LI YIZHOU v. CHINA ZENITH CHEMICAL GROUP LTD

HCA 1790/2023

[2024] HKCFI 3654

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1790 OF 2023

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BETWEEN

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D E C I S I O N

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INTRODUCTION

1.  This is an appeal of the defendant China Zenith Chemical Group Limited (“D”) against a master’s order dated 3 June 2024, in which Master Kay Seto (“the Master”) entered judgment against D for the sums of HK$10,000,000 (the total principal amount of the Bond as defined below); HK$4,200,000 (the interest due under the Bond Instrument as defined below); the interest due on the principal amount of HK$10,000,000; the interest on the sums so awarded at the judgment rate until full payment; and the costs to be taxed if not agreed (“the Summary Judgment”).

2.  This is also a hearing of D’s summons dated 10 September 2024 for leave to adduce new evidence at this appeal (“the Leave Summons”).

BACKGROUND

3.  This case involves a failed investment in a corporate bond issued by D to the plaintiff (“P”) in the amount of HK$10,000,000 (“the Bond”), where the principal invested amount has not been repaid at P’s redemption requests at the event of default, and neither has the annual interest.

4.  The complication that arises in this appeal concerns D’s contest on the Bond’s validity at the time of the attempted redemption requests.

5.  The factual narrative is replete with clashing factual evidence that has generated mutual allegations of fabrications. The court’s task in enquiring into the matter is further complicated by the fact that D appears to have changed its position on certain facts and defences a number of times.

6.  P is a national of the People’s Republic of China (“PRC”) residing in Hong Kong. In 2016, P applied to the Hong Kong Immigration Department seeking to benefit from the Capital Investment Entrant Scheme that requires a capital investment in the form of financial assets of at least HK$10,000,000 (“CIES”). It is agreed as between the parties that P has purchased the Bond to qualify for the CIES. D is a company that was listed on the Hong Kong Stock Exchange (“HKSE”) at the material time and that was going through winding up proceedings at the time of the hearing before me.

7.  According to P’s submissions, on 23 April 2016, P entered into a written agreement with Zenith Investments Limited (“ZIL”), under which ZIL agreed to sell the Bond to P as D’s agent. On 23 May 2016, P paid ZIL HK$10,000,000 for the purchase of the Bond through his account maintained with SBI China Capital Finance Services Ltd (“the SBI Account”). At or around that time, D entered into a Subscription Agreement (“the Subscription Agreement”) with ZIL under which ZIL as a principal agreed to subscribe for a bond issued by D at the same amount of HK$10,000,000. Shortly thereafter, ZIL transferred the ZIL Bond to P. The Bond transaction was conducted in accordance with the terms of the bond instrument (“the Bond Instrument”).

8.  Two days after P purchased the Bond, ZIL remitted HK$10,000,000 to D. D issued the ZIL Bond to ZIL against that payment, stamped it with the words “CANCELLED” since it had been transferred to P, according to P’s submission, “in accordance with Clause 3.4 and Appendix 3 of the ZIL Bond”. Thus, D issued the Bond in favour of P. The Bond has never been stamped “CANCELLED”. However, it is agreed as between the parties that D never paid any interest to P on his Bond, and neither has P asked for the payment of interest.

9.  On 8 June 2023, a winding-up petition against D was filed with the Court of First Instance of the High Court. The winding up proceedings continued for 60 days (and over), which constituted an event of default under Clause 6.2(vi) of the Bond Instrument. On 27 October 2023, P’s solicitors issued a notice to D seeking to redeem the Bond. D failed to honour P’s redemption request, and the interest on the Bond had remained unpaid. As a result, P commenced the present proceedings before the Master, seeking summary judgment for the payment of the principal amount and the interest on the Bond, on the grounds that D had no defence to his claims.

10.  The parties’ evidence differs significantly as to what transpired after 23 May 2016. On D’s submissions, on 23 May 2016, ZIL instructed D to cancel the Bond, to cancel or to redeem the ZIL Bond, and to cancel the Subscription Agreement. D allegedly agreed to ZIL’s instructions on the condition that ZIL would accept a refund of HK$9,500,000 instead of HK$10,000,000 face value of the Bond. ZIL agreed.^[1]

11.  Pursuant to the alleged agreement between ZIL and D, on 25 May 2016, at ZIL’s instructions, D paid HK$6,000,000 to Alpha and HK$3,000,000 to Omega, being the entities nominated by ZIL to receive the refund for the allegedly cancelled Bond.[2] In other words, according to D’s submissions, two days after the execution of the Bond, D refunded HK$9,500,000 of the principal sum to two entities designated by ZIL, on the understanding that the Bond would simply not take effect or thereafter be cancelled.[3]

12.  D further alleges that ZIL as a party which introduced P to the bonds issued by D, may have been involved in “some unlawful scheme to assist people to obtain bond instruments of sufficient face value to satisfy requirements of the Immigration Department’s Capital Investment Entrant Scheme without making the actual investment,” and that it is for that reason P was fully aware of the Bond cancellation as it would have been done as a part of the scheme to obtain Hong Kong residence through investment.

13.  The parties agree, however, that ZIL never provided the original Bond to D for cancellation.

14.  Curiously, no evidence is adduced from ZIL or from its representatives either before the Master or before me. There is nothing in the record that explains how ZIL came to be the middleman in the Bond transaction, and what connection it has with the entities named Alpha and Omega that allegedly received the “refund” of HK$9,500,000. There is equally no evidence to explain where the “refund” went after it hit the Alpha and Omega accounts. What transpires is that on 17 April 2014, D as a listed company made a voluntary announcement that on that day, D and ZIL entered into an agency agreement pursuing to which ZIL was to procure bond subscribers for D’s bonds.[4] It was, subsequently, ZIL who introduced P to D’s bonds. Neither have I heard from Alpha or Omega.

15.  Therefore, there is no evidence before me (or before the Master) suggesting that any alleged cancellation of the Bond was made pursuant to the terms of the Bond Instrument or otherwise agreed by P in writing. D accepts that it never informed P of the alleged unilateral cancellation of the Bond either.

16.  Ultimately, D argues that in light of the alleged cancellation of the Bond and given that D has made the “refund”, no valid and enforceable Bond exists, and no sums are due to P because such sums had already been refunded. D argues that “it would be unjust and indeed absurd if the Defendant is made to pay twice over.”[5] In light of that, D contested the Order 14 application before the Master.

17.  On 3 June 2024, having heard the parties, the Master granted the Summary Judgment for P and ordered, amongst other things, that (1) D pay to P HK$10,000,000 being the total principal amount of the Bond; (2) D to pay to P HK$4,200,000 being the interest due under the Bond Instrument; (3) D to pay P interest on the principal amount of HK$10 million at 1% above HSBC’s best lending rate from 6 November 2023 until judgment on 3 June 2024; and (4) D to pay interest on the sums awarded against it at judgment rate from the date of the order.

Reasoning of the Master

18.  In her judgment, the Master rejected D’s defence that no valid Bond existed and that D had cancelled the Bond on 25 May 2016 at ZIL’s request. The Master held that D failed to raise any bona fide defence or triable issues.

19.  On substance, the Master found as follows:

(a) “It is not disputed between the parties that D issued the Bond to P, by way of deed, in the principal amount of HD$10 million on 23 May 2016;

(b) Clause 3.1 of the Bond Instrument and the Bond Certificate in Appendix 3 thereto, D owed a direct, unconditional and contractual obligation to P to fulfil the terms of the Bond Instrument;

(c) D’s claims that it cancelled the Bond at ZIL’s request on 23 May 2016, and that the Bond is allegedly invalid, are unparticularised and not supported by any documentary evidence;

(d) There is no evidence suggesting that any alleged cancellation of the Bond was made pursuant to the terms of the Bond Instrument or otherwise agreed by P in writing. Even on D’s case, D never informed P of the alleged unilateral cancellation of the Bond;

(e) D has given inconsistent reasons for the alleged invalidity of the Bond through its solicitors’ letters and in the affirmations before me, which shows D’s lack of credence; and

(f) D’s argument that P did not pay consideration for the Bond does not have any substance in the light of the undisputed fact that the Bond was issued by D in favour of P by way of deed.”

