Profit Castle Holdings Ltd and Another v. Oasis Beauty Ltd

HCA 785/2021

[2022] HKCFI 2201

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 785 OF 2021

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BETWEEN

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Before:  Mr Recorder Manzoni SC in Chambers

Date of Hearing:  13 July 2022

Date of Judgment:  22 July 2022

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J U D G M E N T

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1.This is the Defendant’s application for summary judgement on the counterclaim and for the statement of claim to be struck out.

A.  THE FACTS

2.The matter arises in this way.  In 2014 a company called Bonjour Group Limited (“BGL”), acting through the 2^nd Plaintiff Dr Ip, and a company called Town Health International Medical Group Ltd (“Town Health”), acting through a gentleman called Dr Cho, negotiated the sale by BGL and purchase by a subsidiary of Town Health known as Oasis Beauty Limited (“Oasis Beauty”, the Defendant)  of a company called Bonjour Beauty International Limited (“BBIL”). The agreed consideration became HK$423,780,000, to be paid by the allotment and issue to BGL of 365,327,586 shares in Town Health, credited as fully paid at an issue price of HK$1.16 per share.  That transaction duly completed and BBIL became an indirect subsidiary of Town Health.

3.During 2016 BGL (or at least Dr Ip)  and Town Health commenced further negotiations for the resale of BBIL back to BGL (although it is not entirely clear whether the resale was initially going to be to BGL, or Dr Ip, or Profit Castle Holdings Limited (“Profit Castle”), the 1^st Plaintiff).  It appears from a minute of a Town Health board meeting dated 30 December 2016 that the terms of the resale had been agreed by 19 August 2016, and the consideration for the resale was to be paid by Dr Ip transferring back to Town Health the 365,327,586 shares in Town Health that had been allotted and issued to BGL in 2014.  The precise detail of that transaction is not available from the evidence, but I do not think it matters.  However, there appears to have been a renegotiation of the terms of the consideration at some point between 19 August 2016 and 30 December 2016.  That is clear because the board meeting minutes record that:

“6.1 (1)  in the meeting of the Board held on 19 August 2016, the Board… had approved… the transactions contemplated under a sale and purchase agreement (“Previous SP Agreement”)  then proposed to be entered into between the Company as Vendors, and Dr Ip as Purchaser, pursuant to which the Company would conditionally agree to procure Oasis Beauty to sell the Sale Shares to Dr Ip, consideration of which would be settled by Dr Ip transferring 365,327,586 ordinary shares of HK$0.01 each in the share capital of the Company (“Shares”)  to the Company at completion; and

(2)  subsequent to the meeting of the Board held on 19 August 2016, the Company and Dr Ip had re-negotiated the terms of the Previous SP Agreement and eventually Dr Ip would agree to purchase the Sale Shares through the Purchaser and in accordance with the terms as set out in the SP Agreement.”

4.The SP Agreement was duly entered into on 30 December 2016.  It is an agreement between Oasis Beauty as Vendor, Profit Castle as Purchaser, and Dr Ip (the 2^nd Plaintiff)  as Guarantor.  Clause 3 records the consideration as follows:

“3.01 The Consideration payable by the Purchaser to the Vendor for the sale and purchase of the Sale Shares shall be HK$430,000,000.

3.02 the Consideration shall be satisfied by the Purchaser to the Vendor at Completion;

(a)  as to HK$100,000,000 (“Cash Consideration”), in cash; and

(b)  as to HK$330,000,000 (“Balance of Consideration”), by the Purchaser’s delivery of the Promissory Note issued by the Purchaser to the Vendor.”

5.There were various securities entered into to secure the payment of the Balance of Consideration, including a Share Mortgage granted by Profit Castle over the shares in BBIL and a Guarantee given by Dr Ip in favour of Oasis Beauty for all monies payable by Profit Castle under the Promissory Note.

