Ontone Finance Co Ltd v. Leung Siu Kee and Others
Read the full judgment text of HCA 408/2011 on BabelCite. This High Court CFI judgment was delivered on 28 February 2012.
1. Before the court are 2 summonses issued by the plaintiff in HCA 408/2011 and 433/2011, Ontone Finance Company Limited (“Ontone”), on 20 September 2011 against each of the defendants in those actions for summary judgment (“Summary Judgment Application”).
Cites 3 cases
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HCA 408/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO. 408 OF 2011 ------------------------
-------------------------------- HCA 433/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 433 OF 2011 --------------------------------
Before: Deputy High Court Judge Lisa Wong SC in Chambers Date of Hearing: 6 February 2012 Date of Judgment: 28 February 2012 ---------------------- ---------------------- THE APPLICATIONS BEFORE THE COURT 1.Before the court are 2 summonses issued by the plaintiff in HCA 408/2011 and 433/2011, Ontone Finance Company Limited (“Ontone”), on 20 September 2011 against each of the defendants in those actions for summary judgment (“Summary Judgment Application”). 2.Further, the 2nd defendant in HCA 372/2011, the 1st defendants in HCA 408/2011 and the 1st and 2nd defendants in HCA 433/2011 have applied by summonses dated 14 October 2011 for orders that the 3 actions be consolidated (“Consolidation Applications”). By Orders made on 17 October 2011, Master Levy directed that the Consolidation Applications be adjourned to be dealt with immediately after the disposal of the Summary Judgment Applications. Although the 2 letters dated 23 November 2011 by which Messrs Deacons, solicitors for Ontone, made an appointment with the Clerk of Court to fix a hearing date referred to just the Summary Judgment Applications so that only those applications were formally listed for hearing on 6 February 2012, counsel for the defendants in HCA 408/2011 and 433/2011 also made submissions in support of the Consolidation Applications, notwithstanding the absence of the defendants in HCA 372/2011. ONTONE’S CLAIMS IN HCA 372, 408 AND 433 OF 2011 3.Ontone, a Hong Kong company owned[1] and controlled by Ms Yau Sze Man Elsa (“Yau”), is and was at all material times a licensed moneylender. 4.In HCA 372/2011, 408/2011 and 433/ 2011, Ontone claims against the borrowers and guarantors for the outstanding principal and interest due under each of the original/renewed loan agreements (“Loan Agreements” collectively) set out in the Schedule to this Judgment. The defendants 5.According to Elsa Yau, she first came to know Francis Chan, the second-named 1st defendant in both HCA 408/2011 and 433/2011 in about 2005 through the introduction of a mutual friend. Through Francis Chan, she also became acquainted with Dennis Leung, Alan Chan and Freeman Lam, the other three 1st defendants in HCA 408/2011 and 433/2011. These 4 gentlemen were held out to Elsa Yau to be business partners in the accounting profession. In this regard, there is evidence before the court that Dennis Leung was an associate of the Hong Kong Society of Accountants whereas Alan Chan was a Certified Practising Accountant of CPA Australia and a Certified Public Accountant of the Hong Kong Institute of Certified Public Accountants. 6.Elsa Yau further recalls that Dennis Leung and Francis Chan started to approach her for loans shortly after late July 2008 when she mentioned for the first time her moneylending business through Ontone. She was given to understand that they were looking for funds to invest in projects in the Philippines (through SinoPhil) and Inner Mongolia. 7.With regard to SinoPhil, the guarantor under Loan Agreements Nos. 388, 392, 395 (prior to its renewal) and 396 and the 2nd defendant in HCA 408/2011, the evidence before the court shows that Dennis Leung was a director until 21 January 2010. Further, Freeman Lam has since 15 August 2008 held 100 ordinary shares of US$1 each of and in one Rockingham Development Limited (“Rockingham”), a BVI company which has the following interests in SinoPhil :
In other words, Freeman Lam is and was at material times indirectly interested in SinoPhil through his shareholding in Rockingham. Loan Nos. 388, 392, 395 (before its renewal) and 396 were in fact signed by Freeman Lam for and on behalf of SinoPhil. 8.As for the other guarantors under Loan Agreements Nos. 395 (upon its renewal) and 452, Leung Wing Kei (“Mrs Lam”), the first-named 2nd defendant in HCA 433/2011, is Freeman Lam’s wife. Prior to 22 September 2010, Francis Chan and one Madam Tong Pui Han (whose address on the relevant company annual return is the same as that of Francis Chan) each held 50% of the shares of and in Tobo, another guarantor under Loan Agreements Nos. 395 (upon its renewal) and 452 and the third-named 2nd defendant in HCA 433/2011. On 22 September 2010, all their shares in Tobo were transferred to one Lollipop Investments Ltd, a BVI company in which Francis Chan and Madam Tong each held 50 shares of US$1 each until 1 November 2010 when Francis Chan transferred his shares to one Lau Lai Kam. 9.To complete the dramatis personae, Margaret Leung, the borrower under Loan Agreements Nos. 416 and 425/426 and the 1st defendant in HCA 372/2011, was held out to Elsa Yau as the 4 gentlemen’s business partner in the projects for which they were seeking funding. Edmond Lam, the guarantor under Loan Agreements Nos. 416 and 425/426 and the 2nd defendant in HCA 372/2011, describes himself as having been in an intimate relationship with Margaret Leung. He is also Freeman Lam’s father. The terms of the Loan Agreements 10.The Loan Agreements were made on Ontone’s standard form and were practically in identical terms. By way of example, Loan Agreement No. 388 provided as follows:
11.Each of the borrowers and guarantors signed/countersigned the Loan Agreements without any qualifications as to the capacity in he/she/it did so or the extent of liability so contracted by him/her/it. 12.Insofar as the loan agreements the subject-matters of HCA 408/2011 and 433/2011 are concerned, the cheques by which the advances under Loan Agreements Nos.392, 395 and 396 were made were drawn by Ontone in favour of Margaret Leung, according to Elsa, at the direction of the borrowers thereunder. However, receipt of the cheques relevant to Loan Agreements Nos. 392 and 395 was acknowledged by one or more of the borrowers. Further, the payment of monthly interests under clause 4 of each of the Loan Agreements, even those under which Margaret Leung was not the borrower, was secured by post-dated cheques drawn on Margaret Leung’s personal account. According to Elsa Yau, she was told that it was part of an internal arrangement between Dennis Leung, Francis Chan, Alan Chan, Freeman Lam and Margaret Leung. Performance of the Loan Agreements 13.Prior to February 2010, interests under the Loan Agreements had been paid monthly as follows:
14.Interests under the Loan Agreements were last paid on 27 January 2010. Default began from February 2010. Amounts claimed by Ontone 15.In summary, Ontone claims the following sums for outstanding principals and interests (calculated up to 28 February 2011) under the Loan Agreements:
GROUNDS OF DEFENCE TO ONTONE’S CLAIMS IN HCA 408/001 & 433/2011 The position of the 1st defendants in HCA 408/2011 and the 1st and 2nd defendants in HCA 433/2011 (Dennis Leung, Francis Chan, Alan Chan, Freeman Lam, Mrs Lam and Tobo) 16.In opposition to Ontone’s claims, the borrowers under Loan Agreements Nos. 388, 392, 395, 396 and 452 and the guarantors under Loan Agreement No.395 (renewed) contend that those agreements were not genuine loan transactions but were entered into to enable Elsa Yau to use Ontone’s funds to invest in Margaret Leung’s businesses. More particularly, it is alleged that :
Reliance is placed on the facts that some of Ontone’s cheques were issued to Margaret Leung directly and the post-dated cheques for interest payments were issued by Margaret Leung. 17.By the said alleged agreement, Elsa Yau is said to have secured a share of Margaret Leung’s said mining and forestry rights at a “cheaper price”. 18.As for the need to interpose others as borrowers and guarantors, it is alleged that if Margaret Leung had been named as either the borrower or guarantor, her credit rating would have been seriously affected which she did not want to see happen. On the other hand, the 4 gentlemen were willing to lend their names to Margaret Leung because they received fees for doing so and had been orally assured by Elsa Yau that under no circumstances would either Ontone or Elsa Yau sue any one of them or the guarantors on the loan agreements signed by them or otherwise for the repayment of the funds so made available by Elsa Yau to Margaret Leung. 19.In short, Dennis Leung, Francis Chan, Alan Chan, Freeman Lam, Mrs Lam and Tobo are holding Ontone to Elsa Yau’s said oral assurances to them. Alternatively, it is suggested that in the abovementioned circumstances, they entered into the loan transactions as agents for Margaret Leung without contracting any personal liability. The position of the 2nd defendant in HCA 408/2011 (SinoPhil) 20.In contrast, the only grounds of defence now maintained on pleading by SinoPhil are that it did not guarantee the liabilities under Loan Agreements Nos. 388, 392 and 396 or alternatively, that there was no consideration moving from Ontone to support the guarantees. 21.It is also noteworthy that there was initially an allegation by SinoPhil that full repayment of principals and interests had been made under Loan Agreements Nos. 388, 392 and 396, verified by SinoPhil’s director, Lam Chee Kin, firstly in the statement of truth indorsed on SinoPhil’s Defence filed on 4 June 2011 and again in his Affirmation filed on 12 October 2011 in opposition to Ontone’s application for summary judgment. In the latter document, the director further stated that SinoPhil was informed of the fact of full repayment by “the 1st defendants” (ie Dennis Leung, Francis Chan, Alan Chan and Freeman Lam). 