MELCO CROWN GAMING (MACAU) LTD v. HUANG HAICHAO

HCA 2193/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2193 OF 2012

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J U D G M E N T

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1.  Plaintiff is an operator of casinos and gaming resorts in Macau.

2.  Defendant, a Hong Kong resident, is a guarantor of credits advanced by the plaintiff company to a licensed gaming proprietor in Macau ― known as Chap Sam Gaming Promotion Company Ltd.

3.  Plaintiff operates as a sub‑concession holder in Macau in accordance with Macau law and therefore was able to advance credits.

4.  The defendant signed a Liability Agreement ― 17 August 2011 ― guaranteeing and assuming total liability for credits made available to Chap Sam.

5.  In accordance with that written agreement the defendant deposited a blank cheque drawn on the Bank of China (Hong Kong), Ma Tau Wai Branch, Hung Hom, Kowloon, signed by him, payable to the plaintiff, the amount and date being left blank.  The terminology is unambiguous and comprehensive:

“I [the defendant] hereby guarantee by issuing a cheque in favour of [the plaintiff] and assume total liability for the compliance of the obligations herein referred including … the payment of any outstanding amounts due to … credit facilities granted or to be granted by the plaintiff from time to time to Chap Sam. I hereby give consent for the plaintiff to fill in the amount of indebtedness as well as the issuance date whenever [the plaintiff] freely decides to claim and/or liquidate any amounts due.”

6.  In reliance upon that guarantee the plaintiff provided credit facilities to Chap Sam ― reflected by an “Application for a cheque cashing and credit facility” dated also 17 August 2011 and signed by Chap Sam.

7.  19 October 2012 the plaintiff advanced to Chap Sam credits totalling HK$15 million in accordance with the Agreement.  Chap Sam or his authorised signatory signed three markers (these are instruments of credit) totalling HK$15 million as receipts of the loan in three tranches: HK$300,000.00, HK$10 million and HK$4.7 million.  The loan was to be repaid by the 18 November 2012.

8.  When the due date for repayment arrived Chap Sam had a credit balance of HK$2,275,300.00 in its account with the plaintiff.  Setting this sum off against the amount of the loan left a balance due of HK$12,724,700.00.

9.  Exercising its rights under the defendant’s guarantee the cheque signed by the defendant was completed by the plaintiff by inserting the above sum and the date of 19 November 2012.

10.  The cheque was duly presented at the Macau branch of the Bank of China by the plaintiff and returned by the Bank of China marked “Refer to Drawer”.  It was dishonoured.  No notice of dishonour was required under section 50(2)(c)(iv) of the Bills of Exchange Ordinance (Cap 19).

11.  The plaintiff’s claim is thus based straightforwardly on the dishonoured cheque.  A cheque duly signed with instructions and/or agreement as to the circumstances in which any blanks can be completed is an unconditional promise to pay the bearer the designated sum.  The situation is no different from a cheque which was completed in all respects and handed over for consideration. It remains an unconditional promise to pay the bearer/drawee.

12.  The bank upon which it is drawn is within the jurisdiction of the Hong Kong courts.  It was presented for payment to that self - same bank.  The defendant in his Defence accepts that the cheque is subject to the laws of Hong Kong and that it was provided “as security for the guarantee and/or loan”.

13.  However the Defence contends that the underlying liability i.e. to repay loans under the credit facility granted to Chap Sam is legally unenforceable under the law of Macau, hence payment under the cheque is not enforceable in Hong Kong.

14.  This is the defendant’s purported answer to the plaintiff’s application for summary judgment before me and the basis of the defendant’s application for a stay of these proceedings on the ground that Hong Kong is “forum non conveniens” and the proceedings should be tried in Macau.  The Defence was served and filed on 18 January 2013 but the defendant’s summons for stay of proceedings was not taken out until 25 April 2013, a material matter with which I shall deal in due course.

15.  The plaintiff relies upon the English Court of Appeal decision in Sharif v Azad [1967] 1 QB 605 (an extremely strong court consisting of Denning MR and Diplock and Russell L JJ) in which the plaintiff sued on two cheques totally ₤300 drawn on an English bank which were dishonoured.  The parties were English residents and the defendant had provided the cheques in exchange for a rupee cheque drawn on a Pakistani bank, with the payee’s name left blank.  The Pakistani bank allocated it to a blocked account as a result of which the defendant countermanded payment of the two cheques he had provided.

