Chan Ying Kit Nicholas v. Huang Yuan Yuan Ian

DCCJ 2923/2020

[2021] HKDC 168

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 2923 OF 2020

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DECISION

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INTRODUCTION

1.This is an application by the plaintiff for a summary judgment in respect of 3 loans allegedly advanced to the defendant in a total sum of $3 million.  Alternatively, the plaintiff asks for an order that the defendant do pay interim payment to the plaintiff a sum of $3,165,683.10 being the amount due to the plaintiff as at the date of the statement of claim.

2.In this application, in addition to saying that the defendant has no defence, the plaintiff relies on an alleged admission of liability made by the defendant through his solicitors.

3.The defendant opposes this application on the basis that the alleged admission should not be taken as evidence in respect of liability of the loans. He says that the transactions, or at least the 1^st payment by the plaintiff, were not pure loans, but they were instead share transfer arrangement.  In any event, the proper party of the transactions was the defendant’s company, not himself personally.  The defendant also points out that, based on the documents relied on by the plaintiff, the plaintiff cannot enforce the loans because of the excessive interest rates stated in the documents.

4.I heard the application on 2 February 2021, where the plaintiff was represented by Mr Benny Lo and Mr Tang Lik Hang, and the defendant by Mr Lai Chun Ho.  At the conclusion of the hearing, I indicated that I would hand down a written decision on a later day.  This is my decision.

BACKGROUND

(1)     Dramatis personae

5.Digital Transaction Ltd (“DTL”) is a newly formed company whose primary business is to offer blockchain platforms with real time updates.  Up until February 2019, DTL were wholly owned by InnoTech Venture Ltd (“InnoTech”).  The defendant is the sole director and sole shareholder of InnoTech, and the chairman and chief executive officer of DTL.  In about February 2019, the plaintiff became a shareholder of DTL.

(2)     The plaintiff’s case

6.The plaintiff’s pleaded case is relatively simple and straightforward. According to the plaintiff, he advanced three sums of loans to the defendant in the amounts of $2,000,000, $200,000, and $800,000 on 3 June 2019, 25 September 2019, and 10 October 2019[1]. The defendant agreed to repay the loans within 2 weeks from the dates of advancement, but he failed to do so[2]. The loans were agreed orally but details were contained in and evidenced by three memoranda signed by the defendant on the dates of advancement[3].

7.Before the commencement of the present action, the plaintiff’s solicitors wrote to the defendant’s solicitors demanding for repayment[4]. In reply, the defendant’s solicitors are said to have admitted the defendant’s indebtedness to the plaintiff and agreed to repay the loans by 10 June 2020[5].

8.Since the defendant failed to repay the loans by the deadline, the plaintiff commenced the present action against the defendant on 16 June 2020 for the recovery of the said loans.

(3)     The plaintiff’s affirmation in support

9.Shortly after the defendant had given his intention to defend[6], the plaintiff took out the present summons for summary judgment on 14 July 2020[7]. In the supporting affirmation, the plaintiff not only verified the facts stated in the statement of claim and contained a statement of his belief that the defendant had no defence to the action[8], but also exhibited the three memoranda referred to in the statement of claim and the pre-action correspondence between the parties’ solicitors.

10.In the memoranda[9], it was stated that the defendant confirmed and acknowledged that he obtained the relevant loans ($2,000,000, $200,000, and $800,000 respectively) from the plaintiff.  In the 1^st memorandum, it was stated that the defendant was responsible for repayment with incurred interest of 8% per annum to the plaintiff.  In the 2^nd and 3^rd memoranda, it was stated that the defendant was responsible for repayment of the double of the principal sums (namely $400,000 and $1,600,000 respectively) to the plaintiff.  The three memoranda were dated 3 June 2019, 25 September 2019, and 10 October 2019 respectively.

11.The alleged admission set out in the letter from the defendant’s solicitors dated 29 April 2020[10] reads thus:-

“6.   As for your client’s request made by way of your letter dated 15 April 2020 for repayment of the total sum of HK$3,000,000 together with interest on HK$2,000,000 at the rate of 8% per annum from 3 June 2019 to the date of repayment, [the defendant] believes that the reasonable notice required from your client to demand for repayment of the sums should at least be 8 weeks.

7.     We are instructed [by the defendant] that he would therefore make repayment to your client by 10 June 2020.”

(4)     The defendant’s affirmation in opposition

12.In his affirmation in opposition, the defendant puts forth the circumstances leading to the advancement of the payments.  In respect of the 1^st loan of $2,000,000, the defendant contends that the loan was advanced to InnoTech, instead of him personally[11]. 

13.According to the defendant, the plaintiff is co-investor of InnoTech in DTL[12]. In May 2019, the plaintiff and InnoTech discussed the possibility of the plaintiff granting loan for the purpose of funding DTL’s operations.  It was proposed that the plaintiff would purchase 40,000 InnoTech’s shares in DTL in a total sum of $2,000,000 with an option for InnoTech to buy back the shares. The plaintiff is said to have agreed to the proposal[13]. As a result, the plaintiff and InnoTech executed the transfer documents and the plaintiff advanced a sum of $2,000,000 to InnoTech’s bank account[14]. However, the formality of transfers had not been completed because the parties could not agree as to who should bear the responsibility of paying stamp duty[15]. Accordingly, the defendant contends that the payment made by the plaintiff was neither a loan to him nor a loan to InnoTech, but instead a payment for the acquisition of the InnoTech’s shares in DTL[16].