20.  D is now appealing the Master’s Summary Judgment before me. D is asking that I should allow the appeal and give directions for a trial, on the basis that P’s case is so “murky” that it must be tried.

21.  In support of its appeal, D seeks to adduce a 1-page undated alleged refund letter issued by ZIL, in which ZIL allegedly instructs D to refund HK$9,500,000 in tranches of HK$6,000,000 and HK$3,500,000 to Alpha and Omega, respectively (“the New Evidence” or “the Refund Letter”).

22.  In opposition to D’s appeal and Leave Summons, P is seeking a full dismissal of D’s applications with costs.

Issues before the court to determine at the appeal

23.  The issues before me are centred around the standards for appeal from a master’s decision and around the standard for allowing new evidence at the appeal.

24.  Hence, the issues which I have to decide in the present appeal are:

(a) Under the Summary Judgment:

(i) what is the standard for appealing a summary judgment by a master to the judge in chambers; and

(ii) has D met the standard (specifically, are there triable issues and credible defences, or any other reasons that would warrant a trial?)

(b) Under the Leave Summons:

(i) what is the standard to allow new evidence on appeal; and

(ii) is Ladd v Marshall test satisfied (specifically, could the New Evidence have been obtained with reasonable diligence for use at the hearing; would the New Evidence have important influence on the result of the case; and is the New Evidence such that it is to be believed).

25.  On 3 and 4 October 2024, the parties lodged their skeleton submissions which have helpfully assisted the court in setting out the issues to be determined. The following is a brief summary of the parties’ submissions. I shall deal with the issue of admission of the New Evidence first.

Admission of new evidence on appeal

26.  The parties do not dispute the general principles relating to admission of new evidence on appeal.

27.  D agrees that on an appeal from the decision of a master, no further evidence may be received, other than (1) evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made, or (2) except on special grounds (Ladd v Marshall).[6]

28.  There is no allegation that the New Evidence came into existence after the Summary Judgment. I am thus dealing with the Ladd v Marshall test. It is trite that leave to adduce new evidence may only be given if the applicant satisfies the special grounds set out in Ladd v Marshall, namely (a) the evidence could not have been obtained with reasonable diligence for use at the hearing below; (b) the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and (c) the evidence must be such as is presumably to be believed. [7]

29.  D argues that such special grounds exist in the present case, and that the New Evidence satisfies the Ladd v Marshall test.[8] P contests every step of D’s arguments.

30.  First, D argues that the New Evidence could not have been obtained with reasonable diligence because (a) D was distracted by multiple other trials at the time; (b) D made an assumption that no further relevant documents would be in the office of Mr. Chiau (who was principally in touch with P at the material times but had since then left D’s employ) and thus D did not perform a search or reach out to Mr Chiau; and (c) D did not think it was under any obligation to peruse “each and every single piece of document in an ex-employee’s office.”[9]

31.  In response to that, P argues the Refund Letter could have been discovered with reasonable diligence far in advance of the hearing on 3 June 2024, given the amount of time and effort the parties spent on pre-litigation correspondence, as well as given the ample notice that D had of the proceedings. P asserts that the Refund Letter was on D’s premises all along and thus within its possession, custody or power. It should have been discovered in January 2024 by the latest.^.[10]

32.  Second, according to D’s submissions, the New Evidence, if given, would have had an important influence on the result of the case, because the Refund Letter directly corroborates D’s main defence, specifically that the Bond was never delivered to P and that D did not intend the Bond to take effect upon agreeing and effecting the refund of HK$9.5 million at the request of ZIL.[11] D further argues that “together with the cheques drawn by the Defendant [B/36/281-282] and the bank statement showing that cashing in of the cheques [B/37/283-285], the Refund Letter proves that the Defendant had refunded HK$9.5 million for the cancellation of the ZIL Bond (and the Bond) at the request of ZIL.” [12]

33.  P disagrees. In P’s view, the Refund Letter if admitted would have no bearing whatsoever on the outcome of the dispute, because first, there is no evidence that would substantiate the correlation of the Refund Letter with the ZIL Bond or with the Bond Instrument; second, the Refund Letter is inconsistent with D’s case in that it calls the Bond “unsuccessful” without explaining why; third, the Refund Letter does not show any evidence to support ZIL’s purported request to cancel the bond transfer, the Bond Instrument, the subscription and the Subscription Agreement; and fourth, the Refund Letter does not assist with establishing P’s alleged knowledge of the cancellation of the Bond.[13]

34.  Finally, D argues that the New Evidence is apparently credible, because (1) its format is consistent with another refund letter issued by ZIL in respect of another bond, exhibited to Chan 1^st [B/35/280], and is therefore not inherently improbable; (2) insofar as any criticism is made of the Refund Letter’s limitations (e.g. it being undated), such limitations actually dispel accusations of recent fabrications, as “a fabricator would have done better (and sooner in early rounds of evidence)”. [14]

35.  P disagrees with D that the Refund Letter is credible because the New Evidence was raised so late in the proceedings, and after D had the benefit of two months of “having discovered the letter”. Ultimately, P suggests that the New Evidence “bears the hallmarks of a recent fabrication,”[15] albeit stops short of alleging fraud. P rejects as “wild assertion” D’s suggestion that had the Refund Letter been fabricated, it would have been fabricated better.[16]

Summary judgment

36.  D argues that a defendant may show cause against summary judgment by showing that (1) he has a good defence to the claim on the merits; (2) there is a triable issue; or (3) there ought to be trial for some other reason: HKCP 2024 at §14/4/3 [D#1]. [17]

37.  There, D argues that the defence needs only show that there is a triable issue or question, or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law such as could have been raised on the former demurrer to the plea, and no possibility of a real defence on the question of fact: HKCP 2024 at §14/4/9B [D#1].[18] [emphasis added]

38.  Further, D argues that where there are unexplained features of both the claim and the defence which are disturbing because they “bear the appearance of falsity and disreputable business dealings and questionable conduct”, the court should give unconditional leave to defend: HKCP 2024 at §14/4/9B [D#1].[19]

39.  Finally, D argues that wherever there are circumstances which require close investigation, there ought to be a trial and judgment should not be given under Order 14.[20]

40.  Before addressing D’s arguments on the Summary Judgment, P sets out the principle that (1) an appeal from a master to the judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal; and (2) the judge treats the matter as though it came before him for the first time.[21] D does not contest that principle.

41.  Further and in response to D’s canvassing of the legal principles governing appeals from summary judgments, P argues that “it is of utmost importance that D must condescend upon particulars and does not merely rely on assertions. D has plainly failed to do so.” P cites the following principles:

(a) “Where the plaintiff’s application is properly constituted, he is prima facie entitled to judgment unless the defendant shows cause to the contrary or the application is dismissed.

(b) The defendant shoulders the burden to satisfy the court that he has a real or bona fide defence (i.e., that there are triable issues) or that there ought, for some reason, to be a trial of the plaintiff’s claim. In all cases, the defendant’s affidavit must give sufficient facts and particulars must be given to show that there is a triable issue.

(c) The defendant must condescend upon particulars and should, as far as possible, deal specifically with the plaintiff’s claim and affidavit and state clearly and concisely what the defence is and what facts are relied on to support it. To raise a triable issue or arguable defence, the defendant cannot be sparing of the particulars of his defence, and then claim, as a result of his own parsimony in details, that there is an obscurity which must await trial for illumination. [emphasis added]

(d) Although the mere assertion in an affidavit does not, ipso facto, provide leave to defend, the court will not embark upon a mini-trial of the action on paper and leave to defend will be granted unless the defence raised is so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that the defence is a sham.