6.The underlying dispute has arisen because Profit Castle has not made any payment under the Promissory Note despite its maturity on 13 April 2020 (although the amounts payable actually became due on 9 April 2020 due the exclusion of non-business days), and Dr Ip has not made any payment under the Guarantee despite demands being made by Oasis Beauty on at least 19 March 2021.

7.On 23 April 2021 Oasis Beauty gave notice that it had appointed receivers over the shares of BBIL pursuant to the Share Mortgage.

8.The various claims were denied by Profit Castle and Dr Ip, including by letter dated 20 May 2021, in which solicitors for Profit Castle and Dr Ip made allegations about various representations having been made in early 2016 which, they said, removed any obligation to pay.

B.  THE CONTRACTS

9.There is no dispute between the parties as to the terms of the various contracts, other than by reference to the representations which I shall identify below. The contracts include the following relevant provisions. 

10.The SP Agreement includes, at clause 3.04, an undertaking by Profit Castle to enter into the Share Mortgage to secure the repayment of the Promissory Note.  It also includes an undertaking by the Guarantor that he shall, at completion, execute the Guarantee to secure repayment of the Promissory Note.

11.At clause 7 of the SP Agreement, the conditions for completion are set out.  The precise details of the conditions are not relevant but the existence of various conditions to completion is relevant because one of the arguments raised by the Plaintiffs is that the board meeting on 30 December 2016 refers to the representations by describing the SP Agreement as conditional.  The Defendant, however, suggest that the description of the SP Agreement as conditional in the board meeting is a reference to the conditions set out in clause 7 rather than a reference to the representations.  Completion in fact occurred on or around 13 April 2017.

12.Clause 12 of the SP Agreement identifies that the SP Agreement is to supersede all previous agreements or arrangements between the parties relating to the sale and purchase of the shares or the other subject matters of the SP Agreement, that the SP Agreement contains the entire agreement between the parties relating to the transactions contemplated and that there are no other warranties, conditions or terms applicable thereto whether express or implied. It also says that any variation to the SP Agreement shall be binding only if it is recorded in a document signed by the parties.

13.The Promissory Note records that Profit Castle irrevocably and unconditionally promises to pay Oasis Beauty the principal sum of HK$330,000,000 on 13 April 2020, or the immediately preceding Business Day.  Interest is to accrue at a rate of 6% per annum on a 365-day year basis from 13 April 2017 with the last interest payment falling due on the Maturity Date.  The Promissory Note also includes a “no variation except in writing” clause.

14.Under the terms of the Guarantee Dr Ip, in consideration of Oasis Beauty entering into the SP Agreement and accepting the Promissory Note, unconditionally and irrevocably guaranteed, as principal debtor and not merely as surety, the due and punctual payment by Profit Castle to Oasis Beauty of all obligations under the Promissory Note.  The Guarantee also includes a “no variation other than in writing” clause.

C.  THE LITIGATION

15.By the writ, issued on 21 May 2021, Profit Castle and Dr Ip took what Mr Cheung (acting for the Plaintiffs)  described as “pre-emptive” action, and made claims against Oasis Beauty to the effect that they had been misled into entering the SP Agreement, and the various securities, by false and fraudulently made representations made by Dr Cho on his own behalf and on behalf of Oasis Beauty.

16.Oasis Beauty has defended the action on the basis that the representations were never made and were not in any event binding on Oasis Beauty.  It has counterclaimed for the sums due under the Promissory Note and the Guarantee, as well as for declarations underlining the validity of the appointment of the receivers.  It is in respect of this counterclaim that it seeks summary judgment, and contends that if the court grants summary judgment, the pre-emptive statement of claim is bound to fail, and hence should be struck out. 

17.The statement of claim alleges that, prior to the SP Agreement, in about early 2016, Dr Cho for and on behalf of himself and/or Oasis Beauty represented to Dr Ip for and on behalf of himself and/or Profit Castle that:

“(1)  Cho and/or Oasis Beauty has secured an investor to inject capital in the amount of not less than HK$400,000,000 into BBIL within 6 months of the date of completion. (“the Investor Representation”).

