CHINA EVERBRIGHT HOLDINGS CO. LTD. v. SYNERGY FINANCE LTD. AND ANOTHER

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS.933, 934 AND 935 OF 2002

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HCA933/2002

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(HEARD TOGETHER)

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J U D G M E N T

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Introduction

1. There are three actions before me, namely, HCA933, 934 and 935 of 2002. They are all commenced on 8 March 2002. I will refer to them as "the 1st action", "the "2nd action" and "the 3rd action". The claims arose out of various loan agreements and guarantees made between either the same or related parties. The amounts of the subject loans in each of the three actions are substantial, namely, HK$350,000,000, US$20,000,000 and HK$300,000,000 respectively. It is not in dispute that all the indebtedness then outstanding as at the date of the writs had not been repaid. By three summonses all dated 23 April 2002, the plaintiffs apply for summary judgment against the defendants under Order 14, Rules of the High Court.

Claims

2. In this section, I will summarise the plaintiffs' claims in the actions. As will be seen in a moment, it is convenient to deal with the actions in the reverse order.

(1) The 3rd action

3. The plaintiffs are China Everbright Holdings Company Limited ("China Everbright") and Everbright Investment & Managament Limited ("Everbright Investment"). The defendants are Synergy Finance Limited ("Synergy Finance") and its director, Mr Lau Hei Wing ("Mr Lau"). Another company related to the plaintiffs that featured is Everbright Finance and Investment Company Limited, now known as China Everbright Financial Holdings Limited ("CEFHL"). The plaintiffs alleged that in 1997, Synergy Finance requested CEFHL to grant it a term loan facility of up to HK$300,000,000. On 25 January 1997, Synergy Finance gave an undertaking to China Everbright and CEFHL ("the Undertaking"). The Undertaking was exhibited as "THM-2" to the affirmation of Ms Tse Hang Mui filed on behalf of the plaintiffs in support of the summary judgment application on 26 June 2002. There, Synergy Finance acknowledged that China Everbright had agreed to direct CEFHL to grant the said loan facility. It undertook, inter alia, to pay or reimburse China Everbright on demand all fees, legal costs or other charges required to be paid by China Everbright in relation to a term loan or other form of facility up to HK$300,000,000 to be obtained by China Everbright from any bank of financial institution.

4. CEFHL and Synergy Finance entered into a loan agreement on 25 January 1997 whereby CEFHL granted a term loan facility of up to HK$300,000,000 to Synergy Finance ("the First Loan Agreement"). Mr Lau executed a personal guarantee in favour of CEFHL on the same date ("the First Guarantee"), guaranteeing the due and punctual payment of Synergy Finance's indebtedness under the First Loan Agreement.

5. As envisaged in the Undertaking, refinancing from other banks was required. CEFHL and China Everbright themselves entered into a Chinese loan agreement dated 27 January 1997 whereby China Everbright agreed to advance HK$300,000,000 to CEFHL to enable it to provide the loan facility to Synergy Finance under the First Loan Agreement. China Everbright in turn obtained a loan facility of HK$300,000,000 from Ka Wah International Merchant Finance Limited and Union Bank of Hong Kong Limited under a facility letter dated 27 January 1997. The loan under the First Agreement was drawn down on the very same date. CEFHL made the advance with the fund provided by China Everbright, who in turn drew down the same amount pursuant to the facility letter it had with its own lenders.

6. By an assignment dated 23 February 1998, CEFHL assigned its rights and obligations under the First Loan Agreement to the Everbright Investment. No particular issue arose out of the assignment. Because of the subsequent default in repayment, China Everbright had to and did apply for renewal of the loan facility with its lenders and paid renewal charges of HK$1,125,000 with interest to them. It claims against Synergy Finance under the Undertaking for that sum or alternatively damages to be assessed. Everbright Investment claims against Synergy Finance and Mr Lau for HK$408,902,054.81 under the First Loan Agreement and the First Guarantee and damages to be assessed. The sum of HK$408,902,054.81 is made of the principal loan of HK$300,000,000, outstanding front-end fee of HK$5,000,000 and interest and default interest totalling HK$103,902,054.81.

