CHINA CONSTRUCTION BANK (ASIA) CORPORATION LTD v. WONG SAI CHUNG

HCA 1628/2021

[2022] HKCFI 2579

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1628 OF 2021

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DECISION

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THE APPLICATION

1.  Before this Court is a summons filed by the plaintiff on 7 January 2022 (“the Summons”), pursuant to which the plaintiff applies for summary judgment against the defendant. 

BACKGROUND

2.  The following factual background is either undisputed or indisputable.

3.  The plaintiff is and was at all material times a bank licenced under the Banking Ordinance (Cap.155, Laws of Hong Kong).

4.  The defendant was a founder and director of Cheergain Group Limited, which is a wholly owned subsidiary of China Properties Group Limited (“the CPG Group”).

5.  On around 15 October 2018, the plaintiff as the trustee (“the Trustee”), Cheergain Group Limited as the issuer (“the Issuer”), the defendant as the personal guarantor and a number of subsidiary guarantors executed an Indenture (“the Indenture”), pursuant to which the Issuer issued a global note of USD226,000,000 15.0% Senior Notes Due 2021 (Common Code: 189441835; ISIN: XS1894418356)  (“the Notes”).

6.  By 15 October 2021, which is the Final Maturity Date as defined in the Indenture and the date on which the Issuer promised to repay the principal amount of the Notes plus interest, the Issuer has still failed to pay the principal amount of the Notes or the outstanding interest.

7.  As at the date of the Statement of Claim, the principal sum of USD225,600,000 plus interest were owed by the defendant pursuant to the Indenture and the corresponding Notes.

THE ORDER SOUGHT

8.  By the Summons, the plaintiff sought final judgment be entered against the defendant for:

(1)  the sum of USD225,600,000 (or its Hong Kong Dollar equivalent at the time of payment);

(2)  accrued and unpaid interest on the said sum of USD225,600,000 (or its Hong Kong Dollar equivalent at the time of payment)  at the rate of 15.0% per annum, the amount of which to be assessed;

(3)  further interest accrued and unpaid on paragraphs (1)  and (2)  above at the default interest rate of 16.0 per annum, the amount of which to be assessed; and

(4)  damages and costs of this action to be assessed on an indemnity basis.

9.  With respect, the terms of Summons were confusing to say the least.  While, on one hand, the plaintiff applied for “final judgment”, on the other hand, under sub-paragraphs 1(2), (3)  and (4)  of the Summons, the interest and damages are “to be assessed”.  Further, in paragraph 1 of the plaintiff written submissions, it was submitted that the plaintiff:

“is not asking this Court to assess, in this Application, the actual amount of accrued and unpaid interest on the principal sum at the rates of 15.0% per annum and 16.0% per annum being the contractual interest rates.”

10.  Upon the Court’s request, the plaintiff’s solicitors, by their letter dated 8 August 2022, explained that they would only ask for final judgment in relation to the principal sum of USD225,600,000 in this application, and interlocutory judgment on the interest, default judgment and damages to be assessed. 

11.  This application will be considered accordingly.

THE DEFENCE

12.  The defendant does not dispute that the Indenture and the Notes are valid agreements made between the plaintiff and the defendant.  It is also admitted that the principal sum of USD225,600,000 plus interest are due to be paid by the Issuer.

13.  However, the defendant denies that the plaintiff is entitled to claim under the Indenture and the Notes at this stage.  It is alleged that the plaintiff is estopped from asserting the rights of the Notes holders under the Indenture and/or Notes pending the resolution of the parties’ negotiations.

14.  Furthermore, it is alleged that the defendant is not bound as a personal guarantor by the terms of the Indenture because it is unenforceable against the defendant due to lack of consideration flowing from the plaintiff to the defendant.

LEGAL PRINCIPLES

15.  Before I consider the defendant’s defence, it would be useful to set out the well-established legal principles applicable to an Order 14 application, especially those which are particularly important as far as this case is concerned.

16.  In Li Chuen Kwai v. Po Lam Construction Development Limited (HCA 2376/2013, unreported, 24 September 2014), it was held that:

“12. As far as the defendant’s defence is concerned:

(1)  The defendant shoulders the burden to satisfy the court that he has a real or bona fide defence (ie that there are triable issues), or that there ought for some reason to be a trial of the plaintiff’s claim.

(2)  However, a complete defence need not be shown. The defence set up need only show that there is a triable issue or question or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is clearly no defence in law and no possibility of a real defence on the question of fact.

