GEODESIC TECHNOLOGY SOLUTIONS LTD v. AXIS BANK LTD

HCMP 2287/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2287 OF 2013

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D E C I S I O N

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Introduction

1. The plaintiff commenced this action in September 2013.  The relief sought is:

(a) the deed of appointment of receiver and manager dated 23 April 2013 (“the said appointment deed”) (exercisable by the defendant) be declared invalid and of no effect;

(b) the appointment of the joint and several receivers and managers (“the said receivers”) by the defendant purportedly pursuant to the said appointment deed be set aside.

The defendant opposes the application.

Background

2. The background summarized below is substantially undisputed.

3. The defendant is a bank incorporated in India and has a branch operating in Hong Kong.

4. The plaintiff is a company incorporated, and has business operation, in Hong Kong.  It was the defendant’s former customer and, by 4 March 2013, owed to the defendant a sum of about US$36 million.

5. The defendant has been lending money to the plaintiff.  The earliest loan document in the hearing bundles was dated 23 February 2010 (the latest was dated 14 September 2012).  Apart from this loan document, the plaintiff has also signed other loan documents; these will be referred to below if and when necessary.

Summary of issues

6. The outcome of this action turns entirely on contractual construction: para 3 to 7, plaintiff’s skeleton submissions.  In the present context, the relevant legal principles are reasonably settled and will not be repeated.  The authorities referred to by the parties include (chronologically):

(i) Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896;

(ii) Jumbo King Ltd v Faithful Properties Ltd and Others (1999) 2 HKCFAR 279;

(iii) Bank of Credit and Commerce International SA v Ali and Others [2001] 2 WLR 735;

(iv) New World Harbourview Hotel Co Ltd v ACE Insurance Ltd (2012) 15 HKCFAR 120;

(v) Fully Profit (Asia) Ltd v The Secretary for Justice FACV 17/2012 (13 May 2013).

7. The principal document relied on by the plaintiff to advance its case is a letter dated 24 May 2012 (“the executed May 2012 letter”).  The reason why this has been abbreviated as the executed May 2012 letter is because there was another letter with the same date but which has not been signed by the plaintiff.

8. The principal document relied on by the defendant to refute the claim in this action is a debenture dated 17 March 2011 (“the March 2011 debenture”).

9. Time-wise therefore, the March 2011 debenture came into existence slightly more than one year before the executed May 2012 letter.

10. The gist of the plaintiff’s case has been set out in its skeleton submissions as follows:

“… [the March 2011 debenture] relates to earlier … [banking] facilities extended to it by [the defendant] and does not relate to the subsequent … facilities, in respect of which [the plaintiff] has defaulted, as a result of an agreement between the parties that the subsequent … facilities would be subject to new security” (emphasis supplied) (para 4 thereof).

The phrase “an agreement” refers to the executed May 2012 letter: para 25 and 47, plaintiff’s skeleton submissions.  The words “earlier” and “subsequent” are to be understood in such context.  However, the plaintiff does not argue the terms of the March 2011 debenture were incapable of enabling the appointment of the said receivers. 

11. On the other hand, the defendant’s case is in essence:

(1) the March 2011 debenture:

(a) was a stand-alone agreement: para 7, defendant’s written submissions;

(b) was a continuing all monies security over all sums due and owing by the plaintiff to the defendant: para 7 and 14, defendant’s written submissions;

(c) has been registered against the plaintiff in the Hong Kong Companies Registry: para 8, defendant’s written submissions;

(d) has not been discharged or waived by the defendant: para 8, defendant’s written submissions;

(2) the executed May 2012 letter was not a stand-alone arrangement, but a renewal and continuation of the general banking facilities provided by the defendant to the plaintiff since February 2010: para 16, defendant’s written submissions;

(3) irrespective of whether the executed May 2012 letter was such a stand-alone arrangement, there is no valid basis, whether by reasons of:

(a) its terms; and/or

(b) the course of dealings between the parties (before and after the date of the executed May 2012 letter),

to conclude that the March 2011 debenture has somehow been discharged, waived or varied so as not being able to cover the banking facilities referred to in the executed May 2012 letter: para 15, 17 and 18, defendant’s written submissions.

12. The above points will be further discussed below.

Was the March 2011 debenture a self-standing agreement?

13. It can be inferred the March 2011 debenture was executed in compliance with the terms of the defendant’s letter dated 17 March 2011 (“the March 2011 letter”).  The relevant parts of the March 2011 letter read:

“Further to [the defendant’s] Facility Letter … dated February 23, 2010, we are pleased to renew and increase the following general banking facilities … to USD 35.0 million … subject to … the terms and conditions as stated below … ”;

“The availability of the [above] Facilities shall be subject to the conditions precedent that [the defendant] has received … satisfactory to [the defendant] … debenture incorporating a fixed charge and a floating charge over all [the plaintiff’s] assets (both present and future) … to secure general banking facilities from time to time and at any time granted or to be granted by [the defendant] to [the plaintiff] … ” (emphasis supplied) (clause 2 thereof).

