Guanghua Ss Holdings Ltd v. Lim Yew Cheng and Another
Read the full judgment text of HCA 1972/2020 on BabelCite. This Court of First Instance judgment was delivered on 20 April 2022 before Ng J.
Civil procedure – summary judgment under RHC O 14 r 1 – loans and guarantees – facility agreements – misrepresentation as defence – affirmation by subsequent amendment deeds – inducement and reliance – two loans of US$80 million each for a real estate project in Beijing – defendants are father-and-son Singapore real estate investors who did not engage lawyers despite signing warning notices – the alleged misrepresentations were that the Xeno Loan could be used to repay Related Party Loans and that the Aether Loan interest rate would be a flat 12% per annum – whether the defendants affirmed the Xeno Facility Agreement by entering into the Xeno Amendment Deed and the Aether Facility Agreement on 21 May 2018, which contained the same restrictions and affirmed their guarantees – whether the defendants have a triable issue on inducement and reliance – held, the defendants must be taken to have affirmed the Xeno Facility Agreement because the 1st Defendant's own evidence showed that before 21 May 2018, the defendants knew they could not use the Construction Loan to repay Related Party Loans, as they negotiated the Aether Loan precisely to bypass that restriction – held, the assertion of sole reliance on Mr Le's oral representations is inherently improbable and not credible, given the magnitude of the loans, the sophistication of the defendants, the clear wording of the interest rate clauses, and the 1st Defendant's own admission that he did not read the facility agreements – Peekay Intermark Ltd & Anor v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 considered but held to be of limited assistance – Re Safe Rich Industries Ltd and Yung Wai Man v Leung Kwok Pong applied on the test for O 14 summary judgment – Peyman v Lanjani [1985] 1 Ch 457 applied on affirmation – BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc [2020] QB 551 applied on the burden of showing inducement – Aether Limited wound up on the Plaintiff's petition without dispute of the debt – summary judgment granted in favour of the Plaintiff in terms of the draft submitted by Allen & Overy – costs on a nisi basis.
Legal issues: Whether defendants affirmed the Xeno and Aether Facility Agreements by entering into subsequent amendment deeds, thereby losing any right to rescind for misrepresentation · Whether defendants have a triable issue on inducement and reliance for the alleged misrepresentations
Outcome: Summary judgment granted in favour of the Plaintiff against the 1st and 2nd Defendants in terms of a draft submitted by Allen & Overy on 23 December 2021.
Cited by 30 cases · Cites 2 cases
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HCA 1972/2020 [2022] HKCFI 1052 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1972 OF 2020 _________________
_________________ Before: Hon Ng J in Chambers Date of Hearing: 21 December 2021 Date of Judgment: 20 April 2022 ________________ J U D G M E N T ________________ Introduction 1.There is before this court the Plaintiff’s application by summons dated 15 June 2021 (“Summons”) for final judgment against the 1st and 2nd Defendants under RHC O 14 r 1:
2.It does not appear that the Defendants dispute the execution of the documents which support the Plaintiff’s claims, the quantum of the claims or that the loans and fees are unpaid. Indeed, one of the corporate borrowers viz Aether Limited (“Aether”) was wound up by Harris J in June 2021 on the Plaintiff’s petition without Aether disputing the debt under the Aether Facility Agreement. The Defendants’ only defence to the application is one of misrepresentation. As summarized in Mr Maurellet SC’s skeleton, the misrepresentations were:
3.The Plaintiff’s position is that, while it denies having made the said representations, for the present purpose, it is wholly unnecessary to go into the dispute as to whether they had in fact been made. This is because any defence based on the 1st and 2nd Representations must fail since:
4.For reasons set out in Mr Maurellet SC’s skeleton, the Defendants take issue with all the 3 points made by the Plaintiff. However, it is fair to say that, while Ms Sit SC has not expressly abandoned the No restitutio in integrum point at the hearing, it was not seriously pursued by her. Upon enquiry by this court, both Ms Sit SC and Mr Maurellet SC confirmed that the differences between the two were in relation to Affirmation and No inducement/reliance. Background 5.The following facts and chronology are largely taken from Ms Sit SC’s skeleton and are undisputed by the Defendants. 6.The Plaintiff is a corporate vehicle of MBK Partners (“MBK”), one of the largest private equity firms in Asia. 7.The Defendants are father and son and established real estate investors in Singapore who used to partner with KeppelLand, the real estate arm of one of the largest Singapore conglomerates.
