WEI JIYANG v. TEO KUNG KIN AND OTHERS

HCA 146/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 146 OF 2009

____________

BETWEEN

____________

(Heard Together)

______________

J U D G M E N T

______________

I. INTRODUCTION

1.  In Action 146 Wei seeks summary judgment against Teo and Lau for RMB 3.28 million said to be due under a Chinese Loan Agreement dated 6 December 2007. In Action 147 Wei seeks summary judgment against Teo for the transfer of Teo’s sole share in Daat Technology Development Co. Ltd. (Daat HK) pursuant to a Chinese Share Transfer Agreement also dated 6 December 2007.

II. ACTION 146

2.  On the face of the Loan Agreement, Wei lent RMB 3.28 million to Teo to enable the latter to pay off monies (collectively, the Original Loan) of roughly the same amount (inclusive of principal and outstanding interest)due to Min Sheng Bank (the Bank). Clause 7 states that Teo and Lau “will try their best effort and every means to raise fund for the repayment of the said loans to Party A [that is, Wei]”. In the event of default in repayment by Teo, Clause 9 states that Wei will be “entitled to take legal action to claim for repayment of the Loan against Parties B and C [that is, respectively, Teo and Lau]”.

3.  There is no dispute that Teo has failed to repay the monies advanced under the Loan Agreement.

4.  By way of defence, Teo tells an elaborate story.

5.  Teo alleges that Wei had orally agreed to pay him HK$3 million in compensation for Teo’s having substantially assisted Wei in the acquisition of a property in Shantou. Such sum (according to Teo) was also supposed to be “part consideration” for Teo’s share in Daat HK.

6.  So as not to affect his financial liquidity, Wei (Teo claims) requested Teo to borrow the promised compensation from the Bank with Wei guaranteeing such loan. This was the genesis of the Original Loan. Wei is said to have assured Teo that the Bank would only look to Wei for repayment of the Original Loan. Thus, it is Teo’s case that he did not actually borrow monies from the Bank. In actuality, it was Wei who did so (through Teo) as a means of paying the promised $3 million to Teo.

7.  Teo then alleges that in December 2007 Wei wished to restructure the Original Loan. Wei (Teo says) asked Teo and Lau to sign the Loan Agreement because it was one of the documents which the Bank required for the envisaged restructuring. Wei (Teo pleads) represented that the signing of the Loan Agreement by Teo and Lau was a pure formality and the Loan Agreement would never be enforced against them. Teo adds that, insofar as Teo and Lau both pledged their shares in Kia Nguan to Wei as security for the monies ostensibly being advanced by Wei to Teo under the Loan Agreement, such pledges were simply window dressing to make the Loan Agreement look more valuable to the Bank.

8.  In consequence of the foregoing, Teo contends that the Loan Agreement is an unenforceable nullity.

9.  I find Teo’s defence to be incredible. It strikes me as complete assertion, which is unsupported (and in critical places contradicted) by contemporaneous documentation.

10.  For example, it is difficult to square the amount of RMB 3.28 million advanced under the Loan Agreement with the alleged promised compensation of HK$3 million. In his affirmation evidence, Teo is himself vague on this point, at times referring to the promised consideration being RMB 3 million and at other times HK$3 million. The numbers simply do not add up.

11.  Nor is the alleged “part consideration” of HK$3 million mentioned in the Share Transfer Agreement. Instead, contrary to Teo’s case, that Agreement refers to a payment of $560,000 from Wei to Teo (by way of set-off against a debt of $620,000 due from Teo to Wei) in connection with the share transfer and a purely “nominal consideration” of $1 for the actual transfer of the Daat HK share.

12.  Lau echoes Teo’s defence. But Lau adds that there was no consideration for his involvement in the Loan Agreement. In any event, Lau claims that his liability only extends to the value of his shares in Kia Nguan.

13.  I do not think that absence of consideration is an arguable defence. Teo and Lau were business associates. A person X may receive valid consideration where a person Y obtains a benefit at X’s request. It is entirely plausible that Lau would perceive himself as obtaining a benefit if monies were advanced to his associate Teo, such that in return Lau would agree to be responsible for repayment (that is, in effect, to act as guarantor) in the event of Teo’s default.