14.According to the defendant, in the latter half of 2019, DTL experienced financial difficulties.  The defendant then asked the plaintiff to advance loans to DTL for operational uses[17]. As a result, the plaintiff paid the sums of $200,000 and $800,000 on 3 October 2019 and 10 October 2019 respectively[18]. It is the defendant’s case that the loans were not for his personal use but for DTL’s operations.  The payments were also made by way of cheques drawn in favour of InnoTech[19].

15.Subsequently, DTC continued to suffer financial difficulties.  The defendant requested the plaintiff to advance further loans to sustain DTC’s operations[20]. The plaintiff told the defendant that he would only do so if the defendant agreed to sign certain agreements in his personal names in respect of the loans previously advanced by the plaintiff[21]. The defendant also says that, in order for the plaintiff to take on the risk by further funding the operations, the plaintiff requested to state interest rate of 8% per annum for the 1^st loan, as well as lump sum repayments of $400,000 and $1,600,000 for the 2^nd and 3^rd loans respectively[22]. Since the defendant believed that the plaintiff had genuinely intended to advance further funding to DTL’s operations, he reluctantly agreed to sign the memoranda as requested[23].

16.However, notwithstanding the defendant duly signed the memoranda, the plaintiff refused to advance further funding[24]. The defendant says that the effective interest rates for the 2^nd and 3^rd loan were about 400% per annum (as between October 2019 and January 2020) and hence illegal and unenforceable[25].

17.The defendant also explains that he instructed his solicitors to reply the plaintiff’s demand letter in the way as they did because he did not want to sour the relationship between him and the plaintiff[26]. Subsequently, he discovered that the plaintiff’s wife had founded with others (including a former employee of DTL) a company which is in direct competition with DTL[27]. DTL later instituted a High Court Action against its former employees for breach of confidence[28]. As a result, the defendant says it was then clear that the relationship between him and the plaintiff could not be salvaged.  He therefore intended to insist on his strict legal right to dispute the validity of the loans in this action[29].

(5)     The plaintiff’s affirmation in reply

18.In his affirmation in reply, the plaintiff explains the background as follows.  In about February 2019, he agreed to invest in DTL by purchasing its 100,000 shares from InnoTech, representing 20% of DTL’s shareholdings.  The purchase price was $5 million, and the plaintiff made the payments in March 2019[30].

19.In around 28 May 2019, the defendant told him that he was about to close a deal with an equity investor and needed a short-term loan of $2,000,000 to inject into DTL’s capital.  The plaintiff agreed to advance the loan on the condition that the sum would be repaid within 2-3 weeks.  The plaintiff made the payment on 3 June 2019, and the payment was made directly into the InnoTech’s account[31]. The plaintiff firmly deposed that he was uninterested in getting more shares of DTL at the time, as he had just purchased 100,000 shares in February.  Nor could he see the shares as meaningful collateral for the loan where it was unclear when InnoTech could buy it back.  He also denies that he had ever executed any transfer documents for that purpose[32]. The money was paid to InnoTech’s account simply because the defendant requested him to do so.  He says he had no intention to lend any money to DTL or InnoTech[33].

20.The plaintiff also deposed that the purported stamp duty issue was related to his previous purchase of 100,000 DTL’s shares from InnoTech in February 2019, and it had nothing to do with the advancement of the 1^st loan[34].

21.In about mid-September and early October 2019, the defendant told the plaintiff that further funds were needed in order to close a deal with a purported investor[35]. The plaintiff says he opined at the time that the fund would be beneficial to DTL and would enhance the return of his investment there.  In such circumstance, the plaintiff agreed to lend two further sums of $200,000 and $800,000.  Again, at the request of the defendant, the plaintiff drew cheques for the said sums in favour of InnoTech[36].

22.The plaintiff denies that he had ever promised to advance any funding to DTL[37]. While the defendant had repeatedly told the plaintiff that additional equity investors would be brought into DTL, it was clear to the plaintiff by January 2020 that the funding would not be materialized[38]. As the previous loans had yet to be repaid, the plaintiff asked the defendant to prepare an “IOU” before he considered for advancing any further funding.  In such circumstances, three memoranda were prepared and drafted by the defendant in January 2020.  It is agreed that the memoranda were backdated to the dates when the loans were made[39]. According to the plaintiff, the interest rate of the 1^st loan was agreed back in July 2019[40]. He did not appreciate the significance of doubling the principals for the repayment of the 2^nd and 3^rd loans.  He says he would only claim for the principals thereof in this action[41].

23.Finally, the plaintiff says that the defendant’s attempt to resile from the admission is “complete nonsense and disingenuous”[42]. According to the plaintiff, the relationship between him and the defendant had already turned sour in February 2020 when he threatened to cancel his investment in DTL and even report the matter to the police[43]. Their acrimonious relationship back then is evidenced by the letter sent by the defendant’s solicitors on 24 February 2020[44].

