Siu Ping (“Chan”), being its founder, majority shareholder and managing director, was made bankrupt in 2002. I shall refer to the 1st plaintiff as “HF Enterprises” and the 2nd plaintiff as “HF Shenzhen”. HF Enterprises was incorporated in Hong Kong and is the holding company of HF Shenzhen; the latter is a PRC company.
4. The defendant, the Agricultural Bank of China, was incorporated in the PRC. At all material times, it had a branch in Shenzhen and maintained an offshore banking department in Hong Kong (“the Offshore Department”). The establishment in Hong Kong was registered under Part XI of the Companies Ordinance, Cap 32.
5. HF Holdings became a customer of the defendant in 1994. In 1996, the defendant granted four facilities to HF Enterprises in the total sum of $35 million. Facilities 1 and 2 were consolidated into a single facility of $26 million and were secured against two lots of land in Longgang District, Shenzhen, as represented by two land use certificates (“LUCs”) held in the name of a property development company of the Longgang government known as Shenzhen Longgang Lung Shing City Development Industrial Company (深圳市龍崗龍城城建開發實業有限公司; “Lung Shing Property”). A development known as New City Garden was being constructed on the two lots of land. Facility 3, in the amount of $2 million, was secured against a piece of land in Sheung Shui, New Territories owned by HF Enterprises (“the Sheung Shui Property”). Facility 4, for $7 million, was secured against a factory in the Mainland owned by HF Shenzhen (“the PRC Factory”).
6. The claim of the plaintiffs arose out of an alleged oral agreement to exchange the securities represented by the two LUCs for other lots of land owned by HF Shenzhen represented by five LUCs. The alleged oral agreement to swap the old securities for new ones was made in a meeting in the Shenzhen branch of the defendant on 9 July 1996 and the originals of the five LUCs, with a value of RMB 52 million at the time, were delivered to the defendant within a week. The defendant held on to the two LUCs and the five LUCs for 26 months without effecting the exchange, and it was only on 14 September 1998 that the defendant informed HF Enterprises its application for an extension of the facilities using the five LUCs as security in exchange was refused. On 24 September 1998, the five LUCs were returned to HF Enterprises upon its demand and on the following day the plaintiffs issued the writ in this action, claiming damages for breach of contract, misrepresentation, breach of warranty and conversion.
7. The defendant’s counterclaim was for the outstanding principal and interest in respect of the four facilities granted to HF Enterprises. There was no dispute that HF Enterprises had borrowed money under the facilities and had failed to repay. In April 2000, the defendant obtained judgment against HF Enterprises, HF Shenzhen and Lung Shing Property in two separate actions in the Shenzhen Intermediate People’s Court (numbered (1998) 深中法經調初字第654號 (“Shen 654/1998) and (1998) 深中法經調初字第655號 (“Shen 655/1998)) for $7 million in respect of facility 4 and $21,190,543.97 in respect of the consolidated facility, with interest and default interest. The defendant sued upon these Mainland judgments in its counterclaim. Apart from raising the claim against the defendant in the present proceedings as a set-off, the plaintiffs have no defence to the counterclaim.
The judgment below
8. To J’s judgment ran into 145 pages. As he had indicated at the outset of the judgment, this case had an abundance of evidence[1], documents, expert opinion and legal argument, most of which were in the end found to be unnecessary and even futile. Mr Ronny Tong, SC, who appeared for the plaintiffs here and below[2], opened his case before the judge for four days. The written closing submission of Mr Edward Chan, SC, who appeared for the defendant throughout[3], was over 500 pages. Closing submissions heard by the judge took three days. What I am about to set out below is merely a summary. I will go into relevant findings of the judge in appropriate parts of my judgment.
9. The judge accepted the evidence of the factual witnesses of the plaintiffs, Chan and Wong Kwok Sing (the general manager and a director of HF Enterprises; “Wong”) as to what happened at the meeting on 9 July 1996 but held that there was only a consensus reached between the parties at that meeting, conditional upon the defendant or its credit approval committee approving an application for a new loan using the five LUCs as security. In other words, it was just an agreement to agree or an agreement subject to approval which was short of a concluded agreement. As the application for a new loan submitted by HF Enterprises (on 5 March 1998, for $35 million; and on 29 May 1998, for $30 million) was turned down by the credit approval committee in June 1998, the claim for breach of contract failed.
10. The plaintiffs failed to prove misrepresentation as the intention conveyed by the defendant to a reasonable person with all the background knowledge was no more than an intention to process the application for exchange of securities and the application for a new loan. In the absence of a concluded agreement, there was no preceding collateral contract to found an action for breach of warranty. And there was no overt act such as a demand and refusal to release the five LUCs to support the claim for conversion. So the other claims in misrepresentation, breach of warranty and conversion all failed.
11. The judge went on to consider the plaintiffs’ claim on the alternative scenario assuming that there was a concluded oral agreement to swap securities. He held that the proper law of this agreement was PRC law. He accepted the opinion of the defendant’s expert in PRC law and held that as the agreement in 1996 was not in writing, it was not a valid and effective contract under the Foreign Economic Contract Law (《涉外經濟合同法》) and it could not be saved by the Contract Law (《合同法》; which came into effect on 1 October 1999) and the judicial interpretations of the Supreme People’s Court relating to the Contract Law.
12. In respect of the two lots of land represented by the two LUCs held in the name of Lung Shing Property, the judge held he was not informed by expert evidence in PRC law as to the legal nature of the “reliance relationship” (掛靠), by which HF Shenzhen paid the purchase price of the land but Lung Shing Property became the legal owner. In particular, the judge found it had not been proved to his satisfaction that under PRC law, the “reliance beneficiary” can enforce his right over landed property held by the “reliance owner” against a third party. So even if the agreement to swap securities were valid under PRC law, the plaintiffs had no interest to sue.
13. Judgment entered against the plaintiffs on the counterclaim is for the total sum of about $24.1 million, plus interest which accrued in the 1990s. According to the parties’ calculation of the interest awarded by applying the contractual rate up to March 1998 and thereafter judgment rate (this is the subject of the defendant’s separate appeal in CACV 236/2010), interest up to the date of the judgment in October 2010 is in the region of $36.3 million. The total amount of the judgment debt is over $60 million.
The issues on appeal
14. I will deal with the issues raised in both appeals in the following order:
(1) if the judge was correct in holding that there was no concluded and binding agreement to exchange the securities represented by the two LUCs for new securities;
(2) if there was a concluded and binding agreement, was the judge correct in holding that PRC law was the proper law of the agreement;
(3) if the proper law of the agreement was PRC law, was the agreement valid under PRC law;
(4) if the judge was correct in holding that under PRC law there is no satisfactory evidence establishing that HF Shenzhen has interest in the two lots of land represented by the two LUCs;
(5) if the judge was correct in holding that there was no actionable misrepresentation;
(6) if the judge was correct in holding that there was no breach of warranty;
(7) if the judge was correct in holding that there was no conversion of the five LUCs held by the defendant for 26 months;
(8) if the plaintiffs were successful in one or more or their claims, what was the proper measure of damages;
(9) if the judge was correct in his orders on interest; and
(10) if the judge was correct in depriving the defendant of the costs of the claim.
If there was a concluded and binding agreement to exchange securitiesz
15. The oral agreement pleaded by the plaintiffs for the exchange of securities was to replace the two lots of land represented by the two LUCs, the Sheung Shui Property and the PRC Factory with the lots of land represented by the five LUCs[4]. The judge found that the consensus reached at the meeting on 9 July 1996 was only to replace the two lots of land represented by the two LUCs with the lots of land represented by the five LUCs. So in this respect the judge found in the plaintiffs’ favour on an unpleaded case.
16. I do not think anything of substance turns on this pleading point in this appeal, despite the submission of Mr Chan. Mr Chan argued that the departure from the pleaded case was indicative of not sufficient certainty between the parties as to what securities were to be exchanged in the alleged agreement. The really important question is whether the judge’s finding of the consensus reached for the exchange of the two LUCs by the five LUCs was supported by evidence. The plaintiffs have not appealed against the finding as to the extent of the securities agreed to be exchanged.
17. The main complaint of Mr Tong for the plaintiffs is that the judge, having accepted the evidence of Chan and Wong as to what had happened at the meeting on 9 July 1996, and having made primary findings of fact in the plaintiffs’ favour, then used the evidence of the defendant’s factual witnesses, which he had rejected, as a basis to arrive at a conclusion contrary to his primary findings of fact. In short, it is counsel’s contention that the judge’s conclusion there was not a concluded binding agreement was plainly wrong as it was unsupported by any evidence. The applicable law in the cases cited by the judge (Rossiter v Miller (1878) 3 App Cas 1124 at 1151; Hussey v Horne-Payne (1879) 4 App Cas 31; Kwan Siu Man v Yaacov Ozer (1997-98) 1 HKCFAR 343) is not in dispute.
18. Mr Tong submitted that these were the vital primary findings of fact made by the judge:
(1) an oral agreement to exchange securities was reached between Chan representing the plaintiffs and Li Yu Tian (“LYT”, a manager of the Offshore Department) representing the defendant at the meeting on 9 July 1996;
(2) the originals of the five LUCs representing the other lots of land to be replaced as securities were delivered to the defendant pursuant to that oral agreement; and
(3) the oral agreement was subsequently referred to and was confirmed by the parties on a number of occasions both verbally and in writing including the occasions on 8 October 1996 and 23 April 1997.
19. It must be pointed out that in paragraph 136 of the judgment, the judge had made it clear that the “Swap Agreement” he held was made orally on 9 July 1996 was used in the layman’s or non-technical sense as opposed to a legally binding agreement, and he stated that “consensus” would have been a more proper word. The primary findings of fact Mr Tong submitted was made by the judge must be read in that light.
20. Subject to that qualification (I would use the word “consensus” in the paragraphs below to avoid misunderstanding), the judge had found in the plaintiffs’ favour that:
(1) Chan and Wong were credible witnesses. Their evidence was largely supported by contemporaneous documents. The judge accepted their evidence save as otherwise pointed out in his judgment and where their evidence conflicts with those of the defendant’s witnesses, the judge preferred the evidence of Chan and Wong (paragraphs 55, 57, 124 and 126). The only blemish in Chan’s evidence was the inconsistent account he gave of the defendant’s agreement to the extent of the exchange, whether the securities over the PRC Factory and the Sheung Shui Property were also to be released, but this has little impact on his credibility (paragraph 127). The judge accepted the evidence of Chan and Wong as to what happened at the meeting on 9 July 1996 (paragraph 133).
