China Agricultural Finance Co Ltd v. Charmark Investment Ltd and Others

HCA 630/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 630 OF 2007

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BETWEEN

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Before : Hon Poon J in Court

Date of Hearing : 29 October 2012

Date of Judgment : 29 October 2012

Date of Reasons for Judgment : 5 November 2012

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REASONS FOR JUDGMENT

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1.On 29 October 2012, the defendants were all absent at trial. After hearing the plaintiff’s witness, Mr Leung Chi Yan, who is the head of its marketing department, and the submissions of senior counsel, I entered judgment for the plaintiff on its claims against the defendants jointly and severally for the sum of HK$407,098,570.00 with interest on HK$207,320,000.00 at the judgment rate from 30 October 2012 until payment. These are the reasons for my judgment.

2.The background circumstances are not in dispute.

Background

3.The plaintiff is a licensed moneylender.  At the material times, it held 99% of its subsidiary, China Agricultural Investments Company Limited (“CAIC”).  The 1^st defendant is wholly owned by the 2^nd and 3^rd defendants, who are siblings and were the only directors at the material times.

4.By a Chinese loan agreement dated 8 September 1994, CAIC agreed to lend the sum of HK$202,320,000.00 to the 1^st defendant, repayable by two installments of HK$44,960,000.00 on 8 September 1995 and HK$157,360,000.00 on 8 September 1996 (“the 1^st Loan Agreement” and “the 1^st Loan”). The 2^nd and 3^rd defendants acted as guarantors of the 1^st Loans by each signing an irrevocable personal guarantee of the same date (“the 1^st Set of Guarantees”).  By another Chinese loan agreement dated 27 September 1994, CAIC agreed to lend HK$8,000,000.00 to the 1^st defendant, repayable on 28 March 1995 (“the 2^nd Loan Agreements” and “the 2^nd Loan”). The 2^nd and 3^rd defendants also acted as guarantors of the 2^nd Loan by each signing an irrevocable personal guarantee of the same date (“the 2^nd Set of Guarantees”).  The amount guaranteed covered the total amounts of the 1^st and 2^nd Loans.

5.I will refer to the 1^st Loan Agreement and the 2^nd Loan Agreements as “the Loan Agreements”, the 1^st Loan and 2^nd Loan as “the Loans”, the 1^st Set of Guarantees and the 2^nd Set of Guarantees as “the Guarantees” collectively below.

6.Each of the Loan Agreements provided that :

“如借款人未能依約定時向貸款人支付貸款本息，則擔保人須立即代借款人向貸款人清還其所虧欠之債項。”

7.Each of the Guarantees correspondingly provided that :

“本擔保人擔保借款人…履行還款責任，若借款人未能或拒絕依約還款，則本擔保人一經貴公司通知當即無條件履行擔保人責任，在七天內以港元清償借款人在貴公司的所欠款，包括所有應付利息及費用。”

8.The 1^st and 2^nd Loans were drawn down on 8 and 28 September 1994.

9.By a confirmation on loan extension dated 11 August 1995 and two similar extensions dated 27 January 1998, the dates for repayments of the Loans were extended to 31 December 1998.

10.On 2 August 2000, various parties, corporate and individual, within the Ananda Group, including the 2^nd and 3^rd defendants, entered into a repayment agreement with CAIC (“the Repayment Agreement”).  Under Clause 5, the 1^st defendant acknowledged the outstanding sums due under the Loan Agreements.  Under Clause 6, the 2^nd and 3^rd defendants acknowledged and confirmed their liability as guarantors.  Pursuant to Clause 7, the 1^st defendant and three other corporate parties of the Ananda Group agreed to pay CAIC a monthly sum of HK$3,000,000.00 as repayment of the outstanding amounts due to CAIC.  In the event of default, CAIC was entitled to commence proceedings against all the parties.

11.By an assignment dated 20 December 2000, CAIC assigned all its rights, title, interest, powers and benefits under the Loans to the plaintiff (“the Assignment”).  It is the plaintiff’s case that written notice of the Assignment was given to all the defendants on the same day.

12.The last partial repayment under the Repayment Agreement was made in early July 2002.  The 1^st defendant had since defaulted.  The 2^nd and 3^rd defendants refused to perform their obligations as guarantors.  The plaintiff then commenced the present proceedings to recover the outstanding amounts under the Loans from them.