THE PRESENT APPLICATION

(1)     The plaintiff’s submissions

24.Mr Lo, together with Mr Tang, stresses that the plaintiff’s case is a straightforward debt recovery action[45]. It is submitted that there are no triable issues in relation to any of the loans advanced by the plaintiff[46]. Nor are there any triable issues in relation to the memoranda executed by the defendant[47]. As indicated above, Mr Lo also relies heavily on the admission made by the defendant’s solicitors, which admission, Mr Lo says, is unequivocal and unconditional[48].

(2)     The defendant’s submissions

25.Mr Lai on the other hand emphasizes that the dispute between the plaintiff and the defendant involves complex commercial transaction[49]. He submits that:-

(1)     InnoTech should be the proper party to the funding arrangement and the defendant had all along only acted as InnoTech’s agent[50];

(2)     There was a variation of agreement as regards the interest rate of the 1^st loan[51];

(3)     The memoranda were impugned as the plaintiff refused to honour the condition that further sums would be advanced after the signing of the said memoranda[52]; and

(4)     The interest rate of the 2^nd and the 3^rd loans exceed the statutory limit of 60%, rendering the loans illegal and unenforceable[53].

LEGAL PRINCIPLES

26.The legal principles governing the application for summary judgment are well-settled and not in dispute.  That being said, unsurprisingly, the parties focus on different aspects of the principles.  Mr Lo emphasizes that the Court should not suspend its critical faculties and be hesitated to point out the incredibility of a defence.  In this respect, Mr Lo refers me to the Menfond Electronic case[54], where Deputy High Court Judge Lisa Wong SC (as her Ladyship then was) said thus:-

“… In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the court must look at the whole situation. In assessing the credibility of the defendant’s factual case, while the court will not embark on a mini-trial on affidavit evidence, the court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate. If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the court must say so.”

27.On the other hand, Mr Lai says the Court should not lose sight of the fact that the plaintiff must demonstrate that the defendant has no defence.  In this respect, the Court should critically examine the basic premise of the plaintiff’s case or its inherent strength and weakness[55]. If there are any unresolved matters or if the Court has any doubts or suspicion as to the validity of the plaintiff’s case[56], no summary judgment should be granted.

28.Furthermore, Mr Lai stresses the importance of the fact that the facts should be pleaded accurately in the statement of claim.  In this respect, Deputy High Court Judge Wilson Chan (as his Lordship then was) pointed out in the Li Chuen Kwai[57] case that:-

“11. As far as the plaintiff’s claim is concerned:

(1)   An application for summary judgment must be supported by an affidavit verifying the facts on which the claim is based.

(2)   The Statement of Claim must be good and complete in itself; any defect or omission in the Statement of Claim cannot be corrected or supplemented by the plaintiff’s affidavit. If the defect is one of substance, the application for summary judgment will be dismissed.

(3)   This means that an Order 14 application has to proceed on the case as pleaded, and it is those facts (as pleaded) which have to be verified on affidavit.

(4)   Where the assertions in the plaintiff’s affirmation constitute a material deviation from the plaintiff’s pleaded case, the plaintiff will have failed to verify his claim as pleaded, and summary judgment should not be granted.

(5)   Equally, summary judgment will not be granted where the plaintiff’s affidavit evidence is materially different from and inherently inconsistent with his/her case in the Statement of Claim.”

29.Similarly, Mr Recorder Stewart Wong SC said the followings in the Chu Wen Jing Jennifer case[58]:-

“22.   The court can only give judgment to a plaintiff based on facts which entitle the plaintiff to judgment in law. Except in the case of default judgments, such facts have to be established by way of admissions, affidavits (in cases where judgment is applied for or obtained by way of application before trial), or by evidence at trial. Even in cases of default judgments, the facts have to be properly set out in a writ or a statement of claim which are then assumed to be true because no effective challenge is made by way of a notice of intention to defend or a defence. But the point is that the court must have a set of facts based on which it can then give judgment. What it cannot do is to ask to give judgment on a set of facts which the party asking for judgment is itself saying to be untrue.

23.   In the context of summary judgment, when a plaintiff seeks to obtain the same under Order 14, he must:

(1) serve a statement of claim (Order 14, rule 1(1)). ‌The statement of claim “must contain, and contain only, a statement in a summary form of the material facts on which the party pleadings relies for his claim” (Order 18, rule 7(1));

(2) support his application for summary judgment by “an affidavit verifying the facts on which the claim, or the part of a claim, to which the application relates is based and stating that in the deponent’s belief there is no defence to that claim or part, as the case may be” (Order 14, rule 2(1)).

24.   The court may give summary judgment unless inter alia the defendant shows that there is an issue or question in dispute which ought to be tried or that there ought for some other reason be a trial (Order 14, rule 3(1)).

25.   It is clear from the above provisions that a summary judgment can only be granted on the basis of facts as verified by the plaintiff in the affidavit in support, and, the case being defined and bound by the statement of claim, such facts must be confined to those facts as pleaded therein. If no triable issue or other reasons for trial are shown by the defendant, then the court is entitled to accept those facts which have been pleaded, and verified on oath, as proven facts as between the parties, and to give summary judgment thereon.

