PACIFIC HARBOR ADVISORS PTE LTD AND ANOTHER v. WINSON FEDERAL LTD AND OTHERS

HCA 1257/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1257 OF 2013

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DECISION ON COSTS

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Costs

1.  By my judgment dated 19 November 2015 in respect of the 2^nd Summary Judgment Summons (“the Substantive Judgment”), I invited the parties to make brief written submissions insofar as they wished to challenge the costs orders nisi I had made or make submissions as to the balance of the costs on the 2^nd Summary Judgment Summons.

2.  The following written submissions were filed:

a.  on behalf of P: submissions dated 3 December 2015 by Oldham, Li & Nie (“OLN”) (“Ps’ Submissions”);

b.  on behalf of D3: submissions dated 3 December 2015 by Mr Deng and Mr Au (counsel who appeared on the substantive hearing of the 2^nd Summary Judgment Summons) (“D3’s Submissions”);

c.  on behalf of Ps: submissions dated 17 December 2015 by Ms Jenny Ngai (counsel who did not appear on the substantive hearing of the 2^nd Summary Judgment Summons) (“Ps’ Submissions in Answer”);

d.  on behalf of D3: submissions dated 17 December 2015 by Mr Deng and Mr Au (“D3’s Submissions in Answer”).

3.  As to the costs order nisi made in paras 63(2) and (3) of the Substantive Judgment against D4 and D6, Ps have requested variations so that D4 and D6 are liable for the costs of the claims against them until 10 March 2015, with D3 to be liable for all costs of the 2^nd Summary Judgment Application after 10 March 2015 on an indemnity basis (save for the costs in respect of the LOU claims), with such costs to be payable forthwith.  D3 resisted the variation insofar as it impacted on D3.  I vary my orders nisi so that D4 and D6 are liable to Ps for the costs of the action against them including the summary judgment application until 27 August 2015, with certificate for two counsel for the hearing on 11 November 2015, payable forthwith:

a.  27 August 2015 is the date of the letters addressed to the Court stating they did not object to summary judgment against them, as mentioned in para 13 of the Substantive Judgment.

b.  Ps have suggested there were similar letters from D4 and D6 dated 10 March 2015, but:

i.   those were not the letters put before me at the hearing of the 2^nd Summary Judgment Application; and

ii.  it is clear from the order of Master Ho dated 24 March 2015 that he heard counsel for D3, D4 and D6 and made directions for the determination of the summary judgment application on the basis that D4 and D6 were contesting the summary judgment application at that time.  Ps have made submissions in respect of the representation of D4 and D6 which I will address below.

4.  Ps have by their written submissions dated 3 December 2015 set out at length allegations that the solicitors (Tsang, Chan & Woo (“TCW”)) claiming to act for D4 and D6 after 10 March 2015 were acting without the authority of D4 and D6, and on the instructions of D3 (“the TCW authority issue”).  It is suggested by Ps that the Court should order D3 to pay all the costs of the O14 application against D4 and D6 after 10 March 2015 on an indemnity basis; alternatively, that if D3 was not responsible for causing TCW to act for D4 and D6, then to consider making a wasted costs order against TCW of its own motion.

5.  I note several points about those submissions:

a.  The costs in question are not costs associated with D3’s defence of the claims against D3.  To the extent that they are costs in respect of the defence of D4 and D6, then D3 is a third party to that claim.  A claim for such costs ought to be properly made (whether under s52A of the High Court Ordinance or otherwise) supported by evidence rather than assertion in written submissions.

b.  One would expect D4 and D6 might have an interest in such an application.  There is no evidence from, or submissions from, D4 and D6 in this regard.  It is not even clear whether they have been informed of such application.

c.  Although it is now asserted that two hearings on 16 and 24 March 2015 were necessitated to deal with the TCW authority issue, no mention was made of it at the hearing before me on 11 November 2015; nor was the present “third party” costs application suggested or canvased.

d.  Similarly, an application for indemnity costs or wasted costs based on conduct which would not be apparent to the court dealing with the costs of the hearing before it ought to be supported by evidence.

e.  Ps’ Submissions in Answer (18 pages long and not remotely fitting the description “brief”, nor “submissions in answer”) apparently:

i.   seek to escalate the TCW authority issue into a mini‑trial, with references to various orders and judgments whose relevance is unclear and which have not been provided to me;

ii.  asks me to take into account D3’s conduct in other court applications not heard by me nor provided to me at the Substantive Hearing.

f.  I would not consider a third party costs application (if properly made) to be suitable for determination on paper.  In any event, in light of my view that Ps’ present third party/indemnity and wasted costs applications are not properly made (particularly in the absence of supporting evidence), I have proceeded with a paper determination, and have clearly not acceded to Ps’ application.

g.  If Ps consider there is merit in a wasted costs order against TCW for reasons which are relevant to the 2^nd Summary Judgment application but which did not arise before me, it is a matter for them to consider making such an application.  So far as I am concerned, nothing came to my attention at the Substantive Hearing which would warrant me having any regard to the TCW authority issue and/or considering the wasted costs jurisdiction.

6.  I note that Ps’ Submissions in Answer (unacceptably) requested a further variation of the costs orders nisi, namely that there be no order as to costs in respect of Ps’ late amendment.  I decline to make such an order.  It is the usual price to pay for an amendment that the amender must pay the costs of and occasioned by it.  The fact that D3 took a sensible course in not opposing the amendment only served to limit the costs attributable to the amendment.

7.  I turn to the costs relating to Ps’ claim against D3 for specific performance of the IHAL Share Pledge Agreements.  D3 did not resist liability for such costs but sought an order that only 5% of the hearing time on 11 November 2015 be allotted to this issue.  Ps however sought an additional order that costs after 10 March 2015 be on an indemnity basis, apparently relying on the TCW authority issue mentioned at para 4 above.  D3 resisted such application.  Quite apart from my other comments on those allegations, I see no relevance of the TCW authority issue to the IHAL Share Pledge issue.  I order that D3 is liable to Ps for the costs of the action in respect of the IHAL Share Pledge Agreements including the summary judgment application save for the costs of the amendment (already ordered on 19 November 2015) and subject to the following apportionment of costs in respect of the 2^nd Summary Judgment Application, with certificate for two counsel for the hearing on 11 November 2015, payable forthwith.

8.  As to apportionment, in light of the majority of the evidence of D3 and Ps in respect of the IHAL and LOU claims being concerned with the issue of D3’s indebtedness (not pursued at the hearing), and the majority of time at the hearing of the 2^nd Summary Judgment Application being occupied with Ps’ unsuccessful application for judgment under the LOUs (with D4 and D6 playing no part), I direct that:

a.  50% of Ps’ costs of the 2^nd Summary Judgment Application against D3 excluding the costs of and incidental to the hearing on 11 November 2015 be attributed to the claim in respect of the IHAL Share Pledge Agreements;

b.  50% of Ps’ costs of the 2^nd Summary Judgment Application against D3 excluding the costs of and incidental to the hearing on 11 November 2015 be attributed to the claim in respect of the LOUs;

c.  20% of the costs of and incidental to the hearing on 11 November 2015 be attributed to the claim in respect of the IHAL Share Pledge Agreements;

d.  80% of the costs of and incidental to the hearing on 11 November 2015 be attributed to the claim in respect of the LOUs.

9.  As to D3’s costs of opposing the summary judgment application in respect of the claim against D3 under the LOUs, I order that the costs be to D3 in any event, payable forthwith, with certificate for two counsel for the hearing on 11 November 2015, subject to the apportionment made at para 8 above:

a.  The O14 application was not made until after D3 had filed his amended defence which expressly pleaded discharge of the LOUs.  On the basis that I have found there to be an arguable defence to Ps’ claim under the LOUs based on discharge from liability under the LOUs, then the O14 application should not have been made in respect of the LOUs.

b.  Leave to defend was ordered, rather than dismissal of the O14 summons, only because of the inter‑connection of the claims, where summary judgment was obtained in respect of the other claims.

c.  Although D3’s evidence disputed summary judgment on grounds other than the discharge of guarantee argument, which other grounds were not ultimately maintained or successful, the successful party should not be deprived of costs simply because he raised issues or made allegations on which he failed: HKCP 2016 para 62/3/3; Commissioner of Inland Revenue v HIT Finance (No 2)[2014] 4 HKLRD 412 at para 7.

10.  As to the costs incurred in respect of making written costs submissions pursuant to para 64(3) of the Substantive Judgment, there be no order as to costs, save that I order Ps to pay D3’s costs of D3’s Submissions in Answer, necessitated by Ps’ allegations in respect of the TCW authority issue.

HCA 1257/2013

ACTION NO 1257 OF 2013

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D I R E C T I O N S
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Introduction

1.  Pursuant to an order dated 5 March 2015 (“the examination order”) Cho Woon Ming Vincent, the 3^rd defendant (“D3”), a former director of Winson Federal Ltd (“WFL”) was examined pursuant to Order 48, rule 1(1) of the Rules of the High Court (“RHC”) to determine what debts are owing to WFL and what property WFL has to satisfy the judgment obtained by the plaintiffs from DHCJ B Chu (as she then was) on 1 August 2014. As at 4 December 2015 the repayment figure exceeded US$88 million and, to date, 98% of that sum remains outstanding.

2.  The examination began on 14 October 2015 before Master J Wong.  Apart from answering a few of the 164 questions in total put by counsel for the plaintiffs, D3 asserted the privilege against self‑incrimination in respect of 140 of the questions and refused to answer them.  In substance, D3 was asserting a blanket privilege.

3.  In view of D3’s claim to that privilege, the examination was adjourned for directions from this court as to the further conduct of the examination as per the notation at 48/3/7 of the Hong Kong Civil Procedure 2016.  Accordingly, the master directed inter alia that:

“3. Not less than 7 days of the said hearing before the Judge, parties shall lodge with the Judge agreed bundles, including the transcript for hearing today. (Apart from) the agreed bundle, parties shall also include a list of disputed issues to assist the Judge to understand the areas wherein [D3] had declined to answer questions put to him by claiming privilege. In the event that issues of disputes could not be agreed, each party do file and serve their own in skeleton;

4. [D3] shall within 3 days thereafter lodge and serve his skeleton and authorities;

5. The [plaintiffs] shall also within 2 days thereafter lodge and serve its skeleton and submissions;

…”

4.  The parties were unable to agree a list of disputed issues.  In the result, separate lists were submitted.

5.  Mr Chung who (with Mr Au) appeared for D3 submitted D3’s list of disputed issues which read:

“1. Whether privilege against self‑incrimination is available to [D3] in the context of the present examination under O. 48 r.1?

2. For what criminal offence(s) should he be protected against?

3. What direction(s) should this Court give to adequately protect [D3] under the privilege?”

Attached to the list were specific directions sought by D3:

“1. The privilege against self‑incrimination is available to [D3] in the context of the present examination under O.48 r.1.

2. The criminal offences that [D3] should be protected against include:

a) Conspiracy to Defraud,

b) Money Laundering,

c) Failing to maintain proper financial records in contravention of the Companies Ordinance (Cap.622), and

d) Tax evasion contrary to section 82 of the Inland Revenue Ordinance (Cap.112).

3. [D3] is entitled to claim privilege against self‑incrimination on questions relating to the following matters:

a) The structure of WFL (D1);

b) The operation and decision making process of D1;

c) The flow of fund within D1;

d) The personal involvement of [D3] in the operation and decision making process of D1; and

e) The relationship between D1 and [D3] in his personal capacity.”

6.  For his part, Mr Pow SC who (with Mr Kam) appeared for the plaintiffs grouped the unanswered questions put to D3 at the examination totalling 140 under 18 separate and distinct categories.  They are the disputed issues listed under categories (a) through (r) of the list attached to the plaintiffs’ skeleton.  It can be seen that each category addresses a specific topic.

7.  It should be stated that Mr Chung on D3’s behalf had also presented the court with a categorisation of the questions put to his client at the examination but only under 6 categories or headings.

8.  The difference in the number of categories reflects the difference in approach but has little practical significance.

Background

9.  The plaintiffs operate as an investment fund.

10.  D2 is the executor who obtained probate of the estate of Cho Yuk Kei Carlos (“Carlos”) who passed away in November 2008.  D3 is Carlos’ son.

11.  WFL is one of many companies (19 in total) within the estate of Carlos.  It was engaged in investment in Hong Kong properties for rental income until about November 2012 when its principal business ceased upon the sale of its property portfolio.

12.  Up till Carlos’ death, WFL’s directors were Carlos, D3 and a Japanese gentleman (Mr Kodera) who resigned in September 2009 and was replaced by WP Holdings Ltd (directly and indirectly held as to more than 98% by D2).  D3 resigned on 18 June 2013 and was replaced by WP Realtors Ltd which again was directly and indirectly held as to more than 98% by D2.  In August 2014, Chang Pao Doreen, D3’s relative was appointed a director of WFL.

13.  The 1^st plaintiff advanced US$38 million to WFL under two loan agreements in June 2008 for the latter’s property development project in Shenyang.  Repayment of this loan and the interest due should have been made by 4 December 2009.  All sums due were guaranteed by Carlos pursuant to the agreements.

14.  WFL defaulted on interest payments and then failed to repay the sum loaned and most of the interest due thereon.  The plaintiffs obtained summary judgment on 1 August 2014.

15.  On 3 March 2015, Warren Allderige, a director of the plaintiffs, was appointed receiver and manager of all of WFL’s shares and the estate’s companies.  In that capacity Mr Allderige obtained various documents of WFL from its registered office.

16.  Following an examination of WFL’s trial balances and accounting ledgers, it transpired inter alia that HK$6,355,572.98 in expenses had been incurred between 1 July 2012 and 30 June 2014.

17.  On 14 April 2015 Mr Allderige made a statement (“the 1^st statement”) to the Commercial Crimes Bureau (“CCB”) alleging that the books and records in his possession as receiver revealed criminal offences on D3’s part in relation to the latter’s handling of the business activities of WFL and the other estate companies.  There were subsequent statements including a statement dated 22 April 2015 made by Tin Lap Yan (“the 2^nd statement”), who had assisted Mr Allderige in handling debt recovery from WFL.

The statements

18.  In perusing the statements, it is important to have in mind the purpose and parameters of the Order 48, rule 1 examination.  The stated purpose is to determine what debts are owing to WFL and what property WFL has to satisfy the judgment.

19.  So while Mr Allderige’s office as receiver is broader than simply WFL’s property and assets, the examination is necessarily circumscribed and is strictly limited to WFL’s property and assets.  It is important to bear in mind when reading the background section of the 1^st statement that mentioned “fund misappropriation, suspected fraud on creditors and tax evasion committed by [D3] by virtue of his capacity as the then‑director of the Companies” and that the receiver “suspected that [D3] has acted in concert with other directors of the Companies, including Wilson, Ruby and Mr Tsui Hung Biu (the day and company secretary of the Companies) …”.

20.  Allegations concerning dealings with assets of other estate companies and potential offences relating thereto are irrelevant.

21.  Section 4 of each of the statements focused on dealings with WFL’s assets as well as the assets of another estate company (“ABCL”).  For present purposes, it is only what is said in respect of Winston’s assets that is relevant.

22.  Part 4(1) of the 1^st statement and part 4(A) of the 2^nd statement dealt exclusively with WFL.  They are substantially similar in content except that part 4 of the 2^nd statement contains one additional item (namely staff quarters) and had the effect of increasing the overall amount of expenditure by WFL from a little over HK$5.5 million to a little over HK$6.355 million.  

23.  It is alleged that those expenses incurred by WFL were neither related to WFL’s business nor commensurate with its level of business.  Specifically, they were purely personal expenses of D3 and further that all such expenses had been incurred without the knowledge or approval of D2.

24.  Particulars of the expenses were conveniently tabulated in the 2^nd statement as follows:

		1/7/2011 – 30/6/2012 (HK$)	1/7/2012 – 30/6/2013 (HK$)	1/7/2013 – 30/6/2014 (HK$)	Total (HK$)
(1)	Director’s remuneration	1,025,000.00	1,250,000.00	1,450,000.00 (up to 31st March 2014)	3,725,000.00
(2)	Motor car expenses (for Vincent’s own cars: (1) Aston Martin; (2) BMW; and (3) Jaguar)	240,997.22	166,492.93	106,557.94	514,048.09
(3)	Telephone and internet Charges	53,334.00	15,189.80	4,381.00	72,904.80
(4)	Social expenses	265,643.00	419,803.87	111,004.00	796,450.87
(5)	Trip expenses	114,980.68	186,762.04	79,656.50	381,399.22
(6)	Macau Jockey Club membership subscription	9,450.00	8,160.00	8,160.00	25,770.00
(7)	Staff Quarter	‑	345,000.00	495,000.00 (up to 31st March 2014)	840,000.00
	Total (HK$)	1,709,404.90	2,391,408.64	2,254,759.44	6,355,572.98

25.  None of items (2) to (7) was debited against D3’s current account with WFL and it is apparent that those items were largely for D3’s personal benefit.  Further, there was no shareholders’ approval given for D3’s remuneration as director of WFL.

26.  Beyond that, D3 continued to receive director’s remuneration for the period after he ceased to be a director on 16 June 2013.  The receiver considered that a particularly blatant example of misappropriation of WFL’s funds.