(2)  Cho would provide assistance in BBI’s preparation and application for listing on the Main Board of the Hong Kong Stock Exchange in the 3 years from the date of completion (the “Listing Representation”).

(3)  Before the Investor (as secured by Cho and/or Oasis Beauty, has injected capital in the amount of not less than HK$400,000,000 into BBIL and before BBIL has achieved aggregate profit of HK$50,000,000 or above (excluding any income or loss of BBIL or its subsidiaries generated by activities outside the ordinary and usual course of its business)  for 3 consecutive financial year during which the profit attributable to shareholders must, in respect of the most recent year, be not less than HK$HK$20,000,000 and, in respect of the 2 preceding years, be in aggregate not less than HK$30,000,000:

(a)  Oasis Beauty would not demand for settlement of, and Profit Castle would not be obliged to settle, the obligations under the Promissory Note;

(b)  Oasis Duty would not enforce the Share Mortgage or the Personal Guarantee.

(the “Non-Enforcement Representation”).”

18.It is said that the representations were intended to cause, and in fact caused, Dr Ip and Profit Castle to enter into the SP Agreement.  It is also said that the representations were repeated in early 2017, and again in June 2017, and that as a result, Dr Ip and Profit Castle entered into the Promissory Note, the Share Mortgage and the Guarantee.  In addition it is said that the representations caused Profit Castle to pay Oasis Beauty interest under the Promissory Note in the total sum of HK$69,784,657.53.

19.It is alleged that the representations have become contractually binding on Oasis Beauty, that Oasis Beauty is in breach, in particular because no investor has been secured and Oasis Beauty has sought to enforce the Promissory Note and Guarantee despite the fact that BBIL has not achieved the necessary aggregate profit.

20.It is also said that the representations were made fraudulently, in that Dr Cho and/or Oasis Beauty knew in 2016 that the representations were false or were reckless, not caring whether they were true or false or had no genuine belief that they were true.  I note that no particulars of the alleged fraud or dishonesty have been provided or pleaded.  A claim is made for damages for deceit, or fraudulent misrepresentation, or damages under section 3 of the Misrepresentation Ordinance (Cap 284)  and restitutionary damages as well as recission of the various contracts that have been entered into as well as declarations that the appointment of receivers, and the other enforcement steps taken are null and void, and of no effect.

21.The Plaintiffs also make a claim that Oasis Beauty is estopped from enforcing under the Promissory Note and the Share Mortgage and asks for an injunction preventing them from doing so.  The basis of those claims is the representations.

22.The essence of the Defendant’s arguments is:

(1)  The representations were never made and are inconsistent with all of the contemporaneous evidence.

(2)  If they were made, Dr Cho had no authority to make the representations on behalf of the Defendant.

(3)  In any event the Plaintiffs have affirmed their obligations under the Promissory Note and Guarantee such that they should now fulfil them.

(4)  The Entire Agreement clauses and “no variation except in writing” clauses prevent the representations becoming contractual terms.

D.  THE CORRECT APPROACH

23.I remind myself of the well-known principles concerning an application for summary judgement.  They have been set out and summarised in the cases that I was referred to, and in particular by DHCJ Wilson Chan (as he then was)  in Li Chuen Kwai v PO Lam Construction Development Limited, HCA 2376/013, 24 September 2014 as follows:

“12. As far as the Defendant’s defence is concerned:

(1)  The Defendant shoulders the burden to satisfy the court that he has a real or bone fide defence (i.e. that there are triable issues), or that there ought for some reason to be a trial of the Plaintiff’s claim.

(2)  However, a complete defence need not be shown. The defence set up need only show that there is a triable issue or question or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law and no possibility of a real defence on the question of fact.

(3)  Although the mere assertion in an affidavit does not, ipso facto, provide leave to defend, the court will not embark upon a mini trial of the action on paper and leave to defend will be granted unless the defence raised is so incredible also contradicted by contemporaneous documents or circumstances that it becomes clear that the defence is a sham.