(2) The 2nd action

7. By another loan agreement dated 21 May 1999 (the Second Loan Agreement"), China Everbright lent US$20,000,000 to Synergy Property Development Company Limited ("Synergy Property"). The loan is similarly guaranteed by Mr Lau under a personal guarantee of the same date ("the Second Guarantee"). The loan was drawn down on 4 June 1999. Synergy Property subsequently repaid US$600,000 and US$400,000 on 28 and 30 July 1999 respectively. As at close of business on 18 October 2001, the outstanding amount stood at US$27,711,066.33 (US$19,586,772.37 as principal and US$8,124,293.96 as interest). China Everbright claimed against Synergy Property and Mr Lau the said sum of US$27,711,066.33 and interest on the principal of US$19,586,772.37.

(3) The 1st action

8. By a loan agreement dated 19 January 1998 ("the Third Loan Agreement"), China Everbright lent HK$300,000,000 to Synergy Finance. Mr Lau again guaranteed the debt under a personal guarantee of the same date ("the Third Guarantee"). To finance the loan facility, China Everbright had in turn borrowed HK$350,000,000 from Citi Ka Wah Bank Limited. The loan under the Third Loan Agreement was drawn down on 19 January 1998 but in two parts, namely, HK$200,000,000 and HK$150,000,000 respectively. It appears from the breakdown of indebtedness enclosed with the solicitors' demand letter dated 15 November 2001, copy of which is exhibited as "THM-4" to Tse Hang Mui's affirmation filed on 26 June 2002 in support of the present application for summary judgment, that various repayments had been made in March 1999. As at 18 October 2001, the total outstanding amount was HK$318,770,101.73 (HK$256,691,255.54 as principal and HK$62,078,846.19 as interest). China Everbright now claims the said sum of HK$318,770,101.73 with interest on the principal of HK$256,691,255.54 and damages to be assessed.

Defence

9. The affirmations in opposition of the applications for summary judgment are all filed by Ms Cheung Ling Fei ("Ms Cheung"), a director of the Synergy Finance and Synergy Property and the wife of Mr Lau. The matters raised by her in defence to the actions are identical. It is therefore sufficient for present purposes to refer to her two affirmations filed in the 1st action on 13 May and 12 August 2002. In her first affirmation, Ms Cheung exhibited as "CLF-1" an undated summary of instructions prepared by Mr Lau ("the Summary"), disclosing the central defence. The other documents exhibited as "CLF-2" consisted of a copy letter from Ms Cheung to the plaintiffs and the court, which more or less repeated Mr Lau's complaints in the Summary, and a copy financial report of Synergy Sport International Limited (another company of Mr Lau's) for the year ended 31 December 1999 which recorded profits of some HK$57 million for that year.

10. The defendants do not dispute the due execution of all the loan agreements, the guarantees and the Undertaking, and the fact that the loans had been drawn down and that the repayments referred to above had been made. Nor do they dispute the quantum of the various amounts claimed. They however contend that the plaintiffs are not entitled to enforce the various Loan Agreements and Guarantees. The central defence advanced by Mr Lau in the Summary, as Ms Ip, counsel for the defendants put it, is based on two collateral agreements. The first is in connection with the two loans in the 2nd and 3rd actions. The assertions can be found in paragraphs 1 to 3 and 7 of the Summary :

"1. 信创原来是中国国家外管局有关连的公司，后来被光大集团收购，可能是全资拥有，我记不准确。朱小华('朱')在来光大之前是中国国家外管局局长。当时朱同意通过信创把钱借给高斐的公司，并叫信创的关山安排贷款。当时高斐总欠信创1000万美元、也欠我公司650万美元，两笔欠款合共1650万美元。当时如果我们不去追钱，不把高斐的地(浅水湾道117号地皮)拿来，信创的钱就没了，高斐欠了很多债。朱后离开外管局，当时这件事情北京一些领导知道后，在北京铁狮子胡同开会，最后同意我替外管局/信创向高斐追款。这件事有周小川、关山、领导、朱和我几个人知道。关山曾经给我发文，大概讲，接上级领导通知，由我去追高斐追回信创的钱。当时这个文可能放在红墈的办公室，是96年底的事，这个文信创也会有的，同时抄送周小川。