16.  The Court of Appeal upheld the county court judge who had held that there was nothing illegal in the cheque transaction in that it took place wholly in England, despite the judge not having been referred to the Bretton Woods Agreements Order, 1946.

17.  The facts of that case are significantly different from this action and this plaintiff’s case is the stronger for it.  Diplock L J (as he then was) said (at page 618):

“Even assuming that the defendant’s cheque was issued pursuant to a tripartite contract to which Latif (the provider of the rupee cheque drawn on the Pakistani bank) was a party as well as the plaintiff and the defendant themselves…such tripartite contract would not have been ‘illegal’ in English law, although it would have been unenforceable under the Bretton Woods Agreements Act, 1945 and the Bretton Woods Agreements Order, 1946, notwithstanding that the proper law of the contract was English law. But the plaintiff is not suing on this contract, whether it was bipartite or tripartite. He is suing on the cheque which was issued by the defendant in the performance of this contract. A cheque issued in performance of an agreement which is merely unenforceable is not ‘affectedly by illegality’, although the drawer may have an alternative defence to an action by an immediate party by showing that the immediate party did not give value, that is consideration therefor.” [My underlining for emphasis]

18.  The alternative defence referred to by Diplock L J is not available in the case before me.  As far as this is concerned the pithy statement of finding by Russell L J is most apposite:

“An English resident sues an English resident on two sterling cheques totaling ₤300 drawn in favour of the former by the latter, in England on an English bank. To defend such an action the defendant must show either that there was no consideration for the cheque(s) or that it was tainted by illegality in English law. Plainly there was consideration: indeed the contrary was not pleaded. Equally plainly there was no illegality in English law involved in the drawing of the cheques sued upon.”

19.  Making the appropriate substitutions a company incorporated in Macau sues a Hong Kong resident on a cheque drawn in favour of the former by the latter in Hong Kong on a Hong Kong bank.  It is agreed by the defendant that there was consideration.  Although the Defence suggests that the underlying liability is “unenforceable”, there is no suggestion of illegality. Accordingly is payment under a dishonoured cheque enforceable?

20.  Mr Jasper Kwan in his admirably brief and succinct, and to the point argument, contends that because the obligation in the Liability Statement is unenforceable under Macanese law the delivery of the cheque is not complete.  He relies upon the decision of Ryan J in Neo‑concept Industrial Co Ltd v Sportex [1992] 2 HKC at page 457 letter I for the short statement of approach ―

“where there is a written contemporaneous contract ― as in this case ― (and the case before me) it can be considered to see if there is any vitiating factor which deprives the contract written in the cheque of its binding character.”

21.  Mr Kwan adopts the argument of the defendant’s expert Sr Miguel Cravo.  To do justice to that I need to deal with the Macanese law as considered by the respective experts.  I have of course read the helpful written submissions lodged by solicitors and counsel for the parties and the pleadings and expert reports relied upon.

22.  Under Macau law the plaintiff is entitled to advance credit to gaming promoters of which Chap Sam is one.  The defendant had at some stage been a gaming promoter himself and a director of Chap Sam.

23.  The situation I have to consider is almost identical to that in front of Chu J (as she then was ) in Wynn Resorts (Macau) S A v Mong Henry (also known as Mong Hengli) HCA 192 of 2009 (judgment delivered on 12 February 2010).  In view of her ladyship’s careful and meticulous, if I may say so with respect, consideration of the Macanese law and expert evidence ― the expert evidence in that case being on a par with that adduced before me ― I do not intend to repeat the learned judge’s findings nor review the matter to the extent that she did, which would simply constitute repetition on my part, but to state the effect of the law considered.

24.  Article 8(2) of the Ordinance No 5/2004 of Macau upon which the defendant relies reads as follows:

“Any contract, documents supplemental to the contract, and drafts amending those documents shall be approved by the government. The government may order any provisions in the aforesaid drafts to be amended on the ground of principles of legality or public interest.”

25.  The Ordinance itself decriminalised the granting of credit for gaming.

26.  Article 3 defines credit granting entities, allowed to grant gaming credit.

27.  Article 3(6) identifies three categories of credit relationships, the relevant one of which is (iii) ― a sub‑concessionaire and a gaming promoter.

28.  Article 5(3) permits a gaming promoter to do legal acts or execute contracts in the name of and for the benefit of a credit entity.

29.  Article 4 earlier stated that credits advanced shall have the effect of legal debts.

30.  The plaintiff’s experts in the case before me (Sr Hugo Ribeiro Couto and Sra lnȇs Nolasco Autunes) are of the same view as the experts in the action tried by Chu J.A. (as she now is).

