Green Giant Investments Ltd v. China 3d Digital Entertainment Ltd

HCA 327/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 327 of 2015

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J U D G M E N T

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1.By an order made by Registrar Lung on 21 January 2016, the Registrar gave summary judgment under O.14 of the Rules of the High Court to the plaintiff against the defendant for the sum of HK$14,160,000 with interest thereon and the sum of HK$15,000 in respect of the expenses of noting pursuant to s.57(a) of the Bills of Exchange Ordinance (Cap 19) (“the Ordinance”). The Registrar also made an order that the costs of the action including the plaintiff’s costs of the O.14 summons filed on 6 July 2015 be paid by the defendant to the plaintiff, such costs to be taxed if not agreed.

2.The Registrar also ordered that the execution of the final judgment be stayed on the condition that the defendant should within 14 days pay into court the said sum of HK$14,160,000.  The said sum was duly paid into court by the defendant on 4 February 2016.

3.By a notice of appeal dated 4 February 2016, the defendant gave notice of its appeal against the order of the Registrar.  The defendant seeks an order that the Registrar’s order and judgment be set aside with costs.  The defendant also seeks an order that the said sum of HK$14,160,000 paid into court be released to the defendant.

4.This is the hearing of the defendant’s appeal.

5.The plaintiff is a limited company incorporated in the British Virgin Islands.

6.The defendant is a limited company incorporated in Bermuda with its registered office in Bermuda and principal place of business in Hong Kong at 7/F, Zung Fu Industrial Building, 1067 King’s Road, Quarry Bay, Hong Kong.  The defendant was formerly known as Emperor Entertainment Group Ltd.

7.The defendant is listed on the Growth Enterprise Market of the Stock Exchange of Hong Kong.

8.A promissory note (“the note”) dated 18 January 2010 was issued by the defendant in its former name to Dragonlott Holdings Ltd (“Dragonlott”) whereby the defendant agreed and promised to pay to Dragonlott the sum of HK$14,160,000 on the maturity date on the terms contained therein.

9.The maturity date was 5 years from the date of issue of the Note namely, on 19 January 2015.

10.By a deed of assignment dated 9 May 2011 (“the assignment”), Dragonlott as the holder of the note and as assignor transferred and assigned to the plaintiff as assignee all the rights attached to the note on the terms contained in the assignment.

11.The plaintiff’s case is that pursuant to the terms of the note, the plaintiff wrote to the defendant on 16 May 2011 enclosing the original executed form of transfer and requested the defendant to register such transfer and assignment and to issue a new note to the plaintiff as the payee and holder of the same.

12.The defendant failed to proceed with the transfer of the note and did not register the transfer of the note in the defendant’s register.

13.On 13 June 2011 the plaintiff instituted HCA 987 of 2011 against the defendant claiming, inter alia:

(a) a declaration that the note has been validly assigned and transferred to the plaintiff;

(b) an order that the defendant do enter in and register on its register the assignment and transfer;

(c) an order that the defendant do issue a new promissory note in favour of the plaintiff for the same principal amount; and

(d) damages.

14.Despite having instituted HCA 987 of 2011 on 13 June 2011 the plaintiff failed to file and serve a statement of claim at any time in that action.

15.As a result of the plaintiff’s failure to file a statement of claim, by a summons dated 23 May 2012, the defendant’s then solicitors applied to strike out the plaintiff’s writ of summons in HCA 987 of 2011.

16.On 30 May 2012, Master Levy made an order dismissing the plaintiff’s action in HCA 987 of 2011 for the plaintiff’s default in the service of a statement of claim.  There was no finding on the merits of the plaintiff’s claim.

17.The note fell due on 19 January 2015.  The note was presented for payment on the same day by the plaintiff’s solicitors at the defendant’s principal place of business in Hong Kong.

18.The plaintiff’s solicitors also produced to the defendant for its inspection the original letter of indemnity dated 13 January 2015 signed by Mr Stephen Gold for and on behalf of the plaintiff as its director.

19.The defendant failed or refused to make payment upon maturity of the note despite the plaintiff’s offer of indemnity pursuant to s.70 of the Ordinance.

20.Non‑payment of the note upon presentment was duly noted and protested by the plaintiff’s notary on 20 and 21 January 2015.