27.  Again, there did not appear to be any shareholders’ approval for the provision of staff quarters to D3 as a director of WFL.  Moreover, he continued to receive housing benefits even after he ceased to be a director.  The suspected thefts emerging from those documents were reported to the police.

28.  It is common ground that the investigation is ongoing.

29.  The 140 questions D3 refused to answer have been categorised by the plaintiffs.  The headings provide a useful overview of the topics.  The plaintiffs wished to explore at the examination, namely:

(a) WFL’s business, daily operations, management and transactions;

(b) WFL’s accounting documents and financial affairs;

(c) correspondence between WFL and D2;

Various documents relating to:

(d) D3’s remuneration;

(e) D3’s cars;

(f) membership of the Macau Jockey Club;

(g) rental property for D3;

(h) entertainment/social expenses;

(i) insurance fees;

(j) legal and professional fees;

(k) staff welfare;

(l) telephone and internet fees;

(m) travelling expenses;

(n) acquisition of a chattel;

(o) expenses on maids;

(p) expenses for D3’s children;

(q) various questions relating to sale proceeds of investment properties; and

(r) various documents relating to financial assets.

30.  It is D3’s case that the questions put to him could give rise to a real and appreciable risk of prosecution for the following offences:

(1) theft contrary to section 9 of the Theft Ordinance, Cap 210;

(2) false accounting contrary to section 19 of the Theft Ordinance;

(3) failing to take maintain proper records in contravention section 373 of the Companies Ordinance, Cap 622;

(4) tax evasion contrary to section 82 of the Inland Revenue Ordinance (“the IRO”);

(5) money laundering contrary to section 25 of the Organized and Serious Crimes Ordinance (“OSCO”), Cap 455; and

(6) conspiracy to defraud under common law and section 1159E of the Crimes Ordinance, Cap 200.

The applicable legal principles

31.  Mr Chung placed considerable reliance on the decision of the English Court of Appeal in Den Norske Bank ASA v Antonatos & Anor [1999] QB 271 as summarised in the following passage in Archbold Hong Kong 2016 at 12‑94:

“It was held that the privilege applies if a trial court is satisfied on any ‘reasonable ground’ (p 286D) that there is a real risk to the witness of ‘prosecution’ or ‘any piece of information or evidence on which the prosecution might wish to rely in establishing guilt’. It also applies to ‘any piece of information or evidence on which the prosecution might wish to rely in making its decision whether to prosecute or not’ (p 289A). So an answer will attract the privilege even if it does not go so far as to be an admission of guilt by the witness. Any answer which might increase the risk of being charged is enough. The court emphasised that if any ‘question in fact exposes him or her to the risk of future prosecution, it is the duty of the court to uphold the privilege’ and it is irrelevant that the witness is seeking to avoid answering the question for mixed motives (p 286H). It is only in a situation where they hear is ‘in no serious risk of prosecution’ (p 289G) that the witness is not entitled to the privilege.”

32.  I have no quarrel with the general principles set out in the passage but, for my part, without putting the relevant principle in context, it is often difficult to discern its proper scope and I do not consider those statements were meant to be applied literally.  Further, it is guidance as to the practical application of the principles to the facts that is useful but which I am unable to discern from Den Norske.

33.  A differently constituted English Court of Appeal in Renworth Ltd v Stephansen and another [1996] 3 All ER 244 (decided some two years before Den Norske) does offer practical guidance (at p 250).  It is to be noted that Renworth was not referred to the court in Den Norske.

34.  In Renworth, Neill LJ stated (at 250e‑j) as follows:

“Where a claim for privilege against discovery on the ground of incrimination is put forward in a civil case, the court has to consider whether the questions to be answered would tend to expose the person concerned (X) to proceedings for any offence or offences, and, if so, what offence or offences. In deciding whether the claim for privilege should be upheld, the court will have to examine: (1) Whether there is a clear link between the answers and the offences. Thus, in some cases the evidence available may suggest that a number of possible offences had been committed, but that to some of these offences the answers ordered will have no relevance. (2) Whether any of the possible offences in respect of which the privilege against incrimination has been removed and replaced by a more limited protection provided by statute. An example of such offences would be Theft Act offences. (3) The relationship between the possible offences, and whether the fact that the answers to the ordered questions may tend to expose X to proceedings for one offence or group of offences may affect the extent to which those answers would tend to expose X to proceedings for other offences. The matter must be looked at realistically. If there is only one possible offence which might be revealed, the test of a tendency to expose to proceedings may be easily satisfied. It will then be necessary to see whether the offence is one to which some special statutory rule applies. But if there are several possible offences – A, B, C, D and E – the fact that the answers would clearly tend to expose X to proceedings for offences A, B and C may reduce to almost vanishing point the tendency of the answers to expose X to proceedings for offences D and E. It may be that this is what Stephenson LJ had in mind when he said in Khan [v Khan [1982] 1 WLR 513] that the court should consider the substance of the proceedings.”

35.  Morritt LJ observed (at 252h‑j) that the purpose of the English equivalent to section 33 of the Theft Ordinance is, in the circumstances in which it applies, to substitute for what is colloquially known as “the right to silence” the more limited rights to have excluded from evidence that which was obtained in consequence of being required to answer the question or produce the document or thing.

36.  Morritt LJ agreed that in the case postulated (ie if a non‑theft charge were added in proceedings for theft), the court would have to consider the substance of the proceedings and the real reason why he had not been excused from compliance with the order.  In his view, the solution was to consider the matter from the point of view of separate claims to privilege in respect of both the Theft Act offence and the second non‑Theft Act offence.  In each case the test would be — whether to answer the question would tend to expose the relevant person to proceedings for the relevant offence in the sense of creating or increasing the risk of proceedings for that offence.  In the case of the non‑Theft offence that test will be whether to answer the question etc would create or increase the risk of proceedings that offence, separate and distinct from its connection with the Theft Act offences: Renworth, at 254g‑j.

37.  It is noteworthy that the Court of Appeal refused to leave to appeal to the House of Lords and the Appeal Committee of the House of Lords also refused leave to appeal.

38.  I agree with Mr Pow SC that the Renworth approach has much to commend it.  It would be appropriate to adopt and apply that approach in the present case.

Application to the facts

39.  It is common ground that section 33 of the Theft Ordinance abrogated the privilege to self‑incrimination as regards offences under Cap 210 and replaced it with a more limited protection.

40.  At the forefront of Mr Chung’s submissions was the possibility of D3 being charged with offences other than under the Theft Ordinance if he were to answer the questions to which he has asserted privilege.  Specifically, he raised the spectre of D3 being exposed to serious charges such as to a charge for conspiracy to defraud at common law and section 159E (3) of the Crimes Ordinance and/or an offence for money laundering under section 25 of the OSCO.  In addition, he also mentioned the possibility of offences under section 373 of the Companies Ordinance for failing to maintain proper records and for tax evasion under section 82 of the Inland Revenue Ordinance.

41.  Before considering those possible offences in turn, it is worth revisiting §§18 to 21 above and to have those matters firmly in mind when considering the question whether in respect of any of the possible offences identified by Mr Chung there is a “serious risk of prosecution”.

42.  The context, overriding purpose and parameters of the Order 48 examination admit of no ambiguity: the creditors (ie the plaintiffs) seek information to determine what debts are owing to WFL and what assets/property it has to satisfy the outstanding judgment which is of a considerable magnitude obtained by the plaintiffs.  The reason is blindingly obvious.  If recoverable, they would go towards reducing the outstanding judgment debt.

43.  The plaintiffs have identified an amount of approximately HK$6.35 million in total that they consider might properly be held to be WFL’s assets/property that had been wrongfully paid or applied and recoverable.

44.  The questions are designed to elicit information concerning the application and whereabouts of the sums paid/applied totalling that amount.  The obvious offences are theft and false accounting contrary to sections 9 and 19 of Cap 210 in respect of which the privilege has been abrogated.

45.  As to the possibility of a charge other than under Cap 210, as is apparent from Renworth, one has to assess the possibility by looking at the possibility “realistically” or as Stephenson LJ put it in Khan the court should “consider the substance of the proceedings”.

Conspiracy to defraud

46.  In my view, on the facts and in the context, the possibility of a conspiracy charge is remote and fanciful for the following reasons.  To found a charge of conspiracy there has to be evidence of some agreement on the part of D3 with someone else.  The statements contain no allegation of any agreement between D3 and anyone else to make any of those payments.  Rather, the statements point to D3 acting on his own.  There is simply no allegation and no evidence of the existence of any agreement.

47.  Further, the notion that the answers could lead to a conspiracy charge is analogous to the scenario postulated by Stephenson LJ in Khan of a forgery charge being added to charges under the Theft Act in that case.  Stephenson LJ’s observations in Khan (at 519) with which Morritt LJ agreed in Renworth (at 253h‑j) are pertinent:

“… Let me assume then that [a forgery charge] is not ‘remote and fanciful’ and cannot be disregarded. But it is fanciful to suppose that the first defendant, if prosecuted, will be prosecuted for forgery alone. What is possible is that he may be prosecuted for theft and forgery. But proceedings for theft and forgery would, in my judgment, still be proceedings for an offence under the Theft Act. It would be monstrous if the assistance given by section 31 to persons seeking to recover their stolen property could be defeated by the bare possibility of an alternative charge of an offence under some other Act, or at common law, being introduced into the criminal proceedings … it would be monstrous also if the prosecution were to resort to what Lord Wilberforce in Rank Film Distributors Ltd. v. Video Information Centre [1981] 2 W.L.R. 668, 674, described as ‘a contrived addition to other charges’ for the purpose of defeating the protection given to a defendant by the section and introducing otherwise inadmissible evidence. …” (emphasis added)

48.  In his judgment in Renworth, Neill LJ also considered the same point.  He expressed his agreement with the judge below in that case who had this to say when the possibility of a conspiracy charge being added to the Theft Act offences was put to him:

“I am afraid I have to say that I think that suggestion is fanciful as well. If … there is a serious possibility of a straightforward charge of theft or obtaining by deception, I am afraid I cannot see why a prosecutor should add a charge of conspiracy nor, in my judgment would it be proper to him to do is. But even if that outside possibility which were to accrue, first of all, in company with Stephenson LJ in [Khan], I consider it a bare possibility only at the very most and, secondly, also in company with Stephenson LJ and Khan, applying the test of what is the substance of the proceedings, the substance of the proceedings would be indubitably to be the offences under the Theft Act 1968 and not the ancillary conspiracy that was parasitic on them.” (emphasis added)

49.  That approach also accords with the statement at §36–57 of Archbold Hong Kong 2016 that:

“(1) As a general rule where there is an effective and sufficient charge of a substantive offence, a charge of conspiracy is undesirable: Verrier v DPP [1967] 2 AC 195, HL.

(2) [exceptions which have no application to the present case]

(3) A count for conspiracy should not be included with counts charging substantive offence is if the inclusion will result unfairness to the defence.”

While there are exceptions to the general rule stated in (1), on the facts, they are inapplicable to the present case.

Money laundering

50.  Without going into the niceties of the elements that constitute an offence of money‑laundering contrary to section 25 (1) of the OSCO, for present purposes, I will proceed on the assumption that it is (theoretically) possible for a money laundering charge to be brought, for example, in respect of any misappropriation of WFL’s assets that would form the predicate offence even though it does not accord with what is generally perceived to be “money laundering” that has been described in HKSAR v Lung Yun Ngan and another, unreported, CACC 482/2010, 12 May 2011 as:

“… the processing of criminal proceeds in order to disguise their illegal origins. … Money laundering is therefore inextricably linked to the underlying criminal activity that has generated it. It enables such criminal activity to continue. Money laundering flourishes when persons are prepared to turn a blind eye to the true nature of the funds with which they are dealing. …”

51.  So, for example, when D3 paid his monthly rent with WFL’s cheque, that could constitute a misappropriation of WFL’s assets.  Technically, it may be possible to treat the transfer made in the split second thereafter as a “dealing” in WFL’s assets for the purposes of a money laundering offence.  

52.  In that regard, it is relevant to bear in mind the observations of Stock JA in HKSAR v Chan Kim Chung, Nelson [2012] 2 HKLRD 263 at §16:

“[A money‑laundering charge] will only be needed in order to reflect the full culpability of the accused and to enable the court to sentence for that culpability. In other words, in the absence of a prosecutorial reason for laying a s. 25 charge, in the situation where the s. 25 conduct was not a dealing for a money laundering purpose, the court will not usually need to have before it a s. 25 charge in order to be able to punish appropriately the offender’s conduct.”

53.  So unless the facts give rise to “additional culpability” for which the money laundering charge is laid to meet, such an additional charge would be wholly inappropriate.  That is very much in line with the underlying approach of the court in Verrier v DPP.

54.  On the facts as disclosed in the hearing bundles, I consider an alternative charge of money laundering to be but “a contrived addition to other charges”.  Looked at realistically, it is highly unlikely to happen.

Offences against the Companies Ordinance

55.  The notion that a prosecutor would add quasi criminal offences where there is sufficient evidence to support a case for misappropriation and false accounting strikes one as fanciful and wholly detached from reality particularly when, as here, the plaintiffs are prepared to give an undertaking not to make such a complaint.

56.  In my view, a court must be vigilant and scrutinise all claims of privilege carefully to prevent abuse.  On the facts of the present case, I do not accept that there is a “real and appreciable” risk of such an additional charge being brought.

Tax evasion

57.  The reference in the statements to tax evasion has to be seen against the backdrop of the purpose of the Order 48 examination.  The thrust of what was being said was that the payments made with WFL’s monies to settle the personal expenses of D3 must have been misappropriations or embezzlement for otherwise they would have been reported to the Inland Revenue as benefits/income received by D3.  In that sense it was used rhetorically.

58.  Again, the substance of the proceedings against D3 would be for misappropriation/false accounting/embezzlement of amounts that the plaintiffs consider to belong to WFL and which the plaintiffs are anxious to recover.  I do not regard that in the circumstances there is any real and appreciable risk of criminal charges for tax evasion being brought whether alone or in addition to charges for offences under the Theft Ordinance.  The suggestion that D3 will expose himself to tax evasion charges if he is compelled to answer the questions has no real substance.

Conclusion

59.  I would stress again that it is imperative to scrutinise each and every claim to privilege.  It behoves a person asserting privilege “to explain, in so far as the description itself does not do so, why it is potentially incriminating”: JSC BTA Bank v Ablazov [2014] 2 CLC 1029 at §39. 

60.  In the present case, D3 simply claimed privilege in response to each of the 140 unanswered questions.  It will be appreciated that there is ample scope for abuse particularly when the examinee asserts a blanket privilege.  Distinguished English judges have expressed some very trenchant criticisms of the privilege:

(a) Browne‑Wilkinson VC expressed the hope that the English equivalent of section 33 of the Theft Ordinance be extended so as to remove the privilege and all civil claims relating to property (but on terms that statements made are not admissible in criminal proceedings): Sociedad Nacional de Combustiveis de Angola UEE v Lundquist [1991] 2 QB 310 (EWCA) at 338F‑G;

(b) Lord Templeman considered the privilege exercisable in civil proceedings “as an archaic and unjustifiable survival from the past” and “profoundly unsatisfactory when no question of ill‑treatment or dubious confessions is involved”: A.T.&T. Istel Ltd v Tully (1993) 45 (UKHL) at 53D and 53G; and in the same case Lord Goff who considered the law “unsatisfactory”, (at 64B) called for review and reform;

(c) Waller LJ in Den Norske (at 284A‑G) regarded the rule as “unsatisfactory” and opining as to the need to extend the application of the privileged or criminal offences more generally; and

(d) Lord Neuberger MR, noting the repeated criticisms of the privilege in the past, considered that it “has had its day in civil proceedings”: Coogan v News Group Newspapers Ltd [2012] 2 WLR 848 at 857D‑G.

61.  While it would appear that the legislature has not yet taken heed of the criticisms and the privilege remains the law, those criticisms do highlight the need for very careful scrutiny of any claim to privilege.  I need hardly add that the absence of such scrutiny would have the effect of emasculating the whole purpose and objective of Order 48 examinations.

Directions

62.  I have reviewed all 140 unanswered questions in light of the legal principles and approach set out above.  I direct D3 to answer all 140 unanswered questions at the resumed hearing of the examination before Master J Wong.

Costs

63.  There is to be an order nisi of costs in favour of the plaintiffs.

HCA 1257/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1257 OF 2013

____________________

____________________

_______________

D E C I S I O N

_______________

INTRODUCTION

1.  This is the plaintiffs’ second summary judgment application in this action (“the 2^nd Summary Judgment Summons”).

2.  The plaintiffs (“Ps”), by this action, seek to make recovery in respect of two loans made in 2008, whether by way of repayment from the borrower (D1), or pursuant to security provided by D2 to D7.

3.  As to the parties, at the material times:

(1) Ps are a Singapore company and BVI company respectively, each carrying on business as an investment fund.  P1 made the relevant loans to D1 in 2008, and P2 agreed to sub‑participate in part of the 2^nd loan in about 2011.

(2) D1 is a Hong Kong company to which P1 made the loans.  At the time of the loans being made, the shareholders of D1 were Carlos Cho (“Carlos”) and D5.  Carlos was a director of D1 until his death on 14 November 2008.

(3) Probate in respect of Carlos’ estate has been granted to D2, who is sued in his capacity as executor of Carlos’ estate.

