YEUNG KWOK FAN AND ANOTHER v. STANDARD CHARTERED BANK

HCMP2308/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2308 OF 2001

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J U D G M E N T

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1. This case concerns the interpretation of a Deed of Settlement dated 30 June 2000 entered into between the plaintiffs, the defendant and other parties. That lengthy Deed is incorporated as a Schedule to this judgment to avoid the necessity of repeating at inordinate length, parts of the Deed. By an Originating Summons dated 26 April 2001, the plaintiffs sought three Declarations and two Orders. The Declarations and Orders sought are :

"1. A declaration that on the true construction of the abovementioned Deed of Settlement dated 30th June 2000, and made between, inter alia, the Plaintiffs and the Defendant ('the Deed') and having regard to the Conditional Release of the Guarantee ('the Conditional Release') referred to in Clause 6 of the Deed, the Plaintiffs are released from any liabilities or obligations to the Defendant whatsoever in connection with the indebtedness due to the Defendant by Wah Lee Resources Holdings Limited and certain of its subsidiaries (referred to in paragraph (A) of the Conditional Release) subject only to any avoidance provided in the Conditional Release.

2. Payment by the Defendant to the Plaintiffs of the sum of HK$426,570.20 (together with interest) being the equivalent of an Interest Payment received by the Defendant on about the 3rd January 2001 in respect of Convertible Bond pursuant to Clause 8.1 of the Deed.

3. A declaration that on the true construction of the Deed, the Defendant is not entitled to retain a sum of HK$6,003,715.79 and the interest thereon accrued since 17th July 2000 in the Suspense Account.

4. Payment to the Plaintiffs by the Defendant of the said sum of HK$6,003,715.79 and the said accruing interest.

5. A declaration that on the true construction of the Deed, the Plaintiffs are entitled to make use of the money in the Suspense Account for purposes of purchasing and/or taking an assignment from the Defendants its rights to the Convertible Bonds pursuant to Clause 8.8 of the Deed."

2. The plaintiffs (or "Mr and Mrs Yeung") are husband and wife respectively. They are the directors and the sole shareholders of Lucky Bingo Investment Limited ("Lucky Bingo), a company incorporated in British Virgin Islands. Lucky Bingo in turn holds shares in Wah Lee Resources Holdings Limited ("Wah Lee") which is a company incorporated in Bermuda and is a public company listed and traded on the Stock Exchange of Hong Kong Limited. From the time Wah Lee started to list and trade in about January 1997 to about February 2000, Lucky Bingo was the major shareholder of Wah Lee, holding about 33% of the shares issued of Wah Lee.

3. The plaintiffs were the founders of the Wah Lee business which traded in electronic products. Wah Lee company and its Group Companies ran into financial difficulties and were unable to meet their banking facilities. The plaintiffs signed a Guarantee over such facilities in favour of the Bank. In subsequent proceedings initiated by the Bank, the plaintiffs disputed the Guarantee. Various enforcement proceedings were initiated against the plaintiffs by a number of Banks, including the defendant. Winding-up proceedings were taken against Wah Lee and companies in the Group based on statutory demands not being met.

4. The plaintiffs needed to deal with the financial crisis and they therefore intended to encash some of their shares in Wah Lee. Because Wah Lee was a public company, obligations required the plaintiffs to give public notice of their intentions in relation to the proposed transaction in the shares. Upon the publication of the requisite public notice, the defendant applied for a Mareva injunction, which was granted by Woo JA, in aid of its proceedings on the Guarantee that it held against the plaintiffs. The case for the Bank was that the transaction that had been notified had the effect of diluting actually or potentially the plaintiffs' assets and therefore the value of its Guarantee provided by the plaintiffs.

5. Not long thereafter, a financial restructuring was arranged and agreed between the Wah Lee Group and its creditors including the Bank. At the same time, a settlement was reached between the plaintiffs and the defendant. It was a tripartite arrangement. It is against this factual background that the Deed dated 30 June 2000 came into existence and has to be considered.

6. There are three significant documents : the Heads of Terms dated 26 May 2000, the Deed of Settlement dated 30 June 2000 and the Compromise Agreement dated 12 July 2000.

7. The principal issue before the Court is to determine to whom certain funds held by the Bank under the Deed of Settlement are payable. The plaintiffs say, in short, by the terms of the Deed they owe the Bank nothing and that it must account to them for certain monies. The Bank says, in short, effectively the opposite.

