Charm Master Enterprises Ltd v. Grand T G Gold Holdings Ltd and Another
Read the full judgment text of HCA 397/2011 on BabelCite. This High Court CFI judgment was delivered on 12 November 2020.
1. By a summons dated 17 October 2019 (the “Summons”), the 2 nd Defendant seeks (1) summary judgment against the 1 st Defendant under RHC Order 14 Rule 5; or (2) in the alternative interim payment in the sum of HK$12,000,000 under RHC Order 29, Rule 11(1)(a) and (c).
Cited by 2 cases · Cites 3 cases
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HCA 397/2011 [2020] HKCFI 2820 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 397 OF 2011 ________________________ BETWEEN
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________________________ D E C I S I O N ________________________ INTRODUCTION 1.By a summons dated 17 October 2019 (the “Summons”), the 2nd Defendant seeks (1) summary judgment against the 1st Defendant under RHC Order 14 Rule 5; or (2) in the alternative interim payment in the sum of HK$12,000,000 under RHC Order 29, Rule 11(1)(a) and (c). 2.The action herein was first taken out on 9 March 2011 by the Plaintiff only against the 1st Defendant on the basis of two promissory notes (the “Two Promissory Notes”) issued by the 1st Defendant in the respective sums of HK$7,500,000 and HK$5,000,000. The Plaintiff claims to be the noteholder entitled to payment thereunder. 3.By a previous summons dated 3 October 2017, J Thomson Asset Investment Limited (the 2nd Defendant) initially applied to join as a co-plaintiff claiming that it was one of the beneficiaries under a trust wherein the Plaintiff, as trustee, held the Two Promissory Notes for its benefit to the extent of HK$12,000,000 (ie 96% of the total face value of $12,500,000). This was however disputed by the Plaintiff. 4.Due to the disputes raised by the Plaintiff, leave was granted by Master Johnny Ma on 6 February 2018 for J Thomson Asset Investment Limited to join as the 2nd Defendant. In due course, an Amended Defence and Counterclaim of the 2nd Defendant was filed on 27 March 2018 (the “AMDEF&CC”), wherein a case of breach of trust, constructive trust and unjust enrichment was pleaded against the Plaintiff. 5.In addition, the 2nd Defendant, claiming as beneficial owner of the two Promissory Notes, pleaded a counterclaim against the 1st Defendant (1) on the strength of the Two Promissory Notes; and (2) on the basis of the terms of an acknowledgment made by the 1st Defendant of the debts under the Two Promissory Notes as evidenced in two letters respectively dated 30 March 2016 (which is confirmed to be a typographical error and should read 31 March 2016) and 6 March 2017 (collectively, the “Acknowledgement of Debt”). 6.Remarkably, there is no claim pleaded by the Plaintiff against the 2nd Defendant. For the sake of good order, the titular page of the action herein shall henceforth be adjusted clearly stating the original claim and the counterclaim as suggested in Hong Kong Civil Procedure (2020) n 15/3/2. 7.Mr Raymond Ho appeared for the 2nd Defendant and Mr John Hui (together with Miss Sharon Yuen) appeared on behalf of the 1st Defendant. Mr Richard Sousa of Messrs C T Chan & Co was present on a watching brief for the Plaintiff, which took a neutral stance as long as its rights were not affected by any decision of the Court and any payment ordered to be made by the 1st Defendant would be paid into Court. BACKGROUND 8.The 1st Defendant, formerly known as ESPCO Technology Holdings Limited, was a company incorporated in the Cayman Islands and listed on the Growth Enterprise Market of the Hong Kong Stock Exchange. 9.The 2nd Defendant was a company incorporated in the British Virgin Islands (BVI) and was the holder of 20% shares in a company known as SSC Mandarin Holdings Limited (“SSC Holdings”). In turn, SSC Holdings was 100% shareholder of SSC Mandarin Mining Investment Ltd (“SSC Mining”). 10.By a series of agreements (dated 1 November 2007 and 20 March 2008), the 1st Defendant contracted with SSC Holdings for the purchase of all its shares in SSC Mining at a total consideration of HK$1,212,000,000 of which HK$60,000,000 was to be paid by way of a promissory note to be issued by the 1st Defendant (the “Transaction”). 11.At all material times, Mr Lee Sing Leung Robin (“Mr Lee”) was the sole director of SSC Holdings. Mr Lee played an instrumental role in procuring the Transaction and was appointed the Executive Director, Vice Chairman and Chief Executive Officer of the 1st Defendant on 5 June 2008. 12.It is the 2nd Defendant’s case that at the instigation of Mr Lee, a promissory note in the sum of HK$60,000,000 was put in the name of the Plaintiff, another BVI company incorporated solely as a special purpose entity for the holding of assets. 