21.The plaintiff’s claim against the defendant in this action is as assignee of the note issued by the defendant in favour of Dragonlott.

22.By its statement of claim the plaintiff claims:

(a) the principal amount of the note of HK$14,160,000;

(b) interest thereon from the time of presentment for payment until payment in full at the rate of 10% per annum pursuant to the terms of the note;

(c) the expenses of noting and protest pursuant to s 57(a) of the Ordinance;

(d) further/alternatively, a declaration that the plaintiff is the new holder/owner of the note and an order to compel the defendant to register the transfer of the note and enter the name of the plaintiff onto the register; and

(e) costs.

23.The defendant filed and served its defence on 21 April 2015.

24.By its summons for summary judgment under O.14, r.1 RHC filed on 6 July 2015, the plaintiff sought final judgment against the defendant for the relief in (a), (b), (c) and (e) as set out in para 22 above. The plaintiff did not seek summary judgment for relief (d).

25.As I have said, by the order made by the Registrar on 21 January 2016, he made the order set out at para 1 above.

26.There is no dispute that leave to defend should be given where the defendant raises any substantial question of fact which ought to be tried or where there is a fair dispute to be tried as to the meaning of the document on which the claim is based (para 14/4/11 Hong Kong Civil Procedure 2016).

27.The onus is on the defendant to show a triable issue entitling it to leave to defend.

28.In his oral submissions, Mr Kat SC, with Mr Chan, for the defendant, submitted that there were essentially two triable issues:

(1) Whether the plaintiff can, without the defendant being in receipt of the note, be entered on the register as a noteholder;

(2) Whether the defendant is in fact in receipt of the note which would entitle the plaintiff to payment.

29.As to issue (1), it is necessary to set out the relevant terms of the note.

30.As recorded in the note, by a subscription agreement dated 21 December 2009 entered into between, among other persons, Glow Plus Ltd as subscriber, a wholly owned subsidiary of the defendant, and Dragonlott as the issuer, Dragonlott agreed to allot and issue to Glow Plus Ltd 10,000,000 newly issued shares in Dragonlott.  It was a condition in the subscription agreement that Glow Plus Ltd should procure the defendant delivering to Dragonlott the note upon completion of the subscription agreement.

31.It was also provided in the note that:

“Subject as hereinafter provided, the [defendant] shall repay the principal sum of HK$14,160,000 (the ‘Principal Sum’) and all interest accrued thereon under this Note, to the holder of this Note (‘the Noteholder’) on the date falling five(5) years from the date of issue of this Note (‘the Maturity Date’) …”

32.The note also provided that:

“The [defendant] shall maintain a register of this Note (‘Register’) at the principal place of business of the Company in Hong Kong or such other location as the directors of the Company may decide. All references in this Note to holder of this Note or Noteholder shall refer to the person appearing as Noteholder on the Register, who shall be treated as the absolute owner of this Note for all purposes (whether or not it is overdue and regardless of any notice of ownership, trust or any interest in it).”

33.As regards assignment or transfer of the note, it was provided in the note that:

“This Note and/or any of the rights attached hereto may be assigned or transferred in whole or in part … to any assignee or transferee. A transfer of this Note shall be effected by completing and signing by both the transferor and the transferee of the Transfer Form in the form attached in the annexure ‘I’. The [defendant] shall within 3 Business Days on receipt of this Note together with the Transfer Form register the transfer on the Register and (a) in the case where the whole outstanding Principal Sum is assigned or transferred, cancel this Note and issue a new Note in respect thereof, in favour of the transferee or assignee as applicable, …”

34.There was also a provision in the note that time was to be of the essence.

35.It was also provided that the note should be governed by and construed in accordance with the laws of Hong Kong.

36.The defendant’s case is that Dragonlott was at all material times registered as the noteholder in the register maintained by the defendant pursuant to the terms of the note.

37.There is no dispute that pursuant to the assignment the plaintiff did write on 16 May 2011 to the defendant enclosing a completed transfer form and requested the defendant to register the transfer and assignment of the note and to issue a new note to the plaintiff as the payee and holder of the same.  There is also no dispute that the note was not submitted to the defendant together with the transfer form.