8. The sub-issues before the Court can be reduced to this :

Issue One

(a) whether the plaintiffs are released from all liabilities as a result of the settlement with the Bank under the Deed?

Issue Two

(b) whether the defendant Bank is obliged to pay to the plaintiffs an "interest payment" received by the Bank, in accordance with the provisions of the Deed?

Issue Three

(c) whether a payment made into the "Suspense Account" as established by the Deed and claimed by the Bank should be made out of the Account to the plaintiffs?

Issue Four

(d) whether the plaintiffs are entitled in terms of the Deed to use the money in the Suspense Account to buy certain convertible bonds held by the Bank?

Proper approach to interpretation of the Deed

9. The court clearly must interpret the document as a whole. Each clause gains colour from those around it. The principles commended by Lord Hoffman in Investors' Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1W.L.R. 896, 912H - 913G should be applied. The Court must first look at the words used. An approach based on commercial reality provides that it is highly unlikely that absurd results were intended. So the object is to discover the mutual intention of the contracting parties which is a task to be approached objectively.

10. In this regard, I apply the approach of Cheung J (as he then was) in Green House Property Agency v. Yu Ma Kwai unreported, HCA10345/97 (30 November 1999) at pp. 6-7 as to the construction of the Deed.

11. In the present case the plaintiffs submit that the post-contract conduct and correspondence of the parties (which if admissible is unhelpful to them) is irrelevant, and should therefore not be used as an aid in the construction of the contract. I agree. Each party in a sense observed that the other is attempting to rely on self-serving conduct and occasionally self-serving correspondence since the Deed. The approach I intend to follow is to consider the terms of the historical documents that precede the Deed on the basis that those documents shed light, "the matrix of fact", on what would have been intended objectively by the parties. I do not intend to give weight to the post-contract representations of either parties unless it is common ground. In my judgment, much of the post-Deed correspondence is inadmissible and in any event is generally nothing but a diversion, in which each party display its most ostentatious forensic posturing.

12. The real issue is to understand the purpose of the Deed. Was it therefore intended to preserve both the existing rights of the Bank and the Mareva funds for the Bank? Was it intended by the parties that the Deed allowed money produced to the Bank from the restructuring to replace those Mareva funds, thereby reducing the plaintiffs' liability to the Bank? Have the plaintiffs been given a complete release of their liability by the Deed?

13. The Deed of Settlement dated 30 June 2000 ("the Deed") was made between the defendant ("the Bank"), the plaintiffs ("Mr and Mrs Yeung") and others. The background to the Deed is evident from its recitals (A) to (G). In short, by recital (B) Mr and Mrs Yeung guaranteed the performance of obligations due to the Bank, by Wah Lee and the Group Companies.

14. The Bank had on 23 October 1999 made formal demand against each of the Group Companies in respect of their respective banking facilities. A few days later the Bank made formal demand against Wah Lee. The demands were unmet. A winding-up petition was presented against Wah Lee, a company incorporated in Bermuda, on 23 November 1999. On 20 April 2000, the Provisional Liquidators were appointed by Order of the Supreme Court of Bermuda of 23 March 2000. The Provisional Liquidators were also a party to the Deed.

15. Statutory Demands in the prescribed form were made on 27 October 1999 against Mr and Mrs Yeung. Those demands have not been satisfied.

16. On 24 February 2000 the Bank issued a Writ of Summons against Mr and Mrs Yeung and on the same day Woo JA, sitting as a single Justice of the Court of Appeal, granted a Mareva Injunction against the assets of Mr and Mrs Yeung, including their assets in Lucky Bingo Ltd, a company incorporated in British Virgin Islands (and a party to the Deed).

17. The effect of the Mareva was to immediately restrain the disposal of the sum (precise amount unknown) held by Kingsway S.W. Securities Limited on trust for Lucky Bingo, following the private placement of certain shares held by Lucky Bingo in Wah Lee on or around 18 February 2000. That Mareva was extended under trial or further Order on 3 March 2000 by Deputy Judge Wesley Wong.

18. The Bank applied for and obtained the Mareva because it became aware that by Public Notice Wah Lee intended to sell and acquire placement shares. The Bank, correctly in my view, apprehended a real belief that this impending transaction might or would diminish the value of the Bank's security and overall position in relation to Mr and Mrs Yeung, who had guaranteed the indebtedness of Wah Lee and the Wah Lee Group of Companies up to seventy million dollars in favour of the Bank.

19. The immediate effect of the Mareva was to prevent the monies, the fungible of the placement shares, being invested, transferred or even dissipated.

