Pacific Harbor Advisors Pte Ltd and Another v. Winson Federal Ltd and Others
Read the full judgment text of HCA 1257/2013 on BabelCite. This High Court CFI judgment was delivered on 1 August 2014.
1. The plaintiffs are presently seeking summary judgment against the defendants for only those monetary claims in the amended statement of claim.
Cited by 1 case · Cites 10 cases
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HCA 1257/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1257 OF 2013 ________________________ BETWEEN
_______________________ Before: Deputy High Court Judge B Chu in Chambers Date of Hearing: 10 June 2014 Date of Judgment: 1 August 2014 ________________ J U D G M E N T ________________ Introduction 1.The plaintiffs are presently seeking summary judgment against the defendants for only those monetary claims in the amended statement of claim. 2.The plaintiffs will be collectively referred to as Ps, and the 1st, 2nd, 3rd, 4th, and 6th defendants will collectively referred to as Ds. 3.Ps’ claims in the main action arose out of two written loan agreements under which loans had been made by the 1st plaintiff (“P1”) to the 1st defendant. P1 is seeking repayment of such loans and specific performance of various security documents executed pursuant to those loan agreements. The 2nd plaintiff (“P2”) has been joined as co-plaintiff pursuant to certain sub-participation or assignment agreements and deed between Ps. Ps were represented by Senior Counsel Mr Jason Pow assisted by Mr Hugh Kam. 4.The 1st, 3rd, 4th, and 6th defendants were represented by the same firm of solicitors and Counsel Ms Zabrina Lau. 5.The 2nd defendant was represented by a separate firm of solicitors and Counsel Ms Elaine Liu. 6.The 5th defendant and 7th defendant were BVI companies, and had not been served. They were not legally represented and were absent at the hearing before this court. Dramatis Personae 7.P1, Pacific Harbour Advisors Pte Ltd, is a Singapore limited private company incorporated on 3 October 2006 and P2, Pacific Harbor Special Holdings Limited, is a BVI limited private company incorporated on 9 August 2011. Both companies were and are carrying on business as an investment fund. 8.Mr Warren Allderige (“Allderige”) is the managing director of Ps and Edward Foo (“Foo”) has been described as his business partner. Wayne Ang (“Ang”) was an associate director at P1 until about May 2013. 9.The 1st defendant (“Winson Federal”) is a Hong Kong limited private investment holding company incorporated on 15 July 1993. There were two registered equal shareholders of Winson Federal, Cho Yuk Kei Carlos (“Carlos”) and the 5th defendant (“USI Ltd”), a BVI limited private investment holding company incorporated on 28 January 2000 owned 100% by Carlos. 10.Carlos was one of the directors of Winson Federal until he passed away on 14 November 2008 and probate has been granted to the 2nd defendant Mr Frederick Kan who is sued in his capacity as executor of Carlos’ estate (“Executor”). The 3rd defendant (“Vincent”) is the son of Carlos and was a director of Winson Federal until 19 June 2013. 11.The 4th defendant (“International Hoteliers”) is a Hong Kong limited private company carrying on a business of consulting in the hotel industry, and its registered shareholders were Carlos 95% and Vincent 5%. 12.The 6th defendant (“RI Ltd”) is a Hong Kong limited private investment holding company, of which Carlos and UI Ltd were equal shareholders. 13.The 7th defendant (“Furama Shenyang”) is a BVI limited private investment holding company of which there were two shareholders Carlos 21% and International Hoteliers 79%. Through its subsidiary Furama Shenyang Investment Company Limited (“SFIC Ltd”), Furama Shenyang is the owner of a property and hotel development in the Shenhe District in Shenyang, PRC (“Project”). From 2004 to 2007, Carlos and International Hoteliers gradually acquired the majority ownership of SFIC Ltd through Furama Shenyang, with the majority of the funding provided by a loan from CITIC Ka Wah Bank. 14.Madam Chang Myao Che, Ruby (“Ruby”), is Carlos’ widow and Vincent’s mother who lives in Toronto and was a director of Winson Federal, International Hoteliers, and RI Ltd. Background 15.According to Allderige, he and Foo first met Carlos during a lunch in Singapore on 22 February 2006 through the introduction of Ang. Thereafter, there were further meetings between February and December 2007. During such meetings, Carlos had represented to Allderige and/or Foo that, among other things, he and Vincent through their personal companies were in the process of acquiring the Project owned by SFIC Ltd, which was at that time 88% owned by Shenyang Furama and the remaining 12% owed by another entity. Carlos and Vincent wanted a short term loan to acquire the remaining 12% interest in SFIC Ltd. 16.P1 agreed to a loan to International Hoteliers and a loan agreement was signed on 3 December 2007[1] (“2007 Loan Agreement”). Pursuant thereto, P1 advanced to International Hoteliers US $5,000,000 on 22 December 2007 and another US$2,500,000 on 25 March 2008, totalling US$7.5m (“Previous Loan”). 17.Subsequently on about 22 May 2008, International Hoteliers acquired the remaining 12% interest in SFIC Ltd. 18.According to Vincent, it was never the intention of Furama Shenyang and/or International Hoteliers to independently carry out the Project as Furama Shenyang did not have sufficient funds to do so, and it was all along the intention of Furama Shenyang to seek an outside partner to jointly carry out the Project. 19.In early 2008, Carlos and Vincent approached P1 to seek a further loan in the nature of a “bridging facility” pending the refinancing of the indebtedness from CITIC Ka Wah Bank. According to Allderige, before entering into new loan agreements, P1 agreed with Winson Federal and International Hoteliers that, for ease of administration, would regard the Previous Loan as being rolled into the new loan. 20.It was not disputed that thereafter Winson Federal then entered into 2 loan agreements with P1 in June 2008 for 2 loans (“Loans”). 21.The 2 loan agreements entered into between P1 and Winson Federal were:
22.Two promissory notes, relating to respectively the 1st Loan Agreement and the 2nd Loan Agreement had also been executed by Winson Federal (respectively “1st Original Promissory Note” and “2nd Original Promissory Note”). 23.The date for repayment of the principal of the 2 Loans was 2 June 2009 (“1st Payment Date”)[4]. As stated in both Original Promissory Notes, the accrued interest on any outstanding principal was to be paid every 3 months on 2 September 2008, 2 December 2008, 2 March 2009, and on 2 June 2009 the balance of the accrued interest. 24.As a security for the 2 Loans, the following security documents were entered into (“Securities”):
25.By reason of the Securities, the following landed properties held by various companies or their value were in effect collaterals for the 2 Loans:
