CHARM MASTER ENTERPRISES LTD v. GRAND T G GOLD HOLDINGS LTD AND ANOTHER

HCA 397/2011

[2025] HKCFI 4992

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 397 OF 2011

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D E C I S I O N

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A. INTRODUCTION

1.  I gave judgment in these proceedings on 23^rd October 2024 (“the Judgment”).  Capitalised terms below are those used in the Judgment unless otherwise indicated.  The relevant background has been set out in the Judgment, which I will not repeat here.

2.  The order of DHCJ Raymond Leung SC of 26^th February 2021 provided that the issue of interest as between Charm Master, the Company and J Thomson were to be determined after the trial.

3.  By summons of 10^th December 2024 (“the Summons”), J Thomson seeks:

3.1  under paragraph 1, payment out of interest accrued on the amounts of $12,000,000 and $500,000 previously paid into court by the Company (“the Sums”);

3.2  under paragraph 2, payment of further interest on the aforesaid amounts, totaling $7,721,703.76, as pre-judgment interest, for the period from 9^th March 2011 until the payment into court on 14^th January 2021 (in respect of the amount of $1,200,000)  and 22^nd March 2021 (in respect of the amount of $500,000), at the rate of 1% above prime.

4.  There is now no dispute about paragraph 1 of the summons.

B.  APPLICABILITY OF SECTION 48 OF THE HIGH COURT ORDINANCE

5.  The Company argues that s.48 of the High Court Ordinance, Cap.4 (“the HCO”)  does not apply, because there is no judgment against the Company, or because there was not any debt or damages capable of being the subject matter of the proceedings when instituted.[1]

6.  On the first point, Ms Rachel Lam SC, appearing with Ms Sharon Yuen, submitted that the Company interpleaded and did not participate in the trial, and that the Judgment was entered against Charm Master rather than the Company.

7.  However, the Judgment is binding on the Company: it directs that the Sums paid in by the Company to court are to be paid out to J Thomson, which means that Company is not entitled to obtain repayment of the same to it.  The Company did not participate in the trial not because it was no longer party to the proceedings, but because it was excused from attendance, having successfully obtained leave to interplead.  As Ms Natalie So submitted on behalf of J Thomson, on a proper understanding of the nature of interpleader proceedings, what in substance was decided at trial were the two claims (by J Thomson and Charm Master)  against the interpleading party (the Company).  See Unionix Development Ltd & another v Roe Investment Ltd & others [1999] 3 HKLRD at 6I-7C (Liu JA, citing with approval the description of the nature of interpleader proceedings given by Greene LJ in De La Rue v Hernu, Peron & Stockwell Ltd [1936] 2 KB 164).  A person can only interplead if each of the two rival claimants has a prima facie case against him.  The test is whether each of the rival claimants has a prima face case against the interpleading party, and not whether the adverse claimants have claims against each other: DLA Piper Hong Kong v China Property Development (Holdings)  Ltd [2010] 1 HKLRD 903 at [22] (Tang VP, as he then was).

8.  On the second point, the phrase “debt or damages” is very wide, and covers any sum of money which is recoverable by one party from another, either at common law or in equity or under statute: BP Exploration Co (Libya)  Ltd v Hunt (No.2) [1983] 2 AC 352 at 373F (Lord Brandon, in relation to the equivalent provision in s.3(1)  of the Law Reform (Miscellaneous Provisions)  Act 1934).

9.  Ms Lam submitted that the Company never had any obligation to pay the Sums[2] to J Thomson.  Any obligation would at most have been to Charm Master, the named noteholder, which held PN A (or the chose in action thereunder)  on trust as to 20% for J Thomson. J Thomson, as beneficiary, would not be suing in its own name, as there was no direct legal relationship between it and the Company.

10.  However, what was effectively decided at trial was that it was J Thomson’s claim against the Company, rather than Charm Master’s claim against the Company, that should prevail, and that it was therefore J Thomson which was entitled to payment out of the Sums paid into court by the Company.  Whilst the precise nature of the obligation owed by the Company to J Thomson was not explored at trial, that does not mean that there was no obligation; it was implicit that the Company had accepted that there was such an obligation by its earlier act of interpleading and payment into court.[3]  Otherwise, as Ms So pointed out, there would not have been two legitimate adverse claims against the Company to which the Company could apply to interplead; the Company could simply have applied to strike out J Thomson’s claim altogether, and/or simply paid the Sums to Charm Master, if it considered that it was liable to pay under the promissory notes and that the only possible party to which it could be liable (if at all)  was Charm Master.  Furthermore, the logical consequence of the Company’s argument (that it has no obligation to pay J Thomson)  is that after the Judgment, it can ask for payment out of the Sums back to it, since under the Judgment, Charm Master is not entitled to payment out of the Sums, and the Company is not (on its argument)  liable to pay J Thomson either.

11.  Since the payment of the Sums to J Thomson is essentially a payment by the Company (which paid in the Sums into court), it is right that the liability for interest falls on the Company rather than Charm Master.

C.  WHETHER INTEREST SHOULD BE ORDERED

12.  Interest is awarded on a judgment sum to compensate a successful plaintiff for having been kept out of his money for a period of time: PT Asuransi Tugu Pratama Indonesia Tbk v Citibank NA (No.2) [2023] 6 HKC 406 at [6].

13.  The power to award interest under s.48 HCO is discretionary.  Whilst interest generally runs from the date of accrual of the cause of action in respect of money then due or loss which then accrues, and in respect of loss which accrues at a date between the accrual of the cause of action and judgment, the court may depart from this: BP Exploration Co (Libya)  Ltd v Hunt (No.2) [1982] 1 All ER 925 at 975a-g.  Robert Goff J noted that there were three main groups of cases in which the court might so depart:

13.1  where, in light of all the circumstances, the position of the defendant was such that it would not be just to make him pay interest from the date of loss;

13.2  where the plaintiff’s conduct was such that he should not be awarded interest for the full period from the date of loss, for example where he was guilty of unreasonable delay in prosecuting his claim; and

13.3  where it would be unjust, in all the circumstances, to award the plaintiff interest from the date of loss.

14.  The Company says that it would be unfair to order it to pay interest to J Thomson because:[4]

14.1  insofar as J Thomson was deprived of use of the Sums, this was caused by Charm Master who wrongfully denied the existence of the trust arrangement;

14.2  Charm Master unreasonably prolonged the proceedings by taking no further steps to move the case forward after the Company filed its Amended Defence in October 2011, until J Thomson applied to join the proceedings in October 2017;

14.3  despite having been aware of the existence of the proceedings, J Thomson only applied for joinder in October 2017.

15.  The Company goes on to say that it has all along acknowledged its obligations under the promissory notes and acted with a genuine intention to repay them, but there were competing claims, and the Company was not in a position to ascertain the correct payee to make payment.[5]

16.  In this regard, I note that the Company would have learnt of J Thomson’s claim by 12th May 2011, when J Thomson sent a letter of demand (Judgment paragraph 43).  However, it was only on 27^th September 2011 that further particulars of the claim were provided to the Company, when the former solicitors for J Thomson described the trust arrangement more clearly, enclosing the minutes of SSC Holdings’ shareholders’ meeting of 29^th April 2008, and explaining how the $500,000 came to be agreed between the Company and J Thomson (Judgment paragraph 44).

17.  I further note that the 4^th Affirmation of Li Dahong (“Li 4^th”)  for the Company, having referred to J Thomson’s solicitors’ letter of 27^th September 2011, goes on to say at paragraph 39:

“ By this time, the Company had already received claims from three individuals / parties[6] each claiming to be entitled to collect the principals of the Promissory Notes, but none of which was able to prove definitely and convincingly that they were so entitled and none of them had produced the original Certificate[7] required for redemption, and therefore the Company could not pay any of the parties until the claims could be verified as to which of them is entitled to the principals, and if necessary, resolved by way of a Court proceedings.”

18.  If the Company’s position was that it wanted to pay the Sums, but was unable to ascertain to whom it should pay them, and it was aware that the competing claimants’ claims would have to be verified, possibly by way of court proceedings, then what it ought to have done was to interplead so as to protect its position – as it eventually did in February 2021 – rather than to hold onto the Sums to which it knew it was not entitled.  Had it done so, then whether or not Charm Master wrongfully denied J Thomson’s claims or unreasonably prolonged the proceedings, and whether or not J Thomson had applied to join the proceedings, would have been of no concern to the Company.

19.  That the Company sought to have it both ways is further shown by the fact that whilst on the one hand the Company stated in its letters of 31^st March 2016 and 6^th March 2017 that it considered J Thomson to be entitled to payment of the debt under PN D and PN E (“the Acknowledgment Letters”), on the other hand, it never provided the deed of indemnity which it said it would prepare for J Thomson to sign before paying J Thomson (see Decision on Costs [2025] HKCFI 911 at paragraphs 4 and 5).

20.  Ms Lam further submitted that it is misguided for J Thomson to rely on the late interpleader by the Company, since the Company was not bound to pay J Thomson directly.  I have dealt with this point in Section B above.

21.  The only qualification to all of this is that in J Thomson’s Supplemental Submissions of 5^th October 2020[8] filed in support of its application for summary judgment against the Company, at a time when the Company had not yet applied for leave to interplead, J Thomson submitted that the Acknowledgment Letters constituted free-standing contracts, separate from the promissory notes, entitling it to payment.  J Thomson further applied to amend its pleadings to include this new, alternative claim.  The Company says that it was concerned that it might be found liable to both J Thomson and Charm Master, and that interpleading at that stage would not have availed it as this would not have dealt with J Thomson’s alternative claim.  After the Company pointed this out, J Thomson indicated that it would not proceed with its proposed application to amend its pleadings.  The Company then applied to interplead on the next day, 25^th February 2021.[9]  Whilst it may said that the Company should have interpleaded earlier, the fact is that it had not done so as at 5^th October 2020 when J Thomson raised its new alternative claim based on the Acknowledgment Letters, and in those circumstances, it was reasonable for the Company to have refrained from interpleading until J Thomson abandoned its alternative claim.

22.  It will be recalled that the reason why the original PN A was issued was as part of the consideration which the Company was to pay to acquire shares under the SPA of November 2007, which transaction was completed in April 2008.  After various partial redemptions and extensions of maturity date, the remaining outstanding obligations of the Company were contained in PN D and PN E, both of which fell due in 2010.  The Company has essentially not had to pay this part of the consideration until it made the payment into court in 2021, and enjoyed the use of the funds concerned, interest-free.  It is not disputed that during the period of 2011 to 2021, the upper rate of the Company’s cost of secured borrowing ranged from 7.49% to 24%.

23.  In all the circumstances, I consider that it is right for the Company to pay interest to J Thomson for the period from 12th September 2011 (when J Thomson’s demand was sufficiently clearly made to the Company)  to the dates in 2021 on which the Company paid the Sums into court, save for the period from 5^th October 2020 to 24^th February 2021.

D.  DISPOSITION

24.  I make an order in terms of paragraph 1 of the Summons.

25.  As to paragraph 2 of the Summons, the Company is to pay to J Thomson interest at the rate of 1% above the best lending rate quoted by HSBC:

25.1  on the amount of $12,000,000 from 12th September 2011 until 4^th October 2020;

25.2  on the amount of $500,000 from 12th September 2011 until the date of payment into court on 22^nd March 2021, save for the period from 5^th October 2020 to 24^th February 2021 (the latter two dates inclusive).

26.  I further make a costs order nisi that the Company pay the costs of and occasioned by the Summons to J Thomson, to be summarily assessed if not agreed.  J Thomson has already lodged and served its statement of costs.  The Company has leave to lodge and serve a list of objections within five days, in bullet point form, limited to two pages.  J Thomson has leave to lodge and serve a reply within two days thereafter, in bullet point form, limited to two pages.

Ms Rachel Lam SC leading Ms Sharon Yuen, instructed by Wellington Legal for the 1^st Defendant

Ms Natalie So, instructed by C.T. Chan & Co., for the 2^nd Defendant

HCA 397/2011

[2025] HKCFI 911

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 397 OF 2011

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DECISION ON COSTS

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A.  INTRODUCTION

1.  By summons of 5^th November 2024, J Thomson[1] seeks to vary the costs order nisi (“the Costs Order Nisi”) in my judgment of 23^rd October 2024 (“the Judgment”), so that, in effect:

1.1  in addition to Charm Master, the Company should also be liable to pay to J Thomson the costs of and occasioned by J Thomson’s counterclaim for the period up to 26^th February 2021;[2] and

1.2  the Company should be liable to pay various items of reserved costs to J Thomson.

2.  Whilst the Company had interpleaded, J Thomson says that it did so only belatedly and after it had taken an active part in defending the proceedings.

3.  The Company says that it should not be jointly and severally liable with Charm Master because it ran a substantially different defence to that of Charm Master; furthermore, it acted reasonably throughout the proceedings. It says that there should be no order as to the costs of J Thomson’s counterclaim.

4.  J Thomson was given leave to join the proceedings as the second defendant in February 2018. It filed a Defence and Counterclaim on 6^th March 2018 and amended this on 27^th March 2018. The Company filed a Defence to the Amended Defence and Counterclaim of the 2^nd Defendant on 26^th June 2018. Whilst on the one hand the Company averred that there was a dispute between Charm Master and J Thomson as to the ownership of PN A, at the same time, it put J Thomson to strict proof of its claims. The Company further went on to actively resist J Thomson’s application for summary judgment, obtaining leave to defend the counterclaim on condition that it pay $12m into court,[3] and then seeking leave to appeal against the imposition of the condition.[4] It was only on 25^th February 2021 that the Company sought leave to interplead, despite J Thomson having invited it do so as early as 19^th July 2019, and despite the Company’s own acknowledgment in its letters of 31^st March 2016 and 6^th March 2017 (“the Letters”) that it considered J Thomson to be entitled to payment of the debt under PN D and PN E.

5.  The Company says that the Letters had already reasonably indicated its intention to settle subject to J Thomson executing a deed of indemnity (to be drafted by the Company), but J Thomson did not execute it. However, it was the Company which failed to provide the draft of the deed which it wanted J Thomson to sign: see decision of DHCJ Raymond Leung SC of 12^th November 2020 at [61].

6.  In these circumstances, where the Company chose to continue defending the proceedings as a party after the joinder of J Thomson despite having accepted that it was liable to pay out under PN D and PN E, it is appropriate for the Company to bear some responsibility for the additional costs incurred as a result.

7.  J Thomson says that the Company should be liable jointly and severally with Charm Master for costs up to 26^th February 2021. The Company says that it should not be jointly liable with Charm Master as it had a substantively different and independent defence from that of Charm Master. Reliance was placed on SFC v Yiu Hoi Ying Charles (No.2) (2021) 24 HKCFAR 382 at [32] to say that whilst the general rule is that liability to pay a winning party’s costs should be joint and several, there is an exception in respect of a separate cause raised by one of the losing parties – that losing party should alone be liable for the costs incurred by the winning party in meeting that cause. The Company pointed out that at the hearing of J Thomson’s application for summary judgment, one of the arguments relied upon by J Thomson was that the Letters constituted a separate agreement to pay under PN D and PN E. The Company also said that Charm Master advanced a drastically different version of events from J Thomson, whereas the Company itself merely adopted a “minimalist” defence.

8.  However:

8.1  as regards J Thomson’s application for summary judgment, this was also based on its claim to be entitled to payment under PN D and PN E. As J Thomson points out, there was no separate claim for anything in addition to the $12.5m sought under PN D and PN E. The fact that (1) the Company’s application for leave to appeal from DHCJ Raymond Leung’s order granting conditional leave to defend, and (2) J Thomson’s application to amend its counterclaim in the light of DHCJ Raymond Leung SC’s decision, were rendered academic by the Company’s application to interplead, demonstrates that it was the Company’s continued defence of the proceedings and refusal to interplead earlier that led to the incurring of costs unnecessarily;

8.2  as regards the point that Charm Master advanced a different (losing) cause from that of the Company, I agree with the submissions of counsel for J Thomson, Ms Natalie So, that the circumstances of the case need to be taken into consideration. Here, Charm Master and J Thomson were fellow claimants for payment under PN D and PN E, so that Charm Master was the party positively putting forward a particular version of events, whereas the Company was the party requiring J Thomson to come up to proof. Despite these differences of approach, both Charm Master and J Thomson both essentially denied the factual basis for J Thomson’s claim to payment under PN D and PN E. Putting J Thomson to proof essentially required it to disprove Charm Master’s claim. The Company was aware of the case being put forward by Charm Master, but it chose to continue its involvement as an active party in the case rather than to interplead.

9.  J Thomson also asks that the Company pay the costs reserved under the following orders:

9.1  the consent order of 8^th November 2019, which provided for directions for the disposal of J Thomson’s application for summary judgment;

9.2  the direction of 9^th March 2020, which gave directions for the re-fixing of the hearing of the application for summary judgment;

9.3  the direction of 5^th February 2021, which reserved costs relating to the Company’s application for leave to appeal against the decision of DHCJ Raymond Leung SC dated 12^th November 2020 giving conditional leave to the Company to defend, the Company’s application to interplead, and J Thomson’s application to amend its counterclaim following on from DHCJ Raymond Leung SC’s decision of 12^th November 2020.

10.  Counsel for the Company, Mr Billy Mok, submitted that the costs orders relating to the summary judgment application should follow that of J Thomson’s counterclaim against the Company (for which he submitted that there should be no order as to costs). He submitted that the costs arising out of the interpleader application should be paid by Charm Master to the Company, and that the costs arising out of J Thomson’s application to amend should be paid by J Thomson who withdrew its application.

11.  In relation to the first two sets of reserved costs, the costs order made by DHCJ Raymond Leung SC on the application for summary judgment was that J Thomson’s costs should be in the cause of its counterclaim against the Company. I agree with Ms So that any costs which were reserved in relation to the summary judgment application, and which have not otherwise been dealt with, should be paid by the Company to J Thomson as they arise out of that application or are incidental to it.

12.  In relation to the third set of reserved costs, I agree with Ms So that these costs should be paid by the Company to J Thomson as they were incurred by reason of the Company’s prolonging its participation in the proceedings failing to interplead earlier. As to the incidence of costs as between Charm Master and the Company, this is not the subject of the current application. As to the costs of J Thomson’s application to amend its pleadings, although it was J Thomson who made and withdrew the application, this application could have been obviated altogether had the Company interpleaded earlier.

13.  I therefore make an order in terms of paragraph 1(1) to 1(5) of the summons of 5^th November 2024.[5]

14.  I further make a costs order nisi that the costs of and occasioned by the summons should be paid by the Company to J Thomson, to be summarily assessed. J Thomson should lodge and serve a statement of costs within five days; the Company should lodge and serve its list of objections, if any, in bullet point form limited to two pages within five days thereafter; J Thomson should lodge and serve its reply, if any, in bullet point form limited to one page within three days thereafter.

Mr Billy Mok instructed by Wellington Legal for the 1^st Defendant

Ms Natalie So instructed by C.T. Chan & Co. for the 2^nd Defendant

HCA 397/2011

[2024] HKCFI 2847

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 397 OF 2011

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J U D G M E N T

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A. INTRODUCTION

1.  The Plaintiff (“CharmMaster”)  is the legal holder of two promissory notes, one in the amount of $7.5m (“PN D”), and the other in the amount of $5m (“PN E”), both issued by the 1^st Defendant (“the Company”).  It claims payment of the sums thereunder.

2.  The 2^nd Defendant (“J Thomson”)  counterclaims against Charm Master for payment under PN D and PN E.  It says that whilst the promissory notes were issued in the name of Charm Master, Charm Master was in fact holding the notes on trust for it.

3.  The Company has interpleaded, and paid into court a sum of $12.5m.  The contest therefore is between Charm Master and J Thomson.

B.  THE BACKGROUND

4.  Unless otherwise indicated, the following is not disputed, or is indisputable, and I find them as facts.

B1.  Dramatis personae

5.  SSC Mandarin Mining Investment Ltd (“SSC Mining”)  operated a gold mining business through its non-wholly owned subsidiary.

