BANK OF COMMUNICATIONS (HONG KONG) LTD v. CHINA FORTUNE ENTERPRISES LTD AND OTHERS

DCCJ 116/2023

[2024] HKDC 2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 116 OF 2023

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BETWEEN

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DECISION

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1.  The 4^th Defendant (“D4”) appeals against the Decision given by a Master on 1 August 2024, whereby a final judgment was entered against him with respect to the plaintiff’s claim, and his counterclaim was struck out under Order 18 rule 19 of the Rules of the District Court (Cap.336H). By this appeal, D4 asks that he should be given unconditional leave to defend the plaintiff’s claim, and the striking out order should be set aside.

Background

2.  It is well known that the plaintiff is a licensed bank in Hong Kong. According to the plaintiff:

2.1. By a facility letter dated 17 November 2017 and signed by the signatories on 22 November 2017 (“the Facility Letter”), together with its terms and conditions for banking facilities (“the Terms and Conditions”), the plaintiff’s predecessor entity[1] granted an instalment loan of $8,000,000.00 (“the Loan”) to the 1^st defendant (“D1”) [2];

2.2. In consideration of the Loan, each of the 2^nd to 5^th defendants (“D2” to “D5” respectively) executed a Deed of Guarantee dated 22 November 2017 (“the Guarantee”), by which they jointly and severally agreed to pay the plaintiff, on demand in writing, all sums of money owed to the plaintiff by D1.

3.  D1 defaulted on the repayment of the Loan. After receiving a written demand asking for repayment of D1’s indebtedness from the plaintiff, none of D2 to D5 so repaid the plaintiff. As at the issue of the Writ on 10 January 2023, D1’s indebtedness amounted to $2,352,797.93.

4.  D1 and D3 did not appear in the present case after they were served with the Writ. Final judgments have already been entered against them. Apart from D4, D2 has also entered appearance and sought to defend the plaintiff’s claim. It appears that the plaintiff is attempting to serve the Writ on D5 out of jurisdiction.

5.  By way of his Defence and Counterclaim dated 20 March 2023, D4 claims that:

5.1. He was born in China and was educated up to the 1^st year in high school. He came to Hong Kong in 1989. He can only understand Chinese: §2;

5.2. D1 is owned by a BVI company called Year Fortune Holdings Limited (“Year Fortune”) and a Hong Kong company called Able Style Limited (“Able Style”), with D3 as its director: §5.1[3]. D4 is neither a shareholder or a director of D1: §5.2;

5.3. D4 was introduced to Mr Tsui King Leung Leo, D3’s husband, in 2015: §5.3.1. Since then, D4 invested into the restaurant business held out by Mr Tsui to be owned and managed by him and D3: §5.3.5. This first involved a loan of $2,500,000.00 D4 extended to China Luck Enterprises Limited, which D3 understood to be one of the companies comprising Mr Tsui’s restaurant business, on 21 December 2015: §5.3.6. This loan was fully repaid according to its terms: §5.3.8;

5.4. D4 and Mr Tsui also opened a restaurant called Hei Wo Restaurant in 2016. But D4 transferred his shares to some third parties in 2018 upon losses suffered by the restaurant: §5.4;

5.5. In 2017, Mr Tsui “formally informed” D4 his plan to seek listing on the stock exchange to expand his restaurant business. Mr Tsui invited D4 to invest in Asia Catering (Holding) Limited (“Asia Catering”), in which D3 was a director. D4 was further told that D2, D3 and D5 would also be shareholders in Asia Catering, but he was not told whether Asia Catering would be holding Mr Tsui’s restaurant business, or whether it would be the corporate vehicle for listing Mr Tsui’s restaurant business. D4 agreed to invest and became a 12.6% shareholder in Asia Catering in 2017[4]: §5.5;

5.6. In August 2017, Mr Tsui asked D4 to sign some documents purportedly for Asia Catering’s daily operations: §6.2.1;

5.7. Afterwards, D4 was asked by Mr Tsui to attend the plaintiff’s branch in Ngau Tau Kok for opening a corporate account for Asia Catering. On that occasion, D4 was not asked to produce his identity card, nor was he required to sign any document: §6.2.2;