14.  Mr. Jeevan Hingorani (on behalf of Teo and Lau) submits that there is no obvious commercial reason why Lau would agree to stand as guarantor for Teo’s debt beyond the extent of his minor Kia Nguan shareholding. Mr. Hingorani suggests that, to the contrary, the minimal value of Lau’s shares lends credibility to Teo and Lau’s case that Lau was only brought in to make the security of Kia Nguan shares stipulated in the Loan Agreement more palatable to the Bank. This is because Teo and Lau claim that, where shares are offered as security, Mainland banks prefer a pledge of at least a 51% company shareholding. Without Lau’s shares, Teo’s shareholding in Kia Nguan of slightly over 50% would not have made that 51% threshold.

15.  But I am not persuaded that there is anything in Mr. Hingorani’s submission. As I have said, Lau being a business associate of Teo, it is unremarkable that he would be amenable to guaranteeing repayment by Teo. For one thing, that presumably would have made it more attractive for Wei to lend to Teo.

16.  Nor do I accept that Lau’s liability is limited to the value of his Kia Nguan shares. That is simply not what the Loan Agreement says. I am unable to read the words which I have quoted from Clause 9 as qualified in such a way that Lau is to be read as only agreeing to Wei suing him “to the extent of the value of Lau’s Kia Nguan share”. Under the Loan Agreement, Lau pledged his Kia Nguan shares as security. But (it seems to me) he went beyond that and also undertook to be responsible for (and to use his best efforts to ensure repayment of) the entire debt.

17.  There is accordingly no defence to Wei’s claim for repayment of the monies due from Teo and Lau under the Loan Agreement.

III. ACTION 147

18.  Despite the time for performance under the Share Transfer Agreement long since having passed, Teo has not transferred his Daat HK share.

19.  Teo says that this is because there was “a global understanding” between him and Wei that the share transfer was conditional upon:-

(1)  the payment of RMB 3 million as “compensation ... for all my efforts over the years in assisting [Wei] with the Shantou Property and expansion of Daat Shantou [Wei’s Mainland company] into foreign markets”; and,

(2)  Teo being able to ascertain and confirm that “there is no hidden and unexpected liabilities that [he] may face in the future (for [his] past role as the Chairman and Legal Representative of Daat in China)”.

20.  Mr. Hingorani on behalf of Teo suggests that the existence of the understanding is plausible in the circumstances. But I cannot agree.

21.  The understanding is said to have been arrived at orally, although just when and how is unparticularised. On that basis alone, I do not see how I can give leave to defend. It is incumbent upon a defendant faced with a summary judgment application to condescend to particulars. A defendant does not get leave to defend by only putting forward a vague case and saying that all will become clear at trial.

22.  Further, the alleged defence is contradicted by contemporaneous documentation.

23.  For example, as already mentioned, the Share Transfer Agreement makes no mention of the first condition (whether in the amount of RMB 3 million or HK$3 million). On its face, the Share Agreement contradicts the existence of the first condition by referring to a completely different consideration.

24.  There is no mention either of the second condition in the Share Transfer Agreement. It is suggested that I can infer the existence of the second condition from the fact that the Share Transfer Agreement mentions completion upon the preparation of an audit report for 2007 by a specified Auditor. But I do not see how I can so infer. There is nothing self-evident about the alleged second condition such that its existence can be implied from the mere mention of the audit report in the Share Transfer Agreement.

25.  I note that a 2007 audit report was produced by the Auditor and signed by Teo. But Teo says that the audit report is inadequate because it does not deal with the Shantou property. In relation to this, I agree with Mr. Kenneth Chan (appearing for Wei) that it is hard to understand how Teo can both approve the audit report and then criticise it as inadequate at the same time.

26.  Accordingly, I do not think that there is an arguable defence against Wei’s claim under the Share Transfer Agreement.

III. CONCLUSION

27.  Wei succeeds in his applications for summary judgment. I shall hear the parties on consequential orders.