8.The parties’ dealings which form the subject matter of this Action are substantially documented and are summarized in the following chronology.
9.The following are inter alia the express terms of the Xeno Facility Agreement:
10.As for the Aether Facility Agreement:
Deliberation 11.It is accepted that in a RHC O 14 application, the defendant bears the burden of satisfying the Court that there is an issue or question in dispute which ought to be tried. 12.In Re Safe Rich Industries Ltd unrep, CACV 81 of 1994, 3 November 1994 at [13], Bokhary JA (as he then was) observed that:
13.More recently, in Yung Wai Man v Leung Kwok Pong [2021] HKCFI 896 at [9], this court elaborated on the proper approach to a RHC O 14 application as follows:
14.As stated earlier, the Defendants’ only defence is misrepresentation. In order to properly understand the defence, this court shall set out in full the misrepresentation as pleaded in the Defence below.
15.Ms Sit SC submits that the right to rescind is lost by affirmation when the party entitled to rescind unequivocally manifests an intention to affirm once free from the effects of the vitiating factor. If the transaction is vitiated by misrepresentation, there must be a sufficient awareness of the true facts: The Law of Rescission (2nd ed) at para 23.02. In addition, the law requires the innocent party to know of his right to rescind before his conduct will constitute a binding affirmation: supra at para 23.40; Peyman v Lanjani [1985] 1 Ch 457. 16.With respect to the 1st Representation ie the inability to use the Construction Loan to repay “Related Party Loans”, Ms Sit SC submits that, on the Defendants’ own evidence, they were aware of such inability before 21 May 2018 when the Aether Facility Agreement and the Xeno Amendment Deed were entered into. This is because the Defendants negotiated for the Aether Loan precisely to bypass this restriction in the Xeno Facility Agreement. At paragraph 10 of the 1st Defendant’s first affirmation (“Lim 1”), he said:
17.Further, under Clause 3 of the Aether Facility Agreement, the stated purpose of the Aether Loan includes repaying the “Identified Related Party Loans” on behalf of BJ Aether. 18.Again, at paragraphs 24 and 25 of the 1st Defendant’s second affirmation (“Lim 2”), he said:
19.As for the 2nd Representation concerning interest rate, Ms Sit SC submits that the Defendants must have been aware, by 13 January 2020 ie the 1st Aether Extension, the interest chargeable on the Aether Loan was more than 12%. This is because as set out in Schedule 2 of the 1st Aether Extension, the interest accrued[12] up to 28 December 2019 was US$25,378,112.02 whereas interest calculated at 12% p.a. would only have amounted to about US$15.2 million[13]. Ms Sit SC further submits that the Defendants must have paid attention to the accrued interest of US$25,378,112.02 because they expressly agreed at Clause 2.2 to capitalize that amount as part of the principal of the Aether Loan. Nevertheless, with such knowledge, in both the 1st and the 2nd Aether Extensions, the Defendants had confirmed their guarantees to the Plaintiff. 20.Mr Maurellet SC’s reply to Ms Sit SC’s point about the 1st Representation is that it is not the Defendants’ evidence at paragraph 10 of Lim 1 that they were aware that they could not use the Construction Loan to repay related party loans incurred by BJ Aether. Rather, the Defendants were merely saying they wanted to use the loan from Cinda to repay BJ Aether’s related party loans. 21.Mr Maurellet SC’s reply to Ms Sit SC’s point about the 2nd Representation is to rely on paragraph 16 of Lim 1 in which the 1st Defendant said “[i]t was only until after the Plaintiff had commenced legal proceedings against me that I sought legal representation and came to realize the legal implications and consequences and falsity of Mr. Le’s representations (including the Representations and Further Representation).” 22.Obviously, the 1st Defendant did not say in so many words that the Defendants were aware of the falsity of the 1st Representation when they negotiated for the Aether Loan in order to bypass the restriction of using the Construction Loan to repay “Related Party Loans”. But it does seem to this court that one can reasonably draw such an inference from the 1st Defendant’s evidence. In this regard, one asks rhetorically: if the Defendants were still under the influence of the 1st Representation that the option of using the Construction Loan to repay “Related Party Loans” was available under the Xeno Facility Agreement, why did they have to negotiate for the Cinda Loan or the Aether Loan in order to do so? There is no explanation from the Defendants for this. In particular, the 1st Defendant did not positively say that he thought the option of using the Construction Loan to repay “Related Party Loans” under the Xeno Facility Agreement was available, but owing to whatever other commercial reasons, he decided to pursue the Cinda Loan and later the Aether Loan instead. 