LI MINGREN v. QUESTEX DEVELOPMENT INC AND ANOTHER

HCA 2081/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2081 OF 2013

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J U D G M E N T

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1. This application for summary judgment is based on a loan of HK$40 million made by the plaintiff to a mainland businessman by the name of Zhao Tuanjie, who is the principal shareholder of the 1^st defendant, a company incorporated in Vanuatu, which itself is the major shareholder of the 2^nd defendant, a company incorporated in the Cayman Islands.  Zhao Tuanjie is the ultimate beneficiary of these shareholdings and controls both companies.  These are undisputed facts.

2. The original loan agreement is in Chinese.  There are provisions for the duration of the loan and the payment of interest.  The actual making of the loan was conditional upon the provision of valid security upon which the loan would be charged.  The document was dated 14 May 2013 and was to be governed by the laws of the People’s Republic of China.

3. This was followed on 17 May 2013 by a supplemental loan agreement, also in Chinese.  This fixed the interest rate at 2.5%.

4. On 20 May 2013, the 1^st defendant company executed a charge in favour of the plaintiff, pursuant to the two said agreements, on two convertible bonds in the sum of HK$20 million, issued by the 2^nd defendant, as security for payment of the loan and interest.  This charge and “the rights and obligations thereunder” were to be governed and construed by the laws of Hong Kong and the parties submitted themselves to the non-exclusive jurisdiction of the Hong Kong courts.

5. The 1^st defendant handed over the original convertible bonds with two certificates in the sum of HK$20 million, and two forms of transfer signed by the 1^st defendant in favour of the plaintiff.  These too are not disputed.

6. Zhao failed to repay the loan and accumulated interest.  The plaintiff made a formal demand for repayment.  It remained unpaid.  Accordingly the plaintiff called for the 1^st defendant to meet its obligation under the charge.  The necessary documents were sent to the 2^nd defendant.  The 2^nd defendant refused to comply.  Thus Zhao, who controls the 1^st defendant and through the 1^st defendant the 2^nd defendant, and those two defendants, have obstructed the plaintiff’s remedy for his failure.  The plaintiff seeks judgment and a mandatory injunction to force the defendants to comply with terms of the charge.

7. Although the Statement of Claim was served on 26 November 2013 the 1^st defendant did not serve its defence until 27 February 2014 (three months later).  The 2^nd defendant had served its defence on 23 December 2013.

8. The latter document essentially alleges, as the defence, that the plaintiff did not lend any money to Zhao, and so there is no liability to comply with the terms of the charge.  It also questions the validity of the charge and contends that expert consideration by the People’s Republic of China lawyer is a real issue.  Since then however the 2^nd defendant has conceded that it will comply with an order of this court in respect of the plaintiff’s application, and has given an undertaking in that regard.

9. The Defence of the 1^st defendant is equally straightforward once it has been stripped of its irrelevancies.  It denies that a loan was made to Zhao.  It admits the existence of the charge.  The counterclaim is an empty bit of pleading.

10. There has been a plethora of paper around a very simple issue. There has been no affirmation from Zhao who I am informed has been detained on the mainland.

11. Put in the context of time, six months have elapsed without any contribution from him.  I was persuaded to extend more time for the 1^st defendant to provide affirmation evidence in support of its defence, in view of a last minute change of solicitors.  The affirmation that resulted came from one Wang Weinan who deposed that he is the only director of the 1^st defendant, and says he is authorised by Zhao Tuanjie to affirm on his behalf though he fails to give any information about this alleged authority.

12. It goes on to claim that on the basis of what he has been told by Zhao, Zhao never received a loan from the plaintiff, and amongst other assertions, that the plaintiff made misrepresentations to Zhao.  The body of the affirmation is 8 pages.  It is, for the purposes of this action a complete waste of paper and effort.  I have rarely seen such an inconsequential document.  It did not merit the adjournment and consequent delay.  It provides no credible material for a defence to the plaintiff’s action.  It is, in my view, a highly dubious document.

13. I allowed the plaintiff to file a further affirmation to deal with the role of Li Ming Zhong, his brother, in the original transaction since the 1^st defendant’s director, Wang Weinan, had suggested that this supported the defence of no loan by the plaintiff to Zhao.  I anticipated that this was a “red herring” but thought that this aspect could sensibly be clarified.  I am satisfied that there is no substance in the 1^st defendant’s contention.

14. The material facts which have not been challenged on any reasonable basis are as follows:

(1)       The plaintiff agreed to make a loan to Zhao Tuanjie.  This was to be by payments in Renminbi equivalent to HK$40 million.

(2)       An authorization letter from Zhao identified the bank account of a Madame Chu, into which the money was to be paid.

(3)       There are receipts evidencing six payments of Renminbi totalling RMB32 million being the equivalent of HK$42 million.

(4)       Zhao signed this instruction/authorisation letter with his fingerprint alongside it.

(5)       He also signed each receipt in a similar fashion.