(2) LYT, the only witness of the defendant to give evidence of the meeting on 9 July 1996, was not a credible witness. Nor was Chen Yaoping (“CYP”; a marketing officer of the Offshore Department) a credible witness (paragraphs 63, 64, 96, 98 and 125).
(3) At the brief meeting on 9 July 1996, Chan and LYT discussed the proposal in the letter of Chan to the defendant dated 27 June 1996 to exchange the two LUCs held as security with other LUCs and Chan selected from a batch of 19 copy newly issued certificates the five copy LUCs with a total value of RMB 52 million which was about twice the amount of the consolidated facility and offered to deliver the original of the five LUCs in exchange. The judge accepted Chan’s evidence that LYT had said the defendant was agreeable to this proposal (paragraphs 95 and 133).
(4) LYT gave two different accounts of what had happened at the meeting. In particular, the judge did not accept his evidence that he had explained to Chan and Wong at the meeting the mechanisms involved in exchanging securities, which basically involved granting a new loan on the new securities to discharge the old loan so that the old securities could be released (paragraphs 96 and 98). The totality of the evidence does not support LYT’s allegation that he had informed Chan at the meeting about the mechanics for the exchange, the need to apply for new facility to repay the outstanding loans and what LYT said about the mechanics was just “afterthoughts” (paragraph 103). The judge rejected LYT’s evidence he had insisted HF Enterprises to repay the outstanding loans and interest before the defendant would consider exchanging the securities (paragraph 125).
(5) Wong arranged for the five LUCs to be delivered to the Offshore Department on 16 July 1996 pursuant to the consensus reached to exchange the securities at the meeting. In the absence of such a consensus, it would be difficult to understand why Chan would have caused very valuable title documents to be delivered to the defendant and why the defendant would have held them for 26 months (paragraph 111). And if no consensus was reached to release the two LUCs, Chan would not have caused HF Shenzhen to enter into a sale and purchase agreement on 28 July 1996 in respect of 168 flats in four of the buildings in New City Garden at RMB 39.95 million, which provided that HF Shenzhen was to deliver possession of the flats on or before 30 December 1996, as Chan well knew the sale of flats could not be completed unless the two LUCs were released to HF Shenzhen to enable it to obtain the necessary pre-sale permits (paragraphs 32 and 112).
(6) The plaintiffs had sent numerous faxes to the defendant alleging an oral agreement and stating that the five LUCs were handed over to the defendant pursuant thereto. The defendant’s evidence that they would not correct their clients’ misapprehension or misunderstanding or state their position even if the clients’ position was patently incorrect was not credible (paragraphs 59 and 60). The judge rejected the argument that these faxes of the plaintiffs indicated that the parties were still negotiating (paragraph 116). He found that LYT had spoken with Wong on 8 October 1996 and promised that the exchange could be arranged in ten days and that was a “clear acknowledgment” of the consensus to swap securities (paragraph 118).
(7) The only contemporaneous response in writing from the defendant to the plaintiffs’ faxes was the reply from CYP on 23 April 1997, in which he made a recap of the “spirit” of the discussion between the defendant and Chan in 1996 as follows: (i) the defendant agreed that the plaintiff company was to continue to use the facilities granted; (ii) the plaintiff company should as soon as possible resume the normal usage of the facilities and repay the overdue facilities; (iii) regarding the plaintiff company’s request to exchange the two LUCs to facilitate its sale of flats, the defendant agreed to process the request but refused to exchange the securities over the PRC Factory and the Sheung Shui Property. The judge found that this fax was more consistent with the plaintiffs’ evidence than with LYT’s evidence and that it “precisely acknowledged” the consensus reached at the July 1996 meeting (paragraphs 61 and 122).
21. The judge rejected the plaintiffs’ contention of implied terms. The first implied term pleaded was that the defendant would process the exchange of securities promptly or within a reasonable time upon receipt of the five LUCs and would use its best endeavours to facilitate or carry into effect the swap and not to impede any further procedures required to effect the swap and not to withhold its approval unreasonably for such procedures[5]. The other implied term pleaded was that the defendant would return the five LUCs promptly (presumably without demand) if the swap was not to be effected within a reasonable time[6]. The judge rejected both implied terms holding that it was not necessary for such terms to be implied to give business efficacy to the contract.
22. Mr Tong argued before us the judge was in error in that he had overlooked the officious bystander’s test. I do not think applying the officious bystander’s test would advance his case of a concluded binding agreement. Whether the defendant was obliged to act promptly, within a reasonable time, with best endeavours, or not to impede or withhold its approval unreasonably would not alter the position one bit if the defendant was not obliged to act in the first place. The crux of the matter is whether the defendant was obliged to process the exchange of securities upon receipt of the five LUCs, to facilitate or carry into effect the swap, or to return the five LUCs without any demand. If the defendant was not so obliged to act because there was no concluded binding agreement or no legal obligation to do so, the implied terms argued by Mr Tong would not salvage the plaintiffs’ position.
23. I agree also with Mr Chan’s submission the implied term that the defendant was not to withhold its approval unreasonably for further procedures required to effect the swap is contradictory to the existence of a binding agreement by which the defendant would be bound to effect the swap and there would be no question of any approval procedure. Further, as the judge succinctly put it at paragraph 140 of the judgment, if the plaintiffs wanted the five LUCs back after the lapse of reasonable time, they could simply ask for their return. There was no need to have any implied term for such return even without any demand by the plaintiffs. I do not think anything of significance would turn on the rejection of the implied terms for the purpose of the present appeal.
24. The judge arrived at his conclusion that there was no concluded agreement by this reasoning.
25. Given that the exchange of securities with a bank is a serious matter, the court should not be too impressed by a party’s own protestation as regards the intention to have an immediately binding agreement but is required to examine critically the factual foundation upon which the allegation of a binding agreement is based and scrutinise carefully all the surrounding circumstances and the inherent probability. This was the approach of the Court of Final Appeal in Kwan Siu Man v Yaacov Ozer, supra at 354E, 355B and 363A to D.
26. The oral agreement here for the exchange of securities was not an agreement for the exchange of personal chattels. It was not done simply by comparing the value of the securities held with the value of the securities offered in exchange. The prime consideration of a lending bank is the borrower’s ability to repay rather than the value of the security. Hence, apart from the value of the security, the lending bank would consider factors such as the liquidity of the security, the credit worthiness of the borrower, his ability to repay, his asset worth, the purpose of the loan, the business risk and so on, and these factors would usually be considered by a credit approval committee rather than by front line staff such as the Offshore Department. As a matter of legal procedure, the two LUCs could only be returned to HF Shenzhen upon HF Enterprises repaying the outstanding loan and the defendant discharging the mortgage under the consolidated facility. It is not in dispute that HF Enterprises did not have the necessary funds to repay the loan.
27. The judge continued with the critical part of his judgment in these words:
“155. … It is therefore common ground that the exchange could only be effected, as explained by LYT and agreed by Wong, by HF Enterprises using new securities to obtain a new loan to repay the outstanding loan under the Consolidated Facility. The application for the new loan required approval from the credit approval committee and the mortgage of the new securities would have to be registered with Shenzhen Land Bureau. It was not merely a matter of comparing the value of the securities. Submission of valuation report certifying that the properties were of a certain value is not the last formality which seals a contract. A decision had yet to be made by the Bank whether to agree to the exchange. That decision had to be made not by LYT but by an independent credit approval committee. Valuation is but one of the considerations. The credit approval committee may rightly or wrongly for any of the considerations I have mentioned above or for other commercial reasons unforeseen by the processing front line staff of the Bank reject a loan application despite the adequacy of the security. Indeed, the Offshore Department and GJH [Geng Jinhai, the senior officer of LYT in the Offshore Department; “GJH”] sitting on the credit approval committee supported HF Enterprises application for new facility. However, the credit approval committee rejected the application because of an unfavourable comment by the Longgang branch of the Bank that the security was not marketable and land premium had not been fully paid. This precisely demonstrates the caution which one has to exercise in determining whether a concluded agreement was reached during the meeting on 9 July 1996 in relation to an agreement of this nature.
156. What the parties agreed at the meeting on 9 July 1996 must be understood in the light of the nature of the underlying transaction. The agreement would involve HF Enterprises applying for a new loan which would be subject to scrutiny by the credit approval committee of, among other things, HF Enterprises’ credit-worthiness, ability to repay the adequacy of the securities offered, its liquidity and other commercial considerations. It could not have been intended to be an outright swap such as an exchange of personal chattels. Given his experience and position in the Bank, LYT would not have misunderstood the agreement to be such. By reason of their previous dealings, HF Enterprises must know the procedures involved. Even if Chan thought that it was just an outright swap, at least, according to Wong, he knew the exchange would involve approval by the Bank. The agreement has to be viewed objectively. The so called agreement must be conditional upon the Bank or its credit approval committee approving an application for a new loan using the five LUCs. It was subject to so many uncertainties which the parties were aware of. Those were not matters which could be left to be agreed between lawyers. It was also unwittingly admitted by the Plaintiffs’ expert [on PRC law], Zhang [Professor Zhang Xian Chu, “Zhang”], that the exchange must be predicated on the Bank being satisfied as to the value of the new securities and that the whole of the arrangement was finally worked out, including HF Enterprises’ being willing to pay the handling fees required by the Bank. It is impossible that in a brief meeting of that nature, LYT could have committed the Bank to advance money on the strength of the securities represented by the five LUCs without undergoing the process of approval by the credit approval committee. Though the word “agree” or some other strong language might have been used, at the highest, the agreement was an agreement subject to approval or an agreement to process the application for exchange which in turn involved an application for a new loan. LYT agreed to support HF Enterprises’ application for a new loan for the purpose of discharging the loan under the Consolidated Facility and for the release of the two LUCs. The Swap Agreement was just an agreement to agree or an agreement subject to approval which is short of a concluded agreement. The parties could not be said to have reached a concluded agreement.”
28. Mr Tong mounted a vigorous attack on paragraphs 155 and 156. He singled out for criticism the following parts of the judgment:
(1) As a matter of legal procedure, the two LUCs could “only” be returned to HF Shenzhen upon HF Enterprises repaying the outstanding loan and applying a new loan.
(2) It was “common ground” that the exchange could only be effected by HF Enterprises using new securities to obtain a new loan to repay the outstanding loan.
(3) The swap agreement “would involve” HF Enterprises applying for a new loan which would be subject to the scrutiny by the defendant’s credit approval committee.