20. It is common ground, that the Bank had earlier urged for repayment of the indebtedness to it and Mr and Mrs Yeung denied the validity of their Guarantees and initiated legal proceedings to set aside the Statutory Guarantees.

21. The opposing positions became entrenched. However, as Mr Chan in his attractively presented submissions put it "a white knight" came along offering a rescue package to the beleaguered Wah Lee Group.

22. Mr Kat retorted acidulously but accurately that the anonymous White Knight (for so he/she or it was : see clause 9.1(h) of the Deed) did not last the distance, as events will soon show.

23. Eventually some of the relevant individuals and entities sat down and discussed how to resolve what was between them. In due course a document, the Heads of Terms ("HOT") was produced and signed. It is occasionally explicitly referred to in the Deed - see for example the definition of "First Payment". It was a partial progenitor of the Deed. The latter was a more broad-based document, in solemn contractual form, which included parties (such as the 2nd plaintiff - Mrs Yeung) who had not been a party to HOT. Both Counsel agreed that although it was inter alia marked "Without Prejudice" HOT was necessarily a document that the court could properly examine as a step in the choreography culminating in the Deed.

24. However, in my judgment, the answer to the issues is realistically provided by a close examination of the Deed itself, without all the entrails of self-serving and ex post facto evidence provided by the parties. This evidence, which is almost certainly inadmissible for the reasons above, is also in substance often only argument and submission, dressed up as evidence.

25. The Deed needs no post-creation explication by the parties. Each side naturally urges a different perspective in a forensic attempt to be better off.

The Deed

26. A definition of "Guarantee" is set out. It defines the Guarantee as being dated 13 July 1999 given in favour of the Bank by Mr and Mrs Yeung :

"... in respect of certain indebtedness due to the Bank by certain Members of the Wah Lee Group ..."

27. The guarantors are Mr and Mrs Yeung jointly and severally. Whatever the merits of the plaintiffs' previous litigation as to the supposed invalidity of the Guarantee that matter has been irrevocably resolved by the Deed. See clauses 2.1, 2.2 and 2.3 which entirely occupy Part 2 of the Deed and are called "Acknowledgement And Confirmation of Liabilities". The Guarantee, which is the sub-stratum document of the Deed is infallibly effectual.

28. The next significant definition in the Deed is "Restructuring"

"'Restructuring' means the financial restructuring of all the indebtedness due to the Bank in respect of the Facilities as set out substantially in the Heads of Terms or such other restructuring as may be implemented and in each case on the basis that it is without prejudice to all the rights and claims of the Bank under or in respect of the Guarantee save as varied or released by this Deed;"

29. This is a critical definition, emphasising that the Guarantee enures for the benefit of the Bank "save as varied or released by the Deed".

30. If the Bank is fully paid all that is owed to it then the "Restructuring" is complete. If that position is not achieved than the Bank's security, the Guarantee in terms of its continued and modified existence under the Deed, remains. It must be noted that restructuring is "without prejudice to all the rights and claims of the Bank under or in respect of the Guarantee ..."

Status of the Deed

31. Clause 3.1 makes it absolutely plain that prior to Closing which is defined as :

"'Closing' means the closing of the matters contemplated by this Deed;"

the relationship between the Bank and Mr and Mrs Yeung shall continue to be governed, inter alia, by the Guarantee.

32. However, after Closing, that relationship :

".... shall be subject to the terms of the Guarantee and all other applicable Existing Documentation as varied by this Deed"

The before and after Closing scenarios demonstrate the true intention.

Closing

33. By clause 4.4 on Closing both Lucky Bingo and Mr and Mrs Yeung agreed to provide the delivery unconditionally to the Bank of various documents as set out in Schedule 2 to the Deed. But the Bank did not receive all the required documentation, including a certain legal opinion for many months.

Unconditional releases and waivers

34. By clause 5.1 Lucky Bingo, Wah Lee and the Group of Companies discharge and release any claims by them in relation to the Frozen Amount. See clause 5.3 too.

35. The deferral to the Bank by the plaintiffs of their claims to the Frozen Amount is definitive. The deferral is to the Bank, in its favour. The deferral is "on the terms set out in the Deed" which is I have found expressly and repeatedly provides that Mr and Mrs Yeung have no release from their Guarantee obligation (as incorporated and varied by the Deed) unless and until they have paid to the Bank all outstanding indebtedness.

36. The deferral of their right to the Frozen Amount - is just that. If, which has never happened, they paid off the Bank in full, then their claim to the balance (if any) of the Frozen Fund crystallizes meaningfully. Until then it is pie-in-the-sky.