26.   But where the application for summary judgment is based not on facts pleaded in a statement of claim and verified on oath by or on behalf of a plaintiff, the application falls outside the requirements of the provisions in Order 14 and cannot be granted thereunder.”

ANALYSIS

30.It appears from the parties’ respective cases and submissions that the following issues fall on me to decide, and I will consider them in the same order:-

(1)     Whether there are defects in the plaintiff’s case;

(2)     Whether the defendant’s alleged funding arrangement in relation to the 1^st loan is capable of belief;

(3)     Whether it is reasonably arguable that InnoTech is the proper party who deals with the plaintiff in respect of the loans;

(4)     Whether the interest rates stated in the 2^nd and 3^rd memoranda constitute triable issue; and

(5)     Whether the admission made by the defendant’s solicitors was valid.

(1)     There are defects in the plaintiff’s pleaded case

31.Mr Lai points out in his skeleton submissions that there is a deviation between the plaintiff’s pleaded case and his subsequent affirmations[59]. It was stated in the statement of claim that the 1^st loan agreement was made orally on 3 June 2019 carrying interest rate of 8% per annum[60]. However, it was deposed in the plaintiff’s reply affirmation that the interest rate was only agreed on 12 July 2019[61]. Mr Lai submits that this is a material deviation, and that the plaintiff should not be entitled to judgment against the defendant on this basis.

32.At the hearing, Mr Lo submits that the deviation is not material as the plaintiff is prepared not to seek interests at the said rate from 3 June 2019. Mr Lo confirms that, in respect of the 1^st loan, the plaintiff now only asks for interests at 1% above the HSBC best lending rate from 11 June 2020, that is, the day after the expiry of the period of reasonable notice for repayment as stated in the letter from the defendant’s solicitors dated 29 April 2020.

33.Relatedly, it is also noted that, in the statement of claim, it is averred that the memoranda were “signed by the Defendant on 3 June 2019, 25 September 2019, and 10 October 2019 respectively.”  This is not true.  The plaintiff deposed that he was given the memoranda in a meeting in January 2020, and that he and the defendant “signed them right on spot”[62].

34.Mr Lo submits that the memoranda are not immaterial because they do not constitute the legal basis of the plaintiff’s claim.  Instead, the plaintiff’s claim is based on the original unwritten agreement with the defendant.  In any event, the defendant seeks to impugn the said memoranda on the basis that they should be set aside on the basis of the alleged misrepresentation of the plaintiff.  Since none of the party in this action relies on the documents, the documents should be viewed as mere background of the case[63].

35.Whilst it is not my holding that the aforesaid deviations are material rendering it impossible for the plaintiff to obtain a summary judgment in the present case, the Court is still entitled to take such deviations into account as one of the considerations when deciding whether a summary judgment should be granted in the plaintiff’s favour.

(2)     The alleged funding arrangement is not capable of belief

36.The defendant’s case hinges largely on the alleged funding arrangement between him and the plaintiff.  Having considered the materials placed before me, I find that the alleged funding arrangement is incapable of belief.  It does not tally with the contemporaneous evidence, and it has little (if at all) evidence in support.  I also find that such an arrangement defies commercial sense.  I will explain these findings in more details below.

(2a)   The alleged funding arrangement does not tally with evidence

37.In his 2^nd affirmation, the plaintiff exhibited a set of WhatsApp messages[64] exchanged between the plaintiff and the defendant at the material times.  The defendant raises no challenge as to the authenticity of the messages.  From the messages, it is clear and beyond dispute that the plaintiff intended that the money (particularly the 1^st sum of $2,000,000) would be returned in a short period of time, namely after the defendant secured funding from other investors.

(1)     The following exchange was made on the day when the plaintiff deposited the 1^st sum of $2,000,000 into InnoTech’s account[65]:

3/6/2019	4:56:50pm	P[66]	Please try and return the money to me within 2-3 weeks.
	4:57:25pm	D	Yes. Thanks.

(2)     About two weeks later, the plaintiff started asking for the progress of the funding[67]:

19/6/2019	5:34:03pm	P	So how’s the progress of the funding?
	5:51:16pm	D	Should arrive next few days.
27/6/2019	1:53:10pm	D	Money should arrive sometime end of next week.
	2:08:31pm	P	… [omission added]
	2:09:35pm	P	Noted about the fund … but honest speaking please help and make sure it happen (sic) next week.
	2:34:34pm	D	Absolutely. I am pushing diligently and constantly.

(3)     After a lapse of over a month and no funding had been materialized, the plaintiff requested for interests for the money advanced[68]:

12.7.2019	10:11:08am	P	Any good news on the legal process for the funds?  It has been a month already.  Is it fair to say that if the money is still not ready by next Monday (15/7) which you say it should be ready.  Can we agree on a (sic) interest rate of 8% P.A.  For the period that I have been borrow the money to you?  Hope you understand.
	10:29:09am	D	Of course.
	10:37:51am	P	All noted with thanks.

(4)     It is noted at this juncture that the time for the plaintiff to request for interests contradicts what was stated by the defendant, where the defendant deposed in his affirmation that the plaintiff only requested for interests in around January 2020 at the time when the memoranda were signed[69].

(5)     Between 24 July 2019 and 22 August 2019, the defendant kept telling the plaintiff that the funding would be ready soon[70].

