Rosy Cloud Ventures Ltd v. Sun Shaofeng and Another
Read the full judgment text of HCA 35/2020 on BabelCite. This High Court CFI judgment was delivered on 25 June 2021.
1. This is the plaintiff’s appeal against the decision of Master Lai made on 11 February 2021. The master refused to grant summary judgment against the 1 st defendant and gave him unconditional leave to defend the action.
Cited by 1 case · Cites 5 cases
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HCA 35/2020 [2021] HKCFI 1710 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 35 OF 2020 _________________
_________________ Before: Deputy High Court Judge Winnie Tsui in Chambers Date of Hearing: 3 June 2021 Date of Decision: 25 June 2021 _______________ DECISION _______________ INTRODUCTION 1.This is the plaintiff’s appeal against the decision of Master Lai made on 11 February 2021. The master refused to grant summary judgment against the 1st defendant and gave him unconditional leave to defend the action. 2.The plaintiff is a company incorporated in the British Virgin Islands. Mr Chan Ka Chung is its sole director. Chan gave affirmation evidence in support of the summary judgment application. 3.The 1st defendant is the chairman, chief executive officer and executive director of China Green (Holdings) Limited (“China Green”), a company listed on the Hong Kong Stock Exchange. According to Chan’s evidence, the 1st defendant has been on the Forbes List of Richest Chinese since 2004. 4.The 2nd defendant is a company incorporated in the BVI. The 1st defendant is a director and sole shareholder of the 2nd defendant. The 2nd defendant is a minority shareholder of China Green. 5.The plaintiff’s claim against the 1st defendant is for a sum of HK$100 million together with interest, which the plaintiff says are due and payable by the 1st defendant under the express terms of a loan receivable transfer agreement (債權轉讓協議) dated 6 June 2016 entered into by the parties (“the Transfer Agreement”). 6.It is common ground that the plaintiff and the 1st defendant signed the Transfer Agreement. 7.The 1st defendant, however, contends that he is not liable to pay any sum under the Transfer Agreement. His defence is, in gist, that its written terms did not reflect what was in fact orally agreed between the parties and that the plaintiff is now estopped from claiming that they did and enforcing the payment obligation stipulated there against the 1st defendant. 8.As disclosed by the affirmation evidence, the key factual dispute revolves around the circumstances in which the Transfer Agreement was signed on 6 June 2016. The plaintiff’s case is that the Transfer Agreement is valid and binding on the parties and its claim is a straightforward claim for a sum contractually due under a written agreement. On the other hand, the 1st defendant deposed to events which he claims took place in May and June 2016 preceding and around the time of the signing of the Transfer Agreement. By reason of these events, the 1st defendant contends that estoppel by convention and/or contractual estoppel arises against the plaintiff. The effect is that the plaintiff is precluded from making the claim under the Transfer Agreement. 9.Mr Edward Chan, SC, appearing with Ms Kate Poon for the plaintiff, highlighted in his oral submissions that the 1st defendant’s own factual evidence adduced in this application is ever-revolving and at times conflicting. 10.It is convenient to state at the outset that there are three affirmations made by the 1st defendant before me. His 1st and 2nd affirmations were made in support of his earlier application to set aside the default judgment entered against him in May 2020. The affirmations were both dated 22 October 2020, although the first one was apparently prepared in June 2020. The 1st defendant set out his defence in both affirmations. 11.The plaintiff took out the summary judgment application in December 2020. The 1st defendant filed his 3rd affirmation in opposition in January 2021. As will be seen below, the 1st defendant made some new revelations in that affirmation which effect was to amend some aspects of the evidence as set out in his earlier affirmations. 12.I should add that there is also before me a defence filed by the 1st defendant just two days before the appeal hearing. That defence was not before Master Lai. LEGAL PRINCIPLES 13.An appeal from a master to a judge under Order 58, rule 1(1) of the Rules of the High Court is by way of re-hearing. I should treat the summons as though it came before me for the first time: Hong Kong Civil Procedure 2021 at 58/1/2. 14.The Order 14 principles are well-known. The court should first determine whether, factually, what the defendant says is believable. If so, the court should then consider whether as a matter of law what he says amount to an arguable defence in law. See, eg, Schindler Lifts (Hong Kong) Ltd v Ocean Joy Investments Ltd [2003] 1 HKC 438 at para 10. 