(the defendant’s earlier letter of 23 February 2010 also required (among other things) a debenture to be provided; but there is no evidence whether the debenture has in fact been provided)

14. Further, the March 2011 debenture itself provided (among other things):

“In consideration of [the defendant] granting or agreeing to grant or continuing to grant to [the plaintiff] the Facilities applied for … [the plaintiff] HEREBY COVENANTS with [the defendant] that … [the plaintiff] will ON DEMAND … pay make good and discharge to [the defendant] all sums of monies obligations and liabilities whether past present or future actual or contingent which are now or may at any time hereafter be or become from time to time due owing or incurred … ” (emphasis supplied) (clause 2.1 thereof);

“The security hereby constituted shall be, and will at all times hereafter, be a continuing security, and shall remain in operation to secure whatever may be the ultimate balance at any time or from time to time due to [the defendant] in respect of the Secured Indebtedness … until all of the Secured Indebtedness has been paid off or satisfied in full” (emphasis supplied) (clause 25.1 thereof).

“Secured Indebtedness” was defined by the March 2011 debenture to mean:

“… all sums from time to time advanced by [the defendant] to [the plaintiff] and outstanding in respect of the Facilities … and all other moneys payable and obligations in respect of moneys which [the plaintiff] covenants to pay to [the defendant] under the terms of this Debenture” (clause 1.1 thereof).

“Facilities” was defined in the recital of the March 2011 debenture to cover the following:

“[The plaintiff] has requested [the defendant] to lend and advance certain credit facilities … ”.

15. Also relevant to this issue is clause 3.4 thereof which provides:

“[The defendant] may upon the request of [the plaintiff] and subject to any terms and conditions which [the defendant] may impose make or grant such further loans/advances/facilities to [the plaintiff] from time to time to the intent that such further loans/advances/facilities shall be secured by, and to form part of this Debenture” (emphasis supplied).

16. It is undisputed banking facilities have in fact been lent and advanced to the plaintiff pursuant to the March 2011 letter and the March 2011 debenture.  There was therefore good consideration for the March 2011 debenture.

17. Further, unlike the letters granting (or renewing) the banking facilities, the March 2011 debenture did not provide for any time period beyond which it would become “spent” (see also para 20(b) and 21 below for more details on the loan periods).

18. By virtue of the above (and the matters discussed under the headings below), I find that the March 2011 debenture is and was a self-standing agreement and its terms are and were binding on the plaintiff.  For the same reason, I also agree with para 11(1)(b) above.

Was the executed May 2012 letter a self-standing transaction?

19. The executed May 2012 letter began with the following:

“We refer to your request for renewal of working capital facilities … We are pleased to inform you that the following credit facilities have been renewed to you for the period as mentioned below … ” (emphasis supplied).

20. Further to the language used above, up to the date of the executed May 2012 letter, the undisputed related background facts were:

(a) the banking facilities granted to the plaintiff (the amounts of which varied from time to time) were for the express purpose of its “working capital requirements”;

(b) the said bank facilities were for fixed loan periods which the defendant might (and did) extend;

(c) the said banking facilities had never been fully repaid by the plaintiff to the defendant: para 14, defendant’s written submissions.

For completeness, it is noted the above state of affairs remained the same after that date (the loan periods referred to in sub-para (b) above ranged from about 1 month to 1 year).

21. The loan periods stated in the executed May 2012 letter were to end:

(1) in relation to US$20 million, on 24 May 2013;

(2) in relation to US$15 million, on 24 August 2012.

22. In view of the above, I agree with the defendant that the executed May 2012 letter was part of the continued and/or renewed banking facilities, and not a wholly new stand-alone arrangement: para 5, 13 to 14 and 16, defendant’s written submissions.

23. The plaintiff contends that the words “renewal” and “renewed” in the executed May 2012 letter (para 19 above) were misnomers. It is argued that the banking facilities were in fact “back-to-back” facilities.  However, when queried further about its true meaning, the plaintiff (correctly) accepts there is no real difference in substance between the so-called “back-to-back” facilities arrangement, and the defendant’s case set out in para 11(2) and 22 above.

24. The plaintiff also contends that the periods provided for in the various letters (para 20(b) and 21 above) were intended to be the periods within which the banking facilities could be drawn down.  The defendant disagrees and points out that the period was expressly referrable to “facility maturity”, not the time for the draw-down of the same.  I agree with the defendant and disagree with the plaintiff over this.

Has the March 2011 debenture been rendered ineffective?

