China Minsheng Banking Corp Ltd Hong Kong Branch v. Top Power Enterprises Ltd and Others

HCA 265/2020

[2023] HKCFI 2469

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 265 OF 2020

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BETWEEN

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D E C I S I O N

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A. Introduction

1.This is the Defendant’s appeal against the order of Master Dick Ho dated 16 November 2022 dismissing the Defendants’ application for leave to adduce expert evidence sought under the Defendants’ summons dated 12 October 2022.

2.The sole expert issue is directed to find out the value of the 1^st and 2^nd Defendants’ 70% shareholding in Victorian Iron Pty Ltd as at December 2014. The Defendants submit that the expert evidence sought to be adduced is relevant and necessary for a fair resolution of the dispute.

B. Background

3.The Plaintiff bank sues D1 and D2 for outstanding principal in a sum of US$250,000,000 owed (“Outstanding Sum”) pursuant to a Facility Agreement dated 18 November 2013 (“Original Facility Agreement”), as varied and amended by the 2014 Amendment Deed, the 2017 Amendment Deed and 2018 Amendment Letter (collectively “the Facility Agreement”).

4.The Plaintiff’s claim against D3 is for the Outstanding Sum pursuant to a Guarantee signed by him dated 31 December 2014 that guarantees the payment obligations owed by D1 and D2 under the Facility Agreement.

5.On the Defendants’ case, D1 and D2 had drawn down facilities available to them at US$250,000,000 on 18 November 2013. At that time D1 and D2 had no relationship with D3.

6.D1 and D2 fell into default.

7.In around 2014, Mr Lin Zhi Hong (“Mr Lin”), former President of the Plaintiff, invited D3 to take over the loan owed by D1 and D2 to the Plaintiff (“Defaulted Loan”).

8.Mr Du considered that D1 and D2’s assets, comprising 70% shareholding in Victorian Iron Pty Ltd (“Victorian Iron Shareholding”) did not have any economic value. Therefore, D3 did not take over the Defaulted Loan in order to acquire Victorian Iron. Instead, if D3 was to take over the Defaulted Loan, his source of funds for repaying the Defaulted Loan would have to originate from his other investments.

9.At that time, D3 was planning to invest in real estate development in Singapore. However, due to foreign exchange control in Mainland China, he experienced difficulty in obtaining sufficient funding for his investment. If the Plaintiff could provide US$300 million offshore funding to support D3’s property investment projects in Singapore, he could make use of those returns to repay the Defaulted Loan.

10.Accordingly, Mr Lin (acting on behalf of the Plaintiff and as agent and security agent of the lenders under the Original Facility Agreement) and D3 reached an alleged Oral Agreement in early December 2014 whereby it was allegedly agreed that:

(1) D3 shall enter into the Guarantee to guarantee the repayment of the debts owed by D1 and D2 under the Original Facility Agreement;

(2) The Plaintiff shall postpone the due date of the Defaulted Loan by 3 years. Upon expiry of those 3 years, D1 and D2 could further apply for and would be granted, a two-year extension of the final maturity date;

(3) In return, the Plaintiff shall provide fresh loans totalling US$300 million to support D3’s property investment projects in Singapore; and

(4) It is a condition precedent to the repayment obligation of the Defendants under the Facility Agreement and that of D3 under the Guarantee that the Plaintiff had fully provided the US$300 million loan to D3 to fund his property investment projects in Singapore (“Condition Precedent”).

11.Pursuant to the Oral Agreement, D3 procured 2 corporate vehicles to purchase all the issued shares of D1 and D2 on or around 20 January 2015. The Defendants entered into the 2014 Amendment Deed on 31 December 2014 to extend the final maturity date of the Facility Agreement to 18 November 2017. D3 executed the Guarantee on 31 December 2014. D3 thus essentially took over the Defaulted Loan.

12.The Plaintiff made available the aggregate amount of US$141 million to companies associated with D3 in support of his property investment projects in Singapore but not the rest of the facility.

13.There is no dispute that the Outstanding Sum has not been repaid.