15.On the first question, the question is not whether the defendant’s assertions are to be believed; it is whether those assertions are believable: Ng Shou Chun v Hung Chun San [1994] 1 HKC 155 at 158. It is not appropriate to embark on a mini-trial of the action on affidavits. The mere assertion of a given situation by the defendant does not ipso facto ground leave to defend. 16.The court will not take what the defendant says at face value but will test it against the evidence disclosed including contemporaneous documents and the inherent probability of the defence. THE PLAINTIFF’S CASE 17.As disclosed by Chan’s affirmations, the plaintiff’s case is as follows. 18.Since December 2015, the plaintiff held a loan receivable owed by Keen Wood Group Limited. At that time, the company was a wholly-owned subsidiary of IR Resources Limited (“IRR”), a company listed on the Hong Kong Stock Exchange. The plaintiff and IRR are sister companies in that they are owned and operated by the same team. The loan to Keen Wood was interest-bearing. 19.In May 2016, Mr Cho Kwai Chee Roy (曹貴子) told Chan about the 1st defendant and that the 1st defendant was looking to borrow HK$100 million and was prepared to pay interest at 8% per annum. Chan said:
20.On 6 June 2016, the plaintiff entered into the Transfer Agreement with the 1st defendant. Under the agreement, the plaintiff would sell the loan receivable to the 1st defendant for HK$100 million and the 1st defendant would pay the plaintiff HK$100 million plus interest at 8% per annum within three years from the date of the Transfer Agreement, ie by 5 June 2019. 21.The operative clause read:
22.On 8 June 2016, the 1st defendant issued a payment instruction to IRR, informing IRR of the transfer of the loan receivable and directed IRR to pay HK$100 million into a bank account of the 2nd defendant. 23.On 13 June 2016, IRR deposited the sum into the 2nd defendant’s bank account as directed. It is common ground that the sum of HK$100 million was paid by IRR under the 1st defendant’s instruction. 24.The plaintiff contends that under the express terms of the Transfer Agreement, the 1st defendant was obliged to pay the sum of HK$100 million with interest accruing at 8% per annum from 6 June 2016 to the plaintiff within three years of the agreement. The 1st defendant failed to make such payment. 25.There was some correspondence exchanged between IRR and China Green between July and September 2019 regarding the Transfer Agreement. 26.On 15 July 2019, IRR wrote to the 1st defendant referring to the 1st defendant’s payment instruction issued on 8 June 2016 and requesting the 1st defendant to send a copy of the Transfer Agreement to it. I pause here to note that there was no reference made to any outstanding sum owing by the 1st defendant under the Transfer Agreement in this letter. 27.It was followed by a chaser letter dated 31 July 2019. Again, there was no mention of any outstanding sum. 28.There was then a reply letter from China Green dated 12 August 2019 stating that the 1st defendant did not have a very clear recollection about the circumstances surrounding the Transfer Agreement (“孫少鋒先生表示不太記得當時之情況”). 29.The first letter of demand from the plaintiff is the letter dated 13 December 2019 from its then solicitors, Messrs Baker & Mckenzie. In that demand letter, contrary to the express terms of the Transfer Agreement, it was stated that the 1st defendant was obliged to pay within one year from the date of the Transfer Agreement, ie on or before 5 June 2017. A demand was made to the 1st defendant to repay forthwith. The solicitors further reiterated the demand (previously made by IRR) that the 1st defendant should provide a copy of the Transfer Agreement to the plaintiff. 30.The plaintiff issued the writ shortly afterwards on 8 January 2020. In the statement of claim endorsed on the writ, the plaintiff continued to claim that repayment was due by 5 June 2017. It was only on 26 May 2021 that the plaintiff filed an amended writ pursuant to Order 20, rule 3 with the date of repayment changed to 5 June 2019. Mr Chan described the amendment as a “minor” amendment to correct the mistake in the statement of claim. The important point here, Mr Chan submitted, is that the writ was in any event issued after 5 June 2019, which is the correct date of repayment. 31.In summary, the plaintiff says that it has a straightforward claim against the 1st defendant for the sum together with interest due and owing under the express terms of the Transfer Agreement. THE 1ST DEFENDANT’S CASE 32.The 1st defendant’s case is set out in his three affirmations, together with the defence filed shortly before the appeal hearing. 33.In around May 2016, the 1st defendant needed funds outside mainland China to repay a loan borrowed by the 2nd defendant. The 1st defendant was the guarantor of the loan. The date of repayment was 24 June 2016. 