26.On 30 June 2008, a deed of novation was entered into between International Hoteliers, Winson Federal and P1 pursuant to which International Hoteliers was released and discharged from its obligations in relation to the Previous Loan under the 2007 Loan Agreement upon Winson Federal’s undertaking to perform and be bound by all the obligations and terms of the 2007 Loan Agreement[5]. 27.It was Ps’ case that a total sum of US$38m had been loaned to Winson Federal under the 1st Loan Agreement and the 2nd Loan Agreement. 28.Allderige had produced a receipt dated 2 July 2008 from Winson Federal stating that it had received US$7.5m pursuant to the Loan Agreement dated 2 June 2008. By the time of the hearing, it was not really disputed by Ps that this amount of US$7.5m was the Previous Loan. 29.In July 2008, International Hoteliers transferred its 12% interest in SFIC Ltd to Furama Shenyang. Since then, Furama Shenyang has been the sole ultimate beneficial owner of the Project. 30.The payments received from P1 by Winson Federal after the signing of the 1st and the 2nd Loan Agreements and the 1st and 2nd Original Promissory Notes were as follows:
31.That a total amount of US$38m had been drawn down and received by Winson Federal and/or International Hoteliers from P1 was not disputed[6]. It was also not disputed that there was a sum of US$2m undrawn under the 1st and the 2nd Loan Agreements. 32.After Carlos passed away in November 2008, Vincent took over the handling of the Shenyang Hotel Project and dealing with representatives of P1, in particular Ang[7]. 33.Winson Federal failed to pay the interest due on 2 September 2008 and 2 December 2008. 34.According to Allderige, by early April 2009, it had become clear that Winson Federal was going to continue to default on its obligations under the 1st and the 2nd Loan Agreements and that P1 was forced into negotiations on rolling over the Loans for another extended short term. Allderige had produced some emails with draft agreements first dated 14 April 2009[8]. 35.On 30 April 2009, there was a luncheon meeting between Ang and Vincent (“1st Meeting”). It was not disputed that at this meeting, Ang personally handed Vincent 4 interest payment invoices in relation to interest accrued between 2 June 2008 and 2 December 2008 totalling US$3.2m, based on a fully drawn down amount US$40m (“02.09.08 Interest Invoices”)[9]. 36.According to Vincent, at the 1st Meeting, Ang also informed him that Allderige would only collect interest on the Loans for the first 6 months and would leave the remaining outstanding interest until the final repayment of the principal of the Loans. Further, Ang stated to Vincent that he understood the financial situation of Winson Federal and International Hoteliers and would not call for the repayment of the Loans on the stated maturity date, but would only do so when they had the means to repay the entire Loans including the principals (“1st Representation”). Vincent said at this 1st Meeting he had pointed out to Ang that the interest calculations on the 02.09.08 Interest Invoices which were based on the full drawdown amount of US$40m were wrong and suggested that either the interest calculation be amended or Winson Federal be allowed to draw down the remaining US$2m of the 2 Loans. 37.Thereafter, on 5 May 2009, Vincent said he had another luncheon meeting with Ang (“2nd Meeting”). According to Vincent, during this meeting, Ang informed Vincent that P1 would need some time to raise the remaining undrawn amount of US$2m demanded by Vincent, and Ang further told Vincent “in confidence” that P1 did not have the cash for the drawdown under the 2 Loan Agreements (This was later denied by Allderige). Vincent then informed Ang that Winson Federal would only pay US$1.6m as interest by early June 2009 and would wait for the drawdown of the remaining US$2m before paying the remaining US$1.6m interest. 38.Thereafter, on 3 June 2009, Vincent received an email from Ang[10] attaching 2 invoices dated 2 June 2009 for re-calculated interests, one for the period from 15 July 2008 – 2 June 2009 on US$28m of US$3,344,263.89, and one for the period from 4 June 2008 – 2 June 2009 of US$1,370,208.33 on US$10m, totalling about US$4,714,292.22[11] (“02.06.09 Interest Invoices”). 39.In the afternoon of 3 June 2009, according to Vincent, he had a coffee meeting with Ang (“3rd Meeting”) and informed Ang that despite the 02.06.09 Interest Invoices they would only pay US$1.6m as originally stated, and Ang agreed to Vincent’s suggestion. Further, Vincent said at this meeting Ang had represented to him that there was no urgency to the repayment of the interest and that Winson Federal could pay whatever amount and whenever comfortable (“2nd Representation”). 40.Subsequently on 9 June 2009 Winson Federal did pay to P1 US$1.6m for interest. What seemed to be in dispute was the period for which such interest was paid. According to Allderige, the US$1.6m interest was for the period from 2 March 2009 to 2 June 2009. According to Vincent, the US$1.6m was for the first 3 month period from 2 June 2008 to 2 September 2008 calculated on the basis that the full amount of the Loans of US$ 40m had been drawn down, based on the 02.09.08 Interests Invoices[12]. 41.Anyway, according to Vincent, he had another luncheon meeting with Ang on 12 June 2009 (“4th Meeting”), and Ang had again stated to him that P1 could n4ot pay them yet the undrawn balance of US$2m under the 2 Loan Agreements, and did not know when P1 would have to the means to allow the drawdown. 42.Vincent apparently reported the gist of his conversations with Ang in all the above 4 Meetings by an email dated 15 June 2009 to the Executor, although in the email, the year of the 4 Meetings was mistakenly typed as 2008 instead of 2009 (“Report Email”)[13]. 43.In the meantime, the parties agreed to sign two amendment agreements in respect of the 1st Loan Agreement and the 2nd Loan Agreement respectively (“Amendment Agreements”)[14], and new promissory notes were executed by Winson Federal (respectively “1st New Promissory Note” and “2nd New Promissory Note”)[15]. 44.The 2 Amendment Agreements and the 2 New Promissory Notes (collectively “New Documents”) were all dated 2 June 2009, but it appeared from an email dated 31 July 2009 from P1 to Winson Federal, these 4 New Documents were in fact signed by Winson Federal sometime on or after 31 July 2009, and the duly signed copies were only returned by Winson Federal to P1 on about 21 August 2009[16]. 45.It was Vincent’s pleaded case that pursuant to the 1st and 2nd Representations, a partial payment of interest of US$1.6m was paid, the Amendment Agreements were executed and no demand was made by P1 for payment of interests on the stipulated payment dates therein. 46.Under the New Documents, the date of payment of the principal was extended from the 1st Payment Date to 4 December 2009 (“2nd Payment Date”). The first interest payment was due on 2 September 2009, but again Winson Federal failed to pay the same. 47.Vincent said that even after the 2nd Payment Date, P1 had taken no steps whatsoever to chase for the repayment of the Loans or any interest accrued, and instead since December 2009, P1 stepped up its efforts in seeking outside investors for the Project. According to P1, as the 2nd Payment Date approached, it became clear that D1 was likely to default again, and P1 had little choice but to enter into a further agreement, this time to help in finding potential purchasers/investors for the Project, in the hope of expediting D1’s repayment of the Loans and interest due thereon. 