(e) The test is not whether the defendant’s assertions are to be believed, rather it is whether those assertions are believable, ie capable of being believed. If so, the defendant must have leave to defend.

(f) Whether the defendant’s assertions are believable is a question that should be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.

(g) In considering whether there are triable issues, the Court will not take the defence at its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence.”

(See Wang Yuexian v Xinyang Maojian Group Ltd, formerly known as China Zenith Chemical Group Ltd[2023] HKCFI 3236 §§38-41 [P#3] and HKCP 2024 v.1 §14/4/1-4 and 9)[22]

APPEAL AGAINST SUMMARY JUDGMENT

42.  On the facts, D argues that P’s case “suffers from three major weaknesses which point to some falsity and questionable conduct on his own part.” [23]

43.  First, for the first six years of the Bond performance, P never asked for interest, and indeed did not so ask until September 2022. This, in D’s view, points to that P was aware that no valid Bond existed and that he had no entitlement to any interest. In that context, D rejects P’s explanation that P did not wish to compromise his immigration application as “not holding water.”[24]

44.  To that, P argues that because the Bond Instrument cannot be cancelled orally, D’s point on not asking for interest is irrelevant. Further, P argues that because he made his investment primarily for the immigration purposes, it is reasonable that he did not ask for interest to avoid entering any legal dispute which might jeopardise his application.[25] If P had knowingly been involved in a fraudulent scheme to improperly benefit from the CIES, neither party explains P’s relentless attempts at litigating his alleged entitlement to the Bond payments.

45.  Second, D points to the allegedly contradictory and incomplete evidence on P’s “fund flow” as yet another reason why P’s claim must fail, in pointing to certain alleged evidentiary gaps, such as lack of evidence to “properly demonstrate that it had paid ZIL HK$10 million for the Bond.”[26]

46.  On the second “weakness”, P argues that the alleged problems with “fund flow” are legally irrelevant, because Bond Instrument is in the form of a deed (“平辺契據”), and that it is trite that no consideration is required for deeds; P also points out to “the incontrovertible” evidence P adduced.[27] Importantly, SBI is the intermediary securities company used by D itself for the Subscription Agreement.[28] SBI has confirmed in writing that (1) ZIL provided the Bond Instrument to SBI on 25 May 2016 and (2) the Bond is still kept in the account.[29]

47.  Third, D argues that P’s refusal to surrender the original Bond certificate corroborates D’s position that no valid Bond exists. There, P relies on the construction of the Bond Instrument to argue that D never suggested the time at which the redemption is to take place, thus the obligation to deliver the original had never arisen. Further, when P exercised its immediate right to redemption, pursuant to Clause 5.2 of the Bond Instrument, P duly provided a copy of the Bond Certificate, together with a redemption notice to D by a letter from P’s solicitors dated 27 October 2023.[30]

Triable Issues and Credible Defences

48.  D sets out three triable issues or credible defences with respect to P’s claim.

49.  D’s first defence is that the Bond Instrument was never delivered and thus never took effect. There, D relies on Halsbury’s Laws of England, vol. 32 at §259 [D#4] in support of its proposition that the Bond Instrument, executed as a deed, takes effect upon delivery, and not from the day on which it is therein stated to have been made or executed.[31]

50.  D also argues that here, the issue is not whether the document has been physically handed over to the beneficiary, but when the party executing the document intends it to take effect, which ultimately depends on the intention of the executing party.[32]

51.  The key evidence for D here is Bibby [D#6] at §335, that shows on D’s submissions that the person who has signed the deed must have separately indicated that he intends to be bound by the deed.

52.  On the present evidence, D suggests that it is undisputed that D never directly or physically delivered the Bond Instrument to P or SBI, and that D only ever dealt with ZIL. D reiterates that on 23 May 2016, D received ZIL’s instructions to cancel the bond which ZIL had intended to transfer to P and which had been prepared and executed by D in favour of P. D argues that D and ZIL agreed to “unwind” the Subscription Agreement upon D’s refund of HK$9.5 million. I note here that nowhere before me or before the Master has D argued that P and D agreed to unwind the Bond transaction. D allowed ZIL to keep the cancelled ZIL Bond and the Bond while D arranged the refund. D’s intention was that it would never be bound and the Bond would never be delivered to P. D relies on multiple legal authorities in support of the legal principle.[33]

53.  P disagrees with D’s propositions. On P’s submissions, the issue is not whether the document has been physically handed over to the beneficiary, but whether the person whose deed it is supposed to be intended to be bound by it: Bibby [D#6]. It is, therefore, irrelevant whether D directly or physically delivered the Bond Instrument to P, contrary to D’s submissions. P further points out that the signature page of the Bond Instrument signed by Ms Chan states, “签署、加盖公司印章并交付”[B/21/182] (Translation: “Signed, sealed and delivered”).

54.  P argues that on D’s own case, the alleged cancellation took effect upon ZIL receiving the refund of HK$9,500,000 which took place on 25 May 2016, 2 days after the Bond was executed. Thus, D must have accepted that it did intend to execute the Bond on 23 May 2016 and to be bound by it. Otherwise, there was nothing to be “cancelled”.

55.  P disputes the legal authority that D offered on that point in explaining that Emmet & Farrand on Title [D#7] and Windsor Refrigerator Co [D#8] are distinguishable because the Bond Instrument is not a deed “executed subject to the carrying out of instructions which can be revoked by the grantor”. Clause 3.1 of the Bond Instrument [B/30/174] states, “债券将构成发行人之直接、无条件、非后偿及无抵押的合约性承担，而在任何时间内，最低限度与发行人所有其他现有及未来的非后偿及无抵押承担享有同等权益，但适用法律强制性规定之优先义务除外。” (Translation: “This bond constitutes a direct, unconditional, non-subordinated and unsecured obligation of the issuer [D], and at any time, it at least has the same rights as all other present and future non-subordinated and unsecured obligations of the issuer [D], except for any obligations mandated by law to be prioritised.”).

56.  P concludes that D’s defence that no “delivery” took place is unsupported by evidence, implausible, unarguable and does not give rise to any triable issues.

57.  Alternatively, on this triable issue, D rises defences of: (1) a promissory estoppel arising from representations made by ZIL on behalf of with actual and/or apparent authority; and (2) a collateral agreement that the Bond would be cancelled upon D’s refund of HK$9.5 million.

58.  P’s position is that the terms of the Bond Instrument bar such defences. P explains that the Bond Instrument contains the following terms:

(a) Clause 6.1 of the Bond Instrument [B/20/176] states, “...除按本文據條款或獲得債券持有人書面事先同意，发行人不得在到期日前要求提前購回債券。” (Translation: “Unless in accordance with the terms of this agreement or with the written permission of the bondholder in advance, the issuer may not, before the maturity date, request early redemption of the bond.”)

(b) Clause 9 of the Bond Instrument [B/20/178] states, “本文据条款经债券持有人以债券持有人决议之方式与发行人签定书面协议后方可修定。” (Translation: “The terms of this deed may only be amended by a signed, written agreement between the bondholder [P] and the bond issuer [D], after a resolution of the bondholder”)

59.  P relies on Re Evershine Group Holdings Ltd[2022] HKCFI 246 §16, citing the UK Supreme Court case of MWB Business Exchange Centres Ltd v Rock Advertising Ltd [2019] AC 119 [P#7] §10 in arguing that the law should and does give effect to contractual provisions in prescribing formalities for modifications.

60.  P notes that Chan 1^st did not mention that D and ZIL entered into any written agreement to unwind or “cancel” the Bond Instrument by amending it or redeeming the Bond.