(4)  The test is not whether the Defendant’s assertions are to be believed, rather it is whether those assertions are believable, i.e. capable of being believed. If so, the Defendant must have leave to defend.

(5)  Whether the Defendant’s assertions are believable is a question that should be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either is undisputed or beyond reasonable dispute.”

24.Inevitably in the context of this case in which summary judgement is sought by the Defendant and not the Plaintiffs, that quote should be read by transposing the references to the plaintiff with references to the defendant and vice versa.

25.I am also reminded that it is open to me to grant conditional leave to defend in the event that I consider the defence to be shadowy but nonetheless one which ought to be resolved at trial.

26.Insofar as the application to strike out is concerned, an order striking out the statement of claim should only be made in circumstances where it is plain and obvious that the claim must fail.  In this context it must be impossible, not just improbable for the case to succeed before a court will strike it out.

E.  ANALYSIS

27.As I understand the Non-Enforcement Representation it is said to impose four conditions precedent to the obligations of Profit Castle under the Promissory Note, and equally the same four conditions to any entitlement of Oasis Beauty to enforce the Promissory Note, the Share Mortgage and the Guarantee.  Those four conditions are, as I understand them:

(1)  an investor, secured by Dr Cho and/or Oasis Beauty, has injected a capital amount of not less than HK$400,000,000 into BBIL within 6 months of completion; and

(2)  BBIL has achieved an aggregate profit of not less than HK$50,000,000 over three consecutive years; and

(3)  In those 3 years:

(a)  In the last year of the 3-year period the profit attributable to shareholders must be not less than HK$20,000,000; and

(b)  In the 2 earlier years of the 3-year period the profit attributable to shareholders must be not less than HK$30,000,000 in the aggregate.

28.It is only if those four conditions are all met that:

(1)  Profit Castle has any obligation under the Promissory Note (whether as to the payment of interest or the principal amount), and;

(2)  in the event that Profit Castle does not perform its obligations once those conditions have been met, Oasis Beauty would be entitled to enforce its securities.

29.I note that the pleading of the Non Enforcement Representation is rather different to the way in which it was described when it was first raised by the Plaintiffs, in their letter dated 20 May 2021.  In that letter the solicitors identified that the condition that needed to exist before any obligations under the Promissory Note, Share Mortgage and Guarantee arose were as follows:

“Before the Investor… has injected capital in the amount of not less than HK$400,000,000 into BBIL and before BBIL and its subsidiaries have achieved total yearly net profit of HK$50,000,000 or above for 3 consecutive years.”

30.Thus it was said that the annual profit for each of 3 years needed to be HK$50 million, whereas the pleading alleges the need for an aggregate profit.

31.Three things are immediately apparent to me:

(1)  It is unlikely that such a detailed and comprehensive set of conditions precedent were expressed orally as alleged.  It is far more likely that such important and detailed representations would be recorded in writing and recognised by the board of a publicly listed company such as Town Health.  However, it is clear from the affidavit evidence, from the board minutes which discuss the SP Agreement, and from the various public announcements made by Town Health, that these matters were never brought to the attention of the board of Town Health. It is possible that Dr Cho and Dr Ip had reached some private agreement in this respect and simply not told either Oasis Beauty or the board of Town Health, but on the face of things, and assuming that matters run to the normal course, this is unlikely and if it had happened it would certainly raise the question of the authority of Dr Cho to do so.

(2)  The conditions precedent to liability of Profit Castle would be directly contrary to the obligations of Profit Castle contained in the SP Agreement and the Promissory Note, and as recorded in the Guarantee and the Share Mortgage. Those agreements contain entire agreement clauses and “no variation except in writing” clauses.  Even accepting that such clauses may not preclude a cause of action for misrepresentation, it seems to me to be highly unlikely that such a fundamental and detailed variation of the nature of the obligations of Profit Castle would occur simply by an oral representation without it having been reduced to writing.