29. Mr Tong submitted that the above findings are contrary to the evidence and other findings of the judge. In stating that the agreement “has to be viewed objectively”, the judge had ignored what the parties said and agreed, and their subsequent conduct, which was referable to the consensus reached at the meeting in July 1996.
30. He submitted on the evidence it was not common ground that the exchange could only be effected by HF Enterprises using new securities to obtain a new loan to repay the outstanding loan, as the judge had found that this matter was not mentioned at the meeting on 9 July 1996 and it was not until late February or early March 1998 that the matter of applying for a new loan was raised by the defendant. Hence, it could not be said at the time the consensus was reached in July 1996, it was understood by the parties that the plaintiffs had to apply for a new loan. Counsel queried whether the judge had mixed up the events of 1998 with those in 1996. He further submitted that the consensus reached by the parties in July 1996 could not be vitiated by what happened two years later, when the plaintiffs applied for a new loan at the suggestion of the defendant and the application was turned down by the credit approval committee.
31. Mr Tong argued that the outstanding loans and interest were not required to be first repaid, as the judge had accepted Chan’s evidence that if the plaintiffs’ group could repay, there would be no need for the swap and HF Enterprises would have the right to demand the return of the securities. The judge had rejected LYT’s evidence that at the meeting he had insisted HF Enterprises to repay the outstanding loans and interest before the defendant would consider exchanging the securities.
32. As for the steps required to be carried out subsequently, such as the submission of an application for a new loan, the execution of a mortgage, the registration of the mortgage with the Land Bureau in Longgang District, Shenzhen, Mr Tong contended they were all matters of implementation and should not prevent a binding agreement for the exchange of securities from coming into existence. They were merely mechanical procedure and there was nothing further to be agreed. The judge had accepted his submission that the procedures to be executed to effect the swap were just standard procedures dictated by the defendant which HF Enterprises would unconditionally accept; HF Enterprises would accept whatever amount the defendant proposed to charge as handling fees; the judge had found on the evidence that before the consensus was reached on 9 July 1996, the parties had agreed to dispense with the requirement of valuation of the new securities and even if the defendant had insisted on obtaining a valuation, the plaintiffs would have complied[7]. Hence, having delivered the five LUCs to the defendant in exchange, the plaintiffs had done their part and the ball was in the defendant’s court. The plaintiffs had sent numerous faxes to the defendant inquiring about the exchange process and asking what procedures should be taken. It was unconscionable and commercially unacceptable for the defendant to hold on to the LUCs without effecting the exchange of securities.
33. Mr Tong did not dispute that by reason of previous dealings, HF Enterprises knew that ifthere was to be an application for a loan, that application would require approval by the credit approval committee. However, he argued that this is irrelevant, as what was agreed at the meeting on 9 July 1996 was an exchange of securities, not an application for a new loan. It was not mentioned at the meeting that the swap would be effected by the plaintiff applying for a new loan. The judge had rejected LYT’s evidence that he had informed Chan at the meeting of the need to apply for new facility to repay the outstanding loans.
34. With the above submissions of Mr Tong in mind, I turn to consider the documentary and oral evidence to see if the judge’s conclusion in paragraphs 155 and 156 that there was not a concluded binding agreement is supported by the evidence. Both parties have in the course of the hearing taken this court at some length to those parts of the evidence that each contended were supportive of that party’s case. In examining the documentary and oral evidence, I bear in mind the following:
(1) The ultimate issue whether there was a concluded binding agreement must be approached objectively and with regard to the underlying transaction and the inherent probability. So the protestation of the plaintiffs’ witnesses that the intention was to have an immediately binding agreement or that the consensus reached was not subject to any pre-condition[8] must be tested critically in the light of the above. See Kwan Siu Man v Yaacov Ozer cited earlier.
(2) The appellate court does not have the advantage of To J who had seen and heard the witnesses over an extended period. The trial judge may not have been impressed in the same way or at all with evidence in a transcript which reads well in print, or may rightly attach importance to evidence which reads badly in print, see Benmaxv Austin Motor Co Ltd [1955] AC 370 at 375. The factual findings of To J in paragraphs 155 and 156 must be assessed in this light.
(3) To J has not rejected the entirety of the evidence of the factual witnesses of the defendant, whom he has criticised. Nor has he accepted in total the evidence of Chan and Wong, whose account of the meeting on 9 July 1996 he has preferred.
35. I start with the previous practice in which the defendant granted facilities to HF Enterprises. Before looking at the documents, it is pertinent to note what Chan had said about previous practice in his evidence:
“ 7. I was of course aware of the fact that the Defendant, like any other bank, has a department responsible for credit approval. However, throughout my and the Plaintiffs' dealings with the Defendant, I had never deal [sic] directly with the officers responsible for credit approval – I and the Plaintiffs had always dealt with the officers of the Offshore Credit Department … In particular, I and the Plaintiffs had always dealt with the most senior officers of the Offshore Credit Department – I first dealt with Miss Tsui Ching Ngai (徐静毅女士)，the General Manager of the Offshore Credit Department, and Mr Cheung Ning Wah (張寧華先生)， the Manager of the Offshore Credit Department, followed by Mr Geng Jin Hai and Mr Li Yu Tian, respectively the Deputy General Manager and Manager ofthe Offshore Credit Department.
8. Throughout my and the Plaintiffs’ dealings with the Defendant, invariably the parties would first commence discussions on the facility or security arrangements orally, and it was only after the officers of the Offshore Credit Department of the Defendant confirmed that the terms proposed and negotiated were acceptable to the Defendant that I and the 1st Plaintiff would be invited to put in a formal application in writing and provide the necessarily [sic] supporting documents etc. This would invariably be followed by the Defendant’s issuance of the formal facility letter (signed by the officers of the Offshore Credit Department, see e.g. the facility letter signed on 14 March 1996) and the mortgage agreement for the Plaintiffs' execution. In other words, after I and the Plaintiffs had reached agreement on the terms of the facility etc, with the officers of the Offshore Credit Department of the Defendant, we would proceed to complete the necessary formalities in accordance with the directions given by them. Until the Agreement to perform the Swap (the subject matter of these proceedings), there had never been an occasion when the Defendant would fail or refuse to complete the formalities after the agreement was reached between the parties on the terms of the facility etc. As far as I and the Plaintiffs were concerned, the agreements we reached with the Defendant's officers were valid and binding on the Defendant as evidenced by the Defendant’s acting in accordance with them.”[9]
36. According to Chan’s evidence above, for the past transactions, an agreement between the plaintiffs and the defendant was reached when the officers of the Offshore Department confirmed to him that the terms of the facility proposed and negotiated were acceptable to the defendant. Thereafter the parties would attend to the formalities – HF Enterprises would put in a formal application in writing with documents in support, the defendant would issue a formal facility letter to be counter-signed by HF Enterprises, and HF Enterprises would execute the mortgage agreement.
37. Chan’s evidence was not borne out by the documents relating to the past transactions. The documents showed quite clearly that after HF Enterprises had put in a formal application, the defendant’s processing of the application was not a mere formality. The defendant’s credit approval committee was involved in each instance, and it was only after a decision was made by the committee that an agreement to grant a facility came into existence.
38. In respect of facility 1, the formal application dated 14 October 1994 was for a facility in the total sum of $20 million on the security of the land in Longgang, Shenzhen numbered G09205-1(3) (LUC number 100391, subsequently re-numbered as 1001335). The last signature on the form of the credit approval committee was on 25 November 1994, approving a facility in the total sum of $14 million only. It was after the decision of the credit approval committee that the facility letters in English and Chinese dated 29 November and 7 December were issued to HF Enterprises, and the company then passed a board resolution dated 2 December authorising it to enter into the transaction as per the terms of the facility letter. The mortgage agreement was executed on 7 December.
39. Facility 2 followed a similar pattern. The formal application dated 18 January 1995 sought a facility in the total amount of $15 million on the security of the land in Longgang, Shenzhen numbered G09205-1(2) (LUC number 100394, subsequently re-numbered as 1001336). The credit approval committee decided on 23 January to approve a facility of $12 million only. Facility letters in English and Chinese were then issued to HF Enterprises on 23 and 26 January. HF Enterprises passed its board resolution on 24 January. Mr Tong made the point that the defendant had begun its investigation process before the formal application for facility was made on 18 January, as the report of the investigation was of the same date. He submitted that the defendant had started its approval process before the formal application. I do not think this is significant, what matters is the final decision of the credit approval committee and it was only after this decision was given that the agreement to grant the facility was made.
40. Similarly, for facility 3, the formal application sought a facility of $2.5 million and the credit approval committee decided to grant $2 million, on the security of the Sheung Shui Property. For facility 4, the formal application requested $10 million and the committee approved $7 million, on the security of the PRC Factory. The facility letters of facilities 3 and 4 stated that it was a condition precedent that the facilities would be available for drawing when the defendant received a mortgage of the security.
41. Facilities 1 and 2 were consolidated in early 1996. There was no formal application, just a board resolution of HF Enterprises dated 22 December 1995 authorising it to seek an extension of facilities in the total amount of $26 million on the security of the land in Longgang, Shenzhen numbered G09205-1(3) and G09205-1(2). There was no change in the total amount of the facilities and the securities involved in the consolidation. Nevertheless, the matter had to go through the credit approval committee and it gave approval on 29 January 1996. It was after such approval was given that the Offshore Department informed HF Enterprises by fax on 6 and 9 February that the company could continue to use the facility as approval for the extension of the facility was granted by the bank and HF Enterprises was requested to execute a facility agreement on 13 February. Eventually, HF Enterprises countersigned the facility letter on 28 February and executed the facility agreement on 14 March 1996.
42. The only instance in the past dealings where the matter did not go through the credit approval committee was when the LUCs for the securities in facilities 1 and 2 were re-numbered and new LUCs were issued in August 1995. HF Shenzhen provided a written explanation to the defendant dated 15 August 1995 and the Shenzhen Land Bureau notified the defendant by letter dated 17 August to attend the Bureau with Lung Shing Property (as the two LUCs were held in the name of Lung Shing Property) to collect the new LUCs when they were issued. The two LUCs were not released back to the plaintiffs or to Lung Shing Property. This situation was very different from the exchange of the two LUCs for five LUCs of other properties.
43. The past dealings clearly pointed to the need for approval by the credit approval committee for the swap of securities contemplated in July 1996. There is ample evidence to support the judge’s finding in paragraph 155 that notwithstanding the stance of the front line staff, a decision to effect the exchange of securities had yet to be made by the credit approval committee, and there could well be changes when the decision was made by the committee.
