PAN SUTONG v. BANK OF CHINA LTD (t/a BANK OF CHINA LTD SHENZHEN BRANCH)

CACV 246 & 247/2022, [2024] HKCA 775

On appeal from [2022] HKCFI 1450

(Heard together)

CACV 246/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 246 OF 2022

(ON APPEAL FROM HCSD NO 28 OF 2021)

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AND

CACV 247/2022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 247 OF 2022

(ON APPEAL FROM HCCW NO 215 OF 2021)

________________________

________________________

(Heard together)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  The present applications are the applications of Pan Sutong (“Pan”) and Proman International Limited (“Proman”) for leave to adduce further evidence on appeal filed on 28 June 2022 and 30 August 2022 respectively.

2.  On 9 August 2023, the Court of Appeal handed down a judgment (“Stay Decision”)[1] dismissing their applications to stay their new evidence applications pending the determination of a summons under Rule 99L of the Bankruptcy Rules, Cap 6A to challenge the Official Receiver’s decision to admit the proof of debt of the Bank of China Limited trading as Bank of China Limited Shenzhen Branch (“BOC”) for voting purposes[2].

3.  For the background of the present proceedings, we refer to §§5 to §17 of the Stay Decision. The terms and expressions in the Stay Decision will be adopted and this judgment is to be read with the Stay Decision.

4.  Very briefly, the winding-up petition against Proman presented by BOC and Pan’s application to set aside the statutory demand (“SD”) served on him by BOC were heard before Linda Chan J on 21 April 2022 (“the CFI hearing”).

5.  By her judgment dated 18 May 2022[3], the judge held there are no bona fide disputes in respect of the petition debt and made a winding-up order against Proman. She also dismissed Pan’s application to set aside the SD and authorized BOC to present a bankruptcy petition against him forthwith. Pan and Proman each filed a Notice of Appeal in respect of the SD proceedings and the winding-up proceedings on 20 June 2022. They are CACV 246/2022 and CACV 247/2022.

6.  On 8 July 2022, Pan was adjudicated bankrupt by the judge in HCB 6548/2021 on the petition brought by another creditor in the CITIC group. His appeal against the bankruptcy judgment was dismissed by the Court of Appeal on 28 June 2024[4].

The new evidence applications

7.  In the skeleton submissions lodged on behalf of Pan and Proman, their counsel Mr Lai Chun Ho confirmed their stance[5] that they would no longer pursue the 1^st New Evidence Application and a part of the 2^nd New Evidence Application. They would only pursue that part of the 2^nd New Evidence Application to seek leave to adduce on appeal the ZL Memo and the Wu Affirmation.

8.  The ZL Memo sets out the investigation and analyses conducted in around July 2022 in which Zhong Lun Law Firm (Shenzhen Office) (“ZL”) concluded it is very likely that the three loans pursuant to three loan agreements (No. 45 Loan Agreement, No. 46 Loan Agreement and No. 41 Loan Agreement, collectively “the Three Loan Agreements”) were never remitted by BOC to GE.

9.  The Wu Affirmation contains the further analyses of Ms Wu, a PRC lawyer, on the legal effect of the non-remittance of the three loans, in which she opined that if the loans were never remitted, BOC would not have an actionable claim under the 2020 Loan Agreement or the relevant guarantees.

10.  Pan and Proman intend to rely on the new evidence to argue that they could not be said to have validly guaranteed any liability of Tianjin Huading to BOC as there had been no remittance of funds under the Three Loan Agreements, hence there must be a bona fide dispute in respect of the debt concerned.

11.  There is no dispute that the Pan/Proman Non-Remittance Argument is a new point which has not been raised in the court below, and is not included in the grounds of appeal in each Notice of Appeal. It should also be noted that Pan and Proman took an opposite stance at the CFI hearing. They had argued before the judge that the 2020 Loan Agreement was tainted by illegality in that it was intended to conceal the non-performing loans or bad debts of MD and GE[6]. They had thereby accepted that BOC had lent money to GE, and the SD proceedings and the winding-up proceedings were conducted on that basis. Mr Lai submitted on their behalf that it was only after the CFI hearing that they discovered the non-remittance of the three loans.

12.  Order 59 rule 10(2) of the Rules of the High Court, Cap 4A provides that the Court of Appeal shall have power to receive further evidence on questions of fact but no such further evidence (other than evidence as to matters which have occurred after the date of the trial or hearing) shall be admitted except on special grounds.

13.  Further evidence is admissible on appeal only where all these conditions are satisfied (Ladd v Marshall [1954] 1 WLR 1489 at 1491):

(1)  such evidence could not have been obtained for use at the trial with reasonable diligence (“Condition 1”);

(2)  the evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive (“Condition 2”); and

(3)  the evidence must be such as is presumably to be believed, in other words it must be apparently credible though it need not be incontrovertible (“Condition 3”).