(3)  The Investor Representation would appear to create an absolute bar to the recovery of any of the Balance of Consideration in the event that no investor was introduced within 6 months.  It would be most surprising if this proposition was correct, as it would fundamentally change the nature of the SP Agreement.

32.However, notwithstanding those initial observations, I proceed to address the evidence, and to make an assessment of the Plaintiffs’ case by reference to that evidence rather than just by reference to those impressionistic views.

33.The first point in time which the Defendant significantly relies upon is the board meeting on 30 December 2016.  It makes several points concerning this board meeting. 

34.First it is recorded that the previous incarnation of the SP Agreement, apparently agreed prior to 19 August 2016, had no cash consideration because the consideration was a transfer of 365,327,586 shares in Town Health.  The Defendant points out that if the representations were made, as alleged, in “early 2016” they would be nonsensical.  There would be no reason to make any representations concerning the liability of Profit Castle under the Promissory Note or any right to enforce against the Share Mortgage or Guarantee because if the consideration was to be paid by the transfer of shares there would not be any Promissory Note, Share Mortgage or Guarantee.

35.The Plaintiffs do not really address this proposition.  They simply say that the board minute is “multiple hearsay” and does not identify who negotiated the earlier incarnation of the agreement and there is no evidence from the chairman of the board who explained the earlier incarnation.  In my view these points are not an answer.  Dr Ip was present by telephone at the board meeting, he signed the minutes and made no suggestion that they were in any sense inaccurate.  Whilst he refrained from voting on the resolutions in which he had an interest, there is no reason to conclude that the minutes are inaccurate, or that they inaccurately described the nature of the early agreement. 

36.The proposition made by the Defendant severely undermines the case of the Plaintiffs.

37.Secondly, the Defendant emphasises that nowhere in the minutes does it record that either Dr Cho or Dr Ip raised the fundamental changes to liability of Profit Castle that would exist in the event that the representations had been made, despite setting out in considerable detail the nature of the obligations contained within the Promissory Note.  The Defendant contends that it is highly unlikely that Dr Ip would allow the board of Town Health to proceed on the false basis that Profit Castle had a liability pursuant to the Promissory Note (and that he had his own liability under the Guarantee)  in circumstances where Profit Castle in fact had no such liability other than when the conditions precedent had been satisfied.  That proposition reflects not only Dr Ip’s position as a director of Town Health, but also his interest in Profit Castle, and his own personal liability.  Even though he had recused himself from voting on the transaction, it is remarkable that he allowed the board of Town Health to authorise a transaction in the belief that the transaction created an entitlement to be paid by Profit Castle, and a personal guarantee from Dr Ip of that entitlement, in circumstances where he knew that Profit Castle in fact had no obligation to pay.   It would be in his own interest, let alone an obligation incumbent upon him as a director of Town Health, to ensure that the board of Town Health did not think that Profit Castle had an obligation that it in fact did not have.  That is further underlined when it is recognised that he resigned as a director of Town Health at that meeting, such that thereafter he would not have any entitlement to explain directly to the board of Town Health that Profit Castle and he did not in fact have the liability that was recorded in the various documents.

38.Again, the Plaintiffs do not really address the detail of this argument.  They make two points:

(1)  Dr Ip had recused himself from voting on this resolution and therefore, they say, he could not really be expected to speak up.  I do not agree.  The fact that he recused himself from voting would not remove an obligation on him to correct any wrong impression that the board of Town Health had as to the nature of the liability of Profit Castle.  His recusal from voting would also not affect his personal interest in ensuring that the board of Town Health fully understood the limited nature of the obligation on both him and Profit Castle.

(2)  The board minutes reflect the representations where they refer to the conditionality of the agreement.  I do not agree.  The reference to the conditionality of the agreement is, expressly, a reference to the conditions contained within the SP Agreement.  Paragraph 6.2(8)  of the board minute identifies those conditions to completion, and it is clear to me that the reference to the conditional agreement to purchase is a reference to the obligation that those conditions need to be satisfied in order for the SP Agreement to complete.