38.Mr Kat relied on the terms of the note which provided that the defendant shall within 3 business days “on receipt of this Note together with the Transfer Form” register the transfer on the register.  Mr Kat accepted that on a proper construction of the document the note did not have to be received at the same time as the transfer form.  However, it was submitted that the note had to be received by the defendant for the transfer to be completed.

39.It seems to me that it is arguable that the note had to be received by the defendant so that the plaintiff could be registered in the register and so that the defendant could cancel the note and issue a new note to the plaintiff.

40.There is a dispute of fact as to whether the defendant ever received the note.

41.There was in evidence the correspondence and email communications between the plaintiff’s former solicitors Lam, Lee and Lai (“LLL”) and the defendant before the plaintiff instituted the earlier HCA 987 of 2011 on 13 June 2011.

42.It appears from the letter dated 26 May 2011 from LLL to the defendant that before and at the time of the assignment of 9 May 2011 the directors of Dragonlott reassured the directors of the plaintiff that the original note was with the defendant and under the defendant’s control.  This was based on the belief that the original note was with one Ms Pearl Chan (“Pearl”), an in‑house counsel of “Emperor Capital”.  It appears that Emperor Capital was a related company of the defendant.

43.The said letter of 26 May 2011 also stated that Pearl had confirmed that the original note was being kept in her files.

44.By their letter dated 31 May 2011 to the defendant, LLL, on behalf of the plaintiff, referred to their earlier letter of 26 May 2011 and stated:

“…we are instructed to reiterate that your company had never sent or delivered the original Note to [Dragonlott].”

45.By an email sent by the defendant to LLL on 1 June 2011 at 9:43 am it was stated by the defendant that:

“First of all, we must again reiterate that we do not have the old (the original) Promissory Note on our hand. If the old Promissory Note has been issued out, it is not under our control. It is upon you [sic] responsibility to provide the old Promissory Note or to provide evidence to support your saying that we are having the old Promissory Note under our control.”

46.The defendant was there reiterating its position which they had set out in their earlier email to LLL sent on 30 May 2011 at 4:09 pm.

47.However, shortly after the 1 June 2011 email sent at 9:43 am, the defendant sent another email to LLL at 11:35 on the same day which stated:

“As the previous person‑in‑charge, Pearl has found the original Promissory Note (Attached a Scan copy for reference), the transfer of Promissory Note will proceed as instructed”

48.The said email shows that as at 1 June 2011 the defendant was prepared to proceed with the transfer of the note to the plaintiff.

49.Mr Kat, however, referred me to another email in evidence sent by the defendant to LLL a few days later on 10 June 2011 at 14:35 which stated:

“According to our record, we have already delivered the old Promissory Note to [Dragonlott]. It is up to [Dragonlott’s] responsibility to deliver their own original Promissory Note so that we can consider proceeding the transfer. …”

50.It seems to me that by the email sent on 10 June 2011 the defendant was in effect saying that it did not have possession of the original note as according to their records it had been delivered to Dragonlott.

51.The plaintiff pleads at para 26 of the statement of claim that the terms of the note do not expressly require the original note to be presented, for either registration and/or payment.  It goes on to plead that if, which is denied, that there was a requirement to return the original note, the plaintiff is entitled to and does rely on s.70 of the Ordinance.

52.It seems to me that it is arguable that on a proper construction of the note there was a requirement to send the note with the transfer form.  It was accepted by Mr Kat that the defendant did not have to receive the note at the same time as the transfer form was sent.  However, it seems to me that it is arguable that the defendant did have to receive the note to proceed with the transfer.

53.There is a dispute of fact as to the whereabouts of the note and whether it was in the possession or control of the defendant.  If, as the 1 June 2011 email sent at 11:35 stated, it had been found in Pearl’s files, does that necessarily mean that it was in the possession or under the control of the defendant?  Pearl was an in‑house counsel, not of the defendant, but of a related company of the defendant.  Further, if the note had already been delivered to Dragonlott as stated in the email sent by the defendant on 10 June 2011, the note would not have been in the possession of the defendant.

54.It seems to me that the dispute of fact is a matter that ought to be resolved at trial.