5.8. Later in 2017, Mr Tsui again asked D4 to sign some documents purportedly for opening a bank account. On that day and at the carpark of D4’s residence, Mr Tsui only provided some signing pages to D4: §§6.2.5-6.2.6;

5.9. D4 signed on those blank signing pages, believing them were for opening a bank account in relation to Asia Catering, because of (i) Mr Tsui’s assurance that it would be safe for him to sign on them; and (ii) he saw D2, D3 and D5 had already signed on them: §6.2.10. D4 signed those pages in the absence of D2, D3 or D5, or any of the plaintiff’s representatives: §6.2.5;

5.10. It later turned out that D4 actually signed on the Facility Letter and the Guarantee: §11.7.

6.  It is D4’s claim that (i) he had no knowledge that the plaintiff extended the Loan to D1 by way of the Facility Letter; (ii) he did not know he became a guarantor for the Loan; and (iii) he did not know he was a shareholder of D1.

7.  In reply to D4’s Defence and Counterclaim, the plaintiff pleads in its Reply and Defence to Counterclaim that:

7.1. Apart from the Facility Letter and the Guarantee, D4 also signed (i) an Application Form on 29 September 2017; (ii) an Acknowledgement on 29 September 2017; (iii) a Warning Notice on 21 November 2017; and (iv) a Confirmation from Surety on 22 November 2017: §7(a). The parties refer (i) to (iv) as the “Supplementary Documents”;

7.2. On various parts of the Supplementary Documents, there were Chinese translations which could indicate to D4 that he was to act as a surety in signing them;

7.3. D4 signed on the Supplementary Documents with Mr Ng Shing Pan (“Mr Ng”), an officer employed by the plaintiff, as the witness[5]: §7(c). Mr Ng also explained to him the Loan and the Guarantee.

8.  The plaintiff supported its application for summary judgment and striking out by the Affirmation of Wong Kai Wing dated 22 February 2024 (“Wong 1^st”), and the 2^nd Affirmation of Wong Kai Wing dated 17 July 2024 (“Wong 2^nd”). D4 files his affirmation dated 20 June 2024 in opposition to the application (“Lai Aff”). Upon hearing the parties, the learned Master ruled in favour of the plaintiff, and gave the orders as set out above.

9.  It is trite that, in this appeal, I am not bound by the reasons given by the learned Master. Indeed, parties have not sought to put before me the ex tempore reasons given by the learned Master.

This appeal

10.  D4’s counsel, through their industry, have submitted a 64-page skeleton argument and a list of authorities with 22 cases to this Court[6]. Insofar as I can understand them, they argue that D4 has raised a triable defence because:

10.1. D4 was a victim of an elaborated scam perpetuated by Mr Tsui. He was asked to make investments in companies like Asia Catering, which turned out was not relevant to Mr Tsui’s restaurant business;

10.2. In relation to the present case, the scam was practised on D4 through Mr Tsui’s misrepresentation and/or undue influence in procuring D4’s signatures on the Facility Letter and the Guarantee;

10.3. Mr Tsui misrepresented the Facility Letter and the Guarantee as documents for opening a bank account for Asia Catering. Based on D4’s pleaded case, these documents must have been signed at the carpark of his residence, where only he and Mr Tsui were present;

10.4. Mr Tsui unduly influenced D4 as D4 reposed trust and confidence in him, in relation to matters concerning Mr Tsui’s restaurant business that D4 invested in;

10.5. The plaintiff knew or ought to have known that the relationship between Mr Tsui and D4 was non-commercial, in that D4 was not paid any fee for entering into the Guarantee; and D1 was not part of the companies running Mr Tsui’s restaurant business;

10.6. In any event, the Facility Letter and the Guarantee should be declared null and void because of non es factum, or it being an unconscionable bargain;

10.7. The Supplementary Documents lend support to D4’s case. Despite D4 puts the plaintiff to strict proof to show that the signatures on the Supplementary Documents were genuinely his, the plaintiff has not put forward any evidence from Mr Ng directly to show that he did witness D4’s signatures. As such, the circumstances in which the Supplementary Documents were purportedly signed by D4 were suspicious, such that this Court should not enter a summary judgment in the plaintiff’s favour.