24/7/2019	3:28:39pm	P	Any good news on the fund?
	3:31:18pm	D	Should be here next week.
1/8/2019	8:41:18am	D	Investment should arrive next Wednesday.
14/8/2019	5:13:16pm	P	Hi Ian, sorry to chase you, but it has been 2.5 months already.  Any good news on the fund?
	5:13:59pm	D	Should be here this Friday or next Monday.
22/8/2019	9:18:44pm	D	Have not received the bank transfer from London yet.  Will immediately return the loan with interest upon receipt. Thanks.

(6)     On 13 and 14 September 2019, the plaintiff sent the following message to the defendant and the defendant replied the next morning[71]:

13/9/2019	10:00:35pm	P	…Secondly for the 2M you told me it will take 2 weeks for you to return the money and now is more than 3 months.  I think I have show (sic) my respect and believe in you & DTL.  Hope you understand.
14/9/2019	7:59:23am	D	Please be reassured about your shares.  It has been a done deal.  The formality is held up.  Thanks (sic) you your patience, understanding and the respects shown in regards to the $2M loan.  I am most regrettable for the delay due to the twist and turns by the investors in the last minutes.  I have continued to open our weekly meeting to you and have kept you posted to the overall developments/ progress in the company.  Hopefully, that means something to you as well.

38.From the messages quoted above, Mr Lo observes, and I agree, that the parties had all along treated the 1^st payment of $2,000,000 as loan[72]. Save and except the one which we will consider in [41] below, there is no scintilla of evidence in the WhatsApp messages that indicate the existence of the funding arrangement in respect of the 1^st loan as alleged by the defendant.  If the parties did agree upon such a funding arrangement, one cannot help but wonder why there was no reference to it in the messages exchanged between the parties.  In my view, it is clear that the money was intended to be repaid within 2-3 weeks, and there were no other conditions attached to it. 

39.Accordingly, I find that the funding arrangement as alleged by the defendant in relation to the 1^st loan (ie purchase of InnoTech’s shares with a buy-back option) does not tally with the contemporaneous evidence.  On the contrary, the plaintiff’s case that the advancement of money was a pure loan is supported by the contemporaneous evidence.

(2b)   The alleged funding arrangement has little evidence in support

40.Mr Lo also submits that there is no single piece of contemporaneous documentation capable of supporting the defendant’s case that the payment of $2,000,000 was made for the purchase of InnoTech’s shares[73].

41.Mr Lai disagrees and refers to the following WhatsApp message[74]:-

29/5/2019

2:21:36pm

D

Please help out to bridge this matter.  Really appreciate.  I can prepare the bought and sold note and instrument of transfer for $2,060,000.00 @$50 per share.  We can meet tomorrow for the signature.

42.At the hearing, Mr Lai also referred to the next message[75] sent by the plaintiff in the afternoon of the following day, where he requested the account details from the defendant.  According to Mr Lai, the plaintiff must have acquiesced the arrangement, otherwise he would not have so requested.

43.I do not find that the said message can be of any assistance to the defendant.  I note that there was a lapse of a whole day when the plaintiff requested for account details.  Mr Lai’s argument may have some force if the discussion was uninterrupted, but the force vanishes where the discussion was interrupted for almost a day and there is no evidence that the suggested funding arrangement was still in the plaintiff’s mind when he requested the defendant to provide account details. 

44.As shown in the messages, the defendant said that he would prepare the relevant bought and sold notes and the parties would meet in the following date for signature.  In the defendant’s affirmation, it was deposed that the plaintiff only made the payment of $2,000,000 after the execution of the bought and sold notes and the instrument of transfer by InnoTech and the plaintiff. Accordingly, it is the defendant’s case that the relevant bought and sold notes were duly executed.  However, the originals are said to have been misplaced, and the defendant could only exhibit the unsigned and undated drafts[76]. Mr Lo submits that the defendant’s inability to produce the signed documents indicates that they did not exist[77]. In any event, I think it should not be controversial that the undated and unsigned draft transfer documents have no probative value to support the defendant’s version of events.

(2c)    The alleged funding arrangement makes no commercial sense

45.Mr Lo submits that the funding arrangement as alleged by the defendant is inherently implausible.  The plaintiff had already acquired 100,000 shares of InnoTech in March 2019 and the formalities for the share transfer had not been completed.  It is therefore highly unlikely that the plaintiff would be prepared to acquire further shares in DTL[78]. Mr Lo also relies on the plaintiff’s affirmation where the plaintiff stated that he was interested in neither taking more shares in DTL nor lending any money to DTL or InnoTech, and that he had already paid $5,000,000 into DTL in March 2019 and did not wish to throw “good money after bad” [79].

46.In response, Mr Lai relies on the following message to support the contention that, at the material time, the parties were indeed positive regarding the prospect of the investment[80]:-

14/9/2019

11:20:56am

D

The total post valuation for the US$50M investment will be US$66.7M.  The purchase price is HK$80.00 per share.  Therefore you shall net profit HK$3M (+ HK$5M) on paper immediately.  Your percentage of ownership will go from 10% to 0.017%.  But the value for your investment will go to US$1,33,390 (HK$8,840,440).  This is a 62% return in half year!  Those are my calculations and I cannot guarantee that it is without error.