Conditional release by the Bank

37. Clause 6 provides that the Bank will give Mr and Mrs Yeung a conditional release in the form set out in Schedule 6.

38. Mr Chan made much of this. In my judgment, far too much. Schedule 6 is expressly a Conditional Release of the Guarantee. That is its effect. If releases the Guarantee conditionally. But the Deed is a superseding independent additional security that itself confirms the Bank's rights and re-imposes the liabilities on Mr and Mrs Yeung.

Suspense Account

39. The thrust of clause 7.1 was to procure the transfer from the Kingsway SW Securities Limited bank account to the Suspense Account in the Bank. Clause 7.3 emphasises the right of the Bank to release to itself the whole balance of the Suspense Account in satisfaction of, inter alia, its claims under the Guarantee as varied by clause 4.6.

40. Clause 7.4 envisaged a situation that never happened, namely that upon the Bank receiving "the First Payment and the Second Payment" certain obligations applied to the Bank. The Second Payment was never made.

41. Clause 7.5 is sensible and provides that after all payments of indebtedness the Yeungs would be entitled to the balance, if any.

Post closing obligations

42. These obligations are expressly without prejudice to clause 7. (i.e. the Suspense Account monies and the rights in relation to them). In my judgment the right that the Yeungs might have under clause 8 only activates or meaningfully accrues after there has been total paid satisfaction of their indebtedness. To put it another way, the Yeungs plainly are not entitled to any interest etc. unless and until they have fully met their pre-existing obligations under the Guarantee as varied by the Deed.

43. It was manifestly never the intention that the Yeungs could avoid payment or fail to pay their dues, yet simultaneously have a right to themselves receive for their immediate credit, any interest. They have no interest in that interest in law or fact until they have paid their indebtedness. The other applicable sub-clauses in clause 8 only, in my judgment, emphasise the hopelessness of the position contended for by the Yeungs. See for example clause 8.9.

Representations and warranties

44. Clause 9.1(d) shows that the Frozen Amount shall be paid to the Bank by Lucky Bingo towards settlement "of the liabilities of the Guarantors to the Bank in accordance with the terms of the Deed". This is a warranty given by Lucky Bingo and the Yeungs.

Severability and non merger provisions

45. The effect of clause 18.2 is very clear. Clause 18.2 provides :

"The provisions of the Deed insofar as they have not been performed at or are capable of taking effect after Closing shall remain in full force and effect notwithstanding Closing and shall not merge on Closing".

Forbearance, waiver, cumulative remedies

46. In my judgment clause 20.2 is very significant. It provides :

"The rights and remedies provided by this Deed are and shall be cumulative and not exclusive of any rights or remedies provided by law or under the terms, the Guarantee or Existing Documentation."

47. The Bank therefore retains, in any event, the right of set-off. It is able to set off any credits that may have accrued notionally to the Yeungs against their indebtedness to it. The Bank has a preserved common law right of set-off independent of any other rights contracted between the parties.

48. In my judgment, the conditional release is in terms limited to a release from the original Guarantee itself. The Deed continues and preserves the Bank's rights in law under the terms of the Guarantee and other existing documentation. As I indicated in the course of argument, the Guarantee is transformed by the Deed - a new security exists which incorporates features of the Guarantee. Indeed, in my judgment, the Deed makes it clear that the liabilities of the plaintiffs only completely cease upon all outstanding liabilities to the Bank being paid by them. See in particular clauses 5.3 and 7.5 of the Deed. The Deed preserves the rights under the Guarantee as varied by the Deed.

49. At this juncture, I note in particular clauses 3.1, 3.5 and 20.2 of the Deed. The plaintiffs continue to be liable to the Bank in sums in excess of that in the Suspense Account. This is because the rights of the Bank are preserved and the Bank is entitled to the money in this Suspense Account. The claims of the plaintiffs to these monies are irrevocably postponed and deferred, see clause 5.3 of the Deed, save any entitlement arising from clause 8 of the Deed (which is subject itself, to clause 7 - complete fulfillment of all outstanding indebtedness).

50. In contrast, the plaintiffs submitted that the attitude by the Bank in resisting this Originating Summons was indicative of its lack of commercial morality or its "naked greed" as Mr Chan put it. The plaintiffs in this regard point to the fact that the Deed by Schedule 6 "releases and discharges the [plaintiffs] for all past, present and future liabilities and obligations owing to [it] under the Guarantee .....". But to read that in isolation is intensely myopic. The whole Deed must be construed. To latch onto one Schedule in isolation, is a complete artifice.