14.The Defendants’ only defence is that the Condition Precedent has not been fulfilled and so the Plaintiff is not entitled to enforce the Facility Agreement and the Guarantee against the Defendants.

15.The Plaintiff disputes the existence of the Oral Agreement, alleging that D3 acquired D1 and D2 for his own business purposes.

16.The Defendants define “the crux of the dispute” as turning on the reason for which D3 agreed to take over the Defaulted Loan and enter into the Guarantee when he did not have any relationship with D1 and D2 then. Was it because of the value he saw in D1 and D2 or because of the promised offshore loans of US$3 million?

C. Procedural history

17.The Plaintiff has applied for summary judgment against the Defendants on 5 November 2020 but Master Jeffrey Chau gave unconditional leave to defend.

18.On 12 October 2022, the Defendants issued the present Summons for expert directions. Master Dick Ho dismissed the Summons at the call-over without adjourning it for substantive argument. The learned Master took the view that the expert evidence would not necessarily help the court resolve the true dispute between the parties, ie whether there was an oral agreement of the magnitude asserted by D3 and would necessarily cause costs to escalate and oblige the court to spend more time on evidence than was necessary.

19.On 29 November 2022, the Defendants filed this Notice of Appeal against Master Dick Ho’s decision.

D. Legal principles

20.An appeal against a master’s decision operates by way of rehearing. The judge treats the matter as though it came before him for the first time. But the judge will give the weight it deserves to the decision of the master, even though he/she is not bound by it. Fresh points may be raised before the judge which were not raised before the master. Hong Kong Civil Procedure 2023, Vol 1, §§58/1/2 and /5.

21.The principles for application to adduce expert evidence are well-established and have been summarized in Shenzhen Futaihong Precision Industry Co Ltd v BYD Co Ltd [2019] 2 HKC 175 (CA):

(1) The subject matter of the opinion must fall within an area in which expert evidence may properly be given (§4);

(2) The witness must be qualified as an expert to give the evidence of the type in question (§4);

(3) His evidence must be relevant to the issues being litigated (§4);

(4) The Court will not only examine pleadings, but also the documents and witness statements to determine the true evidential issues in dispute: Shenzhen Futaihong (§§10 and 18); and

(5) Expert evidence should not be allowed where the question can be determined on factual evidence and inferences to be drawn therefrom (§25).

22.Merely because expert evidence may be of some assistance to the Court does not mean that it ought to be admitted: Matthews and Malek, Disclosure, 5^th ed, at §22.05.

23.The primary aim of a court’s case management powers is to secure the just resolution of the dispute in accordance with the substantive rights of the parties: Fung Chun Man v Hospital Authority (HCPI 1113/2006; 24 June 2011) at §10 (Bharwaney J).

E. Analyses

24.The bone of contention in this Summons is the relevance and necessity of the expert evidence. Mr Man SC defines the issues that requires expert evidence as per paragraphs 2 and 16 above. He submits that since the most significant asset held by Victorian Iron was the iron ore mining project in Central Victoria, Australia, the valuation of the 70% shareholding would require valuation of Victorian Iron’s underlying mining rights and iron ore resources. The Defendants (I think Mr Man SC meant D3) were not incentivized by the acquisition of 70% shareholding in Victorian Iron to assume the Defaulted Loan because D3 considered that the mining project was of no economic value. It follows that if the 70% shareholding had nil or minimal value, it would obviously tend to negate the Plaintiff’s case and support the Defendants’.

25.With respect, I am unable to agree. In my view, both from issues disclosed on the pleadings and the witness statements, expert evidence is neither relevant nor necessary.

26.With regard to the pleadings, the issue is whether or not the Oral Agreement was entered into and whether the Condition Precedent was met before liability to repay arose. The reason why D3 took over the Defaulted Loan was not an issue relevant to either the liability of the Defendants to pay or the amount of outstanding indebtedness. At best, it affects D3’s credibility as to the reason for taking up the Defaulted Loan. Expert evidence is not necessary to determine these factual issues.