47.In my view, there is another reason why the alleged funding arrangement defies commercial sense.  As is seen from the WhatsApp messages quoted in [37] above, it cannot be disputed that the payment advanced by the plaintiff was expected to be repaid in a short period of time (2-3 weeks).  In such circumstances, it is hard to fathom any reason why the parties would have taken so much pain to transfer back and forth the shares in such a short period of time.  It should also bear in mind that the transfer of shares attracts stamp duty.  It is extremely unlikely that the defendant would have taken this convoluted, time-consuming, and expensive route, instead of a straightforward short-term loan from the plaintiff.  In my view, the arrangement may have made some sense if the plaintiff had initiated the request for collateral, but this is not the case here. 

48.Given the evidential support to the plaintiff’s case, and the lack of supporting documentary evidence and commercial sense for the defendant’s allegation, I conclude that the alleged funding arrangement as alleged by the defendant is incredible and incapable of belief.  I do not find that this is any triable issue as regards the funding arrangement as alleged by the defendant.

(3)     InnoTech is not the proper party to the loan agreement

49.I will proceed with considering this ground based on my ruling that there was no share sale agreement between the plaintiff and the defendant. Instead, the money advanced by the plaintiff was pure loans.  The question then is: who was the borrower of the loan – the defendant, or InnoTech, or DTL?

50.Mr Lai submits that, in the previous share acquisition, the plaintiff had dealt with the defendant in his capacity as the agent of InnoTech and/or DTL.  Insofar as the advancement of the 1^st loan is concerned, Mr Lai points out that, at the material times, the defendant was the chairman and chief executive officer of DTL and a director of InnoTech[81]. It was also pleaded by the plaintiff in a High Court Action that the defendant had acted as the agent of InnoTech[82]. The plaintiff and the defendant had discussed matters pertaining to the affairs of DTL[83]. Mr Lai further points out that, as there was no change of circumstances, the relationship between the plaintiff and the defendant had continued and extended to the time when the 2^nd and 3^rd loans were advanced[84].

51.As is pointed out earlier in this decision, the defendant’s capacities in InnoTech and DTL are not in dispute.  However, in my view, these facts do not necessarily entail that the defendant must have acted as agent on behalf of DTL or InnoTech. 

52.Based on the totality of evidence adduced by the parties, there is no doubt that the prime mover of the investment project in DTL was the defendant. In my view, it is simply unrealistic to suggest that the defendant had acted only as the agent to raise fund on behalf of DTL and/or InnoTech. 

53.This issue may be approached from another angle.  One may ask rhetorically: who will be ultimately benefited from the injection of funds into the project?  Obviously, the plaintiff is one of them, who, as one of the investors, would be benefited from the funding.  It was frankly admitted by the plaintiff (in the context of advancing the 2^nd and 3^rd loans) that the injection of fund would “greatly enhance the return of [his] equity investment in DTL.”[85]  Equally, another candidate must have been the defendant, who is the fellow co-investor (through InnoTech) of the project.  In my view, the interest of the defendant is even more at stake as he is clearly the prime mover of the DTL project.  Accordingly, it is nothing but a fanciful suggestion that InnoTech is the real beneficiary of the injection of the funding.  I can see no commercial reason why the plaintiff would have advanced the money to InnoTech, instead of the defendant personally.

54.Mr Lai argues that the word “you” in the WhatsApp messages must be judged in context and could be referred to “InnoTech” instead[86]. I respectfully disagree.  For the reasons set out above, it is clear to me that the reference of “you” in the messages must have referred to the defendant personally.

55.Mr Lai also refers to the plaintiff’s statement of claim in HCA 1534/2020 that the defendant was stated to have acted as agent of InnoTech[87]. He further submits that the advancement of loans by the plaintiff is a continuation of the past interaction between the plaintiff and the defendant.

56.Again, I am not able to accept this argument.  To be fair to the plaintiff, it should firstly be pointed out that the plaintiff had in fact pleaded in the said High Court Action that the defendant had acted for himself and/or on behalf of InnoTech (the 1^st defendant there)[88]. Furthermore, we must also bear in mind the fact that the said High Court Action concerns the sale and purchase of the DTL’s shares held by InnoTech.  There is therefore no surprise that InnoTech was involved and an agent must have acted on its behalf.  On the other hand, it is hard to see what role InnoTech had to play (other than an intermediary shareholding vehicle) in respect of the injection of the funding.  Whether the funds were used for DTL’s operations is neither here nor there.  Accordingly, I reject Mr Lai’s argument that InnoTech should be the proper party, who the plaintiff had dealt with.

57.Mr Lai[89] also refers to the plaintiff’s reason to reject the proposed share transfer arrangement, where the plaintiff stated that “it was unclear when InnoTech would buy back the shares.”[90]  Mr Lai submits that this shows the proper counterparty was InnoTech.  With all due respect, this argument is a non-starter.  What the plaintiff stated was in fact a response to the share sale agreement allegedly entered between the defendant and the plaintiff that “… InnoTech shall have the option to buy back such shares at HK$2,060,000 at a later date, once it came to be in a financial position to do so.”[91]  I cannot see how this piece of evidence can be of assistance to the defendant.  Neither can I see the relevance of the fact that the payment was made to InnoTech and used for DTL’s operational needs.