(4) D3, Vincent Cho (“Vincent”), is the son of Carlos.  Vincent was director of D1 until 19 June 2013.

(5) D4 (“IHAL”) is a Hong Kong company whose registered shareholders were Carlos as to 95% and Vincent as to 5%.  IHAL has a 79% stake in D7 (“FSCL”), which indirectly owns the Shenyang Property.

(6) D5 is a BVI company 100% owned by Carlos.  It was a shareholder in D1 and D6.

(7) D6 (“RIL”) is a Hong Kong investment holding company of which Carlos and D5 were equal shareholders.  RIL owns 90% of a PRC company, Shanghai Bund Park Lane Shoppers’ Plaza Co Ltd (“Shanghai Bund”).

(8) D7 (FSCL) is a BVI investment holding company of which Carlos and IHAL were shareholders as to 21% and 79% respectively.  FSCL owns 100% of a PRC company which holds the Shenyang Property.

4.  The first summary judgment application was for monetary judgment and was heard and decided in Ps’ favour by DHCJ B. Chu (as she then was) on 10 June 2014 (“the 1^st Summary Judgment”).  The substance of the order made at that time was for D1 and D2 to pay US$38 million plus interest.  No order was sought against Vincent at the 1^st Summary Judgment application, but he was served with the summons, he filed evidence on his own behalf and he participated in the hearing with legal representation.

5.  On 26 May 2015, Vincent took out a summons for leave to appeal the 1^st Summary Judgment out of time.  Extension of time was sought on the basis of fresh evidence in the form of a taped telephone conversation on 4 May 2015.  The application was dismissed by the Court of Appeal by its judgment dated 21 August 2015 (the “Leave Judgment”).

6.  This 2^nd Summary Judgment Summons was taken out by Ps on 9 February 2015 against Vincent, D4 (IHAL) and D6 (RIL).

(1) The 2^nd Summary Judgment Summons seeks final judgment for the relief claimed in the Amended Statement of Claim and costs, save for the relief already granted in the 1^st Summary Judgment.

(2) However, on this application I was informed that the only relief being presently pursued were the following orders for specific performance:

(i) against Vincent, of the two letters of undertaking dated 2 June 2008 (“LOUs”), and the two IHAL share pledge agreements dated 2 June 2008;

(ii) against D4, of the FSCL share pledge agreements dated 2 June 2008; and

(iii) against D6, of the two Shanghai Bund share pledge agreements.  (These agreements will be considered further below.)

RELEVANT BACKGROUND AND DOCUMENTS

7.  The background to this matter, and the defences raised in the 1^st Summary Judgment Application, are thoroughly addressed in the 1^st Summary Judgment.  However, I will briefly address the relevant background facts and documents for the purposes of this application below.

8.  On 2 June 2008, Ps and/or one or more of the Ds executed documentation relating to loan facilities totalling US$40 million, including.

(1) Loan Agreement for a loan facility of US$10 million by P1 to D1, with a repayment date of 2 June 2009 (“1^st Loan Agreement”).

(2) Loan Agreement for a loan facility f US$30 million by P1 to D1, with a repayment date of 2 June 2009 (“2^nd Loan Agreement”).

(3) Two letters of undertaking (“LOUs”) (in respect of each of the 1^st and 2^nd Loan Agreements).  Each LOU was given by both Carlos and Vincent, and promised (in certain circumstances) to sell a property they owned (“the Guangzhou Property”) and apply the net proceeds of sale to satisfy the loans.

(4) Eight share pledge agreements, including:

(i) Two agreements by Carlos and Vincent to pledge the shares of D4 (IHAL) as security for the 1^st and 2^nd Loan Agreements (“the IHAL Share Pledge Agreements”);

(ii) Two agreements by D4 (IHAL) to pledge the shares of D7 (“FSCL”) as security for the 1^st and 2^nd Loan Agreements (“the FSCL Share Pledge Agreements”); and

(iii) Two agreements by D6 (RIL) to pledge the shares of Shanghai Bund as security for the 1^st and 2^nd Loan Agreements (“the Shanghai Bund Share Pledge Agreements”).

(5) Two personal guarantees by Carlos.

(6) Two corporate guarantees by D7.

9.  Carlos died on 14 November 2008.

10.  D1 was unable to make repayment of the outstanding loan debt of US$38 million pursuant to the 1^st and 2^nd Loan Agreements. By two agreements dated 2 June 2009 (albeit signed thereafter), P1 and D1 agreed to amend the terms of the 1^st and 2^nd Loan Agreements to (1) extend the repayment date (2) vary the interest terms (“the 1^st and 2^nd Amendment Agreements” respectively).  D1 entered the 1^st and 2^nd Amendment Agreements by its director, Vincent.

11.  By solicitors’ letter dated 31 May 2013, Ps stated that an event of default under Clause 7.1 of the Loan Agreements had occurred, demanding immediate repayment of the loans, interest and other amounts apparently accrued under the Loan Agreements.  I am not aware of any earlier notice of event of default under Clause 7.2 of the Loan Agreements (in particular, any Clause 7.2 notice prior to the Amendment Agreements).

SUMMARY JUDGMENT — RELEVANT PRINCIPLES

12.  There was no dispute as to the applicable legal principles.

(1) Leave to defend should be given where the defendant raises any substantial question of fact which ought to be tried, or there is a fair dispute to be tried as to the meaning of the document on which the claim is based: Hong Kong Civil Procedure 2016, para 14/4/11, pp 272.

(2) Leave to defend should be given where a difficult question of law is raised: Hong Kong Civil Procedure 2016, para 14/4/12, pp 272.

(3) “House of Lords points” should be left to mature consideration at trial: Citic Ka Wah Bank Ltd v Lau Kam Luen [2008] 2 HKLRD 167.

D4 AND D6

13.  I can dispose of the applications against D4 and D6 briefly.  Each of D4 and D6 have by letters dated 27 August 2015 addressed to the court stated, by reference to the 2^nd Summary Judgment Summons, that they do not object to summary judgment and the relief sought against them in the ASOC (which is the relief claimed today).  Accordingly, those orders for specific performance will be granted.

D3/VINCENT

14.  The plaintiffs made an application to amend the prayer of their Amended Statement of Claim, in order to claim specific performance of the IHAL Share Pledge Agreements against Vincent.  Although the plaintiffs had pleaded the facts they claimed to be necessary to make a claim against Vincent for specific performance of the IHAL Share Pledges, such a claim was omitted from the prayer.  I agree with Mr Edward Chan SC for the plaintiffs, leading Hugh Kam, that this is a technical matter.  Counsel for Vincent, Mr Earl Deng leading Au Lut Chi, did not object to the amendment.  I accordingly allow an amendment to the prayer as proposed by Mr Chan SC in oral submissions (without a draft amendment being produced) to add the following words to the prayer “AGAINST CARLOS AND/OR VINCENT” before “(2) Specific performance of the IHAL Share Pledge Agreements”.  The plaintiffs’ solicitors are directed to effect such amendment.  The costs of and incidental to the amendment are to Vincent, to be taxed if not agreed.

15.  The evidence filed in support of the 2^nd Summary Judgment Summons is the 7^th affidavit of Warren Allderige on behalf of the plaintiffs, the 5^th affidavit of Vincent in opposition, and the 12^th affidavit of Warren Allderige in reply.  The evidence suggests that Vincent would be disputing the indebtedness of D1 as primary debtor in order to defend the claims made against him.  Such evidence was filed before the Leave Judgment.  By the time of the service of the skeleton arguments, it was clear that (in my view, sensibly), Vincent was not disputing the indebtedness of D1 for present purposes.

16.  I am satisfied, by virtue of the 1^st Summary Judgment, that D1 is indebted to Ps.

17.  I am satisfied that Carlos and Vincent provided the LOUs to P1:

(1) The LOU in respect of the 1^st Loan Agreement (“the 1^st LOU”) provides:

“We, [Carlos] and [Vincent], refer to:

(a) [the 1^st Loan Agreement].

(b) All related agreements, undertakings, and understandings to the [1^st] Loan Agreement.

…

By virtue of this Letter and in consideration of Lender’s [P1’s] entry of the [1^st] Loan Agreement with Borrower [D1], the undersigned hereby:

(1) confirm that we are the owners of … (“the Guangzhou Property”)…

(2) undertake with you that should you exercise your right under Clause 7.2 of the above [1^st] Loan Agreement and that the Borrower fails to repay all monies outstanding under the terms of the above [1^st] Loan Agreement within 15 days of the receipt of the notice mentioned in the said Clause 7.2, we shall sell the Guangzhou Property in accordance with the terms of the above [1^st] Loan Agreement and pay the net proceeds of sale to you to satisfy the monies outstanding by the Borrower [D1] as aforesaid.”

(2) The 2^nd LOU is in identical terms save that it refers to the 2^nd Loan Agreement.

18.  I am also satisfied that the IHAL Share Pledge Agreements were provided to P1 by Carlos and Vincent as pledgors:

(1) The 1^st IHAL Share Pledge Agreement (in respect of the 1^st Loan Agreement) provides:

(i) Carlos owns 95% and Vincent owes 5% of the issued shares of IHAL.

(ii) Carlos and Vincent pledge the IHAL shares in favour of P1 as security for all moneys from time to time owing to P1 under the 1^st Loan Agreement.

(iii) Carlos and Vincent shall, immediately upon demand by P1, do all acts necessary or desirable to ensure the perfection of the pledge.

(iv) In the Event of Default (including any default under the 1^st Loan Agreement) and at the request of P1, the IHAL shares shall be sold by Carlos and Vincent in the open market at the then current market value or higher to settle D1’s obligations and duties under the 1^st Loan Agreement.

(2) The 2^nd IHAL Share Pledge Agreement is in identical terms save that it refers to the 2^nd Loan Agreement.

19.  Ps, having established the outstanding primary indebtedness of D1, and the obligations of Vincent under the LOUs and the IHAL Share Pledge Agreements (there being no dispute that the relevant demands have been made and notices given), are prima facie entitled to the relief they seek against Vincent.  The burden shifts to Vincent to establish an arguable defence.

20.  Vincent argues that there should be no specific performance of the LOUs on the following grounds:

(1) Vincent’s liability as a guarantor under the LOUs has been discharged.

(2) In any event, specific performance is not an appropriate remedy.

21.  Vincent argues that there should be no specific performance of the IHAL Share Pledge Agreements on the basis that specific performance is not an appropriate remedy in the circumstances.

DISCHARGE OF VINCENT AS GUARANTOR

(a) Arguments

22.  It is argued on behalf of Vincent that:

(1) The 1^st and 2^nd Loan Agreements were amended by the Amendment Agreements after Carlos died, and without the consent of, or on behalf of, Carlos.

(2) Carlos was therefore discharged from his guarantee liability under the LOUs.

(3) Vincent, as co‑surety with Carlos under the LOUs, is discharged from his liability thereunder by virtue of Carlos’discharge.

23.  It is argued on behalf of Ps:

(1) It is for Vincent to establish a defence.  Although Vincent pleaded the discharge of the LOUs’ liabilities by reason of variation to the 1^st and 2^nd Loan Agreements, D2 simply denied liability without raising the express defence.  (I am at a loss to understand why D2’s pleaded position should impact on Vincent’s case and I say no more about this.)

(2) Clause 4 of the Amendment Agreements (as construed by Ps) provides for the continuation of the security agreements provided by D1 in respect of the 1^st and 2^nd Loan Agreements, so that there is consent to variation of the 1^st and 2^nd Loan Agreements and/or a reservation of rights under the security agreements.

(3) In the absence of evidence as to ownership of the Guangzhou Property:

(i) If the Guangzhou Property was jointly owned, if one owner dies, then the whole property will be vested in the other.  Whether or not Carlos’ liability under the LOUs was discharged, that will not prejudice Vincent because Carlos had nothing to sell.[1]

(ii) If the Guangzhou Property was severally owned, as tenants in common, and if Ps are right in their construction of Clause 4 of the Amendment Agreement, then neither co‑surety is discharged, so the co‑surety point does not arise.[2]

(4) If Ps are wrong on the construction of Clause 4 of the Amendment Agreement, then Vincent is also estopped from claiming that he is discharged as guarantor because of his loss of rights against the principal debtor or co‑sureties.  That is (it is said) on the basis that Vincent engineered the change of position of the principal debtor, he knew Carlos was dead and no one represented Carlos’ interest, so he cannot claim the benefit of what he has engineered.

(b) Relevant legal principles

24.  Mr Chan SC and Mr Deng were largely agreed as to the applicable legal principles.

25.  If obligations under a contract are guaranteed, any variation to the contract must be agreed by the guarantor, or the creditor must reserve his rights against the surety when making the variation agreement, otherwise the guarantor will be discharged: Holme v Brunskill (1878) 3 QBD 495 at 505.

26.  The rationale for the general rule as to discharge of the surety is that a variation of the principal contract, for example by way of extension of time or release, interferes with the surety’s right to pay off the debt and sue the principal debtor: Holme v Brunskill at 505.

27.  The rationale for the exceptions is as follows:

(1) If a guarantor agrees to the variation, he has of course agreed to the variation of his own rights.

(2) If the creditor (in agreeing a variation with the principal debtor) reserves his rights against the surety, then the principal debtor impliedly consents to the surety’s rights against him remaining on foot notwithstanding the variation.  The surety’s rights to pay off the debt and sue the principal debtor remain intact.  Mahant Singh v U Ba Yi [1939] AC 601 at 609; Greene King plc v Stanley [2001] EWCA Civ 1966 at para 80.

28.  The burden of proof is on the creditor seeking to enforce the guarantee that the guarantor has given consent: O’Donovan & Phillips “The Modern Contract of Guarantee” (English edn) at paras 7‑56.

29.  Consent to the variations need not be express; it may be implied eg where the guarantor requests or instigates the variation and/or where the guarantor is a director of the principal debtor company and negotiates with the creditor for the variation: O’Donovan & Phillips at paras 7‑59‑7‑60.

30.  Mere knowledge of the variation is an insufficient basis from which to infer consent: O’Donovan & Phillips at para 7‑58.

31.  Polak v Everett (1876) 1 QBD 669 at 673 makes clear that if a surety is aware of a proposed variation of the principal contract which might discharge his liability as guarantor, there is no authority for the proposition that he is under a duty to warn the creditor. Mere knowledge of the variation by the surety does not amount to consent to the variation.

32.  Where the guarantor is the director of the debtor company negotiating for the variations, it would be unrealistic to make an artificial distinction in terms of his knowledge and consent between the two capacities of guarantor and director of the debtor: Beck Interiors Ltd v Russo [2009] EWHC 3861 (QB) at para 34; Winstone Ltd v Bourne [1978] 1 NZLR 94 at 96 lines 23‑43; German Trade House International Ltd v Lau Wai Ki [1996] 3 HKC 406 at 411H‑412E.

33.  As to the impact on a guarantor of the release of a co‑guarantor, Andrews & Millett “The Law of Guarantees” (7^th edn), para 9‑040 states that:

(1) The rationale underlying the discharge of the surety where the principal is no longer liable is that the creditor cannot do anything to put the rights of the surety in danger.  Accordingly, where the creditor releases a co‑surety who is jointly or jointly and severally liable, the surety’s rights of contribution and marshalling of securities are prejudiced, and the release will discharge the surety in toto, unless remedies have been reserved against him.

(2) Where one of a number of jointly liable co‑sureties is released, the remaining co‑sureties are wholly discharged.  The analysis is that since they are jointly liable, release of one is release of all.  However, the rule that this applies to jointly and severally liable sureties has been doubted by the Court of Appeal and must be treated with caution (referring to Commercial Bank of Australia v Wilson & Co’s Estate(Official Assignee) [1893] AC 181).

34.  I was not referred to Commercial Bank of Australia, nor did I hear argument on this area of apparent uncertainty in the law.  I do not begin to consider whether the discharge rule does apply in the joint and several liability situation.  For present purposes, I assume that there may be discharge in the context of joint and several liabilities and that is not a matter for summary judgment.

(c) Discussion

35.  It seems to me that the Amendment Agreements would serve to discharge the LOUs unless either of the exceptions are established ie:

(1) consent of the guarantor, or

(2) reservation of the creditor’s rights against the guarantor.

36.  Vincent, as director of D1 who procured the Amendment Agreements, must be taken to have consented to the variations.  Mr Deng sensibly did not dispute this.

37.  I have no doubt that if the LOU contained a surety obligation of Vincent alone, then Vincent’s liability as surety would remain intact notwithstanding the Amendment Agreements.

38.  Ps rely on Clause 4 of the Amendment Agreements to argue that the LOUs, and the liability of Carlos and Vincent thereunder, remain intact.

39.  Clause 4 of the 1^st Amendment Agreement provides:

“The Borrower [D1] hereby confirms that any security agreements it has entered into pursuant to the [1^st] Loan Agreement will continue to secure its obligations under the [1^st] Loan Agreement”.[3]

40.  Mr Deng on behalf of Vincent argues that the said Clause 4 only applies to security agreements entered into by D1.  That certainly seems to be the literal meaning of Clause 4.  In other words, Mr Deng argues that Clause 4 of the Amendment Agreement does not apply to the LOUs and need not be considered.