48.What was not disputed was that on 1 December 2009, the Executor, the International Hoteliers and P entered into an agreement whereby the Executor and International Hoteliers engaged P1’s representatives Ang and Foo to provide referral services of sourcing, arranging and identifying a purchaser of the Project for a period of 6 months in return for a fee on a successful sale (“Referral Agreement”)[17]. 49.On the 2nd Payment Date, 4 December 2009, D1 failed to repay the principal of the 2 Loans. 50.Vincent had produced a series of emails from about end of November 2009 onwards to demonstrate P1’s involvement in seeking outside investors, and/or seeking loans including from the United Overseas Bank, and identifying a number of potential investors. 51.Vincent further produced an email from Ang to him on 10 May 2010 with the subject “Favor”, in which Ang had requested that Winson Federal make a declaration that the Loans were not in default and that no event of default as defined in the 1st and 2nd Loan Agreements had occurred and that the ownership structure of the Project had not changed[18] (“Declaration Email”). Allderige explained the reason for the Declaration Email was that P1 had needed a valuation of the debt for an audit of their fund and at that time, the parties were in negotiations for a further roll over of the Loans from 4 December 2009 to 6 December 2010[19] and P1 genuinely believed that those further amendment agreements would be executed. Unfortunately, Vincent later refused to execute them. 52.It was not disputed that on about 10-11 January 2011, Ang went with Vincent to Toronto to meet with Vincent’s mother Ruby. According to Allderige, this was for the purpose to seek repayment of the Loans, but according to Vincent, Ang told him the purpose was to keep Ruby informed of the latest situation regarding the Loans and the Project, and in relation to certain potential buyers or investors for the Project, and Vincent denied that Ang had ever asked for the repayment of the Loans. 53.In the meantime, P1 began actively participating in the maintenance and continued development of the Project. Vincent said in about December 2010, he had orally informed Ang that Winson Federal had no more money to pay for operating expenses of the Project and Ang had agreed that P1 would take care of those expenses. 54.Although it was not disputed that P1 had made contributions towards the maintenance of the Project, the amount of the contributions was disputed. According to P1, the total sum came to US$1.635m, but according to Vincent, based on the records available to Winson Federal and Furama Shenyang, the total amount received by those two companies was RMB 5,222,333 and HK$3,038,282. 55.P1 acknowledged that there were no written demands for the repayment of the Loans and the interest thereon between 4 December 2009 and May 2013, and explained that this was because:
56.According to Allderige, finally by early 2013 they had no choice but to pursue legal action, as it became clear to Ps that :
57.Ps’ solicitors sent to Ds formal demand letters dated 31 May 2013. It would appear that settlement meetings then followed but were not fruitful. Eventually, on 10 July 2013, Ps issued the writ in the present action against all the defendants. In the re-re-amended writ, Ps claims were, among other things, the following:
58.Ps’ statement of claim of 5 September 2013 was later amended and filed on 18 November 2013 (“ASOC”). Vincent’s defence of 6 November 2013 was then amended and filed on 16 December 2013 and Winson Federal, International Hoteliers, RI Ltd filed their joint defence on the same day. The Executor had also filed a defence on behalf of Carlos’ estate. P’s replies to the defences were filed on 19 February 2013. 59.On 6 December 2013, Ps took out the present summons under Order 14 rule 1 of RHC in which they sought final judgment against all the defendants for the reliefs claimed in the ASOC, except the relief of specific performance of the LOU in relation to the Guangzhou Property. It was subsequently clarified by Mr Pow that the summary judgment application was solely concerned with the “monetary claims” in the ASOC[20]. 60.Ps’ monetary claims in the ASOC were against Winson Federal and/or the Executor and/or Furama Shenyang only. As Furama Shenyang had not been served yet, the Ps’ Order 14 summons should be confined to only Winson Federal and/or the Executor. The Legal Principles on Order 14 61.The principles in a summary judgment application are trite. It has been stated in paragraph 14/4/1 of the Hong Kong Civil Procedure 2014, Vol 1 (“HKCP”) and in the case of Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225, the underlying policy of the summary procedure is to prevent a defendant from delaying the plaintiff from obtaining judgment in a case in which the defendant clearly has no defence to the plaintiff’s claim[21], and that the procedure enables plaintiffs in cases where there is no defence to obtain expeditious summary judgment to avoid unnecessary delay. 62.It is further stated in HKCP that:
63.Mr Pow SC submitted that the defendant has to meet two limbs:
64.Further, as submitted by Mr Pow SC, if the above burden is not met by the defendant, judgment should be entered in favour of the plaintiff without more. If the burden is met, the defendant should be granted unconditional leave to defend. It is possible, if the defence set up is “shadowy” or if the case is almost one in which summary judgment should be ordered, to grant leave conditional upon the full amount in dispute being paid into court, and he referred to what was said by Cheung JA in Cheung Hung v Lau Kwok MongCACV 320/2006, unreported, 6 February 2007[27]. 65.As has been said inMan Earn[28],judgment should be granted in favour of the plaintiff if the defence put forward by the defendant is “frivolous and practically moonshine”. It has also been said[29] inBank of Credit and Commerce Hong Kong LtdvQuadrutec Hotel Management & Development Ltd [1996] 4 HKC 316 (CA) that summary judgment proceedings are eminently suitable for claims on “dishonoured guarantees when the primary facts are not in doubt and the only result of letting the case go on trial would be delay the plaintiff further in the recovery of the money plainly due to him.” 66.Further Ms Lau submitted as follows[30]:
67.With the above principles in mind, I turn to the present application. P’s Case for summary judgment 68.Ps’ case was that the oral representations alleged by Vincent were unbelievable and inherently incredible in the light of the indisputable contemporaneous documents and conduct of the parties, and the defences of promissory estoppel and/or estoppel by convention were built upon practically moonshine allegations. The parties’ “promises” were recorded in the written Amendment Agreements and the New Promissory Notes, and their common assumption was that principal and interest of the 2 Loans were repayable at specifically defined and stipulated dates. D’s defence 69.D3’s pleaded case in his defence was that by reason of P1’s 1st and 2nd Representations, and P1’s conduct since early 2009, namely by entering into the Referral Agreement, by cooperating and assisting Winson Federal in the maintenance and continued development of the Project, by failing to make any demands for repayment of the Loans, P1 had represented to Winson Federal, or it was the common communicated assumption of P1 and Winson Federal that P1 would not call for the repayment of the Loans or enforce the Securities until the successful liquidation or monetization of the Project. 70.Further Vincent had pleaded that in reliance of the 1st and 2nd Representations or common assumption above stated, Winson Federal had acted to its detriment, and thus P1 was estopped from bringing the present action, or otherwise not entitled to claim any sums under the 2 Loan Agreements. 71.Ds further denied the calculation of interests, and averred that any sums claimed as Default Interest or late charges under the 1st and 2nd Amendment Agreements or the 1st and 2nd New promissory Notes were irrecoverable as being penalties in law. Ds also denied that US$1,635,000 or any part thereof was remitted by P1 pursuant to Clause 11 of the Loan Agreements. Relevant Principles on estoppel 72.In Luo Xing Juan v Estate of Hui Shi See (2009) 12 HKCFAR 1, Ribeiro PJ set out the requirements of promissory estoppel as follows[31]:
c. The promisee reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise. 73.It is enough if the promisee has altered his position in reliance on the promise so that it would be inequitable to allow the promisor to act inconsistently with it: for example, if the promisee has foreborne from taking steps that he would otherwise have taken to safeguard his legal position; or if he has performed, or made efforts to perform the altered obligation[32]. 74.As for the requirement that it must be inequitable for the promisor to go back on his promise, it cannot be defined with anything approaching precision, but the underlying idea is that the promisee must have acted in reliance on the promise in one of the ways above described, so that he can no longer be restored to the position in which he was before he took such action[33]. 75.As a general rule a promissory estoppel only causes a temporary and limited change in the rights of the parties and the promisor can revert to his strict rights after the promise has been restored to his former position[34]. 76.There was no real dispute on the above general legal principles. 77.Ms Lau referred this court to the case of Kan Chi Cheun v New Happy Limited, CACV 15312001 22 January 2002, in which the Court of Appeal had granted the defendants unconditional leave to defend. In that case, the defence case to the plaintiff’s claim to enforce the loan agreements was of a set off agreement or representations, and alternatively there was the defence of promissory estoppel. However, I note in that case the Court of Appeal found that there were 3 items of evidence or the lack of it which were in relation to the set off agreement or representations and which were not dealt with by the lower court and the appeal was allowed mainly for these reasons. 78.Mr Pow SC had referred this court to an admiralty case Lee Shing Hong Credit Limited and Mei Kwan Engineering Company Limited and others HCAJ 52/2009, unreported, 16 December 2009, in which the plaintiff had loaned monies to the 1st defendant on the security of 3 vessels and personal guarantees from other defendants. The loans were restructured later on the same securities. The 1st defendant then encountered financial hardship in meeting its obligations under the loan agreements. The defendants alleged that the plaintiff’s general manager orally agreed that, in consideration of the defendants trying their best to repay the outstanding sums, they could pay whatever amount they could afford and the plaintiff would grant them further time to discharge their liabilities. The defendants had contended that in light of this oral agreement, the plaintiff was estopped from bringing the proceedings. 79.Reyes J found the defence by the defendants untenable at law for 3 reasons, namely (i) it was inherently implausible that the plaintiff should make the oral agreement alleged, and that he doubted that the plaintiff, a commercial moneylender, would agree by way of an enforceable contractual promise that its creditors could pay whatever amounts they could, whenever they were able to do so; (ii) even if there were such an agreement varying the repayment terms of the relevant loans, the agreement (if it was to be enforceable) must be supported by valid consideration moving from the defendants to the plaintiff, and (iii) insofar so there might have been an estoppel arising out of some informal (that was, non-contractually binding) willingness by the plaintiff to afford the defendants more time to pay, such an estoppel could only have been suspensory or temporary at law, and after a period of reasonable notice, the plaintiff would be entitled to enforce its strict rights under the loan agreements as restructured. Reyes J held that the defendants had no arguable defence and gave judgment against them in favour of the plaintiff. 80.Mr Pow SC also referred this court to two applications for summary judgment by Lucky Zone Holdings Limited against two separate lots of defendants in HCA 784/2012 and HCA 785/2012, unreported, 29 May 2013, which were heard together. 81.In Lucky Zone, there was no dispute that the plaintiff advanced 3 principal sums to the defendants in accordance with 3 sets of subscriptions agreements and the plaintiff was the registered holder of 3 convertible note instruments issued by the defendants pursuant to subscription agreements. There was also no dispute that despite repeated demands for repayment, the interest and principal amounts due under the three 3 convertible notes were not repaid upon maturity. The defendants’ defence was that the agreement between the plaintiff and the defendants was made partly orally, partly in writing and partly by conduct. They relied on a prior oral agreement. 82.To J found that the oral term to be affront to commercial sense as the 3 convertible note instruments were prepared and drafted by lawyers and the alleged oral term was a very important term, and if the parties had reached agreement on this term, there was no reason why the defendants had not told their lawyers about the oral terms, and if they had done so, there was no reason why their lawyer would have inserted a clause in the convertible note instruments which was inconsistent with the oral term. Furthermore, the alleged oral term sat very uncomfortably with the fact that the convertible notes were designed as negotiable instruments which were freely transferrable and with the exclusive agreement clause and the alleged oral term could not be brought to the notice of a third party holder in due course. 83.To J had found that the alleged oral term relied on by the defendants lacked commercial sense and was inconsistent with the express exclusive agreement clause of the share subscriptions agreements and further the alleged oral term was vague and imprecise, and he gave judgment for the plaintiff in both the actions. 