23.In this court’s view, even if the 1st Representation had been made, the Defendants, being sophisticated and seasoned investors, must have been aware of the falsity of the 1st Representation before 21 May 2018 when they obtained the Aether Loan. Subject to the point about their knowledge of the right of election, by entering into the Xeno Amendment Deed on 21 May 2018 which contained the same restrictions and which affirmed their guarantees, the Defendants must be taken to have affirmed the Xeno Facility Agreement. 24.In this regard, the 1st Defendant’s assertion at paragraph 16 of Lim 1 is simply not believable. 25.If, as this court finds to be the case, the Defendants must have been aware of the falsity of the 1st Representation before 21 May 2018 and therefore they had been misled by Mr Le into executing the Xeno Facility Agreement, is it too much a stretch of imagination that they must also have been aware that they had some legal rights available to them as a result of having been so misled? It seems to this court even an ordinary layman would be able to put the two and two together, let alone seasoned investors like the Defendants. Either the Defendants immediately knew what legal rights that they had, or if not, they would have found out immediately after seeking legal advice. This court is unable to accept at its face value the assertion that the Defendants waited until after the Plaintiff had commenced legal proceedings in November 2020 that they sought legal representation and became aware of their rights. That is just totally contrary to common sense. 26.As for the 2nd Representation, Mr Maurellet SC’s reliance on paragraph 16 of Lim 1 is futile, given this court’s finding that the 1st Defendant’s assertion in that paragraph is simply not believable. 27.To conclude, Ms Sit SC submits that on the ground of Affirmation alone, the Plaintiff is entitled to summary judgment. This court agrees. 28.This court will next briefly deal with the No inducement/reliance point. 29.To start with, it is well-established that at least in the case of innocent or negligent representation, the representee has the burden of showing inducement in the sense that that he would not have entered into the relevant contract had the representation not been made: BV Nederlandse Industrie van Eiprodukten v Rembrandt Enterprises Inc [2020] QB 551 at [15]. 30.The Defendants’ evidence on this issue of inducement/reliance is quite scanty and can be found in a few paragraphs in Lim 1 as follows:
31.In order to raise a triable issue on inducement/reliance, the Defendants’ assertion that they relied on the Representations and the Further Representation when executing the relevant transaction documents must first and foremost be believable. 32.In this court’s view, the Defendants’ assertion that they solely relied on and were misled by Mr Le’s representations as to (i) the permitted use of the Construction Loan to repay “Related Party Loans” and (ii) the interest rate charged by the Plaintiff under the Aether Facility Agreement would be 12% p.a. is wholly unbelievable. The reasons are these. 33.First, to any person negotiating for a loan of any amount other than de minimis, two of the most important terms of the loan agreement must be (i) whether the loan amount can be used freely or whether there are restrictions as to its permitted use and (ii) the interest rate charged by the lender. This is just common sense. This applies to an ordinary retailer borrower or a small-time businessman but a fortiori to seasoned businessmen like the Defendants in the course of developing a large scale project in Beijing. This also applies a fortiori to loans to the magnitude of US$160 million. 34.Second, because of the amount of the loans in question, because the Defendants had to shoulder personal liability as guarantors and because the two terms were so important to the Defendants as described in Lim 1, one would expect the Defendants to have vetted, if not the entire Xeno and the Aether Facility Agreements, at least the two terms in question before entering into the same. The terms as to the permitted use of the loan amount in the Xeno Facility Agreement might seem to be slightly complicated but that is why it was all the more reason for the Defendants to fully understand them, with professional assistance if necessary. In fact, at the material time, the 1st Defendant was assisted by Huang. As for the term about interest rate, in the Aether Facility Agreement, the interest rates were clearly spelt out in Clauses 1, 8.1(a) and 8.3 and were not difficult to understand at all. After all, it is reasonably clear that the Defendants could read English - there is no indication in Lim 1 and Lim 2 that the Defendants required interpretation before they confirmed their contents. 