44. The judge had found in the plaintiffs’ favour that at the brief meeting on 9 July 1996, LYT did not inform Chan and Wong of the need to apply for new facility to repay the outstanding loans or the mechanics involved in the swap of securities. In the evidence of Chan, he had sought to sever any connection between the release of the two LUCs by repaying the outstanding facilities to discharge the mortgage and the obtaining of a new loan with the five LUCs as new securities in exchange[10]. These protestations of Chan, or even of Wong[11], for that matter, do not stand up to closer scrutiny, quite apart from the fact that they do not sit well with the plaintiffs’ pleaded case that when the plaintiffs proposed to the defendant for the exchange of the securities, they made it clear that in effect they also requested for an extension of the loan upon the exchange of securities[12].
45. I set out in an annex the material parts of the transcript of Wong’s evidence. Wong has no personal interest in this litigation and was responsible for most of the documentations of the plaintiffs connected with this action. These extracts of his evidence showed the thinking behind the proposal for the exchange of securities. Notwithstanding that the mechanics involved in exchanging securities were not explained at the meeting, Wong had sufficient knowledge of the nature of the underlying transaction that it was not an outright exchange of securities. He admitted that only “big principles” were agreed at the meeting and there could still be changes. He accepted that he knew there would be an approval procedure to go through and even though a consensus was reached, there could still be circumstances causing the application to be turned down in the approval procedure. This was consistent with what he stated in his fax to the Offshore Department dated 19 March 1998 that the return of the LUCs being the old securities would still require the approval of the superiors[13].
46. It was put to Chan in cross-examination that he must know all along the exchange of securities would involve applying for a new loan with the new facilities so that the outstanding facilities could be repaid and the old securities released. He disagreed with this and drew a distinction between the plaintiffs’ group in 1996 and 1998 in that the financial position of the group had worsened in 1998[14]. I agree with Mr Chan’s submission this distinction is plainly unsatisfactory, as conceptually there could be no difference in the nature of an exchange of securities whether this was done in 1996 or 1998.
47. Further, as pointed out by the judge, the plaintiff’s expert in PRC law, Zhang, had testified that in the PRC, an exchange of securities was not carried out by merely releasing the old securities and accepting new ones in their place. The transaction would involve details such as the repayment of the loan[15].
48. Mr Tong made much of Wong’s evidence the agreed sequence of events was that first the two LUCs would be released to the plaintiffs so that the flats would be sold and the proceeds would then be used to repay the outstanding facilities[16]. I do not think this is material. As explained by CYP when he was questioned by the judge, the defendant had considered three solutions for the repayment of the outstanding facilities, the first was to repay with the plaintiffs’ own resources, the second was to regularise the use of the account, pay interest and repay the outstanding facilities gradually, and the third was for the plaintiffs to apply for a new loan, and as the first two solutions were not feasible, the Offshore Department then asked the plaintiffs to seek a new loan[17]. No matter which of the solutions were adopted, the matter would need the approval of the credit approval committee eventually.
49. I do not think it is necessary to go into the details of the many fax exchanges of the parties from 1996 to 1998. Mr Tong repeatedly emphasised it was not mentioned in the fax exchanges that the consensus to swap securities was conditional upon the approval by the credit approval committee and that the defendant’s request to pay interest was not apparently linked to the swap, whereas Mr Chan asked the court to read the fax exchanges in a different light and sought to emphasise those messages in which Wong recorded his understanding that the defendant was still considering the details of the exchange. It is possible to read the fax exchanges either way. I do not think they are clearly supportive of the position of either party. In any event, on the oral evidence and the evidence relating to past practice, there is more than enough support for the judge’s findings and analysis.
50. Looking at the matter objectively, Wong and Chan should know that the proposal accepted by the Offshore Department had yet to be approved by the credit approval committee for the defendant to enter into a binding commitment, as on all previous occasions. I agree with the judge on his conclusion that the consensus was merely an agreement subject to approval by the credit approval committee. The main point taken by the plaintiffs on appeal fails.
If PRC law was the proper law of the agreement
51. Assuming there was a concluded agreement, the judge considered the proper law of the agreement on the alternative scenario. He applied the law on ascertaining the intention of the parties (Dicey & Morris on The Conflict of Laws, 14th ed, Vol 2, Rule 203)[18]. He examined the factors relied on by the plaintiffs in contending that Hong Kong law was the proper law[19], which were repeated by Mr Tong before us. He then considered the nature of the securities to be exchanged, the facility letters, the deeds of guarantee, the mortgage documents, the proper law governing those agreements and the location of the parties thereto. All these pointed heavily to the inference that the parties and Lung Shing Property must have intended their legal relationship in the transaction should be governed by PRC law, where the old securities and their legal owner are situated. The same considerations applied to the new securities to be exchanged. The judge also had regard to the underlying obligations of the swap agreement, in that the swap agreement would have to be carried out by a mortgage in accordance with PRC law and it would need to be registered with the Shenzhen Land Bureau. Thus, on an objective analysis, he concluded that PRC law was the system of law which had the closest and most real connection with the swap agreement[20].
52. There is no substance in Mr Tong’s contention that the judge did not consider all relevant circumstances connected with the swap agreement. He was driven to submit that the judge had given undue weight to the nature of the securities, the necessary steps to effect the swap and the underlying transactions. I do not agree the underlying transactions merely provided the context and should not be given weight by the court.
53. Mr Tong argued that an important factor the judge failed to take into account is that the parties of a concluded agreement obviously intended the agreement to be effective, so it cannot be said if there is a system of law which may render the agreement invalid, the parties would intend that system of law to apply, as the law would lean in favour of upholding the agreement (British South Africa Company v De Beers [1910] 2 Ch 502 at 513 to 515; N V Handel v English Exporters Ltd [1955] 2 Lloyd’s Rep 317 at 324; Coast Lines Ltd v Hudig Chartering [1972] 2 QB 34 at 44F to G; Islamic Arab Insurance Co v Saudi Egyptian American Reinsurance Co [1987] 1 Lloyd’s Rep 315 at 320)[21].
54. This is an important but not a conclusive factor. It does not help the plaintiffs’ case. Firstly, looking at all the relevant factors in the round, I do not think it would tip the balance in the plaintiffs’ favour, as all the other objective factors would point to PRC law as the proper law. Secondly, it cannot be assumed that the swap agreement would be valid if Hong Kong law were the proper law. The defendant had pleaded[22] that if the agreement were governed by Hong Kong law, it is unenforceable for want of a memorandum in writing to evidence the agreement pursuant to section 3(1) of the Conveyancing and Property Ordinance, Cap 219.
55. Mr Tong sought to rely on the fax from CYP dated 23 April 1997 as constituting the memorandum and on the delivery of the five LUCs as part performance on the plaintiffs’ part. I agree with Mr Chan’s submission that the fax of April 1997 could not constitute a sufficient memorandum as a sufficient memorandum must contain the material terms of the bargain without the addition of any fresh terms not assented to by the other party (Kwan Siu Man v Yaacov Ozer, supra at 359 to 360). On Chan’s evidence, of the three terms set out in that fax, he did not agree with the first two which he understood as requiring the plaintiffs to repay the overdue facilities as a pre-condition for the exchange of securities[23]. As for part performance, there must be a concluded agreement first before one considers whether there are sufficient acts constituting part performance, otherwise one would fall into the trap of circularity (World Food Fair Ltd v Hong Kong Island Development Ltd (2006) 9 HKCFAR 735 at paras 27 to 29). The act of delivering the five LUCs was consistent with the existence of a concluded contract; it was equally consistent with an act done in anticipation of a legally binding agreement. It did not prove the existence of a concluded contract.
56. I would uphold the judge’s finding that PRC law was the proper law of the contract.
If the agreement was valid under PRC law
57. Mr Tong submitted that even assuming PRC law was the proper law of the contract, this court should interfere with the judge’s finding that the swap agreement was invalid under PRC law because the judge was plainly wrong. He cited King v Brandywine Reinsurance Co [2005] 1 Lloyd’s Rep 655 at paras 66 to 68 and MCC Proceeds Inc v Bishopgate Investment Trust plc [1999] CLC 417 at paras 18 to 22 in support of these propositions: that a finding of fact on foreign law is a question of fact of a peculiar kind and an appellate court may, in appropriate circumstances, be more ready to question the trial judge’s conclusions than in normal cases; and that in a suitable case an appeal court may form its own view of the meaning of a foreign statute, even if the expert’s opinion as to its meaning is different from its own, where there is no evidence that different rules would govern the foreign court’s interpretation, and where there is no suggestion that any of the words in the foreign statute has a special meaning in the foreign context that is different from its ordinary meaning.
58. Mr Tong reminded us that the function of an expert on foreign law is to assist the Hong Kong court in making a finding as to what the foreign court’s ruling would be if the issue were to arise for decision there. Although the expert is entitled to give opinion evidence in the absence of direct authority, his role is not to press upon the Hong Kong court his personal views of what the foreign law might be but to predict what the foreign court would decide (MCC Proceeds Inc v Bishopgate Investment Trust plc, supra at paras 24 and 25).
59. To J heard evidence of the rival contentions from the plaintiffs’ expert Zhang and the defendant’s expert Huang Hui (“HH”) for more than eight days. After careful consideration of the literature produced by them as well as the submissions of counsel, he rejected most of Zhang’s opinion and accepted most of HH’s opinion[24]. He held that the swap agreement was a foreign economic contract, which must be made in writing according to article 7 of the Foreign Economic Contract Law (which was effective from 1 July 1985 to 1 October 1999 when it was replaced by the Contract Law)[25]. Further, as this agreement had the effect of amending the facility agreement and the mortgage agreement both dated 13 March 1996, and as both were required to be in writing under article 7 of the Foreign Economic Contract Law, article 38 of the Guarantee Law (《擔保法》) and article 49 of《房地產抵押登記管理辦法》, the swap agreement must also be made in writing[26].
60. The judge rejected Zhang’s opinion that the validity of the swap agreement could be validated retrospectively by the Contract Law and two judicial interpretations of the Supreme People’s Court on the Contract Law pronounced in 1999 and 2009 (referred to in his judgment as “JI-1” and “JI-2” respectively)[27]. So as the swap agreement was not made in writing, it was not a valid agreement under PRC law.
61. Mr Tong took issue with the judge’s holding that the Contract Law does not have retrospective effect by virtue of article 3 of JI-1[28]. Suffice it to say I agree entirely with the judge’s analysis. Article 3 does not apply as it is concerned with the legal effect, not the formation, of a contract. And whether a contract has been formed is a pre-requisite for considering whether that contract has entered into effect[29].