84.To J had in his judgment considered a number of authorities including Natamon Protpakorn v Citibank NA [2009] 1 HKLRD 455 which had also been referred to this court by Mr Pow. Natamon was a customer of the defendant bank and she had relied on certain oral representations made to her by the vice president of the bank in relation to foreign exchange contracts before she entered into 2 agreements for FX trading. She sued the bank for breach of the 2 agreements when the bank closed out her FX contracts because of concerns about her sources of wealth. The bank then relied on its standard clause in their agreements, which stated that no amendment or waiver of any provision would be effective unless the same was in writing and signed by the bank. Her claim was struck out at first instance but her appeal was allowed by the Court of Appeal. 85.In Natamon, Cheung JA held that whether the entire agreement clause applied depended on the construction of the terms and that such a clause could be waived, and that because of the banks’ subsequent conduct in allowing the plaintiff to trade on the terms of the 2 agreements the question of waiver and estoppel arose. Cheung JA had said the issue open to dispute was the effect of waiver and estoppel on an entire agreement clause. 86.In Fortis Insurance Company (Asia) Limited and Lam Hau Wah Inneo CACV 86/2010, 28 October 2010, Kwan JA had agreed with what Cheung JA had said in Natamon and that there was room for debate on the applicability and effectiveness of the entire agreement clause in situations where waiver and estoppels might be invoked and on the facts of that case, the defendant’s case, if believed, could found a factual basis for waiver and estoppels and allowed the defendant’s appeal against the plaintiff’s summary judgment. Discussion 87.Ps’ claims were based on the written documents, including the 2 Loan Agreements, the 2 Original Promissory Notes, the 2 Amendment Agreements and the 2 New Promissory Notes. It was clear under the Amendment Agreements, the Loans had to be repaid in full by the 2nd Payment Date, and interests were payable under the Amendment Agreements. The total amount received by Winson Federal/ International Hoteliers of US$38m was not disputed, and it was further not disputed that other than the sum of US$1.6m paid on 9 June 2009 towards interests, there had not been any payment of interests, or any repayments of the Loans or any part thereof. I am satisfied that Ps had established a prima facie case. 88.The burden then shifts to Ds to satisfy this court why judgment should not be given against them for those monetary claims sought by Ps. Defence of promissory estoppel 89.Ds’ defence of promissory estoppel was based mainly on the oral representations allegedly made by Ang to Vincent during those 4 Meetings (“Oral Representations”). In the defence the 1st Representation and the 2nd Representation were specifically pleaded, but Ms Lau had referred to 3 oral representations during the hearing and she seemed to be including what was allegedly said by Ang during the 2nd Meeting on 5 May 2009, but this representation was not one which was pleaded to be relied on by Winston[35]. Anyway, I will refer to all representations alleged in these 4 Meetings as Oral Representations, which include the 1st and the 2nd Representations. 90.Ms Lau had submitted it was pertinent to note that Ps did not file any evidence from Ang to rebut Ds’ case. This, however, can equally be said against Ds. There was no evidence that they had tried to contact Ang to ask him to confirm the Oral Representations or to give evidence to support their case either. 91.The main contemporaneous document relied on by Vincent for the alleged Oral Representations was the Report Email. 92.The Report Email was dated 3 days after the 4th Meeting. It contained a careful record of what was said by Vincent and what was allegedly said by Ang, and recording the time and venue for each of the 4 Meetings, save there was a typing error as to the year. It was sent to the Executor and copied to a HB Tsui of WP Holdings. According to Vincent, he sent the Report Email to report to the Executor the conversations in the 4 Meetings[36]. 93.The Report Email was marked Importance “High”, although it did not appear from the contents that any action was required to be taken by the Executor, or any one else, upon receipt. As pointed out by Mr Pow, there was no reference to the Report Email by the Executor in his short affirmation filed to oppose the present application. The Executor did not adopt any part of Vincent’s affirmation, nor was there any reference to Vincent’s affirmation. It was Ps’ case that they had reasons to suspect that the Report Email was not an authentic document. 94.Ms Lui, for the Executor, had, however, pointed out that what Allderige had said in his 4th affidavit in relation to the Report Email was only that it was self-serving and should not be given any weight, and there was nothing therein to indicate that Ps would challenge the authenticity of the Report Email, and therefore there was no need for the Executor to refer to the Report Email. I accept her submissions in this regard, and shall assume for the purpose of the present application, the Report Email was sent to and received by those persons named and on the date stated therein. 95.Allderige had commented that it was “greatly curious” that Vincent saw fit to record in great detail as between himself and the Executor what allegedly transpired between him and Ang, but never saw fit to put on record as between him and P1, and this would suggest that Vincent knew that P1 would immediately reject his account of the 4 Meetings. 96.The Report Email was clearly not between the contracting parties, and it was self-serving. On the other hand, Ps had themselves also produced their own internal emails from 28 May 2009 to 3 June 2009 between Allderige and Ang indicating that Allderige was insisting Ang to get the interest paid on the Loans during that period, with Ang replying he was working on this and also “working on exit”[37]. 97.It did not appear from those internal emails that Ang was going to or had made any of the Oral Representations to Vincent as alleged, nor was there any reason as to why Ang would go out of his way to flout his superior’s order. However, similar to the Report Email, P1’s internal emails would also be self-serving. 98.Mr Pow had submitted that D’s allegations of Oral Representations were unbelievable, but even if D’s were able to demonstrate that there were indeed Oral Representations by Ang, such would have been superseded by the New Documents. 99.Vincent’s explanation was that he continued to place reliance on the 1st and 2nd Representations, that despite the express terms contained in the New Documents, P1 would not call for the repayment of the Loans or the payment of interest accrued unless Winson Federal was in the position to repay the entire principal of the Loans. Further Ds’ case was that the New Documents were only signed as a matter of formality. 100.The New Documents were signed by Allderige and Foo on behalf of P1, and Vincent on behalf of Winson Federal. According to Allderige, Vincent had a degree from the University of Toronto and further Allderige had produced an annual report of Lingnan University for 2005/2006 showing Vincent to be a director of the Advisory Board for the English Language Education and Assessment Centre[38], and an email and attachments showing that Vincent was attempting to raise a real estate fund of US$100m to US$150m with a partner on about 29 March 2009[39]. 