LI MINGREN v. QUESTEX DEVELOPMENT INC. AND ANOTHER

CACV 141/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 141 of 2014

(ON APPEAL FROM HCA 2081 OF 2013)

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J U D G M E N T

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Hon Yuen JA (giving the judgment of the court):

1.  This is an appeal by the 1^st defendant company from a summary judgment of Deputy High Court Judge Seagroatt given on 13 June 2014.

Background

2.  The plaintiff issued proceedings against the 1^st and 2^nd defendants on 26 November 2013.

3.  In brief, the plaintiff’s claim was as follows:

(1) he had made a loan of HK$40m to a PRC businessman Zhao Tuanjie (“Zhao”) who controlled the 1^st defendant, a company incorporated in Vanuatu which was in turn the majority shareholder of the 2^nd defendant company, which is registered in the Caymans and is listed on the Growth Enterprise Market of the Hong Kong Stock Exchange;

(2) the loan was contained or evidenced in 2 documents, a “Loan Agreement” dated 14 May 2013 and a “Supplemental Agreement” dated 17 May 2013; 

(3) pursuant thereto, the 1^st defendant provided two convertible bonds of the 2^nd defendant in the total sum of HK$20m as security for the loan to Zhao;

(4) Zhao failed to repay the loan, and consequently the plaintiff demanded the transfer of the convertible bonds.

4.  On 27 February 2014 the 1^st defendant filed a defence of total failure of consideration, on the ground that the plaintiff had not advanced the loan to Zhao.

5.  Zhao, who is not a party, is said to have been detained in prison on the mainland.

6.  The 2^nd defendant had indicated that it would adopt a neutral stand.

7.  The plaintiff applied for summary judgment.  According to his evidence, his loan of HK$40m to Zhao was advanced by way of 6 tranches in the total sum of RMB32m, all of which were transferred on 17 May 2013 by his brother Li Mingzhong (“LMZ”) to the account of one Zhu Lifang (“Zhu LF”) who had been designated as the recipient of the funds in an “Authorization Letter” of the same date signed by Zhao.

8.  The transfer of the 6 tranches was effected electronically.  The plaintiff exhibited 6 online banking electronic receipts indicating payments from LMZ to Zhu LF, which receipts Zhao had signed.

9.  On behalf of the 1^st defendant, its director Wang Weinan filed an affirmation on 24 May 2014 alleging the following, among other things:

- Zhao had never received any money from the plaintiff (paras. 3 and 9):

- the plaintiff had misrepresented to Zhao that the plaintiff could “jack up” the share price of the 2^nd defendant, that the investment activities would be legal as Zhu LF would be used as middleman, but as the plaintiff would have to come up with $40m first, Zhao would need to give him 20m worth of convertible bonds in the 2^nd defendant as security (paras. 14-20);

- Zhao did not know Zhu LF, who was the plaintiff’s agent.

10.  On the basis of the materials above, the deputy judge gave summary judgment to the plaintiff.  He said that the “material facts which have not been challenged on any reasonable basis” included the receipts “evidencing six payments of Renminbi totaling RMB32 million being the equivalent of HK40 million” (para. 14) and that he was satisfied that “the loan was made by the plaintiff in the form and manner alleged” (para. 15).

New evidence

11.  Pursuant to leave granted by a single judge of this court (see the judgment handed down on 8 May 2015), the 1^st defendant has adduced new evidence including bank records which show that on 17 May 2013, after each tranche of funds from LMZ was received in Zhu LF’s account, it would be transferred back to LMZ’s account via the accounts of Zhang Haibin (“Zhang”) and Zhu Weilin (“Zhu WL”).  These two account-holders are associates of the plaintiff.  Indeed it has turned out that Zhu LF, into whose account the “loan” was deposited, is herself a senior member of staff of Shenzhen Huayong Investment Co Ltd, which is jointly controlled by Zhang and the plaintiff.

12.  The plaintiff did not apply to adduce any evidence in opposition after this new evidence was filed.  He was represented by lawyers until 6 November 2015.  At the hearing today he asked for an adjournment of the hearing for 2 months to produce new evidence in opposition to the 1^st defendant’s new evidence.  However this application was refused for delay.  In the court’s judgment handed down on 8 May 2015, there was reference to the possibility of new evidence in opposition from the plaintiff, but no application to file any such evidence was made in the more than 6 months since then.      

Appeal

13.  The principles guiding the court in deciding whether to give summary judgment are well-known.  All that the defendant needs to show is a triable issue.  But before the court looks at the defence, one must look at the plaintiff’s case first.  As Ribeiro JA (now Ribeiro PJ) held in Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262, 268:

“The importance of there being doubts or suspicion as to the plaintiff’s case is that such doubts detract from the plaintiff’s right to summary judgment. It is not to the point to dismiss them on the basis that they did not improve the quality of the defence and ‘raise it’ beyond the category of ‘shadowy’. If possibly genuine weaknesses were exposed in the plaintiff’s case, this casts doubt on the plaintiff’s right to invoke the summary procedure in the first place”. (Emphasis added).

14.  The bank documents evidence an unusual “round-robin” of funds that appears to be inconsistent with the plaintiff’s case of a straightforward out-and-out loan to Zhao.  No evidence has been adduced by the plaintiff to explain that movement of funds.  As I have said, if there is such evidence, it is open to him to produce it for trial.  But it is clear that this is a case which requires pleadings, discovery, inspection of documents, and cross-examination of witnesses at trial.  In other words, this is not a case which is suitable for summary judgment. 

Order

15.  Accordingly the appeal is allowed, the summary judgment is set aside, the 1^st defendant will have unconditional leave to defend, and it is directed that the case be fixed for hearing before a master for such directions as either of the parties or the court may consider necessary. 

16.  Since recent public records show that the legal title to the convertible bonds has been transferred by the 2^nd defendant to the plaintiff and have been disposed of, it was also ordered that the plaintiff shall within 14 days from the date of this Order file and serve an affirmation or affidavit giving a full account of all his dealings of or in the convertible bonds including, but not limited to, (i) the nature, (ii) the date, (iii) the name and contact details of counterparties, and (iv) the consideration for each such dealing.

17.  As for costs, we reserved judgment on the 1^st defendant’s application for costs here and below, and further gave the plaintiff 14 days in which to make written submissions limited to whether the appeal should be certified for the attendance of two counsel.