The latest outstanding amounts

13.According to the evidence of Mr Leung, the outstanding amounts due under the two Loans Agreements as at 29 October 2012 were HK$207,320,000.00 (principal) + HK$199,778,570.00 (interest) = HK$407,098,570.00.

Defence

14.In disputing the plaintiff’s claims, the defendants had raised a number of defence.  As noted, they were absent at trial.  So they have not adduced any evidence to substantiate their allegations factually.  On all the factual disputes, I accept Mr Leung’s evidence in full.

15.Their principal defence is that the plaintiff’s claims were time-barred.

16.Under section 23(3)of the Limitation Ordinance, Cap 347, where any right of action has accrued to recover any debt and the person liable therefor acknowledges the claim or makes repayment thereof, the right shall be deemed to have accrued on and not before the date of the acknowledgement or the last repayment.

17.Section 24 sets out the formal requirements for such an acknowledgment.  In short, it must be in writing and signed by the person making the acknowledgment (or his agent) and made to the person whose claim is being acknowledged (or his agent).  In dealing with the formal requirements, Ribeiro PJ said in New World Development Co Ltd & Others v Sun Hung Kai Securities Ltd & Another (2006) 9 HKCFAR 403 :

“91. …[It] is clear that in construing the document relied on, the court will look at connected documents (not necessarily expressly referred to in the document relied on) to ascertain its proper meaning, as where, for instance, an acknowledgment emerges from reading together two or more letters written by the debtor in response to letters from the creditor…”

18.Here, the evidence shows beyond doubt that 1^st defendant had acknowledged its liability within the 6 years’ period before the plaintiff commenced the present action on 27 March 2007.

19.By a letter dated 13 March 2002, the plaintiff requested the 1^st defendant to repay the Loans pursuant to the Repayment Agreement.  By another letter of the same date addressed to the 3^rd defendant, the plaintiff requested him to perform his obligations as guarantor for various loans advanced to the various companies within the Ananda group, including the Loans.  In response, Ananda Holdings Limited issued a letter dated 29 November 2002, acknowledging the various debts and liabilities referred to in the two letters.

20.Reading them the letters together, I am firmly of the view that the 1^st and 3^rd defendants had acknowledged their liability under the Loans through Ananda Holdings Limited.

21.The evidence also shows clearly that the 2^nd defendant had made part payments on 20 July 2001, 30 May 2002 and 2 July 2002.  The last repayment was well within the 6 years’ limitation period.

22.The limitation defence must fail.

23.The defendants next contended that the Loans and the Guarantees had become unenforceable because the formalities under sections 18 and 20(1) of the Money Lenders Ordinance, Cap 163 had not been complied with.

24.Section 18 sets out the requirements relating to loan made by a money lender.  Every agreement for a loan must be put into writing and signed by the borrower within 7 days of making the agreement and before the money is lent.  A copy of the signed note of the agreement must be given to the borrower, with a copy of the summary at the time of signing.  The signed note must contain full details of the loan, including the terms of repayment, the form of security and the rate of interest.  An agreement that does not comply with the requirements will be unenforceable.

25.Section 20 further provides that the surety, unless he is also the borrower, must within 7 days of making the agreement be given a copy of the signed note of the agreement, a copy of the security instrument (if any) and a statement with details of the total amount payable. The money lender must also give the surety, upon request in writing at any time (but not more than once per month) a signed statement showing details of the total sum paid and remaining to be paid.  The security is not enforceable for so long as the money lender, without good reason, fails to comply.

26.The defendants alleged that the relevant sections had not been complied with as no copy of the note or memorandum and/or security instrument in accordance with sections 18(2) and 20(1) has been provided.  However, according to Mr Leung’s evidence, which I accept, the Loan Agreements, Guarantees and the 3 confirmations on loan extension were given to the respective defendants upon their execution.

27.The defendants fail on this defence.

28.Third, the defendants alleged that no notice of assignment had been given to anyone of them.  This allegation must be rejected in light of the uncontroverted evidence of Mr Leung that the requisite notice had been sent to them by post on or about 20 December 2000.

29.The 3^rd defendant next argued that insofar as he was concerned, the 1^st Set of Guarantees was discharged by the 2^nd Set of Guarantees.  This is a point without substance for each of the Guarantees expressly provided that it is an independent, continuing guarantee, the validity of which shall not be affected by other contractual relationship between CAIC and the 3^rd defendant.