6.  SSC Mining was wholly owned by SSC Mandarin Holdings (“SSC Holdings”).

7.  Prior to the SPA referred to below, SSC Holdings, in turn was wholly owned by:

7.1  Mr Robin Lee as to 40% (19% directly, 11% through Harreld International Ltd (“Harreld”), and 10% through Rubion International Limited);

7.2  Mr Ng Chee Hung Frederick as to 23% (through Harreld);

7.3  J Thomson as to 20% (13% directly and 7% through Harreld);

7.4  Queen Glory Investment Limited as to 10%; and

7.5  Kudos Group Ltd as to 7%.

8.  After completion of the SPA referred to below, Mr Robin Lee became the sole owner of SSC Holdings, although the exact timing when, and the circumstances in which, this occurred were not explored in the evidence.

9.  Mr Robin Lee was the sole director and chairman of SSC Holdings.

10.  J Thomson was wholly owned by Mr Alvin Leung.  Mr Alvin Leung was also the sole director of J Thomson.

11.  The Company was originally named Espco Technology Holdings Limited.  It was listed on the GEM Board of the Hong Hong Stock Exchange.  Prior to the SPA referred to below, the Company was in the business of designing, manufacturing, trading and distributing desktop personal computer display cards.  The Company was founded by Mr Chan Hing Yin (“Mr HY Chan”).  Prior to the completion of the SPA referred to below, Mr HY Chan owned 61.99% shares in the Company.

B2.  The SPA

12.  By an agreement of 6^th November 2007 (“the SPA”), the Company acquired all the shares in SSC Mining from SSC Holdings at a consideration of $1,212m.  “Consideration” was defined as the consideration payable by the Company to SSC Holdings for the purchase of the shares.  Under the SPA, Clause 3.2 of the SPA provided for the method of payment of the Consideration, which was to comprise a combination of cash, Consideration Shares and Convertible Bonds (both as defined in the SPA), and promissory notes.  In particular, clause 3.2(B)  provided that:

“The [Company] must pay the remaining balance of the Consideration in full to [SSC Holdings] on the Completion date and pay it to [SSC Holdings] or the person designated in writing by [SSC Holdings] in the following manner:

…

(III)    Delivery of Promissory Note A totaling HK$60,000,000…”

13.  “Promissory Note A” was defined in the SPA as the “negotiable promissory note signed by the Purchaser [the Company] to pay the balance of the consideration totaling HK$60,000,000 in accordance with clause 3.2(B)(III), for a period of 18 months (from the date of issue), without interest and with the pledge of shares as Mortgage (see Appendix 7 for the general content and format of Acceptance Note A, but the final content and format must be reasonably confirmed by both the Purchaser [the Company] and the Vendor [SSC Holdings])”.

14.  Appendix 7 contained a draft of the proposed PN A.  It provided that SSC Holdings was to be the holder of the promissory note.

15.  The Long Stop Date under the SPA was 30th April 2008.  If the Conditions Precedent as defined under the SPA could not be fulfilled prior to 12 noon on the Long Stop Date, the SPA would become invalid.

16.  On 18^th December 2007, the Company made a public announcement regarding the entering into of the SPA (“the 18.12.2007 Announcement”).  The transaction constituted a “Very Substantial Acquisition” under the Listing Rules – the Company was to acquire a gold mining business which was substantial in comparison to its original electronics business.

17.  The 18.12.2007 Announcement referred to the payment of the $1,212m consideration, and summarised the key elements of each component of the consideration (including PN A).  The announcement stated that the terms of the promissory notes had been determined based on commercial negotiations between the Company and SSC Holdings.  In respect of PN A, the announcement noted that PN A could be transferred or assigned by its holder to any party other than a connected person in multiples of $1m.  It further stated that “The Company and the Directors will notify the Stock Exchange immediately of any dealing by the connected persons of the Company (other than the Vendor)  in the Promissory Note A from time to time immediately upon the Company being aware of it.”

18.  The 18.12.2007 further explained the reasons for the acquisition.  The Company and its subsidiaries were engaged in the manufacturing, trading and distribution of desktop PC components; there was growing competition in the market for the sale and production of PC components, and declining profitability of the PC components business; the Company’s directors considered that the acquisition would enable the Company and its subsidiaries to broaden its income base, thereby improving the future financial performance and profitability of the group. The then intention was to continue carrying on the existing business of the Company and its subsidiaries after completion of the transaction.

19.  On 28^th March 2008, the Company made a public announcement giving further details of the consideration under the SPA, and giving notice to convene an EGM seeking the Company’s shareholders’ approval to the transaction (“the 28.03.2008 Announcement”). Again, “Promissory Note A” was defined as “the promissory note with a principal sum of HK$60,000,000 to be executed by the Company in favour of the Vendor [SSC Holdings] to settle part of the Consideration”.

20.  On 18^th April 2008, the Company made a public announcement, announcing that its shareholders had approved the acquisition of SSC Mining at the EGM held that day (“the 18.04.2008 Announcement”).  The announcement stated that as at the date of the EGM, no shareholder was interested in the SPA or was required to abstain from voting.

21.  On 8^th April 2008, Charm Master was incorporated in the British Virgin Islands (“the BVI”).

22.  On 18^th April 2008, the Company announced that an EGM of its members had been duly held that day, approving the acquisition of SSC Mining.

23.  On 29^th April 2008, there was a meeting of the members of SSC Holdings, at which it was resolved, inter alia, to approve the payment of the balance of the consideration under the SPA in the manner as set out in the tabled payment instructions (“the Payment Instructions”).  The Payment Instructions provided for the issue of Promissory Note A in the principal amount of $60m to Charm Master as noteholder (“PN A”).

24.  It is J Thomson’s case, but disputed by Charm Master, that there was a further shareholders’ meeting of SSC Holdings on 30th April 2008, at which the issuing of PN A, including the arrangement whereby Charm Master would hold PN A on trust, was further addressed. I will return to this below.

25.  On 30th April 2008:

25.1  the SPA was completed;

25.2  the Payment Instructions were issued and PN A was issued;

25.3  Mr HY Chan’s shareholding in the Company was reduced to 45.68%, although he remained as the single largest and controlling shareholder of the Company (until 8^th September 2008).

26.  It is J Thomson’s case, but disputed by Charm Master, that there was a meeting between Mr Robin Lee and Mr CF Chen on 2^nd May 2008, during which Mr CF Chen signed a document purporting to agree to the trust arrangement in relation to PN A (“the Disputed Trust Confirmation”).  I will return to this below.

B3.  Changes in the Company after completion of the SPA

27.  Mr Robin Lee then took up positions in the Company as follows.

27.1  From 5^th June 2008 to 17^th March 2009, he was an executive director, vice-chairman and the CEO.

27.2  From 18^th March 2009 to 16^th July 2009, he was a non-executive director.

27.3  From 17^th July 2009 to 16^th August 2010, he was an executive director and the CEO.

28.  Mr Alvin Lee also took up positions in the Company.  From 5^th June 2008 to 31^st December 2008, Mr Alvin Leung was an executive director, vice-chairman and Deputy CEO.

29.  On 8^th June 2008, the Company announced the change of its name to its present name Grand TG Gold Holdings Limited.

30.  On 8^th September 2008, Mr HY Chan’s shareholding in the Company was further reduced to 15.88%, although he remained as a substantial shareholder and a connected person of the Company.

31.  On 30th September 2009, Mr HY Chan ceased to be the chairman of the board and a director of the Company.

B4.  The Eagle Up SPA and Eagle Lane Deed

32.  On 10^th November 2009, the Company entered into an agreement with Eagle Lane Holdings Limited (“Eagle Lane”), to sell the shares in its wholly owned subsidiary Eagle Up Holdings Limited (“Eagle Up”)  to Eagle Lane for $45m in cash on completion (“the Eagle Up SPA”). Eagle Up was a wholly owned subsidiary of the Company in the business of designing, manufacturing, trading and distributing desktop personal computer display cards.  Eagle Lane was a company wholly owned by Mr HY Chan.

33.  On 29^th January 2010, which was the date of completion of the Eagle Up SPA, the Company entered into a Deed of Release and Assignment with Charm Master and Eagle Lane (“the Eagle Lane Deed”). The Eagle Lane Deed recited that Eagle Lane was indebted to the Company in the amount of $45m pursuant to the Eagle Up SPA, and that Charm Master released as chargee unto Eagle Up the charge over the shares of Eagle Up which had been created on 30th April 2008, to facilitate the completion of the Eagle Up SPA.  The consideration of $45m payable by Eagle Lane under the Eagle Up SPA was settled via the partial redemption of PN A to the extent of $45m.

B5.  PN D and PN E; the current proceedings

34.  After the partial redemption of PN A, the Company issued two replacement promissory notes to Charm Master, each in the sum of $7.5m (“PN C” and “PN D”).

35.  On 31^st March 2010, Mr Robin Lee on behalf of the Company wrote a letter to Charm Master, asking for an extension of the maturity date under PN C to 1^st June 2010.  At the bottom of the letter was a signature, said to be signed on behalf of Charm Master in agreement to the extension. At trial, Mr Chen Chaofan (“Mr CF Chen”), the nephew of Mr HY Chan, said that he signed this document.  

36.  On 30th April 2010, Mr Robin Lee on behalf of the Company wrote a further letter to Charm Master, asking for an extension of the maturity date under PN D to 2^nd July 2010.  At the bottom was a signature similar to the one on the letter of the 31^st March 2010, agreeing on behalf of Charm Master to the extension.

37.  On 1^st June 2010, there was a partial redemption of $2.5m of PN C.  The Company then issued PN E in replacement in favour of Charm Master in the sum of $5m.

38.  On 16^th June 2010, Mr HY Chan passed away.

39.  On 11th November 2010, the trading of the Company’s shares on the Hong Kong Stock Exchange was suspended.

40.  On 5^th January 2011, Charm Master issued two written notices to the Company, one demanding repayment of the $7.5m due under PN D, and one demanding repayment of the $5m due under PN E.  Both notices were signed by a “李美真”, described as the sole director of Charm Master.

41.  On 19^th January 2011, the former solicitors for Charm Master, Messrs Johnny KK Leung (“JKKL”), sent two letters to the Company, demanding repayment of the principal amount of $7.5m under PN D, and $5m under PN E.   

42.  On 7^th March 2011, Charm Master commenced the current proceedings against the Company.

43.  On 12th May 2011, J Thomson sent a letter to the Company, demanding payment of PN D and PN E to it instead of to Charm Master, or an issue of “the definitive certificate” of PN D and PN E to J Thomson.  In the letter, J Thomson stated that it was the 20% registered and beneficial owner of SSC Holdings; that consideration under the SPA was to have been satisfied as to $60m by the issue of PN A; that Charm Master was a special purpose vehicle of SSC Holdings for holding PN A and had not paid any consideration for the issue of PN A, so that PN A was indirectly beneficially owned by J Thomson as to 20% ($12m); that PN A had been replaced by PN D and PN E; and that PN D and PN E constituted the $12m plus $500,000 interest owed to J Thomson.

44.  On 27 September 2011, the former solicitors for J Thomson, Messrs Peter Cheung & Co (“PCC”), wrote to the Company, demanding an issue of “the definitive certificate” of PN D and PN E to J Thomson, or payment of PN D and PN E to J Thomson.  PCC referred to the SSC Holdings shareholders’ resolution of 29^th April 2008 regarding the Company’s issue of PN A to Charm Master.  It was said that Charm Master was the trustee for all the shareholders of SSC Holdings; that no consideration had ever been paid by Charm Master for the issue of PN A; that the Company was aware of the trust arrangement and should have the relevant trust document on hand; that when PN A became due in October 2009, the controlling shareholder Mr Robin Lee, who was also the shareholder of SSC Holdings, agreed to give $500,000 to J Thomson as compensation for delay in payment of PN A, and Mr Robin Lee was to arrange to distribute a $12.5m promissory note to J Thomson directly; that J Thomson had since chased the Company’s directors from time to time; that the Company had issued PN D and PN E2 Charm Master without the knowledge and consent of J Thomson; and that Mr Robin Lee had since left the Company as executive director.

45.  On 30th September 2011, the former solicitors for the Company, Messrs Joseph Chan & Co (“JCC”), wrote to JKKL, enclosing a copy of PCC’s letter of 27^th September 2011, putting to JKKL the allegation that PN D and PN E were issued to Charm Master as trustee for J Thomson, and asking for JKKL’s response thereto.  There was no response to this letter, or at least, none was put before the court.  Notably, Charm Master did not take further substantive steps to progress the proceedings until after 3^rd October 2017, when J Thomson applied to be joined as a second defendant in the current proceedings.

46.  On 30th November 2015, J Thomson wrote a further letter to the Company, referring to PCC’s letter of 27^th September 2011 and subsequent chasers to the Company to recover the amounts under PN D and PN E, and warning that proceedings would be instituted.

47.  On 31^st March 2016, the Company wrote to J Thomson, saying that the board of directors considered that J Thomson was the beneficial owner of the debt under PN D and PN E in the amount of $12.5m and that the Company intended to settle the amount in favour of J Thomson subject to a deed of indemnity to be given by J Thomson to the Company in respect of HCA 397/2011 (that is, the current proceedings).  The letter further referred to J Thomson’s repeated requests for immediate settlement but indicated that because of the Company’s financial difficulties, and to facilitate the resumption in trading of the Company’s shares, the Company would ask J Thomson not to institute any legal proceedings for the time being.

48.  On 8^th July 2016, the Company made a public announcement relating to a number of matters, including a winding up petition presented against the Company in the Cayman Islands by a purported creditor.  J Thomson subsequently took action to oppose the winding up petition in the Cayman Islands.

49.  On 19^th January 2017, the Company made a public announcement to give an update regarding the litigation in the Cayman Islands, and to announce that a winding up petition had been presented against the Company in Hong Kong by another purported creditor.

50.  On 26^th February 2017, the Company announced a fundraising exercise to raise net proceeds of $131m.

51.  On 6^th March 2017, the Company wrote to J Thomson, saying that the board of directors considered that J Thomson was the beneficial owner of the debt under PN D and PN E in the amount of $12.5m and that the Company would settle the debt in favour of J Thomson rather than Charm Master.  Furthermore, the Company had instructed its legal adviser to prepare a deed of indemnity to be sent to J Thomson’s legal advisers once available.

52.  On 10^th April 2017, the Company made a public announcement.  It referred to settlement agreements with the petitioning creditors in relation to the Hong Kong petition and the Cayman Islands petition, and stated that the Hong Kong petition had been dismissed, and that the Cayman Islands petition was to be withdrawn.  The Cayman Islands petition was subsequently withdrawn on 26^th April 2017.

53.  On 9^th May 2017, the Company’s shares resumed trading on the Stock Exchange of Hong Kong.

54.  As mentioned above, on 3^rd October 2017, J Thomson applied to be joined as a second defendant in the current proceedings.  Leave was given on 6^th February 2018.

55.  The Company has paid a sum of $12.5m into court, and on that basis was given leave to interplead in the present proceedings pursuant to the order of DHCJ Raymond Leung SC of 26^th February 2021.

56.  The contest in these proceedings is therefore between Charm Master and J Thomson as to who is entitled to the $12.5m paid into court. The key issue, as formulated by the parties, is whether Charm Master holds PN A, and/or subsequent promissory notes issued by the Company following redemptions of PN A, on trust for J Thomson as a result of the trust arrangement reached on or about 29^th April 2008 as alleged by J Thomson but denied by Charm Master.

C.  THE PARTIES’ CASES

57.  Charm Master says that promissory notes are as good as cash, and that as the holder of PN D and PN E, it is prima facie entitled to payment.  It says that the Company owed Mr HY Chan a sum of $12.5m, as represented by PN D and PN E.

58.  J Thomson says that PN A (for $60m)  formed part of the consideration payable by the Company to SSC Holdings under the SPA.  Mr Robin Lee proposed that Charm Master hold the legal title to PN A on trust for SSC Holdings (or its shareholders).  J Thomson asked that 20% of the interest[1] under PN A be held on trust for it directly, in keeping with its 20% beneficial interest in SSC Holdings.  This amounted to a value of $12m.  PN A was partially redeemed in transactions which J Thomson did not know about or consent to, ultimately resulting in the issue of PN D and PN E with total amount of $12.5m outstanding thereunder.  There was then an agreement between J Thomson and SSC Holdings whereby SSC Holdings agreed that J Thomson could receive the $500,000 due to SSC Holdings under the promissory notes.  Subsequently, the Company agreed and acknowledged that the debt under PN D and PN E in the aggregate of $12.5m would be payable to J Thomson, and requested that J Thomson not institute proceedings against the Company for the time being in view of its financial difficulties.

D.  PRINCIPLES APPLICABLE TO THE ASSESSMENT OF EVIDENCE

D1.  The legal principles relating to assessment of credibility

59.  It will be seen that much turns on whether Charm Master’s or J Thomson’s version of events is accepted.  Both parties called factual witnesses to give evidence.  Charm Master called Mr CF Chen (Mr HY Chan’s nephew)  and Ms Selma Chan (Mr HY Chan’s widow)  to give evidence.  Mr Robin Lee gave evidence pursuant to a writ of subpoena issued on the application of J Thomson.  J Thomson also called Mr Alvin Leung to give evidence.

60.  In assessing such evidence, I have had regard to the principles summarised in Hui Cheung Fai v Daiwa Development Ltd, unreported, HCA 1734/2009, 8 April 2014 at [77] to [83] (DHCJ Eugene Fung SC).  In particular:

60.1  contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

60.2  in deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

60.3  regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence;

60.4  care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character;

60.5  witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.

61.  I have also had regard to the summary of relevant principles made by HH Judge Simon Barker QC in Northampton Borough Council v Cardoza and others [2019] BCC 582:

“36. As to the considerations applicable to evaluating evidence, a useful starting point is Goff J’s (as he then was)  observation as to resolving conflicts of evidence in Armagas Ltd v Mundogas SA (The Ocean Frost) [1985] 1 LL Rep 1 at p.57:

‘… Where there is a conflict of evidence … reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth’.

37. Factors relevant to the evaluation of a witness’s evidence were identified by Lewison J (as he then was)  in Painter v Hutchinson [2007] EWHC 758 (Ch)  at [3] when addressing the unsatisfactory nature of the defendant’s approach to giving evidence. These included: evasive and argumentative answers, tangential speeches avoiding the question, blaming legal advisers for pleading, disclosure and evidence shortcomings, self-contradiction, internal inconsistency, shifting case, new evidence, and selective disclosure. This was not intended to be an exhaustive list, but it is important and very helpful.

38. A useful recent reminder or guidance on the approach to the evidence of factual witnesses, and expanding on the guidance given by Goff J in The Ocean Frost, was given by Leggatt J (as he then was)  in Gestmin SGPS SA v Credit Suisse (UK)  Limited [2013] EWHC 3560 (Comm). After noting that human memory is fallible and that the process of litigation and preparing for trial tends to interfere further with the reliability of human memory, particularly where a lawyer has had a hand in drafting a witness’s evidence and the witness’s memory has been refreshed by reading documents, Leggatt J concluded that the best approach for a judge to adopt at the trial of a commercial case is to base factual findings on documentary evidence and known or probable facts and the inferences to be drawn therefrom. Witness evidence, written and oral, is not without purpose; but, its principal uses are to subject the documentary record to scrutiny and to evaluate the witness’s motivations, personality and working practices.

39. In similar vein, in the recent case of Freemont (Denbigh)  Ltd v Knight Frank LLP [2014] EWHC 3347 (Ch)  reference was made to an article written by Bingham J (as he then was)  entitled “The Judge as Juror: The Judicial Determination of Factual Issues” published in [1985] 38 Current Legal Problems 1-27. Bingham J considered the approach to deciding upon the reliability of a witness’s evidence and regarded the following to be helpful indicators of where the truth lies: the consistency of the witness’s evidence with what is agreed, or clearly shown by other evidence, to have occurred; the internal consistency of a witness’s evidence; and, the consistency of a witness’s evidence with what (s)he has said or deposed on other occasions. Bingham J considered that the credit of a witness in matters not germane to the litigation was of less assistance, and that the demeanour of a witness was on the whole not a reliable pointer to a witness’s honesty.”