34.Through the introduction, suggestion and assistance of Cho, the 1st defendant agreed to perform a foreign currency swap with the plaintiff such that the 1st defendant would acquire a HK$100 million loan receivable from the plaintiff outside mainland China. In consideration, the 1st defendant would pay a sum of RMB100 million to the plaintiff within mainland China. The difference between the two sums in HK$ and RMB, which amounted to HK$19 million, was service fee for the arrangement. The 1st defendant agreed to the service fee, given the time pressure he was under. He had no bargaining power over it. 35.The 1st defendant’s case is that the foreign currency swap was an agreement reached orally between the plaintiff and the 1st defendant (“the alleged oral agreement”). 36.The plaintiff and the 1st defendant did not know each other before this transaction. 37.On or about 12 May 2016, the 1st defendant transferred a total of RMB100 million to two companies in mainland China in discharge of his obligation under the alleged oral agreement. 38.When the 1st defendant filed his first and second affirmations, he was under the belief that the two companies were designated by the plaintiff. However, in his third affirmation filed in January 2021, he stated that it was only earlier that month that he managed to get in contact with Cho and learnt from him that there was a separate agreement between the plaintiff and Cho in April 2016 (“the 2016 Side Deal”). The two recipient companies had in fact been designated by Cho. And the payment of RMB100 million on 12 May 2016 to those two companies was to discharge the plaintiff’s obligation under the 2016 Side Deal. At that time, the 1st defendant was not told by either Cho or the plaintiff about the 2016 Side Deal and the 1st defendant had no knowledge of its details. 39.As to why the parties signed the Transfer Agreement, the 1st defendant has the following explanation.
40.It was Cho who informed the 1st defendant that the Transfer Agreement needed to be signed for special operational arrangement. Initially, the 1st defendant was unwilling to sign as by then (6 June 2016) he had already made payment of RMB100 million (on 12 May 2016) in discharge of his obligation under the alleged oral agreement. Yet the Transfer Agreement contained an express obligation that the 1st defendant was still to pay the consideration. The Transfer Agreement did not reflect reality. After some discussion, in order to alleviate the 1st defendant’s concern, the parties signed an acknowledgement of receipt (“the Receipt”) at the same time when they signed the Transfer Agreement. 41.The Receipt was a short document and signed by both the plaintiff and the 1st defendant. I reproduce the content below:
42.It is notable that the date of receipt was left blank. The 1st defendant says that since he believed that payment had in fact been received by the plaintiff, there was no need to fill in the date of receipt.
43.The explanation of the 1st defendant as to why he proceeded to sign the Transfer Agreement notwithstanding that its express terms did not reflect the commercial bargain reached between the parties is a material part of his case. I reproduce below his explanation in his own words:
44.Then, on 13 June 2016, the plaintiff caused the sum of HK$100 million to be transferred. The transfer was the performance by the plaintiff of its obligations under the alleged oral agreement. 45.In the circumstances, the 1st defendant says that the plaintiff is estopped from claiming that the Transfer Agreement reflected what was in fact agreed. The 1st defendant relies on estoppel by convention: First Laser Limited v Fujian Enterprises (Holdings) Company Limited (2012) 15 HKCFAR 569 at para 79. The signing of the Receipt by the plaintiff is in line with the common assumption that the Transfer Agreement did not reflect what was in fact agreed. 46.As an alternative, the plaintiff relies on contractual estoppel. By signing the Receipt, the plaintiff confirmed that no consideration or interest was owed under the Transfer Agreement. The plaintiff is now contractually estopped from contending otherwise: Ng Yuk Pui Kelly v Ng Lai Ling Winnie [2021] HKCA 724; Asgain Co v Cheng Ka Yan (No 2) [2018] 2 HKLRD 641. DISCUSSION 47.In assessing the “believability” of the 1st defendant’s factual case, the starting point of the analysis must be the signing of the Transfer Agreement. It is common ground that it was signed by the plaintiff and the 1st defendant in a meeting on 6 June 2016. It is not the 1st defendant’s case that he was not aware of the terms of the agreement. On the contrary, it is his case that he knew what the agreement said and was fully aware that the terms did not reflect the commercial bargain that he had agreed with the plaintiff.