30.Finally, the defendants pleaded champerty.  They argued that well knew that the Loan Agreement were classified in the “doubtful” or “loss” categories and since the plaintiff only provided a total consideration of HK$1.00.  They contended that the plaintiff was purchasing litigations and the alleged assignment was champertous. 

31.In Unruh v Seeberger (2007) 10 HKCFAR 31.  Ribeiro PJ summarised the law of maintenance and champerty as follows :

“100. …Thus, the mischief to be discouraged by the law of maintenance is still ‘officious intermeddling’ in litigation, in particular where this results in oppression of the person against whom the action is brought and possibly if it may result in the general encouragement of litigiousness …

101. The public policy against champerty has traditionally involved two concerns and continues to do so.

(1) The first is that an agreement to share in the spoils of the litigation may encourage the perversion of justice and endanger the integrity of judicial processes …

(2) Next, a champertous arrangement may be objectionable in that it involves a stranger to the litigation in ‘trafficking’ or ‘gambling’ in the outcome of the litigation. Thus in Trendtex Trading Corporation v Credit Suisse, an assignment was struck down as champertous because it ‘ … involved the possibility, and indeed the likelihood, of a profit being made, [by a third party with no genuine commercial interest in the transaction] out of the cause of action … [which] manifestly ‘savours of champerty’, since it involves trafficking in litigation - a type of transaction which, under English law, is contrary to public policy.’ Such activity is obviously unacceptable to the court which sees its role as the administration of justice and not the provision of a market for speculators in litigation.

102. Secondly, the fact that an arrangement may be caught by the broad definitions of maintenance or champerty is not in itself sufficient to found liability. The totality of the facts must be examined asking whether they pose a genuine risk to the integrity of the court’s processes … It is not enough simply to say that it is a type of agreement which ‘savours of’ champerty.

103. Thirdly, countervailing public policies must be taken into account, especially policies in favour of ensuring access to justice and of recognizing, where appropriate, legitimate common interests of a social or commercial character in a piece of litigation. The traditional public policies against intermeddling in litigation must be weighed against such competing values and if the balance is in favour of the latter, the conduct complained of should not be regarded as contrary to public policy.

104. Fourthly, it is important not to confuse related but separate policies with those which properly underlie the operation of maintenance and champerty. For example, an agreement to take a share of litigation proceeds may be primarily objectionable because it involves the unconscionable exploitation of a vulnerable litigant. Or it may be considered objectionable for solicitors to enter into such an arrangement because it is thought likely to give rise to conflicts between the solicitor’s interest in financial gain and his duties to the court and to the client. It may be right to strike down the arrangement in some cases. But in others, doing so (and characterising the conduct as criminal) in reliance on the law of maintenance and champerty may be to use too blunt an instrument. It may, for instance, result in the litigant being left with no means to pursue a good claim. Resort might more appropriately be had in such cases to other doctrines and remedies more suited to granting relief to the exploited party or to confronting professional misconduct” [emphasis added].

32.In Trendtex Trading Corporation v Credit Suisse [1982] AC 679 at 702, Hirst LJ accepted that “where an assignee can show that he has a genuine commercial interest in the enforcement of a claim assigned to him, he does not fall foul of the rules against champerty”.

33.Here, CAIC was a subsidiary of the plaintiff at the time of the Loan Agreements, which at all material times held 99% of CAIC. Plainly, the plaintiff is not a third party with no genuine commercial interest in the transaction.  It has a genuine commercial justification and close corporation relationship with CAIC to take over the legal ownership of the debts which was not intended to be part of the sale of CAIC when the latter was sold off to a third party.  Further, the totality of the facts does not pose any genuine risk to the integrity of the court’s processes.  This is no evidence that the Assignment even “savours of” champerty.  Nor is there any evidence of any conduct by way of unconscionable exploitation against any of defendants by way of the Assignment.

34.This champerty point is a frivolous argument with no substance whatsoever.

Conclusion

35.For the above reasons, I entered judgment in favour of the plaintiff as I did.

Mr Johnny Mok, SC leading Mr Raymond Ho, instructed by Chris HM  Yuen & Co, for the plaintiff

The 1^st defendant was not represented and did not appear

The 2^nd defendant was not represented and did not appear

The 3^rd defendant was not represented and did not appear