27.With regard to the witness statements, one of the issues is whether or not D3 believed that the Victorian Iron Shareholding had no economic value. 池海東 (“Mr Chi”), the executive director of KMG Resources Pty Ltd owned by D3 that operates in the business of iron mining in Australia made a witness statement. According to him, he paid a site visit in September or October 2014 and prepared a report for D3 (CHD-1). Mr Chi formed the opinion, with reference to other similar mining companies in Australia and his own experience, that the Victorian Iron Shareholding held by D1 and D2 was of no economic value. He conveyed his opinion to D3, concluding that in the light of the significant investment risks, it was not advisable to make any investment. On such bases, expert evidence is not necessary because of the following reasons.

28.Firstly, D3 formed a subjective view that the Victorian Iron Shareholding was of no economic value based on what Mr Chi reported to him and not on any objective valuation carried out by a valuation expert. Whether Mr Chi was himself an expert and whether his representation to D3 was correct were irrelevant. The issue of fact remains whether D3 held the asserted view which led him to ask for offshore loans pursuant to the Oral Agreement. The actual valuation of the Victorian Iron Shareholding is irrelevant and unnecessary in the resolution of this issue of fact.

29.Secondly, the proposed evidence is of limited probative value. It is impossible to meaningfully verify the then on-site condition of the mine when Mr Chi inspected it about a decade ago and ascertain its value. It is of no assistance to the factual question of whether the Oral Agreement existed. The proposed valuation date (December 2014), was not even the date of Mr Chi’s site inspection – September or October 2014.

30.Further, whether D3 in fact subjectively believed that the Victorian Iron Shareholding was of no economic value is a factual matter to be answered based on facts known to D3 in December 2014, not the actual value of the mine then or at the time of the expert report.

31.Thirdly, the expert evidence, if allowed, cannot justify the high costs and delay in obtaining expert evidence when its sole discernible purpose is to retrospectively buttress in 2023 the opinion of Mr Chi and hence D3, formed in 2014.

32.Fourthly, the Defendants reliance on the comments of Master Jeffrey Chau in rejecting the Plaintiff’s summary judgment does not assist them. The learned Master stated that:

“… it is plainly arguable that P must have offered D3 some advantage or benefit in exchange for D3 taking up D1and D2’s substantial debts. When it is arguable that D1 and D2’s assets did not have any economic value at the time the advantage or benefit is likely to be in the form of provision of offshore funds in support of D3’s projects in Singapore.”

33.With respect, Master Chau’s comments were made in the context of finding an arguable issue. Even that arguable issue was weighing the probabilities of the Defendants’ case. It had nothing to do with the need for expert evidence.

34.Fifthly, it is also irrelevant that subsequent to the hearing before Master Dick Ho, the Plaintiff refused to confirm by correspondence that it does not and will not advance any argument at trial to the effect that D3 took over the Defaulted Loan for the purpose of purchasing Victorian Iron. The purpose of D3 was premised on his economic considerations which were matters of fact and not of expert evidence.

35.In summary, this application for expert directions and the appeal arose out of the wrong definition of issues of this action by the Defendants (§§2 and 16 above). There are no issues fit for experts and I agree with the conclusion of Master Dick Ho as set out in §18 above.

F. Conclusion

36.I therefore dismiss the appeal.

37.It is wasteful to produce the whole set of transcript before a Master on an appeal against his decision as an appeal operates by way of rehearing. Here there are even 3 sets. The issue has no complexity. Master Dick Ho dealt with it in a most efficient way and yet the parties complicated it. I disallow all costs relating to the obtaining and reliance on the transcripts.

38.On a nisi basis, costs should be to the Plaintiff but with costs of the transcripts disallowed. Given the simple nature of the appeal, I only allow the costs of one counsel. There is no justification for 2 fee earners and the amount of time spent by solicitors on preparation of this case handled by counsel. The hearing lasted about half an hour.

39.The costs are summarily assessed and allowed at $200,000. I make an order nisi accordingly.

40.I thank counsel for their assistance.

Ms Catrina Lam and Mr Arthur Poon, instructed by Allen & Overy, for the Plaintiff

Mr Bernard Man SC and Mr Jonathan Ng, instructed by Kwok Yih & Chan, for the 1^st to 3^rd Defendants