48.Mr Chan submitted that factually, it is very surprising for the 1st defendant to sign a written agreement which did not serve his purpose. There is of course much force in the submission, particularly given the indisputable personal background of the 1st defendant – he was the chairman and chief executive officer of a Hong Kong listed company – and given further that a sizable sum was at stake. 49.The burden is therefore squarely on the 1st defendant to explain why he would choose to sign on a document and commit himself in writing to some obligation which did not reflect the agreed commercial deal. My task is to determine whether on the evidence before me, his explanation is a believable one such that his defence ought to be tried. 50.In support of his explanation, the 1st defendant primarily relies on two sets of contemporaneous documents. 51.First, copies of the remittance advices showing that sums totalling RMB100 million were transferred by a company called廈門惠兵貿易有限公司to two mainland companies in the name of深圳市灃泰資產有限公司and深圳市興昀春貿易有限公司on 12 May 2016. The 1st defendant says that these documents support his case that prior to the Transfer Agreement, he had already transferred RMB 100 million to two companies designated by Cho in performance of his obligation under the alleged oral agreement. 52.Secondly, the Receipt. 53.There are questions which immediately come to one’s mind upon a review of the remittance advices.
54.Accordingly, while the remittance advices show that a total sum of RMB100 million was transferred involving the three named companies on 12 May 2016, the documents do not, on their face, go to support the 1st defendant’s assertion that the transfers were made by him to companies designated by Cho. Cho’s name was not referred to in the WhatsApp messages that were sent around the same time. In other words, these documents do not reveal any apparent connection between the remittances and the terms of the alleged oral agreement. 55.On the other hand, the Receipt is arguably a significant piece of contemporaneous document which goes to support a material part of the 1st defendant’s case. It is indisputable that the Receipt was signed by the parties on the same day as the Transfer Agreement. That would appear to be the only occasion when the 1st defendant met with Chan. The Receipt on its face corroborates the 1st defendant’s explanation as set out in paras 40 to 43 above. 56.While he would on the face of the Transfer Agreement take up an express obligation to pay the consideration and interest in the future, he would not in reality be exposed to any risk of enforcement of such contractual term since he held the Receipt in his hand which signifies the discharge of such obligation. Hence the Receipt fits in with his case that he did not want to sign the Transfer Agreement initially but eventually proceeded to sign it as the plaintiff’s signing of the Receipt helped to address his concern. 57.The significance of the Receipt in the present application is that the 1st defendant’s explanation is not based on his bare assertion but is arguably supported by a piece of contemporaneous document. 58.There is of course the question as to why the date of receipt was left blank in the Receipt. The 1st defendant has provided an explanation to that which, in my view, is not liable to be dismissed out of hand as incredible. 59.The plaintiff’s case on the Receipt is that it was signed “for administrative convenience”. The date of receipt was intentionally left blank until the actual date of repayment took place. Chan elaborated on this in his reply affirmation:
60.Ms Queenie Lau, appearing for the 1st defendant, submitted that it is incomprehensible how signing an acknowledgement of payment before payment can achieve any sort of “administrative convenience”. She further submitted that it is much more likely that payment had in fact been made before the Receipt was signed. In any event, this is an issue that should be tried. 61.In my view, it has to be said that the plaintiff’s explanation of “administrative convenience” is a little vague. The signing of a receipt is usually for the benefit of the paying party. It is so that he would have in his hand direct proof from the receiving party that a payment has been made. In the present case, why would the plaintiff be prepared to sign the Receipt in advance of payment for the benefit of the 1st defendant? In the context of a loan transaction (which is in effect what the Transfer Agreement was about on the plaintiff’s own case), how often would one come across a lender who is prepared to sign a receipt in advance and allow the borrower to hold on to the signed copy for “administrative convenience”? 62.It is not for me to answer these questions now. As regards the circumstances in which the Receipt was signed, when one juxtaposes the 1st defendant’s explanation with the plaintiff’s, it is clear to me that the rival factual cases can only be resolved at trial when the evidence will be tested by cross-examination. The 1st defendant’s case on this point is not incapable of belief and cannot be rejected outright summarily. Doubts over the 1st defendant’s factual case 63.The plaintiff has raised doubts over other aspects of the 1st defendant’s factual case.