55.The plaintiff also relies on s.70 of the Ordinance which provides that:

“In any action or proceeding upon a bill, the court or a judge may order that the loss of the instrument shall not be set up, provided an indemnity be given, to the satisfaction of the court or judge, against the claims of any other person upon the instrument in question.”

There is no dispute that s.70 applies to promissory notes (s.95(1) of the Ordinance).

56.As pleaded at para 30 of the statement of claim, the plaintiff’s solicitors in a letter to the defendant dated 14 January 2015 reiterated the plaintiff’s right to demand payment on the note upon maturity on the due date.  The plaintiff’s solicitors also indicated that as the whereabouts of the note was uncertain, the original note should be considered lost, and indicated that the plaintiff would be prepared to indemnity the defendant pursuant to s.70 of the Ordinance.

57.As pleaded at para 31 of the statement of claim, the plaintiff’s solicitors presented the note for payment when it fell due for payment on 19 January 2015.  The plaintiff’s solicitors also produced to the defendant for its inspection the original letter of indemnity dated 13 January 2015 signed by Mr Stephen Gold for and on behalf of the plaintiff as its director.

58.S.70 of the Ordinance requires that the indemnity that is given is to the satisfaction of the court or judge.  The indemnity that was offered by the plaintiff was simply an undertaking to indemnify the defendant against the claims of any person on the note.  Whether the undertaking that was offered by the plaintiff, a foreign company with no known assets in Hong Kong, was sufficient is also a matter to be determined at trial.

59.Mr Sussex SC, for the plaintiff, submitted that the defendant had the note through Pearl and the defendant was obliged to register the plaintiff within 3 business days as the new noteholder and to issue a new note to the plaintiff according to the terms of the note.  By failing to do so, it was submitted that the defendant was in breach of contract.  Mr Sussex submitted that the breach was failing to do what the defendant was obliged to do once in possession of the original note and the form of transfer namely, to register the plaintiff as the new noteholder and to issue a new note to the plaintiff.

60.Mr Sussex further submitted that the defendant is prevented by law from relying on its own breach of contract in failing to register the plaintiff as the new noteholder.  He relied on Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381.

61.In Kensland Realty it was held that it was a principle of law that a person was not permitted to take advantage of his own wrong.  In the contractual context, the “prevention principle” operated to prevent a party who was in breach of an obligation owed to the other party, from asserting rights or claiming benefits which arose as a consequence of the breach.

62.It was also held that in deciding how the principle was to be given effect in a case, it was necessary to identify with some precision, the relevant breach, the factual consequences flowing from such breach and what, if any, advantage the contract‑breaker sought to take on the basis of such consequences.

63.Mr Sussex submitted that the “prevention principle” applies on the facts of this case so as to prevent the defendant from relying on the failure of the plaintiff to submit the note with the transfer form.  The breach relied on by the plaintiff is the breach on the part of the defendant in failing to register the plaintiff as the new noteholder.

64.It seems to me that whether or not the defendant was in breach depends on whether the defendant received or was in possession or control of the original note with the transfer form so that it could cancel the old note and issue a new one to the plaintiff according to the terms of the note.  As I have said, there is a dispute of fact as to whether the note was received by or was in the possession or control of the defendant.  If it was not, then it is arguable that the defendant was not in breach in failing to register the plaintiff as the new noteholder and to issue a new note to the plaintiff.  It seems to me that whether or not the “prevention principle” applies is also a matter to be resolved at trial.

65.I am satisfied that the defendant has raised the triable issues (1) and (2) relied on.  I am satisfied that the defendant should be granted unconditional leave to defend the action.

66.As the matter will have to be resolved at trial, it is neither appropriate nor necessary for me to express a view on the strength or weakness of the parties’ further submissions.

67.I allow the appeal and set aside the Registrar’s order and the judgment that was entered.  I give unconditional leave to the defendant to defend this action.

68.I also order that the said sum of HK$14,160,000 paid into court be paid out to the defendant.

69.I also make an order nisi that the costs of the hearing before the Registrar be costs in the cause and that the costs of the appeal be costs to the defendant.

Mr Charles Sussex SC, instructed by Francis & Co, for the plaintiff

Mr Nigel Kat SC, leading Mr Derek J Y Chan, instructed by Jun He Law Offices, for the defendant