58.In these circumstances, I do not find it reasonably arguable that either DTL or InnoTech would be the proper party to the loan agreement.  I am of the clear view that the defendant is the proper party and the one who is responsible for the repayment of the loan.

(4)     The interest rate stated in the 2^nd and 3^rd Memoranda is triable

59.As mentioned, the defendant says that he signed the three memoranda because of the representation made by the plaintiff that he would advance further loans to InnoTech and/or DTL.  This promise had not been realized.  Mr Lai submits that, since the said Memoranda were obtained by misrepresentation, they should not have any legal force and should not be construe as evidence for the existence of loan as between the plaintiff and the defendant (in his personal capacity).

60.As mentioned above, Mr Lo confirms in his skeleton submission that the plaintiff does not rely on the said memoranda as the legal basis of this claim[92]. He however submits that the documents should still be served as evidence for the original advancement to the loans to the defendant[93].

61.I agree with Mr Lo’s submission.  Even assuming that the Memoranda were obtained by misrepresentation as alleged, I am not able to see why they could not serve as evidence at all.  In any event, for the reasons I set out above, I reject the defendant’s contention that the loans were advanced to InnoTech or DTL, not to him personally.  This conclusion of mine is reached without having regards to the memoranda.  Accordingly, the question whether the memoranda were obtained by misrepresentation is neither here nor there.

62.A more serious concern is that the memoranda stated the lump sum repayment of the 2^nd and 3^rd loans doubled the principal sum.  At the hearing, Mr Lai refers me to section 2 of the Money Lenders Ordinance, whereby interests are defined as including “any amount (by whatever name called) in excess of the principal, which amount has been or is to be paid or payable in consideration of or otherwise in respect of a loan”.  If the liability for repayment accrued in January 2020, it is said that the effective interest rate would be about 400% per annum.  Such excessive interest rate renders the loans illegal and unenforceable.

63.In the skeleton submission, Mr Lo submits that no repayment date had been specified in the memoranda.  It follows that it would be impossible to calculate the interest rate with reference to the lump sums[94]. Secondly, Mr Lo says that neither party has now relied on the memoranda and that the defendant adduced no evidence that the interest rate was agreed ab initio.  In such circumstance, the defendant’s argument of excessive interest rate “is a plain red herring of no substance”[95]. Furthermore, Mr Lo confirms at the hearing that the plaintiff is prepared to only claim ordinary interest rate at 1% above the HSBC best lending rate from 11 June 2020 (ie the day after the expiry of the period of reasonable notice for repayment stated in the letter of the defendant’s solicitors dated 29 April 2020).

64.In this regard, I share Mr Lai’s view that Mr Lo’s answers are both “inadequate and legally irrelevant”[96]. This issue relating to the interest rate is a very serious one, as it may possibly involve criminal liability.  I do not think that it can be disregarded simply by waiving the interests.  In my view, this issue should go to trial and be resolved by the Court there.

(5)     The admission made by the defendant’s solicitors is valid

65.Finally, as mentioned above, the plaintiff relies heavily on the admission made by the defendant’s solicitors.  In order to resile from it, the defendant raises an argument from motive.  He deposed in his affirmation that he instructed his solicitors to issue the letter dated 29 April 2019 (containing the admission) because he did not want to sour his relationship with the plaintiff, who is the co-investor in the DTL project[97].

66.In my view, this argument cannot assist the defendant because the motive behind a party making the admission is irrelevant.  I find support for this proposition in the Ho Wai Yin case[98], where Mr Justice A Cheung J (as the Chief Justice then was) said the followings:-

“Furthermore, in my judgment, the motive behind a party’s admission or concession is quite irrelevant.… An admission can be made for a variety of reasons. Sometimes it is made because what has been admitted actually represents the truth. Sometimes an admission is made out of convenience; still at other times, admissions are made for tactical purposes. The court is not here to be concerned with the motive or purpose behind an admission. The court is here to see whether a clear and unambiguous admission has been made.”

67.In my view, the above passage is equally apposite in the present case.

68.Mr Lo submits that the defendant’s admission is unequivocal and unconditional[99]. Mr Lai does not seek to argue otherwise.  In my view, Mr Lo is clearly correct.  I therefore hold that the defendant has through his solicitors made an admission that he is personally liable to the loans advanced by the plaintiff.  His change of mind and his subsequent intention to “insist on [his] strict legal right”[100] are not sufficient reason to resile from the admission.

(6)     Conclusion for the summary judgment application

69.In summary, I find that the alleged funding arrangement is incredible and incapable of belief.  On the contrary to what was contended by the defendant, I find that the contemporaneous evidence supports the plaintiff’s case and that money advanced by him was pure loans.  I do not find it reasonably arguable that the proper party to the loan agreement is either InnoTech or DTL.  I find that the proper party should be the defendant.  I also find that the admission made by the defendant’s solicitors clear, unequivocal and unambiguous.  There is no doubt in my mind that the defendant should be responsible for the repayment of the 1^st loan.