64.The more notable ones are as follows. 65.First, it is said that the 1st defendant’s factual evidence has been evolving in the course of the present application. In his third affirmation, the 1st defendant admitted that he only met Chan of the plaintiff once and did not have any real contact with the plaintiff on the transaction. This is, the plaintiff submits, in sharp contrast with the picture painted by the 1st defendant in his first affirmation in which he said that since the beginning of May 2016 he had started negotiating with the plaintiff through Cho’s introduction and assistance (“經曹貴子先生的引薦及協助，本人[於]2016年5月初與原訴人開始磋商”). 66.Secondly, the plaintiff submits that the 1st defendant’s assertion that he was unable to obtain funds outside mainland China at the time is unbelievable given his apparent reputation and connections. Further, it sits ill with the fact that he was apparently able to put up the purchase price for the acquisition of a property in Sydney for a consideration of AUD20 million around the same time of the transaction. 67.Thirdly, in the letter dated 8 June 2020 from the 1st defendant’s solicitors, the 1st defendant’s stance in response to the plaintiff’s claim was that “the loan which is the subject-matter of the Action has been re-paid”. That was the first substantive response made by the 1st defendant in light of the plaintiff’s demand. Yet there was no mention of the foreign currency swap which forms the crux of the 1st defendant’s present case. 68.Separately, when one looks at the 1st defendant’s chronology of events, it is notable that he first paid out RMB100 million to Cho’s designated companies on 12 May 2016 but yet he only received the sum of HK$100 million a month later on 13 June 2016. Meanwhile, there was no document whatsoever that had allegedly been signed. On the 1st defendant’s own evidence, he appeared to be willing to pay upfront in May 2016 without the plaintiff agreeing at the same time to any specific timeline for the payment to the 1st defendant. The inherent probability of that happening is also open to query. 69.The above queries raised on the 1st defendant’s evidence are, in my view, legitimate questions which, if not answered properly, cast doubt on the credibility of his factual case. 70.The question for me in the present application is whether all the doubts raised on the 1st defendant’s evidence are such as to render his defence unbelievable. On the whole, I do not find that to be the case. These doubts have to be looked at and weighed against the entirety of the 1st defendant’s evidence, including most importantly the Receipt. Having gone through that exercise, I have come to the view that the 1st defendant’s evidence so far produced has surmounted the “believability” threshold and triable issues have been raised. 71.I should also at this juncture deal with the plaintiff’s submission that even on the 1st defendant’s own case, there is no averment (or evidence) made by him that Cho was acting as the plaintiff’s agent or that Cho had the authority to act on behalf of the plaintiff so as to bind the plaintiff to any arrangement with the 1st defendant. In his third affirmation, the 1st defendant admitted that his only interaction with the plaintiff occurred on the date of the signing of the Transfer Agreement when he had some casual conversation with Chan. 72.In fact, the 1st defendant confirmed that the two mainland companies were designated by Cho himself, not the plaintiff. In the circumstances, the plaintiff submits that even on the 1st defendant’s own case, he cannot be said to have reached any agreement with the plaintiff as the dealings were solely between him and Cho. 73.I do not think that the submission about the lack of authority can be definitively determined in the plaintiff’s favour at this stage. The submission focuses solely on the events which preceded the signing of the Receipt but ignores the significance of the Receipt itself. On the 1st defendant’s case, the plaintiff signed the Receipt because it had already received the payment from the 1st defendant in accordance with the alleged oral agreement. Arguably, implicit in this evidence is that the plaintiff considered itself bound by the alleged oral agreement. In the circumstances, the issue of authority is potentially arguable either way and should be left to be determined at trial. Doubts on the plaintiff’s factual case 74.In her submissions, Ms Lau raised a number of queries which she contended cast doubt on the plaintiff’s factual case and merit investigation during trial. 