101.The evidence presently before this court, including in particular Vincent’s detailed record in the Report Email, indicated Vincent to be an educated, intelligent and financially astute man. 102.Allderige had produced emails and attachments to show that there were earlier versions of the New Documents which were dated 14 April 2009 which seemed to be prepared by the legal associate director on P1’s side. These were initially signed by Vincent around 14 May 2009 and returned to P1 for P1’s signature[40]. However, there were then subsequent changes. 103.Allderige had said it took the parties several months to draft, consider, amend and execute the Amendment Agreements, and that Vincent had informed P1 that he would seek his own legal advice before executing the Amendment Agreements, and that there was a delay in execution as time was needed to finalize the terms. 104.It appeared that the New Documents were eventually only signed sometime on or after 31 July 2009 by Vincent on behalf of Winson Federal. 105.There were 4 main areas of changes between the earlier versions and the subsequently signed New Documents, namely (i) the original date for payment for principal stated in the earlier versions was 2 September 2009, which was later changed to the 2nd Payment Date ie 4 December 2009 in the Amendment Agreements; (ii) then there was an amendment to Clause 2 (a) of the earlier versions in relation to interest to specify the due dates in the Amendment Agreements for payment of interest; (iii) Clause 5 (b) was added in the Amendment Agreements under “conditions for effectivity” and (iv) a new Clause 6 (a) added under “consequences of effectivity date” in the Amendment Agreements. 106.The earlier versions of the New Documents should have been received by Vincent shortly after the 2nd Meeting, and were in fact signed by Vincent prior to the 3rd Meeting and prior to the alleged 2nd Representation. Vincent had signed these earlier versions of the amendment agreements including promissory notes promising to pay the principal of the 2 Loans on 2 September 2009, and to pay the accrued interest on the outstanding principal by a coupon payment to the order of the P1 on 2 June 2009[41]. 107.Ms Lau submitted that there was nothing to suggest that must have been further discussions between the parties before the Amendment Agreements were eventually signed by both sides, and it was unclear who had made the changes and under what circumstances they were made. 108.I accept the emails only showed there were earlier versions dated 14 April 2009 and signed by Vincent on about 14 May 2009. However, in my view, it would not be believable for Vincent not to be aware of those 4 changes, and in any event he had several months between April and July 2009 and at least one and half months after the Report Email, before he eventually executed the New Documents. There was no evidence that at any time before he executed the New Documents that he had put in writing or on record to P1 the 1st and 2nd Representations, or any Oral Representations alleged by him or recorded in the Report Email. There was no satisfactory explanation from Vincent as to why he felt it necessary to record those alleged Oral Representations in the Report Email to the Executor, a renowned solicitor, and yet found it not necessary to put them on record in writing as between him and P1 before he signed the New Documents. 109.P1 is an investment fund whereby external parties inject funds into P1 for its manager to invest on their behalf. According to Allderige, the funds do not belong to P1 and P1 remains continuously accountable to its investors for the funds, particularly in terms of interest payments. It was Allderige’s evidence that it was the policy of their fund not to make loans lasting beyond a year, and that the Loans were “bridging facilities” in order to provide Carlos and Vincent them with time to negotiate the refinancing from CITIC Ka Wah Bank. Vincent had himself also referred to the 2 Loans from P1 as a “bridging loan”[42]. Thus, the 2 Loans were not meant to be long term loans and Vincent was well aware of this. 110.I accept Mr Pow’s submissions that the effect of the Oral Representations would result in Ps being completely at Ds’ mercy as far as repayments were concerned, and this would defy commercial or business sense. Ms Lau submitted it was not Ds’ case that the repayment should be postponed indefinitely but time had not yet come, as Ds’s case was that they would be required to repay when they had money to do so. 111.Ds’ case seemed to have changed somewhat. In Vincent’s affirmation filed on 17 March 2014, what he alleged to have been said by Ang in relation to the 1st Representation was that P1 would only seek repayment when Winson Federal had the means to repay the entirety of the Loans. What he alleged to have been said by Ang in relation to the 2nd Representation was that Winson Federal could pay whatever amount of interest whenever it was comfortable to make payment. 112.It would seem that even on Vincent’s own case on the 1st and the 2nd Representations, there was nothing alledged to have been said by Ang to support what was pleaded by Ds in their respective defences[43] and what seemed to be now Ds’ case, namely that P1 would not enforce or call for the repayment of the Loans until the successful liquidation or monetisation of the Project. 113.Also, if Ang had indeed said what was alleged by Vincent, then the Loans would become “indefinite”. 114.Further, the alleged Oral Representations were clearly inconsistent with the Amendment Agreements and the Original and the New Promissory Notes. Vincent had said they were a “formality”. If P1 had indeed through Ang give those alleged Oral Representations, then why would the parties bother to have these New Documents, which took several months to finalise, signed at all? 115.The Original and the New Promissory Notes are all transferable and negotiable instruments, as reflected in paragraph 1 of all these Notes. I would pose a similar question, as that posed by To J in the case of Lucky Zone[44], how can those alleged Oral Representations be brought to the notice of a third party holder in due course? 116.Ds had disagreed that the making of the Oral Representations defied commercial common sense. Vincent had said it was clear to P1 all along the value of the Securities, notably the Project, far exceeded the principal amount of the Loans, and that P1 had never been in a hurry to enforce the Loans. Ds relied on P1’s failure to chase for repayment of the principal or interest until June 2013, almost three and half years after the expiry of the 2nd Payment Date to demonstrate that the Loans remaining outstanding was not of serious concern to P1, nor was it of sufficient impact to its cash flow. 117.Allderige had explained that P1 did not issue any formal demand as there were representations from Vincent and Ruby that they were looking for buyers and that they were unable to pay, and therefore pointless for Ps to issue a formal demand. Vincent and Ruby had denied making any such representations. 118.In any event, Mr Pow submitted that any delay on the part of P1 to issue a demand for payment would not constitute a waiver as seen from clause 13 of the 1st Loan Agreement and clause 14 of the 2nd Loan Agreement. 119.Clause 13 of the 1st Loan Agreement stated:
120.Clause 14 of the 2nd Loan Agreement was similar to Clause 13[46]. 121.Further, clause 5(C) of the Original and the New Promissory Notes clearly stated that:
122.It was not Ds’ case that Ps had waived the above clauses. 123.Ms Lau had submitted, based on the Natamon case, and on the Fortis case, the effect of such Oral Representations on the above written clauses would need to be considered and the matter should be allowed to go to trial. 124.However, in my view, Ds had to demonstrate that the factual basis of the Oral Representations is believable first before the effect of the Oral Representations is considered. 125.Ms Lau submitted that P1’s conduct subsequent to the Amendment Agreements was consistent with Ds’ case, and was directly consequent to the 1st and 2nd Representations. In particular, Ms Lau referred to the Referral Agreement which was entered into before the 2nd Payment Date. 126.The parties to the Referral Agreement were P1, the Executor, International Hoteliers. Winson Federal was not a party to the Referral Agreement. The Referral Agreement was only for a period of 6 months, and expired at end of May 2010. Under the Referral Agreement, the Executor and International Hoteliers appointed P1 as their representatives to, among other things, assist in sourcing and identifying potential purchasers for the Project in return for a success fee, being a maximum of 1.5% of the sale consideration payable for the acquisition of the Project. The Referral Agreement was in my view clearly a separate and independent document from the Loan Agreements. 127.It was not disputed that P1 was helping Ds to sell the Project and to help contribute towards the maintenance of the Project. Allderige had said there was no reason for P1 to go to such great efforts to manage the Project if they did not want, or want to expedite, the repayment of the Loans and the interest thereon, as P1 had no equity in the Project. In fact, Allderige had said that P1 was forced to manage the Project to protect the value of their collaterals for the Loans and to try to sell it at the highest price possible to ensure that they could recoup as much of the Loans and interests due thereon as possible. 128.Ms Lau had submitted that P1 was acting not as a pure lender, but as if it were a partner. Allderige said his role was akin to a receiver or a manager in an insolvency matter. Whichever, P1’s efforts in finding potential investors and trying to assist in the sale of the Project including maintaining were equally consistent with Ds’ case, as with Ds’ case. 129.Another “important” document relied on by Ds was the Declaration Email. 130.As mentioned earlier, according to Allderige, this was during the period when P1 was asking Winson Federal to execute further amendment agreements. Allderige had produced the draft 2nd amendment agreements dated 4 December 2009 which were to be executed by Winson Federal after the expiry of the 2nd Payment Date, and which subsequently Vincent refused to sign. 131.There was no reference in the Declaration Email to any of Oral Representations made by Ang to Vincent. Further, it was not Ds’ case that the Loans were not repayable but only the time had not come yet. 132.Mr Pow submitted that at most, the Declaration Email from Ang to Vincent requesting a favour for a declaration to be made indicated that Ps were not treating the Loans to be in default at that time, ie around 10 May 2010. He further submitted that Ps could treat the Loans as being in default at any time, and the Declaration Email did not mean that Ps had foregone their right to enforce under the Loan Agreements and/or the Amendment Agreements. I accept Mr Pow’s submissions. 133.It was Ds’ case that in reliance of the Oral Representations or common assumption, Winson had acted to its detriment in:
134.No admission to (i) to (iii) above was made by Ps. 135.As for (i), as mentioned earlier, even if there had been Oral Representations, there was nothing contained in those alleged Oral Representations which indicated that the repayment of the Loans or interest thereon was upon the successful liquidation or monetization of the Project. 136.As for (ii), during the 2nd Meeting, according to Vincent, he had informed Ang that he would pay interest of US$1.6m and would only pay the balance upon the drawdown of the remaining US$2m and then after the 2nd Representation that he informed Ang that he would only pay US$1.6m as originally stated in the 2nd Meeting. Allderige had denied that P1 was not in a financial position to allow Winson Federal to drawdown the balance and said what Ang more likely to have said was simply that P1 would not provide the remaining balance. In any event, it would appear that with or without the Oral Representations, Winson Federal was going to pay only US$1.6m. 137.As for (iii), this seemed to be contradictory to what Vincent said in his affirmation that in around December 2010, he had orally informed Ang that Winson Federal had no more money to pay for operating expenses and Ang agreed that P1 would take care of those expenses. Further, those emails produced by Vincent from 16 December 2009 until 4 June 2012[48] showed that it was P1 which was actively participating in the continued development of the Project. 138.Ps had denied (iv) and (v). Ps had averred that in particular, no, or little action was taken by Winson Federal in completing the Project, and at least 10% of the construction work had remained to be completed, and further there had been no, or little action taken by Winson Federal in selling the Project, and in particular, Ds had rejected an indicative offer for the purchase of the Project by a potential purchaser in about end of September 2011 for US$100m. 139.Ms Lau submitted it was for Ps to make good there was such an indicative offer, and that there were no supporting documents. Allderige’s allegations that Ds had no genuine intention of selling the Project and that their rejection of the above indicative offer for US$100m were first pleaded in Ps’ reply to D3’s defence, and Vincent should be aware of such allegations. These allegations were, however, not challenged by Vincent in his subsequent affirmation filed in opposition to Ps’ present application. 140.Having considered the present evidence and contemporaneous documents before this court, I do not find that it is believable that Ang could have made those Oral Representations, including the 1st and the 2nd Representations, as alleged by Ds. To summarise, my reasons include the following:-