22.These are clearly bad pleas and were not pursued by SinoPhil at the hearing on 6 February 2012. Mr Martin Wong, counsel for SinoPhil, accepted that SinoPhil’s defence would rise and fall with that of Dennis Leung, Francis Chan, Alan Chan and Freeman Lam on the facts. RELEVANT PRINCIPLES 23.It is trite law that a defendant responding to an application for summary judgment must condescend to particulars. The mere assertion in an affidavit of a given situation by the defendant does not, ipso facto, ground leave to defend. The defendant must satisfy the court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence. In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the court must look at the whole situation. In assessing the credibility of the defendant’s factual case, while the court will not embark on a mini-trial on affidavit evidence, the court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate. If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the court must say so. If the defendant’s defence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence. See eg National Westminster Bank plc v Daniel [1993] 1 WLR 1453, per Glidewell J at 1457; Manciple Ltd v Char On Man [1995] 3 HKC 459 (CA), per Mortimer JA at 466E-G; Re Safe Rich Industries Ltd, CACV 81/94, unreported, per Bokhary JA at page 5; Microsoft Corporation v Electro-Wide Ltd [1997] FSR 580, per Laddie J at 593 and DMT Finance Ltd v Ming Kee Investments Ltd, HCCL 11/1998, unreported, per Stone J at page 4. DEFENCE INCREDIBLE 24.The circumstances described by the defendants as leading to their being involved as borrowers and guarantors are completely at variance with the express terms of Loan Agreements Nos. 388, 392, 395, 396 and 452. 25.However, the liability thereby assumed by them on the face of such agreements are, on any view, substantial. 26.Even if it were thought to be necessary for these loan documents to be created, there could be no or no compelling reasons why the true underlying transaction was not contained, or evidenced, in some form of writing. Not only had these borrowers and guarantors failed to procure any written acknowledgment of the assurances of no recourse from Ontone/Elsa Yau or indemnity against liability from Margaret Leung, except for an email confirming the itinerary of Elsa Yau’s trip to China in February 2009 (which she says was undertaken to verify the purpose of the loans to be advanced to Margaret Leung), there was not even a single email exchanged between Elsa Yau, Margaret Leung, Dennis Leung, Francis Chan, Alan Chan and/or Freeman Lam, pointing to any of the points mentioned in paragraphs 16 to 18 above, not even in a peripheral manner. Nor is there any document that shows that Dennis Leung, Francis Chan, Alan Chan and Freeman Lam or any of them were acting for Margaret Leung. This is to my mind surprising given the professional background of these gentlemen and the professional capacity in which they say they were acting when they became involved in what was essentially a deal between Elsa Yau and Margaret Leung. One must therefore be forgiven for approaching the defence allegations with care and caution. 27.I agree with Mr Anson Wong, counsel for Ontone, that such allegations do not bear scrutiny and are indeed incapable of belief for the following reasons. 28.First, Ontone has also sued Margaret Leung and Edmond Lam, respectively the borrower and guarantor under Loan Agreements Nos. 416 and 425/426, in HCA 372/2011. According to the 1st defendants in HCA 408/2011 and the 1st and 2nd defendants in HCA 433/2011, Loan Agreements Nos. 416 and 425/426 were signed in the same circumstances as the others. If what the defendants say in HCA 408/2011 and HCA 433/2011 were true, one would have expected a similar line of defence to have been set up in HCA 372/2011. It is thus worthy of note that Margaret Leung defends Ontone’s claims against her only on the ground that she has already made full repayment of principals and interests under those agreements, thereby implicitly accepting the loan agreements as such, whereas Edmond Lam seeks to avoid the guarantees on the ground that they were procured by Margaret Leung’s undue influence, of which Ontone had knowledge. 29.Second, as mentioned in paragraph 21 above, SinoPhil initially asserted, once even on oath, full repayment of principals and interests under Loan Agreements Nos. 388, 392 and 396 on information provided by Dennis Leung, Francis Chan, Alan Chan and Freeman Lam. The information so provided by these gentlemen to SinoPhil is clearly inconsistent with the factual case that they are now running. It is also most curious given that, as explained in paragraph 7 above, Freeman Lam was interested in SinoPhil through Rockingham at the time when such position was taken by SinoPhil. 