75.She queried the inherent plausibility of the allegation that the plaintiff would advance a huge loan of HK$100 million to the 1st defendant whom it had never dealt with before, apparently without conducting any serious due diligence and without asking for any security. She also submitted that there are curious features about the initial demand letter sent by the plaintiff’s former solicitors which had got the repayment date wrong. In fact, the mistake was carried through to the writ. One would expect that a lender would be well-versed in the terms of the loan, especially when the sum at stake is sizable like the present one. But apparently that was not the case with the plaintiff here. Furthermore, one would expect the lender to have kept the document which evidences the HK$100 million loan. But again that did not seem to be the case here. IRR had to send a number of letters to China Green for a copy of the Transfer Agreement. 76.In an Order 14 application, the burden is on the defendant to raise triable issues. The burden is not thrust upon the plaintiff to adduce evidence in support of its case. But here the parties are putting forward conflicting versions as to the circumstances in which the Transfer Agreement and the Receipt were signed. The apparent inability of the plaintiff to recall the key contractual terms correctly and the fact that it did not seem to have retained the Transfer Agreement would seem to go to support the 1st defendant’s case that the Transfer Agreement was never meant to be observed (as it did not reflect the commercial deal reached between the parties). In the circumstances, the doubts over the plaintiff’s case have the effect of bolstering the credibility of the 1st defendant’s case. It reinforces the conclusion that the claim and the defence ought to be allowed to be tried. Overall assessment of the 1st defendant’s factual case 77.In summary, having scrutinised the evidence before me, including most notably the Receipt, I am of the view that the 1st defendant’s factual case is at least believable and there are factual issues which ought to be tried. Arguable defence in law 78.I am also satisfied that the 1st defendant’s factual case is capable of giving rise to a defence as a matter of law in the form of estoppel by convention. According to the evidence, the plaintiff and the 1st defendant entered into the Transfer Agreement on the common assumption that it did not reflect what was in fact agreed. That common assumption was arguably manifested in the signing of the Receipt by both parties, which effect was to prevent the plaintiff from subsequently enforcing the payment obligation contained in the Transfer Agreement. The plaintiff is now estopped from claiming that the Transfer Agreement reflected what was in fact agreed. 79.That appears to me to be a viable defence as the essential elements of an estoppel by convention as set out in First Laser are arguably satisfied. 80.Given the view stated above, it is not necessary to consider the alternative defence of contractual estoppel. Proper order to be made 81.For the above reasons, the 1st defendant should be allowed to defend the claim. No condition should be imposed. This is not a case where the defence is a sham one or the court is prepared very nearly to give judgment for the plaintiff. 82.Ms Lau asked for the Order 14 application to be dismissed. I do not consider that to be the proper order to make. 83.It is true that when the plaintiff took out the summary judgment application, it had already been made aware of the defence which was disclosed in the first and second affirmations of the 1st defendant filed in support of the setting aside application. On the other hand, the 1st defendant made some new revelations in his third affirmation which effect was partly to correct what he had said in the previous affirmations and which are relevant to my evaluation of the evidence as a whole. In the circumstances, the proper order to make would be to grant unconditional leave to the 1st defendant to defend the action. CONCLUSION 84.I uphold the master’s decision and dismiss the plaintiff’s appeal. 85.I make an order nisi that the 1st defendant do have costs of the appeal, which will be summarily assessed. The 1st defendant has handed up his statement of costs. If the plaintiff has any comment, it should lodge a list of objections within 7 days of the handing down of this decision. The summary assessment will be conducted on the papers after the deadline.
Mr Edward Chan, SC and Ms Kate Poon, instructed by Iu, Lai & Li, for the plaintiff Ms Queenie Lau, instructed by Wellington Legal, for the 1st defendant | |||||||||||||||||
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