11.  The plaintiff’s counsel, through equal industry, have submitted a 50-page skeleton argument with a list of authorities of 15 cases to this Court. They submit that the summary judgment was rightly entered by the learned Master because:

11.1. D4’s case on any fraud and/or misrepresentation was purely premised on his bare assertions. It should be rejected as simply unbelievable;

11.2. D4 has not raised at least a triable issue on whether the plaintiff ought to be bound by Mr Tsui’s fraud, misrepresentation, and/or undue influence;

11.3. In any event, the defences of non es factum and unconscionable bargain have not been made out;

11.4. The challenge to the authenticity of D4’s signatures on the Supplementary Documents is irrelevant to the plaintiff’s application for summary judgment. The challenge fails to cast doubt on the authenticity of those signatures anyway.

12.  After hearing counsel on both sides, I conclude that the plaintiff is entitled to summary judgment.

13.  First, I am of the view that D4 fails to show why the plaintiff ought to be fixed with any constructive notice of the fraud Mr Tsui allegedly practised on him. This is fatal to the merits of any proposed defence raised by D4.

14.  Assume, for the moment, that D4 indeed signed some blank signing pages as requested by Mr Tsui at the carpark of his residence some time in November 2017. D4 asks me to infer that Mr Ng must have been asked by Mr Tsui not to go to the carpark to witness D4’s signature; as such, Mr Ng ought to have known that D4’s signature was procured by some equitable wrongs Mr Tsui practised on D4.

15.  I cannot accept D4’s submissions for the following reasons:

15.1. As shown by a Certificate of Incumbency dated 8 May 2017 and issued by Year Fortune’s agent in BVI, D4 was an 18% shareholder in Year Fortune alongside with D2, D3 and D5. Another Certificate of Incumbency dated 1 December 2017 confirmed the same shareholding structure. These certificates were put forward by the plaintiff as exhibits to Wong 1^st. They bear Mr Ng’s name stamp or signature. D4 does not have any challenge to the plaintiff’s knowledge about the shareholding in Year Fortune and in D1;

15.2. From the plaintiff’s point of view, there were ample reasons why D4 was willing to provide a guarantee to the loan extended to D1. It could not have been surprising that D2 to D5 would agree to act as guarantors for a subsidiary like D1[7];

15.3. There is no other evidence which may implicate Mr Ng in Mr Tsui’s scam, or suggest that the plaintiff knew or ought to have known the existence of the scam. In light of the seriousness of D4’s allegation, I find the inference he invites me to draw as practical moonshine. It might be that Mr Ng flouted the plaintiff’s guidelines on how documents like the Facility Letter and the Guarantee should be signed and witnessed, if D4’s assertions on how he signed them believable. But this cannot be equated to Mr Ng being complicit in Mr Tsui’s scam.

16.  D4 then suggests that Mr Tsui acted, or should be seen as having acted, as the plaintiff’s agent in obtaining his signatures at the carpark. Therefore, the plaintiff was bound by Mr Tsui’s misrepresentation and/or undue influence.

17.  Again, I cannot accept D4’s submissions. There is no evidence to suggest that Mr Tsui had any actual authority from the plaintiff to act as its agent. I find that Mr Tsui did not have any ostensible authority as well:

17.1. Even on D4’s own case, he does not suggest to have been told that Mr Tsui was authorised by the plaintiff in any way;

17.2. On D4’s own case, Mr Tsui did not seek to act as a witness to his signatures. The document he signed were purportedly ones for opening Asia Catering’s account. On that understanding, D4 could not have expected the plaintiff to have made any representation concerning its interest through Mr Tsui. In my view, there was no conduct in Mr Tsui that could be said to have represented the plaintiff.