39.Consequently, the 30 December board meeting significantly undermines, and directly contradicts, the Plaintiffs’ case.

40.Following the board meeting the Defendant relies upon two public announcements made by Town Health as a listed company, dated 23 February 2017 and 17 March 2017, both of which describe the transaction in terms which are consistent with the Defendant’s case.  I accept that the announcements tend to support the view of how Town Health saw the transactions and that is consistent with the Defendant’s case.  They probably also lend at least prima facie support to the proposition that Dr Cho, who was a director of Town Health at the relevant time, did not make the representations because, assuming he was acting honestly, he would not have signed these public announcements if he had made the representations alleged.

41.In respect of the role of Dr Cho the Plaintiffs rely upon numerous pieces of litigation, and reported Judgments, relating to Convoy Global Holdings Ltd in which Dr Cho is said to have been involved in substantial and sophisticated wrongdoings involving both dishonesty and fraud practised against Convoy and other companies.  The proposition of the Plaintiffs appears to be that the separate litigation involving Convoy and Dr Cho demonstrates a propensity in Dr Cho to dominate companies of which he was not a director and be dishonest in his dealings.  In my view reliance upon these cases is misplaced.  I do not think it is open to the court to reach the conclusion that Dr Cho was acting in any way dishonestly simply because it is said, and on one view possibly found by a court - although I have not addressed the extent to which such findings are final determinations after a trial, to have been dishonest in relation to a different company, different transactions and in different circumstances.  The court can only look at the evidence in this case in order to reach its conclusion.

42.However, I accept that limited weight can be placed upon the announcements by the Defendant because Dr Ip was not a director of Town Health at the time of the announcements, and so it cannot be said that he was in any way in agreement with the content of those announcements.  As a result, the announcements reflect only one side’s view of the matter, and on their own they do not assist the Defendant in establishing that there is no triable issue on the representations.

43.The next proposition, following from the execution of the Promissory Note, is that at the end of each quarter in 2017, 2018, 2019 and 2020 Profit Castle has paid interest on the principal amounts outstanding under the Promissory Note.  There have, so far been a total of 15 payments in the aggregate sum of HK$69,784,657.53.  Three of those payments have been paid after the maturity date.

44.According to the representations, Profit Castle would have no liability to pay that interest unless the preconditions to its liability had been met.  It is, of course, the Plaintiffs’ case that those preconditions had not been met.  In those circumstances there is little explanation as to why Profit Castle would pay the interest as it did.  The Defendant says that this contemporaneous evidence directly contradicts the Plaintiffs’ case.

45.In response to that proposition Dr Ip, in paragraph 66 of his affirmation, has said that following from Dr Cho’s resignation as a director in Town Health on 29 June 2018, Dr Cho encouraged Dr Ip to continue to make the interest payments, because Dr Cho would remain a “back seat driver” in Town Health (to use Dr Ip’s words), and Dr Cho would cause Town Health or Oasis Beauty to reimburse Profit Castle the interest that it had paid.

46.This proposition, raised for the first time in a responsive affirmation, has an air of unreality about it.  But in any event it does nothing to explain why Profit Castle would pay interest prior to 29 June 2018, and in particular why it would pay interest after the expiry of the 6 months during which Oasis Beauty and/or Dr Cho was required to introduce an Investor.  From that date onwards (which was some time in October 2017)  according to the Plaintiffs’ case, one of the pre-conditions to a liability had not been met.  No investor had been introduced within the required time frame.  On the Plaintiffs’ case that would amount to a complete defence to any liability to pay either principal or interest.  Yet the Plaintiffs continued to pay interest (and interest was paid both by Profit Castle and by Dr Ip personally). 