62.  I have further borne in mind the reminder of K Yeung J in Siao Miu Hua at [84] that:

“It is essential to have regard to the entirety of a witness’ evidence. A witness can make mistakes, but the mistakes do not necessarily affect other parts of his evidence. Likewise, a witness may lie. However, lies themselves do not mean necessarily that the entirety of that witness’ evidence is to be rejected. A witness may lie in a stupid attempt to bolster his case, but the actual case nevertheless remains good irrespective of the lie”.

D2.  The legal principles relating to the drawing of adverse inferences

63.  J Thomson says that various adverse inferences ought to be drawn from Charm Master’s failure to call at trial (1)  a witness from JKKL, in particular Mr Simeon Leung, and (2)  Mr Wong Bong Cheung, said to have been the sole director and shareholder of Charm Master from 1^st May 2008 to 31^st March 2010.  In considering whether I should do so, I have had regard to the following principles.

64.  Where a party against whom a prima facie case is established fails, without explanation, to call a witness who might reasonably be expected to give direct evidence on the matters in question, the court may draw adverse inferences against him.  See Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd, unreported, CACV 90-91, 93-96/2012, 17 September 2013 at [106] to [107] (Kwan VP):

“106. The relevant principles are as set out by Brooke LJ in Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340:

“(1)  In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)  If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)  There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4)  If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn.  If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

107. And as Lord Sumption has stated in Prest v Petrodel Resources Ltd [2013] UKSC 34 at §44:

“There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it. For my part I would adopt, with a modification which I shall come to, the more balanced view expressed by Lord Lowry with the support of the rest of the committee in R v IRC, ex parte TC Coombs & Co [1991] 2 AC 283, 300:

‘In our legal system generally, the silence of one party in face of the other party’s evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party’s failure to give evidence (or to give the necessary evidence)  can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified.

Cf Wisniewski v Central Manchester Health Authority [1998] PIQR 324, 340.’ ” ”

65.  It is for the party asking the court to draw an adverse inference to establish:

65.1  that the counter-party might have called a particular person as a witness and that person had material evidence to give on that issue;

65.2  identify the particular inference which the court is invited to draw; and

65.3  explain why such an inference is justified on the basis of other evidence that is before the court.

See Ahuja Investments Ltd v Victorygame Ltd [2021] EWHC 2382 (Ch)  at [25] (HH Judge Hodge QC).

66.  Ultimately, however, the drawing of adverse inferences should not be approached in an overly technical manner, as it comes down to a matter of ordinary rationality.  See Efobi v Royal Mail Group Ltd [2021] UKSC 33, [2021] 1 WLR 3863 at [41] (Lord Leggatt, with whom Lord Hodge, Lord Briggs, Lady Arden and Lord Hamblen agreed):

“The question whether an adverse inference may be drawn from the absence of a witness is sometimes treated as a matter governed by legal criteria, for which the decision of the Court of Appeal in Wisniewski v Central Manchester Health Authority [1998] PIQR P324 is often cited as authority. Without intending to disparage the sensible statements made in that case, I think there is a risk of making overly legal and technical what really is or ought to be just a matter of ordinary rationality. So far as possible, tribunals should be free to draw, or to decline to draw, inferences from the facts of the case before them using their common sense without the need to consult law books when doing so. Whether any positive significance should be attached to the fact that a person has not given evidence depends entirely on the context and particular circumstances. Relevant considerations will naturally include such matters as whether the witness was available to give evidence, what relevant evidence it is reasonable to expect that the witness would have been able to give, what other relevant evidence there was bearing on the point(s)  on which the witness could potentially have given relevant evidence, and the significance of those points in the context of the case as a whole. All these matters are inter-related and how these and any other relevant considerations should be assessed cannot be encapsulated in a set of legal rules.”

E.  WHETHER CHARM MASTER HOLDS PN A AND SUBSEQUENT PROMISSORY NOTES ON TRUST FOR J THOMSON

E1.  The burden of proof

67.  Although Charm Master is the plaintiff in these proceedings, the burden lies on J Thomson, as it accepts, to prove the trust it alleges.

68.  It is undisputed that Charm Master is the holder of PN D and PN E, such that there is a presumption that consideration was given for the promissory notes.[2]

69.  J Thomson says that Charm Master has never explained why it says that it was entitled to PN A in the first place. Charm Master says that such a submission seeks to reverse the burden of proof.

70.  I remind myself that it is not for Charm Master to prove that it gave consideration for any of the promissory notes.  In any event, J Thomson does not challenge the validity of the notes for want of consideration.  What I understand J Thomson to be saying is simply that there is no reason which can explain why Charm Master held PN A beneficially, as opposed to holding on trust, and that this is a matter I should take into account when considering whether J Thomson has discharged its burden of proof.

71.  It also follows that I do not agree that J Thomson’s plea that Charm Master had no beneficial interest in, and did not pay, any of the consideration payable under the Transaction (under the SPA)  is not a defective plea.[3]  J Thomson’s submission is simply part and parcel of its case that PN A was issued to Charm Master to be held on trust rather than in its own right.

E2.  How PN A came to be issued in the name of Charm Master

72.  As referred to above, cl.3.2(B)  of the SPA provided that part of the consideration payable to SSC Holdings for the sale of SSC Mining was to be satisfied by the delivery of PN A.  The draft PN A had provided for SSC Holdings to be the holder of the promissory note.  However, PN A eventually came to be issued in the name of Charm Master, pursuant to the Payment Instructions approved at the SSC Holdings shareholders’ meeting of 29^th April 2008.  J Thomson’s account of how this came to be about is as follows.

73.  Mr Alvin Leung’s evidence was that at the SSC Holdings shareholders’ meeting of 29^th April 2008, Mr Robin Lee told the meeting that he had been contacted by Mr HY Chan who had said that one of his friends was in financial difficulty and needed to show proof of funds in the amount of $60m to overcome certain financial difficulties, and that helping his friend was his first priority.  In order not to delay completion under the SPA, or affect his relationship with Mr HY Chan, Mr Robin Lee had agreed that PN A would be issued in the name of Mr HY Chan’s friend’s company, Charm Master, which would hold PN A as trustee.  The shareholders were agreeable to this arrangement, although Mr Alvin Leung requested that 20% of the face value of PN A was to be held on trust for J Thomson directly (rather than for SSC Holdings). Mr Alvin Leung says that this was because he was aware that Mr Robin Lee had incurred a large amount of personal debt, and he (Mr Alvin Lee)  was afraid that Mr Robin Lee might somehow try to use SSC Holdings’ funds for his own purposes. Mr Alvin Leung says that his request was similar to the arrangement under the Payment Instructions for part of the consideration to be distributed directly to SSC Holdings’ shareholders (the Consideration Shares and the Convertible Bonds).

74.  Mr Alvin Leung further explained that the $60m payable under PN A represented less than 5% of the total consideration the transaction under the SPA.  The deadline for fulfilment of the conditions precedent under the SPA was 30th April 2008, and to avoid the transaction falling through, Mr Alvin Leung agreed with the proposal of issuing PN A in the name of Charm Master.

75.  Mr Alvin Leung said that after Mr Robin Lee showed him a copy of the minutes of the meeting of 29^th April 2008, he expressed concern to Mr Robin Lee that the trust arrangement had not been expressly spelled out in the minutes.  He therefore requested that a further meeting be held for this purpose.  This was how the meeting of 30th April 2008 came to be held, and the minutes prepared.  Those minutes referred to the resolutions of 29^th April 2008 and the fact that PN A was to be issued to Charm Master notwithstanding the fact that it had never paid any consideration for this, and recorded a resolution that:

“…out of HK$60,000,000 of the Note A, (i)  HK$48,000,000 be ear-marked and allocated for [SSC Holdings’] other use and as may the Chairman [Mr Robin Lee] instruct Charm Master from time to time; (ii)  the reaming balance of the Note A of HK$12,000,000 be distributed to [J Thomson], which is in proportion to J Thomson’s 20% beneficial shareholding interest in [SSC Holdings], and THAT Charm Master be appointed as trustee of J Thomson to hold the Note A to the extent of HK$12,000,000 upon trust for and on behalf of J Thomson, and in the event that the Note A is subdivided or replaced by any other promissory note(s)  (“Replacement Notes”)  in future due to whatever reason, such HK$12,000,000 and the beneficial ownership of the Replacement Notes should continue to be belonged to J Thomson and Charm Master should continue to act as trustee to J Thomson in respect of the Replacement Notes until J Thomson confirmed in writing receipt of the said HK$12,000,000 beneficially owned by it.”

76.  Mr Alvin Leung says that after he studied the minutes, he told Mr Robin Lee he had no further comments, and the Payment Instructions could be issued.  The Payment Instructions dated 30th April 2008 were then issued, instructing the Company to issue PN A to Charm Master.

77.  Mr Alvin Leung’s evidence was the subject of vigorous cross-examination.  Having considered the criticisms made of that evidence, I have nevertheless concluded that I accept his account of events as set out in the preceding paragraphs, as I will now proceed to explain. Before I do so, I should first briefly mention Mr Robin Lee’s evidence.

78.  Mr Robin Lee gave evidence which had some overlap with that of Mr Alvin Leung, for example as both of them attended the meeting on 29^th April 2008.  However, Mr Robin Lee’s evidence also dealt with a number of other matters with which Mr Alvin Leung had no involvement, such as the discussions with Mr HY Chan about helping Mr HY Chan’s friend, and Mr HY Chan’s meeting with Mr CF Chen on 2^nd May 2008 at which the Disputed Trust Confirmation was signed.  Mr Robin Lee had also earlier made a statutory declaration 13 March 2019 (“the Statutory Declaration”)  declaring the truth of his letter of the same date addressed to the board of directors of the Company (“Lee’s Statutory Declaration Letter”).  Lee’s Statutory Declaration Letter in turn contained a number of exhibits, including an unsigned version of the Disputed Trust Confirmation.

E2.1  Mr HY Chan’s request to issue PN A in the name of Charm Master

79.  Mr Alvin Leung was asked as to whether he had explored how PN A could help Charm Master to overcome its financial difficulty.  He said that he did not explore the matter; his understanding was that putting forward proof of funds would enable a person to borrow from a financial institution perhaps for a short term loan; such proofs were not uncommon in the financial world.  It was then put to him that putting PN A in the name of Charm Master would be misleading the financial institution in question as the funds would not (on J Thomson’s case)  belong to Charm Master. Mr Alvin Leung answered that this was not his concern.  Rather, what he was concerned about was (1)  the risk that the arrangement might be considered to be some form of illegal kickback to Mr HY Chan to complete the SPA, and (2)  the risk that refusing Mr HY Chan’s request would scupper the transaction.  In relation to (1), this was why Mr Alvin Leung was concerned to make clear that PN A was being held on trust for SSC Holdings and J Thomson and not for Mr HY Chan.  In relation to (2), he took the view that there were ways in which Mr HY Chan could back out from the transaction, for example by alleging that the due diligence requirements had not been satisfied, so that looking at the whole picture, it was better to accede to Mr HY Chan’s request given that PN A only constituted 5% of the whole consideration.

80.  Counsel for Charm Master, Mr Anthony Cheung (appearing with Mr Lee Siu Him), challenged the credibility of this part of Mr Alvin Leung’s evidence by reason of the fact that Mr Alvin Leung did not mention Mr HY Chan’s request for assistance until his third witness statement of 27^th May 2022.  To my mind, however, and leaving aside ethical judgments, Mr Alvin Leung’s concern about the propriety of the arrangement is consistent with his reticence in his first statement as to the circumstances in which Mr Robin Lee proposed that PN A the issued in the name of Charm Master, and his euphemism in saying that this was “for ease of convenience”.

81.  It seems to me that Mr Alvin Leung’s account is entirely plausible.  All along, the arrangement had been that PN A was to be issued in the name of SSC Holdings and this was reflected in the public announcements made by the Company as well – it will be recalled that the public announcement that the Company’s shareholders had approved the transaction was made on 18^th April 2008 and it was not suggested at the time that any change had been made to the terms on which PN A was to be issued.

82.  As counsel for J Thomson, Mr Charles Manzoni SC (leading Ms Natalie So)  observed, something must have happened between that time and 30th April 2008 that caused SSC Holdings to direct that PN A be issued to Charm Master instead.  The 18.12.2007 Announcement, 28.03.2008 Announcement and 18.04.2008 Announcement by the Company all stated that no shareholder had a material interest in the transaction, so that it is inherently unlikely that the reason for issuing PN A to Charm Master was for the purpose of providing a secret profit to Mr HY Chan, at least in the absence of any evidence suggesting that this was the case.

83.  Mr Cheung also submitted that Mr Robin Lee’s evidence about Mr HY Chan’s request was riddled with inconsistencies, illogicalities and was inherently improbable.  For example, whilst in Lee’s Statutory Declaration Letter, Mr Robin Lee had said that one of his “good friends” was in financial difficulty, in cross examination, he said that it was Mr HY Chan’s “relative” was in financial difficulty; he failed to ask how the alleged fund proof would help the friend; he did not take steps to verify Charm Master’s identity.  I agree with Mr Manzoni that insofar as there were discrepancies in Mr Robin Lee’s evidence on this point, this is perhaps not surprising given the passage of time.  Furthermore, as Mr Robin Lee explained, he had a similar concern to that of Mr Alvin Leung, namely, that completion of the SPA might be jeopardised if Mr HY Chan’s request was not entertained.  As I have said, I accept this as plausible.  In such circumstances, whether or not the assistance was for a friend or relative, whether or not providing PN A to a friend or relative would really assist him, and who exactly was behind Charm Master, were all of secondary importance, so that whether Mr Robin Lee probed these matters at the time or subsequently remembered the details accurately does not really affect the main thrust of his evidence about Mr HY Chan’s request.

E2.2  The SSC Holdings shareholders’ meeting of 29^th April 2008

84.  As mentioned earlier, on 29^th April 2008, the shareholders of SSC Holdings approved the Payment Instructions which provided for the issue of PN A to Charm Master.

85.  Mr Alvin Leung’s evidence was that the trust arrangement was raised at the meeting of 29^th April 2008, in that it was approved at the meeting, although he was not sure whether it was discussed as the meeting was not a long one and was for approving the transaction, payment instructions and so on.  He could not remember whether or not the notice convening the meeting had referred to the proposal that Charm Master would be appointed to hold PN A, or to the trust arrangement.

86.  Mr Cheung’s criticism of the evidence in relation to the meeting of 29^th April 2008 was not so much directed at Mr Alvin Leung’s evidence, but at Mr Robin Lee’s.  Mr Cheung submitted that Mr Robin Lee’s evidence was full of inconsistencies and inherent improbabilities as to (1)  whether the trust arrangement was discussed and agreed with Mr HY Chan before the meeting, (2)  whether it was mentioned in the notice or circular for the meeting, and (3)  whether it was discussed at the meeting.

87.  It is true that Mr Robin Lee gave rather confused evidence as to whether or not the trust arrangement was mentioned in the notice convening the meeting.  Initially, he could not remember whether he issued the notice of meeting first, or had his discussion with Mr HY Chan (about the issue of PN A in Charm Master’s name)  first.  What he said was that he could be sure about was that the discussion with Mr HY Chan took place before the 29^th April 2008 meeting.  He then thought that the discussion took place before he sent out the notice, and he agreed as a matter of logic that this meant that the notice would have referred to the trust arrangement. When he was reminded of his evidence the next day, Mr Robin Lee said that the trust arrangement had been verbally mentioned, but he could not remember whether it was mentioned in the notice.  He said that he was confused by the questioning.  Shortly afterwards, he said that he supposed the trust arrangement had not been discussed at the meeting of 29^th April 2008 (since it was only SSC Holdings and J Thomson which would be affected by PN A as the other shareholders were going to convert their interests into trading shares of the Company and drop out of the picture), and this was why the 30th April 2008 meeting had to be hurriedly arranged.

88.  I have reviewed this part of Mr Robin Lee’s evidence again.  I agree that it is confused and somewhat self-inconsistent.  It is one of the examples from Mr Robin Lee’s evidence which has led me to scrutinise his evidence carefully when considering whether it should be accepted. However, it does not follow that it makes Mr Alvin Leung’s evidence (that the trust arrangement was discussed at the meeting)  unreliable.

E2.3  The SSC Holdings shareholders’ meeting of 30th April 2008

89.  Mr Cheung put to the witnesses the question of why, if Mr Alvin Leung considered that the minutes of the meeting of 29^th April 2008 failed to sufficiently reflect the trust arrangement, the minutes were not simply amended, rather than arranging for a further meeting on 30th April 2008.  Mr Alvin Leung’s explanation was that amendment of the minutes would have been one possible way of proceeding.  However, the minutes had already been sent out to other parties, and amending them would have given rise to confusion.  Furthermore, the minutes were a necessary formality for the completion of the SPA on 30th April 2008, and had to be sent to external parties such as the share registrar for preparation of new share certificates, and amendments could have caused delay and confusion.

90.  Mr Cheung did not really have any criticism of this evidence.[4] His point was that the minutes could have been amended, and the fact that they were not amended, together with a number of other factors, supported the case put to the witnesses that the meeting of 30th April 2008 never in fact took place and the minutes were created years later for the purpose of the litigation.

91.  Those other factors[5] were (1)  the late disclosure of the minutes of the meeting of 30th April 2008, (2)  the omission to record the waiver of short notice in the minutes, (3)  Mr Robin Lee’s evidence on the one hand that the trust arrangement had been discussed many times, but on the other hand his evidence that it was put in writing for the first time in the minutes of 30th April 2008, and (4)  Mr Robin Lee’s evidence that adding a few words to the Payment Instructions to indicate that Charm Master was holding PN A on trust would cause delay due to scrutiny by the Stock Exchange (which was said to be inexplicable as the same delay would have been caused by the addition of the minutes of 30th April 2008 to the completion documents).

92.  I agree that the late production of the minutes of 30th April 2008[6] gives rise to some suspicion, particularly as Mr Robin Lee claimed in Lee’s Statutory Declaration Letter that during his term of office at the Company he noted that the documents relating to the trust arrangement, which included these minutes, had been annexed to the Company’s board minutes and contained in its minutes book, and as Mr Alvin Leung said that he thought that he had been given a copy of the minutes but was unable to locate them subsequently.  When pressed on this, Mr Alvin Leung frankly acknowledged that the documents were important and he ought to have kept them properly, but the simple fact was that he had lost them.  He did also point out the importance of the documents had to be looked at in the context that that this was a relatively small part of the overall interest he received pursuant to the transaction.

93.  However, overall, the factors relied on by Mr Cheung are equally consistent with the minutes of 30th April 2008 having being prepared contemporaneously in haste and (as described by Mr Alvin Leung)  not very professionally by Mr Robin Lee’s staff.

93.1  J Thomson would not have needed to locate the document until it became aware of the commencement of the current proceedings in 2011 at the earliest; at the time, its solicitors PCC had written to the Company’s solicitors JCC alleging the trust arrangement; JCC had then put the allegation to Charm Master’s solicitors JKKL but no response was given, and the action stalled until 2017 when J Thomson applied to be joined; in the interim, there would not have been any pressing need to refer to the document.

93.2  Whilst the minutes did not refer to a waiver of short notice, Mr Robin Lee’s evidence was that the shareholders had been consulted and they consented to the short notice, and there is no evidence of any of the shareholders having complained afterwards.

93.3  The fact that the trust arrangement had been discussed many times but only appeared in writing in the minutes of the 30th April 2008 meeting is not indicative of falsity.  Mr Alvin Leung’s evidence was that the whole point of the 30th April 2008 meeting was to make the record clear as he considered that it had not yet been sufficiently clearly recorded.

93.4  As regards amendment of the Payment Instructions, it is entirely plausible that Mr Robin Lee and Mr Alvin Leung would have wanted to avoid any complications arising out of a reference to a trust in the Payment Instructions, a document which would be scrutinised by the Stock Exchange.