Whether Condition 1 is satisfied

14.  Pan asserted that the revelation that the loan was not remitted under No. 42 Loan Agreement only emerged as Shenzhen Arbitration No. 598 progressed from April 2022 to June 2022, which prompted Pan and ZL to conduct investigations in relation to the loans under the Three Loan Agreements, hence the ZL Memo and Wu Affirmation could not have been prepared earlier[7].

15.  Mr Lai highlighted the fact that the first hearing of the Shenzhen Arbitration No. 598 took place on 22 April 2022 (ie one day after the CFI hearing), during which BOC was questioned as to the lack of evidence on the remittance of the loan to GE.

16.  Under normal circumstances, it may be reasonable for the applicants not to question the existence of the relevant loans advanced by BOC to GE, as the 2020 Loan Agreement (the purported effect of which was for Tianjin Huading to use the loan under this agreement to repay the debts owed by GE to BOC under the Three Loan Agreements) would not otherwise have been executed.

17.  However, as can be seen from the transcript of the arbitration hearing, ZL had raised the argument for Pan that the loan under No. 42 Loan Agreement had not been remitted by BOC to GE[8]. ZL had referred to a number of evidence to support this argument in its submissions at the arbitration hearing[9]. This reflected that Pan’s legal representatives had already conducted some investigation into the alleged issue of non-remittance of loan by BOC to GE well before the arbitration hearing, rather than just being alerted to such issue at the first hearing on 22 April 2022. Quite clearly, the various investigations and analyses carried out by ZL (calling the BOC hotline, inspecting GE’s internal accounting records) could have been carried out with regard to the advances under the Three Loan Agreements prior to April 2022.

18.  In these circumstances, it is untenable for Mr Lai to submit that it was reasonable for Pan and Proman to assume that BOC had complied with the terms of the Three Loan Agreements and that it will be a counsel of perfection for them to have suspected earlier that there had been no remittance of loans pursuant to the Three Loan Agreements.

19.  One of the documents referred to in the ZL Memo and the Wu Affirmation, namely, the explanation in relation to the 2020 GE audit report (關於高先電子2020年度審計報告情況説明), was issued on 15 July 2022, which was after the CFI hearing. Nonetheless, this report relates to matters which occurred before the CFI hearing. There is nothing to show that this document cannot be procured before the hearing with reasonable diligence, especially when the 2020 audit report of GE was issued back in May 2021.

20.  Furthermore, the ZL Memo and Wu Affirmation referred to, among other things, the supplemental evidence submitted by BOC in another arbitration proceedings (Shenzhen Arbitration No. 1480 of 2021) on 23 June 2022[10]. Looking at the nature of the relevant supplemental evidence, Pan and/or Proman should have possession of most of the documents produced therein before BOC produced the same in the arbitration hearing and it would appear that such documents could be obtained before the CFI hearing. Even assuming that Pan and/or Proman did not have the meeting minutes (中國銀行與松日集團高層會談紀要)[11] previously, the lack of this document would not hamper ZL and Ms Wu, significantly or at all, in preparing the ZL Memo and the Wu Affirmation, and would not affect the essential analyses and conclusion of ZL and Ms Wu. The minutes were relied on to show the parties’ discussion on parallel transfer of loans. There are other documents in the possession of Pan and/or Proman which can be used to show the parties’ discussion and/or agreement in this respect, such as the previous email exchanges, the “0730 Memorandum” referred to in the minutes and other relevant agreements[12].

21.  For all the above reasons, we are inclined to think it can reasonably be inferred that the ZL Memo and the Wu Affirmation could have been obtained for use at the CFI hearing with reasonable diligence. Hence, Condition 1 is not met. It is unnecessary to discuss whether such new evidence can meet Condition 2 and Condition 3.

22.  We would add that even if it is considered that the meeting minutes referred to above cannot be obtained before the CFI hearing, this single document would not have an important influence on the outcome of the appeal, so leave to adduce this document would still be refused for it does not meet Condition 2.

23.  BOC has also based their objection on the Flywin principle[13]. In view of the above conclusion, it is not necessary to go into the discussion in this respect.

24.  The 1^st and 2^nd New Evidence Applications are dismissed.

Costs

25.  Costs of the applications should follow the event. BOC has invited the court to make a costs order on indemnity basis. Although the litigation conduct of the losing parties appears to be tactical and has caused delay to the proceedings, it is not so exceptional as to warrant a departure from the usual party and party basis.

26.  Despite the directions given on 9 August 2023[14], BOC has not filed a statement of costs for summary assessment. We make a costs order nisi that Pan and Proman do pay BOC’s costs of these applications, to be taxed if not agreed.