13.In essence, the Plaintiff was merely a nominee holding the promissory note, including the property thereunder or deriving therefrom on trust (the “Trust”) for the benefit of all shareholders of SSC Holdings (including the 2nd Defendant to the extent of 20%). 14.The Trust was evidenced, inter alia, by (1) the minutes of two general meetings of SSG Holdings held on 29 April 2008 and 30 April 2008 respectively; (2) payment instructions (signed by Mr Lee on or about 30 April 2008) from SSG Holdings to the 1st Defendant directing the issuing of a promissory note in the sum of HK$60,000,000 to the Plaintiff; (3) a written confirmation of the Trust (dated 2 May 2008) executed by the Plaintiff and copied to the 2nd Defendant. 15.Accordingly, a promissory note (“Promissory Note A”) in the sum of HK$60,000,000 was issued by the 1st Defendant to the Plaintiff. Eventually, Promissory Note A was partially redeemed and was superseded by Two Promissory Notes, namely:
16.Despite repeated demands made by Plaintiff, the 1st Defendant failed or refused to honour the payments under Two Promissory Notes (ie Promissory Notes D and E). Hence, the Plaintiff took out the original action herein on 9 March 2011. THE LAW 17.The approach of the Court upon an application for summary judgment is well established. A succinct summary can be found in the judgment of DHCJ Lisa Wong SC (as she then was) in Lau Chun Kam v Lai Tak Shing, HCA 2126/2007, unrep, 9 December 2008, which I would respectfully adopt. The learned judge said (at paragraph 12):
18.It is also trite that conditional leave may be granted where there is something suspicious in the defendant’s mode of presenting his case, or the court is left with a real doubt about the defendant’s good faith (see Hong Kong Civil Procedure (2020) n 14/4/16 citing Devlin LJ (as he then was) in Fieldrank Ltd v E Stein [1961] 1 WLR 1287). 19.Leave to defend conditional on the full amount claimed being paid into court may be order where the defence is shadowy (see Van Lynn Development Ltd v Pelias Construction Co [1969] 1 QB and Suen Ho Sun v Kamenar International Ltd [1989] 1 HKC 135) or there is little or no substance in it or the case is almost one in which summary judgment should be ordered (Ionian Bank Ltd V Couvreur [1969] 1 WLR 781 cited in HKCP (2020) n 14/4/16). 20.As to the alternative application for interim payment, the 2nd Defendant’s pleaded case against the 1st Defendant was for (1) the sums under the Two Promissory Notes buttressed by the Acknowledgment of Debt; (2) damages for breach of the terms of the Acknowledgement of Debt (see Paragraphs 29 to 36 of AMDEF&CC). Hence, the application in fact turns on Order 29, Rule 11(a) and (c) as well as Rule 12(c). 21.In so far as both the Plaintiff and the 1st Defendant are co-defendants to the 2nd Defendant’s counterclaim, it is imperative for the 2nd Defendant to show that he is highly likely to recover substantial “damages” or “sum of money” against the particular defendant against whom interim payment is sought (see Ricci Burns Ltd v Toole [1989] 1 WLR 993 (at 1002D-F). 22.In British and Commonwealth Holdings plc v Quandrex Holdings Inc [1989] 1 QB 842 (cited in HKCP (2020 n 29/11/14), Sir Nicholas Browne-Wilkinson VC held (at 866C) that : “. . .In my judgment, in cases where on the evidence then before it, the court entertains sufficient doubts as to the genuineness of the defence to give only conditional leave to defend, it is possible for a court to be satisfied that the plaintiff will succeed at trial. Although in such a case it does not automatically follow that it is appropriate to make an order for interim payment, if in all the circumstances such payment appears sensible and desirable, in my judgment it can be ordered.” 23.Just to get rid of a short point, the Summons asks for the sum of HK$12,000,000 to be paid into court (1) under a summary judgment; or (2) by way of interim payment. Mr Ho emphasized that the 1st Defendant had to pay either the Plaintiff or the 2nd Defendant. Hence, said Mr Ho, there was no reason why the 1st Defendant should not pay into court, in particular, where the obligation to pay under the two Promissory Notes had been alluded to in the 1st Defendant’s published annual report. 24.With respect, those acting for the 2nd Defendant might have lured themselves into a false sense of security. This is borne out by the rather scanty evidence on affirmation adduced by the 2nd Defendant pertinent to enforcement of the terms under the Acknowledgment of Debt (see below). The thresholds, which the 2nd Defendant had to overcome, in respect of the two alternative applications are not lowered by the mere fact that the sum asked for was to be paid into court. At best, the payment of the whole sum into court may be ordered as a term if the Court is minded only to grant conditional leave to defend in the face of the application for summary judgment. 