51. The Bank submits that the important definition of "Restructuring" in the Deed means the completion of the restructuring process, namely, when the Bank gets paid. Restructuring is correctly a continuum that only ends upon payment. The Bank submits "What is secured is the frozen amount." This is significant as the convertible bonds it holds as a security until redeemed, are worth zero. The second payment was not made by the plaintiffs, or on their behalf, to redeem the bonds. The bonds therefore offer no comfort to the Bank.

52. The plaintiffs' case in contrast is despite the failure of the bonds issued in aid of the attempted restructuring, (because of the non-payment), they are entitled to use the money in the Bank's account for themselves. The Bank's case is that that scenario is the apotheosis of absurdity, viz. that the plaintiffs could default and yet still also have the rights to the monies, which the Bank held as a security against (further) default by the plaintiffs.

53. In my judgment, the definition of "Termination Date", in the Deed shows that until when or if the plaintiffs paid-off in full the principal then, all the money is saved in the account as a security for the Bank. The purpose and effect of the Compromise Agreement was to make the creditors party as to how Wah Lee's indebtedness is to be dealt with. The rights and obligations in the Guarantee continue to exist "as varied by the Deed". The money in the suspense account provides a new security. Note in particular clause 3.5 of the Deed which distinguishes between the primary obligation and the secondary obligation. The Deed is a new and independent obligation. The conditional release is itself avoided, the Guarantee comes to life, it is rejuvenated via the Deed, which varied it, by the default of the plaintiffs.

54. The Bank points in particular to clause 7.3 of the Deed. If the restructuring fails then the Bank can help itself to the security. The restructuring is without prejudice to the Guarantee.

55. The plaintiffs' case is that the original Guarantee was "settled" by the Deed, so that the Deed now exists but the Guarantee does not. The plaintiffs submit the Deed includes examples of poor drafting.

56. "Termination Date" is defined in the Deed :

"'Termination Date' means the date when either (i) the Bank shall have been paid all its claims under the Facilities in full in accordance with the terms of the Guarantee and Existing Documentation as varied by this Deed or (ii) when this Deed comes to an end in accordance with the terms of this Deed; whichever is the earlier;"

But Mr Chan observes that this definition actually never appears in the Deed itself. This appears to be a mistake. But see clause 16 where the verb "terminate" is used. But if it is a mistake it is to be assessed for its implications. Further as Lord Hoffman emphasised in Investor Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896, 913E, referring to the dictum of Lord Diplock in Antaios Compania Naviern SA v. Salen Rederierna A.B. [1985] AC 191, 201(HL), if something has obviously gone wrong the Law does not require the judge to attribute to the parties an intention which they plainly could not have had. But here the imperfection has no consequences. It embodies a definition that absolutely resonates with the commercial sense of the parties. Termination will in a practical sense only occur when the Bank is fully paid.

57. I have given an overview of my general conclusions but I now relate them to the discrete issues (which link to the Declarations and Orders sought).

Issue 1

Any complete release of the plaintiffs' liability to the Bank?

58. The defendant asks : "What is the context and rationale for the Deed?" And answers its own question, "Mainly that it provides the Bank with revitalised security, and it fixes a sum of money in the Bank." Under the Deed, the primary obligation is of Wah Lee to repay the Bank. But a secondary obligation exists under the Guarantee for the plaintiffs themselves to repay the Bank. In my judgment, the discharge of the primary obligation is not a discharge of the secondary obligation : Perry v. National Provincial Bank of England [1910] 1 Ch 464 (CA). Further, the Deed perpetuates a surety obligation notwithstanding the compounding of the primary obligation. The Deed is therefore a new security for and in relation to the money in the account of the Bank.

59. In my judgment the case for the Yeungs on this issue is bereft of any merit at all. The plain mutual intention of the parties (see Colman J in The Zeus V [1999] 1 Ll LR 703, 707) was that the Deed was to explicitly preserve the existing rights of the Bank and to grant the Bank new and increased rights in relation to the Mareva funds. The Bank was to be demonstrably better off and more secure after the Deed and not, as would be the case if the plaintiffs were correct, in some completely impoverished position.

60. The Conditional Release is in terms only a release from the original Guarantee itself - the original security. This is because the Guarantee has been varied by the Deed to generate a fresh new security under the Deed in favour of the Bank. See clauses : 3.1, 3.5 and 20.2. The rights of the Bank are preserved and enhanced. The plaintiffs cannot claim any of the monies in the Suspense Account unless and until they have first extinguished their indebtedness. In short, the Yeungs claim to the monies is irrevocably postponed and deferred while their status as debtors of the Bank remains.