18.  Thirdly, I find no substance in D4’s submissions that the plaintiff knew, or ought to have known that the relationship between D1 and D4 was non-commercial, such that it was put on constructive notice when the Facility Letter and the Guarantee were manifestly disadvantageous to D4’s interest:

18.1. As stated above, the plaintiff was informed that D4 was a shareholder one of D1’s holding company;

18.2. There is no evidence to show that the plaintiff knew, or ought to have known that D4 reposed trust and confidence in Mr Tsui. There was nothing sinister, without more, for Mr Tsui to allegedly run the errands of getting documents signed for Asia Catering;

18.3. Hence, I find that, from the plaintiff’s point of view, D4 had an arm’s length relationship with D1. Such a relationship is common in the business world. It is not arguable at all that the plaintiff knew, or ought to have known that D4 was probably taken advantage of in agreeing to the Facility Letter and the Guarantee.

19.  Fourthly, I find D4’s case on the alleged misrepresentation and/or undue influence by Mr Tsui plainly unbelievable. D4’s case on how his signatures appeared on the Facility Letter and the Guarantee is purely based on his bare assertions. Whilst I accept D4’s submissions that, looking at the nature of his case, there is necessarily a lack of contemporaneous documents corroborating his assertions, I find his evidence implausible in light of the surrounding circumstances:

19.1. As the plaintiff submits, it was stated in English and Chinese on the signing page of the Guarantee that it was a deed of guarantee to be signed, sealed and delivered by the persons signing on that page;

19.2. D4 asserts, sweepingly and generally, that he was not given the whole page by Mr Tsui when he put down his signature in the carpark; and Mr Tsui could have easily covered the Chinese words on the page. I find it inherently implausible that D4 did not raise an eyebrow despite how overtly Mr Tsui allegedly hindered him from seeing the full signing page;

19.3. D4 also seeks to suggest he would not have been alerted to Mr Tsui’s misrepresentation even if he saw Chinese words of guarantee on that signing page, because he was also in a joint venture with D2 and D3 for purchasing a property in Ka Shin Street in Kowloon (“the Ka Shin Street Property”). Before the assignment of the Ka Shin Street Property, Mr Tsui asked him to sign on certain documents, which he was told were for making mortgage applications to several banks. He was also told that he might need to provide a personal guarantee for such application(s);

19.4. The land search of the Ka Shin Street Property shows that it was assigned to D2 on 20 January 2017, with a mortgage executed on the same day. D2, D3, D4 and D4’s associate entered into a written agreement on 15 June 2017, in which the parties acknowledged that D2 would hold the Ka Shin Street Property on trust for D4 and his associate. Clause 5 of that agreement stated that D2 agreed not to seek any re-mortgage or additional mortgage, the performance of which was guaranteed by D3;

19.5. Based on the documents, after June 2017, there could be no basis for D4 to be called up to give a personal guarantee for any mortgage application for the Ka Shin Street Property. The mortgage was already in place; and D4 extracted a promise from D2 and D3 that the mortgage would remain in place. Hence, D4 could not have mistaken any Chinese words of guarantee that Mr Tsui asked him to sign to be relating to the Ka Shin Street Property, when he saw those words on the papers he was asked to sign in the carpark in late 2017;

19.6. D4 deposes that he withdrew his investment in Hei Wo Restaurant upon his own decision, apparently without any influence from Mr Tsui. This appears inconsistent with D4’s stance that he relied on Mr Tsui for his decisions concerning Mr Tsui’s restaurant business.

20.  D4 refers me to China Citic Bank International Limited v China Will Enterprise Limited & Ors [2024] HKCFI 1859 (Deputy Judge Jonathan Wong; 24 July 2024). In that case, D4 was the 12^th defendant; D1, D2, D3 and D5 were also named as defendants. The learned Judge decided, upon D2’s application, to set aside a default judgment against D2 for $37,000.00 and $49,886,876.25 plus interest.

21.  The bank’s claim was premised on an unlimited guarantee signed by D2 to D5 in respect of the liabilities of China Will Enterprise Limited (“China Will”). Whilst D2’s evidence appears to be conflicting on whether he signed the guarantee and the 2 facility letters extending credit limit of $4,000,000.00 to China Will in 2017 and early 2018, he argued that he did not know about the 3 subsequent facility letters in mid-2018 to 2020 that progressively increased the credit limit to $51,659,000.00.