41.  Mr Chan SC on behalf of Ps responds that Clause 4 cannot properly be read literally, as to do so robs it of any meaning whatsoever.  That is because if one considers the security agreements to be provided under the 1^st and 2^nd Loan Agreements, none of them were to be entered into by D1, but D1 was obliged to procure that they all be provided.  Significantly, Mr Chan SC submits that Clause 4 should be read as substituting the words “entered into” with “provided”.

42.  I now consider it necessary to address Ps’ pleaded case and the notice given to Vincent as to Ps’ case on the question of discharge of liability under the LOUs.

43.  Contrary to Ps’ submissions, the burden is on the creditor, Ps, to establish an exception to the general rule of discharge upon variation of the principal contract.  I note that Ps do not appear to have adequately pleaded their case.

(1) Although Vincent had expressly pleaded the discharge of the LOUs by reason of the Amendment Agreements, Ps had not sought to make any positive plea in reply.

(2) Ps had indeed pleaded the Amendment Agreements in their Amended Statement of Claim including Clause 4 thereof, but:

(i) they have not pleaded that Clause 4 should be rectified or construed in a manner other than its literal or natural meaning,

(ii) nor have Ps pleaded that by Clause 4 of the Amendment Agreements, either (i) Carlos and Vincent had agreed to the amendments or (ii) Ps had reserved their rights against Carlos and Vincent as guarantors.

(3) Warren Allderige’s 12^th affidavit (ie Ps’ reply evidence on the 2^nd Summary Judgment Summons) stated at para 32 that the LOUs were not discharged because of Clause 4 of the Amendment Agreements[4].

(4) Mr Chan’s skeleton argument submitted that Clause 4 of each Amendment Agreement operated as a reservation of rights of P1 against Carlos and Vincent as guarantors, which would prevent the Amendment Agreement from operating to discharge either guarantor.

(5) The express argument that Clause 4 should be construed in a manner other than its literal meaning only arose in Ps’ oral argument at the hearing.  The “construction” argument really requires certain words of Clause 4 to be replaced by others.  It might more accurately be described as a rectification argument.

(6) Whilst Mr Deng did not complain about the lack of notice of these arguments, it would seem to me to be unsatisfactory for the court to be determining matters on a summary basis that have not been properly pleaded or notified, with the resulting lack of argument on important matters.

(7) If I had thought that the construction argument might arguably have got Ps home in their claim under the LOUs, I would have been most reluctant to allow it at this stage in light of the state of pleadings and inadequate evidence and analysis.

44.  However, I do not consider it necessary to decide the construction point because it does not assist me in deciding whether it is arguable that either of the two exceptions to the guarantee discharge rule apply.

45.  Firstly, on the consent issue, as Mr Deng argued, Clause 4 of each Amendment Agreement is effective only between those parties who have agreed to it.  That must be right.

(1) Vincent did consent to the variations.

(2) There is no question that Carlos did not agree to Clause 4 or any part of the Amendment Agreement, as he had died by that time.

46.  Also on the consent issue, Mr Deng argued that, unlike other documents within the suite of security documentation executed in support of the 1^st and 2^nd Loan Agreements, the LOUs did not permit Ps and D1 to make any variations to the principal contract without further consent from Carlos and Vincent.  Mr Deng referred to Clause 6 of the IHAL Share Pledge Agreements[5] and Clause 2.5 of Carlos’ personal guarantee[6] to make this point good.

(1) So, Mr Deng argued, if the parties had intended that the LOUs remain intact and enforceable notwithstanding a variation to the 1^st or 2^nd Loan Agreements, there would have been an equivalent provision in the LOUs.

(2) I accept that, as far as it goes.  The effect of Clause 6 of the IHAL Share Pledge Agreements, and Clause 2.5 of Carlos’ personal guarantee, is that the terms of the loans could be varied without discharging the IHAL share pledge or Carlos’ personal guarantee, without need for any further agreement from IHAL or Carlos.

(3) However, what we are concerned with is whether, where there is no prior consent in the LOUs, Clause 4 serves as consent by the guarantors that the LOUs remain in place notwithstanding the variation. 

(4) So, although Mr Deng’s observation is correct, it does not advance matters for present purposes.

47.  Secondly, on the issue of reservation of rights: Ps have not persuaded me that Clause 4 of the Amendment Agreement would operate as a reservation of Ps’ rights as against Carlos and Vincent under the LOUs, so as to amount to an exception to the general rule of discharge of the sureties.  Indeed there was really only a bare submission on the point, without developed argument.

(1) As I understand the rationale for the exception, the reservation must operate so that the creditor could enforce any existing rights under the guarantee, allowing the guarantor to sue the principal debtor.

(2) In this case, Clause 4 of the Amendment Agreements, even on the Ps’ construction, provides for the continuation of the LOUs, where liability thereunder is only triggered by an exercise of the right under Clause 7.2 of the Loan Agreements to give notice of default and a failure by D1 to pay within 15 days thereafter.  If the variation of the Loan Agreements means that there is no notice of event of default, then there are no rights against the sureties which have been reserved.

(3) This is to be contrasted with the hypothetical situation of the variation agreement effectively providing that the creditor can immediately pursue the surety as if there were no variation of the principal contract.

48.  Accordingly, it seems to me to be at least arguable that Carlos was discharged from liability under the LOUs by the Amendment Agreements.

49.  What then is the impact on Vincent’s liability under the LOUs?

50.  It seems clear that if Carlos and Vincent are jointly liable under the LOUs, then discharge of Carlos’ liability would affect Vincent’s ability to seek a contribution from Carlos and accordingly also discharge Vincent as co‑surety.

51.  Mr Chan SC did not suggest that I was in a position to determine whether the LOUs gave rise to joint or joint and several liabilities of Carlos and Vincent.  He gamely attempted a hypothetical analysis of the potential ownership structure of the Guangzhou Property by reference to Hong Kong law principles of succession and property law, but  I do not find that to be of assistance.

52.  It therefore seems to me to be a triable issue as to whether the liabilities of Carlos and Vincent under the LOUs were joint (in which case, the discharge of Carlos would serve to discharge Vincent), or joint and several (in which case, there is an issue of law to be considered as to Vincent’s liability).

53.  Mr Chan submitted that it would be wrong for Vincent to benefit from the discharge of Carlos when Vincent consented to the variations on his own behalf and knew that Carlos’ interest was unrepresented.  Mr Chan did not cite any authority in support.  Indeed his submission seems to run contrary to Polak v Everett.  Although Vincent consented on his own behalf, Vincent did not represent Carlos’ interest and it was not Vincent’s duty to warn P1 that without obtaining Carlos’ consent, there was a risk of discharge of the LOUs.

54.  Accordingly, I find that Vincent has an arguable defence to Ps’ claim under the LOUs.  Insofar as I deal with the availability of specific performance of the LOUs below, I do so for completeness’ sake only.

SPECIFIC PERFORMANCE

55.  The elements for the relief of specific performance are (1) that there is a complete, binding and valid contract (2) that the contractual terms are sufficiently certain and (3) that damages are not an adequate remedy. See Ma, Equity and Trusts Law in Hong Kong (2014) at para 23‑4.

56.  I understood Mr Deng to dispute Ps’ entitlement to specific performance on the basis that damages would be an adequate remedy.  In the context of the IHAL Share Pledge Agreements, Mr Deng also argued that there was no need for an order of specific performance in light of the factual circumstances (considered further below).

57.  There has been a growing tendency by the courts not to treat the adequacy of damages as a necessary threshold to surpass, but rather to ask the ultimate question of whether it would be more just to grant specific performance than to award damages. See Spry, The Principles of Equitable Remedies (2014) at 62‑63.

58.  If the subject-matter of the contract is shares of a company, and if it would be problematic and difficult to assess the value of the shares at the present stage, and thus the damages which might be awarded, then damages would not be an adequate remedy and specific performance should be ordered.  See Advertasia Street Furniture Ltd v China Outdoor Media Investment (Hong Kong) Co Ltd (HCCL 145/1999, 8 October 2004) at paras 57‑58 (Stone J); and Evans Marshall & Co Ltd v Bertola SA [1973] 1 WLR 349 (EWCA) at 380C (Sachs LJ).

59.  Where there is a risk that the defendant will be unable to satisfy an order for damages (eg the defendant has an unknown financial status), that would in and of itself be enough to justify the conclusion that damages are inadequate.  See Evans Marshall & Co Ltd v Bertola SA (1973) at 380H‑381B (Sachs LJ).

60.  As to the LOUs, there is at present no evidence of the value or nature of the Guangzhou Property.  Ps’ written submissions asserted that Vincent, inter alia, would not be able to repay the loan debts, so that he would not be good for damages.  Mr Deng did not, I think, dispute this.

61.  As to the IHAL Share Pledge Agreements, Mr Deng argued that the court should not make an order that would serve no purpose.  He submitted that where D2 owned 95% of the IHAL shares, and Vincent owned 5%, and receivers had been appointed to manage D2’s IHAL shares, then Ps could recover their debt from the 95% interest, and specific performance of the pledge over Vincent’s 5% would only be more trouble for the court (in terms of directions and supervision), and be superfluous.  I am unable to accept that submission.  As Mr Chan SC responded, the 5% interest must necessarily have value of its own.  Indeed, one can see that a realisation of 100% of a private company may well be more attractive than the 95% stake, with a sitting 5% minority shareholder.

62.  I see no reason why there should not be an order for specific performance of the IHAL Share Pledge Agreements.

ORDER

63.  Accordingly, I order as follows:

(1) leave to Ps to amend the prayer of the ASOC to claim specific performance of the IHAL Share Pledge Agreements against Vincent, with costs of and incidental to the amendment to Vincent;

(2) as against D4, specific performance of the FSCL Share Pledge Agreements with costs to Ps;

(3) as against D6, specific performance of the Shanghai Bund Share Pledge Agreements with costs to Ps;

(4) as against Vincent, specific performance of the IHAL Share Pledge Agreements;

(5) leave to Vincent to defend the claim for specific performance of the LOUs; and

(6) liberty to the Plaintiffs to apply for directions in respect of the specific performance ordered under paras (2), (3) and (4) above.

64.  As to costs:

(1) The costs orders made above are nisi.

(2) The costs of the claims in respect of the LOUs and IHAL Share Pledge Agreements are to be determined following written submissions.  I note that the evidence filed in support of the 2^nd Summary Judgment Summons was largely irrelevant by the time of the hearing because the initial dispute apparently related to the indebtedness of D1, which was not argued at the hearing.  However, the bulk of the hearing was concerned with the issue of discharge of the guarantee liabilities under the LOUs, in which the Ps were unsuccessful.

(3) Insofar as the parties to seek to challenge the orders nisi, or make submissions as to the balance of the costs on the 2^nd Summary Judgment Summons, then they should provide brief written submissions within 14 days, with submissions in answer 14 days thereafter.

(4) Certificate for two counsel is granted in any event.

HCA 1257/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1257 OF 2013

________________________

_______________________

____________________________________

REASONS FOR DECISION
____________________________________

Introduction

1.  This court handed down a judgment on 1 August 2014 allowing, among other things, the plaintiffs’ application for summary judgment for monetary claims against the 1^st and/or 2^nd defendant (“Judgment”).

2.  In paragraph 154 of the Judgment, I set out my order, as follows:-

“154. My order is to the following effect:

(i) Final judgment of the total sum of US$38m under the Loan Agreements and the Amendment Agreements in favour of Ps against Winson Federal and/or the Executor;

(ii) Interest on (i) above of US$43,307,387 up until 10 June 2014;

(iii) Interests on (i) above at 20% pa on US$10m from 11 June 2014 to date of judgment and 22% pa on US$28m from 11 June 2014 to date of judgment, and thereafter at judgment rate;

(iv) Reimbursement to Ps of the costs of maintenance totalling HK$12,708,405 by Winson Federal;

(v) Ds be given leave to defend on the rest of Ps’ claims in the ASOC.”

3.  Pursuant to paragraph 154 (v) above, the last paragraph of the subsequent order drawn up pursuant to the Judgment (“Order”) thus read:

“IT IS FURTHER ORDERED that the 1^st, 2^nd, 3^rd, 4^th and 6^th Defendants be given leave to defend on the rest of the Plaintiffs’ claim in the Amended Statement of Claim.”

4.  Ps issued an application by summons dated 26 May 2015 (“Ps’ Summons”) for leave to correct the last paragraph of the Order, namely that Ps’ position was that the manifest intention of the court was merely to grant Ds, (or, as later transpired, only D1 and D2), leave to defend in relation to the rest of Ps’ monetary claims not adjudicated upon by the Order, and that no order had been made in relation to the remainder of Ps’ non-monetary claims.

5.  Ps’ Summons first came before this court for call over on 19 June 2015, during which this court had already indicated that it expressly recalled that Ps summary judgment application was solely to do with the monetary claims, and called for the transcript of the hearing on 10 June 2014 (“Hearing”) which led to the Judgment (“Transcript”).

6.  Mr Edward Chan SC and Mr Hugh Kam appeared for Ps at the substantive hearing of Ps’ Summons on 24 July 2015, and Mr Au Lut Chi appeared for the 3^rd defendant Vincent (“D3”).  The 1^st, 2^nd, 4^th and 6^th defendants were absent.

7.  At the commencement of the hearing, this court gave a preliminary indication that upon reading the Transcript and the Judgment, the court would be prepared to issue a corrigendum, to correct paragraph 154 (v), to the effect that the relevant Ds be given leave to defend on the rest of Ps’ monetary claims against them in the ASOC (“Corrigendum”).

8.  This was acceptable to Ps, but D3 maintained his objection.

9.  After hearing submissions from both sides, this court maintained its preliminary indication in issuing the Corrigendum and granted an order to Ps to amend the final paragraph of the Order to read:

“IT IS FURTHER ORDERED that the 1^st and 2^nd Defendants be given leave to defend on the rest of the Ps’ monetary claims against them in the ASOC.”

10.  I hereby give my reasons.

Reasons

11.  D3’s objections were based on-

(i) D3 had applied for leave to appeal out of time against the Order, which was heard before the Court of Appeal on 15 July 2015 with judgment reserved;

(ii) Once a court order was sealed and perfected, the court is functus officio and thus this court had no jurisdiction to revisit the Order;

(iii) Relying on Man Ping Nam v Man Fong Hang (2007) 10 HKCFAR 140, that even though the slip rule might come into play, but as the Order/Judgment was being appealed, the court should not lightly amend the Order by way of the slip rule, and that the only remedy for Ps would be to appeal;

(iv) Persons affected by orders of the court would need to know with certainty and finality what such orders consisted of, and that a party could not use the slip rule to insert into the original order a provision which was not there, not because of any slip in expressing the court’s intention but because it was not originally asked for: Bank of China v Xinyuan Trading Co (unreported 21 June, CACV 276/1998);

(v) When exercising the inherent jurisdiction of the court in clarifying an order, the prejudice to the other party (not the applicant) should be considered: Man Ping Nam[1].

12.  So far as (i) and (iii) are concerned, I understand that there had been no application on the part of D3 for leave to appeal out of time against the final paragraph of the Order.  His application only concerned the Final Judgment part of the Order.

13.  As for (ii), at the hearing, Mr Au had produced another authority Regina v Cripps Ex parte Muldoon and Others [1984] 1 QB 68 to support D3’s case.

14.  In Cripps, the applicants were petitioners in a local election petition against the respondent, the successful candidate, and the petition was heard by a commissioner Mr Cripps who was appointed to hear the petition.  After a 13-day hearing, Mr Cripps made a costs order awarding the applicants ¾ of their costs properly incurred in relation to the petition. Upon the respondent’s application, Mr Cripps sat again to clarify his order and explained and directed that “properly incurred” meant that the applicants were to have ¾ of their costs only upon those issues on which they had succeeded.  The applicants applied for judicial review by way of an order of certiorari to quash the subsequent direction on the ground that (i) the subsequent direction was a variation of the original order and (ii) was made in excess of the commissioner’s jurisdiction.

15.  It was held in Cripps, among other things, allowing the applicants’ application that (i) the election court, being an inferior court empowered by statute to hear the election petition itself was functus officio at the time of the subsequent direction, and (ii) in any event, the subsequent direction was not merely the correction of a slip, but was a radical departure from the original order, and that the commissioner had had no jurisdiction to vary his original order[2].

16.  As pointed out by Mr Chan, it was said by Lord Justice Goff in Cripps, that the powers of a judge of the High Court included the power to operate the slip rule, but in that case, the doubt was whether this power was conferred on Mr Cripps/election court under the relevant statutory provision, and that the Justices came to the view that the election court had ceased to exist after the first order was given.  Goff JA had said “Of course, where a High Court judge sitting in the High Court exercises his power under the slip rule to correct accidental errors, he can do so, because, although his order has been drawn up, the High Court has not ceased to exist”[3].

17.  Having considered Mr Chan’s submissions, I am in no doubt that this court has the power to correct certain mistakes under the slip rule.

18.  Order 20 rule 11 of the RHC states that :

“Clerical mistakes in judgments or orders, or errors arising therein from any accidental slip or omission, may at any time be corrected by the Court on summons without an appeal.”