61.  P further argues on the point of promissory estoppel that first, the alleged promissory estoppel and the collateral agreement have not been particularised. On P’s submissions, D has not even identified the people who allegedly made the oral collateral agreement.[34] In respect of the alleged promissory estoppel, P points out that D’s affirmations do not state the names of ZIL and D’s representatives or the precise representations relied upon. P concludes on those points that D has not explained how a promissory estoppel would arise from the (unidentified) representations made by ZIL.

62.  P explains that there is a striking lack of documentary evidence:

(a) D and ZIL’s agreement to unwind the transaction upon receiving the refund of HK$9,500,000 (Chan 1^st, §12 [A/10/78]); and

(b) D and ZIL’s agreement that ZIL would “take the Bond” [Chan 1^st §14: A/10/79] and return it after the refund had been made.”[35]

63.  If D’s stance was that “once ZIL and China Zenith [D] agreed to unwind the Subscription Agreement, both the ZIL Bond and the Bond were cancelled”,[36] it is of utmost importance to stamp “cancelled” on the bond transfer form, the Bond Instrument and the Bond Certificate. This did not happen.

64.  P notes that D accepts that cancelling the ZIL Bond was part of the process of transferring the Bond from ZIL to P. Thus, P posits, that just chopping “cancelled” on the ZIL Bond does not evidence a cancellation of the Bond Instrument and Bond Certificate.[37]

65.  P further points on the evidentiary issue that D has not made any inquiries with ZIL in advancing this case. One would have thought D would at least complain to ZIL for not returning the Bond Instrument as per their purported agreement. However, none of the ZIL individuals allegedly involved were identified.[38]

66.  P finds that the lack of documentary evidence is fatal to D’s case in the context where both the Subscription Agreement, the ZIL Bond and the Bond Instrument required any termination and amendment to be made by agreement in writing, and that D failed to adduce any such agreement.[39]

67.  Finally, in relation to the defence of promissory estoppel, P notes that no documentary evidence has been produced to show that D’s payments to Alpha and Omega are referable to the ZIL Bond or the Bond Instrument: (a) the copy of the payment instructions exhibited at [B/19/87] is not related to the present transaction; and (b) the Refund Letter (even if admissible) also does not refer to the ZIL Bond or the Bond Instrument.

68.  P makes further points on that D’s case is contradicted by contemporaneous evidence. First, SBI confirmed that: (1) ZIL provided the Bond Instrument to SBI on 25 May 2016; and (2) the Bond was kept in the account.[40] Second, a letter issued by D dated 25 May 2016, 2 days after the alleged cancellation, in which D certified that P had invested in D’s bond, that P was a bondholder and that P was registered in the register of bondholders (“the Letter”).[41] The Letter bears D’s company chop, and SBI confirmed that ZIL provided the Letter to SBI on 25 May 2016 and SBI provided the Letter to P.[42]

69.  D appears to contest the authenticity of the Letter but stops short of alleging forgery. On that, P notes that an allegation of forgery is a serious one, and that D bears the burden of proving it by cogent and compelling evidence.[43] P argues that where there is scant supporting evidence of forgery and the assertion rests largely on a defendant’s own unsupported evidence, this would fall far short of the cogent evidence required to assert fraud or forgery.[44] P concludes that D has failed to discharge its burden to show D did not issue the Letter.

70.  Finally, P disagrees with D that trial ought to be ordered for potential illegality and material evidence from ZIL and Mr Yau Wai of ZIL (who introduced P to D’s bonds). There, D paints a “murky” picture where there exist related disputes of a similar pattern that suggest that ZIL had been helping people to obtain bonds with a face value of HK$10 million which those people could present to the Hong Kong Immigration Department to satisfy the requirements of the CIES without having actually invested the full sum, by manipulating P to provide refunds for a cancelled bond without delivering up the bond certificate for cancellation.[45]

71.  In that context, D argues that the Court should refuse to enforce the Bond due to the illegalities involved, if indeed such are involved, bearing in mind that that the Hong Kong Courts now apply the “range of factors” approach in Patel v Mirza [2017] AC 467 to determine whether it would be harmful to the integrity of the legal system to allow a claim involving an illegal act.[46]

72.  P rejects D’s illegality defence on the basis that there is no evidence in this case, “not even bare assertion”, that there is any unlawful scheme.

DISCUSSION

Introduction of new evidence on appeal

73.  Order 58 Rule 1(5) of the Rules of the High Court (“RHC”) prohibits introduction of new evidence on the hearing of an appeal, other than evidence as to the matters which have occurred after the date on which the order was given, or except on special grounds.

74.  It is therefore trite that introducing new evidence on appeal can only be done in exceptional circumstances – or rather – on special grounds – to the satisfaction of the test canvassed by the rule in Ladd v Marshall: HKCP 2024 at §58/1/3.

75.  The parties do not dispute the applicable legal principles in Ladd v Marshall as they apply in Hong Kong. The satisfaction of the Ladd v Marshall test here, which would allow the court to grant the Leave Summons, requires D to (1) demonstrate that the New Evidence could not have been obtained with reasonable diligence for use at the hearing below; (2) that the New Evidence must be such, that if given, would have an important influence on the outcome of the dispute, though it need not be decisive; and (3) the New Evidence must be apparently credible though it need not be incontrovertible. These three requirements are cumulative. Failing at least one would result in failing at the entire test.

76.  In assessing whether the Leave Summons satisfy the first limb of the Ladd v Marshall test, I will first deal with D’s caveat that I must apply Ladd v Marshall “holistically”. Here, D argues that the “holistic approach” is justified by an appeal arising from a summary judgment as opposed to other appeals, because in the context of opposing a summons for summary judgment, D would not have had the time or the resources available to approach the preparation with the diligence required in preparing for a trial.[47] P opposes D’s suggestion to deploy the “holistic approach” in arguing that it is not “automatic” that if the appeal arises from a summary judgment, the requirement of “reasonable diligence” must be relaxed.

77.  There, P argues that the judge will bear in mind other relevant facts and circumstances, such as whether the defendant has been given ample time to gather all the evidence in opposition but has unreasonably failed to do so, with reference to Wang Yuexian v Xinyang Maojian Group Ltd, formerly known as China Zenith Chemical group Ltd[2023] HKCFI 3236 §24.

78.  I find P’s arguments convincing. Indeed, finding that preparation for a hearing before the Master in Order 14 proceedings requires a lower level of diligence and rigour, as D suggests, would undermine the value of the summary judgments at the very outset. Accepting that proposition would mean a bold (but baseless) presumption that the litigants are to treat Order 14 hearings before masters in a somewhat lackluster off-handed fashion, a thought I find to be inherently offensive to the rigour associated with the masters who work diligently and dutifully in our system.

79.  With greatest respect to D’s counsel, I find D’s proposition is equally offensive to common sense. Appealing from the summary judgments would require more time and resources both from the litigants but also from the court should the matter go on appeal. It would thus make very little sense to allow lacking preparation for the Order 14 proceedings to then spend double the time, costs, and effort, on arguing through the appeals.

80.  Further, again with respect to D’s counsel, allowing the “holistic approach” would defy the purpose and rationale behind Order 58 Rule 1(5) of the RHC that prohibits introduction of new evidence on appeal. If “relaxed holistic approach” was intended for the Order 14 proceedings, allowing for less rigour in the search for evidence, one would then ask why indeed would there be a clear prohibition to introduce new evidence on appeal from the summary judgments.

81.  I therefore cannot agree with D’s suggestion that the nature of the proceedings (Order 14 application for a summary judgment) justifies a “holistic approach” in automatically relaxing the first limb of Ladd v Marshall test.

82.  I find support to my conclusion in Wang Yuexian, where Hon Anthony Chan J (giving the judgment of the Court) finds that:

“10. It is contended that the Judge’s approach to the Ladd v Marshall requirements was wrong in the context of a summary judgment appeal. In Decision (1), [22]-[23], the Judge referred to Hong Kong Civil Procedure 2024, vol 1, [58/1/3] and expressed his reservation that: “It may well be going too far to say that the Ladd v Marshall conditions ‘will’ require some modification as if this modification is applicable to every case [of summary judgment appeal].” This is the focus of this ground.