Issue 2

Plaintiffs claim payment of "interest payment"

61. It is a fact that the Bank has received an interest payment in the sum of $426,570.20

62. The plaintiffs rely upon clause 8.1, namely that the Bank "shall pay to the [plaintiffs] ... from the Suspense Account ... by way of Cashier Order [the same amount] ... within four Business Days ..."

63. The defendant relies upon a set-off against the continuous liabilities of the plaintiffs as its authority for holding the interest payment to its own benefit as a creditor of the Yeungs. The plaintiffs argue that clause 8.1 does not provide for any set-off.

64. The Bank argues, in my judgment correctly, that interest accrues on the plaintiff' indebtedness at contractual (and default) rates by clause1(b) of the Guarantee as varied by the Deed. It follows that by 27 December 2000, interest of $626,161.43 had accrued to the Bank under the Guarantee - a sum clearly more than sufficient to extinguish or counter-weight the interest that the Yeungs can show had accrued on the proceeds claimed. I have already ruled that the Guarantee is unarguably and incontrovertibly valid - as all parties must accept, as that is the express stated term of the Deed. It follows therefore that the provisions of the Guarantee including the continued accrual of interest subsist. Note : clauses 1, 2.1, 2.2, 3.1. But the principal expression is clause 4.6 which provides that interest continues at contractual rates unless default rates apply.

65. By clause 7.3 this was a forbearance by the Bank. The Bank has the right, prior to completion of the restructuring, to release to itself the balance of the Suspense Account in satisfaction of sums due under the Guarantee.

66. The plaintiffs case, hangs, quite artificially, on reading part of clause 8.1 in isolation from the rest of the Deed. I say "part of clause 8" as even clause 8.1 is, when read in full, expressly without prejudice to clause 7! In short under clause 7 the Yeungs have no claim until they pay the growing debt in their name. Their indebtedness is organic.

67. But further answers to the plaintiffs' claim include the Bank's general right of set-off. At law this right to set-off remains and is consecrated by clause 20.2. See generally : Sinochem International Oil (London) Co. Ltd v. Mobil Sales and Supply Corporation [2000] 1 Ll LR 339 where in the context of a set-off the English Court of Appeal spoke of the "instinctive appreciation of commercial likelihood" and also Mitsui Construction Co. Ltd v. Attorney General of Hong Kong (1986) 33 BLR 14(PC) where Lord Bridge emphasised "an interpretation which attributes to the parties an intention to make provision for contingencies inherent in the work contracted for on a sensible and businesslike basis". The set-off in the present case is just that commercial and common law reality. Further again, the Bank's rights under the Guarantee are a complete additional answer to the claim for the interest.

68. The Conditional Release does not operate to assist the plaintiffs. It was not provided until 9 March 2001 - so the interest owed by the Yeungs to the Bank had accrued to extinguish the relevant interest recovered by the Bank. But all the Deed conditions had not been met. The Release is conditional on fulfillment of those Deed conditions. The Conditional Release fundamentally does not terminate the plaintiffs liabilities to the Bank under the Deed : see clauses 3.1, 4.6, 7.2, 7.3, 7.5 and 7.8.

69. The Bank also has common law and equitable rights of set-off not expressly or impliedly excluded by reason of the Deed - indeed stated to exist by the Deed : clause 20.2.

Issue 3

The overpayment into the Suspense Account

70. The plaintiffs' case is and has to be that the HK$6,003,715.99 in the Suspense Account (above the HK$56 million) is not included in the "Frozen Account" as defined in Recital (F) of the Deed and should be paid to them. Recital (F) reads :

"The Injunction immediately restrained the disposal of the sum of approximately HK$56 million held by Kingsway ... on trust for Lucky Bingo (the "Frozen Account") following the private placement ..."

71. The plaintiffs case is that "the Frozen Account" means only "approximately HK$56 million" of the sum that was restrained by the Mareva injunction and the additional $6,003,715.99, transferred by Consent, in compliance, belongs to them and not the Bank.

72. The February 2000 Placement and Subscription effectively would have, but for the intervening Mareva, put about $62.7 million cash into the hands of Mr and Mrs Yeung. At the stage of the Placement the Yeungs owed the Bank approximately $65 million on their Guarantee (which was for a maximum of $70 million). The Mareva injuncted the funds in order that they would be available to satisfy the Yeungs' obligations under the Guarantee. The Mareva was in aid of the Guarantee - to ensure that it was fulfilled and not rendered worthless.