94.  In such circumstances, I do not agree that the factors relied on by Mr Cheung point, on the balance of probabilities, to the 30th April 2008 meeting having never taken place and the minutes of the meeting having been fabricated for the purpose of the litigation. I accept Mr Alvin Leung’s evidence that he saw the minutes of 30th April 2008 at the time and was satisfied with them before the Payment Instructions were issued.

E2.4  The Disputed Trust Confirmation of 2^nd May 2008

95.  Mr Alvin Leung seemed to be unsure as to whether he received a copy of any declaration of trust from Mr Robin Lee shortly after it was supposed to have been signed on 2^nd May 2008 by Mr CF Chen. He said that he was unable to find it when he looked for it, although Mr Robin Lee had told him that he had provided a copy to him.

96.  Mr Alvin Leung was not present at the meeting said to have taken place on 2^nd May 2008 between Mr Robin Lee and Mr CF Chen, so his evidence does not shed light on whether Mr Robin Lee’s account or Mr CF Chen’s account of the matter is correct.

97.  Mr Robin Lee’s evidence is that he met Mr CF Chen in Hong Kong, together with Mr HY Chan.  He said that the meeting was a short one.  Mr HY Chan explained the contents of the Disputed Trust Confirmation to Mr CF Chen.  Mr CF Chen signed the document. 

98.  In Lee’s Statutory Declaration Letter, Mr Robin Lee had said that Charm Master had signed a declaration of trust in favour of J Thomson, the original of which he had lost, and that he had then released PN A to Mr CF Chen under cover of a letter dated 2^nd May 2008. The impression given by the description in Lee’s Statutory Declaration Letter was that there were two documents with different contents, one being a covering letter and one being a declaration of trust.  The letter was exhibited to Lee’s Statutory Declaration Letter.  The name of SSC Holdings was at the top, followed by the date of 2^nd May 2008, and it then stated “To: Charm Master Enterprises Limited”.  What then followed was in the form of a letter, signed by Mr Robin Lee for and on behalf of SSC Holdings,[7] setting out the trust arrangement in relation to PN A, with $48m belonging to SSC Holdings and $12m belonging to J Thomson and Charm Master agreeing to act as trustee in respect of J Thomson.

99.  In the cross-examination of Mr Robin Lee, it transpired that what he had referred to as the declaration of trust was in fact the same document, albeit that at the bottom right corner of the letter, the words “Confirmed and accepted by: Charm Master Enterprises Limited”, and a horizontal line thereunder, had been printed, and a signature looking something like “chenf” or “chencf” had been signed on the line.[8]  This is the document which I have referred to above as “the Disputed Trust Confirmation.”

100.  The cross-examination of Mr Robin Lee on this topic proceeded on the premise that it was absurd for there to have been two different versions[9] of the same document, one with just Mr Robin Lee’s signature on behalf of SSC Holdings, and the other purportedly countersigned by someone on behalf of Charm Master as a confirmation and acceptance.  My initial impression of Mr Robin Lee’s evidence on this topic was that it was unclear and confusing.  However, having reviewed it again, it seems to me that what he was consistently saying was that prior to the meeting of 2^nd May 2008, he had the version of the Disputed Trust Confirmation which had (only)  his signature on it (and not Charm Master’s confirmatory signature), and he gave a copy to Mr HY Chan in advance of the meeting; and then he took along to the meeting also the version of the document which was for Mr CF Chen to sign (so that it would have borne the printed words “Confirmed and accepted by: Charm Master Enterprises Limited”, and the horizontal line thereunder).  Thus, when Mr Cheung put to him that he would not have had these two versions, Mr Robin Lee said that he did not understand, and did not agree: “It’s very normal, beforehand you need to tell Mr Chan, “Mr Chan on 2^nd May we will need to discuss these things”, and when you send him the document, what would be the problem? And then on 2^nd you brought along the [document with the printed words and line] to add the signature.  I don’t understand [Mr Cheung’s proposition that Mr Robin Lee would not have had both the document without the printed words and line and also the document with the printed words and line]”.

101.  I now turn to Mr CF Chen’s evidence about the Disputed Trust Confirmation.

102.  Mr CF Chen’s evidence was that Mr HY Chan, who was his uncle and had a very good relationship with Mr CF Chen’s father, asked him to help sign some documents.  Mr CF Chen said that he agreed to do so as he trusted Mr HY Chan.  Mr HY Chan then took some documents to Mr CF Chen’s office in Shenzhen.  The documents were in English and Mr CF Chen did not understand them, nor did Mr HY Chan explain them to him.  Mr CF Chen always signed his name in Chinese, but for these documents, he signed them in English, “Chencf”, as Mr HY Chan asked him to sign in English.  The signature was one which he made up for Mr HY Chan.  Afterwards, Mr HY Chan took away the documents without giving any copies to Mr CF Chen.  There was a second occasion on which Mr HY Chan asked Mr CF Chen to sign documents, which was similar to the first occasion.  There was a further occasion, when Mr HY Chan was unwell, at which another uncle took documents to Mr CF Chen in Shenzhen to sign, saying that the request was on behalf of Mr HY Chan.  Again, Mr CF Chen signed them.

103.  Mr CF Chen said that he never went to Hong Kong to sign any documents for Mr HY Chan, and he never attended any meetings as a representative of Mr HY Chan’s companies.

104.  As regards the Disputed Trust Confirmation, he thought that it had not been signed by him, as (he said)  the signature was “very different” from the other signatures which he felt he did sign.  Furthermore, he was told by Charm Master’s lawyers that he had ceased to be Charm Master’s shareholder and director on 2^nd May 2008 (he had not known that he was Charm Master’s shareholder and director from 30th April 2008 to 1^st May 2008 and 1^st April to 3^rd November 2010 until Charm Master’s lawyers explained this to him in these proceedings; he did not know why Mr HY Chan replaced him with Mr Wong Bong Cheung on 1^st May 2008 and why Mr HY Chan reinstated him, replacing Mr Wong Bong Cheung, on 1^st April 2010).

105.  When asked what it was about the signature on the Disputed Trust Confirmation which led him to think that it was not his signature, Mr CF Chen said that it was because there was no connecting stroke between the last two letters “c” and “f”, whereas he connected them when signing. However, he was then shown a number of documents which he had previously claimed to have signed, in which the last two letters “c” and “f” were not connected.  He then said that he was not sure that they were his signatures.

106.  I find that Mr CF Chen was simply unable to tell whether or not any of the signatures purporting to be his – whether on the Disputed Trust Confirmation or any other documents appearing in this action – were made by him.  Moreover, the way in which he claimed to know that the signature on the Disputed Trust Confirmation was not his was shown to be plainly incorrect, even though in his witness statement he said that he had studied all the documents in detail in order to try to differentiate between those he signed and those he did not sign.[10]  I am therefore not willing to place credence on his evidence about whether he signed the Disputed Trust Confirmation in the absence of corroborating evidence.

107.  Mr Cheung submitted that it would be unfair to reject Mr CF Chen’s evidence when he was not challenged on his evidence that he never went to Hong Kong to sign documents for Mr HY Chan.  However, as I have just explained, I do not consider that Mr CF Chen’s evidence to be reliable on this issue without corroboration.  In any event, it is not correct to say that Mr CF Chen was not challenged about this.  It was put to him that (1)  he was given a copy of the minutes of the SSC Holdings’ shareholders’ meeting of 30th April 2008 at a meeting on 2^nd May 2008, to which he said he did not remember, (2)  at the meeting on 2^nd May 2008, he confirmed receipt of those minutes and accepted the appointment as trustee, on behalf of Charm Master, to which he said he did not know, (3)  at the meeting on 2^nd May 2008, he signed the Disputed Trust Confirmation, to which he said he did not remember. I note from Mr CF Chen’s witness statement that he had sought to suggest that one of the reasons why he considered that the Disputed Trust Confirmation was not signed by him was because he never attended meetings or signed documents as a representative of Mr HY Chan’s foreign companies, he never went to Hong Kong to sign documents for Mr HY Chan, and that he was not in Hong Kong on 2^nd May 2008.[11]  In such circumstances, Mr CF Chen was alive to the disputed issue of fact of whether he had signed the Disputed Trust Confirmation, and was given sufficient opportunity to deny that he did so by reason of the fact that he was not in Hong Kong on 2^nd May 2008 or that he had never attended meetings or signed documents as a representative of Mr HY Chan’s foreign companies (but he did not do so).

108.  Mr Cheung also submitted that the fact that Mr CF Chen was no longer a director of Charm Master on 2^nd May 2008, having been replaced by Mr Wong Bong Cheung[12] on that day, showed that it was inherently improbable that Mr CF Chen represented Charm Master on 2^nd May 2008.  However, Mr CF Chen did not even know that he had at one point been Charm Master’s shareholder and director, or that he had been replaced on 1^st May 2008; furthermore, on Charm Master’s own case, Mr HY Chan was the one who was ultimately behind Charm Master.  One can therefore not read very much into the change of directors.  Insofar as it may be thought that Mr CF Chen’s replacement casts doubt on the question of his authority, Mr Cheung did not really seek to dispute Mr Manzoni’s submission that as far as SSC Holdings and Mr Robin Lee were concerned, Mr CF Chen had apparent authority to represent Charm Master.

109.  Having considered the witnesses’ evidence, I accept that the Disputed Trust Confirmation was signed, contemporaneously, on 2^nd May 2008, by Mr CF Chen.

E4.  The Eagle Up transaction and the partial redemptions of PN A and PN C

110.  It will be remembered that on 10^th November 2009, the Company entered into an agreement to sell the shares in its subsidiary Eagle Up to Mr HY Chan’s company.  This was effectively a sale of the computer display cards business to Mr HY Chan.  On completion of the Eagle Up SPA on 29^th January 2010, Eagle Lane paid the consideration by the partial redemption of PN A to the extent of $45m.

111.  Mr Cheung’s submission was that since the Company did not object to this partial redemption, and indeed proceeded to issue PN C and PN D to Charm Master, this contradicted the allegation that PN A, and then PN C and PN D, were held on trust rather than in its own right.

112.  However, I agree with Mr Manzoni that the fact that Charm Master partially redeemed PN A does not amount to an explanation as to why it was entitled to PN A in the first place.  As to why PN A was partially redeemed for the payment of the consideration under the Eagle Up SPA, Mr Robin Lee’s evidence was that the funds came out of SSC Holdings’ entitlement under PN A (SSC Holdings being Mr Robin Lee’s company at that time), and was essentially a loan from him to Mr HY Chan to enable him to acquire Eagle Up’s business.  PN A was replaced by PN C and PN D.  Mr Robin Lee went on to explain that on about 1^st June 2010, a further $2.5m was redeemed out of SSC Holdings’ entitlement under PN C and paid to Charm Master, and the balance of PN C was replaced by PN E; this was also to have been repaid by Mr HY Chan to SSC Holdings, but then he suddenly and unexpectedly passed away a week later on 16^th June 2010.

113.  Mr Cheung challenged the veracity of this piece of evidence on the grounds that there was no documentary evidence of the loan or Mr HY Chan’s or Charm Master’s promise to repay the funds.  Mr Robin Lee’s explanation was that Mr HY Chan’s death was sudden and unexpected so that nothing was documented.  In submissions, Mr Cheung argued that there still remained no documentary evidence after Mr HY Chan’s death and it was not until a letter of 26^th March 2018 from Mr Robin Lee, SSC Holdings and SSC Mandarin Group Limited (“SSC Group”)  that a demand was made for repayment of the $47.5m; furthermore, Mr Cheung argued that the letter was a demand on behalf of Mr Robin Lee, SSC Holdings and SSC Group, whereas in Lee’s Statutory Declaration Letter, Mr Robin Lee had said that the repayment was to be to SSC Holdings.  However, delay appears to have been a feature of not only Mr Robin Lee’s claim but also Charm Master’s and J Thomson, so that not much can be read into this.  As to the discrepancy in the identity of the creditors, this is of no particular significance, given that SSC Holdings and SSC Group were Mr Robin Lee’s companies, even if it might not be accurate to say that PN A was held on trust for SSC Group or Mr Robin Lee.

114.  Mr Cheung also challenged the veracity of Mr Robin Lee’s evidence about Mr HY Chan’s promise to repay as Mr Alvin Leung never mentioned it.  However, Mr Robin Lee’s evidence is that the arrangement was between him and Mr HY Chan.  It therefore would not have affected the $12m which J Thomson says was held on trust for it.  It is therefore not surprising that Mr Alvin Leung was not privy to the arrangement.

E5.  Debt owed to Mr HY Chan; illegality

115.  Ms Selma Chan’s evidence was that her late husband Mr HY Chan had told her that the Company owed him $12.5m as comprised in two promissory notes (PN D and PN E).  She was unable to say why the Company might have owed Mr HY Chan money.  She did not know why Charm Master held PN A.  Her evidence was therefore of very little assistance to the resolution of the issues before the court.

116.  Ms Selma Chan did say that when Mr HY Chan was ill in the hospital, he told her that a listed company owed him money, and that the file and the documents were with Lawyer Leung – Mr Johnny KK Leung of JKKL – and that Lawyer Leung was responsible for dealing with it for him.  Lawyer Leung had also briefly explained to Ms Selma Chan about money collected by Charm Master being passed to her.  Ms Selma Chan acknowledged that she was the person who caused Charm Master to start the action.  I note that Mr Johnny KK Leung was not, however, called to give evidence to shed light on what he knew about the Company apparently owing Mr HY Chan money.  I consider that Ms Selma Chan’s vague evidence that the Company owed Mr HY Chan money carries little weight in the absence of corroborating evidence from the witness who supposedly knew about the matter.[13]

117.  Insofar as there may be a reason why Charm Master might have been beneficially entitled to PN A (and the subsequent promissory notes), this involves the implication that Mr HY Chan was taking an illegal kickback for the purchase of SSC Mining under the SPA, using Charm Master as the means for receiving it.  Mr Manzoni’s submission was that there was no basis to make such a serious allegation of wrongdoing when there was no corroborating evidence to do so, and indeed when Mr HY Chan, as a director of the Company, had declared in its public announcements that he had no interest in the transaction.

118.  Mr Cheung submitted that there was no merit in this submission, since there was no basis for suggesting that Mr HY Chan was interested in Charm Master at the relevant time.  As Mr Manzoni pointed out, this is not correct, as Mr CF Chen’s evidence was that when he asked Mr HY Chan what the documents to be signed by him were about, Mr HY Chan said that they were related to his foreign company, and the documents exhibited by Mr CF Chen as being documents which he considered he had signed for Mr HY Chan were documents relating to Charm Master.[14]

119.  Mr Cheung also submitted that in any event, J Thomson’s case of illegality has not been properly pleaded.  I agree with Mr Manzoni that there was no need for J Thomson to plead any case of illegality, because J Thomson is not advancing a positive case that Charm Master is not entitled to claim under the promissory notes by reason of illegality.

E6.  Lee’s Statutory Declaration Letter

120.  In cross-examination, Mr Robin Lee said that he was asked to make the Statutory Declaration by the then chairman of the Company, who wanted to repay the Company’s debt to the right person, and get the Company’s trading suspension lifted; he told Mr Robin Lee that there would be lawyers to assist him in dealing with it together.  Mr Robin Lee said that he wrote Lee’s Statutory Declaration Letter together with the Company; he provided the contents and the Company assisted him with the details and tidying up.  He wrote the letter with the assistance of some of the documents kept at SSC Holdings (and not documents of either Charm Master or J Thomson).

121.  As Mr Cheung demonstrated, and as is apparent, the wording of some parts of Lee’s Statutory Declaration Letter are strikingly similar to parts of J Thomson’s Defence and Counterclaim (which predated Lee’s Statutory Declaration Letter).  Mr Manzoni acknowledged that it did indeed appear that part of the letter had been copied.  He did not dispute that the Company’s lawyers had a copy of J Thomson’s Defence and Counterclaim at the time and were assisting Mr Robin Lee in preparing the Statutory Declaration. I accept his submission that whilst Mr Robin Lee overstated his role in preparing the document, it does not follow that its contents are untrue.  I bear in mind that Mr Robin Lee is not a member or director of J Thomson and does not have a financial interest in the outcome of these proceedings.

E7.  Requests for extension; demands for payment

122.  Mr Cheung submitted that it was significant that the Company, through letters signed by Mr Robin Lee as director, asked Charm Master for extensions of time for repayment of the promissory notes, without asking or notifying J Thomson (30th October 2009 for PN A, 31^st March 2010 for PN C, and 30th April 2010 for PN D).  Similarly, it was significant that the Company’s former solicitors Messrs DS Cheung & Co had written to JKKL (Charm Master’s former solicitors)  on 4^th June 2010 recording that their respective clients had reached agreement as to payment of PN C.  The submission was that Charm Master was dealing with the PN in its own right rather than as trustee.

123.  It seems to me that not much can be read into these letters.  No matter whether Charm Master was acting in its own right or as trustee, it would have been the proper party to be dealing with requests for extension of time and agreements for payment, given that it was the holder of the promissory notes.

E8.  Changes in J Thomson’s case

124.  Mr Cheung submitted that there had been a number of changes in J Thomson’s case and that this undermines the credibility of its case that PN A was to be held on trust.  I refer to a few of the more important examples relied on by Mr Cheung.

125.  J Thomson’s letter of 12th May 2011 to the Company asserted that since J Thomson was a 20% owner of SSC Holdings, it indirectly beneficially owned PN A as to 20%.  Mr Cheung submitted that there was no basis for this assertion, as the shareholder of a company does not own the company’s assets.  Mr Alvin Leung was cross-examined about this and also as to why the letter referred to Charm Master as a special purpose vehicle of SSC Holdings to hold PN A, rather than a trust arrangement.  His explanation was that he had had a meeting with Mr Lee Shing, then a director of the Company, indicating that he would sue the Company.  Mr Lee Shing had asked Mr Alvin Leung not to do so as the Company’s operational costs were being supported by him; he was aware of the debt owed to J Thomson and the Company would repay it, but since there had so far been no documentary demand, asked Mr Alvin Leung to write a simple letter of demand.  Mr Alvin Leung considered that he should write the letter in terms which Mr Lee Shing, a businessman and non-lawyer from mainland China, would understand, rather than lecturing him about legal principles.  This seems plausible.

126.  Mr Alvin Leung further said that because of Mr Lee Shing’s request to withhold repayment demands against the Company, the financial difficulties experienced by the Company at the time, his relationship with Mr Lee Shing, and his consideration that pressing further might result in an empty judgment against the Company, he (Mr Alvin Leung)  agreed to stop pressing for repayment for the time being, and this was the reason for J Thomson’s delay in formally claiming against the Company.  Again, this seems plausible.  Mr Alvin Leung says that he resumed his requests for repayment after learning in June 2015 from various public announcements that the Stock Exchange was considering the cancellation of the Company’s listing and that some of the shareholders sought to remove certain directors of the Company, including Mr Lee Shing.  Thus, on 30th November 2015, J Thomson wrote to the Company to ask for payment again.  It also took steps to oppose the winding up of the Company in the Cayman Islands, entering a Notice of Appearance in the Grand Court of the Cayman Islands on 18^th May 2016 on the basis that it was a creditor to whom the Company owed $12.5m.  By letters of 25^th July 2016 and 9^th September 2016 to the Company, it also indicated support for the Company’s proposal to resume trading on the Stock Exchange by agreeing to participate in the debt capitalisation exercise of the Company.  (In contrast, Charm Master did neither of these things.)   In other words, the fact that J Thomson refrained for a while from initiating proceedings against the Company did not amount to an abandonment of its position that it was a creditor of the Company.

127.  PCC’s letter of 27^th September 2011 to the Company referred to SSC Holdings shareholders’ resolution of 29^th April 2008, saying that SSC Holdings had instructed the Company to issue PN A to Charm Master as trustee for “all the shareholders” of SSC Holdings.  Mr Cheung submitted that J Thomson was thereby asserting that the trust was for all the shareholders of SSC Holdings, which was inconsistent with its previous allegation that it indirectly owned PN A.  However, whilst the details differed, the substance of J Thomson’s case remained the same.