47.There is no suggestion that there was a request made by Dr Cho, or indeed anybody else, prior to 29 June 2018, that Profit Castle should pay interest on the principal amount outstanding even though there was (according to the Plaintiffs)  no liability to do so.  Neither is there said to be a representation prior to 29 June 2018 that Town Health or Oasis Beauty would repay such interest.  Yet interest was nonetheless paid, and it was not repaid.

48.The evidence of Dr Ip is simply that such a representation was made after Dr Cho had resigned on 29 June 2018.  I do not think that Dr Ip’s evidence rebuts the very powerful points made by the Defendant. 

49.The Plaintiffs also plead that the interest was paid in reliance on the various representations, but I cannot see how such reliance could arise, because there is nothing in the representations pleaded which would suggest that interest would be repaid in the event that the Non-Enforcement conditions were not met.

50.Further, Dr Ip explains in his affidavit how he contacted Dr Cho after the demands had been made in March 2021.  There were WhatsApp messages between them in which Dr Ip requested Dr Cho’s help to get the interest returned, and Dr Cho responded in the following terms:

“Please return Bonjour’s remaining shares in Town Health to Town Health, plus (you cashed in 200 million, repaid 100 million, 200 million should be repaid, the interim interest was paid based on 330 million, it should be based on 230 million)  …”

51.It is clear from Dr Cho’s message that he was not suggesting that no interest was payable, or that it should be returned in total.  To the contrary, he confirmed that interest should have been paid, albeit based upon what he saw as an outstanding amount of HK$230 million.  That is also directly contrary to the Plaintiffs’ case

52.In the circumstances I place no credence on the explanation given by Dr Ip, and I take the view that the contemporaneous evidence is directly contrary to the Plaintiffs’ case.

53.After the Maturity Date there were negotiations between Profit Castle and Town Health.  I have seen emails between the relevant parties in October 2020 and November 2020, which is after all of the representations which have been relied upon by the Plaintiffs, and indeed after the expiry of the 6 months during which Oasis Beauty was apparently required to introduce an investor. 

54.It is apparent that there was a negotiation over a potential Modification Deed, which was designed to modify the payment terms under the Promissory Note. There was also, in the light of that proposal, a draft public announcement to be made by Town Health which was circulated between the parties. 

55.The draft announcement recorded, consistently with the Defendant’s case, the terms of the Promissory Note and the full amounts which were outstanding.  It did not make any reference to the changes in obligations of the Plaintiffs said to arise based on the representations.  It then went on to identify the proposals contained in the Modification Deed which would allow payment by instalments. 

56.Comments were made on both the draft announcement and the Modification Deed by Dr Ip, or people on his or Profit Castle’s behalf.  At no stage in those comments did they suggest that the description of the original obligations of Profit Castle, as set out in the draft announcement, were wrong.  At no stage did they complain about the failure to introduce an investor.  At no stage did they suggest that by the draft Modification Deed, Profit Castle was in fact agreeing to a set of obligations which were far more onerous, and therefore more beneficial to Town Health, than those which had been originally agreed.  If the representations had been made I can see no reason why the Plaintiffs would not identify that fact when commenting on the draft announcement.  Further, I can see no reason for entering into a Modification Deed at all, as all liability of Profit Castle would, by that stage, have been expunged by the failure to introduce an investor.

57.The mere fact that the parties were expecting to enter into the Modification Deed and were negotiating towards that end, is contemporaneous evidence which strongly suggests that the representations had not been made.

58.Also, in December 2020 there is clear evidence that Dr Ip sent a personal cheque for HK$1,000,000 as part settlement of interest.  I can see no reason why Dr Ip would do so if there was in fact no obligation to pay interest, particularly in circumstances where it must have been clear to him at that time that Oasis Beauty and Town Health had not returned previously paid interest on the outstanding amount.

59.Again, the Plaintiffs do not address these arguments.  Their essential premise is that “it is all very complicated, we have made the allegations, the fair and just thing to do in the circumstances is to allow the matter to proceed to trial”. That is not an over simplification of the approach taken by the Plaintiffs but is almost word for word the submission that was made to me.