19.  The relevant procedural history in the present case was:

10.07.13	Writ of Summons issued
18.11.13	ASOC filed in which Ps sought (1) monetary claims (“Monetary Claims”) and (2) specific performance claims of the (i) Share Pledge Agreements and (ii) Letters of Undertakings (“Specific Performance Claims”)
06.12.13	Ps issued the summons for summary judgment seeking both the Monetary Claims and the Specific Performance Claims of (i) Share Pledge Agreements (“1stSJ Summons”)
05.06.14	Ps Skeleton Submissions were filed in respect of the 1st SJ Summons, in which it was made clear that they were limiting the 1st SJ Summons to only the Monetary Claims[4].

20.  I accept that Ds’ skeleton submissions at the time had dealt with the Specific Performance Claims as well.

21.  However, it can be seen from the Transcript that Ps’ then Senior Counsel Mr Jason Pow had made it clear no fewer than 3 times at the outset of the Hearing that Ps were limiting their application in the 1^st SJ Summons to the Monetary Claims only.  Mr Pow also emphasized separately twice during the Hearing that the 1^st SJ Summons were concerned with Monetary Claims.  Later during the Hearing, Ps had made further concessions in relation to the Monetary Claims they were seeking, in that they would no longer claim summary judgment on (1) the late charge for failure to repay on time (2) the difference between the higher sum of interest calculated by Ps and the lower sum of interest calculated by the relevant Ds, and (3) the legal costs.

22.  Further, as pointed out by Mr Chan, this court had noted in the opening paragraph of the Judgment that the 1^st SJ Summons was for only those Monetary Claims in the amended statement of claim.  This can further be seen in paragraphs 59, 88, 149, 150, 152-153 of the Judgment. This court did not deal with any application concerning any of the Specific Performance Claims in the Judgment.

23.  Further, on 9 February 2015, Ps had taken out another summons for summary judgment in relation to the Specific Performance Claims (“2^nd SJ Summons”).  There was no immediate protest from D3 that he already had leave to defend in relation to those claims, and that it would appear that even at the first callover hearing for the 2^nd SJ Summons, even though D3 was legally represented at the time, he did not protest at the 2^nd SJ Summons on the basis that he had already been given leave to defend, and this was only raised at the 2^nd callover hearing on 24 March 2015.

24.  Ps had written to D3 on 30 April 2015 to seek their consent to amend the Order to reflect the correct position, but there was no response from D3 initially and eventually on 13 June 2015, D3 replied refusing to consent.  On the other hand, D2 had written on 13 June 2015 agreeing to the proposed amendment.

25.  Finally, as submitted by Mr Chan, on 15 July 2015, during the hearing of D3’s application for leave to appeal out of time, his Senior Counsel had acknowledged in open court that the Judgment was only in relation to Monetary Claims only.

26.  Mr Au had attempted to refer to the Judgment to submit that the court’s manifest intention was that D3 had been given general leave to defend, namely including leave to defend the Specific Performance Claims, but the paragraphs in the Judgment he had referred to[5] did not assist D3’s case. 

27.  Having considered Mr Chan’s and Mr Au’s submissions, and in particular in light of what transpired during the Hearing as reflected in the Transcript, and what was stated in the Judgment, the manifest intention of this court was that the Final Judgment given was only against the 1^st and 2^nd defendants for those Monetary Claims set out in paragraph 154 (i) to (iv) of the Judgment, and that the 1^st and 2^nd defendants were given leave to defend on the rest of the Monetary Claims against them in the ASOC.

28.  The error arose out of an accidental omission on the part of the court for not specifying in paragraph 154 (v) which of the Ds were given leave to defend, and also for omitting the word “monetary”.

29.  Mr Au had argued that D3 had interest in the Order as it was, since the final paragraph of the Order had touched upon D3, and that after amendment, there would be a “radical departure”.

30.  As the court’s manifest intention in the Judgment was clear, in my view, the present case can be distinguished from Cripps, and the Corrigendum would not result in any radical departure from the Judgment.

31.  As for any prejudice to D3, Mr Au submitted that the wording of the sealed and perfected Order was clear to any party or bystander including D3, the fact was that but for Ps’ realization of the clear wording, it would not have issued P’s Summons.  It was said that D3 was all along defending the case on the premises that leave had been granted to him against the Specific Performance Claims since there was no Monetary Claim against D3, which were directed against the 1^st and 2^nd defendants only, and that significant legal costs had been incurred in this direction.

32.  D3 was legally represented by Counsel and present throughout the Hearing.  Even though after the Judgment, he decided to act in person, this was not until some 2 months later.  In any event, as set out in paragraph 100 of the Judgment, D3 had a degree from the University of Toronto and further he had been a director of the Advisory Board for the English Language Education and Assessment Centre of Lingnan University. He should be able to understand the Judgment, in which this court had made it clear in the opening paragraph of the Judgment that the 1^st SJ Summons was solely concerned with the Monetary Claims against Ds. It had nothing to do with any Specific Performance Claims.

33.  Further, even though D3’s present legal team was not present at the Hearing, they had never sought to apply for the Transcript. After this court had directed that the Transcript be obtained, there should no longer be any doubt from the Transcript as to the court’s manifest intention.

34.  It was argued that D3 would suffer “forensic disadvantage” if he were not to be able to subpoena Wayne Ang in light of the “new evidence”[6].  However, this court has not yet dealt with the 2^nd SJ Summons, and this is an issue which D3 can raise at the substantive hearing of the 2^nd SJ Summons.

35.  For all the reasons set out above, I accepted Mr Chan’s submissions.  I granted Ps leave to amend the Order, along the lines of the Corrigendum issued by the court on 24 July 2015.

Costs

36.  Mr Chan conceded there should be no order as to costs of the issue of P’s Summons but sought costs of the call-over hearing on 19 June 2015, costs of the vacated hearing on 20 July 2015 (which was vacated as I was on sick leave), and costs of the substantive hearing on 24 July 2015, with certificate for 2 Counsel.

37.  Mr Au submitted that there should be no order as to costs throughout, and that in any event, there should be only certificate for one Counsel.

38.  As pointed out by Mr Au, the Order was drafted and drawn up by Ps and they could have sought clarification from the court before perfecting the Order, but they did not.  Ps had initially attached a draft amended order to P’s Summons.  The effect of the 1^st draft would be that the 1^st, 2^nd, 3^rd, 4^th, 5^th and 6^th defendant be given leave to defend on the rest of the Plaintiff’s claim, namely on the outstanding interest and the late charges.

39.  In Ps’ Reply Submission, they had sought leave to amend the 1^st draft to delete the reference to the 3^rd defendant.  At the commencement of the present hearing, Mr Chan had sought leave to further amend the draft amended order to include legal costs of US$117,257.58 pursuant to the Loan Agreements, as stated in paragraph 152(ii) of the Judgment.

40.  Then subsequently, at the hearing, after this court’s preliminary indication of the Corrigendum, Mr Chan then indicated that any references to 4^th, 5^th and 6^th defendants should also be deleted in the Corrigendum.

41.  In the end, the Corrigendum this court issued was quite different from the Ps’ 1^st draft attached to P’s Summons, or their 2^nd draft set out in their Notes on Reply[7].  I had indicated that it was not this court’s manifest intention to set out in paragraph 154 (v) the details of what constituted the rest of the monetary claims upon which the 1^st and the 2^nd defendants were given leave to defend.  This was accepted by Ps at the hearing before this court. 

42.  Mr Au had submitted that it could not be said that D3 had been unreasonable to oppose P’s Summons in light of the fact that it was Ps which drew up the Order and in light of the various versions of the amendments proposed by Ps.

43.  I had said earlier that the error/omission was on the part of the court. However, Ps should have become aware of the error/omission before perfecting the Order, and should have sought the court’s clarification before perfecting the Order, or at least shortly after the Order had been drawn up.  Further, it was not until Ps’ Notes on Reply that they submitted that the final paragraph in the Order should not have included D3, or as it later transpired during the Hearing, indeed any of the Ds, save for 1^st and 2^nd defendant.  Also, throughout, Ps were seeking to set out the “rest” of the Monetary Claims on which leave to defend was given in the amended order and yet there were also omissions on their part on what constituted the “rest” of the Monetary Claims.  As I have said, the Corrigendum did not set out the details of the rest of the Monetary Claims.  Even though D3 did not succeed in opposing amendments to the final paragraph of the Order, I find Ps’ own confusion in what amendments they were seeking had not helped the situation.

44.  Having considered all the circumstances of this case, and the matters in Order 62 rule 5(1), I am of the view that an appropriate order for costs is that there should be no order as to costs of and incidental to Ps’ Summons.

HCA 1257/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1257 OF 2013

________________________

________________________

__________________

J U D G M E N T
(Leave to Appeal)

__________________

Introduction

1.  There are two applications before this court taken out by D3, one issued on 17 March 2015 for leave to appeal (“Leave Summons”) against a receivership order made by this court on 3 March 2015 (“Receivership Order”), and one issued on 5 May 2015 for stay of execution of the Receivership Order (“Stay Summons”).

2.  On 1 August 2014, this court handed down a judgment granting final judgment for all monetary claims, being loans totalling a total sum of US$38m plus interests in favour of Ps against the D1/Winson Federal and/or D2 the Executor of the estate of the deceased/Carlos   having executed 2 personal guarantees as security for the loans (“MainJudgment”), and that the 1^st, 2^nd, 3^rd, 4^th and 6^th defendant be given leave to defend on the rest of the Ps’ claims.

3.  I shall adopt the same abbreviations in the Main Judgment, unless otherwise indicated.

4.  After the Main Judgment, there were discussions by Ps with D2 and an agreement was in principle reached by October 2014 for the transfer of various assets of the Carlos’ estate (“Estate”) (principally the shares of D4 – D7 and SFIC Ltd) (“Settlement Proposal”).  However, the beneficiaries of the Estate, including in particular D3, opposed the Settlement Proposal, and according to Ps, they had written repeatedly to D3 asking him to assist with the appointment of Ps’ nominees to be the directors of D1, D4, D7 and SFIC Ltd, but D3 had refused to assist.

5.  This eventually led to Ps issuing an ex parte summons under Order 30 and Order 51 of RHC, and s 21L of the High Court Ordinance on 26 February 2015, for their Managing Director, namely Allderige, to be appointed the receiver and manager of the companies D1, D4, D6, D7 and SFIC Ltd.  The ex parte summons was heard before M Chan J who directed that it should be inter-partes.  The inter-partes summons was then filed later on the same day (“Receivership Summon”) and fixed for hearing before this court on 3 March 2015 (“03.03.15Hearing”).

6.  The Receivership Summons was directed at D1, D2, D4 and D6.  Two affirmations of service were filed in connection with the service of the Receivership Summons and Allderige’s supporting 8^th affirmation on 26 February 2015, and service of Allderige’s 9^th affirmation on 27 February 2015, and further service of P’s skeleton submissions and hearing bundles on 2 March 2015.  All were served at the registered office of D1, D4 and D6, which were at the same address.  

7.  D2’s solicitors had also been notified of the Receivership Summons and they had written to the court, indicating that as D2 only obtained a Beddoe Order allowing him to defend the action and to receive and review all papers filed by the parties in the action, and as D2 had confirmed to Ps that he had no objection to the Receivership Summons, his solicitors asked to be excused from the 03.03.15 Hearing.  Such application was allowed by this court.

8.  The Receivership Summons was, however, not served on D7 a BVI company, nor SFIC Ltd, the PRC company which is the owner of the property in Shenyang (“Shenyang Property”) of the Project.

9.  Counsel Mr Hugh Kam appeared for Ps at the 03.03.15 Hearing.  D1, D4, and D6 were absent.  After hearing Mr Kam, and there being no opposition, the Receivership Order was made on the same day.

10.  Under the Receivership Order, Allderige was appointed as receiver and manager in respect of all shares in private and public companies owned by the Estate including D1, D4, D5, D6 and D7 (“Companies”) in or towards satisfaction of the moneys and interest due or will be due to Ps under any judgment in this action.

11.  The Leave Summons, as well as the Stay Summons were, however, not made by D2, against whom the Receivership Order was directed, but by D3, a beneficiary of the Estate.

12.  Senior Counsel Mr Edward Chan appeared with Mr Hugh Kam before this court for the present applications by D3, and Mr Earl Deng and Mr Au Lut Chi appeared for D3.

13.  There were two preliminary points raised by Mr Chan, namely (i) whether leave to appeal was necessary, and (ii) whether D3 had any locus standi to issue the two summonses.

Reasons for the Receivership Order

14.  The Receivership Summons was issued under both Order 30 and Order 51. 

15.  Mr Kam appeared on behalf of Ps at the 03.03.15 Hearing.  In view of the fact that D7 and SFIC Ltd had not been served, and SFIC Ltd was not even a party to this action, I had indicated that I was not prepared to make any receivership orders as sought in the Receivership Summons, namely over all assets and businesses of the companies named therein, in particular in respect of D7 and SFIC Ltd, and that I would be prepared to consider a receivership order over the shares instead.

16.  Mr Kam then asked for the matter to be stood down for him to take instructions.  Subsequently, Mr Kam came back to court with a revised draft order for my consideration, and he confirmed what he was seeking in the revised draft order was for equitable execution under Order 51 against shares held by D2.  I had queries as to whether D2 should be notified, and understood from Ps that D2 would not have any objection.  I then made an order in terms of the revised draft order.

17.  No reasons had been handed down at the time.  I will give my reasons briefly hereafter.  

18.  The debt outstanding by D1 and/or D2 under the Main Judgement was huge and had been outstanding for over 5 years, and the Estate did not seem to have enough cash to make full payment of the judgment debt as it had just over HK$15m as at mid May 2014.  The Shenyang Property and/or the Project would seem to be the only valuable asset but it is outside jurisdiction.  The Shenyang Property was held by SFIC Ltd, a subsidiary of D7, and in turn D7 was held as to 21% by the Estate and 79% by D4, and D4 was in turn held 95% by the Estate and 5% by D3.  The financials of D4, D7 and SFIC Ltd were not clear and there were apparently huge liabilities.  Any execution by way of charging order on D2’s shares in D4 would likely to take time, as stated in Allderige’s 8^th affidavit. Although there were winding up proceedings against D1, appointing a provisional liquidator for D1 would involve a substantial amount of costs.  It further appeared that Ps had tried different means of trying to settle the judgment debt, but these had been to no avail.

19.  No doubt Allderige was an interested party, but there was no objection from D2, or any one else at the time, to Allderige being appointed the receiver, nor was any other receiver and manager put forward.  Allderige had said that he did not intend to seek remuneration in the performance of his role as a receiver and manager.

20.  I had considered the circumstances of this case and the submissions of Mr Kam at the 03.03.15 Hearing.  I made an order in terms of the revised draft order at the 03.03.15 Hearing, which was an order made under Order 51.

Whether Leave to Appeal was necessary

21.  Mr Deng submitted that the final judgment for monetary claims was only part of Ps’ claims against D1 and D2, and that there was no final order yet for the other claims against D2 in the amendment statement of claim, in particular, the specific performance of the share pledge agreements in relation to D4 and D6, which were part of the Securities for the 2 Loans.

22.  Mr Deng had referred to this court’s decision in the case of Zhang Xiuhong and Liu Wenchenand others, HCA 2118/2012, unrep, 06.08.13.  However, in that case, first of all, there was no issue as to whether leave to appeal was necessary, and secondly, the appointment of receiver was expressed to be made until final determination of the action or further order, and was clearly interlocutory.

23.  Had the Receivership Order been made under Order 30, it could be argued that the order was interlocutory, but the Receivership Order was made under Order 51 for equitable execution of a final judgment for monetary claims.  I take the view that it was not an interlocutory order, even though in the Receivership Order, costs were stated to be in the cause.

24.  In the circumstances, I am of the view that no leave is required to appeal against the Receivership Order.

Whether D3 had any locus in issuing his two summonses

25.  Mr Chan submitted that the Receiving Order was made in relation to D2’s shares as owner of the shares, and the administration of the Estate had not been completed, D3 would not have any beneficial interest in the shares.

26.  Mr Chan had referred to Commissioner of Stamp Duties v Livingston [1965] AC 694, where the widow of the deceased testator had died before administration of the testator’s estate had been completed.  It was held by the House of Lords, among other things, that in the case of an unadministered estate the assets as a whole were in the hands of the executor, his property, and until administration was complete it could not be said of what the residue, when ascertained, would consist or what its value would be, and that at the date of the widow’s death, there was no trust fund consisting of the testator’s residuary estate in which the widow could be said to have any beneficial interest because no trust had as yet come into existence to affect the assets of his estate[1].

27.  Mr Chan also referred to Re Yuen Kiu Kwan, HCMP 414/2009, unrep, 17.04.09, a case where an originating summons was taken out by the administrator of the estate, for registration as a member of the respondent companies as successor-in-title to the deceased, and the applicant Ms Lo applied to join as a party to the originating summons, as she claimed to be the sole beneficiary to the deceased’s estate.

28.  It was said by S Kwan J, as she then was, that during the period of administration of the estate, Ms Lo had no legal or equitable interest in the assets comprised in the estate.  Her only right, as a putative legatee, was to have the estate duly administered by the administrator in accordance with law, and whatever property that came to the administrator in his office came to him in full ownership, without distinction between legal and equitable interest, and the whole property was his, and the administrator was to hold the property for the purpose of carrying out his duties and functions as the administrator, subject to the direction of the court[2].