128.  It was said that PCC’s letter disclosed for the first time the minutes of 29^th April 2008 but did not mention the meeting of 30th April 2008 or the meeting of 2^nd May 2008, which were only referred to in J Thomson’s Defence and Counterclaim dated 16^th March 2018, and even then, details of the 2^nd May 2008 were meeting not given.  Then came the letter from Mr Robin Lee and his companies SSC Group and SSC Holdings of 26^th March 2018, which described the beneficiaries of the trust as being “us”, namely Mr Robin Lee and the two companies (which were therefore said to be different from what had been claimed before), and that the amount of $48m due to them took priority over the $12m due to J Thomson, which had not been asserted before.  Then came Lee’s Statutory Declaration Letter, which mentioned for the first time Mr HY Chan’s request for a favour to assist his friend, and further details of the 2^nd May 2008 meeting. It was only in Mr Alvin Leung’s witness statement of 18^th June 2019 that the Disputed Trust Declaration was produced.  Then came J Thomson’s Re-Amended Defence and Counterclaim of 27^th May 2022, which described the $48m under PN A as being held on trust for SSC Holdings alone rather than SSC Holdings and its shareholders.  Then it was only in Mr Alvin Leung’s third witness statement of 27^th May 2022 that he mentioned that Mr Robin Leung had told him about Mr HY Chan’s request for a favour prior to the SSC Holdings shareholders’ meeting of 29^th April 2008.  It was said that all of these matters showed that the claim of a trust arrangement was only an afterthought, and a poorly thought out one at that.

129.  Whilst it was indeed the case that the story of what happened only emerged in dribs and drabs, and that over the years there were differences between Mr Robin Lee’s account and Mr Alvin Leung’s account, the substance of their explanations were by and large consistent both with each other and over time.  It was just that neither of them explained the entire story upfront, and that there were minor inaccuracies or inconsistencies in their accounts.

E9.  Subsequent promissory notes

130.  It will be recalled that after the partial redemption of PN A, the Company issued PN C and PN D in replacement, each in the sum of $7.5m. Then, on 1^st June 2010, shortly before Mr HY Chan passed away, there was a partial redemption of $2.5m of PN C, and the Company then issued PN E in replacement in favour of Charm Master in the sum of $5m.

131.  The total outstanding under PN D and PN E is $12.5m, which is $500,000 more than the $12m to which J Thomson had said it was entitled under PN A.

132.  Mr Alvin Leung’s evidence about this was some time prior to 12th May 2011, he had a conversation with Mr Robin Lee, in which he expressed concern that J Thomson had not been paid all along.  Mr Robin Lee, acting on behalf of SSC Holdings, agreed that the $500,000 which was owed by the Company to SSC Holdings should be paid to J Thomson instead.  Mr Robin Lee confirmed this in his oral evidence.  It was put to Mr Alvin Leung that since PN A was not interest-bearing, there was not really such an agreement with Mr Robin Lee, and the $500,000 was simply to make J Thomson’s claim tally with the amount outstanding under PN D and PN E.  Mr Alvin Leung denied this and explained that although the maturity date of PN A was 30th October 2009, he did not get paid.  He considered that this was Mr Robin Lee’s responsibility and he asked for compensation, and this was the compensation which Mr Robin Lee agreed to give Mr Alvin Leung.  Mr Alvin Leung further said that this was why the Company’s letters of 31^st March 2016 and 6^th March 2017 acknowledged a debt to J Thomson in the amount of $12.5m.

133.  I accept Mr Alvin Leung’s explanation as to why J Thomson seeks repayment of the entire amount under PN D and PN E from the Company.

E10.  Conclusion as to whether Charm Master holds PN A and subsequent promissory notes on trust for J Thomson

134.  I therefore accept that PN A was issued in the name of Charm Master because of Mr HY Chan’s request for assistance in showing proof of funds, that the minutes of SSC Holdings shareholders’ meetings of 29^th of April 2008 and 30th April 2008 were documents created contemporaneously, and that the Disputed Trust Confirmation of 2^nd May 2008 was signed by Mr CF Chen on 2^nd May 2008.

135.  I agree with Mr Manzoni that the contemporaneous documentary evidence carries the greatest weight.  In this regard, the SPA and the Company’s public announcements about the transaction thereunder – both of which are undeniably contemporaneous documents – indicated that PN A was to form part of the consideration payable by the Company to SSC Holdings (and not to any connected person of the Company).  The minutes of the SSC Holdings shareholders’ meeting on 29^th April 2008 and the Payment Instructions approved indicate that PN A was to be issued to Charm Master, and the minutes of the SSC Holdings shareholders’ meeting on 30th April 2008 (which I accept were contemporaneously created)  explain that Charm Master was to hold PN A on trust for SSC Holdings as to 80%, and J Thomson as to 20%.  The Disputed Trust Confirmation further confirmed the arrangement.

136.  I further agree with Mr Manzoni that the evidence relied on by Charm Master relates to events that happened after the events of late April and early May 2008, so that they carry less weight.  Whilst Charm Master was able to point to a number of inconsistencies and unsatisfactory aspects of that evidence which did not sit well with J Thomson’s case, these were of relatively less significance in the overall balance. 

137.  I find that Charm Master held PN A on trust as to 20% for J Thomson, and that PN D and PN E now represent that interest of $12m, together with an amount of $500,000 which SSC Holdings agreed would be paid by the Company to J Thomson for the delay in J Thomson’s recovery of the amounts owed to it.

F.  CONSEQUENCES OF THE FINDING OF TRUST

138.  On the pleadings, there are a number of further issues between the parties, such as whether Charm Master acted in breach of trust in asserting that it, rather than J Thomson, was the beneficial owner of the promissory notes; whether Charm Master held the chose in action under the promissory notes on some sort of constructive trust for J Thomson; and whether Charm Master has been unjustly enriched in having been vested with the legal title to PN D and PN E.  In the light of my findings above, I agree with Mr Manzoni that there is no need to consider these alternative claims, and I do not understand Mr Cheung to be suggesting otherwise.

G.  DISPOSITION

139.  J Thomson succeeds in its counterclaim against Charm Master, so that the amount of $12.5m paid into court by the Company pursuant to paragraph 1 of the order of DHCJ Raymond Leung of 26^th February 2021 should be paid out to J Thomson.  Charm Master’s claim against the Company is dismissed.

140.  I further make a costs order nisi that the costs of and occasioned by J Thomson’s counterclaim be paid by Charm Master to J Thomson, and that the costs of and occasioned by Charm Master’s claim against the Company be paid by Charm Master to the Company, both with certificate for two counsel, to be taxed if not agreed.

Mr Anthony PW Cheung and Mr Lee Siu Him instructed by Chan, Lau & Wai, former Solicitors for the Plaintiff  

Mr Charles Manzoni SC leading Ms Natalie So instructed by C.T. Chan & Co. for the 2^nd Defendant  

HCA 397/2011

[2022] HKCFI 2137

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 397 OF 2011

____________

BETWEEN

____________

_____________

D E C I S I O N

_____________

Introduction

1.  The Plaintiff seeks to vary the costs orders that I made in paragraphs 45-46 of my Decision dated 13 May 2022 (“Decision”). D2 opposes the application and asks that the orders nisi on costs do stand.

2.  The legal principles are not in dispute. When disposing of an interlocutory application, the Court has power to make a summary assessment of costs instead of asking the parties to wait for taxation. This aims at discouraging unwarranted interlocutory applications or unmeritorious oppositions to such applications and saves time and costs of taxation. In deciding on the costs order, the Court is entitled to consider the conduct of the parties, including the manner in which a party pursued or defended his case or a particular issue. See Order 62, rules 5(1)(e) and 5(2); Hong Kong Civil Procedure 2022, Volume 1, §62/0/2.

Costs of the Plaintiff’s summons

3.  The Plaintiff sought in its summons, amongst others, for an order for leave to cross-examine Robin Lee at the trial and that D2 shall secure the attendance of Robin Lee at the trial. This Court effectively rejected the Plaintiff’s submissions for the reasons given in paragraphs 17 and 18 of the Decision and accepted the objections of D2. However, the Plaintiff got what it wanted in substance by the Court’s exercise of its case management powers.

4.  This was not a situation of D2 unreasonably objecting to the Plaintiff’s summons. It was just that the parties did not take the proper case management approach. On what was effectively a case management matter, dealt with at a CMC, I did not see the need to order summary assessment of costs against D2 to discipline it against unmeritorious objection. This was particularly so when, in view of the other costs orders that I made, a taxation was unavoidable. I decline to vary the costs order nisi.

D2’s amended summons for amendment to its amended defence and counterclaim

5.  I have ordered that the “costs of and occasioned by the amendments” be to the Plaintiff but costs of the hearing on 19 April 2022 be in the cause.

6.  The parties have agreed that the costs of D2’s amended summons, including the hearing on 19 April 2022, be in the cause and that the costs of and occasioned by the amendments be to the Plaintiff, to be taxed if not agreed (“the Amendment Costs”). I agree to the variation in this respect.

D2’s summons for leave to adduce the 2^nd supplemental witness statement of Leung

7.  The Decision did not expressly spell out the order for costs of this summons. The Plaintiff submits that this Court should order that the costs of this summons and costs of and occasioned by the 2^nd supplemental witness statement of Leung be to the Plaintiff, to be taxed if not agreed.

8.  D2 suggests that there should be no order as to costs on the grounds that the Court did not accept the Plaintiff’s objections and emphasized that the revisions to the prayer for relief (constituting D2’s Final Draft) had nothing to do with the witness statement. The latter was a matter of evidence, which was quite separate from the Court’s concerns that relief appeared to be sought against Listco initially.

9.  I am unable to agree with D2. As I have stated in paragraph 44 of the Decision, the arguments on amendments in this case were unusual. The Court accepted part of the Plaintiff and part of D2’s arguments. D2 has to submit yet another draft (Final Draft) during the arguments. That was why the costs of the hearing was in the cause. However, the undeniable fact was that the Court granted the indulgence to amend after the pleadings have long closed and the amendments related to the Separate Agreement.

10.  The parties have agreed the Amendment Costs (which was in accordance with this Court’s intention).

11.  In Hong Kong Civil Procedure 2022, Volume 1, §62/1/3(13), “costs of and occasioned by the adjournment” refers to items of costs which are directly attributable by the adjournment.

12.  By the same token, all costs of and occasioned by amendments to D2’s pleading would cover all costs directly attributable to or which would not need to be incurred but for the amendments. These costs practically will include:

(1) Costs of considering the summons for amendment and all versions of the DRADCC (including the Final Draft);

(2) Costs of the hearing on amendments;

(3) Costs of amending the reply to answer those amendments;

(4) Costs of considering D2’s supplemental witness statement for the purpose of deciding whether to contest the amendment summons and whether to draft a supplemental witness statement in reply;

(5) Costs of drafting any supplemental witness statement of the Plaintiff arising out of the amendments; and

(6) Any other costs occasioned by the amendments, such as making copies, filing and serving in relation to the above.

13.  As some of those costs cannot usually be ascertained at the time the costs order is made, therefore costs of and incidental to amendment to pleadings are usually taxed instead of summarily assessed.

14.  In the present case, the supplemental witness statement of Leung plainly arose out of D2’s amendments to pleadings. The Plaintiff has made clear right from the start that its objection to the supplemental witness statement was the same as for the amendment, ie in respect of those parts that referred to the Separate Agreement (§3 of the Decision).

15.  Accordingly, costs of D2’s summons to adduce the supplemental witness statement of Leung formed part of the “costs of and occasioned by the amendments” to D2’s pleading. Those costs were covered by paragraph 46(6) of the Decision, although it would have been better if I had spelt this out expressly in the Decision. The Plaintiff’s application for variation in respect of this summons in fact reflects this Court’s intention and I grant the variation.

Conclusion

16.  With regard to the Plaintiff’s summons for variation of costs, I therefore order as follows:

(1) In respect of the Plaintiff’s summons dated 23 June 2021, the order that costs be borne by D2 shall be made absolute without variation.

(2) In respect of D2’s amended summons dated 8 September 2021 for leave to amend its pleading, the cost order be varied such that the costs of the amended summons, including the hearing on 19 April 2022, be in the cause, but the costs of and occasioned by the amendments be to the Plaintiff, to be taxed if not agreed.

(3) In respect of D2’s summons dated 25 June 2021 for leave to file and serve the 2^nd supplemental witness statement of Leung, the costs of and occasioned by adducing that supplemental witness statement be to the Plaintiff, to be taxed if not agreed.

17.  As the Plaintiff is largely successful, I make an order that D2 do pay the Plaintiff 50% of the overall costs of the summons for variation.

18.  Looking at the Plaintiff’s costs statement for the variation, as a matter of principle, cost of a USB (presumably containing soft copies of the written submissions) is not recoverable because it is re-usable and the judge’s clerk usually returns the USB to the relevant solicitor after the hearing. Likewise, costs for gathering information and drafting of a costs statement are not recoverable: Practice Direction 14.3, §13. This is to ensure that a broad brush approach is taken in summary assessment and the receiving party’s solicitor would not incur unnecessary costs in seeking costs.

19.  In the premises, I order that D2 do pay the Plaintiff $25,000 in respect of the costs of the summons for variation.

20.  I thank counsel for their assistance.

Written Submission by Mr Damian Wong, instructed by Chan, Lau & Wai, for the Plaintiff

Written Submission by Ms Natalie So, instructed by C. T. Chan & Co, for the 2^nd Defendant

HCA 397/2011

[2022] HKCFI 1408

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 397 OF 2011

____________

BETWEEN

____________

_____________

D E C I S I O N

_____________

Introduction

1.  This is the case management conference of an interpleader action between the Plaintiff and D2. There are 3 summonses before me:

(1) The Plaintiff’s summons dated 23 June 2021 for

(a) Leave to cross-examine one Robin Lee at the trial;

(b) An order that D2 shall secure the attendance of Robin Lee at the trial;

(2) D2’s amended summons dated 8 September 2021 for leave to amend its pleading as per the draft re-amended defence and counterclaim of D2 (“DRADCC”); and

(3) D2’s summons dated 25 June 2021 for leave to file and serve the 2^nd supplemental witness statement of Leung.

2.  In respect of the Plaintiff’s summons, D2 takes a neutral stance as to whether Robin Lee should be cross-examined, but objects to any order compelling D2 to secure his attendance at the trial.

3.  In respect of D2’s summonses, the Plaintiff’s only objection is to the parts that refer to a “Separate Agreement” between D2 and D1 (“Listco”).

Background

4.  The action concerns 2 promissory notes issued by Listco for the value of HK$12.5 million (referred to as “Notes D and E” in the pleadings). The Plaintiff is the legal holder of the 2 promissory notes and claims for payment from Listco, pursuant to a repayment agreement.

5.  On the other hand, D2 also seeks payment under Notes D and E. Those 2 Notes in fact originated from some prior promissory notes. It is D2’s case that the Plaintiff was D2’s trustee, in respect of a sum of HK$12 million payable by Listco, after sale of certain shareholding in a company known as SSC Mandarin Mining Investment Limited (which D2 indirectly held through a company known as SSC Mandarin Holdings Ltd (“SSC Holdings”)). The Plaintiff continued to act as trustee, after partial redemption, in respect of Notes D and E that ultimately replaced Note A.

6.  The trust was allegedly recorded in minutes of a meeting of members of SSC Holdings on April 2008, chaired by one Robin Lee. The trust was later confirmed by the Plaintiff’s representative at another meeting with Robin Lee on 2 May 2008. The agreement and/or understanding between the Plaintiff and D2 were recorded in a letter dated 2 May 2008 from SSC Holdings to the Plaintiff (“2/5/2008 Letter”). The relief sought by D2 is HK$12 million.

7.  The trust is hotly disputed. In addition, the Plaintiff disputes the signature on the 2/5/2008 Letter.

8.  Later, Listco confirmed, in 2 separate Letters of Acknowledgement dated 31 March 2016 and 6 March 2017 respectively, that the total debt of HK$12.5 million under the 2 promissory notes was due to D2 and that D2 was the beneficial owner of the same.

9.  By DHCJ Raymond Leung SC’s order dated 26 February 2021, the Plaintiff and D2 were allowed to interplead. Upon full payment of the total sum of HK$12.5 million into Court, Listco was excused from future proceedings in this action.

10.  The core issues turn on the existence of the trust and whether the amount was for HK$12 million or HK$12,500,000; and whether the signature of the Plaintiff’s representative on the 2/5/2008 Letter was authentic.

11.  By now, the parties have filed witness statements. One Mr Robin Lee has prepared a statutory declaration dated 13 March 2019 (“Statutory Declaration”) which was annexed to the witness statement of Leung Hing Ying (“Leung”) filed on behalf of D2.

12.  By the proposed amendments and section E of the proposed supplemental witness statement of Leung, D2 seeks to rely on the Separate Agreement to establish its right to HK$12,500,000 against Listco.

Plaintiff’s summons

13.  D2 has produced, amongst others, the following documents:

(1) The 2/5/2008 Letter which bore only Robin Lee’s signature; this was produced through the letter of D2’s solicitor dated 23 March 2018;

(2) The same 2/5/2008 letter which bore not only Robin Lee’s signature but also purportedly that of the Plaintiff’s representative; this was produced as an annexure to the witness statement of Leung; and

(3) The Statutory Declaration by which Robin Lee confirmed the correctness of the contents of his letter dated 13 March 2019 to Listco (“13/3/2019 Letter”); this is produced as an annexure to the proposed supplemental witness statement of Leung.

14.  The 13/3/2019 Letter purported to narrate the history of how the Plaintiff came to agree to act as trustee in respect of Note A, execute a signed declaration of trust in favour of D2 and pass it to Robin Lee and a copy to Listco’s representative. Due to lapse of time and relocation of office, Robin Lee could not locate the original declaration of trust. Upon receipt of the signed declaration of trust, Robin Lee released Note A to the Plaintiff’s representative, which was under cover of the 2/5/2008 Letter. Robin Lee was the person who approved the Plaintiff’s partial redemption of Notes A and C in 2010.

15.  D2 filed a hearsay notice indicating the intention to rely on the Statutory Declaration and exhibits thereto at the trial. Ms Natalie So, counsel for D2, submits that the application by the Plaintiff is not to exclude hearsay evidence and the Court should not make an order along that line without a proper application.

16.  In civil proceedings, hearsay evidence is admissible by virtue of section 47 of the Evidence Ordinance, Cap 8, unless the opponent objects. It is plain from the Statutory Declaration that Robin Lee is a crucial witness for D2. He was directly involved and had personal knowledge on vital matters, such as the creation of the alleged trust and signing of the declaration of trust. His evidence is hotly disputed. It is not surprising that the Plaintiff objects to D2’s use of hearsay evidence and would like to cross-examine Robin Lee.

17.  In an adversarial system, cross-examination of an opponent’s witness at the trial is a right instead of a matter that requires leave of the Court. The more pertinent question is whether or not an order should be made to compel D2 to secure the attendance of Robin Lee at the trial.

18.  Which witness to call is a matter for the relevant party to decide. The Court cannot compel a party to secure the attendance of a witness, except through specified procedure, eg by way of subpoena or section 48 of the Evidence Ordinance (which allows the Plaintiff, with leave, to call Robin Lee and cross-examine him as if he were called by D2). The Court should not compel D2 to call Robin Lee because if, for some reasons, D2 no longer wants to call him as a witness, D2 may be in breach of a court order.

19.  However, under Order 38, rule 1, the Rules of the High Court, any fact required to be proved at the trial by the evidence of witnesses shall be proved by the examination of the witnesses orally and in open court. It is a common case management direction for the Court to direct that if a witness does not attend for cross-examination, his witness statement shall be excluded from the evidence.

20.  In respect of an affirmation, the Court may, on the application of any party, order the attendance of an affirmant for cross-examination, failing which his affirmation shall not be used as evidence without leave of the Court: Order 38, rule 2(3). A party cannot rely on section 47 of the Evidence Ordinance and the rules as to admission of hearsay evidence to escape from the obligation of producing an affirmant for cross-examination: Cheung Wei Man Vivien v Centaline Property Agency Ltd [2004] 1 HKC 692, §§6 & 8, Lam J (as Lam PJ then was).