15. The plaintiff authorised his brother Li Ming Zhong to act as his agent for the purpose of the supplemental loan agreement and to effect the payments of Renminbi into Madame Chu’s (or Zhu’s) account.  The beneficiary of the charge was clearly the plaintiff.  None of this has been challenged by the only person in a position to do so, ie Zhao Tuanjie who would have to provide clear evidence to displace the force of the documents signed by him.  I am satisfied that the loan was made to him in the form and manner alleged, that he acknowledged this, and caused to be executed the charge which the defendants, controlled by him, are obliged to meet.

16. Thus the matter rested but for another application by the defendants and the submission of more material.

17. I accept that the defendants’ new solicitors did not take over the matter from their predecessors until 21 May and Mr Nicholas Cooney SC and Mr Felix Ng then became instructed.  Since then they have all had to deal with matters under some pressure and cannot be criticised for any deficiencies in the defendants’ case.  They have been handicapped by an absence of first hand information, in particular instructions from the principal character in the defendants’ efforts to stave off the judgment sought by the plaintiff.

18. After several adjournments the defendants have most recently produced an affirmation from their solicitor and an opinion from a mainland lawyer on Chinese law in relation to certain documents.  A further adjournment was sought on the basis that Mr Zhao had a lawyer in Shenzhen and it was possible that instructions could be obtained from Mr Zhao in several weeks time.  This seemed to me something akin to producing a “rabbit out of a hat”.

19. The PRC lawyer had considered the Loan Agreement and the Receipt with particular reference to the interest rate provided for and the “agreed compensation” as well as the “disputed agency of Madam Zhu Lufeng”.  The affirmation also contained more information, purporting to come from Zhao Tuanjie but with no authoritative basis.

20. These documents having come in at the “eleventh hour” simply highlight the absence of any statement or affirmation from Mr Zhao, six months having elapsed since the Statement of Claim.  I regard affirmations about what he has said to someone else as valueless.  It is argued that this unsupported hearsay can be elevated to the status of evidence worthy of consideration.  I cannot accept that.

21. The nature of the pleaded Defence is clear enough.  Mr Zhao ever received any loan, and so the charge cannot be exercised.  There was a failure of consideration, it is pleaded.  But the existence of the charge is admitted (see paras 5, 7, 13 and 16) and no demand for return of the security is made until the Counterclaim is filed (with the Defence) by the 1^st defendant three months after proceedings are commenced.  It is also admitted that Zhao Tuanjie is the sole shareholder of the 1^st defendant.

22. In order to plead the paragraphs to which I have referred there should have been instructions from Zhao Tuanjie but, as set out earlier, no statement or affirmation from him has seen the light of day.  Mr Wang Weinan claims to have seen him but he does not identify when or where, or any document signed by him.

23. It is claimed that a PRC lawyer saw him a few days ago but there is not even an email setting out any material information, though it is unlikely to have altered the picture.

24. Although attention has been concentrated, in particular, on the interest in the original loan agreement, the plaintiff sues on the charge itself for, in effect, one half of the principal of the debt, ie HK$20 million.  The 1^st defendant released to the plaintiff the original convertible bonds with two certificates and two forms of transfer executed by the 1^st defendant and later signed by the plaintiff.  The whole purpose of the charge was to secure the loan.  The charge is governed by the laws of Hong Kong.  The documents would not have been handed over unless the loan had been made.  The rights and obligations of the parties are governed by Hong Kong law.  The position of Chinese law on the provision for interest on the original agreement, though interesting, is not relevant to the issues before me.

25. An argument on the proper translation of a clause in the loan receipt, as it has been called was, in my judgment, disposed of by the translator’s confirmation of her original version albeit with minor variations which did not alter the true construction of it.  The parties did not require her to give evidence on her now accepted version.  In passing I add that I saw no material change or difference in any of the versions advanced by any party.  It reads:

“This loan is secured with the convertible bonds of Tai Shing International (Holdings) Limited, as can be seen in the contract between Questex Development Inc. as the charger/chargor and Li Mingren as the beneficiary of the loan.” (my emphasis)

The legal approach

26. This has been well settled in this common law jurisdiction over many years. I do not need to re-iterate the case-law which has identified as the main question to be determined as “Is there a triable issue?”  The defence has not raised any credible argument.  It has not put forward any form of evidence from the only person who is in a position to dispute the plaintiff’s case and there is therefore no counter to the crucial documents which all speak in one direction.  The nature and content of the affirmation by Wang Weinan leads me to question even the “bona fides” of that deponent, quite apart from the value of the factual content to which he has deposed.  In the ultimate it provides no credible or acceptable answer to the plaintiff’s case.  I consider the defence to be a sham.

27. There will therefore be judgment for the plaintiff against both defendants as prayed for in the Statement of Claim.  There will also be an order that the defendants pay the plaintiff’s costs on party‑and‑party basis to be taxed if not agreed.  I am satisfied that delaying and obfuscatory tactics have been used by the defendants and/or whoever controls them, as a consequence of which the plaintiff has been put to unjustified expense and delay in establishing his claim.  Although there is some merit in an application for indemnity costs, at this stage, and with a relatively early summary judgment, costs on a party‑and‑party basis will be adequate.