XCHRX XIN NAN (H.K.) TRADING DEVELOPMENT CO. LTD. v. HO HUNG AND ANOTHER

HCA 11189/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11189 OF 1999

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D E C I S I O N

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1. The principal matter before me was originally an application by the Defendants to strike out the statement of claim herein under Order 18, rule 19(1). However, for reasons which I will deal with shortly, that application is now withdrawn save for the question of costs which is still in issue. There is also an application by the Plaintiff for judgment under Order 14, which they no longer wish to proceed with, but for which again the Defendants seek costs, and an application to consolidate this action with HCA 10685 of 1997 (the first action) which is not opposed.

2. In order to decide the questions of costs, it has been necessary to go into the facts of this case, and the arguments which would have been put forward had the original application been before me.

3. Both these proceedings arise out of the payment by the Plaintiff to the 1st Defendant of a sum of money to finance the purchase of a large number of shares in a company called Seaunion Holdings Ltd in December 1996. The Plaintiff maintains that this was a loan to her and to the 2nd Defendant but, although the payment is not in dispute, there is now clearly an issue as to whether it was a loan, or an investment by way of a joint venture. Be that as it may, there was no written agreement regarding the payment until July 1997 when a document called a "release" was signed by one Xiao Hui Rong on behalf of the Plaintiff and by the 1st Defendant. This refers to an advance of $75,561,898.00 "in the form of a loan", and releases the 1st Defendant from any liability in respect of the loan, conditional upon payment by her of the sum of $100 million within 14 days of the lifting of the suspension of the trading of Seaunion shares.

4. The next thing that happened was that in September 1997 a deed was entered into by the 1st and 2nd Defendants and the Plaintiff which confirmed the advance, and the intention that it was made by the Plaintiff as a creditor and not as a joint venture party, acknowledges the indebtedness of the 1st and 2nd Defendants, and provides for the 1st Defendant to pledge her shares in the 2nd Defendant as security for the loan.

5. In particular the deed purported to supersede all prior written and oral agreements in connection with the subject matter, i.e. the loan, and stated that it constituted the whole agreement between the parties. It is accordingly clear that if the deed is valid and binding, it releases the 1st Defendant from the July agreement.

6. One month later the Plaintiff commenced proceedings in the first action against the Defendants inter alia for specific performance of a number of provisions of the deed, but not for repayment of the loan, which was now alleged to be an advance of $83 million with interest making it up to $100 million.

7. Meanwhile the Defendants had commenced proceedings in the British Virgin Islands, where the 2nd Defendant is registered, to have the deed declared null and void, alleging fraud, misrepresentation, duress and undue influence against the Plaintiff. It was therefore quite clear that the Plaintiff knew that the validity of the deed was challenged.

8. The Plaintiff made an application under Order 86 in respect of the first action in January 1998, and, by a judgment dated 16 January 1998, Mr Justice Yam found that the Defendants had an arguable defence and gave them unconditional leave to defend.

9. On 12 July 1999 the Plaintiff commenced this action pleading an advance this time of $78,052,516.30, the July agreement promising repayment of $100 million, and the September deed, without specifying which of these it relied on, and claiming failure to pay under each.

10. The complaint of the Defendants is that they are left in these proceedings not knowing whether they have to defend on the basis that the July agreement is relied on, or the September deed, which purported to supersede the July agreement, or just the loan itself. As to the latter, they had a further complaint that the figures given for the advance were inconsistent in the two actions.

11. Mr Lam for the Plaintiff says that it is obvious to anyone reading the statement of claim that the principal claim is on the September deed, and that the July agreement is pleaded as a back-up option should the Defendant's attack on the September deed succeed. I regret that I do not agree with that. There is nothing in the pleading which even suggests that the agreements are being pursued in the alternative. There is no attempt to relate the two to each other or deal with the effect the Plaintiff says one has on the other. As far as I can see, the only consistency in the pleading, and in the first action, is that the total the Plaintiff claims is owed is $100 million.

12. There are accordingly two inconsistent causes of action pleaded in the same statement of claim, and on this basis alone, apart from the inconsistencies in the sums claimed to have been advanced, I would have expected the Defendant's application to succeed. Mr Lam says that the application was too wide and the whole of the statement of claim would not have been struck out. This may be right. But at the very least substantial amendments would have been ordered, and the Defendants would still have been entitled to their costs.

13. At a very late stage, on 22 November 1999, the Plaintiff made a number of amendments to their statement of claim which now make the Defendants' summons unnecessary. However, I am of the view that had those amendments not been made and the application proceeded to a hearing, the Defendants would have recovered their costs, and they are entitled to do so now. There will accordingly be no order on the Defendants' application save that the costs thereof are to the Defendants in any event.

14. Mr Lam also resists an order for costs on the Order 14 application which he no longer pursues. He says that it is not being proceeded with as a result of learning of the Defendants' defence that the advance was in fact a joint venture investment, not a loan, and that the loan agreements are a sham. This does not sit well with his assertion that the Plaintiff's principal claim is made on the September deed, to which Mr Justice Yam has already ruled in the first action that the Defendants have an arguable defence. In any event, this defence was set out in the affidavit of the 1st Defendant filed on 30 August 1999, yet at a hearing before Master Barnes a week later they made it clear that they were still proceeding with it, rather than take the opportunity of with drawing it before more costs had been incurred.

15. I am satisfied that the Defendants are entitled to their costs of the Order 14 application as well, and to its dismissal, which I also order.

16. As to the application for consolidation, I have had a draft order submitted to me, and I make an order in terms of that draft save that the time for filing of the Defendants' defence in this action will be 21 days from the date of the order.