21.  The same principle applies to the admission of a statutory declaration: Yes Profit Investment Ltd v Mainly Tone Co Ltd, HCA 2656/2008, 29 April 2013, §9, DHCJ Leung.

22.  Accordingly, if D2 seeks to adduce the Statutory Declaration, the principles in paragraphs 20-22 shall apply.

23.  The Plaintiff relies on agreed proposed directions that in the event that D2 is directed to secure the attendance of Robin Lee, the direction should be for D2 to, “within 42 days, take steps and/or such necessary application as D2 may be so advised, to secure the attendance of Robin Lee at the trial, failing which the [Statutory Declaration] and the [2/5/2008 Letter] should not be admitted as evidence at trial”.

24.  In my view, the 2/5/2008 Letter and the Statutory Declaration should be treated differently.

25.  The 2/5/2008 letter is a “historical document” that purportedly came into existence in 2008 before litigation was contemplated. It is not an out-of-court statement. A party can prove its authenticity in many ways, such as through an eye witness (not necessarily Robin Lee) or handwriting experts. Admissibility of the 2/5/2008 Letter should not be tied to a direction for Robin Lee to attend for cross-examination.

26.  The Statutory Declaration is of a different nature. It was brought into being in 2019 after the pleadings in this case has closed, plainly with a view to supporting D2’s case. It is an out of court statement, similar in nature to an affirmation. A party, cannot, by using the label of a statutory declaration, get round the principles in paragraphs 20-22 above. Robin Lee is contactable and was contacted by Leung as recently as in June 2021. The fact that he has not responded to D2’s request to be a witness or is unwilling to be one, is not a reason to disapply the established principles.

27.  It is also ludicrous to suggest that because the Plaintiff has contacted Robin Lee in the past that the Plaintiff could call Robin Lee as a witness. It is D2 who wishes to rely on the Statutory Declaration. The duty is thus on D2 to adduce it in the proper way by tendering the maker for cross-examination.

28.  Accordingly, in the exercise of my case management powers, I direct that, unless Robin Lee do attend for cross-examination, his Statutory Declaration shall be excluded from the evidence. This direction does not deprive D2 of the right to apply for the necessary subpoena.

D2’s summonses for leave to file the DRADCC and to adduce Leung’s 2^nd supplemental witness statement

29.  The principles governing amendment of pleadings are well-established and are set out in Shenzhen Futaihong Precision Industry Co Ltd v BYD Company Ltd (unrep, HCA 2114/2007, 18 July 2016)[1], §15, Ng J:

“13. … generally speaking, all such amendments ought to be made for the purpose of determining the real question in controversy between the parties to any proceedings or of correcting any defect or error in any proceedings.

14. Leave is readily granted to amend before trial unless it can be shown that the new claim based on the proposed amendment is bound to fail. While the court is entitled to have regard to the merits of the case, it should only do so when the merits are readily apparent, and are so apparent as not to require prolonged investigation.

15. If the proposed amendments are bound to fail, no leave to amend should be granted. In this regard, the court will take the applicant’s proposed pleaded case to the highest.

16. Absent any real prejudice, an application for amendment, albeit late, must be decided upon the general principle that a court of law seeks to adjudicate on the real issues and disputes between the parties and, if possible, technical and procedural rules should not stand in the way of allowing the parties to raise their real claims or defences before the court for adjudication.

17. Where prejudice is claimed, the burden is on the party opposing the amendment to show prejudice. There is no injustice to the opposing party if he can be compensated by appropriate orders as to costs.

18. Lastly, in giving effect to the underlying objectives of the Rules of the High Court, the court shall always recognize that the primary aim in exercising the powers of the court is to “secure the just resolution of disputes in accordance with the substantive rights of the parties”: Order 1A, rule 2(2) of the Rules of the High Court (Cap. 4A) (“RHC”).”

30.  D2’s summonses can be dealt with together. In essence the Plaintiff only objects to those parts that refer to a Separate Agreement (“the Disputed Parts”), ie:

(1) §§28-33, 39A, 40, 51, 54 of the DRADCC;

(2) Prayers (1) and (2) against Listco in the DRADCC;

(3) Prayer (3) against the Plaintiff; and

(4) Part E (ie §§20-34) of Leung’s 2^nd supplemental witness statement.

31.  The alleged Separate Agreement arose out of the 2 Letters of Acknowledgment. In consideration of D2’s forbearance to sue, Listco agreed to pay D2 HK$12.5 million as contained in the 2 promissory notes. D2 did refrain from taking legal action against Listco until around October 2017. Accordingly, D2’s proposed amendments claim the amount of HK$12.5 million in the alternative.

32.  The Court has queried how D2 could have introduced amendments which would require findings of fact and decision on relief against Listco, when Listco was excused from participation in these proceedings.

33.  Subsequent to this hearing, D2 further amended its DRADCC so as to remove prayers (1) and (2) for relief against Listco personally (“Final Draft”).

34.  The Plaintiff’s grounds in opposition can be summarized as follows:

(1) The Separate Agreement was a matter between Listco and D2 and is irrelevant to the dispute between the Plaintiff and D2.

(2) The amendments go against the order of DHCJ Raymond Leung SC which stated that:

(a) The Plaintiff’s claim against Listco and D2’s counterclaim against Listco be stayed and is not to be resurrected without leave of Court or consent of the parties after Listco paid the additional HK$500,000 into Court;

(b) This action shall proceed as between the Plaintiff and D2 based on the pleadings between the Plaintiff and D2. Subject to the issues of interest and costs, Listco be excused from any further proceedings in the action.

(c) Leave be granted to D2 to withdraw its summons seeking leave to amend the amended defence and counterclaim.

(3) It has always been D2’s case that the Plaintiff was holding he Notes on trust for D2 to the extent of HK$12 million. If D2 is successful, the remaining HK$0.5 million should be returned to Listco as stakeholder pending a claim by SSC Holdings. The Plaintiff queries how D2 can use the channel of a Separate Agreement to claim for that HK$0.5 million when the money does not belong to Listco at all.

(4) It is not clear from the DRADCC the basis on which Listco allegedly acknowledged the debt owed to D2 when Listco never admitted D2’s case.

35.  I am mindful of the fact that DHCJ Raymond Leung SC has made clear in his Order that the interpleader is about the issue of the Plaintiff and D2’s entitlement to the total of HK$12.5 million that will have been paid into Court, not just HK$12 million.

36.  The Separate Agreement is a separate basis from the trust to show entitlement of D2 to the full amount. In his Decision, DHCJ Raymond Leung SC acknowledged that even on the original pleadings, D2 has pleaded a separate agreement. See §§29 and 34 of the amended defence and counterclaim. At that early stage, just after giving leave to defend, the learned Deputy Judge could not have intended to bar D2 from amending its claim, if the test in Shenzhen Futong is met.

37.  The Disputed Parts represent D2’s attempt to tidy up the pleadings and to put forth all relevant facts for an alternative case to justify entitlement to the HK$12.5 million.

38.  The Plaintiff’s queries in §35 (3) & (4) are comments on the credibility of D2’s case on the Separate Agreement, which are not grounds for disallowing the amendments.

39.  Insofar as relief is concerned, D2 has confirmed that it does not seek to revive any claims against Listco. D2’s solicitors had twice written to Listco to make clear that the proposed amendments to the DRADCC did not involve any additional or new plea against Listco which were not already in issue and asked to confirm whether Listco had any objection or queries to the proposed amendments. Listco has not responded. There is no more prayer for relief against Listco personally in the Final Draft. Listco can continue to remain out of the picture in this action.

40.  Mr Wong, counsel for the Plaintiff, points out that, to make the order sought by D2, the Court must make findings of fact on whether the Separate Agreement existed or not. He queries how the Court can do so when Listco would not take part in the trial. He further submits that it has never been D2’s case that the funds under the various Notes were “partnership property” between D2 and SSC Holdings.

41.  In my view, the Court can make findings of fact involving a person not being a party to the interpleader proceedings although it cannot make a personal order for relief against that person. Any relief to be granted will be directed at the subject matter of the interpleader. I base these propositions on Peake v Carter [1916] 1 KB 652.

42.  In that case, the parties were both claimants to good seized by the sheriff. Carter was the judgment creditor. Peake relied on a partnership agreement between him and the judgment debtor to try and establish his entitlement to the goods in the interpleader action. The judgment debtor did not take part in the interpleader proceedings but that did not preclude the court from making a finding that the goods seized formed partnership property (ie a finding affecting the judgment debtor). The application of Peake v Carter is not limited to claims involving partnership.

43.  For the reasons given in this section, I am of the view that applying Shenzhen Futong, the Disputed Parts are to enable the Court to determine the real question in controversy between the parties. There is no suggestion that the Disputed Parts are bound to fail so as to justify their being struck out summarily. No prejudice to the Plaintiff is shown. In the premises, I grant leave to amend and to adduce the 2^nd supplemental witness statement of Leung. I give leave, just in case it is necessary, for consequential amendments to the draft 2^nd supplemental witness statement of Leung arising out of the Final Draft.

44.  The arguments on amendment in this case are unusual. On a nisi basis, I make an order that costs of and incidental to the amendments be to the Plaintiff but the costs of this hearing itself be in the cause.

Conclusion

45.  In respect of the Plaintiff’s summons, I direct that unless Robin Lee attends the trial for the purpose of cross-examination, his Statutory Declaration shall be excluded from the evidence. On a nisi basis, costs of this summons shall be borne by D2.

46.  In respect of D2’s summonses,

(1) There be leave to amend as per the Final Draft, which shall be filed and served within 14 days of this Order.

(2) There be leave to D2 to file and serve the 2^nd supplemental witness statement of Leung Heung Ying within 14 days of this Order.

(3) There be leave to the Plaintiff to make consequential amendments to its reply and defence to D2’s Final Draft within 28 days thereafter.

(4) There be leave to the Plaintiff to file and serve further witness statements in reply to the 2^nd supplemental witness statement of Leung Heung Ying within 14 days thereafter.

(5) No further witness statements shall be filed without leave of the Court.

(6) On a nisi basis, costs of and occasioned by the amendments be to the Plaintiff. Costs of the hearing on 19 April 2022 be in the costs.

47.  I expect this would be the last round of amendments to pleadings and witness statements. The parties have not told me what further interlocutory applications are needed. I do not see the need for a further CMC. I therefore direct that:

(1) This case be set down for trial before a judge without a jury within 42 days. A total of 7 days be reserved for trial, the 6^th and 7^th days being at least 2 weekends apart.

(2) There shall be a pre-trial review 12 weeks before the trial.

(3) At least 7 days before the pre-trial review, each party shall file and serve a certificate of estimates of trial time.

(4) At least 7 days before the pre-trial review, the Plaintiff do lodge with Court a set of PTR bundles, with double-sided printing.

(5) At least 7 days before the pre-trial review, the parties shall lodge an agreed list of issues, an agreed set of undisputed facts in narrative form and an agreed list of abbreviations.

(6) Costs of this CMC be in the cause.

48.  I thank counsel for their assistance.

Mr Damian Wong, instructed by Chan, Lau & Wai, for the Plaintiff

Ms Natalie So, instructed by C.T. Chan & Co, for the 2^nd Defendant

HCA 397/2011

[2021] HKCFI 326

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 397 OF 2011

____________

BETWEEN

____________

_____________

D E C I S I O N

_____________

Introduction

1.  There are 2 applications made by D1:

(1) A second application for extension of time (“Second Summons”) to meet the condition imposed for defending the claim made by D2 against it; and

(2) An application to amend (“Amendment Summons”) the Second Summons by adding an application for relief from sanction pursuant to Order 2, rule 5 of RHC.

2.  The applications are opposed by D2, who submits that D1 is abusing the process of the court in issuing a summons for the same relief as a prior one; and that the Amendment Summons is in fact a fresh summons under the disguise of amendment.  On the other hand, the Plaintiff has taken a neutral stance, subject to the prior agreement between the Plaintiff and D2 to have the judgment sum paid into Court pending the Court’s determination as to the question of entitlement between the Plaintiff and D2.

Procedural history

3.  The Plaintiff and D2 made a competing claim and counterclaim against D1 on 2 Promissory Notes.  Only D2 sought summary judgment against D1.  By a decision dated 12 November 2020 (“O14 Decision”) DHCJ Leung SC granted leave to the D1 to defend D2’s counterclaim on the condition that D1 do pay HK$12,000,000 into Court within 28 days (“Condition”), failing which D2 be “at liberty to enter judgment against D1 in the sum of HK$12,000,000 together with interest and costs of the counterclaim against D1”.  The deadline for payment fell on 10 December 2020.

4.  D1 has applied for leave to appeal against the O14 Decision, which will be heard on 26 February 2021.

5.  By a summons dated 7 December 2020 (“First Summons”), D1 applied for stay of execution or time extension of 28 days to comply with the Condition as D1 was finalizing the terms of funding to be provided by a financier.  The First Summons was originally fixed to be heard on 23 December 2020.

6.  D2 agreed not to enter judgment against D1 “pending the hearing of the [First Summons] on 23 December 2020”.  The Court later directed that the first Summons be disposed of on paper. 

7.  The First Summons was dismissed on 13 January 2021 (“Refusal of Stay Decision”).

8.  On the following day, D1 paid the sum of HK$12,000,000 into Court.  It crossed D2’s application to enter judgment against D1. 

9.  On 15 January 2021, D1 issued the Second Summons.  D2 refused to consent to extension of time for D1 to meet the Condition.

10.  On 26 January 2021, D1 wrote to the clerk to DHCJ Leung SC stating that D1 had made payment into Court, that D1 has issued the Second Summons and requesting that judgment should not be entered in favour of D2.  Although the Refusal of Stay Decision was mentioned in the letter, the fact of its dismissal was not.  In truth, judgment has not yet been entered as of the day of this hearing.

11.  On 29 January 2021, D1 issued the Amendment Summons, only one working day before this hearing.

12.  D2 refused to consent to D1’s applications on the ground, amongst others, that it was procedurally wrong, in that the First Summons had already been dismissed. 

13.  D1 submits that there was no abuse as there was material change of circumstances since the First Summons, ie the actual payment of HK$12,000,000 into Court. 

Second Summons

14.  In respect of the issue of repeated summonses, the principles have been set out in Lau Sin v Wong Mary [2018] 3 HKLRD 202, at §33, DHCJ Paul Lam SC:

(1) Res judicata, properly so-called, does not apply to interlocutory orders. 

(2) If a party seeks to re-litigate a matter which has been determined in a previous interlocutory decision by taking out a second application, the second application is liable to be dismissed by the court, either of its own motion or on application, pursuant to its inherent jurisdiction or O.18 r.19, on the ground that it constitutes an abuse of process.

(3) It will not be an abuse of process if there are express statutory provisions (inapplicable to this case) permitting re-litigation of the matter.

(4) In the absence of such express statutory provision, whether the second application constitutes an abuse of process must depend on the particular circumstances of each case.  Generally speaking, the court should consider what is just and reasonable.

(5) It is inappropriate and impossible to set out exhaustively what the relevant considerations will be.  Naturally, the court will need to consider the nature of the interlocutory application; whether the applicant had, or could and should have, challenged the first interlocutory decision by other means; and why a second application on the same matter has been made.  Examples of situation where the court may conclude that there is no abuse of process include: the ruling on the first application was not on merits but on a technical objection, the applicant failed to prove essential facts from mistake or inadvertence at the first application, there is new evidence that seriously justifies reconsideration of the issue; or there is a material change of circumstances.

(6) The court should adopt a holistic, rather than a dogmatic or mechanistic, approach.  At the end of the day, the court shall consider whether it is in the interests of justice to allow the second application to proceed having regard to all relevant circumstances of the particular case.  And in considering how its discretion should be exercised, O.1A, r.2 requires the court to give effect to the underlying objectives of the RHC as set out in O.1A, r.1.

15.  In my view, D1 has prima facie abused the process because the Second Summons seeks virtually the same relief as the First.  The Refusal of Stay Decision has criticized the way in which evidence was presented for seeking extension of time through the use of unaffirmed statements and its unsatisfactory contents (§§30-34); and, specifically, the failure of D1 to present evidence of cash or a bank draft available for consideration (§33(3)). A litigant who had omitted to adduce proper evidence cannot subsequently provide the evidence and say that there was material change of circumstances. 

16.  However, looking at the situation holistically, D1 was 35 days out of time in making payment in. In that period, D2 had agreed to stay execution of the O14 Decision pending the hearing on 23 December 2020.  When the hearing was converted into the paper disposal mode, it was not unreasonable for D1’s solicitors to think that D2 would not apply to enter judgment pending the paper disposal of the First Summons.  As soon as D1 knew the outcome of the First Summons and before judgment was entered, it lost no time in making payment into court.

17.  The Court has to weigh the prejudice that may be caused to each party if extension of time is granted or refused:

(1) Extension of time would deprive D2 of the opportunity to enter judgment.  Noting the Court’s comment that upon dismissal of the Second Summons, the HK$12,000,000 would be refunded to D1, counsel for D2 informed the Court that D2 would rather have the judgment than the funds in Court.  As the O14 Decision was not given on the basis of the Promissory Notes but acknowledgement of debt, this would enable D2 to cease taking part in the litigation. 

(2) However, in its O14 application, D2 had asked for the judgment sum and interest to be paid into Court (although this term was not included in the sealed order of DHCJ Leung SC).  That was in anticipation of the contest between the Plaintiff and D2 over the funds.  D2’s then stance was regardless of the basis on which it was to win the O14 application.

(3) D1 has paid an enormous amount into Court with a short delay of 5 weeks.  Refusing to extend time would deprive D1 of the opportunity to defend.  It would be a disproportionate punishment to D1 and the Court should be slow to deny D1 the chance to have its substantive rights adjudicated upon.

(4) The Plaintiff, who is supposed to “interplead” with D2 over the HK$12,000,000, would be deprived of security for its judgment.

18.  When considered holistically, having the money in Court provides the best safeguard of interests to all 3 parties.  I consider it just and reasonable to give extension of time to D1 to meet the Condition. 

Amendment summons

19.  Given that the Court is ready to extend time, it is strictly not necessary to consider the Amendment Summons.  I just deal with it briefly.

20.  Procedurally, the Amendment was defective.  Order 2, rule 4 requires an application to be taken out within 14 days from the due date of compliance (in this case, 10 December 2020).  However, the Amendment Summons was 35 days out of time and did not even give 2 clear days’ notice to other parties.  No explanation was given for the delay. 

21.  D1’s primary position is that the Condition is not a sanction and an application for relief from sanction is not the right course to take, but D1 takes it out of abundance of caution. 

22.  D1 relies on Schenker International (HK) Ltd v Natural Dairy (NZ) Holdings Ltd [2014] 1 HKLRD 274, a case concerned with an order that “unless the defendant … the plaintiff shall be at liberty to apply for judgment”.  DHCJ Le Pichon held that it was not a conventional unless order within automatic sanction.  Nothing would happen unless and until the party not in default took out a further court application and obtained a further order; therefore, no question of relief from sanction under a conventional unless order arose (at §§9, 20 and 42). 

23.  I disagree with D1’s contention.  The order in Schenker International was different in terms from the one in the present case.  In respect of the former, the court may approve or reject the plaintiff’s application for judgment.  In respect of the latter, entry of judgment will be an administrative matter.  Accordingly, the O14 Decision did contain a sanction from which D1 can seek relief.

24.  In DP Properties Ltd v E Cube Club (Tsuen Wan) Ltd[2020] HKCFI 1252, at §§16-19 & 22, Recorder Manzoni SC, was concerned with a situation where the defendant failed to meet the condition for leave to defend and judgment was entered.  Belatedly the defendant made the payment in (2 months out of time) and sought leave to appeal out of time against the Master’s decision.  The terms of the order were similar to Schenker International but that authority was not drawn to the learned Recorder’s attention. 

25.  In considering the grant of relief under Order 2, rule 5, Recorder Manzoni SC considered the question of proportionality and stated that the court should be slow to prevent a party from bringing its case before the court other than as a matter of last resort.  A failure to comply with conditions that has the effect of allowing a judgment to be entered would have that effect unless relief is granted.  See DPProperties, at §29.

