KINGSTON FINANCE LTD v. GAINCOURT LTD AND OTHERS

HCMP 369/2024

[2025] HKCFI 1731

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 369 OF 2024

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D E C I S I O N

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1.  By Summons dated 28 March 2025 (“Summons”) D1 and D2 seek leave to appeal the order of Master D To dated 1 November 2024 (the “November Order”) out of time.

Relevant background

2.  By a loan agreement dated 21 June 2022 (the “Loan Agreement”) D1 borrowed $80 million from P at 12% per annum (the “Loan”). It was secured by a 2^nd Legal Charge over the property known as 5 Gough Hill Path (the “Property”). In addition to the 2^nd Legal Charge, D2 provided a corporate guarantee and Gao Gunter (“D3”), a director of D1, provided a personal guarantee.

3.  In August 2023, D1 defaulted in repayment. By demand letters dated 6 February 2024, P demanded repayment from D1 as borrower and D2 and D3 as guarantors (collectively, “Ds”).

4.  P commenced these proceedings by originating summons dated 4 March 2024 to recover the Loan. At the time, the Ds were legally represented but did not file any evidence in opposition.

5.  On 25 July 2024 P obtained an “unless order” which gave Ds a final chance to file evidence in opposition. As the Ds did not take up that opportunity, P obtained judgment (including costs on an indemnity basis) from Master D To on an unopposed basis.

6.  Ds did not appeal the November Order and on 27 December 2024, P obtained a writ of possession (collectively, the “Orders”).

7.  On the eve of execution by taking possession of the Property, the Intervener (who is D3’s wife) made an ex parte application to this Court and obtained leave to intervene on 25 February 2025.

8.  The Intervener is the sole member of D1. One of the pre-conditions of the Loan was that the sole shareholder should sign a written shareholder resolution (the “Shareholder Resolution”) consenting to the Loan. It is the Intervener’s case, inter alia, that from time to time D3 (who is her husband) would present her with documents in English for signature on the basis that they were routine company documents required for D1. The Intervener does not know or understand English and, trusting D3, she would put her signature to such documents when requested. It is the Intervener’s case that D3 obtained her signature to the Shareholder Resolution in circumstances when the Intervener did not know that she was consenting to the Loan.

9.  The Court granted a stay of execution of the Orders for 14 days and upon the Intervener filing a notice of appeal of the Orders (“NOA”) and a stay summons within 14 days seeking a stay of execution pending determination of appeal, the stay be extended to the final determination of the Intervener’s application for a stay or further order.

10.  The Intervener’s stay summons and, subject to the Intervener obtaining leave to appeal, her substantive appeal are scheduled to be heard on 30 May 2025.

11.  D1 and D2’s application is for retrospective leave to extend time for issuing their notice of appeal so that the same can be heard together with the Intervener’s appeal.

Applicable principles

12.  D1 and D2 had 14 days to appeal the Master’s decision to a Judge in Chambers. The factors the Court takes into account in exercising its discretion to extend the period normally include (1) the length of delay, (2) the reasons for the delay (3) the merits of the proposed appeal, and (4) the degree of prejudice to the other party: see per Lam VP (as he then was) in HSBC v Sy Shu Wu & Ors [2018] HKCA 736 at §8 and Hong Kong Civil Procedure 2025 at §58/1/9.

13.  In the HSBC case, the Court of Appeal remarked (at §§9-10) that where the delay is inexcusable, the party seeking an extension of time must show a real prospect of success on the merits, not just a reasonable prospect of success. Further, although prejudice to the other party is a ground for refusing to extend time, the absence of prejudice is not a ground for extending time.

This application

14.  Mr Ivan Suen, counsel for D1 and D2, submitted that the Intervener has advanced a two-pronged defence: (a) that she has an equitable interest in the Property; and (b) the Shareholder Resolution to approve the Loan Agreement was obtained through the undue influence of D3 or is otherwise affected by non est factum.

15.  D1 and D2 are not concerned with ground (a). They essentially ride on the Intervener’s contention on ground (b). Mr Suen submits that at the time of the November Order, D1 and D2 were wholly unaware of the factual matters on which the Intervener relies and only came to know those allegations shortly after this Court allowed the Intervener to intervene.

16.  Their contention is that in the event the Intervener succeeds, arguably, the Shareholder Resolution (being a condition precedent) would be tainted as would also the Loan Agreement and the debt arising thereunder. In that scenario, there would be no indebtedness owing under the 2^nd Legal Charge, and accordingly no indebtedness guaranteed by D2’s corporate guarantee.

17.  D1 and D2 accept that money has been paid over and recovery would be based on something other than debt such as unjust enrichment and there would be interest implications. But Mr Suen maintains there is a difference from D1 and D2’s perspective as to whether that money was paid pursuant to the Loan Agreement or something else entirely if the Loan Agreement were somehow tainted.

18.  Mr Sunny Chan, counsel for P, considers that the idea that D1 and D2 were unaware of the Shareholder Resolution and the circumstances of its execution beggars belief. D3 was one of two directors of D1 who signed the Loan Agreement on D1’s behalf. D3 was instrumental in procuring the Intervener’s signature to the Shareholder Resolution. His knowledge is thus attributable to D1 and D2.

19.  P submits that D3 should have told the Master that the Shareholder Resolution was not genuine because he did not have the sole shareholder’s consent. The Ds had every opportunity to produce their defence before the Master but chose not to do so.

20.  In any event, this Court’s order granting the Intervener leave to intervene was made on 25 February 2025. D1 and D2’s application for retrospective leave was not made until a month thereafter when, shortly after 25 February 2025, they would have known from the papers filed in support of that Intervener’s application what her case is.

21.  The affirmation in support of the present application is an affirmation from D1 and D2’s handling solicitor whose firm apparently received instructions to act on 13 March 2025, shortly after the Intervener’s Notice of Appeal of 10 March 2025. That affirmation simply states that D1 and D2 would ride on the Intervener’s case based on ground (b), when one would reasonably have expected a director of D1 and/or D2 to have come forward to explain whether or not they agree with the Intervener’s account and the basis of D1 and D2’s appeal.

22.  Ms Lam for the Intervener opposed the application on the basis that if leave were granted, the 3-hour hearing currently scheduled for 30 May 2025 may be derailed. While Mr Suen confirmed that D1 and D2 would not be seeking leave to adduce evidence, he accepted the possibility that the 3-hour hearing may be insufficient. He added that D1 and D2 do not insist on the substantive hearings being heard together.

23.  On this last point, the suggestion that assuming retrospective leave were granted, the appeals need not be heard together is plainly unacceptable from a case management point of view and contrary to the underlying objectives set out in RHC Order 1A, rule 1.

24.  In the absence of any affidavit evidence from a director of D1 explaining why D3’s knowledge of the circumstances in which the Shareholder Resolution came to be signed cannot be attributed to D1 and D2, delay becomes an issue. Further, the absence of any affidavit evidence explaining the basis of their intended appeal renders it difficult if not impossible for the Court to assess the merits of their appeal.

Conclusion

25.  In the circumstances, applying the principles set out in §§12 and 13 above, there can be but one answer to the present application: the Summons must be dismissed.

26.  Costs should follow the event. Accordingly, there is to be an order nisi of costs in favour of P and the Intervener, such costs (with certificate for counsel) to be summarily assessed and payable forthwith.

27.  If necessary, directions for summary assessment will be given upon the costs order becoming absolute.