62. Mr Tong further contended that the swap agreement was in writing, as it was contained in the fax exchanges between the parties dated 10 July 1996, 8 October 1996 and 23 April 1997. In support of this, he prayed in aid articles 10 and 11 of the Contract Law. These provisions of the Contract Law, which do not have retrospective effect, are not applicable here. The applicable provision is article 7 of the Foreign Economic Contract Law, which makes it quite clear that an agreement in writing is not formed by a subsequent memorandum such as in a letter or fax[30].
63. Reliance was again placed on articles 36 and 37 of the Contract Law, which are to the effect that if a contract to be made in writing has not been signed but one party has performed the principal obligation and such performance is accepted by the other party, that contract is regarded as made. Mr Tong repeated his submission that the principal obligation was performed by the plaintiffs when the five LUCs were delivered to the defendant. This was rejected by the judge[31]. I agree with the judge. I agree also with Mr Chan’s submission the judge’s reasoning that these provisions of the Contract Law could apply retrospectively by virtue of article 3 of JI-1[32] is erroneous. But this does not affect the conclusion that articles 36 and 37 do not apply, as the plaintiffs had not performed all the principal obligations.
64. The argument that JI-2 could somehow save the swap agreement was rightly described by the judge as desperate[33]. Article 112 of the Opinion of the Supreme People’s Court relating to the implementation of the General Principle of the Civil Law (for trial implementation) (1988年最高人民法院《關於貫徹執行〈中華人民共和國民法通則〉若干問題的意見(試行)》) does not help to advance the plaintiff’s argument for the cogent reasons given by the judge[34].
65. Mr Tong also relied on a judicial interpretation of the Supreme People’s Court in 1987 on the Foreign Economic Contract Law (最高人民法院關於適用《涉外經濟合同法》若干問題的解答), which does not appear to have been considered by the judge. Article 5(2) of this judicial interpretation provides that where a contract is declared invalid and if the invalidity is caused by the fault of a party, the party at fault shall be liable for the loss arising of the innocent party. I do not think this helps him. The swap agreement was invalid because it was not made in writing, in compliance with article 7 of the Foreign Economic Contract Law. This was not a fault attributable solely to one party. Nor does the “prevention” principle mentioned by Zhang[35] apply here.
66. On the alternative scenario, I agree with the judge that if, contrary to his finding, the parties had reached a concluded agreement, this agreement was not formed in accordance with PRC law and was therefore invalid.
If there is satisfactory evidence that HF Shenzhen has interest in the land represented by the two LUCs
67. This issue is relevant to damages, in the event that the plaintiffs succeed in establishing their claims under one or more of the causes of action pleaded.
68. The plaintiffs’ case is that HF Shenzhen was the beneficial owner of the two lots of land represented by the two LUCs which were held in the name of Lung Shing Property under a “reliance relationship” and that HF Shenzhen has suffered loss and damage as a result of the defendant’s breach. The judge had found in the plaintiffs’ favour that the land premium for these two lots of land was paid by HF Shenzhen and that Lung Shing Property held the land under a “reliance relationship”[36]. The question for consideration is what is the nature of such a relationship in PRC law and whether under that relationship HF Shenzhen has any beneficial interest, as it is common ground that beneficial ownership in land is not recognised under PRC law until the Trust Law (《信託法》) came into operation in 2001.
69. The judge considered the statutory provisions, academic works and decided cases referred to by Zhang. He rejected Zhang’s opinion that the request from the Shaanxi Higher People’s Court for guidance and the reply of the Supreme People’s Court on reliance relationship in the case of Rao Tianlu (饒天祿案) was a judicial interpretation containing statements of legal principle of general application binding on the courts in the PRC[37]. In any event, Rao’s case did not elucidate matters as the reply of the Supreme People’s Court did not define what a reliance relationship is and whether it exists in relation to landed property[38].
70. The plaintiffs also sought to rely on the judgment of Shenzhen City Longgang District People’s Court numbered (2005) 深龍法民初字第 9964號 (“Shen 9964”) in a claim brought by HF Shenzhen against Lung Shing Property for relief to confirm that the land held by Lung Shing Property numbered G09205-1(9) and G09205-1(10) (they are not the two lots of land represented by the two LUCs in question) in a reliance relationship belonged to HF Shenzhen. The court gave judgment in favour of HF Shenzhen. The judge noted in that case Lung Shing Property did not dispute the claim but had only refused to transfer the land to HF Shenzhen because the latter refused to pay the substantial tax involved. The case concerned the parties to a reliance relationship and gave no clue as to the rights against a third party in respect of land held under a reliance relationship[39].
71. Thus, on the evidence before the court, the judge was not satisfied that under PRC law, a party who is a beneficiary of land in a reliance relationship can enforce any right against a third party[40]. If this finding is upheld, the requirements for applying the principle that the nature of the remedy is a matter to be determined by the lex fori (i.e. Hong Kong law) will not be met, as it is not established that the lex causae (i.e. PRC law) must give HF Shenzhen some remedy against the defendant in respect of a wrong similar in character to that alleged in the present proceedings (Dicey & Morris, op cit, para 7-007). Mr Tong submitted that whether HF Shenzhen has suffered loss as a party in the reliance relationship is a matter of causation and should be governed by the lex fori. This is not supported by the works cited by him, as questions of causation are regarded as substantive rather than procedural and the lex causae applies (The Conflict of Laws in Hong Kong by Graeme Johnstone, 2005 ed, para 2.013; Dicey & Morris, para 7-035).
72. Mr Tong renewed his reliance on Rao’s case and on Shen 9964 before us. I am not persuaded the judge was in error on those matters. Mr Chan has also drawn our attention to the fact that the liquidator of Lung Shing Property did not accept that the land use rights in the two lots of land represented by the two LUCs had been decided in Shen 9964[41].
If there was actionable misrepresentation
73. Two representations were alleged by the plaintiffs as constituting this cause of action. The first representation was that GJH and LYT “orally and wrongfully falsely represented to the Plaintiffs, or alternatively, warranted (“the Warranty”) that it was the intention of the Defendant to agree to the Swap … and in particular, to release the Old Securities in exchange for the New Securities.”[42]
74. The judge found against the plaintiffs for the reason that the meaning conveyed in the representation must be how it could be understood by a reasonable person in the position of the recipient having all the background knowledge of the circumstances including the negotiation. Applying that test to the evidence he accepted, the judge found that the intention of the defendant as represented by LYT could be no more than an intention to process the application for exchange of securities and the application for a new loan. He was unable to find that the representation would convey to a reasonable person with all the background knowledge a committed intention on the part of the defendant to exchange the securities[43].
75. I find no contradiction in this finding with the other primary findings of fact made by the judge. Nor do I accept the submission of Mr Tong that the judge had confused the concept of what amounted to a concluded agreement with what constituted an actionable representation of fact.
76. The second representation alleged was that in March 1998, the defendant invited HF Enterprises to apply for an extension of the loan and represented to HF Enterprises that “(1) it would exchange or substitute the Old Securities with the New Securities (as previously agreed) under the “extension” of the Loan; (2) the application for the “extension” of the Loan was a mere formality as it was very likely or almost a certainty that the Defendant would approve the “extension” of the Loan.”[44]
77. This was rejected by the judge as he had found that HF Enterprises knew that the application for a loan was subject to the approval of the credit approval committee. On the evidence, the front line staff had all supported the loan application of HF Enterprises. There was no representation that as a matter of certainty the defendant would definitely grant the loan application. There was no evidence to show that the representation was untrue and the plaintiffs have not pleaded why they said the representation was false[45].
78. There is no basis to interfere with the judge’s ruling on rejecting misrepresentation.
If there was breach of warranty
79. The claim for breach of warranty was based on a collateral contract which preceded the oral agreement. It is alleged that to induce the plaintiffs to deliver the five LUCs to the defendant and to enter into the swap agreement, GJH and LYT orally warranted that “it was the intention of the Defendant to agree to the Swap … and in particular, to release the Old Securities in exchange for the New Securities”[46]. I agree with the judge as there was no concluded oral agreement, the claim for breach of warranty must also fail, and that even if there were a collateral agreement, it would also be null and void under PRC law[47].
If there was conversion of the five LUCs held by the defendant
80. The cause of action pleaded here is that “the Defendant wrongfully persisted in holding onto the New Securities by reason whereof the Defendant was converting the same to its own use without the Plaintiffs’ informed consent or approval”[48]. It was further pleaded that as the defendant was informed by the HF Enterprises before 9 July 1996 there were potential buyers of properties in the old securities and premised on the first representation[49], the defendant ought not to have kept the five LUCs and should have returned the same to the plaintiffs promptly upon receiving them on 16 July 1996 and that the defendant had converted them since that date and wrongfully deprived the plaintiffs’ use of the same until about 24 September 1998 when they were returned[50]. The plaintiffs had made no demand for the return of the five LUCs until 17 September 1998.
81. The judge applied the law as stated in Barclays Mercantile Business Finance Ltd v Sibec Developments Ltd [1992] 1 WLR 1253 at 1257 to 1258. An overt act is needed to establish a cause of action in conversion and a demand and refusal is generally relied on as such an act. Possession without more is not an overt act. The defendant was given possession of the five LUCs and kept them in safe custody. Other than that, it did nothing inconsistent with the rights of the owner and promptly facilitated their collection by HF Enterprises when a demand for their return was made. The judge rejected the submissions that the defendant had an implied obligation to return the LUCs and that the only reason the plaintiffs had not demanded the return of the LUCs was because of the defendant’s representation it was willing to effect the swap and the defendant could not rely on its own wrong. He held there was no cause of action in conversion[51].
82. Mr Tong made similar arguments before us. He contended that the misrepresentation by the plaintiffs that it would effect the swap was an overt act designed to interfere with the rights of HF Shenzhen over the LUCs. Misrepresentation was rejected by the judge for the reasons mentioned earlier. I am not persuaded the judge was in error in rejecting this claim.
The proper measure of damages
83. The judge has not made any ruling on issues of causation and the remoteness of damages[52], other than the implications of the reliance relationship. As we have indicated to the parties at the hearing, we do not propose to deal with the quantum of damages in this appeal if the plaintiffs were to succeed on liability. The appropriate course would be to remit the case to the trial judge for him to assess damages after hearing evidence and submissions on the issues of causation and the remoteness of the damages claimed.
The orders on interest
84. The plaintiffs appeal against the order allowing the defendant to capitalise due but unpaid interest, contending that this is contrary to and not supported by a proper construction of clauses 2.3 and 2.4 of the facility agreement in Chinese dated 14 March 1996.