26.  Among the matters set out in Order 2, rule 5, the most important was that D1 has had no other defaults save for the poor presentation of evidence under the First Summons (rule 5(1)(e)).  The analyses in paragraph 17 above equally apply.

27.  Although strictly not necessary, I grant abridgement of time, leave to amend the Second Summons and grant relief to D1 from sanction.  The time for payment in is extended to 14 January 2021.

Conclusion

28.  I make an order along the lines of paragraph 27 above.

29.  As between the Plaintiff and D1, they have agreed for costs to be reserved on the basis that the Plaintiff would not contest the summonses.  I make an order accordingly but paragraph 31 below should be drawn to the attention of the judge who is to decide the costs or taxing master’s attention, if needs be.

30.  Costs as between D1 and D2 under both summonses (with certificate for counsel) should be borne by D1 who is seeking indulgence of the Court.  Having heard the submission of Ms Yuen, counsel for D1, I am satisfied that the usual party and party basis for costs should apply.

31.  The Plaintiff and D2 have not submitted a statement of costs before the hearing.  For such deficiency in preparation, the costs of solicitors’ fees to be awarded to the Plaintiff and D2 should be cut down.

32.  I summarily assess and allow the costs of D2 at $32,000 and I make an order nisi accordingly.

The way forward

33.  This action was commenced about 10 years ago.  On the present state of evidence, it appears that the real contestants are the Plaintiff and D2.  D1 is liable to pay HK$12 million or thereabouts, subject to an indemnity from the real contestants.  The parties should actively consider whether D1 needs to be involved in this case at all. 

34.  The parties shall jointly report to me (in not more than 3 pages of font size 14) on progress and the way forward within 2 months.  The report should enclose one joint set of proposed directions (with disputed directions properly identified) and a proposed date for CMC.  I shall consider the further directions to make upon reading the joint report. 

35.  I thank Mr Sousa, Ms Yuen and Mr Ho for their assistance.

Mr Richard A Sousa, of Chan, Lau & Wai, for the Plaintiff

Ms Sharon Yuen, instructed by Wellington Legal, for the 1^st Defendant

Mr Raymond Ho, instructed by C T Chan & Co, for the 2^nd Defendant

HCA 397/2011

[2021] HKCFI 119

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 397 OF 2011

____________

____________

_____________

D E C I S I O N

_____________

1.  The Plaintiff and the 2^nd Defendant made a competing claim and counterclaim against the 1^st Defendant on 2 Promissory Notes. The 2^nd Defendant sought summary judgment against the 1^st Defendant.

2.  By a decision dated 12 November 2020 (“the Decision”), DHCJ Raymond Leung SC dismissed the 2^nd Defendant’s application insofar as it was based on the Promissory Notes.  However, he found that there was Acknowledgement of Debts constituting a separate agreement whereby the 1^st Defendant would settle the debt in favour of the 2^nd Defendant as beneficial owner of the debt.  He found the 1^st Defendant’s defence to the separate agreement to be shadowy.  He granted leave to the 1^st Defendant to defend the counterclaim of the 2^nd Defendant on condition that the 1^st Defendant paid HK$12,000,000 into court within 28 days (“the Condition”), as security for the 2^nd Defendant’s counterclaim, failing which the 2^nd Defendant be at liberty to enter judgment against the 1^st Defendant.

3.  The 1^st Defendant sought leave to appeal against the Decision, which will be heard on 26 February 2021.

4.  On 7 December 2020, the 1^st Defendant issued this application for:

(1)     Stay of execution pending determination of the leave to appeal application, only on the ground that the 1^st Defendant has strong prospects of success in the appeal; or

(2)     Time extension of 28 days to comply with the Condition, as the 1^st Defendant is finalizing arrangements in relation to provision of a bank guarantee in lieu of payment into court.

5.  This decision is to be read with the Decision and all the abbreviations used in the Decision will be adopted here.

Legal principles for grant of stay

6.  The applicant for a stay has the burden to justify a stay with good reasons: Star Play Development Ltd v Bess Fashion Management, HCA 4726/2001, 7 June 2002, at §7.

7.  Existence of a merely arguable appeal is the minimum requirement for the court to consider granting a stay, but not sufficient.  Additional reasons have to be given to justify a stay: Star Play, §9(8).

8.  A strong likelihood that the appeal would succeed, ie that “something has grievously gone wrong with the process of law in the court below”, will usually by itself justify a stay: Star Play, at §§9(7); World Trade Centre Group v Resourceful River Ltd, CACV70/1993, 12 May 1993, p 3, Litton JA (as he then was).

9.  The court must not forget to consider the prejudice that would be caused to the respondent in the event that a stay is granted and, if necessary, to impose conditions to minimize the prejudice to him.

10.  Even where a stay is being considered, the Court is entitled to, and very often will, order, as a term of granting the stay, that the applicant should bring some or all of the amount of the judgment awarded against him into court: Honestwin Ltd v Mezely Trading Ltd, CACV 311/1998, 23 April 1999, Godfrey JA.

Legal principles concerning an appeal against conditional leave to defend

11.  If summary judgment were to be granted, it could only be granted on the claims set out in the statement of claim, verified by an affidavit in support. If there were defects in the statement of claim, it had to be amended before one can seek summary judgment: Wong Chow Hoi Sze Elsie v Crown Wine Cellars Ltd, CACV 262/2015, 15 April 2016, at §10, Lam VP.

12.  DHCJ Raymond Leung SC did not grant summary judgment but imposed a condition for leave to defend pursuant to his wide discretionary power under Order 14, rule 4(3) of the Rules of the High Court. 

13.  An appeal against exercise of discretion would only be entertained if it is shown that the discretion was exercised (i) under a mistake of law; (ii) under misapprehension of facts; (iii) by taking into account irrelevant matters; (iv) outside the generous ambit of reasonable disagreement; or that the decision was plainly wrong: Hong Kong Civil Procedure 2021, Vol 1, §59/0/54.

14.  The question is thus whether, DHCJ Raymond Leung SC’s exercise of discretion in imposing the Condition was so wrong that the Court of Appeal should interfere.

Strong likelihood of success in the appeal

15.  The grounds of appeal, which are largely a re-run of the arguments before DHCJ Raymond Leung SC, can be summarized as follows:

16.  Ground 1: the 1^st Defendant contends that DHCJ Raymond Leung SC had erred in law in acting on an unpleaded case:

(1)     The separate agreement was not pleaded by the 2^nd Defendant and was only raised for the first time by the 2^nd Defendant’s counsel in his oral submission, supplemented by written submission.  The 1^st Defendant therefore had no opportunity to properly respond to the unpleaded case;

(2)     The consideration for the separate agreement (which DHCJ Raymond Leung SC found to be forbearance to sue) was not pleaded. Actual forbearance which was not induced by the express or implied request of the debtor was unlikely to be good consideration; and

(3)     The Acknowledgement of Debts indicated the 1^st Defendant’s intention to settle the Debt subject to an indemnity executed by the 2^nd Defendant in favour of the 1^st Defendant in respect of the Plaintiff’s claim in this action (“Indemnity”).  DHCJ Raymond Leung SC found that the 1^st Defendant had breached the separate agreement by failing to prepare the Indemnity when there was no evidence as to what actions had been taken by the 1^st or 2^nd Defendant to prepare the Indemnity and hence no factual basis for the finding of breach.

17.  Ground 2: as a fallback argument, the 1^st Defendant contends that DHCJ Raymond Leung SC had erred in finding that the defence was shadowy when the grant of an Indemnity was either:

(1)     An act of acceptance from the 2^nd Defendant, which was not forthcoming as the 2^nd Defendant had indisputably failed to execute an Indemnity; or

(2)     A condition precedent, which was not satisfied when the 2^nd Defendant issued the counterclaim.

18.  As a corollary, the 1^st Defendant contends that imposing the Condition without taking into account the 2^nd Defendant’s obligation to execute an Indemnity in favour of the 1^st Defendant would expose the latter to the risk of having to pay twice under the Promissory Notes.

Analyses

19.  As there is a pending application for leave to appeal, it is best if I were to make the least comments on the merits of it.

Ground 1 – acting on unpleaded case

20.  The counterclaim of the 2^nd Defendant was recovery of the Debt under 2 Promissory Notes.  Whilst the term “separate agreement” and consideration for it were not specifically used in the pleadings, the amended defence and counterclaim pleaded that 2 Letters constituted Acknowledgement of Debts and admission that the 2^nd Defendant was the beneficial owner.  The 2^nd Defendant pleaded that the 1^st Defendant had breached the Acknowledgement of Debts.

21.  Save for the breach, the 1^st Defendant did not dispute those pleas.  It contended that its intention was to settle the Debt subject to the Indemnity from the 2^nd Defendant, which the 2^nd Defendant had not executed. 

22.  DHCJ Raymond Leung SC took the view that it was “tolerably clear” that the 2^nd Defendant was seeking to rely on the terms of the Acknowledgement of Debt from which the forbearance to sue was “patently clear” (§51 of the Decision).  DHCJ Raymond Leung SC also held that the forbearance to sue was “self-evident” and was upon the specific request of the 1^st Defendant (§59 of the Decision).

23.  It was clear that DHCJ Raymond Leung SC was interpreting the effect of the Acknowledgement of Debts in the light of what he considered to be weighty evidence pointing to the 1^st Defendant’s liability. 

Ground 2 – no acceptance of offer and failure to meet condition precedent

24.  DHCJ Raymond Leung SC held that the 1^st Defendant had undertaken to prepare the Indemnity but failed to do so.  It should not be allowed to benefit from its own wrong.  The terms of the Indemnity were reasonably certain and that it was capable of being enforced even in the absence of a deed being executed.  (§§61-62 of the Decision) 

25.  Further, DHCJ Raymond Leung SC held that the obligation of the 1^st Defendant to pay the 2^nd Defendant under the Acknowledgement of Debts did not depend on the outcome of the dispute between the Plaintiff and the 2^nd Defendant as to the existence or otherwise of a pleaded trust (§57 of the Decision).

26.  In the light of paragraphs 24 and 25 above, it could hardly be said that DHCJ Raymond Leung SC had overlooked the risk of the 1^st Defendant paying the debt twice.

27.  In summary, DHCJ Raymond Leung SC has carefully weighed the evidence before coming to his Decision.  It is a case where the 2 grounds of appeal are, at best, arguable and not a case that something has grievously gone wrong with the process of law in the court below.  The 1^st Defendant falls short of demonstrating that he has such strong prospects of success that the court should grant a stay.

28.  Given DHCJ Raymond Leung SC’s finding that the defence was shadowy and my view in the preceding paragraph, the 1^st Defendant has failed to demonstrate that the Condition imposed as a result of exercise of discretion fell outside the generous ambit within which reasonable disagreement was possible, or that it was plainly wrong.

29.  I am not satisfied that this case calls for stay of execution.

Extension of time for compliance with the Condition

30.  The 1^st Defendant’s solicitors have filed and served 3 affirmations exhibiting 3 un-dated and un-affirmed affirmations of Li Dahong.  They were allegedly signed by Li on 4, 18 and 24 December 2020, respectively.  Over 2 weeks have elapsed by now but Li’s affirmations have not been properly affirmed.  The pandemic might have prevented Li from coming to Hong Kong to affirm but he could at least have the affirmations notarized.  Accordingly, no proper evidence has been laid before the court to consider the time extension. This is sufficient to refuse the extension.

31.  If I am wrong, I have considered the merits of the extension application.  The 1^st Defendant claimed that he had since the Decision endeavoured to comply with the Condition.  It did not currently have sufficient cash reserve to meet the Condition.  However, as of 4 December 2020, a financier had confirmed its willingness to provide the necessary funding for the Company to meet the Condition and the terms of funding were in the process of finalization.

32.  The financier later changed its mind and offered to provide a bank guarantee instead of cash.  The 1^st Defendant has approached the Shanghai Commercial Bank, who indicated that it was prepared to issue the guarantee shortly after internal clearance was obtained.  Upon internal clearance, the 1^st Defendant (i) expected that the bank guarantee could be issued within one week on the basis that the parties have agreed on the wording of the bank guarantee; and (ii) would apply to vary the Condition to allow the use of a bank guarantee in lieu of cash.

33.  The time for compliance with the Condition had fallen due on 10 December 2020.  Even taking the 1^st Defendant’s purported evidence at its highest,

(1)     The 1^st Defendant has had an extra 1 month up to now to arrange the funds.  The funds or the bank guarantee are still nowhere in sight.

(2)     There has been no application vary the Condition to enable the 1^st Defendant to use a bank guarantee instead of cash.

(3)     At no time had the 1^st Defendant even provided a draft bank guarantee to the 2^nd Defendant or the Court to approve the terms.

34.  In my view, this assertion of having a financier ready to provide funds rings hollow, especially in the light of Li’s unaffirmed affirmations.  Li has not shown that he has used best endeavours to comply with the Condition.  I decline to grant extension of time sought.

Conclusion

35.  There is no evidence properly laid before the Court by the 1^st Defendant. There are no good reasons to justify a stay or to grant extension of time to comply with the Condition.  I dismiss the 1^st Defendant’s summons.

36.  On a nisi basis, costs should be to the 2^nd Defendant, summarily assessed at $110,680.

37.  I thank counsel for their assistance. 

Written Submission by Mr John Hui and Ms Sharon Yuen, instructed by Wellington Legal, for the 1^st Defendant

Written Submission by Mr Raymond Ho, instructed by C T Chan & Co, for the 2^nd Defendant

HCA 397/2011

[2020] HKCFI 2820

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 397 OF 2011

________________________

________________________

________________________

D E C I S I O N

________________________

INTRODUCTION

1.  By a summons dated 17 October 2019 (the “Summons”), the 2^nd Defendant seeks (1) summary judgment against the 1^st Defendant under RHC Order 14 Rule 5; or (2) in the alternative interim payment in the sum of HK$12,000,000 under RHC Order 29, Rule 11(1)(a) and (c).

2.  The action herein was first taken out on 9 March 2011 by the Plaintiff only against the 1^st Defendant on the basis of two promissory notes (the “Two Promissory Notes”) issued by the 1^st Defendant in the respective sums of HK$7,500,000 and HK$5,000,000.  The Plaintiff claims to be the noteholder entitled to payment thereunder.

3.  By a previous summons dated 3 October 2017, J Thomson Asset Investment Limited (the 2^nd Defendant) initially applied to join as a co-plaintiff claiming that it was one of the beneficiaries under a trust wherein the Plaintiff, as trustee, held the Two Promissory Notes for its benefit to the extent of HK$12,000,000 (ie 96% of the total face value of $12,500,000).  This was however disputed by the Plaintiff.

4.  Due to the disputes raised by the Plaintiff, leave was granted by Master Johnny Ma on 6 February 2018 for J Thomson Asset Investment Limited to join as the 2^nd Defendant.  In due course, an Amended Defence and Counterclaim of the 2^nd Defendant was filed on 27 March 2018 (the “AMDEF&CC”), wherein a case of breach of trust, constructive trust and unjust enrichment was pleaded against the Plaintiff.

5.  In addition, the 2^nd Defendant, claiming as beneficial owner of the two Promissory Notes, pleaded a counterclaim against the 1^st Defendant (1) on the strength of the Two Promissory Notes; and (2) on the basis of the terms of an acknowledgment made by the 1^st Defendant of the debts under the Two Promissory Notes as evidenced in two letters respectively dated 30 March 2016 (which is confirmed to be a typographical error and should read 31 March 2016) and 6 March 2017 (collectively, the “Acknowledgement of Debt”).

6.  Remarkably, there is no claim pleaded by the Plaintiff against the 2^nd Defendant.  For the sake of good order, the titular page of the action herein shall henceforth be adjusted clearly stating the original claim and the counterclaim as suggested in Hong Kong Civil Procedure (2020) n 15/3/2.

7.  Mr Raymond Ho appeared for the 2^nd Defendant and Mr John Hui (together with Miss Sharon Yuen) appeared on behalf of the 1^st Defendant.  Mr Richard Sousa of Messrs C T Chan & Co was present on a watching brief for the Plaintiff, which took a neutral stance as long as its rights were not affected by any decision of the Court and any payment ordered to be made by the 1^st Defendant would be paid into Court.

BACKGROUND

8.  The 1^st Defendant, formerly known as ESPCO Technology Holdings Limited, was a company incorporated in the Cayman Islands and listed on the Growth Enterprise Market of the Hong Kong Stock Exchange.

9.  The 2^nd Defendant was a company incorporated in the British Virgin Islands (BVI) and was the holder of 20% shares in a company known as SSC Mandarin Holdings Limited (“SSC Holdings”).  In turn, SSC Holdings was 100% shareholder of SSC Mandarin Mining Investment Ltd (“SSC Mining”).

10.  By a series of agreements (dated 1 November 2007 and 20 March 2008), the 1^st Defendant contracted with SSC Holdings for the purchase of all its shares in SSC Mining at a total consideration of HK$1,212,000,000 of which HK$60,000,000 was to be paid by way of a promissory note to be issued by the 1^st Defendant (the “Transaction”).

11.  At all material times, Mr Lee Sing Leung Robin (“Mr Lee”) was the sole director of SSC Holdings.  Mr Lee played an instrumental role in procuring the Transaction and was appointed the Executive Director, Vice Chairman and Chief Executive Officer of the 1^st Defendant on 5 June 2008.

12.  It is the 2^nd Defendant’s case that at the instigation of Mr Lee, a promissory note in the sum of HK$60,000,000 was put in the name of the Plaintiff, another BVI company incorporated solely as a special purpose entity for the holding of assets. 

13.  In essence, the Plaintiff was merely a nominee holding the promissory note, including the property thereunder or deriving therefrom on trust (the “Trust”) for the benefit of all shareholders of SSC Holdings (including the 2^nd Defendant to the extent of 20%).

14.  The Trust was evidenced, inter alia, by (1) the minutes of two general meetings of SSG Holdings held on 29 April 2008 and 30 April 2008 respectively; (2) payment instructions (signed by Mr Lee on or about 30 April 2008) from SSG Holdings to the 1^st Defendant directing the issuing of a promissory note in the sum of HK$60,000,000 to the Plaintiff; (3) a written confirmation of the Trust (dated 2 May 2008) executed by the Plaintiff and copied to the 2^nd Defendant. 

15.  Accordingly, a promissory note (“Promissory Note A”) in the sum of HK$60,000,000 was issued by the 1^st Defendant to the Plaintiff.  Eventually, Promissory Note A was partially redeemed and was superseded by Two Promissory Notes, namely:

(1)  Promissory Note D in the sum of HK$7,500,000, which was due for payment on 30 April 2010 but extended to 2 July 2010 upon the agreement of the Plaintiff;

(2)  Promissory Note E in the sum of HK$5,000,000, which was due for payment on 10 June 2010.

16.  Despite repeated demands made by Plaintiff, the 1^st Defendant failed or refused to honour the payments under Two Promissory Notes (ie Promissory Notes D and E). Hence, the Plaintiff took out the original action herein on 9 March 2011.

THE LAW

17.  The approach of the Court upon an application for summary judgment is well established.  A succinct summary can be found in the judgment of DHCJ Lisa Wong SC (as she then was) in Lau Chun Kam v Lai Tak Shing, HCA 2126/2007, unrep, 9 December 2008, which I would respectfully adopt.  The learned judge said (at paragraph 12):

“(1)  The Order 14 machinery works on the basis that if the plaintiff’s application is properly constituted, it is prima facie entitled to judgment unless the defendant shows cause to the contrary.

(2)  The mere assertion in an affidavit of a given situation by the defendant responding to an application for summary judgment does not, ipso facto, ground leave to defend.

(3)  The burden is on the defendant to show a real or bona fide defence or some other reason for a trial. The defendant must satisfy the Court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.

(4)  In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the Court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the Court must look at the whole situation.

(5)  In assessing the credibility of the defendant’s factual case, while the Court will not embark upon a mini-trial on affidavit evidence, the Court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate.

(6)  If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so.