30.Third, Ontone parted with the funds the subject-matters of the Loan Agreements between September 2008 and April 2009, some than 2 to 3 years ago. It is not shown or even suggested that Elsa Yau has been given what she had allegedly bargained for with Margaret Leung. Indeed, the court has no evidence whatsoever as to what precisely Elsa Yau was supposed to get for the monies, not even as to the entities in which she was supposed to obtain interest(s). More importantly, the amounts advanced under the Loan Agreements added up to just HK$8.5 million which appears to me to be pitifully inadequate for acquiring any mining or forestry rights, even if one accepts for a moment the suggestion of a discount. This is particularly so, having regard to the “Information Memorandum” mentioned in paragraph 16(5) above which shows that the investment being solicited by SinoPhil in October 2008 was to the tune of HK$230 million in return for just a 20% equity interest in SinoPhil. There is also before the court what is called a “fund offer document” which shows the availability of a temporary working capital in the form of a convertible loan of RMB200 million to the company through which the forestry rights in northern China were being or to be exploited. 31.Fourth, the trip to the Philippines said to have been undertaken by Dennis Leung, Francis Chan and Freeman Lam at Elsa Yau’s requests to inspect and study Margaret Leung’s business there in fact pre-dated Loan Agreements Nos. 388 and 392 and the submission of the report on such tour also pre-dated Loan Agreement Nos. 395 and 396. Further, there is no dispute that they had not sought any reimbursements for the expenses of undertaking these and the China trips and reporting thereon from either Elsa Yau or Margaret Leung. 32.Fifth, the suggestion that the funds released under the Loan Agreements were investments by Elsa Yau in Margaret Leung’s businesses whatever they were, which by definition could be profit or loss making, does not sit well with the fact that fixed monthly payments were made to Ontone on the funds at the same rate(s) as the interest rate(s) prescribed in clause 4 of each of the Loan Agreements. 33.Sixth, even if it were really necessary for the form of a loan agreement and guarantee to be adopted, there is no plausible explanation for the need to interpose others as borrowers and guarantors. The assertion of an alleged desire on the part of Margaret Leung to avoid jeopardy to her credit rating breaks down in face of the fact that she was named as the borrower under Loan Agreements Nos. 416 and 425/426. Looking at it from the point of view of the borrowers and guarantors, it is unclear why they agreed to be dragged in, apart from a wholly unparticularised assertion of receipt of fees for the services they rendered. 34.Lastly and most tellingly, by an email dated 20 August 2009 from Alan Chan to Elsa Yau and copied to the other 3 borrowers but, interestingly, not Margaret Leung, Alan Chan provided Elsa Yau a “Loan Repayment Schedule” setting out their plan for the repayment of outstanding principals and interests under the Loan Agreements. This was followed by another email dated 15 September 2009 from Dennis Leung to Elsa Yau and copied to the 3 other borrowers but, again, not Margaret Leung. By this email, Dennis Leung provided Elsa Yau with a copy of a pay-in slip showing a deposit into Ontone’s account of HK$277,500 covering the August interest payments of all the Loan Agreements as promised in the said “Loan Repayment Schedule”. These documents flatly contradict the defence case. ORDERS 35.For the foregoing reasons, I enter summary judgment in favour of Ontone as follows:
36.Given my above decision on the Summary Judgment Applications, the Consolidation Applications do not arise for determination. As said in paragraph 2 above, although the Consolidation Applications in HCA 408/2011 and HCA 433/2011 are not formally before this court, they have been argued. To save time and costs, I hereby also dismiss them. 37.I also make an order nisi in each of HCA 408/2011 and 433/2011 that the defendants pay Ontone’s costs of the action including the costs of the summary judgment application, to be taxed if not agreed, with Certificate for Counsel.
Mr Anson Wong, instructed by Messrs Deacons, for the plaintiff Mr Louis Karon Fung, instructed by Messrs Yu & Associates, for the 1st defendants In HCA 408 & 433/2011 and the 2nd defendants in HCA 433/2011 Mr Martin Wong, instructed by Messrs Tang and So, for the 2nd defendant in HCA 408/2011 SCHEDULE
[1] Save as to 1 out of 100,000 shares. [2] Comprising Kossilon Corporate Services Limited (formerly known as Kossilon Consultancy Limited), Kossilon Business Consultants Limited and Kossilon Immigration Consultants Limited (formerly known as KS Registrations Limited) [3] Assigned by Ontone using the last 3 digits of the number of the cheque issued by Ontone to the borrowers [4] The 1st defendants in HCA 408/2011 and 433/2011 [5] The 2nd defendant in HCA 408/2011 whose name was subsequently changed to SinoPhil Forest Source Mining Holdings Co Ltd [6] The 1st defendant in HCA 372/2011 [7] The 2nd defendant in HCA 372/2011 [8] Assigned by Ontone using the last 3 digits of the number of the cheque issued by Ontone to the borrowers [9] The 2nd defendants in HCA 433/2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 408/2011