31.  They opine that Article 8 in its entirety applies only to the two types of contract referred to in Article 8.1 (promoter and agency contracts) ― and not to a credit agreement between sub‑concessionaire and gambler or gambling promoter.

32.  The argument or rather interpretation that the Ordinance is structured according to topics, and none of those includes credit contracts between concessionaire or sub‑concessionaire and gambler or promoter, is powerful.  A reference to credit relationship (see Article 3(6)) is not synonymous with credit contracts.

33.  If the Ordinance and Articles had intended to provide the same sort of requirements as set out in Article 8 for credit contracts, it would have said so.

34.  Sr Miguel Cravo, whose opinion is adduced in support of the defendant’s case in this action, was also the expert for the Defence in Wynn Resorts (Macau) S A v Mong Hengli.  The learned judge there preferred the evidence of the plaintiff’s experts to his and likewise I do in this case.

35.  To do otherwise would in my view attribute a degree of loose language, imprecise expression and unreasonable implication to a piece of legislation. The Foreword to the bill on its presentation to the legislature stated that management companies and gaming promoters were permitted to enter into credit agreements in the name of and for the benefit of the credit grantors (which included sub‑concessionaires).

36.  The Opinion 1/11/2004 reviews the changes made to each Article to achieve their final version.  In relation to Article 8 which states that promoter contracts and agency contracts are subject to governmental regulation, 8.2 perfects the regulatory mechanism for exercising governmental control. There is no consideration of credit contracts.

37.  After reviewing the opinion of the defendant’s expert Sr Miguel Cravo, and rejecting it having considered the law in careful chronological sequence, the plaintiff experts came to the following conclusions.

38.  When Regulation 6/2002 came into force, giving credit for gaming activities still constituted a crime.  The Regulation does not contain any provisions on the granting of credit for gaming activities.  By reason of the immediately foregoing one would not expect it to.  The definition of gaming promotion in Article 2 of the Regulation does not include granting of gaming credit.  The ‘ratio legis’ of Article 24.3 is not connected to the granting of gaming credit but to the government’s monitoring of all documents related to material monetary obligations of the parties (concessionaire, sub‑concessionaire and gaming promoter). So there are no filing obligations with regard to the Credit Agreement or the Liability Statement under the Regulation.

39.  The obligations set out in Article 8.2 of law 5/2004 which apply solely to the Credit Authorisation Agreement have been complied with by the plaintiff.  In any case the Credit Authorisation Agreement is not relevant to the loan which is a private transaction between the plaintiff and Chap Sam.

40.  The Gaming Promotion Agreement does not fall within the scope of Article 3.2 which means that the authorisation agreement in Article 8 does not apply and there is no breach of Articles 3.2 and 8 of Law 5/2004.

41.  The defendant’s argument that the loan and guarantee are null and void because of non‑compliance with the provisions under Articles 24.3 and 24.4 of Regulation 6/2002, fails because they are not applicable to this case.  The loan and Liability Statement are private commercial acts and do not fall within the scope of the Administrative Procedure Code.  The nullity prescribed by Article 287 is related to the content of an agreement, not its form.

42.  However even if the Defence had succeeded on the argument concerning validity and unenforceability, in the circumstances of this case (and in that of Wynn Resorts v Mong Henry), the defendant would be violating the principle of good faith and thus waive his right to invoke the nullity.

43.  The enforceability of the guarantee depends on that of the cheque.  But it is clear to all and on the part of all, that credit facilities were granted to Chap Sam and that re‑imbursement of these facilities in the event of failure by Chap Sam, has been guaranteed by the defendant and by his cheque.  The defendant has admitted drawing the cheque and executing the Liability Statement and does not raise any dispute on the contents or authenticity of the documents.

44.  I do not need to consider all the helpful detail provided by the plaintiff’s experts.  I accept fully the content and logic of their evidence.  There is therefore no ground on which the defendant can challenge the validity or enforceability of the cheque.

45.  The Defence has not raised any triable issue.  The plaintiff is therefore entitled to summary judgment.

46.  It follows as a natural and inevitable consequence that the defendant’s application for a stay must be dismissed.  It came late in the day and would not in any event have succeeded.

47.  Judgment will therefore be entered for the plaintiff for HK$12,724,700.00 with interest at the judgment date from 19 October 2012 to date of this judgment and thereafter until payment.

48.  The defendant will also pay the plaintiff’s costs of this action to be taxed if not agreed.