85. The judge rejected this submission and agreed with Mr Chan’s submission on the construction of these provisions, holding that “monies due” (逾期或到期應付未付的款項) in clause 2.4 are wide enough to cover “interest due and unpaid” (應付未付利息), and there was no need to use the word “capitalise” in clause 2.4. I agree with the judge. Besides, as Mr Chan has pointed out, the entitlement to recover interest in accordance with the facility agreement was adjudicated by the PRC courts in Shen 654/1998 and Shen 655/1998 and the defendant is suing on these Mainland judgments in its counterclaim.
86. The defendant appeals against the order denying them of double interest as ordered by the PRC courts in Shen 654/1998 and Shen 655/1998. In giving judgment to the defendant in respect of the indebtedness under the consolidated facility and facility 4, the courts ordered HF Enterprises and HF Shenzhen to pay the judgment sums within ten days of the judgments taking effect and in default thereof to pay double interest pursuant to the Civil Litigation Law[53].
87. The issue is whether the award of double interest is a penalty so that the Hong Kong court will not enforce it in the defendant’s favour. The relevant authorities were considered by the judge (Dicey & Morris, rule 35(1), para 14-020; Huntington v Attrill [1893] AC 150 at 156 to 158; Wisconsin v The Pelican Insurance Co 127 US (20 Davis) 265; United States of America v Inkley [1989] 1 QB 255 at 265D to F; Schnabel v Lui [2002] NSWSC 15 at paras 161 to 177). He looked at the true nature of the right being enforced here, and this is to be determined according to the laws of Hong Kong, with regard to the attitude adopted by the courts in the foreign jurisdiction which ordered the penalty. This is what he said about the relevant provision in the Civil Litigation Law by which double interest was ordered:
“205. That statute apparently governs all civil proceedings in the PRC. Under that provision, double interest may be awarded by the PRC court to a party in a civil proceeding for failing to pay damages for breach of contract ordered by the court. Presumably, the double interest is a sanction imposed to ensure the court’s orders are promptly complied with. The purpose behind that is to ensure justice to be dispensed promptly and effectively. The award is to be paid to a party whose civil right has been infringed and whose right to judgment delayed. Subject to the court’s discretion in determining the time within which its order is to be complied with and the amount of the additional interest to be paid, the right and sanction are to be applied to all litigants and not discriminately at any particular individual. It is a punishment for violation of the court’s order made under a statute and is recoverable at the instance of the party but not the state. Even assuming that the statute was enacted for the regulation of civil litigation in the interest and for the benefit of the community at large and that persons who violate those provisions are, in a certain sense, offenders against the state law, the victim of such violation is the successful party in a civil litigation who is injured by being denied of the judgment which he is entitled. On the face, the statute and the award contains no element of punishment under either a penal law or other public law. It is not enforceable at the instance of the state.”
88. He held that the award of double interest is not a penalty and as a matter of law, it is wholly enforceable against the plaintiffs[54]. He then had regard to the rate of the double interest in this instance, which was 38% per annum, and decided it is so high that he felt inappropriate to enforce it once the Hong Kong court has assumed jurisdiction over the defendant when it filed a counterclaim on 1 March 1999 (which was before judgment was given by the PRC courts), claiming interest according to the contractual rate or under sections 48 and 49 of the High Court Ordinance, Cap 4[55]. For those reasons, he declined to enforce the double interest awarded by the PRC courts[56].
89. I find this reasoning difficult to follow. If the double interest awarded by the PRC courts was not a penalty, and as the defendant was suing upon the Mainland judgments, I fail to see how the Hong Kong court could have declined to enforce the Mainland judgments on the doctrine of obligation (Dicey & Morris, para 14-006; Schibsby v Westenholz (1870) LR 6 QB 155 at 159).
90. Mr Tong sought to support the judge’s decision on a different ground namely that the double interest was in the nature of a penalty. He submitted that the purpose of article 229 of the Civil Litigation Law is to punish or sanction those who have breached a court order. The double interest bears no relation to any loss suffered by the defendant, nor was there any inquiry as to the loss. And as the defendant was already ordered by the PRC courts to pay interest according to the contractual terms and the interest rates set by the People’s Bank of China until the judgment debts have been fully discharged, the imposition of double interest cannot be protective, remedial or compensatory as far as the defendant is concerned.
91. The judge did recognise that the double interest was to penalise the plaintiffs for not complying with the orders of the PRC courts to pay the judgment sums within ten days of the judgments coming into effect. Where he has gone wrong is to attach undue significance to the fact that double interest is recoverable at the instance of the judgment creditor in a civil litigation, and not by the state under a penal law or other public law. That the sum is not payable to the state is not a determinative factor. If the court is satisfied that the purpose of the amount ordered was not to compensate for the loss suffered but to punish the defendant and deter others from acting in the same way, this could properly be regarded as a penalty. The award of punitive damages which the court in Schnabel v Lui declined to enforce is an example of this.
92. I agree with Mr Tong that the double interest imposed by the PRC courts is a penalty and the judge is correct in not enforcing it, albeit for the wrong reason.
93. The defendant also appeals against the order that interest from 1 March 1999 (the date of filing of the counterclaim) until full payment is to be calculated at judgment rate or the contractual default rate, whichever is lower. The defendant sought to argue that interest from 1 March 1999 until full payment should be calculated at the contractual default rate, and that the judge should not re-write the contract between the parties.
94. I reject the defendant’s contention. The judge had considered the contractual entitlement of the defendant to interest and exercised his discretion to award interest in the way he did under sections 48 and 49 of the High Court Ordinance. The appeal court should not interfere with his exercise of discretion unless one of the established grounds for doing so is made out. That is not the case here.
95. For the above reasons, I uphold the judge’s orders as to interest.
Depriving the defendant of the costs of the claim
96. The defendant appeals against the judge’s order depriving it of all of the costs of the claim and only awarding it the costs of the counterclaim. Mr Chan submitted that, at most, there should only be a reduction of the defendant’s costs on the claim, instead of no order as to costs.
97. The judge’s reasons for the costs order are in paragraph 220 of the judgment:
“Having succeeded in both the defence and the counterclaim, the Defendant is entitled to costs from the Plaintiffs. However, the Defendant was much to blame for its conduct in handling the Plaintiffs’ application to swap the securities, which led to the litigation. Though its conduct is short of making a concluded agreement, it induced the Plaintiffs into the belief that the parties had reached a concluded agreement. It advanced factual evidence which was almost totally rejected by the Court. It raised unnecessary factual disputes such as the judgment in Yue 311/2003, which unduly and unnecessarily wasted a lot of time and costs. Its accounting expert was unnecessary. Its expert witnesses in quantum were typical hired guns. The same could be said of the Plaintiffs’ legal expert. But the blame is mainly on the Defendant’s. Much time was wasted by the Defendant in engaging in such meaningless or unmeritorious factual disputes. It could have equally well succeeded had LYT told the truth and had its expert witnesses not attempted to mislead the Court. To show the disapproval of the Defendant’s conduct, it is appropriate to deprive it of its costs in defending the action. On the counterclaim, the Plaintiffs have no valid defence, it is appropriate for costs to follow the event. Accordingly, I make a costs order nisi that there shall be no order as to costs on the Plaintiffs’ claim and that the Plaintiffs shall pay the Defendant’s costs of the counterclaim.”
98. We have received very full submissions from both sides on the issue of costs. Mr Chan’s submissions were more or less the same as those he made to the judge in his application to vary the costs order nisi. In refusing his application, the judge merely stated that the costs order nisi is affirmed. It would have been better if the judge had given some reasons, having received detailed written submissions and held a hearing on this.
99. I do not intend to rehearse all the arguments of counsel but to give my views as succinctly as I could.
100. Although the principles in Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at 1214A to C continue to apply after the Civil Justice Reform, the approach these days is to regard the proposition that costs should follow the event not as a general rule but only operates to shift to the unsuccessful party the burden of showing why some different approach should be adopted on the facts of a particular case (Chan Mei Yiu Paddy & Anr v Secretary for Justice & Ors, HCAL 16/2007, 9 December 2010, Saunders J, para 5), the rationale being that a mechanistic adoption of follow the event principle may result in parties incurring unnecessary costs in civil litigation (Wong Kam Tong v The Incorporated Owners of Yuen Long Tin Shing Court, HCMP 1454/2011, 6 December 2011, Court of Appeal, paras 10 to 13).
101. To deprive a wholly successful defendant of costs, the relevant considerations are as stated by Atkin LJ in Ritter v Godfrey [1920] 2 KB 47 at 60:
“In the case of a wholly successful defendant, in my opinion the judge must give the defendant his costs unless there is evidence that the defendant (1) brought about the litigation, or (2) has done something connected with the institution or the conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains.”
102. Atkin LJ further explained at 60 to 61 that by (1) is meant that the defendant “has so conducted himself as to lead the plaintiff reasonably to believe that he had a good cause of action against the defendant, and so induce him to bring the action”. Such conduct may be unreasonable or improper, or conduct other than that which constitutes the alleged cause of action. (2) and (3) may possibly overlap and would include improper conduct in or connected with the litigation calculated to defeat or delay justice.
103. It is not necessary to prove all three matters to deprive a wholly successful defendant of costs, one or more of those matters would do. The principles in Ritter v Godfrey have been applied in Hong Kong, see for example the decision of the Court of Appeal in Ho Shu Kwong v Chiang Chun Yuan [2002] 3 HKLRD 419 at para 18.
104. The court in Ho Shu Kwong has also stated the relevant principles in dealing with an appeal against an order of this kind:
(1) The advantage of a trial judge’s personal experience of the proceedings cannot be over-emphasised, as he has seen and heard the witnesses and attended to the whole course of the proceedings, and is obviously in the best position to decide whether one side has behaved so badly in the matter as to justify that party being deprived of costs (para 14 and Baylis Baxter Ltd v Sabath [1958] 1 WLR 529 at 533).
(2) The appeal court must be very careful not to interfere with the judge’s exercise of the discretion which has been entrusted to him. It would be wrong for the appeal court to substitute its discretion for that of the trial judge unless satisfied he is plainly wrong (para 15).
(3) So if there is evidence of facts falling within the three classes mentioned in Ritter v Godfrey, an appellate court will not interfere with the discretion of the trial judge, even though they might not have come to the same finding of fact or exercised their discretion in the same way (para 18).