35.Third, if the two terms were so important to the Defendants, the inherent probabilities are that they, either personally or through Huang (or anyone else), would have pro-actively raised the two terms with the Plaintiff at the negotiation stage so as to ensure that they were in accordance with their requirements and were acceptable to them. Yet, if one reads Lim 2 where the 1st Defendant purported to explain the circumstances leading up to the Xeno and Aether Facility Agreements, it looks as though there was no need to negotiate anything at all. There was also no suggestion in Lim 2 that the Defendants or Huang (or anyone else) had evenly briefly read the Xeno and Aether Facility Agreements. Indeed, at paragraph 12 of Lim 2, the 1st Defendant said he did not even read the facility agreements in the course of his previous dealings with Mr Le while the latter was still with the Deutsche Bank, and gave the impression that was always his practice when dealing with Mr Le, whether Mr Le was with the Deutsche Bank or MBK. 36.Fourth, at paragraph 23 of Lim 2, the 1st Defendant referred to a meeting on 21 December 2017 where he and Huang met with Mr Wei Ming, then an employee of MBK, in a hotel in Beijing at which Mr Wei merely provided him with the signature pages of the Xeno Facility Agreement. The 1st Defendant said he signed the signature pages of the Xeno Facility Agreement within 15 minutes, thus giving the impression that the complete Xeno Facility Agreement was never given to him. This is contradicted not just by Mr Wei in his affirmation filed on behalf of the Plaintiff, but more importantly for the present purpose, by the contemporaneous email dated 21 December 2017 from Mr Wei to Huang which attached the execution drafts of the Xeno Facility Agreement and other related documents for Huang’s perusal. 37.All in all, the Defendants’ assertion that they solely relied on and were misled by Mr Le’s representations is so inherently improbable that it must be rejected. For this reason also, the Plaintiff is entitled to summary judgment. 38.For completeness, this court should mention that, at paragraphs 27 and 28 of her skeleton, Ms Sit SC submits that if a misrepresentation is made in a “rough and ready” manner in pre-contractual negotiations, while the contract is a detailed commercial document which parties would be expected to read in order to discover the details which he claims were of importance to him, yet he signed the agreement without reading it, he would not have relied on the misrepresentation; rather it is his own assumption of what the agreement is about that led him to enter into it: Peekay Intermark Ltd & Anor v Australia and New Zealand Banking Group Ltd [2006] EWCA Civ 386 at [52]. Ms Sit SC also submits that the present case is on all fours with the above. 39.With respect, what Moore-Bick LJ stated at [52] of the Judgment was his Lordship’s conclusion on the facts of that case, rather than a statement of principle. As such, and for the reasons given in Mr Maurellet SC’s skeleton, Peekay Intermark Ltd offers limited assistance to this court in resolving the No inducement/reliance point raised by the Plaintiff. In these circumstances, this court is not persuaded that paragraphs 27 and 28 of Ms Sit SC’s skeleton alone are sufficient to tilt the balance in favour of the Plaintiff on the No inducement/reliance point. Disposition and costs order nisi 40.In the premises, this court hereby grants summary judgment in favour of the Plaintiff in terms of a draft submitted by Allen & Overy on 23 December 2021, save that the provision on costs therein will be on a nisi basis.
Ms Eva Sit SC and Ms Jasmine Cheung, instructed by Allen & Overy, for the Plaintiff Mr José Maurellet SC and Mr Terrence Tai, instructed by Sidley Austin, for the 1st and 2nd Defendants [1] As defined in paragraph 12 of the Statement of Claim. [2] As defined in paragraph 5 of the Statement of Claim. [3] As defined in paragraph 9 of the Statement of Claim. [4] According to the Defendants, at the material time, Mr Le was a partner of MBK (as to which see below), having left Deutsche Bank in around September 2017. [5] See below under the section “Background”. [6] Referred to as the “Representations” in the Defence. [7] Referred to as the “Further Representation” in the Defence. [8] The other 51% shareholder of Aether was KeppelLand and subsequently CBD Aether Ltd. [9] A director of Aether and the 1st Defendant’s assistant. [10] Another entity controlled by MBK. [11] It is common ground that the “Post-Funding Conditions” were not fully satisfied on time. [12] Ie the “Unpaid Sum” defined in Clause 2.2. [13] Corrected to US$15.33 million at the hearing but nothing significant turns on that small difference. |
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