73. The Bank's evidence, which I accept as it was not challenged, is that at the date of the Deed, the Bank did not have a precise quantification of the injuncted proceeds held by the brokers, Kingsway (or by Sun Hung Kai International Ltd ("SHKI")). Perhaps the Bank should have had better information by then - but that is a different matter. The reference in Recital (F) was based on the materials then available to the Bank. The Mareva restrained :

"any of their assets, including but not limited to the sum of HK$62,720,000 [held or to be held for the account of Lucky Bingo Ltd] ... up to the value of $56,444,359.72, US$940,345.05 and JPY12,555,439.80 (or the Hong Kong Dollar equivalent thereof) ... "

74. It was agreed before me that the value of the American Dollars and Japanese Yen referred to in the Order was approximately $8-9 million - so the injunction bit on about $65,000,000 in total. Recital (F) is historical. It records an event. It is a generic reference to the amount (unknown) that was actually restrained. It was not a waiver by the Bank of its entitlement to all the monies injuncted of whatever amount over "approximately HK$56 million" and what does that conditioning expression "approximately" mean or include anyway? That is utterly not the purpose or intention of the whole Deed.

75. There is no dispute that whilst the "Frozen Amount" was defined in Recital (F) as "approximately HK$56 million", a sum of just over $62 million (part of which ($1.1 million) was interest accrued whilst the proceeds were held by the underwriter, was in fact transferred to the "Suspense Account". Relevant clauses of the Deed are Recital (F) and clause 7.1.

76. Where did that figure of "approximately $56 million" referred to in Recital (F) come from? It is argued by the plaintiffs that the reference to that sum meant only the net proceeds of the shares was available to the Bank.

77. But the injunction actually embraced a sum larger than even the total proceeds of $62.72 million. See paragraph [74] herein. It is important to note that the proceeds were referred to as "$62.72 million or such other sum as is held or to be held by [the underwriter] for the account of Lucky Bingo ...". Hence, it is argued by the plaintiffs that the Order applied only to the net proceeds. "Such other sum", it is said could only have been smaller than $62.72 million, i.e., after deduction of cost and expenses. The plaintiffs submit that without the cost and expenses, there would not have been any proceeds produced by the placement. Further, it is argued the cost and expenses could not have been held "for the account of Lucky Bingo". So that when Recital (F) referred to the $56 million, plainly (a) it was a deliberate choice of words as a different formulation could very easily have been used; (b) the Frozen Amount was meant to be only a part of the money restrained under the Injunction.

78. The Deed obviously embodied a commercial settlement between, inter alios, a very established international bank and the plaintiffs. The plaintiffs therefore submit this is simply a case of the Bank changing the goal-posts in defiance of the solemn agreement evidenced by Recital (F). It is though, the plaintiffs say, that the Bank's case is "I have later realised that you have more money and I should also have it too". It is also submitted by the plaintiffs that there can be no logical reconciliation between the Bank's arguments and the payment to Kingsway of its cost and expenses.

79. The Bank submits that the Court must construe the clause to give effect to the description used by the parties : "The Injunction ... restrained the sum ... held by Kingsway ... on trust for Lucky Bingo (the "Frozen Amount") following the private placement ..." : - whatever that sum was. On 6 July 2000, Kingsway and its solicitors accounted for deductions (i.e. sums not held by Kingsway on trust for Lucky Bingo) being remuneration and fees to Kingsway and SHKI under the Placing Agreement at $1.83 million. The $6.72 million claimed from Lucky Bingo by SHKI on 7 July 2000 therefore cannot be attributable to the Placing Agreement. Those moneys were and are therefore funds held on trust for Lucky Bingo within Recital (F), the "Frozen Amount". The Yeungs' argument that the net proceeds were in fact "approximately $56 million" (so that is why Recital (F) so states) is inconsistent with SHKI's claim for $6.7 million, unless Kingsway was to be left unpaid its own fees and expenses, agreed at $1.142 million. References to approximately $56 million as the "net proceeds" and therefore a rational basis for its citation in the Deed as a "cap on liability" are founded upon the Yeungs' own assertions. Save for the rather uninformative Public Announcement, they are ex post facto assertions.