(4) The credibility of the witnesses and the conduct of the parties in regard to the case they allege and seek to prove is a relevant matter for a judge to take into account in dealing with costs. Any comparison to be made of the conduct or misconduct of the parties on each side is a matter for the judge, and he is entitled to weigh one against the other. If he finds one party has behaved particularly badly, although in the end successful in his claim, that is a matter which he can take into account, even though the conduct of the other party might appear to be equally or almost culpable (para 25 and Baylis Baxter Ltd v Sabath at 533).
105. In my view, there is enough material before the judge for him to make the findings in paragraph 220 of the judgment. Whether this court would have exercised its discretion as to costs in the same way is beside the point.
106. For two years, the plaintiffs had sent numerous faxes to the defendant enquiring about the progress of the swap. The defendant had never retorted or denied the existence of the consensus. Its officers did not correct the client’s misunderstanding or state its position even if the client’s assertion was patently incorrect. Such conduct was improper and could lead the plaintiffs reasonably to believe that they had a good cause of action against the defendant. Mr Chan emphasised that the judge had found in the defendant’s favour there was no concluded agreement for the reasons which appeared in para 156 of the judgment. The judge must be aware of this as he mentioned in the weighing exercise he carried out in para 220 the earlier finding that there was no concluded agreement.
107. The judge was very critical of the litigation conduct of the defendant in that its factual evidence was almost totally rejected, unnecessary or unmeritorious factual disputes were raised, its accounting expert was unnecessary and its expert witnesses on quantum were typical hired guns.
108. Mr Chan took issue with all these findings. He sought to distance LYT from the bank, but as stated in Baylis Baxter Ltd v Sabath at 538, a company can only give evidence by its responsible officer and if the officer gives evidence which is subject to criticism then the company itself must accept responsibility. He sought to defend the time taken to cross-examine Chan over the proceedings in the Guangdong Higher People’s Court numbered (2003) 粵高法民一終字第311號 (“Yue 311/2003”), which the judge has said was blown out of all proportion and a red herring. The trial judge was best placed to form a view whether this was so. That also applies to other points taken by Mr Chan which sought to place the blame on late discovery of documents given by the plaintiffs. And the fact that the judge has rejected the evidence of the plaintiffs’ expert in PRC law has been taken into account by the judge in paragraph 220.
109. The present case is very different from Linfield Ltd v Taoho Design Architects Ltd & Ors [2006] 2 HKC 604 cited by Mr Chan. I see no basis to interfere with the exercise of the judge’s discretion on costs. The only variation I would make on costs is that there should be a certificate for two counsel in respect of the costs of the counterclaim awarded to the defendant.
Conclusion and orders
110. I would dismiss the plaintiffs’ appeal in CACV 235/2010 and the defendant’s appeal in CACV 236/2010. Save that the costs order of the counterclaim is varied in that there would be a certificate for two counsel, the orders made by the judge in his judgment would stand.
111. I would make an order nisi that the defendant should have 80% of the costs of the appeal in CACV 235/2010, with a certificate for two counsel, to take into account that the defendant has sought to vary the costs order of the judge and has failed. In CACV 236/2010, I would make an order nisi that the defendant is to pay the plaintiffs the costs of this appeal, with a certificate for two counsel.
Hon Lam J:
112. I agree with the judgment of Kwan JA.
(Wally Yeung)
Vice-President | (Susan Kwan)
Justice of Appeal | (M H Lam)
Judge of the Court of First Instance |
Mr Ronny Tong, SC and Mr Anthony HK Chan, instructed by Hogan Lovells, for the plaintiffs (appellants in CACV 235/2010 and respondents in CACV 236/2010)
Mr Edward Chan, SC and Mr Liu Man Kin, instructed by Paul Hastings, for the defendant (respondent in CACV 235/2010 and appellant in CACV 236/2010)
Annex
Extracts in Transcript of Evidence
問： 咁樣，咁當時陳先生有冇考慮過既然喺雄豐集團入面嘅公司，係有一啲即係地，或者有啲可以押得到錢嘅，或者賣得到錢嘅嘢呢再去攞啲新嘅嘢同銀行攞更多嘅信貸呢？
答： 其實嚟講，喺公司嚟講當時嘅情境已經可以咁講喇，都即係借無可借喇，係咪？就算係借，可能都係好少嘅即係數目喇，咁但係如果透過一啲即係已經有現成嘅，可以出得到嘅土地證嘅，係當時嚟講個價值係，反映係當時嘅價值，陳先生會覺得呢一啲嘅新土地證係最容易反映，同埋最容易攞一筆係可靠嘅，相信係可以攞得到一個融資囉，解決問題。
(Wong in cross-examination [L2/476U to 477C])
問： 好嘞,我哋 -- 如果係咁樣一個所謂呢個咁嘅交換呢，咁首先--其實我哋再分析一下，首先係一定要有一個將新嘅土地證作為一個抵押品。係咪呀？如果要達成呢個協議。
答： 係。
問： 然之後就要仲要就將舊嘅，即係嗰兩笪地，335、336 嗰兩笪地嘅土地證就嗰個抵押解除，release 佢，即係所謂攞番出嚟，咁一定要解除個抵押。係咪呀？
答： 係。
問： 嗰個受信額一樣。
答： 係。
問： 其他嘅條款都係一樣。
答： 冇錯。
問： 咁如果要達成，即係要達成呢一個咁嘅計劃嘅話，咁即係話一定要有一個新嘅抵押嘅手續要做，就係將嗰五笪地由完全所謂 free from incumbrance ，即係完全係冇抵押，冇其他嘢嘅，就變成一個抵押品，咁有一個 -- 一定要有一個手續要做嘅。係咪呀？
答： 係，呢個係一個 formality。
問： 總之係一個手續嚟。咁亦都要解除一個舊嘅抵押，有一個手續要做嘅。
答： 呢個係正常嘅銀行行為嚟。
問： 呢個一定要喇，如果唔係你點攞出嚟。
答： 呢個一定要。
問： 係咪呀？咁呢一方面嚟講就即係你就覺得銀行就已經完全應承晒，應承咗一定要係咁做嘞。
答： 喺本人嘅覺得，最主要係即係確立喺邊一點裡面係呢一個協議裡面係達成，喺本人嚟講，即係覺得即係應該係咁樣就係像達成。
問： 應該已經達成嘞？
答： 已經達成嘞，一傾妥…
問： 其實我向你指出，其實你都應該好明白，嗰日其實傾嘅最多係一啲原則性、大方向性嘅問題。係咪呀？其實有好多嘢你知道係唔可能嗰日就已經，銀行已經同你哋成立咗一個有法律效力嘅協議。
答： 我會咁樣睇，就係好多即係協議裡面就係達成咗，而日後所要去完成番所有嘅手續各方面係需時嘅。
問： 唔止需時，其實好多嘢都仲要傾嘅。係咪呀？好多嘢都仲要解決嘅，係咪呀？
答： 我相信係嗰個個即係大原則裡面條已經定咗，但係當然，如果假設喺即係雄豐裡面所畀出嚟嘅資料或者唔夠嘅，係需要喺佢嗰個額度裡面去調整或者係唔借畀雄豐嘅話，係需要由對方裡面係話番畀我哋聽，但係嗰個概念，喺嗰個協議裡面條已經成立咗，已經定咗。
問： 但係應該 -- 我又向你指出，呢個土地價值其實呢個只不過係--你呢度寫出嚟嗰啲只不過係嗰個房地產證嗰度寫你哋個地價係幾多。係咪呀？
答： 我相信呢個價值係即係透過，即係喺國土局裡面係認定咗呢個價錢，呢個價值係當時嘅價值先會擺落去。
問： 其實你呢度寫嘅土地價值呢度係咪喺嗰本房地產證嗰度，個地價嗰度抄出嚟嘅？
答： 喺裡面抄出嚟嘅。
問： 抄出嚟嘛，係咪呀？
答： 抄出嚟嘅。
問： 當然喇，國土局就唔會賣平地。係咪？
答： 係。
問： 咁你就因為咁嘅時候，你就覺得佢價值就係咁嘞，係咪咁樣呢？
答： 我覺得佢所畀出嚟，國土局畀出嚟嘅價值裡面係公正同埋公平嘅。
…
問： 係嘞，但係當然喇，銀行嘅估值又要另外一個方面嘅睇法你都明白。係咪呀？
答： 銀行有佢哋嘅評估嘅方式，有佢嘅角度。
問： 有佢嘅角度嘅，因為作為--我覺得你做咁耐生意，你都應該明白就係喺銀行嗰個方面，佢估個價值就係如果我真係要賣嘅時候，我能夠攞到幾多錢咁樣。係咪呀？
答： 因為 -- 條，冇錯。
問： 因為佢要喺嗰個角度嚟睇嘅。
答： 係，雖然我對銀行嘅系統唔熟悉，但係即係從一個商人嘅角度裡面應該係咁樣嘅思維。
問： 係咁嘅思維嘅。唔，所以銀行即係要考慮好多，例如好似一個 forced sale或者有其他嘅稅收嘅問題，費用嘅問題同埋時間嘅問題嗰啲嘢。係咪呀？
答： 係。
問： 所以我就向你指出，其實你哋當時傾嘅係銀行最多都係只係話我哋同意考慮呢個問題，然之後其實你亦都知道，銀行最終如果你真係同意嘅時候，會係有一封正式嘅函件畀你哋，要求你哋簽紙作實。係咪呀？
答： 呢個我相信會。
問： 會嘅。因為其實嚟講，你講呢一啲咁嘅協議喺銀行嚟講，都係要做一個新嘅抵押協議去接納你哋新嘅抵押品，同時亦都要同意解除咗個舊日嘅抵押品。係咪呀？
答： 唔，但係個協議仍然係不變嘛，大家同意咗喇嘛。