22.  The learned Judge accepted that D2 demonstrated a sufficiently plausible defence for setting aside the default judgment. His reasoning appears to me to lay emphasis on the following matters:

22.1. In MTR Corporation Limited v China Luck Enterprises Limited [2024] HKCFI 1099 (Deputy Judge Reyes SC; 17 April 2024), the court accepted that D2’s signature in the surety deed executed in favour of MTRC on 1 June 2018 was probably forged by D3 and Mr Tsui;

22.2. Despite the substantial increase in the credit limit granted by the 3 subsequent facility letters, the bank did not put forward, unlike the guarantee signed by D2 in 2017, evidence showing that D2 acknowledged that the bank’s established procedures were complied with;

22.3. Coupled with other inconsistencies in the bank’s documentary case, it was suspicious that the bank did not put forward any affidavit evidence from the officer allegedly witnessing D2’s signatures in the 3 subsequent facility letters.

23.  In my judgment, the circumstances in which the learned Judge in China Citic Bank concluded that D2’s defence therein was not unbelievable were different from the present case:

23.1. I do not find the plaintiff’s evidence inconsistent or suspicious as to how the Facility Letter, the Guarantee, and the Supplementary Documents were signed by D4;

23.2. In China Citic Bank, the 3 subsequent facility letters which substantially increased the credit advanced to the borrower were not signed by D2 contemporaneously with the guarantee, but at much later times. It was open to the learned Judge to think that the propensity of fraud allegedly practised by Mr Tsui was significant. For the present case, the Facility Letter and the Guarantee were executed by D4 at the same time. The likelihood of such fraud was not the same. I doubt whether the learned Judge would think D2 still believable, if the bank’s claim were restricted to the guarantee and the 2 earlier facility letters;

23.3. The times at which Mr Tsui committed the alleged equitable wrongs on the parties were different: the alleged misrepresentation in the present case purportedly happened in 2017; China Citic Bank concerned forgery allegedly committed in mid-2018 and thereafter.

24.  Hence, I disagree with D4; I find China Citic Bank unhelpful to evaluate whether D4 has raised a defence worth investigating at trial.

25.  Finally, I can dispose of D4’s arguments on non es factum and unconscionable bargain shortly. It is D4’s own case that he knew he was only given part of a document when he was allegedly asked by Mr Tsui to sign on them. There is nothing to indicate that D4 was prevented, apart from Mr Tsui’s persuasion, from taking time to make whatever inquiry as to the nature and effect of the few pieces of papers he was given. Given his background as a businessman[8], I find him clearly careless in defending himself against assuming any legal liability that he was not told of. In my judgment, D4 fails to overcome the heavy burden placed upon him for invoking non es factum[9]. Nor has D4 shown that his bargaining position was so weak that the law should offer him protection against any alleged unfairness in enforcing the Guarantee against him[10].

26.  In my judgment, D4’s arguments do not reveal any defence to resist the plaintiff’s claim.

27.  Given my decision that the plaintiff is entitled to summary judgment against the defendant, it is proper to strike out the defendant’s counterclaim as frivolous and an abuse of the process of the court: see the commentary in Hong Kong Civil Procedure 2024 at §18/19/7.

Conclusion

28.  D4’s appeal is dismissed with costs to the plaintiff, with certificate for a counsel. Clause B(d) of the Guarantee provides that the plaintiff’s costs in relation to the Guarantee shall be repaid by the guarantors on a full indemnity basis. I think it is fair for the costs of this appeal to be taxed on indemnity basis.

29.  The plaintiff has submitted a statement of costs for summary assessment, asking for $185,156.00. I consider the sum excessive[11] even when it is to be taxed on indemnity basis. I summarily assess the plaintiff’s costs at $160,000.00.

30.  The above costs order is nisi. Any application for variation should be made by letter within 14 days of this Decision, and shall be dealt with on paper.