11. The Judge went on in [24] to cite extensively the dicta of Poon JA (as he then was) in Bank of New York Mellon v Sun Jiangrong [2016] 1 HKC 137, [25] and [26]. There is no issue that such dicta represent the correct principle, namely, the degree of reasonable diligence which the court expects the applicant to have exercised in his effort to obtain the evidence in question (the first requirement of Ladd v Marshall) must be assessed against the overall circumstances of the case. It is clear that the Judge had applied the correct principle (see also Decision (2), [16]-[17]).” [emphasis added]

83.  Indeed, in a situation where D had the New Evidence in its possession and control at all material times; where D was given proper notice of the proceedings; where D was fully aware of the role that Mr Chiau had played in the communications with P at all material times; where D was intimately familiar with P’s arguments; and where D was defending very similar proceedings at the time and ultimately; where D is a listed company that is expected to exercise a certain degree of diligence in handling its archives when facing litigation, it is in my view wholly inconceivable that it is “reasonably diligent” of D to not have arranged for a proper investigation into whether Mr Chiau had kept pertinent correspondence in his files.

84.  Hence, in my judgment, as D fails the Ladd v Marshall test at the first hurdle. Therefore, there is no need for me to review the second and third limbs of the test to decline to grant the Leave Summons. I will, however, for the sake of completeness, briefly offer my views on those as review of the second and third limb offers an opportune moment to also review the relevant evidence before me in leading up to my summary judgment considerations.

85.  The second limb of the Ladd v Marshall test requires that the New Evidence have important influence on the outcome of the case, although it does not have to be decisive, as P concedes. There, D argues with force that the New Evidence goes to the crux of its case as it “directly corroborates D’s main defence, i.e. the Bond was never delivered to the Plaintiff in that the Defendant did not intend the Bond to take effect.”[48]

86.  P disagrees with D. D does not adduce evidence from Mr Chiau to substantiate D’s position. P further argues that even if the Refund Letter is admitted, it will have no impact on the outcome of the case because it is an undated document that shows no traces of its connection with the Bond.[49]

87.  Here again I find D’s arguments untenable. Even if I admit the Refund Letter, I fail to see how that would corroborate D’s main defence that ZIL and D “unwound” the Bond transaction. In fact, taking a step back, even if the Refund Letter did corroborate D’s main defence, I fail to see how that main defence, if credible, explains that P and D agreed to cancel the Bond, or how on the construction of the Bond Instrument it would be allowable for anyone but P and D directly to cancel the Bond.

88.  In other words, taking D’s case at its highest, I fail to see how, if the Bond transaction was so “unwound”, that would compromise the Master’s main findings that the Bond was issued to P, and paid for by P; that under the Bond Instrument, D owed a “direct, unconditional and contractual obligation to P to fulfill the terms of the Bond”; that P never agreed with D to cancel the Bond under the terms of the Bond Instrument or otherwise, and that D never even informed P of the alleged cancellation of the Bond. The nature of the Bond – issued as a deed – also defeats D’s argument that P never paid any consideration for the Bond. In summary, the Refund Letter, even if admitted, and taken at its face value, would not dislodge any of the main findings on which the Master based her decision.

89.  The third limb of the Ladd v Marshall requires that the New Evidence be credible, although not necessarily unblemished. Here, D argues that the Refund Letter is credible precisely because of its deficiencies, such as the Refund Letter being undated and failing to identify the Bond, simply because, on D’s case, had the Refund Letter be “fabricated”, it would have been fabricated better.[50] P, once again, disagrees with D, in finding D’s proposition unmeritorious, and so do I.

90.  In my view, it is an almost impossible task to claim authenticity on the basis of imperfections, for in fabrications, imperfections themselves may be deliberate to allow for precisely those arguments. No other arguments of credibility have been presented to me, aside from the fact that similar letters were issued in unrelated matters. With greatest respect to D’s counsel, that alone does not allow me to declare the third limb of the Ladd v Marshall test satisfied.

91.  For the above reasons, the application to introduce the New Evidence via the Ladd v Marshall test must fail.

Appeal from the Summary Judgment

92.  I will now turn to my considerations on appeal from the Summary Judgment.

93.  It is trite law that for a successful appeal from a master’s order, the D must show that he has a real or bona fide defence (i.e. that there are triable issues), or that there ought, for some reason, to be a trial of the D’s case.[51] Leave to defend ought to be given unless there is clearly no defence in law, or unless there is no possibility of a real defence on the question of fact.[52]

94.  P adds to that that “defendant must condescend upon particulars and should, as far as possible, deal specifically with the plaintiff’s claim and affidavit and state clearly and concisely what the defence is and what facts are relied on to support it.” P further argues, among its other arguments, that “to raise a triable issue or arguable defence, the defendant cannot be sparing of the particulars of his defence, and then claim, as a result of his own parsimony in details, that there is an obscurity which must await trial for illumination.”[53] P agrees, however, that leave to defend will be granted “unless the defence raised is so incredible or so contradicted by contemporaneous documents that it becomes clear it is a sham.”[54]

95.  To that, with reference to HKCP 2024 at §14/4/9B, D argues that where there are unexplainable features of “both the claim and the defence which are disturbing because they bear the appearance of falsity and disreputable business dealings and questionable conduct, the court should not make tentative assessments of the respective chances of success of the parties nor the relative strengths of their good or bad faith, and should not on such examination grant the defendant conditional leave to defend, but should give unconditional leave to defend.”[55]

96.  The parties’ recitation of the legal principles governing appeals to a judge in chambers from the master’s orders are uncontroversial. I see no tension between what has been cited to me. Indeed, on rehearing the matter, I must be satisfied, should I be inclined to disagree with the Master and give directions for a trial, that there are significant triable issues warranted by credible defences. It is trite that such defences must not be sham or otherwise contradicted by the contemporaneous documents, or I must have some other reasons to order a trial.

97.  In that context, D points out to what D submits are the “genuine weaknesses and questions” of P’s case. First, P’s failure to claim interest on the Bond. Second, the allegedly incomplete evidence of the “fund flow”, and thirdly, P’s alleged refusal to produce the original Bond Instrument for redemption. D then raises further triable issues: that the Bond was never delivered and thus never took effect, that the original of the Bond Certificate was never delivered, and that here are issues of estoppel.[56] P counters D’s triable issues and defences as fabricated, lacking in evidence, unsubstantiated in law, and purely sham.[57]

98.  At the outset, I do not see merit in D’s criticisms levelled at P’s case. First, whether P claimed interest on his Bond or not does not dislodge the fact that D issued the Bond to P, by way of deed. Neither does the interest issue in itself dislodge the wording of the Bond Instrument in that D owes a “direct, unconditional and contractual obligation to P to fulfill the terms of the Bond instrument”. D’s criticisms do not cover the gaping lack of evidence on D’s dealings with ZIL, on the alleged cancellation of the Bond, on the alleged “refund”, or on D’s alleged intention to never issue the Bond as D’s counsel have suggested. The Bond Instrument does not require, for the interest to be paid, for P to ask for it. The payment should have been made, and it was not. The only point that may arise here is that of limitation, ably addressed by P’s counsel with reference to the 12 years under instruments issued under deed.

99.  Second, the clerical inconsistencies in the “fund flow” records do not dislodge, or even attempt to compromise, the parties’ agreement that P paid HK$10,000,000 to subscribe to the Bond. The payment itself is not and cannot be challenged, since even on D’s own case, the funds were paid but then transferred out by D’s agent to Alpha and Omega.