(Wong in cross-examination [L2/494I to 495V])
問： 其實你知唔知道，喺內地嘅銀行其實佢係審貸分家嘅呢？即係話最後作出呢個決定嘅嗰啲人，同理去驗證交出申請信貸資料嗰一組人係唔同嘅呢？
答： 因為呢方面，對於國內嘅銀行，本人就唔係十分熟悉，但係本人就認為，即係如果我哋同銀行去即係做一個咁嘅交道呀，去即條換呢個證裡面呢，係我哋一個，佢哋幫我哋處理呢一個授信嘅人士會係全權幫我哋做晒呢樣嘢，因為就算佢如何分家，喺敝公司裡面都係唔可以管得到，我哋都係完全條倚靠番同我哋去聯繫，佢代表銀行嘅。
問： 咁其實你都明白到係唔係李先生佢係唔可以喺即係信貸，畀唔畀信貸，接納乜嘢抵押品，唔接納咩嘢抵押品呢一啲問題上為銀行作出一個決定？
答： 呢一方面喺本人嘅理解裡面，即係既然李先生係處理我哋個戶口，係仔細喺番裡面嘅具體裡面嘅做法，我哋好相信係對於銀行裡面委派得即係呢位同事裡面呢，佢會係有咁嘅責任係幫我哋處理，完成呢一樣嘢。
問： 佢會代你哋去處理完成呢樣嘢？
答： 佢會幫我哋做好呢件嘢。
問： 即係佢會幫你去問佢嘅上司掂唔掂之類？
答： 因為點解呢？就係話如果李先生佢覺得呢件事係可以幫我去處理得到嘅時間，因為我哋最熟悉嘅，做具體嘅都係李先生。係咪？
問： 唔，唔。
答： 咁李先生話畀我聽，佢能夠去處理咗呢件事嘅，佢同即係銀行裡面邊一位上司或者邊一位去處理呢件事呢，亦都係相信係由即係銀行裡面去安排，咁我哋好相信李先生係代衰銀行嘅時間，我哋會係全心全意相信李先生能夠做得到。
問： 唔，李先生能夠代你哋做？代你哋地去同銀行轉達你哋嘅要求，代你哋要求銀行有關決策嘅人士去攞一個決定？
答： 我相信係。
(Wong in cross-examination [L2/508C to N])
問： 咁當然喇，你亦都應該明白到既然有一個審批嘅程序，就唔係話審批之後就一定得喎，係咪呀。
答： 呢個即條本人會有咁嘅睇法喇，就像話喺某一個額度，同理某一個即係譬如T/R，同埋喺 overdraft裡面額度呢，基本上已經係同意咗某一個數係大家係協議咗，但係當然喺公司裡面去將佢嘅即係公司嘅情況，到更新到現時裡面嘅情況裡面，係銀行需要作出一個證實裡面，如果係呢一方面裡面能夠符合達到嘅，銀行當時會係即係順利會批喇，呢個肯定係喇，係咪？
問： 如果銀行因為某種原因突然間改變主意，銀行亦都可能唔批喎？
答： 呢個亦都，即係我本人認為都好正常嘅，但係我認為覺得就話喺銀行裡面，喺呢件事裡面合理嘅時間裡面，即係通知番譬如話公司裡面，你嘅唔批嘞各方面，就請你去諗其他辦法喇咁樣。
問： Okay。
答： 即係我嘅自己嘅法係咁樣。
問： 其實，黃先生，可唔可以咁樣講呢，就係當時你同埋你雄豐企業嘅心態就係話，呢五本嘅房地產證有咁多代表--證明咗有咁高嘅地價已經付咗嘞，銀行方面都應該，或者銀行方面都冇乜理由拒絕你哋嘅、你哋嘅要求嘅，咁講啱唔啱呢？
答： 我應該咁樣睇法喇，喺即係如果按照即係公司裡面會有咁嘅五本房地產裡面，喺理據上面應該係可以嘅，咁但係銀行裡面當然係要佢實際上喺佢哋嘅銀行嘅系統裡面，都要睇番裡面雄豐所提供嘅資料裡面，係唔係即係合符喇，係咪？亦都係譬如喺嗰啲土地證裡面所得到嘅價值裡面，喺佢哋嘅計算方面係咪值得係咁樣去換呢咁樣。
問： 所以就算係十天呢，銀行睇過之後呢，都係你一個好有信心嘅期望，銀行就會批准，但係唔係話一定批准嘅，咁講啱唔啱呀？
答： 呢個喺銀行裡面嘅做法我相信都會係咁樣樣嘅。
(Wong in cross-examination [L2/519N to 520F])
問： 其實嗰陣時你哋講緊嘅係揾嗰啲新嘅房地產證去攞一筆貸款，而嗰筆貸款愛嚟還咗舊房產證抵押嘅貸款，咁樣就褪番啲舊嘅房產證出嚟，其實係咪呢個係一貫嘅諗法都係咁？
答： 係，就係用新嘅房地產證換舊嘅房地產證--土地證。
問： 但係換嘅，你都應該或者你自己咁諗，換就唔係話我攞隻杯換你隻杯，我攞樽水換你樽水。係咪呀？因為你要換新證，係咪要--你都諗都係要將新證作為一個抵押品。對唔對？
答： 呢個係正確嘅。
問： 然之後換舊證，就即係將舊證嘅抵押解除，咁先正攞到出嚟。
答： 呢個係正常做法。
問： 就唔係攞兩本證就咁樣交換兩本證。
答： 當然唔係喇。
問： 咁呢個你話「陳耀平先生落實建議」即係話陳耀--到到寫嗰陣時都仲係未落實建議，不過係幾天之後先正會有落實嗰個建議嘅啫。
答： 呢個係講緊嗰個即係貸款嘅額度。
問： 貸款嘅額度。
答： 係。
問： 咁呢個新證作為一個新嘅抵押品，當然就梗係有一個即係貸款嘅額度，就話呢個新嘅抵押品貸幾多錢，點樣貸法，個年期係幾多，諸如此類。係咪呀？
答： 係呀，係呀。
問： 呢樣嘢就即係你諗住都係咁發生嘅？
答： 都係咁做喇，喀。
(Wong in cross-examination [L2/547A to K])
[1] The trial was ordered to be heard by a bilingual judge. Most of the documents produced in evidence were in Chinese and most of the witnesses testified in Cantonese or in Putonghua. The evidence was not translated into English. Counsel made submissions in English and the judgment was in English. This appeal was heard by a bilingual division.
[2] Mr Tong, SC appeared with Miss Eva Sit before the judge and appeared with Mr Anthony Chan on appeal
[3] Mr Chan, SC appeared with Mr Liu Man Kin here and below
[4] Paragraphs 5 and 5A of the Re-Re-Amended Statement of Claim; the “Old Securities” to be exchanged was defined in paragraph 2
[5] Paragraph 5A of the Re-Re-Amended Statement of Claim
[6] Paragraph 7 of the Re-Re-Amended Statement of Claim
[7] Paragraphs 149 to 153 of the judgment
[8] Statement of Chan [C/1237/§§66 to 68]; statement of Wong [C/1250 §22]; Chan in cross-examination [L1/326K to L, 337O to R, 338B to L]; Wong in cross-examination [L2/493S to 494C, 494S to U, 495V, 499I to P, 503L to M]
[9] Statement of Chan [C/1451 §§ 7 & 8]
[10] Chan in cross-examination [L1/297F to L; 327G to H; 338B to H]
[11] Cross-examination of Wong [L2/489P to Q; 499I to P] and re-examination [L2/571Q to U]
[12] Re-Re-Re-Re-Amended Reply and Defence to Counterclaim, paragraph 55
[13] See also Wong in cross-examination [L2/549O to 550F]
[14] Chan in cross-examination [L1/344N to 345E]
[15] Judgment, paragraph 156; Zhang in cross-examination [L4/1483S to 1484K]
[16] Wong in re-examination [L2/576I to V; 583R to 584A]
[17] CYP in questioning by the judge [L3/853G to 854J]
[18] The 11th edition of this work was cited in paragraph 222 of the judgment, and the equivalent rule was rule 180.
[19] Paragraph 223 of the judgment
[20] Paragraphs 224 to 227 of the judgment
[21] None of these cases were cited in Mr Tong’s written submissions before To J.
[22] Paragraph 27(ab) of the Re-Re-Re-Re-Amended Defence and Counterclaim
[23] Chan in cross-examination [L1/337A to 338F]
[24] Paragraphs 233 and 235 of the judgment
[25] Paragraphs 239 and 253 of the judgment
[26] Paragraphs 236 to 238, 260 and 264 of the judgment
[27] Paragraphs 241 to 265 of the judgment
[28] Paragraphs 250 to 253 of the judgment
[29] See article entitled《最高人民法院關於適用〈中華人民共和國合同法〉若干問題的解釋(一)》導讀, by Wang Chuang (王闖), at page 103 [D6/2468], quoted in paragraph 252 of the judgment
[30] Article 7 reads: “當事人就合同條款以書面形式達成協議並簽字，即為合同成立。通過信件、電報、電傳達成協議，一方當事人要求簽訂確認書的，簽訂確認書時，方為合同成立。”
[31] Paragraph 255 of the judgment
[32] Paragraph 254 of the judgment
[33] Paragraph 256 to 259 of the judgment
[34] Paragraph 261 to 262 of the judgment
[35] Zhang’s report paras 3.10 to 3.11 [D4/2044]
[36] Paragraphs 268 and 270 of the judgment
[37] Paragraphs 275 to 277 of the judgment
[38] Paragraph 278 of the judgment
[39] Paragraph 279 of the judgment
[40] Paragraph 282 of the judgment
[41] See judgment of the Supreme People’s Court in case numbered (2009) 民監字第545號 (“SPC 545/2009”) [B2/647 to 653 at 650]
[42] Paragraph 5D of the Re-Re-Amended Statement of Claim
[43] Paragraphs 166 and 167 of the judgment
[44] Paragraph 22 of the Re-Re-Amended Statement of Claim
[45] Paragraphs 174 and 175 of the judgment
[46] Paragraph 5D of the Re-Re-Amended Statement of Claim
[47] Paragraphs 177 and 178 of the judgment
[48] Paragraph 8A of the Re-Re-Amended Statement of Claim
[49] Paragraph 5D of the Re-Re-Amended Statement of Claim
[50] Paragraphs 30, 35, 35A and 35B of the Re-Re-Amended Statement of Claim
[51] Paragraphs 183 to 185 of the judgment
[52] Paragraphs 51B, 53A, 55 and 56 of the Re-Re-Re-Re-Amended Defence and Counterclaim
[53] Article 229 of the Civil Litigation Law《民事訴訟法》: 「被執行人未按判決、裁定和其他法律文書指定的期間履行給付金錢義務的，應當加倍支付遲延履行期間的債務利息。…」[D3/2010] The judge referred to this article in identical terms in paragraph 204 of his judgment but called this “article 232”.
[54] Paragraph 206 of the judgment
[55] Paragraph 67 of the Re-Re-Re-Re-Amended Defence and Counterclaim, erroneously referred to as “paragraph 67A” in paragraph 207 of the judgment. However, the judge did not refer to the actual paragraph 67A which reads: “Insofar as may be necessary, the Defendant relies upon the judgments of the Mainland Chinese Court pleaded in paragraph 60 above [Shen 654/1998 and Shen 655/1998] … and sues upon the Mainland Judgments.”
[56] Paragraphs 207 and 214 of the judgment