80. The February 2000 Placement and Subscription effectively was to put around $62.7 million incoming cash into the Yeungs' hands and for such funds to be exchanged for new shares in the financially embarrassed Wah Lee. By then, the Yeungs then owed the Bank around $65 million on their guarantee. The Mareva granted by Woo JA on 24 February 2000 was therefore causally obtained by the Bank to freeze the money produced by the Placement before it got into the hands of the Yeungs or was otherwise dissipated; to make it available to satisfy the Yeungs' obligation under the Guarantee. Before applying for the Mareva, the Bank had tried to find out more about the Placement but had been rebuffed. The financial records of certain of Wah Lee's subsidiaries (in liquidation) had also been transferred out of the jurisdiction, to Shenzhen.

81. At 30 June 2000, the date of the Deed, the amount of the proceeds held by Kingsway (and SHKI) was as a fact not known to the Bank, who had only the public announcements and very limited correspondence on the point. It is significant that there was so little correspondence, that the Bank was so insouciant, as the Bank never possibly contemplated that it was somehow parting with over $6 million by Recital (F) as the plaintiffs contend. That conclusion could not have been the objective intention of the parties. The Announcements do not account for $6.72 million of placement proceeds; the deduction for placing costs expenses and "net proceeds" in the Agreement does not tally with the "approximately $56 million" net proceeds referred to in the Announcement.

82. On 6 July 2000 the solicitors for the Yeungs and other solicitors for Kingsway produced statements of the fees and expenses of the two brokers involved : Kingsway and SHKI. They accord with the terms of the Placing Agreement. But SHKI's claim for itself of $6.7m for fees and expenses and the recital by the plaintiffs' solicitors of the Yeungs' pre-Deed instructions to that effect, does not appear on the papers until 7 July and 11 July. The Yeungs agreed to the transfer of the total sum in the account including interest, less the expenses set out on the July statement. On 13 July 2000 Kingsway transferred and the Bank received $62,003,715.99 net.

83. If SHKI has any claim for $6.72 million (or any sum) against the Yeungs or Kingsway, it may pursue them. It is not asserted that SHKI has a proprietary interest in the funds created by the Placement and it is not easy to see how their claim - if genuine - can be anything other than a debt. Further SHKI has no locus in these proceedings.

84. On all the submissions and evidence I conclude that the reference in Recital (F) was descriptive shorthand only. It was never intended that the Bank had somehow waived all sums beyond "approximately HK$56 million". What does "approximately" mean? It is an estimate not a precise quantification. The parties were referring to what, on the best information then mutually known, was the estimated lump sum. It seemed to be reasonably consistent with the other paperwork. It was not until the belated claim by SHKI, made after the Deed, that the Yeungs' appreciation of their prospects in relation to the disputed sum, came into existence. I agree with Mr Kat's crisp, detailed and trenchant rejection of the plaintiffs' claim.

85. Recital (F) was not prescriptive. It was not inserted as a definitive financial analysis. It was not intended to thereinafter prevail as a paramount clause - some sort of indebtedness ceiling for the Yeungs. It was only a convenient generality, in the absence of more precise knowledge, at that stage. It was not intended that by Recital (F) the Bank would waive slightly over HK$6 million . The rest of the Deed - all the rest of the Deed, is the complete answer to that.

Issue 4

May plaintiffs use the Suspense Account money to buy the convertible bonds held by Bank?

86. This is in my judgment a simple point. Clause 7.5 provides the only conditions (in context of the other conditions of the Deed) in which the funds in the Suspense Account may be paid to the Yeungs :

"In the event that any balance stands to the credit by the Suspense Account after payment of all monies and liabilities due to the Bank in respect, the Guarantee and the Facilities (including ... interest) ..." (Emphasis added)

87. Clauses 8.8 and 8.9 speak for themselves. No offer to purchase in accordance with clause 8.7 has been made. In the course of the hearing Mr Chan confirmed to me, at the insistence of Mr Kat, that this was the true position. So no offer has been made in compliance with the Deed. But even if there had been such an offer I observe that the Bank is under no obligation to accept such an offer. Further, as there has been no offer, the Bank has not therefore given its required opinion that the offer achieves repayment in full to it and therefore, no such right as claimed by the plaintiffs could possibly have accrued.

Conclusion

88. Both counsel excelled in the energy and skill of persuasion but, on close analysis, the plaintiffs simply have no case in relation to any of the relief claimed. Mr Kat easily prevails. I dismiss the Originating Summons in its entirety and by Order nisi the plaintiffs are to pay the costs of the Summons to the defendant, to be taxed unless agreed : Order 42, rule 5B(6) RHC.