25.Likewise, whilst an interim payment ordered to be paid into court may address any concern of overpayment, it does not detract from the burden on the 2nd Defendant to prove a strong case against the 1st Defendant on ordinary principles governing interim payment. NON-PAYMENT UNDER TWO PROMISSORY NOTES 26.The 1st Defendant did not dispute its liability under the Two Promissory Notes. However, it was argued that Condition 3.3 of the terms thereunder stipulated that the obligation to pay would only arise upon presentment of the original of the certificate, which the Plaintiff had not done. 27.Hence, as between the Plaintiff and the 1st Defendant, there was a factual dispute as to whether the original certificates had in fact been presented to the 1st Defendant by an (unidentified) representative of Messrs Johnny K K Leung & Co, who had admittedly attended the 1st Defendant’s office on 27 January 2011. 28.Importantly, by a letter from the Plaintiff to the 2nd Defendant (dated 8 October 2019), the Plaintiff acknowledged this factual dispute as a triable issue and took the view that a joint application for summary judgment against the 1st Defendant would be inappropriate. 29.Not surprisingly, the 1st Defendant argued that in so far as there was a dispute between the Plaintiff and the 2nd Defendant as to (1) the existence of the Trust; and (2) the 2nd Defendant’s entitlement to any money payable by the 1st Defendant under Two Promissory Notes, it was not appropriate to enter summary judgment against the 1st Defendant. 30.Against the foregoing background, in so far as the 2nd Defendant’s two applications herein hinge upon the obligation of the 1st Defendant to make payment under two Promissory Notes, per se, as well as the 2nd Defendant’s entitlement under the Trust, I agree with Mr Hui that the 2nd Defendant would fail in limine. 31.In short, the 2nd Defendant would not have a better case than the Plaintiff against the 1st Defendant pursuant to the Two Promissory Notes. Mr Ho made a valiant attempt to argue that the defence raised by the 1st Defendant was unbelievable since (1) the presentment was made by the Plaintiff’s solicitor on 27 January 2011 whose evidence was reliable; (2) the Trust had been confirmed by a Statutory Declaration of Mr Lee (dated 13 March 2019) which had been provided to the 1st Defendant. 32.Suffice it to say that the existence of the Trust is disputed by the Plaintiff, who is undeniably the holder of the Two Promissory Notes. This has to be resolved at trial. More importantly, the application for summary judgment herein is not founded upon the Plaintiff’s cause of action against the 1st Defendant. 33.Mr Ho argued that no positive case was capable of being advanced by the 1st Defendant since its sole witness, Madam Ma Xiaona, was only appointed as a Non-Executive Director of the 1st Defendant on 24 March 2016 and she had no direct knowledge of the Transaction and the presentment on 27 January 2011. 34.Ironically, the same can be said about the unsatisfactory affirmation evidence from Mr Leung Heung Ying (“Mr Leung”), a director of the 2nd Defendant. Mr Leung did not claim to have any personal knowledge of what transpired during the alleged presentment on 27 January 2011 either. 35.At the hearing, Mr Ho sought to rely on the witness statements (1 lever arch files) filed by the parties herein which was lodged with the Court under cover of a letter dated 24 July 2020 (ie 3 days prior to the hearing). This rather unorthodox way in which Mr Ho sought to introduce the materials is not to be encouraged. 36.In particular, Mr Ho attempted to draw attention to the witness statement of Mr Leung Hing Ho Simeon, an assistant solicitor of Messrs Johnny K K Leung, who allegedly attended the 1st Defendant’s office on 27 January 2011 to present the original certificates of the Two Promissory Notes to demand payment. Since the witness statements were not properly introduced, I declined to refer to it. 37.On the foregoing analysis, the same conclusion is drawn in respect of the application for interim payment on the strength of the Two Promissory Notes. It is doomed to fail. However, that is not the end of the matter. ACKNOWLEDGMENT OF DEBT – AS A SEPARATE AGREEMENT TO PAY 38.In Paragraph 32 to 36 of the AMDEDC&C, an alternative claim has been pleaded by the 2nd Defendant against the 1st Defendant in reliance on the terms of the Acknowledgments of Debt as evidenced in two letters issued by the 1st Defendant dated 31 March 2016 (mistakenly pleaded as 30 March 2016) and 7 March 2017. 39.The first letter of 31 March 2016 was signed by Mr Li Dahong, the Chairman of the 1st Defendant. It reads:
40.The second letter of 7 March 2017, which bore the same heading, was also signed by Mr Li Dahong on behalf of the 1st Defendant. It reads:
41.It is extraordinary that despite filing two affirmations of Mr Leung Heung Ying, the 2nd Defendant did not condescend upon particulars as to what transpired between the parties (1) which culminated in the 1st Defendant issuing the two letters on 31 March 2016 and 7 March 2017 respectively; and (2) between 7 March 2017 and 3 October 2017, when the 2nd Defendant issued a summons to join as a party. 42.Notably, upon the order for joinder being granted by Master Johnny Ma on 6 February 2018, the 2nd Defendant first filed a “Defence and Counterclaim of the 2nd Defendant” on 6 March 2018, which was pleaded by Mr Ho, and was dated 6 March 2016 (ie about 3 weeks before the first letter). Upon enquiry, Mr Ho would put in down to a typographical error. However, it is unclear when the pleading was first prepared prior to filing. 43.Importantly, the Court is not assisted by any evidence as to what follow-up action, if any, was taken to finalise the proposed indemnity referred to the in two letters evidencing the Acknowledgment of Debt, which was supposed to be drafted by the 1st Defendant and provided to the 2nd Defendant for consideration. 44.In due course, after the exchange of witness statements, Messrs C T Chan (for the 2nd Defendant) sent a letter to the Messrs D S Cheung & Co (for the 1st Defendant) on 10 October 2019 offering to execute a deed of indemnity to the extent of HK$12,500,000 (ie the sum under the competing claim made by the Plaintiff herein). In a reply letter dated 14 October 2019, the 1st Defendant said: “However, our client considered the option of a deed of indemnity in 2016 and 2017 out of good will, and in view of the relationship of trust between our client and your client’s shareholder, Mr Leung . . . at the time. The option was eventually not agreed nor pursued by your client, and as mentioned above, no agreement was ever reached. As a result, the option or proposal lapsed. The basis of the same trust as was in 2017 has been eroded given a series of spurious acts of your client’s shareholder against our client since 2018. As well, the company is facing an active litigation from the Plaintiff whereas it was on hold in early 2017. Since the re-activation of the proceedings since end of 2017, there has been a strong pursuit from the Plaintiff and in contrast there has not been a convincing support to your client’s claim promised.” (emphasis added). 45.At the hearing, Mr Ho advanced an argument that there was a separate agreement under Acknowledgment of Debt as evidenced in the two letters, which was supported by consideration flowing from the 2nd Defendant to the 1st Defendant by way of forbearance to sue under the Two Promissory Notes. 46.Although a “separate agreement” as such was not specifically pleaded, I entertained the argument since it was pleaded in the AMDEFC&C in the following terms:
47.In response, the 1st Defendant pleaded in the Defence to AMDEFC&C (dated 26 June 2018) in the following terms:
48.By a letter dated 3 September 2020, the parties were invited by the Court to serve supplemental submissions on the issue of a “separate agreement”. The Plaintiff lodged its further submission on 17 September 2020, which was followed by the 1st Defendant’s dated 5 October 2020 and the Plaintiff’s reply dated 17 October 2020. 49.In short, the Plaintiff relied on the full terms of the Acknowledgement of Debt, which was referred to in Paragraph 34 of the AMDEDC&C (see Paragraph 46 above) and the fact that the forbearance to sue from 31 March 2016 (date of first letter) to 3 October 2017 (date of summons for joinder) was self-evident. 50.In the main, the only point taken by the 1st Defendant was that a “separate agreement” and the consideration therefor had not been pleaded and hence there was no issue of any “separate agreement” before the Court. Further, it was argued that the terms of the intended deed of indemnity contemplated in the two letters had never been agreed. 51.Whilst a “separate agreement” was not specifically referred to in the pleadings, it is tolerably clear that the 2nd Defendant was seeking to rely on the terms of the Acknowledgement of Debt wherefrom the forbearance to sue upon the specific request of the 1st Defendant was patently clear. 52.Importantly, the 1st Defendant was not taken by surprise since it was alive to the issue as to the existence of a separate agreement (see Paragraph 15 of the 1st Defendant’s Defence to AMDEFC&C at Paragraph 47 above and the 1st Defendant’s letter at Paragraph 44 above). 