60.Having regard to all of this evidence, and the obligation imposed upon the Plaintiffs to descend to some level of particulars, and to produce some reliable evidence of the defence in order to demonstrate that there is a serious issue to be tried, I am satisfied that the Plaintiffs have not been able to demonstrate any defence to the claims for the principal amount outstanding under the Promissory Notes and the outstanding interest.

61.I am satisfied that the representations were not made. Consequently, I do not need to address the other arguments, all of which stand or fall on the existence of the representations.

62.I am of the view that it is appropriate to enter summary judgement on the monetary amounts outstanding.  I am also satisfied that the statement of claim is really just a pre-emptive attempt to create an arguable issue.  There is no arguable issue in my view, and consequently the statement of claim is inevitably bound to fail.   Therefore I think it is appropriate to strike out the claims made in the statement of claim.

63.The Defendant also seeks declarations as to the validity of the appointment, under the Share Mortgage, of receivers, together with various other declarations concerning conduct surrounding the appointment of the receivers.

64.I accept that it is open to a court, on a summary judgement application, to make declarations.  I also accept that there is nothing in the statement of claim, other than the matters which I have addressed above, which would entitle any challenge to the appointment of receivers.  However, I have been told that there is a separate action in the High Court in which this appointment of receivers has been challenged.  I am also conscious that there is no provision within the Share Mortgage which expressly mentions a right to appoint receivers. The closest that exists, and the clause under which they were in fact appointed, is clause 7.7.  That clause is in the following terms:

“The Vendor may whenever it thinks fit delegate by power of attorney or otherwise to any person or persons or fluctuating body of persons (whether being a joint trustee hereof or not), all or any of the trusts, powers, authorities and discretions vested in the Vendor by this Share Mortgage or in connection with the Mortgage Securities and such delegation may be made upon such terms and conditions including powers to sub- delegate and subject to such regulations as the Vendor may think fit and the Vendor shall not be bound to supervise the exercise of the powers or be responsible for any loss incurred by reason of any misconduct or default on the part of any such delegate or sub- delegate provided that the Vendor shall have exercised reasonable care in the selection of such delegate. The Vendor shall, as soon as practicable after any such delegation or any removal, extension or termination thereof, give notice thereof to the Mortgagor.”

65.In those circumstances it seems to me to be inappropriate to make a declaration as to the validity of the appointment of the receivers in this action.  There are other routes by which those declarations can be sought and in my view they are likely to be more appropriate.  Consequently I do not make the declarations sought and, without expressing any view at all on whether the appointment is valid, the Defendant is free to pursue any entitlement that it may have to such declarations in whatever way it wishes.

F.  Disposition

66.Therefore I make the following orders:

(1)  Final Judgment be entered against the 1^st and 2^nd Plaintiffs for:

(a)  HK$330,000,000, being the Outstanding Principal Sum;

(b)  HK$13,755,068.49 being the Outstanding Interest as at 30 June 2021;

(c)  Accrued interest on HK$330,000,000 at a rate of 6% per annum (being the rate agreed in the Promissory Note, which in my view remains appropriate)  for the period from 1 July 2021 to the date of Judgment.

(d)  Claims in the statement of claim are struck out.

(e)  Costs order nisi that the Plaintiffs do pay the Defendant’s costs to be taxed if not agreed.

67.If either party wishes to seek a variation of the Costs Order Nisi it shall make representations in writing, limited to 5 pages, within 7 days of the date of handing down this Judgement.  The other side will then have an opportunity to respond, limited to 3 pages, within 5 days.  No further submissions without leave.

Mr Jeremy Cheung & Ms Karen Cheung instructed by Pauline Wong & Co., for the 1^st and 2^nd Plaintiffs

Mr Patrick Chong & Mr Kevin Lau instructed by Baker & McKenzie, for the Defendant