25. This issue has to be considered at the time of the appointment of the said receivers, that is, 23 April 2013.

26. The loan periods for the executed May 2012 letter have been set out in para 21 above.  Hence, by 23 April 2013, the loan period stated therein for the US$15 million facility has already lapsed (it should then be covered by the loan periods stated in the letters dated 24 August and 14 September 2012), though that for the US$20 million still has about a month remaining.

27. The plaintiff’s case has already been summarized in para 10 above.  In short, it is contended that the banking facilities covered by the executed May 2012 letter were exclusively covered by the terms and conditions expressly stated therein.  In relation to the security for those facilities, the security expressly mentioned therein was the provision of:

(a) a first charge on the plaintiff’s current assets;

(b) a corporate guarantee;

(c) a lien/assignment over the FD’s (probably referring to “fixed deposit(s)”) to the extent of US$35 million, to be executed by 7 June 2012.

The plaintiff calls them the “new” security.

28. Reliance has also been placed by the plaintiff on the deadline for creating the above security stated in the executed May 2012 letter.  It is argued that the imposition of a deadline for the creation of the said “new” security necessarily implies that the same was intended to be the only security.

29. I understand “necessary implication” here to refer to the trite legal principles for implying terms into a contract: Chitty on Contracts (2012) 31^st Ed, Ch 13 (especially at para 13-001 to 13-011).  But I do not agree that the above argument has merit; in the present context (of renewal (or even a grant, according to the plaintiff) of banking facilities), a requirement that new security has to be created by a certain date does not necessarily imply that any existing security should be rendered ineffective.

30. In addition, I agree with the defendant that, in the present context, the first charge referred to in the executed May 2012 letter should mean the March 2011 debenture (clause 3 thereof); the same can be said of the corporate guarantee.  Bearing in mind para 27(c) above, I agree with the defendant a fair reading of the executed May 2012 letter shows that the only new security (compared to the security required before May 2012) is the lien/assignment of the plaintiff’s fixed deposit(s).

31. In the circumstances set out above, and in view of my conclusions that:

(1) the March 2011 debenture was a stand-alone agreement (which has not been discharged, waived or varied);

(2) the executed May 2012 letter was not a self-standing arrangement, but merely part of the continued and/or renewed banking facilities granted by the defendant to the plaintiff,

I do not agree that, as a matter of construction, the terms and conditions of the executed May 2012 letter should be understood to be exhaustive.  This is so whether the matter is considered:

(a) purely from the language of the executed May 2012 letter; or

(b) from the point of view of the context and purpose underlying the contractual relationship (or course of dealing) between the parties from at least end of February 2010 to 14 September 2012 (the date of the latest letter) or 23 April 2013 (the date of the said receivers’ appointment) (details of this have been set out above).

32. Further to para 31(b) above, it should be noted that the banking facilities covered by the letter dated 24 February 2012 (which provided for a loan period ending on 24 May 2012) was US$35 million (this letter has not been signed by the plaintiff). So far as the loan periods and amounts banking facilities are concerned:

(1) the US$35 million was broken into two sums of US$20 million and US$15 million;

(2) the loan period for the former sum effectively became one year (ending on 24 May 2013) while that for the latter sum remained as 3 months (ending on 24 August 2012).

33. Taking into account all of the above, the proper conclusion which should be reached is that set out in para 18 above even as regards the banking facilities covered by the executed May 2012 letter.

34. The plaintiff also argues the parties’ conduct before the executed May 2012 letter (referring to the lack of evidence of a debenture having been provided before 17 March 2011 (see para 13 above)) supports its case.  I do not find it necessary to elaborate on this save to say I disagree with the argument.

Conclusion

35. The originating summons is dismissed.

Other matters

36. I do not find it necessary to take into account the unsigned May 2012 letter (para 7 above) in reaching the above conclusions. For completeness, the unsigned May 2012 letter would provide further support for the conclusions set out in para 18, 22, 30 to 31 and 33 above.

37. The parties’ verbal and written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the decision and its comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

Costs order

38. The usual rule that costs should follow the event is accepted by the parties.  There will accordingly be a costs order that the costs of this action (including any reserved costs) be paid by the plaintiff to the defendant.

39. The defendant also invites me to consider whether this action was commenced with ill motive, contending that it is nothing more than a delay tactic.  In view of the conclusions reach above, I am inclined to find that the plaintiff’s case is so devoid of merit that it may well be so.  It is therefore appropriate to consider if costs should be assessed other than on a party-and-party basis.

40. I also consider summary assessment of costs to be appropriate.  The above costs shall thus be so assessed.  For this purpose:

(a) the defendant be at liberty to lodge with court and serve a statement of costs within 14 days from today;

(b) the plaintiff be at liberty to lodge with court and serve a statement of objections within 14 days thereafter.

The parties are at liberty to also address in writing on the basis of costs assessment at the same time.