100.  Third, it is a challenge to reconcile D’s position that P indeed paid for the Bond and that the Bond was issued (otherwise there would have been nothing to “cancel” to begin with), with the argument that the original of the Bond Certificate was never delivered. Indeed, D did not go as far as to arrange for a time and a place as required under the Bond Instrument to exchange the Bond Certificate. Be it as it may, this criticism is more of a backdoor stab at P than a credible defence that would warrant a successful appeal let alone directions for a new trial.

101.  As to the alleged triable issues, I find sympathy in P’s complaints that D’s case has changed radically a number of times, further tainting credibility of the issues and defences.

102.  D’s first defence version is that of 21 April 2023, where D alleged that there had been an agreement between P and D that “P would acquire a bond for HK$10,000,000 and D would prepay the full amount of the interest payable under the bond in the sum of HK$6,000,000 and a consultancy fee of HK$3,500,000, on the basis that P will waive payment of the entire principal amount upon the maturity of the Bond.”[58]

103.  A week later, on 27 April 2023, D’s version was that there had been an agreement for P to keep the original of the Bond Certificate and to surrender it at the maturity of the Bond, while the Bond remained “effectively worthless and of no legal effect.”[59]

104.  The other versions followed on 28 April 2023, and was contained in Chan 1^st affirmation.

105.  The change in D’s position in the span of a week is incredulous. Taken with the gaping lack of evidence from ZIL or its representatives, either iteration of D’s defences is a challenge to believe, but it is on the basis of that inconsistent and ever evolving defence and in the context of the obvious evidentiary gap that D is asking for a trial.

106.  On that, P’s reference to Hong Kong Civil Procedure 2024 that requires D to condescend to the particulars is pertinent. It would be unjust to allow a litigant the opportunity of a trial to elucidate the evidence that D itself has failed to adduce, or in the words of P’s counsel, “to raise a triable issue or arguable defence, the defendant cannot be sparing of the particulars of his defence, and then claim, as a result of his own parsimony in details, that that is an obscurity which must await trial for illumination.”[60]

107.  Equally, I find little force in D’s arguments on delivery of the Bond, estoppel or lack of presentation of the original Bond.

108.  What remains for me to determine is whether, on D’s submissions, assuming P is indeed involved in an alleged immigration illegality, whether that alone calls for disagreeing with the Master’s decision and a new trial.

109.  I cannot accept D’s submissions on this issue.

110.  First, the alleged immigration illegality is a distinct matter unrelated to the validity of the Bond. This matter is to be properly ventilated in a different – its proper - forum. Second, the immigration illegality – even if exists – does not taint or attack in any other way the Bond, which on the plain and ordinary meaning of the Bond Instrument and the Bond certificate was issued to P and never repaid despite P’s requests. Finally, taking D’s submission to its highest, if I were to disagree with the Master and to order a trial on the basis of the suggested illegality, the evidence and arguments to be then presented would deal with the alleged immigration fraud and not with the Bond, and would thus be a ventilation of immigration offences rather than that of a commercial dispute with which the Master was seized to begin with.

111.  D’s reliance on Patel v Mirza [2017] AC 467 in that context is misplaced. In Patel, the contract itself on which the defendant was sued was illegal as it was premised on the availability of insider information. Enforcing an illegal contract was thus the central issue there. Here, there is no allegation that the Bond transaction itself is illegal.

112.  Taking D’s illegality defence at its highest, one would assume that HK$9,500,000 somehow reverted to P who accepted a loss of HK$500,000 to be able to present his Bond Certificate to the Immigration Department. Nothing here suggests or even remotely shows that the money reverted to P. If anything, ZIL may hypothetically be implicated in fraud against D, but that would be a different matter for a different judge to hear, and that in itself does not taint the Bond transaction to the degree required by Patel v Mirza. I equally fail to see why, if P indeed perpetrated the immigration fraud as D suggests in entering into the Bond transaction, why would P then bring the Court’s attention to its own fraud.

Findings of this Court

113.  It is trite that an appeal from a master to a judge in chambers is by way of a hearing de novo and the judge treats the matter as though it comes before him for the first time. See §58/1/2 of HKCP 2024, Vol 1 at 1233.

114.  Having heard the parties at length via counsel representation, as set out above, I find no compelling reasons to grant the Leave Summons. That is because D has failed to satisfy all three limbs of the Ladd v Marshall test. First, I found that the New Evidence should have been adduced before the Master with reasonable diligence, and it was not. Second, the New Evidence, even if admitted, would have no impact on the outcome of the case. Finally, I find the Refund Letter – an undated document that was attempted to be pushed through the back door at the eleventh hour (or at the 58^th minute of the eleventh hour in P counsel’s submissions) – to be utterly uncredible.

115.  On the appeal from the Summary Judgment, equally, I find no compelling reasons to disagree with the Master. D has not presented any triable issues or credible defences, or any other reasons for which there ought to be a trial and a disagreement with the Master.

116.  The Master found in her summary judgment that

(a) “It is not disputed between the parties that D issued the Bond to P, by way of deed, in the principal amount of HD$10 million on 23 May 2016;

(b) Clause 3.1 of the Bond Instrument and the Bond Certificate in Appendix 3 thereto, D owed a direct, unconditional and contractual obligation to P to fulfil the terms of the Bond Instrument;

(c) D’s claims that it cancelled the Bond at ZIL’s request on 23 May 2016, and that the Bond is allegedly invalid, are unparticularised and not supported by any documentary evidence;

(d) There is no evidence suggesting that any alleged cancellation of the Bond was made pursuant to the terms of the Bond Instrument or otherwise agreed by P in writing. Even on D’s case, D never informed P of the alleged unilateral cancellation of the Bond.

(e) D has given inconsistent reasons for the alleged invalidity of the Bond through its solicitors’ letters and in the affirmations before me, which shows D’s lack of credence.

(f) D’s argument that P did not pay consideration for the Bond does not have any substance in the light of the undisputed fact that the Bond was issued by D in favour of P by way of deed.”

117.  Nothing before me justifies any deviation from the Master’s findings, or allows any criticisms of the Master’s decision. I dismiss D’s appeal for the reasons set in this decision.

118.  Finally, I see no reason to give directions for a trial in light of D’s allegations of illegality on the authority of Patel v Mirza.

CONCLUSION

119.  Thus, based on the above analysis, I have come to the inevitable conclusion that I have to agree with the Master’s decision not only on the validity of the Bond, but also on that interest is due to P under the Bond Instrument, as well as with the Master’s other findings.

120.  For the costs of and occasioned by the appeal from the Master’s order of 3 June 2024, including the hearings before the Master and the hearing before me, costs should follow the event of this appeal. There is nothing in the D’s submissions that would justify my discretion to order the costs differently. If anything, I should hope that fewer appeals have to deal with the consequences of only nominally explicable belated submission of what is alleged to be the key evidence, the rapidly changing case on appeal, and the fatal evidentiary gap. P should be entitled to those costs.

121.  Hence, I order that D to pay P the costs of the appeal as well as those before the Master, such costs to be taxed if not agreed.

Mr Jeffrey Chau, instructed by LT Lawyers, for the plaintiff

Mr John Scott SC, instructed by Wellington Legal LLP, for the defendant

HCA 1790/2023

[2024] HKCFI 2616

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1790 OF 2023

________________________

________________________

_____________________________

D E C I S I O N

_____________________________

1.  These proceedings concern a bond instrument dated 23 May 2016 (“Bond Instrument”) issued by the defendant in favour of the plaintiff in the principal amount of HK$10,000,000. On 3 June 2024, I granted summary judgment for the plaintiff pursuant to Order 14, rule 1 of the Rules of the High Court (Cap 4A) (“Judgment”) and ordered, among other things, the defendant to pay the plaintiff HK$10,000,000, being the principal amount of the Bond Instrument, and HK$4,200,000, being interest due under the Bond Instrument.