29.  Mr Deng had relied on Order 15 rule 14(2) of RHC.  Order 15 rule 14 states as follows:

“(1) Any proceedings, including proceedings to enforce a security by foreclosure or otherwise, may be brought by or against trustees, executors or administrators in their capacity as such without joining any of the persons having a beneficial interest in the trust or estate, as the case may be; and any judgment or order given or made in those proceedings shall be binding on those persons unless the Court in the same or other proceedings otherwise orders on the ground that the trustees, executors or administrators, as the case may be, could not or did not in fact represent the interests of those persons in the first-mentioned proceedings.

(2) Paragraph (1) is without prejudice to the power of the Court to order any person having such an interest as aforesaid to be made a party to the proceedings or to make an order under rule 13. ”

30.  Although D3 is a party to the action, he was not a party to the Receivership Summons.  There had been no application for joinder by D3 to the Receivership Summons.

31.  Mr Deng submitted that the court had inherent jurisdiction to join D3, an ultimate beneficiary in the Estate, and that on behalf of D3, he made such oral application during the hearing before this court, and that there was no prejudice to Ps.

32.  Mr Deng then sought to draw an analogy based on insolvency law, that the shareholders and directors of a company under a receiving order would retain residual powers of management, including the power to institute proceedings challenging the validity of a debt, or the appointment of the receiver and to continue to act as monitors of the stewardship of the company’s affairs.  He further submitted that the appointment of a receiver should have no significant legal effect on the members’ ownership of the company’s shares that were subject to receivership, and that the companies could not, as a matter of principle, be disabled or disbarred from appealing the very order that had caused it to fall under administrations.

33.  Mr Deng had referred this court to Re Land and Property Trust Co Plc [1991] BCC 446 in which there was a petition by a creditor who had presented a winding–up petition against the Land and Property Trust Co plc (LP&T) and had petitioned for an administration order.  The person entitled to appear on the petition for an administration order took an objection to the locus standi of the petitioner, based on the proposition that a shareholder, a member or a contributory who presented a petition must both allege in the petition and show by evidence that he would receive a tangible share of a surplus on a winding up.

34.  As Harman J said, such a proposition was based on what Sir George Jessel MR had said in Re Rica Gold Washing Co (1879) 11 CHD 36, namely that a man could only come to the courts for relief if he had a proper cause of action, using that phrase in its widest meant, that was, a ‘sufficient interest’ in the outcome of the action to warrant his joining other persons and taking the court’s time to decide the matter raised[3].

35.  Harman J had also referred to what Oliver J had said in Re Chesterfield Catering Co Ltd [1997] Ch 373 when referring to a ‘sufficient interest’ and what was said by Jessel MR, that in order to establish his locus standi to petition a fully paid shareholder must show that he would, as a member of a company, achieve some advantage, or avoid or minimise some disadvantage, which would accrue to him by virtue of his membership of the company.  

36.  Mr Deng had relied on what was said by Harman J to support his argument that a member of a company would have residual powers to contest proceedings, and thus D3, being a member of D4 and through D4, D7, would have residual powers.

37.  However, as pointed out by Mr Chan, D3’s membership in the Companies was “neither here nor there”, as the Receiving Order was made against D2, and not the Companies.  

38.  Mr Deng had also referred the court to 2 judgments in the case of Lau Yu Shing v Chan Wing Hung Philip, one in the Court of Appeal, namely [2014] 2 HKLRD 688 and also the CFI unreported judgment, HCMP 263/2010, 28.01.11 where it was held that ultimate beneficiaries of an estate should be entitled to tax a bill arising between the solicitor and the client administrator, even though they were only third party beneficiaries.  The defendant’s appeal was subsequently dismissed by the Court of Appeal.

39.  Mr Chan had distinguished the facts of the present case from the Lau Yu Shing case.  The plaintiffs in the Lau Yu Shing case were beneficiaries to the estate of an ancestor, and there was a deed of family arrangement dividing among the 8 fongs which included the plaintiffs.  As can be seen from the earlier judgment of DHCJ Q Au-Yeung, as she then was, each of the 8 fongs were already beneficial owners of the lands allocated to it under the deed, and further limited grants of letters of administration had already been granted to the plaintiffs in respect of immovable property, although there had not been vesting.  It was held that the plaintiffs did have locus to take out the application to ask the defendant solicitor to render a bill of costs for work done for them.

40.  At present, the Estate was said to be insolvent, and D3 did not seem to have disputed it.  D2 had already made partial payment of about HK$10m towards the judgment debt.  Mr Chan had submitted that D3 could not stop the Estate from paying its debts, in particular under a final judgment.

41.  Mr Deng had submitted that the appointment of a receiver should have no significant legal effect on the company’s members or shareholders, and had relied on the Court of Appeal judgment in Compania Sud Amerciana de Vapores SA v Hin-Pro International Logistics Ltd, unreported, CACV 243/2014, 11.03.15, when the CA when considering whether the directors had to apply for leave to defend to the receivers appointed, had said that the receivership order, properly construed, did not require leave to be obtained before the company itself could resist proceedings, and went on to say that those principles were well-established and accord with common notices of fairness and justice, and it was difficult to see why a company faced with litigation should not be free to defend itself as best as it could, particularly where orders with potentially draconian effects had been made against it[4].

42.  As pointed out by Mr Chan, it would have been open for D2, the Executor, to appeal, but he did not.  

43.  Having considered Mr Chan’s submissions, I have come to the view that D3 does not have any locus to appeal against the Receivership Order.

Leave Summons

44.  To summarise, in light of what I have said above, I am of the view that the Receivership Order was not an interlocutory order, and no leave to appeal is required from this court.  Even if leave is required, I am of the view that D3 does not have any locus to appeal against the Receivership Order.

45.  Having decided in Ps’ favour on these two preliminary points, the Leave Summons in my view must fail.

46.  In any event, I am not satisfied that the appeal has merits.   There were 4 main grounds in the amended draft notice of appeal, which amendments were opposed to by Mr Chan as there had not been a summons to amend.  The complaint in Grounds 1 and 3 was that the Receivership Order was too wide, ie the order should have been against the Companies and not the D2’s shares in the Companies, and there was also a complaint that the order was wrong in that receivership should be concerned with powers of management and not with the transfer of ownership and control.

47.  The matter of whether it should be the Companies or the shares was canvassed during the hearing.  Further, the shares are assets of the Estate/D2, and in my view should be the right target for the equitable execution.

48.  As for Ground 2, the complaint was that there was insufficient evidence for real risk of dissipation.  The evidence had been set out in Allderige’s 8^th affidavit.  D3 had filed a 4^th affirmation on 6 May 2015 said to be in support of the Leave Application and the Stay Application, and had attempted to reply to the Allderige’s allegations of dissipation of assets in D1.  This affirmation was filed two months after the Receivership Order.  In any event, the Receivership Order was made under Order 51 of RHC, and not under Order 30 .

49.  As to Ground 4, whether Allderige should have been appointed as the Receiver, in my view, it is unlikely that Allderige would sell the Shenyang Property at an undervalue since Ps would wish to recover as much of the judgment debt as possible.  Further, from the evidence, all along, it was Ps which were clearly anxious to proceed with the matter, and there was no evidence that Ps would hold off from selling because this would allow interest to accrue.  D3 had alleged that Allderige had been incompetent and unprofessional.  As I have said, there had been no other receiver put forward by D2, nor by any one else at the time, who would be willing to be appointed and no information as to what charges would be involved or who would be responsible for such charges. In fact, even up to now, there had been no suitable alternative put forward by D3.

50.  Having considered both Counsel’s submissions, I am not satisfied that the appeal has a reasonable prospect of success, or there are other reasons in the interests of justice why the appeal should be heard.

Stay Summons

51.  The legal principles for stay applications are trite.  As submitted by Mr Chan, the courts’ approach is “to consider the balance of convenience and fairness as between the parties”[5].

52.  D3 did not issue the Stay Summons until 5 May 2015, about two months after the Receivership Order, notwithstanding he filed the Leave Application on 17 March 2015.

53.  On his own evidence, he was made aware of the Receivership Summons and the Receivership Order on the same day, namely 3 March 2015, after the hearing.

54.  After the 03.03.15 Hearing, Allderige had caused resolutions to be passed on the same day resolving the appointment of 4 new directors to D5 and D6.  Further on 5 March 2015, Ps’ solicitors had attended the registered office of the Companies and took away company documents.

55.  Allderige had also caused a shareholders’ general meeting of D4 to be held on 6 March 2015.  D3 had in fact instructed a partner of his present solicitors, as his proxy to attend the said meeting.  Ps had produced a transcript of the meeting of D4 on 6 March 2015.  There were 4 new directors appointed to D4 on 6 March 2015.

56.  D3 would have known the effect of the Receivership Order and that Allderige was appointed the receiver and manager of shares held by the Estate, latest within 2 to 3 days after the Receivership Order was made, if not on the same day.

57.  There had been no satisfactory explanation on the part of D3 for the delay in issuing the Stay Summons.  Although there was quite a lot going on after the Receivership Order, and a new legal team coming in, I do not find that these were good reasons for the delay, in particular when the Leave Summons had been taken out on 17 March 2015.  Mr Deng argued that any delay would not prejudice Ps, but as pointed out by Mr Chan SC, there would be prejudice as Ps had been spending money every day after the Receivership Order. 

58.  I have already said I am not satisfied that the appeal against the Receivership Order has merits, or that D3 has the locus. I accept what was submitted by Mr Chan, staying the Receivership Order would mean that Ps would no longer be able to manage the Shenyang Property, and given D3’s refusal to do so, there would likely to be a continued diminution of the value of the property, and even the possibility of a complete confiscation without compensation, and Ps would then not be able to recoup any more of the judgment debt.  Staying the Receivership Order would also delay the sale of the Shenyang Property.

59.  Mr Chan SC further submitted that there would be no prejudice to D3 in allowing the Receivership Order to continue running, since the operation would involve no incurrence of any costs on his part, and in fact he could benefit as the maintenance of the Shenyang Property would enable it to be sold at the highest price possible, and also lead to maximum residual income possible for him and the other beneficiaries.

60.  Having considered all the circumstances, I am not prepared to grant a stay pending appeal against the Receivership Order as sought in the Stay Summons, in particular when leave to appeal had not been granted.

61.  Just 3 days before the hearing before this court, D3 suddenly issued an originating summons on 12 May 2015 under HCMP 1149/2015 to seek an extension of time to serve a Notice of Appeal against the Main Judgment, based on new evidence in the form of a recording of a conversation between Ps’ former associate director Ang and Vincent’s mother Ruby.  This originating summons has been fixed for hearing before this court on 19 June 2015.

62.  At the present hearing, D3 seemed also to be applying for a stay pending the determination of this originating summons, but no proper application had been taken out in this regard.

63.  Further, “matters which have occurred since the date of the judgment or order” under Order 45 rule 11 of RHC has been said to refer to “matters which went to the validity of the judgment and which, if established before the Court, might justify the court in saying that this was a judgment which on the material now before it, it would not allow to be executed”[6].

64.  D3 has yet to satisfy this court that the recorded conversation would affect the validity of the Main Judgement.  Having considered the present material before this court, I am not persuaded that I should grant a stay pending the determination of D3’s originating summons in HCMP 1149/2015.

65.  To conclude, I dismiss the Stay Summons.

Order

66.  My order is thus:

(i) D3’s summons issued on 17 March 2015 for leave to appeal against the Receivership Order be dismissed;

(ii) D3’s summons for stay of execution of the Receivership Order be dismissed.

67.  As for costs, I see no reason as to why costs should not follow the event, to be taxed with certificate for two Counsel and paid forthwith.  This is an order nisi, which shall be made final after 21 days.

68.  Lastly, I thank all Counsel for their submissions and assistance to the Court.

HCA 1257/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1257 OF 2013

________________________

________________________

_______________

D E C I S I O N
(On Costs)

_______________

1.  This court handed down a judgment on 1 August 2014 (“Judgment”), granting, among other things, final judgment of a total sum of US$38m in favour of Ps against the 1^st defendant Winson Federal and/or 2^nd defendant the Executor, and that the 1^st, 2^nd, 3^rd, 4^th and 6^th defendant be given leave to defend on the rest of Ps’ claims.

2.  In the present Decision, I shall adopt the same abbreviations in the Judgment, unless otherwise indicated.

3.  Under the Judgment, I have adjourned the question of costs for argument.  I directed that written submissions to be lodged, and unless any party requested for an oral hearing or otherwise directed by the court, the matter would be dealt with on paper.

4.  Ps first lodged their written submissions on 22 September 2014, but as they had referred to without prejudice correspondence, this was objected to, and leave was given for Ps to withdraw their first submissions, and to re-lodge revised written submissions.  This was subsequently done on 22 November 2014.

5.  In the meantime, the 3^rd defendant had filed a notice to act in person, and had not lodged any submissions on costs.

6.  Neither the 1^st nor the 2^nd defendant had lodged any submissions to contest P’s written submissions.  Also, Messrs Cheung & Choy, acting for 1^st, 4^th and 6^th defendants indicated on 13 October 2014 they had no instructions to reply to P’s submissions.

7.  Ps sought costs of and occasioned by the Order 14 summons be paid by the 1^st and 2^nd defendants to Ps forthwith, to be taxed if not agreed with two Counsel’s certificate.

8.  As for the final judgment against 1^st and the 2^nd defendants, for avoidance of arguments, Ps were prepared to leave the issue relating to costs of this part of the action until final trial .

9.  As submitted by Ps, they had succeeded in their Order 14 summons for their monetary claims against the 1^st and 2^nd defendants, and that it was reasonable for them to pursue the interlocutory proceedings, and that Ps had not engaged in any misconduct.

10.  Having considered Ps’ submissions, I see no reason to depart from the usual costs to follow the event.

11.  In the above circumstances, I order that the costs of and occasioned by Ps’ Order 14 summons be paid by the 1^st and the 2^nd defendants to Ps, to be taxed if not agreed, with certificate for two Counsel, and to be paid forthwith.

HCA 1257/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1257 OF 2013

________________________

________________

J U D G M E N T

________________

Introduction

1.  The plaintiffs are presently seeking summary judgment against the defendants for only those monetary claims in the amended statement of claim.

2.  The plaintiffs will be collectively referred to as Ps, and the 1^st, 2^nd, 3^rd, 4^th, and 6^th defendants will collectively referred to as Ds.  

3.  Ps’ claims in the main action arose out of two written loan agreements under which loans had been made by the 1^st plaintiff (“P1”) to the 1^st defendant.  P1 is seeking repayment of such loans and specific performance of various security documents executed pursuant to those loan agreements.  The 2^nd plaintiff (“P2”) has been joined as co-plaintiff pursuant to certain sub-participation or assignment agreements and deed between Ps.  Ps were represented by Senior Counsel Mr Jason Pow assisted by Mr Hugh Kam.

4.  The 1^st, 3^rd, 4^th, and 6^th defendants were represented by the same firm of solicitors and Counsel Ms Zabrina Lau.

5.  The 2^nd defendant was represented by a separate firm of solicitors and Counsel Ms Elaine Liu.

6.  The 5^th defendant and 7^th defendant were BVI companies, and had not been served.  They were not legally represented and were absent at the hearing before this court.

Dramatis Personae

7.  P1, Pacific Harbour Advisors Pte Ltd, is a Singapore limited private company incorporated on 3 October 2006 and P2, Pacific Harbor Special Holdings Limited, is a BVI limited private company incorporated on 9 August 2011.  Both companies were and are carrying on business as an investment fund.

8.  Mr Warren Allderige (“Allderige”) is the managing director of Ps and Edward Foo (“Foo”) has been described as his business partner. Wayne Ang (“Ang”) was an associate director at P1 until about May 2013.

9.  The 1^st defendant (“Winson Federal”) is a Hong Kong limited private investment holding company incorporated on 15 July 1993.  There were two registered equal shareholders of Winson Federal, Cho Yuk Kei Carlos (“Carlos”) and the 5^th defendant (“USI Ltd”), a BVI limited private investment holding company incorporated on 28 January 2000 owned 100% by Carlos.

10.  Carlos was one of the directors of Winson Federal until he passed away on 14 November 2008 and probate has been granted to the 2^nd defendant Mr Frederick Kan who is sued in his capacity as executor of Carlos’ estate (“Executor”). The 3^rd defendant (“Vincent”) is the son of Carlos and was a director of Winson Federal until 19 June 2013.

11.  The 4^th defendant (“International Hoteliers”) is a Hong Kong limited private company carrying on a business of consulting in the hotel industry, and its registered shareholders were Carlos 95% and Vincent 5%.

12.  The 6^th defendant (“RI Ltd”) is a Hong Kong limited private investment holding company, of which Carlos and UI Ltd were equal shareholders.

13.  The 7^th defendant (“Furama Shenyang”) is a BVI limited private investment holding company of which there were two shareholders Carlos 21% and International Hoteliers 79%.  Through its subsidiary Furama Shenyang Investment Company Limited (“SFIC Ltd”), Furama Shenyang is the owner of a property and hotel development in the Shenhe District in Shenyang, PRC (“Project”). From 2004 to 2007, Carlos and International Hoteliers gradually acquired the majority ownership of SFIC Ltd through Furama Shenyang, with the majority of the funding provided by a loan from CITIC Ka Wah Bank.

14.  Madam Chang Myao Che, Ruby (“Ruby”), is Carlos’ widow and Vincent’s mother who lives in Toronto and was a director of Winson Federal, International Hoteliers, and RI Ltd.