(3)  Although the mere assertion in an affidavit does not, ipso facto, provide leave to defend, the court will not embark upon a mini-trial of the action on paper and leave to defend will be granted unless the defence raised is so incredible or so contradicted by contemporaneous documents or circumstances that it becomes clear that the defence is a sham.

(4)  The test is not whether the defendant’s assertions are to be believed, rather it is whether those assertions are believable, ie capable of being believed. If so, the defendant must have leave to defend.

(5)  Whether the defendant’s assertions are believable is a question that should be answered not by taking those assertions in isolation bur rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.”

17.  In Ju Yan Di Embroidery Genesisy v Yau Wai Han [2015] 1 HKLRD 822, 827, Cheung JA held that:

“14. It is well-established that the burden on the defendant in a summary judgment application is to show that he has a credible defence and he must condescend to give particulars of his defence. However, this does not mean that once the plaintiff invokes the application and irrespective of the strength of his case, the defendant bears all the burden of showing that there are triable issues in the case. This is because the starting point in a summary judgment application is that it should only be invoked when there is no defence to the claim. This means that the plaintiff must in the first place demonstrate that the defendant has indeed no defence. This requirement is further recognised in the procedural rules which mandate the plaintiff to state his belief in the verifying affidavit that there is no defence to the claim. This requirement must be kept in proper perspective when assessment is made of the strength of the application, otherwise there is a danger that the attention will be focused solely on what the defendant has said without consideration at the same time of the basic premise of the plaintiff’s claim or its inherent strength and weakness…” (Emphasis added)

18.  In Time Rich 08 Limited v DBE (HK)  Limited & Others [2018] HKCA 404, it was held by the Court of Appeal that:

“…in deciding whether a plaintiff is entitled to summary judgment the relevant test is whether the defendant has raised credible triable issues. If there are, the matter should go to trial. If not, judgment should be entered against the defendants. In considering whether there are triable issues, the Court will not take the defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence but what the Court should not do is to conduct a mini-trial on complicated factual issues : Paul Y Management Ltd v Eternal Unity Development Ltd (CACV 16/2008)” (at paragraph 5.2)  (emphasis added)

19.  To raise a triable issue or arguable defence, the defendant cannot be sparing of the particulars of his defence, and then claim, as a result of his own parsimony in details. that there is an obscurity which must await trial for illumination.[1]

20.  In Korea Data Systems Co Ltd & Anor v Chiang Jay Tien & Anor [2001] 3 HKC 239, Deputy Judge Jeremy Poon (as the Chief Judge of the High Court then was)  also had the following to say:

“On the evidence before me, it is simply a bare allegation by the defendants that the California judgment is not final and conclusive. The second defendant had failed in his third affirmation to condescend upon particulars why he considered it not final and inconclusive. The first defendant’s position is even worse: this ground never featured in his affirmation or draft defence at all. It was only advanced in Mr Leung’s submissions. None of them had adduced any evidence to contradict Mr Cameron’s opinion. As I understand Mr Chan and Mr Leung, they are not contending that Mr Cameron’s opinion is in any way wrong. In the circumstances, I am not satisfied that the defendants’ bare allegations had even begun to put in issue the question whether the California judgment is final and conclusive: see generally Hong Kong Civil Procedure 2001 para 14/4/4 at p 152.” (at 248F – H)  (emphasis added)

DISCUSSION

Estoppel by convention

21.  Mr Hu for the defendant submitted that the defendant has a credible defence of estoppel by convention. 

22.  In the defendant’s Affirmation filed on 28 February 2022, he stated that:

“4. […] In or around April 2020, negotiations commenced with various known bond note holders at the time to discuss possible repayment/refinancing plans for the repayment of the amounts due under the Notes. Informal meetings and discussions were held on a monthly to a bi-monthly basis.

5. One example of such negotiations is with one particular bond note holder, Rainbow Glory Global Limited (“RGG”).

6. In or around August 2020, an agreement was reached between RGG and Cheergain that an affiliate or third party purchaser would purchase US$3,000,000 in aggregate principal amount of the Plaintiff’s Notes.

7.  In around December 2020, following further negotiations and communications, the Plaintiff, myself and Hillwealth Holdings Limited agreed that, inter alia, Hillwealth and myself would undertake to procure the purchase of the Plaintiff’s Notes in the principal amounts of US$4,000,000 and US$6,000,000 on certain agreed terms […]

8. Similar negotiations have been ongoing with other known bond notes holders throughout the period leading up to the maturity date of the Notes i.e. 15 October 2021. All along, they have been fully apprised of our cashflow issues and our continuous efforts to complete the sale and/or refinancing of certain of the CPG Group’s real estate assets located in Shanghai and Chongqing of the People’s Republic of China. In spite of the challenging operating environment, the CPG group has maintained a low gearing ratio and holds assets of substantial value. The current liquidity issue is caused by a timing mismatch as Cheergain is not able to fund the Outstanding Amount due until the CPG Group has completed the sale or refinancing of certain of its assets, such as the refinancing of the Chongqing Concord City and Shanghai Cannes developments and the sale of a 50% equity interest of the Defendant in a PRC JV oil station company.