53.Further, in Paragraph 5 of the 2nd Affirmation of Ma Xiaona, the existence (or otherwise) of a binding agreement afforded by the two letters evidencing the Acknowledgment of Debt was specifically addressed by the 1st Defendant. 54.It is also patently clear from the 2 letters that the “Debt” owed by the 1st Defendant was a reference to the liabilities to pay under Two Promissory Notes (HK$12,500,000) since specific reference was made to HCA 397 of 2011, the main action herein. 55.More importantly, in the 2 letters, the 1st Defendant unequivocally acknowledged that the 2nd Defendant was “the beneficiary owner of the Debt” and requested for “indulgence” due to its own “financial difficulties” at that material time. 56.The change from “intends to settle” in the first letter to “will settle” in the second letter is also significant. It is clear that the 1st Defendant undertook to pay the money under the Debt over to the 2nd Defendant on the strength of an indemnity against the Plaintiff’s competing claim herein. 57.In this context, the obligation for the 1st Defendant to pay the 2nd Defendant under the Acknowledgement of Debt does not depend on the outcome of the dispute between the Plaintiff and the 2nd Defendant as to the existence or otherwise of the Trust. 58.In short, the 1st and 2nd Defendant agreed to settle the Debt by the 1st Defendant paying the 2nd Defendant on the basis that the 2nd Defendant was the beneficial owner in exchange for an indemnity. The only question is whether the agreement was supported by consideration and binding on the 1st Defendant. 59.Even in the absence of any confirmatory evidence by way of affirmation, it is clear that between 31 March 2016 and 3 October 2017, the 2nd Defendant did accede to the express request of the 1st Defendant to forbear (or continue to forbear) to sue and/or refrain from joining as a party in the action herein. This constitutes good consideration as a matter of law (Chitty on Contract (13th Ed) Vol 1, at Para 3-060). 60.Further, it matters not whether the 2nd Defendant’s claim against the 1st Defendant pursuant to the terms of the Acknowledgment of Debt (referrable to the Two Promissory Notes) would be successful as long as it was made in good faith (Chitty on Contract (supra) at 3-052). 61.Significantly, under the terms of the Acknowledgment of Debt, the 1st Defendant undertook to prepare the terms of the indemnity, which they failed to do. This constitutes a breach of the terms of the Acknowledgment of Debt. In the circumstances, to allow the 1st Defendant to renege from the terms of the Acknowledgement of Debt on the ground that the terms of the indemnity had not yet been agreed would be to allow the 1st Defendant to benefit from its own wrong. 62.Further, since the indemnity as contemplated in the 2 letters falls within the narrow and distinctive scope of the Plaintiff’s competing claim herein (ie an indemnity with specific reference to 1st Defendant’s liability towards the Plaintiff in HCA 397 of 2011), it needs not be anything elaborated. Hence, the terms of the intended indemnity were reasonably certain and it was capable of being enforced even in the absence of a deed being executed. 63.Although the application for summary judgment was made after exchange of witness statements, it does not affect the jurisdiction of the court. On the foregoing analysis, I am of the view that the defence of the 1st Defendant in respect of the “separate agreement” is, at best, shadowy. 64.Accordingly, I order that leave be granted to the 1st Defendant to defend the counterclaim of the 2nd Defendant on the condition that a sum of HK$12,000,000 (as set out in the Summons) be paid into court within 28 days by way of security to answer the 2nd Defendant’s counterclaim against the 1st Defendant. 65.On the foregoing finding, there is no need for me to deal with the alternative application for interim payment under the “separate agreement”. For the avoidance of doubt, nothing herein shall be construed to hinder any finding of facts to be made by the trial judge as between the Plaintiff and any of the Defendants and as between the Defendants, inter se. 66.As to cost, in light of the fact that the 2nd Defendant only properly enunciated its claim under the “separate agreement” in the course of the argument, I make an order nisi that costs of the application herein be the 2nd Defendant’s costs in the cause of its counterclaim against the 1st Defendant. 67.There be no order as to costs as between the Plaintiff and each of the Defendants.
Mr Richard Alvaro Sousa of Chan, Lau & Wai for the Plaintiff Mr John Hui and Ms Sharon Yuen instructed by Wellington Legal for the 1st Defendant Mr Raymond Ho instructed by C T Chan & Co for the 2nd Defendant |
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