141.Further, in my view, even if any of the Oral Representations made, they were vague, imprecise and not unequivocal. 142.It has been said by DDJ Ho in the cases of AIA International Limited and Shum Ka Wai and others, DCCJ 1571, 1615, 1616, 1620, 1685, 1686, 1687, 1688, 1690 of 2013, Decision dated 20 January 2014 that for the purpose of resisting an Order 14 application, it is no good for a defendant to say he may be able to improve his case if given the chance to go to trial, and he must be able to demonstrate he has an arguable defence right at the time of the Order 14 application. Mr Pow submitted that the 6 issues which Ms Lau said should be allowed to go to trial were either “moonshine” or irrelevant. 143.Ms Lau accepted that P1 could revert to its original position upon giving Ds “reasonable notice”, as a promissory estoppel would only cause a temporary and limited change in the rights of the parties, although this had not in fact been pleaded by Ps. It was Ms Lau’s submission that the 7 day notice, given by Ps in their solicitors’ formal demand letters dated 31 May 2013 to Winson Federal, the Executor, International Hoteliers, RI Ltd[49], was not reasonable. These letters although dated 31 May 2013 seemed only to be sent out by registered post on 14 June 2013. 144.Anyway, on 24 June 2013, the Executor had replied by referring to clause 2.3 of the Guarantee Agreement, ie the guarantor only becoming liable when the Loans became due and payable after 15 business days of a written notice. There was no reference to any Oral Representations, or that the Ps were estopped from claiming repayment of the principal and the accrued interest. It transpired that the Executor had spoken to Ps’ solicitor and was suggesting a settlement meeting among all stake holders. 145.Winson Federal, International Hoteliers and RI Ltd had also instructed their solicitors to reply on 25 June 2013 to the demand letter from Ps’ solicitors. In their reply letter, the companies referred to clause 7.1 (c) of the Loan Agreements and stated that the companies should be given 15 days for remedying any default. Again, there was no reference at all to any of the Oral Representations, or that the Ps were estopped from claiming repayment of the principal and the accrued interest. 146.D’s complaint seemed to be the notice should be 15 days and not 7 days. In any event, by now, more than a year has gone by. 147.So far as the Executor was concerned, Ms Liu pointed out that Executor had no personal/direct knowledge of the matters as between Ps and Ds. She made two brief points, namely as mentioned earlier, that there was no reason for the Executor to refer to the Report Email in his affirmation, and further to update the court that the value of Carlos’ estate was just over HK$15m as at mid May 2014. 148.Having considered all the above and in light of my view that the Oral Representations were unbelievable, I have come to the conclusion that Ds have not made out a good defence, or any reasonable grounds of a bona fide defence based on promissory estoppel. Defence of default interest and late charges being penalties in law 149.It was also Ds’ defence that even if any part of the Loans was repayable, any such sums claimed as Default Interest or late charges under the Amendment Agreements or the Promissory Notes were irrecoverable as being penalties in law. 150.Ms Lau’s skeleton submissions on the penalty point were only in relation to late charges and after considering her submissions, Mr Pow indicated that Ps no longer sought the late charges in their present Order 14 application, which should be left for trial. 151.At the hearing, Ps were also content to seek only those interest based on Ds’ calculations, leaving the rest for trial. Ms Lau did not put forward any submissions on law in relation to Default Interest. Ds had not shown that they had a good defence to Ps’ claim on law in relation to interest. Ds’ other main challenge was in respect of the calculations. As Ps had decided that at this stage to adopt Ds’ calculations which came to US$43,307,389 until 10 June 2014, I will give judgment for that amount. Reimbursement of the costs of maintenance and legal costs under the Loan Agreements 152.Under this head, Ps were originally seeking :
153.At the hearing, Ps made further concessions and sought only (i) above. Vincent had produced a table to show the amounts of what he said were remittances from P1 but as pointed out by Allderige, Vincent seemed to have missed out those remittances in 2010 and 2013. Again, Ds were not able to show a good and arguable defence on (i) as the remittance advices clearly indicated the remittances to the various beneficiaries were for Winson Federal. I will give judgment for the amount claimed. Order 154.My order is to the following effect:
155.The question of costs will be adjourned for argument. Ps are to lodge written submissions on costs within 21 days, Ds shall lodge their written submissions in response within 21 days thereafter, and Ps shall lodge their reply written submissions, if any, within 14 days thereafter. The question of costs will be dealt with on paper, unless any party requests for an oral hearing within 7 days after all written submissions on costs have been lodged, and/or otherwise directed by the court. Final Matters 156.I would like to point out that in the present case, the lever-arch file of Bundle B consisted of almost 600 pages of exhibits, and the index for the exhibits did not even bother to set out the date and description of each exhibit. It was time consuming to try to identify and find a particular exhibit, and in future, to assist the court, practitioners should prepare a proper index with the date and description of each document. I would also remind practitioners again the provisions of paragraph 5 of PD 5.6 which states that in relation to the paginated bundles “Lever-arch files and ring-binders must not be over-filled (and should never include more than 250 pages)”. 157.Lastly, I would thank all Counsel for their helpful submissions and assistance to the court.
Mr Jason Pow SC and Mr Hugh Kam, instructed by Oldham Li & Nie for the 1st and 2nd plaintiffs Ms Zabrina Lau, instructed by Cheung & Choy, for the 1st, 3rd, 4th and 6th defendants Ms Elaine Liu, instructed by ONC Lawyers, for the 2nd defendant The 5th and 7th defendants were not represented and did not appear [1] B:67-81 [2] Clause 3, B:13 [3] Clause 3, B:42 [4]Clause 3, B:83, and B:86 [5] B:162-170 [6] Para 18, A:159 [7] B:187 [8] B:515-529 [9] B:198-200, 508-510 [10] B:191 [11] B:190-194 [12] B:199-200 [13] B:196-197 [14] B:204-211 [15] B:213-218 [16] B:220 [17] B:222-228 [18] B:341 [19] B:555-572 [20] Para 2, Ps’ skeleton submissions dated 5 June 2014 [21] See Holding (1), pg 225, Man Earn [22] Paras 14/1/3 and 14/4/1, HKCP [23] Para 14/4/1, HKCP [24] Para 14/4/2, HKCP [25] At 466G [26] At 349G [27] At para 12 [28] At 228E, per Godfrey JA, as he then was, in Man Earn [29] At 324A-C, per Godfrey JA, as he then was, Bank of Credit and Commerce [30] Para 14/4/9-11, HKCP [31] At para 55 [32] See Chitty on Contracts 31st ed, at para 3-094 [33] See Chitty on Contracts 31st ed, at para 3-095 [34] Para 13-023 , Handley on Estoppel by Conduct and Election [35] See para 18, A:66 [36] Para 32, A:163 [37] B:1-5 [38] B:483 [39] B:495-507 [40] B:515-529 [41] Clause 3, B:520, 527 [42] Para 9, A:156 [43] See para 15, D3’s defence, A:65, and para 19, Defence of D1, D4, D6, A:78 [44] At para 20 [45] B:19 [46] B:45 [47] B: 84, 87, 214, 217 [48] Para 50, A:169-171, and also B:280-337 [49] A:206-213 [50] B:539-549 |
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