9.  It was in reliance upon the above-mentioned negotiations and the implicit understanding that the Plaintiff (and the bond note holders)  would allow the CPG Group and Cheergain further time to do the refinancing of its assets and sale of certain equity interest of the Defendant’s PRC JV oil station company to repay its indebtedness that it has undertaken the steps of refinancing and liquidating the valuable assets in the PRC.  As such, I verily believe that there is an estoppel arising which bars the Plaintiff (and the bond note holders)  from exercising their strict legal rights before the refinancing of CPG Group’s assets can be completed.”

23.  To complete the picture, I also set out the relevant paragraphs of the draft Defence which was exhibited by the defendant to his Affirmation:

“11.  At the time of the issuance of the Notes, China Properties Group Limited and its subsidiaries (“CPG”), including the Issuer, had incurred indebtedness which was to be refinanced via the issuance of the Notes pursuant to the Indenture.

12.  With full knowledge of the above and since about April 2020, the holders of the Notes and the Issuer entered into negotiations regarding the indebtedness arising out of the Indenture and Notes.  In the course of such negotiations, the Issuer sought further time to make full payment of the total indebtedness due under the Indenture and Notes.

13.  Pending the resolution of these negotiations, it is the understanding, whether implied by convention or otherwise, that during the course of the aforesaid negotiations the Plaintiff would not strictly enforce its rights under the Indenture and/or Notes (“the Understanding”).  The holders of the Notes continued to have discussions with the Defendant after the maturity of the Notes and the commencement of these proceedings herein about the Defendant’s liability to settle the indebtedness under the Notes.

14.  In reliance upon the aforesaid negotiations, the Undertaking and with the knowledge/consent of the holders of the Notes, the Defendant continues to actively mobilize funds through the refinancing of its assets and/or disposal of assets belonging to CPG, which process has begun prior to the negotiations, in order to settle the entire outstanding amount due under the Indenture and the Notes.

15.  As a result of the above, the Issuer expects to settle the indebtedness due under the Indenture of the Notes in 2022. 

16.  Hence, the Plaintiff is estopped from asserting the rights of the holders of the Notes under the Indenture and/or Notes against the Defendant pending the resolution of the parties’ negotiations on the settlement date and settlement of the outstanding sums.”

24.  Mr Hu referred this Court to the Court of Final Appeal’s Judgment in Siegfried Adalbert Unruh v Hans-Joerg Seeberger & Another [2007] 2 HKLRD 414 in which Ribeiro PJ discussed the elements of estoppel by convention[2]. Those elements had been summarised by Au-Yeung J in Sealegend Holdings Ltd v China Taiping Insurance (HK)  Co Ltd (HCAJ 95/2012, unreported, 24 October 2014, at paragraph 83)  as follows:

(1)  The parties must enter into some legal relationship on the basis of a shared assumption of fact or law;

(2)  The content of the common assumption must be sufficiently certain to enable the court to give effect to it;

(3)  The assumption must have been communicated between the parties and acted upon;

(4)  There must be an attempt by one party to depart from the common assumption which departure would be unjust; and

(5)  The other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption.

25.  As far as the element referred to in sub-paragraph (2)  above is concerned, I think it is also necessary to quote what Ribeiro PJ explained in paragraph 138 of his Judgment in Unruh:

“As Sir Andrew Morritt VC stated in Baird Textiles Holdings Ltd v Marks & Spencer Plc,[3] the content of the common assumption must be ‘sufficiently certain to enable the court to give effect to it’. It was established in Woodhouse A C Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd, that the promise relied on in support of a promissory estoppel must be ‘clear and unequivocal.’[4] The Vice-Chancellor indicated that he was applying the same test for the conventional estoppel sought to be raised. While in Troop v Gibson,[5]Ralph Gibson LJ suggested that a lesser test might be appropriate because estoppels by convention were likely to involve a course of negotiation or transactions rather than specific promises, he nevertheless concluded that:

‘... the extent to which the importance of clear and unequivocal statements is reduced in cases of estoppel by convention is probably small. In all cases the representation or statement must be sufficiently clear; and, since the doctrine of estoppel, when applied deprives a party of the ability to enforce a legal right for the period of time and to the extent required by the equity which the estoppel has raised, the clarity required will seldom fall below what is unequivocal for the relevant purpose.’ ”

(emphasis added)

26.  In my view, the defendant has clearly failed to raise any triable issue in his defence of estoppel by convention:

(1)  The defendant has clearly failed to condescend upon particulars on the basis on which it is alleged that there was a common assumption that the plaintiff would not strictly enforce its rights under the Indenture and/or Notes during the course of the negotiations.  There was no elaboration as to the identity of the person(s)  who made the representations, the date when such representation(s)  was/were made, the precise effect of such representation(s), etc. (for example, until when the plaintiff would have to withhold legal action);

(2)  I do not accept Mr Hu’s submissions that “the continuous and ongoing negotiations in around the Final Maturity Date amounts to the plaintiff’s implicit representation by conduct that the defendant would be afforded further time to refinance and/or sell its valuable assets to settle the indebtedness under the Notes”.  Negotiations, without more, cannot amount to any representation that the plaintiff would withhold legal actions as alleged;

(3)  Furthermore, the said alleged representation by conduct on the part of the plaintiff is contradicted by the demand letter sent by the plaintiff’s solicitors on 19 October 2021 (which was just 4 calendar days after the Final Maturity Date);

(4)  Hence, the alleged representation or statement on the part of the plaintiff is clearly not sufficiently clear;

(5)  Even if the defendant had somehow assumed that the plaintiff would not strictly enforce its rights under the Indenture and/or Notes during the course of the negotiations or pending the CPG Group’s refinancing of its assets, there is no evidence at all that the defendant/CPG Group had ever communicated this assumption to the plaintiff or the holders of the Notes;

(6)  Mr Hu’s submission that the defendant has incurred costs and taken steps to refinance and liquidate assets which has caused serious detriment to the defendant is also rejected.  Apart from the fact that this is a bare assertion of the defendant, I wonder whether such refinancing and liquidation can be relied upon by the defendant here, given it is his own plea in the draft Defence that the process of “actively mobiliz[ing] funds through the refinancing of its assets and/or disposal of assets belonging to CPG”[6] has begun prior to the negotiations;

(7)  There is also nothing unjust for the plaintiff to enforce its legal rights by starting this action.  As aforesaid, even on the defendant’s own case, the process of refinancing of its assets and/or disposal of assets belonging to CPG has begun prior to the negotiations.  In other words, the liquidation of assets was in process even before the time of the alleged representation(s). 

27.  It is therefore my view that the defendant has no arguable defence of estoppel by convention.

Lack of consideration

28.  The defendant then argued that the Indenture is unenforceable because there was no consideration flowing from the plaintiff to the defendant in exchange for the defendant being bound as a personal guarantor.

29.  There is no doubt that consideration has been given by the holders in purchasing the Notes.  The plaintiff is suing the defendant herein as their Trustee.  The argument is therefore bound to fail. 

30.  Indeed, it is provided in the Preamble of the Indenture that:

“For and in consideration of the premises and the purchase of the Notes by the Holders thereof, the parties hereto covenant and agree, for the equal and proportionate benefit of all Holders, as follows:”

31.  It was further stated in the Recital of the Indenture that:

“WHEREAS, the Personal Guarantor has duly authorised the execution and delivery of this Indenture as Personal Guarantor of the Notes. All things necessary to make this Indenture a valid agreement of the Personal Guarantor, in accordance with its terms, have been done, and the Personal Guarantor has done all things necessary to make the Personal Guarantee, when the Notes are executed by the Issuer and authenticated and delivered by or on behalf of the Registrar and duly issued by the Issuer, a valid obligation of the Personal Guarantor as hereinafter provided.”

32.  Mr Hu has failed to address these provisions at all in his written submissions.

CONCLUSION

33.  For reasons of the aforesaid, it is ordered that:

(1)  Final judgment be entered against the defendant on the principal sum of USD225,600,000;

(2)  Interlocutory judgment be entered against the defendant on the interest, default interest and damages to be assessed.

COSTS

34.  I make a costs order nisi that the defendant shall bear the plaintiff’s costs of the action up to the order for interlocutory judgment, including the costs of the Summons, to be taxed on indemnity basis[7] if not agreed, save that there be no order as to the costs of the letter dated 8 August 2022 sent by the plaintiff’s solicitors to the Court referred to above.

35.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on the papers)  within 14 days hereof.