70.On the other hand, there are triable issues in respect of the 2^nd and 3^rd loans.  I am of the view that it is triable as to whether the interest rate in relation to these two loans were excessive under the Money Lenders Ordinance and whether such interest rates would render the loans unenforceable.  I also take into account the defects I have found in the plaintiff’s pleadings.  I find these two points are fatal to the plaintiff’s application for a summary judgment, notwithstanding the fact that I can see no defence in respect of the 1^st loan.

71.Given the lack of merits of the defendant’s defence in respect of the 1^st loan, I do not find it appropriate to grant the defendant leave to defend, whether conditional or not.  In such circumstances, I would simply dismiss the plaintiff’s application for summary judgment.

INTERIM PAYMENT

72.As I mentioned in the beginning of this decision, the plaintiff also applies for an interim payment as an alternative.

73.Order 29, rule 11(1) of the Rules of the District Court provides that the court may make an interim payment if it is satisfied that the defendant against whom the order is sought has admitted liability for the plaintiff’s damages or that, if the action proceeded to trial, the plaintiff would obtain judgment for substantial damages against the defendant.

74.For the reasons set out in [65] – [68] above, I have found that the defendant had through his solicitors admitted liability for repayment of loans advanced by the plaintiff.  The condition under rule (1)(a) is therefore satisfied.  I would grant an order for interim payment on this ground alone.

75.Not only that, in my judgment, the condition under rule (1)(c) is also satisfied.  The test for granting interim payment under this condition was set out by Mr Justice Au J (as his Lordship then was) in Guo Jing Jing case[101] as follows:-

(1)     First, the Court must be satisfied that the plaintiff “would”, on the material before the judge at the time of the application, obtain judgment for substantial damages against the defendant, not “would be likely to”, and the standard of proof is a high one, on the balance of probabilities.

(2)     Secondly, the Court must be satisfied that the defendant has no arguable defence, such as one that would warrant the grant of unconditional leave in an O 14 application.

76.For the reasons set out in [36] – [58] above, I am satisfied, and indeed have held, that the defendant has no arguable defence in respect of the 1^st loan, such as one that would warrant the grant of unconditional leave to defend in an application for summary judgment.  Based on the material placed before me, I am also satisfied that there is a high probability that the plaintiff would obtain a judgment for substantial damages against the defendant.

77.In determining the amount for interim damages, the court must adopt a fairly broad approach, with minimum expense to the parties, and make an estimate, on the evidence that has been adduced, of the likely award of damages and award a reasonable proportion of that estimate[102].

78.Given my rulings above, the plaintiff should be at least able to recover the principal of the 1^st loan.  Since the agreement in relation to interest is in serious dispute, I would not grant interests on the said sum.

79.Accordingly, I would order that the defendant do make an interim payment to the plaintiff in the sum of $2,000,000 with 14 days.

COSTS

80.At the conclusion of the hearing, Mr Lo submits that the plaintiff should be entitled to costs if the court is minded granting an interim payment in his favour.  Mr Lai does not seek to argue otherwise.

81.That being said, I am conscious of the fact that the plaintiff has originally claimed for interim payment of $3,165,683.10, being the amount stated in the statement of claim plus interests.  The plaintiff is only able to obtain an order which is only about two third of that amount.  The plaintiff also fails to obtain a summary judgment.  In such circumstance, I think it fair and just that the plaintiff should only be entitled to 70% of his costs of this application.

82.I would therefore make an order that the defendant shall pay 70% of the plaintiff’s costs of this application, to be summarily assessed if not agreed. I would also grant a certificate for one counsel.

83.The said costs order is made on a nisi basis.  Unless there is an application for variation, it will become absolute after 14 days from the date of this decision.

DISPOSITION

84.For the reasons as aforesaid, I make the following order:-

(1)     The plaintiff’s application for summary judgment against the defendant be dismissed; and

(2)     Pursuant to Order 29, rules 10, 11(1)(a), and 11(1)(c) of the Rules of the District Court, the defendant do make an interim payment to the plaintiff in the sum of $2,000,000 within 14 days from the date hereof and that such payment be made without prejudice to any contentions of the parties as to the nature or character of the sum to be paid by the defendant. 

85.There also be an cost order nisi, which will become absolute after 14 days from the date hereof unless there is an application for variation, that:-

(1)     The defendant shall pay 70% of the plaintiff’s costs of the plaintiff’s summons filed herein on 14 July 2020, to be summarily assessed if not agreed, with certificate for one counsel; and

(2)     The parties be at liberty to seek direction from the court in respect of the summary assessment mentioned in sub-paragraph (1) above.

86.To facilitate the application to vary the said costs order nisi:-

(1)     The applicant may within 14 days from the date hereof lodge written submissions (not exceeding 5 pages) with authorities in support of the application;

(2)     The respondent may within 7 days thereafter lodge written submissions (not exceeding 5 pages) with authorities in response; and

(3)     The variation application will be dealt with by the Court on the papers without oral hearing.

87.Lastly, it remains for me to thank Mr Lo, Mr Tang, and Mr Lai for their assistance rendered to this court.

Mr Benny Lo and Mr Tang Lik Hang, instructed by Lo & Lo, for the plaintiff

Mr Lai Chun Ho, instructed by DLA Piper Hong Kong, for the defendant