Background

15.  According to Allderige, he and Foo first met Carlos during a lunch in Singapore on 22 February 2006 through the introduction of Ang.  Thereafter, there were further meetings between February and December 2007.  During such meetings, Carlos had represented to Allderige and/or Foo that, among other things, he and Vincent through their personal companies were in the process of acquiring the Project owned by SFIC Ltd, which was at that time 88% owned by Shenyang Furama and the remaining 12% owed by another entity.  Carlos and Vincent wanted a short term loan to acquire the remaining 12% interest in SFIC Ltd.

16.  P1 agreed to a loan to International Hoteliers and a loan agreement was signed on 3 December 2007[1] (“2007 Loan Agreement”).  Pursuant thereto, P1 advanced to International Hoteliers US $5,000,000 on 22 December 2007 and another US$2,500,000 on 25 March 2008, totalling US$7.5m (“Previous Loan”).

17.  Subsequently on about 22 May 2008, International Hoteliers acquired the remaining 12% interest in SFIC Ltd.

18.  According to Vincent, it was never the intention of Furama Shenyang and/or International Hoteliers to independently carry out the Project as Furama Shenyang did not have sufficient funds to do so, and it was all along the intention of Furama Shenyang to seek an outside partner to jointly carry out the Project.

19.  In early 2008, Carlos and Vincent approached P1 to seek a further loan in the nature of a “bridging facility” pending the refinancing of the indebtedness from CITIC Ka Wah Bank.  According to Allderige, before entering into new loan agreements, P1 agreed with Winson Federal and International Hoteliers that, for ease of administration, would regard the Previous Loan as being rolled into the new loan.

20.  It was not disputed that thereafter Winson Federal then entered into 2 loan agreements with P1 in June 2008 for 2 loans (“Loans”).

21.  The 2 loan agreements entered into between P1 and Winson Federal were:

(i)   An Agreement dated 2 June 2008 under which P1 agreed to lend to Winson Federal up to the sum of US$10m, subject to the terms thereof, and the purpose of which was stated to be exclusively for acquiring 12% of the issued and outstanding shares of SFIC Ltd (“1^st Loan Agreement”)[2];

(ii)   An Agreement dated 2 June 2008 under which P1 agreed to lend to Winson Federal up to the sum of US$30m subject to the terms thereof, and the purpose of which was stated to be exclusively for repaying the loan provided by CITIC Ka Wah Bank (“2^nd Loan Agreement”)[3].

22.  Two promissory notes, relating to respectively the 1^st Loan Agreement and the 2^nd Loan Agreement had also been executed by Winson Federal (respectively “1^st Original Promissory Note” and “2^nd Original Promissory Note”).

23.  The date for repayment of the principal of the 2 Loans was 2 June 2009 (“1^st Payment Date”)[4]. As stated in both Original Promissory Notes, the accrued interest on any outstanding principal was to be paid every 3 months on 2 September 2008, 2 December 2008, 2 March 2009, and on 2 June 2009 the balance of the accrued interest.

24.  As a security for the 2 Loans, the following security documents were entered into (“Securities”):

(i) Two letters of undertaking dated 2 June 2008, by Carlos and Vincent in their personal capacities to sell a property in Guangzhou (“Guangzhou Property”) to pay the net sale proceeds to satisfy the loans;

(ii) 8 share pledge agreements dated 2 June 2008 to pledge the shares respectively in RI Ltd, International Hoteliers, Furama Shenyang, and also in a company Shanghai Bund Park Lane Shopper’s Plaza Co Ltd (“SBPLSPC Ltd”), which held a property in Shanghai (“Shanghai Property”) to P1;

(iii)   2 personal guarantees by Carlos and 2 corporate guarantees by Furama Shenyang.

25.  By reason of the Securities, the following landed properties held by various companies or their value were in effect collaterals for the 2 Loans:

(i) The Project held by Furama Shenyang, the value of which, according to a valuation report dated 4 March 2010 prepared by CB Richard Ellis Ltd, as at 5 January 2010 was RMB 705m;

(ii) The Guangzhou Property, held by Carlos and Vincent;

(iii) The Shanghai Property, held by SBPLSPC Ltd in which RI Ltd held 90% shareholding.

26.  On 30 June 2008, a deed of novation was entered into between International Hoteliers, Winson Federal and P1 pursuant to which International Hoteliers was released and discharged from its obligations in relation to the Previous Loan under the 2007 Loan Agreement upon Winson Federal’s undertaking to perform and be bound by all the obligations and terms of the 2007 Loan Agreement[5].

27.  It was Ps’ case that a total sum of US$38m had been loaned to Winson Federal under the 1^st Loan Agreement and the 2^nd Loan Agreement.

28.  Allderige had produced a receipt dated 2 July 2008 from Winson Federal stating that it had received US$7.5m pursuant to the Loan Agreement dated 2 June 2008.  By the time of the hearing, it was not really disputed by Ps that this amount of US$7.5m was the Previous Loan.

29.  In July 2008, International Hoteliers transferred its 12% interest in SFIC Ltd to Furama Shenyang.  Since then, Furama Shenyang has been the sole ultimate beneficial owner of the Project.

30.  The payments received from P1 by Winson Federal after the signing of the 1^st and the 2^nd Loan Agreements and the 1^st and 2^nd Original Promissory Notes were as follows:

Date	Sum Received
8 July 2008	US$2,500,000
17 July 2008	US$1,500,000
26 August 2008	US$6,500,000
10 October 2008	US$10,000,000
21 October 2008	US$10,000,000

31.  That a total amount of US$38m had been drawn down and received by Winson Federal and/or International Hoteliers from P1 was not disputed[6]. It was also not disputed that there was a sum of US$2m undrawn under the 1^st and the 2^nd Loan Agreements.

32.  After Carlos passed away in November 2008, Vincent took over the handling of the Shenyang Hotel Project and dealing with representatives of P1, in particular Ang[7].

33.  Winson Federal failed to pay the interest due on 2 September 2008 and 2 December 2008.

34.  According to Allderige, by early April 2009, it had become clear that Winson Federal was going to continue to default on its obligations under the 1^st and the 2^nd Loan Agreements and that P1 was forced into negotiations on rolling over the Loans for another extended short term.  Allderige had produced some emails with draft agreements first dated 14 April 2009[8].

35.  On 30 April 2009, there was a luncheon meeting between Ang and Vincent (“1^st Meeting”).  It was not disputed that at this meeting, Ang personally handed Vincent 4 interest payment invoices in relation to interest accrued between 2 June 2008 and 2 December 2008 totalling US$3.2m, based on a fully drawn down amount US$40m (“02.09.08 Interest Invoices”)[9].

36.  According to Vincent, at the 1^st Meeting, Ang also informed him that Allderige would only collect interest on the Loans for the first 6 months and would leave the remaining outstanding interest until the final repayment of the principal of the Loans.  Further, Ang stated to Vincent that he understood the financial situation of Winson Federal and International Hoteliers and would not call for the repayment of the Loans on the stated maturity date, but would only do so when they had the means to repay the entire Loans including the principals (“1^st Representation”).  Vincent said at this 1^st Meeting he had pointed out to Ang that the interest calculations on the 02.09.08 Interest Invoices which were based on the full drawdown amount of US$40m were wrong and suggested that either the interest calculation be amended or Winson Federal be allowed to draw down the remaining US$2m of the 2 Loans.

37.  Thereafter, on 5 May 2009, Vincent said he had another luncheon meeting with Ang (“2^nd Meeting”).  According to Vincent, during this meeting, Ang informed Vincent that P1 would need some time to raise  the remaining undrawn amount of US$2m demanded by Vincent, and Ang further told Vincent “in confidence” that P1 did not have the cash for the drawdown under the 2 Loan Agreements (This was later denied by Allderige).  Vincent then informed Ang that Winson Federal would only pay US$1.6m as interest by early June 2009 and would wait for the drawdown of the remaining US$2m before paying the remaining US$1.6m interest.

38.  Thereafter, on 3 June 2009, Vincent received an email from Ang[10] attaching 2 invoices dated 2 June 2009 for re-calculated interests, one for the period from 15 July 2008 – 2 June 2009 on US$28m of US$3,344,263.89, and one for the period from 4 June 2008 – 2 June 2009 of US$1,370,208.33 on US$10m, totalling about US$4,714,292.22[11] (“02.06.09 Interest Invoices”). 

39.  In the afternoon of 3 June 2009, according to Vincent, he had a coffee meeting with Ang (“3^rd Meeting”) and informed Ang that despite the 02.06.09 Interest Invoices they would only pay US$1.6m as originally stated, and Ang agreed to Vincent’s suggestion.  Further, Vincent said at this meeting Ang had represented to him that there was no urgency to the repayment of the interest and that Winson Federal could pay whatever amount and whenever comfortable (“2^nd Representation”).

40.  Subsequently on 9 June 2009 Winson Federal did pay to P1 US$1.6m for interest.  What seemed to be in dispute was the period for which such interest was paid.  According to Allderige, the US$1.6m interest was for the period from 2 March 2009 to 2 June 2009.  According to Vincent, the US$1.6m was for the first 3 month period from 2 June 2008 to 2 September 2008 calculated on the basis that the full amount of the Loans of US$ 40m had been drawn down, based on the 02.09.08 Interests Invoices[12].

41.  Anyway, according to Vincent, he had another luncheon meeting with Ang on 12 June 2009 (“4^th Meeting”), and Ang had again stated to him that P1 could n4ot pay them yet the undrawn balance of US$2m under the 2 Loan Agreements, and did not know when P1 would have to the means to allow the drawdown.

42.  Vincent apparently reported the gist of his conversations with Ang in all the above 4 Meetings by an email dated 15 June 2009 to the Executor, although in the email, the year of the 4 Meetings was mistakenly typed as 2008 instead of 2009 (“Report Email”)[13].

43.  In the meantime, the parties agreed to sign two amendment agreements in respect of the 1^st Loan Agreement and the 2^nd Loan Agreement respectively (“Amendment Agreements”)[14], and new promissory notes were executed by Winson Federal (respectively “1^st New Promissory Note” and “2^nd New Promissory Note”)[15]. 

44.  The 2 Amendment Agreements and the 2 New Promissory Notes (collectively “New Documents”) were all dated 2 June 2009, but it appeared from an email dated 31 July 2009 from P1 to Winson Federal, these 4 New Documents were in fact signed by Winson Federal sometime on or after 31 July 2009, and the duly signed copies were only returned by Winson Federal to P1 on about 21 August 2009[16].

45.  It was Vincent’s pleaded case that pursuant to the 1^st and 2^nd Representations, a partial payment of interest of US$1.6m was paid, the Amendment Agreements were executed and no demand was made by P1 for payment of interests on the stipulated payment dates therein.

46.  Under the New Documents, the date of payment of the principal was extended from the 1^st Payment Date to 4 December 2009 (“2^nd Payment Date”).  The first interest payment was due on 2 September 2009, but again Winson Federal failed to pay the same.

47.  Vincent said that even after the 2^nd Payment Date, P1 had taken no steps whatsoever to chase for the repayment of the Loans or any interest accrued, and instead since December 2009, P1 stepped up its efforts in seeking outside investors for the Project.  According to P1, as the 2^nd Payment Date approached, it became clear that D1 was likely to default again, and P1 had little choice but to enter into a further agreement, this time to help in finding potential purchasers/investors for the Project, in the hope of expediting D1’s repayment of the Loans and interest due thereon.

48.  What was not disputed was that on 1 December 2009, the Executor, the International Hoteliers and P entered into an agreement whereby the Executor and International Hoteliers engaged P1’s representatives Ang and Foo to provide referral services of sourcing, arranging and identifying a purchaser of the Project for a period of 6 months in return for a fee on a successful sale (“Referral Agreement”)[17].

49.  On the 2^nd Payment Date, 4 December 2009, D1 failed to repay the principal of the 2 Loans.

50.  Vincent had produced a series of emails from about end of November 2009 onwards to demonstrate P1’s involvement in seeking outside investors, and/or seeking loans including from the United Overseas Bank, and identifying a number of potential investors. 

51.  Vincent further produced an email from Ang to him on 10 May 2010 with the subject “Favor”, in which Ang had requested that Winson Federal make a declaration that the Loans were not in default and that no event of default as defined in the 1^st and 2^nd Loan Agreements had occurred and that the ownership structure of the Project had not changed[18] (“Declaration Email”).  Allderige explained the reason for the Declaration Email was that P1 had needed a valuation of the debt for an audit of their fund and at that time, the parties were in negotiations for a further roll over of the Loans from 4 December 2009 to 6 December 2010[19] and P1 genuinely believed that those further amendment agreements would be executed.  Unfortunately, Vincent later refused to execute them.

52.  It was not disputed that on about 10-11 January 2011, Ang went with Vincent to Toronto to meet with Vincent’s mother Ruby. According to Allderige, this was for the purpose to seek repayment of the Loans, but according to Vincent, Ang told him the purpose was to keep Ruby informed of the latest situation regarding the Loans and the Project, and in relation to certain potential buyers or investors for the Project, and Vincent denied that Ang had ever asked for the repayment of the Loans.

53.  In the meantime, P1 began actively participating in the maintenance and continued development of the Project.  Vincent said in about December 2010, he had orally informed Ang that Winson Federal had no more money to pay for operating expenses of the Project and Ang had agreed that P1 would take care of those expenses.

54.  Although it was not disputed that P1 had made contributions towards the maintenance of the Project, the amount of the contributions was disputed.  According to P1, the total sum came to US$1.635m, but according to Vincent, based on the records available to Winson Federal and Furama Shenyang, the total amount received by those two companies was RMB 5,222,333 and HK$3,038,282.

55.  P1 acknowledged that there were no written demands for the repayment of the Loans and the interest thereon between 4 December 2009 and May 2013, and explained that this was because:

(i)   Vincent had repeatedly represented during that period that his family and their companies were in the process of selling the Project and they were unable to make any repayment and interest thereon; and that while P1 was involved in locating purchases and investors, Vincent, his family and their companies were equally doing so independently at the same time (in the earlier part of the period in question);

(ii)   The defendants knew well that they owed P1 the sums of the 2 Loans and the interest outstanding thereon and that P1 had expected prompt repayment, and there was no need to repeatedly waste time and effort issuing demand notes.

(iii)   Vincent was very defensive whenever P1 brought up the issue of repayment orally.  P1 did not wish to antagonize him further as they required his cooperation in selling the Project.

56.  According to Allderige, finally by early 2013 they had no choice but to pursue legal action, as it became clear to Ps that :

(i)   Vincent, his family and their companies had no genuine intention of selling the Project, eg an indicative offer made on 29 September 2011 for the purchase of the Project at US$100m, which was higher than the valuation on 5 January 2010 of RMB 705,000,000, was rejected by Vincent and/or Ds without any measured consideration.

(ii)   Vincent had abandoned work trying to sell the Project;

(iii)   An attempt by P1’s valuers to visit/enter the site in late March 2013 was refused and in spite of enquiries, no explanation was provided and no assistance was provided by Vincent and/or Ds.

57.  Ps’ solicitors sent to Ds formal demand letters dated 31 May 2013.  It would appear that settlement meetings then followed but were not fruitful.  Eventually, on 10 July 2013, Ps issued the writ in the present action against all the defendants.  In the re-re-amended writ, Ps claims were, among other things, the following:

Against Winson Federal and/or the Executor and/or Furama Shenyang

(i)   Payment of the total sum of US$38m under the 1^st Loan Agreement and 2^nd Loan Agreement;

(ii)   Reimbursement of the costs of maintenance and legal costs under the 2 Loan Agreements totalling US$1,633,849;

(iii)   Interests on (i) above of US$1,692,016.25;

(iv)   Late charges pursuant to the 2 New promissory Notes;

(v)   Interests on (i) as stipulated in the 2 Loan Agreements and the 2 Promissory Notes from 30 August 2013 until date of payment

Against the Executor and/or Vincent

(i)   Specific performance of the LOU in respect of the Guangzhou Property

Against the Executor and/or USI Ltd

(i)   Specific performance of the agreements on the pledging of the shares of RI Ltd

(ii)   Specific performance of the agreements on the pledging of the shares of International Hoteliers

Against the RI Ltd

(i)   Specific performance of the agreements on the pledging of the shares of SBPLSPC Ltd

Against the Executor and/or International Hoteliers

(i)   Specific performance of the agreements on the pledging of the shares of Furama Shenyang

58.  Ps’ statement of claim of 5 September 2013 was later amended and filed on 18 November 2013 (“ASOC”).  Vincent’s defence of 6 November 2013 was then amended and filed on 16 December 2013 and Winson Federal, International Hoteliers, RI Ltd filed their joint defence on the same day.  The Executor had also filed a defence on behalf of Carlos’ estate.  P’s replies to the defences were filed on 19 February 2013.

59.  On 6 December 2013, Ps took out the present summons under Order 14 rule 1 of RHC in which they sought final judgment against all the defendants for the reliefs claimed in the ASOC, except the relief of specific performance of the LOU in relation to the Guangzhou Property.  It was subsequently clarified by Mr Pow that the summary judgment application was solely concerned with the “monetary claims” in the ASOC[20].  

