DONGXING SECURITIES (HONG KONG) FINANCIAL HOLDINGS LTD v. SHALL EASY MEDIA (HK) LTD AND OTHERS

HCA 270/2024

[2025] HKCFI 2102

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 270 OF 2024

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BETWEEN

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DECISION

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Introduction and Undisputed Background

1.  By Summons dated 12 July 2024 (“the Summons”), the Defendants (“Ds”) applied for an order that the Writ of Summons and the Statement of Claim be struck out under O.18, r.19 of the Rules of High Court, Cap. 4A (“RHC”) on the grounds that: (1) they disclose no reasonable cause of action; (2) they are scandalous, frivolous or vexatious; and/or (3) they are otherwise an abuse of process of the Court.

2.  The following affirmations were filed in relation to the Summons:

(1) Affirmation of Xu Peixin (“D4”) dated 15 July 2024 in support;

(2) Affirmation of Hao Jie dated 28 August 2024 in opposition; and

(3) 2^nd Affirmation of D4 dated 27 September 2024 in reply.

3.  By Order dated 5 November 2024 (“the Order”), Master Frances Lok SC dismissed the Summons with costs.

4.  By a Notice of Appeal to Judge in Chambers dated 18 November 2024 (“the Notice”), Ds seek to appeal against the Order.

5.  There is no dispute that on or around 23 April 2019, P, the 1^st Defendant (“D1”), the 3^rd Defendant (“D3”), D4 and a company incorporated in the PRC entered into a Note Framework Agreement in relation to a secured and guaranteed note instrument of US$30M. Various related documents were entered into at around the same time.

6.  In this action, P has claimed:

(1) Against D1, a sum of US$33,485,720 plus interest pursuant to a secured and guaranteed note instrument in favour of P (“Note Instrument”);

(2) Against D2, a sum of US$36,464,043.64 pursuant to a security over shares agreement as chargor in favour of P (“Security Over Shares Agreement”);

(3) Against D3, a sum of US$35,464,043.64 plus interest pursuant to a Corporate Guarantee in favour of P (“CG”); and

(4) Against D4, a sum of US$33,485,720 plus interest pursuant to a deed of equitable share mortgage in favour of P (“Equitable Share Mortgage”).

7.  Ds claim that by operation of the Money Lender Ordinance, Cap. 163 (“MLO”), none of the Note Framework Agreement, Note Instrument, Security Over Shares Agreement, CG or Equitable Share Mortgage is enforceable. Ds’ case is that P was engaged in the business of making loans or at least held itself out as carrying on such business so as to be a money lender under MLO. Since P never held a licence as a money lender, it is not entitled to recover any principal amount/loan lent or any interest under the Note Framework Agreement and the Note Instrument pursuant to s.23 of MLO.

8.  As for the Security Over Shares Agreement, CG and Equitable Share Mortgage, as they are all security documents to secure the performance of the Note Framework Agreement and/or the Note Instrument, they are also unenforceable pursuant to s.23 of MLO.

Applicable Principles

9.  It is trite that an appeal from a master to the judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats that matter as though it came before him for the first time. The judge will give the weight it deserves to the previous decision of the master but is in no way bound by it. See Hong Kong Civil Procedure 2025, Vol. 1, §58/1/2.

10.  As for the applicable principles for striking out, there are also trite:

(1) It is only in plain and obvious cases that the court should exercise its summary power to strike out;

(2) Disputed facts are taken in favour of the party sought to be struck out;

(3) The burden is on the applicant for striking out to establish it is plain and obvious the claim is bound to fail;

(4) Plain is not the same as simple and obvious is not the same as short. If on a careful reading of the Statement of Claim however complicated, it can be seen that there is no cause of action, a court can, and probably will, order it to be struck out;

(5) Where the court comes to the conclusion after full argument that the case is plainly and obviously one for striking out it should not decline to do so on the ground that the issues are difficult or complicated;

(6) The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable for the claim to succeed before the court will strike it out; and

(7) A reasonable cause of action means a cause of action with some chance of success when only the allegation in the pleadings are considered. The mere fact the case is weak, and not likely to succeed, is not ground for strike out.

See Hong Kong Civil Procedure 2025, Vol.1, §§18/19/4 and 18/19/5.

Discussion and Disposition

11.  In an application for striking out, the court will only consider the allegations in the Statement of Claim and decide on the assumption that the facts as pleaded are true to see whether there is no reasonable cause of action. It is plain that P’s pleaded case is a straightforward case of breach of the various agreements entered into between P and Ds respectively. Ds have not disputed that those document were signed and executed by them.

12.  Furthermore, in so far as Ds rely on the contention that P was a moneylender[1], Mr Leung, counsel for Ds, accepts that whether a person is a money lender is highly fact sensitive and each case must necessarily depend on its own facts. Moreover, the burden in establishing P was a moneylender is squarely on Ds. See: Chow Wun Sing Winston v Yiu Chun Luk (unrep) HCMP 2923/2002, 25 July 2006, at §§64-67 per Chu J; Wealthy Land Investments Group Limited v Florescent Holdings Limited [2022] HKCFI 649 at §§21 and 39 per DHCJ Le Pichon (as she then was) and Outstanding Management Consultation Limited v Gold Topmont Limited & Anor [2023] HKCFI 155 at §§30-32 per Ng J. Given that this issue of whether P is a money lender is fact-sensitive, it is plainly not a matter appropriate for strike-out.

13.  Besides, insofar as there is any factual dispute whether or not P was a moneylender, for the purposes of a strike-out it will be taken in favour of P.

14.  According to Mr Leung, the evidence demonstrates that P was engaged in the business of making loans or at least held itself out as carrying on that business. He submitted that there was only a bare assertion by P that it was not a money lender. However, it is trite when striking out on grounds that P’s claim discloses no reasonable cause of action, it is not necessary and not permissible to look into the evidence: see O.18, r.19(2) of RHC.

15.  Even though it is permissible for the court to have regard to the evidence for grounds that P’s claim is scandalous, frivolous or vexatious or otherwise an abuse of process, and Mr Leung submitted that the bare assertion that P was not a money lender is not credible, it can be seen that Ds have relied on 3 instances where P or its subsidiaries had engaged in transactions which on Ds’ case amount P being a money lender. Mr Chau, counsel for P, of course disputed that P has only made a bare assertion. He further submitted that those instances relied upon by Ds do not demonstrate P was a money lender. In any event, it is plain to me it is not for an application for strike-out to resolve these highly fact sensitive matters and it has not been demonstrated that clearly P’s case that it was not a money lender is not bona fide or bound to fail.

16.  In these circumstances, I am of the view that Ds’ application for strike-out is misconceived and like the Master, I would dismiss it. Accordingly, I will dismiss the Notice with costs against Ds.

(Discussion on costs and further directions)

17.  Mr Chau sought summary assessment of P’s costs. Having considered the Statement of Costs and the objections of Mr Leung, adopting a broadbrush approach I have summarily assessed P’s costs at HK$100,000 to be payable forthwith.

18.  I further directed that Ds file and serve its Defence and Counterclaim within 21 days from today.