2.  By a notice of appeal to judge in chambers dated 13 June 2024, the defendant lodged an appeal against the Judgment, which has been fixed to be heard before Deputy High Court Judge Andrew Li on 8 October 2024. Further, by a summons dated 11 September 2024 (“Stay Summons”), the defendant applied to this court for a stay of execution of the Judgment until the determination of the appeal or further order of the court.

3.  Having read the parties’ respective written submissions, I am satisfied that an oral hearing is not necessary and that the Stay Summons is suitable for disposal on paper only pursuant to the guidance laid down by the Court of Appeal in Tsang Wing Kwai v Tsang Wing Fai [2018] 5 HKLRD 350, §24, per Lam VP (as he then was).

Background

4.  The defendant was at all material times and is a listed company on the Stock Exchange of Hong Kong.

5.  On 17 June 2014, the defendant made a voluntary announcement in relation to the issuance of corporate bonds. According to the announcement, the defendant and one Zenith Investment Limited (“Zenith Investment”) entered into an agency agreement on 17 June 2014 pursuant to which Zenith Investment agreed to procure subscribers to subscribe for the bonds issued by the defendant. The agency period was 90 days from the date of the placing agreement or such longer period as agreed by the defendant and Zenith Investment in writing. According to the defendant, the agency was not extended in writing by the defendant and Zenith Investment.[1]

6.  According to the plaintiff’s case, he entered into a written agreement dated 23 April 2016 (“Agreement”) with Zenith Investment, under which Zenith Investment agreed to sell as the defendant’s agent, and the plaintiff agreed to purchase, a bond issued by the defendant in the principal amount of HK$10,000,000 (“Bond”). On 23 May 2016, the plaintiff paid Zenith Investment HK$10,000,000 for the purchase of the Bond through his account maintained with SBI China Capital Finance Services Ltd (“SBI Account”).

7.  On the other hand, according to the defendant’s case, it entered into a subscription agreement dated 18 May 2016 (“Subscription Agreement”) with Zenith Investment under which Zenith Investment, as principal, agreed to subscribe for a bond issued by the defendant in the principal amount of HK$10,000,000 (“Zenith Bond”). Shortly thereafter, Zenith Investment decided to transfer the Zenith Bond to the plaintiff, and executed a bond transfer form dated 23 May 2016 to such effect. On the same day, the defendant issued the Zenith Bond, stamped with the words “CANCELLED”, to Zenith Investment.

8.  Importantly, it is common ground between the parties that, on 23 May 2016:

(1)  Zenith Investment remitted HK$10,000,000 to the defendant; and

(2)  the defendant issued the Bond Instrument in favour of the plaintiff.

9.  According to the defendant’s case, later on 23 May 2016, Zenith Investment instructed the defendant to cancel the Bond Instrument, redeem the Zenith Bond and unwind the Subscription Agreement. The defendant agreed on condition that Zenith Investment would accept a refund of HK$9,500,000 instead of HK$10,000,000. Zenith Investment agreed to such condition. On 25 May 2016, the defendant paid HK$6,000,000 to one Alpha Investment Group Ltd (“Alpha”) and HK$3,500,000 to one Omega Technology Development Ltd (“Omega”), being nominees of Zenith Investment to receive the refund.

10.  Notwithstanding the above, there is no dispute that, on around 25 May 2016, the Bond was deposited into the SBI Account.[2]

The Judgment

11.  By the Judgment, I rejected the defendant’s defence that it cancelled the Bond Instrument on 25 May 2016 at the request of Zenith Investment, and held that the defendant has failed to raise any bona fide defence or triable issues. My reasons may be summarised as follows:

(1)  The starting point is that there is no dispute that the defendant issued the Bond Instrument, by way of deed, in favour of the plaintiff in the principal amount of HK$10,000,000 on 23 May 2016.

(2)  Pursuant to Clause 3.1 of the Bond Instrument and the Bond Certificate in Appendix 3 thereto, the defendant owed a direct, unconditional and contractual obligation to the plaintiff to fulfil the terms of the Bond Instrument.

(3)  The defendant’s claims that it cancelled the Bond Instrument at the request of Zenith Investment on 23 May 2016, and that the Bond Instrument is allegedly invalid, are unparticularised and not supported by any documentary evidence.

(4)  In any event, there is no evidence suggesting that any alleged cancellation of the Bond Instrument was made pursuant to the terms of the Bond Instrument or otherwise agreed by the plaintiff in writing. Even on the defendant’s own case, it has never informed the plaintiff of the alleged unilateral cancellation of the Bond Instrument at all.

(5)  The defendant has given inconsistent reasons for the alleged invalidity of the Bond Instrument through its solicitors’ letters dated 21, 27 and 28 April 2023 and in the affirmations of Ms Chan Yuk Foebe[3] (“Ms Chan”), which tends to show that the defendant’s defence lacks credence.

(6)  The defendant’s argument that the plaintiff did not pay consideration for the Bond Instrument, to my mind, does not have any substance in the light of the undisputed fact that the Bond Instrument was issued by the defendant in favour of the plaintiff by way of deed.

The applicable legal principles

12.  The principles governing the grant of a stay of execution pending appeal are well-settled and have been set out in Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84, §§6-10, per Ma J (as he then was).

13.  An appeal does not operate as a stay of execution of the decision below. Unless an appellant can justify a stay by demonstrating that good reasons for granting one exist, a stay will not be ordered. Good reasons can exist in a variety of forms and while it is not possible to set out an exhaustive definition of what would constitute good reasons, reference is commonly made to factors such as whether the absence of a stay would render an appeal nugatory, and the merits of the appeal.

14.  The existence of a strong appeal will usually by itself constitute a good reason to grant a stay.

15.  For the purpose of a stay application, the court is only required to form a preliminary view on the merits of the appeal. Ultimately, the court embarks on a balancing exercise and uses its common sense, bearing in mind that the starting point is that the successful party is not to be deprived of the fruits of his success without good reason for doing so.

Discussion

16.  The defendant argues that there are strong grounds of appeal, and further that if a stay is not granted, there would be a serious deleterious effect on the defendant and the appeal would be rendered nugatory.

(i)  Merits of the appeal

17.  First, the defendant seeks to rely on the evidence allegedly discovered by it subsequent to the Judgment for the purposes of demonstrating that there is a triable issue in its defence and that the merits of its appeal meet the requisite standard required for a stay of execution. The new evidence, produced in the 2^nd affirmation of Ma Kin Ling[4] (“Mr Ma”), is an undated letter issued by Zenith Investment to the defendant (“Letter”) in which Zenith Investment stated as follows:

“本公司Zenith Investment Ltd同意中国天化工集团有限公司以港币 9,500,000元正退回本公司於2016年5月23日未成功购买债券的本金。

请将上述该港币 6,000,000以支票付至以下银行：

收款人姓名：Alpha Investment Group Ltd

请将上述该港币 3,500,000以支票付至以下银行：

收款人姓名：Omega Technology Development Ltd”

18.  According to Mr Ma’s affirmation, the Letter had been kept by Mr Chiau Chi Kong[5] (“Mr Chiau”), a former consultant of the defendant who handled the subject transaction in respect of the Bond and the Zenith Bond, in his room at the defendant’s office at China Resources Building (“China Resources Office”). In July 2021, Mr Chiau left his employment with the defendant, but did not vacate his office room thereafter. In January 2024, when the defendant relocated its office to Shui On Centre (“Shui On Office”), the defendant packed up the items in Mr Chiau’s room at the China Resources Office and brought them over to the Shui On Office. In or around July 2024, Mr Chiau attended the Shui On Office to review the items brought over by the defendant from his old room at the China Resources Office. After reviewing those items, Mr Chiau passed a stack of documents which he said belonged to the defendant, including the Letter, to Mr Ma.