60.  Ps’ monetary claims in the ASOC were against Winson Federal and/or the Executor and/or Furama Shenyang only.  As Furama Shenyang had not been served yet, the Ps’ Order 14 summons should be confined to only Winson Federal and/or the Executor.

The Legal Principles on Order14

61.  The principles in a summary judgment application are trite.  It has been stated in paragraph 14/4/1 of the Hong Kong Civil Procedure 2014, Vol 1 (“HKCP”) and in the case of Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225, the underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff’s claim[21], and that the procedure enables plaintiffs in cases where there is no defence to obtain expeditious summary judgment to avoid unnecessary delay.

62.  It is further stated in HKCP that:

(i)   It is for the plaintiff to establish a prima facie case[22].  Once this is done, he will become entitled to judgment and the burden shifts to the defendant to satisfy the court why judgment should not be given against him[23].

(ii)   The defendant may show cause against the plaintiff’s application by :

(a)    A preliminary or technical objection;

(b)   On the merits, eg that he has a good defence to the claim on the merits, or (subject to Order 14A) that a difficult point of law is involved, or a dispute as to the facts which ought to be tried, or a real dispute as to the amount due which requires the taking of an account to determine or any other circumstances showing reasonable grounds of a bona fide defence[24]

63.  Mr Pow SC submitted that the defendant has to meet two limbs:

(i)   Whether the defendant’s assertions are believable, as stated in Re Safe Rich Industries Ltd, CACV 81/1994, 3 November 1994; Furthermore, as seen from Manciple Ltd v Chan On Man [1995] 3 HKC 459 (CA), the defendant’s assertions should be tested against contemporaneous documents and other pertinent circumstances[25].

(ii)   If the answer to the above limb is in the affirmative, the second to be considered is whether there is/are “a fair probability or reasonable grounds that a bona fide defence exists”, as seen in Toy Major Trading Co Ltd v Plastic Toys Ltd[2007] 3 HKLRD 345 (CA)[26].

64.  Further, as submitted by Mr Pow SC, if the above burden is not met by the defendant, judgment should be entered in favour of the plaintiff without more.  If the burden is met, the defendant should be granted unconditional leave to defend.  It is possible, if the defence set up is “shadowy” or if the case is almost one in which summary judgment should be ordered, to grant leave conditional upon the full amount in dispute being paid into court, and he referred to what was said by Cheung JA in Cheung Hung v Lau Kwok MongCACV 320/2006, unreported, 6 February 2007[27].

65.  As has been said inMan Earn[28],judgment should be granted in favour of the plaintiff if the defence put forward by the defendant is “frivolous and practically moonshine”.  It has also been said[29] inBank of Credit and Commerce Hong Kong LtdvQuadrutec Hotel Management & Development Ltd [1996] 4 HKC 316 (CA) that summary judgment proceedings are eminently suitable for claims on “dishonoured guarantees when the primary facts are not in doubt and the only result of letting the case go on trial would be delay the plaintiff further in the recovery of the money plainly due to him.”

66.  Further Ms Lau submitted as follows[30]:

(i)   Order 14 is for clear cases, ie cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise;

(ii)   The procedure is entirely inappropriate where the plaintiff’s entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. 

(iii)   Leave to defend should be given, for example, (1) where the defendant raises a substantial issue of fact which ought to be tried; (2) where there is a fair dispute as to the amount of liability; (3) where on the facts sworn there is a prima facie case on both sides; (4) where liability depends on professional opinions.

(iv)   In considering whether there are triable issues the Court will not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents.

(v)   On the other hand, a complete defence need not be shown. The defence set up need only show that there is a triable issue or question or that for other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law and no possibility of a real defence on the question of fact.

67.  With the above principles in mind, I turn to the present application.

P’s Case for summary judgment

68.  Ps’ case was that the oral representations alleged by Vincent were unbelievable and inherently incredible in the light of the indisputable contemporaneous documents and conduct of the parties, and the defences of promissory estoppel and/or estoppel by convention were built upon practically moonshine allegations.  The parties’ “promises” were recorded in the written Amendment Agreements and the New Promissory Notes, and their common assumption was that principal and interest of the 2 Loans were repayable at specifically defined and stipulated dates.

D’s defence

69.  D3’s pleaded case in his defence was that by reason of P1’s 1^st and 2^nd Representations, and P1’s conduct since early 2009, namely by entering into the Referral Agreement, by cooperating and assisting Winson Federal in the maintenance and continued development of the Project, by failing to make any demands for repayment of the Loans, P1 had represented to Winson Federal, or it was the common communicated assumption of P1 and Winson Federal that P1 would not call for the repayment of the Loans or enforce the Securities until the successful liquidation or monetization of the Project.

70.  Further Vincent had pleaded that in reliance of the 1^st and 2^nd Representations or common assumption above stated, Winson Federal had acted to its detriment, and thus P1 was estopped from bringing the present action, or otherwise not entitled to claim any sums under the 2 Loan Agreements.

71.  Ds further denied the calculation of interests, and averred that any sums claimed as Default Interest or late charges under the 1^st and 2^nd Amendment Agreements or the 1^st and 2^nd New promissory Notes were irrecoverable as being penalties in law.  Ds also denied that US$1,635,000 or any part thereof was remitted by P1 pursuant to Clause 11 of the Loan Agreements.

Relevant Principles on estoppel   

72.  In Luo Xing Juan v Estate of Hui Shi See (2009) 12 HKCFAR 1, Ribeiro PJ set out the requirements of promissory estoppel as follows[31]:

a.    the parties are in a relationship involving enforceable or exercisable rights, duties or powers;

b.   one party (the promisor), by words or conduct, conveys or is reasonably understood to convey a clear and unequivocal promise or assurance to the other (the promisee) that the promisor will not enforce or exercise some of those rights, duties or powers;

c.    The promisee reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise.

73.  It is enough if the promisee has altered his position in reliance on the promise so that it would be inequitable to allow the promisor to act inconsistently with it: for example, if the promisee has foreborne from taking steps that he would otherwise have taken to safeguard his legal position; or if he has performed, or made efforts to perform the altered obligation[32].

74.  As for the requirement that it must be inequitable for the promisor to go back on his promise, it cannot be defined with anything approaching precision, but the underlying idea is that the promisee must have acted in reliance on the promise in one of the ways above described, so that he can no longer be restored to the position in which he was before he took such action[33].

75.  As a general rule a promissory estoppel only causes a temporary and limited change in the rights of the parties and the promisor can revert to his strict rights after the promise has been restored to his former position[34].

76.  There was no real dispute on the above general legal principles.

77.  Ms Lau referred this court to the case of Kan Chi Cheun v New Happy Limited, CACV 15312001 22 January 2002, in which the Court of Appeal had granted the defendants unconditional leave to defend.  In that case, the defence case to the plaintiff’s claim to enforce the loan agreements was of a set off agreement or representations, and alternatively there was the defence of promissory estoppel.  However, I note in that case the Court of Appeal found that there were 3 items of evidence or the lack of it which were in relation to the set off agreement or representations and which were not dealt with by the lower court and the appeal was allowed mainly for these reasons.

78.  Mr Pow SC had referred this court to an admiralty case Lee Shing Hong Credit Limited and Mei Kwan Engineering Company Limited and others HCAJ 52/2009, unreported, 16 December 2009, in which the plaintiff had loaned monies to the 1^st defendant on the security of 3 vessels and personal guarantees from other defendants.  The loans were restructured later on the same securities.  The 1^st defendant then encountered financial hardship in meeting its obligations under the loan agreements.  The defendants alleged that the plaintiff’s general manager orally agreed that, in consideration of the defendants trying their best to repay the outstanding sums, they could pay whatever amount they could afford and the plaintiff would grant them further time to discharge their liabilities. The defendants had contended that in light of this oral agreement, the plaintiff was estopped from bringing the proceedings.

79.  Reyes J found the defence by the defendants untenable at law for 3 reasons, namely (i) it was inherently implausible that the plaintiff should make the oral agreement alleged, and that he doubted that the plaintiff, a commercial moneylender, would agree by way of an enforceable contractual promise that its creditors could pay whatever amounts they could, whenever they were able to do so; (ii) even if there were such an agreement varying the repayment terms of the relevant loans, the agreement (if it was to be enforceable) must be supported by valid consideration moving from the defendants to the plaintiff, and (iii) insofar so there might have been an estoppel arising out of some informal (that was, non-contractually binding) willingness by the plaintiff to afford the defendants more time to pay, such an estoppel could only have been suspensory or temporary at law, and after a period of reasonable notice, the plaintiff would be entitled to enforce its strict rights under the loan agreements as restructured.  Reyes J held that the defendants had no arguable defence and gave judgment against them in favour of the plaintiff.

80.  Mr Pow SC also referred this court to two applications for summary judgment by Lucky Zone Holdings Limited against two separate lots of defendants in HCA 784/2012 and HCA 785/2012, unreported, 29 May 2013, which were heard together.

81.  In Lucky Zone, there was no dispute that the plaintiff advanced 3 principal sums to the defendants in accordance with 3 sets of subscriptions agreements and the plaintiff was the registered holder of 3 convertible note instruments issued by the defendants pursuant to subscription agreements.  There was also no dispute that despite repeated demands for repayment, the interest and principal amounts due under the three 3 convertible notes were not repaid upon maturity.  The defendants’ defence was that the agreement between the plaintiff and the defendants was made partly orally, partly in writing and partly by conduct.  They relied on a prior oral agreement. 

82.  To J found that the oral term to be affront to commercial sense as the 3 convertible note instruments were prepared and drafted by lawyers and the alleged oral term was a very important term, and if the parties had reached agreement on this term, there was no reason why the defendants had not told their lawyers about the oral terms, and if they had done so, there was no reason why their lawyer would have inserted a clause in the convertible note instruments which was inconsistent with the oral term.  Furthermore, the alleged oral term sat very uncomfortably with the fact that the convertible notes were designed as negotiable instruments which were freely transferrable and with the exclusive agreement clause and the alleged oral term could not be brought to the notice of a third party holder in due course.

83.  To J had found that the alleged oral term relied on by the defendants lacked commercial sense and was inconsistent with the express exclusive agreement clause of the share subscriptions agreements and further the alleged oral term was vague and imprecise, and he gave judgment for the plaintiff in both the actions.

84.  To J had in his judgment considered a number of authorities including Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 which had also been referred to this court by Mr Pow.  Natamon was a customer of the defendant bank and she had relied on certain oral representations made to her by the vice president of the bank in relation to foreign exchange contracts before she entered into 2 agreements for FX trading.  She sued the bank for breach of the 2 agreements when the bank closed out her FX contracts because of concerns about her sources of wealth.  The bank then relied on its standard clause in their agreements, which stated that no amendment or waiver of any provision would be effective unless the same was in writing and signed by the bank.  Her claim was struck out at first instance but her appeal was allowed by the Court of Appeal.

85.  In Natamon, Cheung JA held that whether the entire agreement clause applied depended on the construction of the terms and that such a clause could be waived, and that because of the banks’ subsequent conduct in allowing the plaintiff to trade on the terms of the 2 agreements the question of waiver and estoppel arose.  Cheung JA had said the issue open to dispute was the effect of waiver and estoppel on an entire agreement clause.

86.  In Fortis Insurance Company (Asia) Limited and Lam Hau Wah Inneo CACV 86/2010, 28 October 2010, Kwan JA had agreed with what Cheung JA had said in Natamon and that there was room for debate on the applicability and effectiveness of the entire agreement clause in situations where waiver and estoppels might be invoked and on the facts of that case, the defendant’s case, if believed, could found a factual basis for waiver and estoppels and allowed the defendant’s appeal against the plaintiff’s summary judgment.

Discussion

87.  Ps’ claims were based on the written documents, including the 2 Loan Agreements, the 2 Original Promissory Notes, the 2 Amendment Agreements and the 2 New Promissory Notes.  It was clear under the Amendment Agreements, the Loans had to be repaid in full by the 2^nd Payment Date, and interests were payable under the Amendment Agreements.  The total amount received by Winson Federal/ International Hoteliers of US$38m was not disputed, and it was further not disputed that other than the sum of US$1.6m paid on 9 June 2009 towards interests, there had not been any payment of interests, or any repayments of the Loans or any part thereof.  I am satisfied that Ps had established a prima facie case.

88.  The burden then shifts to Ds to satisfy this court why judgment should not be given against them for those monetary claims sought by Ps.

Defence of promissory estoppel

89.  Ds’ defence of promissory estoppel was based mainly on the oral representations allegedly made by Ang to Vincent during those 4 Meetings (“Oral Representations”). In the defence the 1^st Representation and the 2^nd Representation were specifically pleaded, but Ms Lau had referred to 3 oral representations during the hearing and she seemed to be including what was allegedly said by Ang during the 2^nd Meeting on 5 May 2009, but this representation was not one which was pleaded to be relied on by Winston[35].  Anyway, I will refer to all representations alleged in these 4 Meetings as Oral Representations, which include the 1^st and the 2^nd Representations.   

90.  Ms Lau had submitted it was pertinent to note that Ps did not file any evidence from Ang to rebut Ds’ case.  This, however, can equally be said against Ds.  There was no evidence that they had tried to contact Ang to ask him to confirm the Oral Representations or to give evidence to support their case either.

91.  The main contemporaneous document relied on by Vincent for the alleged Oral Representations was the Report Email.

92.  The Report Email was dated 3 days after the 4^th Meeting.  It contained a careful record of what was said by Vincent and what was allegedly said by Ang, and recording the time and venue for each of the 4 Meetings, save there was a typing error as to the year.  It was sent to the Executor and copied to a HB Tsui of WP Holdings.  According to Vincent, he sent the Report Email to report to the Executor the conversations in the 4 Meetings[36].

93.  The Report Email was marked Importance “High”, although it did not appear from the contents that any action was required to be taken by the Executor, or any one else, upon receipt.  As pointed out by Mr Pow, there was no reference to the Report Email by the Executor in his short affirmation filed to oppose the present application.  The Executor did not adopt any part of Vincent’s affirmation, nor was there any reference to Vincent’s affirmation.  It was Ps’ case that they had reasons to suspect that the Report Email was not an authentic document.

94.  Ms Lui, for the Executor, had, however, pointed out that what Allderige had said in his 4^th affidavit in relation to the Report Email was only that it was self-serving and should not be given any weight, and there was nothing therein to indicate that Ps would challenge the authenticity of the Report Email, and therefore there was no need for the Executor to refer to the Report Email.  I accept her submissions in this regard, and shall assume for the purpose of the present application, the Report Email was sent to and received by those persons named and on the date stated therein.

95.  Allderige had commented that it was “greatly curious” that Vincent saw fit to record in great detail as between himself and the Executor what allegedly transpired between him and Ang, but never saw fit to put on record as between him and P1, and this would suggest that Vincent knew that P1 would immediately reject his account of the 4 Meetings. 

96.  The Report Email was clearly not between the contracting parties, and it was self-serving.  On the other hand, Ps had themselves also produced their own internal emails from 28 May 2009 to 3 June 2009 between Allderige and Ang indicating that Allderige was insisting Ang to get the interest paid on the Loans during that period, with Ang replying he was working on this and also “working on exit”[37].

97.  It did not appear from those internal emails that Ang was going to or had made any of the Oral Representations to Vincent as alleged, nor was there any reason as to why Ang would go out of his way to flout his superior’s order.  However, similar to the Report Email, P1’s internal emails would also be self-serving.

98.  Mr Pow had submitted that D’s allegations of Oral Representations were unbelievable, but even if D’s were able to demonstrate that there were indeed Oral Representations by Ang, such would have been superseded by the New Documents.

99.  Vincent’s explanation was that he continued to place reliance on the 1^st and 2^nd Representations, that despite the express terms contained in the New Documents, P1 would not call for the repayment of the Loans or the payment of interest accrued unless Winson Federal was in the position to repay the entire principal of the Loans. Further Ds’ case was that the New Documents were only signed as a matter of formality.

100.  The New Documents were signed by Allderige and Foo on behalf of P1, and Vincent on behalf of Winson Federal.  According to Allderige, Vincent had a degree from the University of Toronto and further Allderige had produced an annual report of Lingnan University for 2005/2006 showing Vincent to be a director of the Advisory Board for the English Language Education and Assessment Centre[38], and an email and attachments showing that Vincent was attempting to raise a real estate fund of US$100m to US$150m with a partner on about 29 March 2009[39]. 

101.  The evidence presently before this court, including in particular Vincent’s detailed record in the Report Email, indicated Vincent to be an educated, intelligent and financially astute man.

102.  Allderige had produced emails and attachments to show that there were earlier versions of the New Documents which were dated 14 April 2009 which seemed to be prepared by the legal associate director on P1’s side.  These were initially signed by Vincent around 14 May 2009 and returned to P1 for P1’s signature[40].  However, there were then subsequent changes.

103.  Allderige had said it took the parties several months to draft, consider, amend and execute the Amendment Agreements, and that Vincent had informed P1 that he would seek his own legal advice before executing the Amendment Agreements, and that there was a delay in execution as time was needed to finalize the terms.

104.  It appeared that the New Documents were eventually only signed sometime on or after 31 July 2009 by Vincent on behalf of Winson Federal.

105.  There were 4 main areas of changes between the earlier versions and the subsequently signed New Documents, namely (i) the original date for payment for principal stated in the earlier versions was 2 September 2009, which was later changed to the 2^nd Payme