(7)  If the defendant’s evidence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.

See Hong Kong Civil Procedure 2009, Volume 1, §14/4/1; National Westminster Bank plc v Daniel [1993] 1 WLR 1453, per Glidewell J at 1457; Re Safe Rich Industries Ltd, Civ App 81/1994, unrep., 3 November 1994, per Bokhary JA at p.5; Manciple Ltd v Chan On Man [1995] 2 HKC 459, per Mortimer JA at 466 and Microsoft Corporation v Electro-Wide Ltd [1997] FSR 580, per Laddie J at 593.”

18.  It is also trite that conditional leave may be granted where there is something suspicious in the defendant’s mode of presenting his case, or the court is left with a real doubt about the defendant’s good faith (see Hong Kong Civil Procedure (2020) n 14/4/16 citing Devlin LJ (as he then was) in Fieldrank Ltd v E Stein [1961] 1 WLR 1287).

19.  Leave to defend conditional on the full amount claimed being paid into court may be order where the defence is shadowy (see Van Lynn Development Ltd v Pelias Construction Co [1969] 1 QB and Suen Ho Sun v Kamenar International Ltd [1989] 1 HKC 135) or there is little or no substance in it or the case is almost one in which summary judgment should be ordered (Ionian Bank Ltd V Couvreur [1969] 1 WLR 781 cited in HKCP (2020) n 14/4/16).

20.  As to the alternative application for interim payment, the 2^nd Defendant’s pleaded case against the 1^st Defendant was for (1) the sums under the Two Promissory Notes buttressed by the Acknowledgment of Debt; (2) damages for breach of the terms of the Acknowledgement of Debt (see Paragraphs 29 to 36 of AMDEF&CC). Hence, the application in fact turns on Order 29, Rule 11(a) and (c) as well as Rule 12(c).

21.  In so far as both the Plaintiff and the 1^st Defendant are co-defendants to the 2^nd Defendant’s counterclaim, it is imperative for the  2^nd Defendant to show that he is highly likely to recover substantial “damages” or “sum of money” against the particular defendant against whom interim payment is sought (see Ricci Burns Ltd v Toole [1989] 1 WLR 993 (at 1002D-F).

22.  In British and Commonwealth Holdings plc v Quandrex Holdings Inc [1989] 1 QB 842 (cited in HKCP (2020 n 29/11/14), Sir Nicholas Browne-Wilkinson VC held (at 866C) that :

“. . .In my judgment, in cases where on the evidence then before it, the court entertains sufficient doubts as to the genuineness of the defence to give only conditional leave to defend, it is possible for a court to be satisfied that the plaintiff will succeed at trial. Although in such a case it does not automatically follow that it is appropriate to make an order for interim payment, if in all the circumstances such payment appears sensible and desirable, in my judgment it can be ordered.”

23.  Just to get rid of a short point, the Summons asks for the sum of HK$12,000,000 to be paid into court (1) under a summary judgment; or (2) by way of interim payment.  Mr Ho emphasized that the 1^st Defendant had to pay either the Plaintiff or the 2^nd Defendant.  Hence, said Mr Ho, there was no reason why the 1^st Defendant should not pay into court, in particular, where the obligation to pay under the two Promissory Notes had been alluded to in the 1^st Defendant’s published annual report.

24.  With respect, those acting for the 2^nd Defendant might have lured themselves into a false sense of security.  This is borne out by the rather scanty evidence on affirmation adduced by the 2^nd Defendant pertinent to enforcement of the terms under the Acknowledgment of Debt (see below).  The thresholds, which the 2^nd Defendant had to overcome, in respect of the two alternative applications are not lowered by the mere fact that the sum asked for was to be paid into court.  At best, the payment of the whole sum into court may be ordered as a term if the Court is minded only to grant conditional leave to defend in the face of the application for summary judgment.

25.  Likewise, whilst an interim payment ordered to be paid into court may address any concern of overpayment, it does not detract from the burden on the 2^nd Defendant to prove a strong case against the 1^st Defendant on ordinary principles governing interim payment.

NON-PAYMENT UNDER TWO PROMISSORY NOTES

26.  The 1^st Defendant did not dispute its liability under the Two Promissory Notes.  However, it was argued that Condition 3.3 of the terms thereunder stipulated that the obligation to pay would only arise upon presentment of the original of the certificate, which the Plaintiff had not done. 

27.  Hence, as between the Plaintiff and the 1^st Defendant, there was a factual dispute as to whether the original certificates had in fact been presented to the 1^st Defendant by an (unidentified) representative of Messrs Johnny K K Leung & Co, who had admittedly attended the 1^st Defendant’s office on 27 January 2011.

28.  Importantly, by a letter from the Plaintiff to the 2^nd Defendant (dated 8 October 2019), the Plaintiff acknowledged this factual dispute as a triable issue and took the view that a joint application for summary judgment against the 1^st Defendant would be inappropriate.  

29.  Not surprisingly, the 1^st Defendant argued that in so far as there was a dispute between the Plaintiff and the 2^nd Defendant as to (1) the existence of the Trust; and (2) the 2^nd Defendant’s entitlement to any money payable by the 1^st Defendant under Two Promissory Notes, it was not appropriate to enter summary judgment against the 1^st Defendant.

30.  Against the foregoing background, in so far as the 2^nd Defendant’s two applications herein hinge upon the obligation of the 1^st Defendant to make payment under two Promissory Notes, per se, as well as the 2^nd Defendant’s entitlement under the Trust, I agree with Mr Hui that the 2^nd Defendant would fail in limine.

31.  In short, the 2^nd Defendant would not have a better case than the Plaintiff against the 1^st Defendant pursuant to the Two Promissory Notes. Mr Ho made a valiant attempt to argue that the defence raised by the 1^st Defendant was unbelievable since (1) the presentment was made by the Plaintiff’s solicitor on 27 January 2011 whose evidence was reliable; (2) the Trust had been confirmed by a Statutory Declaration of Mr Lee (dated 13 March 2019) which had been provided to the 1^st Defendant.

32.  Suffice it to say that the existence of the Trust is disputed by the Plaintiff, who is undeniably the holder of the Two Promissory Notes.  This has to be resolved at trial. More importantly, the application for summary judgment herein is not founded upon the Plaintiff’s cause of action against the 1^st Defendant.

33.  Mr Ho argued that no positive case was capable of being advanced by the 1^st Defendant since its sole witness, Madam Ma Xiaona, was only appointed as a Non-Executive Director of the 1^st Defendant on 24 March 2016 and she had no direct knowledge of the Transaction and the presentment on 27 January 2011.

34.  Ironically, the same can be said about the unsatisfactory affirmation evidence from Mr Leung Heung Ying (“Mr Leung”), a director of the 2^nd Defendant.  Mr Leung did not claim to have any personal knowledge of what transpired during the alleged presentment on 27 January 2011 either.  

35.  At the hearing, Mr Ho sought to rely on the witness statements (1 lever arch files) filed by the parties herein which was lodged with the Court under cover of a letter dated 24 July 2020 (ie 3 days prior to the hearing).  This rather unorthodox way in which Mr Ho sought to introduce the materials is not to be encouraged.

36.  In particular, Mr Ho attempted to draw attention to the witness statement of Mr Leung Hing Ho Simeon, an assistant solicitor of Messrs Johnny K K Leung, who allegedly attended the 1^st Defendant’s office on 27 January 2011 to present the original certificates of the Two Promissory Notes to demand payment.  Since the witness statements were not properly introduced, I declined to refer to it. 

37.  On the foregoing analysis, the same conclusion is drawn in respect of the application for interim payment on the strength of the Two Promissory Notes.  It is doomed to fail.  However, that is not the end of the matter.

ACKNOWLEDGMENT OF DEBT – AS A SEPARATE AGREEMENT TO PAY

38.  In Paragraph 32 to 36 of the AMDEDC&C, an alternative claim has been pleaded by the 2^nd Defendant against the 1^st Defendant in reliance on the terms of the Acknowledgments of Debt as evidenced in two letters issued by the 1^st Defendant dated 31 March 2016 (mistakenly pleaded as 30 March 2016) and 7 March 2017.

39.  The first letter of 31 March 2016 was signed by Mr Li Dahong, the Chairman of the 1^st Defendant. It reads:

“Re:      Grand T G Gold Holdings Limited (“Company”) and its subsidiaries

Promissory Notes D and E in the aggregated principal amount of HK$12,500,000 (“Debt”) under HCA 397 of 2011 Acknowledgement of Debt 

We refer to our discussion in response to the captioned subject.

Please be advised that the Company Board of Directors considers that J Thomson Asset Investment Limited (“J Thomson”) [the 2^nd Defendant] is the beneficiary owner of the Debt and thus the Company intends to settle the Debt in favour of J Thomson subject to a deed of indemnity to be given by J Thomson in favour of the Company in respect of HCA 397 of 2011, to be drafted by the Company legal advisor.

Regarding your repeated request for immediate settlement of the Debt to J Thomson, in view of the financial difficulties faced by our Company currently and to facilitate the resumption in trading of the shares of our Company on the Stock Exchange of Hong Kong, we would request J Thomson not to institute any proceedings against our Company for the time being.

Your indulgence and acceptance of our Company’s request will be very much appreciated.” (emphasis added)

40.  The second letter of 7 March 2017, which bore the same heading, was also signed by Mr Li Dahong on behalf of the 1^st Defendant.  It reads:

“. . .

We refer to our discussion in response to the captioned subject.

This is to advise you that the board of the directors of our Company considers that [the 2^nd Defendant] is the beneficial owner of the Debt and thus the Company will settle the Debt in favour of the [2^nd Defendant] rather than Charm Master Enterprises Limited [the Plaintiff].

Regarding the indemnity to be given by [the 2^nd Defendant] in favour of our Company in respect of HCA 397 of 2011, we have instructed our legal advisor to prepare a deed of indemnity which will be sent to our legal advisor once available.” (emphasis added)

41.  It is extraordinary that despite filing two affirmations of Mr Leung Heung Ying, the 2^nd Defendant did not condescend upon particulars as to what transpired between the parties (1) which culminated in the 1^st Defendant issuing the two letters on 31 March 2016 and 7 March 2017 respectively; and (2) between 7 March 2017 and 3 October 2017, when the 2^nd Defendant issued a summons to join as a party.

42.  Notably, upon the order for joinder being granted by Master Johnny Ma on 6 February 2018, the 2^nd Defendant first filed a “Defence and Counterclaim of the 2^nd Defendant” on 6 March 2018, which was pleaded by Mr Ho, and was dated 6 March 2016 (ie about 3 weeks before the first letter). Upon enquiry, Mr Ho would put in down to a typographical error. However, it is unclear when the pleading was first prepared prior to filing.

43.  Importantly, the Court is not assisted by any evidence as to what follow-up action, if any, was taken to finalise the proposed indemnity referred to the in two letters evidencing the Acknowledgment of Debt, which was supposed to be drafted by the 1^st Defendant and provided to the 2^nd Defendant for consideration.

44.  In due course, after the exchange of witness statements, Messrs C T Chan (for the 2^nd Defendant) sent a letter to the Messrs D S Cheung & Co (for the 1^st Defendant) on 10 October 2019 offering to execute a deed of indemnity to the extent of HK$12,500,000 (ie the sum under the competing claim made by the Plaintiff herein).  In a reply letter dated 14 October 2019, the 1^st Defendant said:

“However, our client considered the option of a deed of indemnity in 2016 and 2017 out of good will, and in view of the relationship of trust between our client and your client’s shareholder, Mr Leung . . . at the time. The option was eventually not agreed nor pursued by your client, and as mentioned above, no agreement was ever reached. As a result, the option or proposal lapsed. The basis of the same trust as was in 2017 has been eroded given a series of spurious acts of your client’s shareholder against our client since 2018. As well, the company is facing an active litigation from the Plaintiff whereas it was on hold in early 2017. Since the re-activation of the proceedings since end of 2017, there has been a strong pursuit from the Plaintiff and in contrast there has not been a convincing support to your client’s claim promised.” (emphasis added).

45.  At the hearing, Mr Ho advanced an argument that there was a separate agreement under Acknowledgment of Debt as evidenced in the two letters, which was supported by consideration flowing from the 2^nd Defendant to the 1^st Defendant by way of forbearance to sue under the Two Promissory Notes.

46.  Although a “separate agreement” as such was not specifically pleaded, I entertained the argument since it was pleaded in the AMDEFC&C in the following terms:

“Claims against the 1^st Defendant

31. At all material times, the 1^st Defendant is affixed with constructive knowledge that the 2^nd Defendant is and was the beneficial owner of the Debts. . .

32. By the Acknowledgment of Debts, the 1^st Defendant on 30 (sic) March 2016 and 6 March 2017 acknowledged the debts under the Promissory Notes and confirmed that the board of directors of the 1^st Defendant considered the 2^nd Defendant is the beneficial owner of the Debts.

33. The 1^st Defendant further confirmed that it would settle the debts under the Promissory Notes in favour of the 2^nd Defendant.

34. Despite repeated demands, and in breach of the terms of the Acknowledgement of Debts, the 1^st Defendant has failed and/or refused to pay the HK$12,500,000 (or any part thereof) under the Promissory Notes to the 2^nd Defendant.

35.   As a result, the 2^nd Defendant has suffered loss and damage.”

(emphasis added)

47.  In response, the 1^st Defendant pleaded in the Defence to AMDEFC&C (dated 26 June 2018) in the following terms:

“2. For Paragraph 2:-

(a) It is denied that the 2^nd Defendant is entitled in equity to Promissory Note A, or any subsequent promissory notes thereof, whether to the extent of $12,000,000 or at all; and

(b) It is denied that Promissory Note A, or any replacement promissory note thereof, was or is subject to the Trust Arrangement as alleged.

. . .

15. . . .The 1^st Defendant avers that by these 2 letters, it has considered the 2^nd Defendant the beneficial owner of Promissory Notes A, which had been subsequently replaced with Promissory Notes D and E. By these 2 letters, the 1^st Defendant indicated its intention to settle the debt subject to a deed of indemnity to be given by the 2^nd Defendant in favour of the 1^st Defendant in respect of the claim by the Plaintiff in the present action. The 2^nd Defendant has not executed the requested indemnity. . .

17. Paragraphs 31 to 35 are not admitted and the 2^nd Defendant is put to strict proof thereof.  The 1^st Defendant repeats paragraphs 2 and 15 hereinabove.”

48.  By a letter dated 3 September 2020, the parties were invited by the Court to serve supplemental submissions on the issue of a “separate agreement”.  The Plaintiff lodged its further submission on 17 September 2020, which was followed by the 1^st Defendant’s dated 5 October 2020 and the Plaintiff’s reply dated 17 October 2020.

49.  In short, the Plaintiff relied on the full terms of the Acknowledgement of Debt, which was referred to in Paragraph 34 of the AMDEDC&C (see Paragraph 46 above) and the fact that the forbearance to sue from 31 March 2016 (date of first letter) to 3 October 2017 (date of summons for joinder) was self-evident.

50.  In the main, the only point taken by the 1^st Defendant was that a “separate agreement” and the consideration therefor had not been pleaded and hence there was no issue of any “separate agreement” before the Court.  Further, it was argued that the terms of the intended deed of indemnity contemplated in the two letters had never been agreed.

51.  Whilst a “separate agreement” was not specifically referred to in the pleadings, it is tolerably clear that the 2^nd Defendant was seeking to rely on the terms of the Acknowledgement of Debt wherefrom the forbearance to sue upon the specific request of the 1^st Defendant was patently clear. 

52.  Importantly, the 1^st Defendant was not taken by surprise since it was alive to the issue as to the existence of a separate agreement (see Paragraph 15 of the 1^st Defendant’s Defence to AMDEFC&C at Paragraph 47 above and the 1^st Defendant’s letter at Paragraph 44 above).

53.  Further, in Paragraph 5 of the 2^nd Affirmation of Ma Xiaona, the existence (or otherwise) of a binding agreement afforded by the two letters evidencing the Acknowledgment of Debt was specifically addressed by the 1^st Defendant.

54.  It is also patently clear from the 2 letters that the “Debt” owed by the 1^st Defendant was a reference to the liabilities to pay under Two Promissory Notes (HK$12,500,000) since specific reference was made to HCA 397 of 2011, the main action herein.

55.  More importantly, in the 2 letters, the 1^st Defendant unequivocally acknowledged that the 2^nd Defendant was “the beneficiary owner of the Debt” and requested for “indulgence” due to its own “financial difficulties” at that material time.

56.  The change from “intends to settle” in the first letter to “will settle” in the second letter is also significant. It is clear that the 1^st Defendant undertook to pay the money under the Debt over to the 2^nd Defendant on the strength of an indemnity against the Plaintiff’s competing claim herein.

57.  In this context, the obligation for the 1^st Defendant to pay the 2^nd Defendant under the Acknowledgement of Debt does not depend on the outcome of the dispute between the Plaintiff and the 2^nd Defendant as to the existence or otherwise of the Trust. 

58.  In short, the 1^st and 2^nd Defendant agreed to settle the Debt by the 1^st Defendant paying the 2^nd Defendant on the basis that the 2^nd Defendant was the beneficial owner in exchange for an indemnity.  The only question is whether the agreement was supported by consideration and binding on the 1^st Defendant.

59.  Even in the absence of any confirmatory evidence by way of affirmation, it is clear that between 31 March 2016 and 3 October 2017, the 2^nd Defendant did accede to the express request of the 1^st Defendant to forbear (or continue to forbear) to sue and/or refrain from joining as a party in the action herein.  This constitutes good consideration as a matter of law (Chitty on Contract (13^th Ed) Vol 1, at Para 3-060).

60.  Further, it matters not whether the 2^nd Defendant’s claim against the 1^st Defendant pursuant to the terms of the Acknowledgment of Debt (referrable to the Two Promissory Notes) would be successful as long as it was made in good faith (Chitty on Contract (supra) at 3-052).

61.  Significantly, under the terms of the Acknowledgment of Debt, the 1^st Defendant undertook to prepare the terms of the indemnity, which they failed to do.  This constitutes a breach of the terms of the Acknowledgment of Debt. In the circumstances, to allow the 1^st Defendant to renege from the terms of the Acknowledgement of Debt on the ground that the terms of the indemnity had not yet been agreed would be to allow the 1^st Defendant to benefit from its own wrong.

62.  Further, since the indemnity as contemplated in the 2 letters falls within the narrow and distinctive scope of the Plaintiff’s competing claim herein (ie an indemnity with specific reference to 1^st Defendant’s liability towards the Plaintiff in HCA 397 of 2011), it needs not be anything elaborated.  Hence, the terms of the intended indemnity were reasonably certain and it was capable of being enforced even in the absence of a deed being executed.

63.  Although the application for summary judgment was made after exchange of witness statements, it does not affect the jurisdiction of the court.  On the foregoing analysis, I am of the view that the defence of the 1^st Defendant in respect of the “separate agreement” is, at best, shadowy.

64.  Accordingly, I order that leave be granted to the 1^st Defendant to defend the counterclaim of the 2^nd Defendant on the condition that a sum of HK$12,000,000 (as set out in the Summons) be paid into court within 28 days by way of security to answer the 2^nd Defendant’s counterclaim against the 1^st Defendant.

65.  On the foregoing finding, there is no need for me to deal with the alternative application for interim payment under the “separate agreement”.  For the avoidance of doubt, nothing herein shall be construed to hinder any finding of facts to be made by the trial judge as between the Plaintiff and any of the Defendants and as between the Defendants, inter se.

66.  As to cost, in light of the fact that the 2^nd Defendant only properly enunciated its claim under the “separate agreement” in the course of the argument, I make an order nisi that costs of the application herein be the 2^nd Defendant’s costs in the cause of its counterclaim against the 1^st Defendant.

67.  There be no order as to costs as between the Plaintiff and each of the Defendants.

Mr Richard Alvaro Sousa of Chan, Lau & Wai for the Plaintiff

Mr John Hui and Ms Sharon Yuen instructed by Wellington Legal for the 1^st Defendant

Mr Raymond Ho instructed by C T Chan & Co for the 2^nd Defendant