19.  It is well established that, in order for any new evidence to be admissible on an appeal, the defendant must satisfy each of the following three requirements laid down in Ladd v Marshall [1954] 1 WLR 1489 at 1491, per Denning LJ (as he then was):

(1)  it must be shown that the evidence could not have been obtained with reasonable diligence for use at the hearing below;

(2)  the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive; and

(3)  the evidence must be such as is presumably to be believed, or in other words it must be apparently credible, though it need not be incontrovertible.

20.  For the present purposes, I would only have to form a preliminary view on the admissibility of the Letter on appeal. To my mind, the defendant has failed to satisfy any of the three requirements laid down in Ladd v Marshall (supra) for the following reasons.

21.  On the first requirement in Ladd v Marshall (supra), based on the defendant’s own case, the Letter, albeit not in its file, was all along kept at its office premises and thus within its possession, custody or power. Even taking the defendant’s case at its highest, there is no suggestion that the defendant exercised any reasonable diligence before the hearing below to ascertain whether it had the complete set of documents relating to this matter in its file, for instance, by making inquiries with Mr Chiau or asking him to review the documents left behind in his office room. Therefore, it appears to me that the defendant has failed to show that the Letter could not have been obtained without reasonable diligence for use at the hearing below.

22.  As to the second requirement in Ladd v Marshall (supra), I am not persuaded that the Letter, if adduced at the hearing below, would probably have an important influence on the result of the case. In my view, the Letter raises more questions than providing answers to the defendant’s case, for the reasons as follows:

(1)  First, the Letter does not contain any sufficient details of the bond referred to therein, such as the principal amount and the tenor of the bond, which are referable to the Bond or the Zenith Bond.

(2)  Secondly, the defendant has not adduced any evidence from Mr Chiau or other individuals with personal knowledge of the Letter to substantiate the alleged correlation of the Letter with the Bond or the Zenith Bond.

(3)  Thirdly, the Letter is undated, so it does not show when Zenith Investment allegedly gave the payment instruction to the defendant.

(4)  Fourthly, the Letter referred to the unsuccessful purchase of a bond (“未成功购买债券”), but there has been no suggestion in the defendant’s case that the initial purchase of the Bond or the Zenith Bond had been unsuccessful.[6]

23.  As to the third requirement in Ladd v Marshall (supra), for the same reasons as stated at §22 above, I am not persuaded that the Letter is apparently credible. Nor am I satisfied that Mr Ma’s explanation of the discovery of the Letter is apparently credible for the following reasons. First, Mr Chiau’s alleged involvement in the subject transaction has only been raised for the first time by the defendant as part of the new evidence sought to be adduced on appeal, but was never mentioned in any of the three affirmations filed by the defendant in the proceedings below. Secondly, the defendant’s claim as to Mr Chiau’s attendance of the Shui On Office “in or around July 2024” is a bare allegation without any particulars.[7] Thirdly, the defendant has not offered any explanation as to why, on its own case, it took two months after the alleged discovery of the Letter to apply for leave to adduce the same as new evidence on appeal.

24.  For the above reasons, I am unable to accept the defendant’s submission that the Letter would give rise to a strong ground of appeal.

25.  Turning to the defendant’s argument that the Bond Instrument was not delivered, it is right to point out that the signature page of the Bond Instrument expressly provided that it was signed, sealed and delivered (“签署、加盖公司印章并交付”) by the defendant. Mr Liu, counsel for the defendant, submitted that the characters “交付” on the signature page of the Bond Instrument are inconclusive, and whether or not a deed takes effect upon delivery would depend on the intention of the executing party, citing Wong Yiu Ting v Kwok Wing Chiu [2009] 1 HKLRD 399. It is noteworthy that, in Wong Yiu Ting (supra), Lam J (as Lam PJ then was) pointed out (at §20) that “[d]elivery takes place when the party executing a document intends it to take effect and it is usually inferred from conduct in terms of signing and sealing”. In the present case, there is no dispute that the Bond Instrument was duly signed and sealed by the defendant. More importantly, even on the defendant’s own case, there is no evidence suggesting that the defendant did not intend the delivery of the Bond Instrument to take effect when Ms Chan executed the same on its behalf on 23 May 2016. In my view, therefore, this argument has no substance at all.

26.  Lastly, the defendant complains that the plaintiff has not produced the original Bond Instrument for inspection after the Judgment was delivered. Mr Liu has not elaborated in his submissions why the complaint would give rise to a strong likelihood of success at the appeal. For the present purposes, I am unable to see how it can be said that this complaint can give rise to any good reason for a stay.

(ii)  Any serious deleterious effect on the defendant without a stay

27.  The defendant argues that, in the absence of a stay, there would be a serious deleterious effect on the defendant in that it is already subject to an ongoing winding-up petition.

28.  In my view, it is pertinent to heed the words of caution by Ma CJHC (as he then was) in Credit Lyonnais v SK Global Hong Kong Ltd [2003] 4 HKC 104, §10, where his Lordship stated that it is not up to the court to use its inherent jurisdiction to create a regime in which a judgment debtor or insolvent company is able to obtain a moratorium on its debts or to give it some “breathing space” to allow it to negotiate with creditors.

29.  Further, and in any event, I note that it is the defendant’s own evidence that, notwithstanding the winding-up proceedings, it has been able to raise over HK$200 million since January 2024 and is in the process of carrying out further fundraising activities.[8] The defendant also emphasises in its evidence that it is not seeking a stay of execution simply due to an inability to satisfy the Judgment.[9]

30.  In these circumstances, I am not persuaded that, in the absence of a stay, there would be any serious deleterious effect on the defendant as alleged.

(iii)  Whether the appeal would be rendered nugatory without a stay

31.  The defendant also argues that the appeal would be rendered nugatory owing to the plaintiff’s lack of any substantial assets in Hong Kong.[10]

32.  It is well established that, where the order appealed against is a money judgment, the court will require evidence as to why the levying of execution will result in the appeal being rendered nugatory, such as an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal: Star Play (supra), §9(1). The onus is on the defendant to show, by way of credible evidence, that there is a real risk and legitimate fear that any payment to the plaintiff could not be recovered should the defendant succeed in its appeal: King Victory Investment Ltd v Chan Hon Wing and Anor[2023] HKCFI 2992,[11] §24, per DHCJ Le Pichon. The fact that a plaintiff does not own any substantial assets in this jurisdiction was held insufficient to make out a case of impecuniosity for the purposes of a stay application: King Victory Investment Ltd (supra), §25.

33.  In the present case, the defendant has not adduced any evidence to the effect that there is an appreciable risk that the plaintiff would not be able to repay the judgment sum to the defendant in the event of a successful appeal. In the circumstances, I am unable to accept the defendant’s contention that the appeal would be rendered nugatory if a stay is not granted.

(iv)  Balance of justice and exercise of the court’s discretion

34.  Bearing all the foregoing considerations in mind, I am of the view that the defendant has failed to demonstrate that its appeal is so strong as to justify the grant of a stay, or that there would be any prejudice to the defendant as alleged if a stay is refused.

35.  As the Court of Appeal held in King Victory Investment Ltd v Chan Hon Wing and Anor[2024] HKCA 849, §32, per Chow JA, if a defendant is genuinely concerned that it might not be able to recover any sum received by the plaintiff should it succeed in the appeal, its position could be secured by paying the judgment sum into court, there being no evidence or suggestion that it is unable to do so. However, no such offer to pay the judgment sum into court has ever been made by the defendant either in its evidence or submissions.

36.  Balancing the respective interests of the parties, I conclude that a stay is not justified in the circumstances of this case.

Disposition

37.  For the above reasons, the Stay Summons shall be dismissed.

38.  Costs should follow the event. Having considered the plaintiff’s statement of costs,[12] I would order the defendant to pay the plaintiff’s costs of the Stay Summons, summarily assessed at $70,000.

Ms Nicole H K Liu, instructed by LT Lawyers, for the plaintiff

Mr Charlie Liu, instructed by Wellington Legal LLP, for the defendant