2. 当时因为这块地高斐已向别人贷款2亿8千万，我们要向别人(九龙建业)还上2亿8之后，才能把地拿回来，剩下的余额才归我们和信创。朱、领导在深圳见面，提到高斐欠的钱，当时朱已经在光大工作，对于自己任上高斐欠外管局的钱一直不放心。另外到年底，信创又无法平帐。我当时为了做好这件事，也为了帮朱，在96年9或10月我从香港的公司上打了500万美金给信创。但是周小川上任后叫他们又把500万美金退给我，说我不能拿我个人的钱补帐。高斐一直答应给我钱，但是总是用不同方法往后推，包括用假信用证，后来我要求高斐提供其资产清单，一看资产，什么都没有，当时他只有这地可能还值点钱。因此，我汇报领导，也和朱、光大协调这件事情。事情又拖了半年到一年，我火了，经朱同意才告他。

3. 告高斐之前，把信创借高斐的债转到我这儿，由于高斐资不抵债，又把这地抵押给其他人，除了这2亿8以外，在地上又有很多工程，拖欠了别人的钱，加起来有3亿多，我们要先还上这些3亿多，才能拿回地。这件事情关山、光大的邵正康都知道。当时光大承诺款追回以后，要和我合资发展这块地。他们愿意出3亿，而我出1.5亿来支付拿回地后还要补政府地价、设计的钱和其它零碎的费用。后来朱提出，光大暂时以贷款给我公司的方式，然后通过我公司注入合资公司，等到条件成熟(也就是业权转到合资公司、补地价金额确实出来)以后，再正式签定合资协议。我也同意了并以我的公司与光大签定了3亿的临时贷款协议。但是后来，光大又悔约。中间，我经光大的同意，也把这块地抵押给中银，拿了约1.3亿港元，作为合资公司的流动资金。贷光大的3亿都是付上面的帐付掉了。

......

7. 99年5月，浅水湾道117号地的中国银行贷款到期，光大又借我司2000万美元用以返还中国银行的贷款。"

I will call this the First Collateral Agreement. As appeared from Ms Cheung's affirmations, the English names for "信創", "桂港", "高斐", and "朱小華", are United Wide Investment Limited ("United Wide"), Kwai Gang Finance Company Limited ("Kwai Gang"), Ko Fei ("Mr Ko") and Zhu Xiao Hua ("Mr Zhu").

11. Ms Cheung in her first affirmation said that Mr Lau was still stranded in the Mainland and the Summary was related to her by his PRC attorney on 10 May 2002. She had then endeavoured to locate the relevant documents but because of the time constraint, she could only locate a letter from United Wide dated 16 December 1996 which was faxed to Mr Lau on the following day ("the United Wide Letter"). The United Wide Letter was however not exhibited. It was only exhibited in her second affirmation as part of the documents in exhibit "CLF-4". As the defendants and their counsel Ms Ip sought to place heavy reliance on the United Wide Letter, I will set it out in full below :

"各位领导：

关于清理桂港财务投资有限公司(简称'桂港')，新立基财务有限公司(简称'新力基')和信创投资有限公司(简称'信创')之间的债权及债务关系事宜，因为涉及到国家外汇管理局等部门的复杂关系，必须慎重处理。为最大限度地减少可能出现的风波，依据国家外汇管理局规定的授权界限和光大集团有限公司(简称为'光大')领导的指示精神，我们认为不宜采用相互做法律性文件从而理清债权，债务关系的作法，此种作法只能将问题复杂化并可能因外汇管理局迟迟审批不下出现新的难题，从减少行政麻烦和顺利办妥此事出发，下述办理方式较为稳妥：

1. 目标：

清理上述债务及债权关系后的设计状态是：

A) 信创与桂港间无任何债权、债务关系，即桂港归还所欠信创的全部欠款本息(共约943余万美元)；

B) 信创与新力基之间无任何债权、债务关系，即信创归还所欠新力基的本息款(500万美元及利息);

C) 信创对光大有存款关系，即信创存款在上属公司 光大约440万美元，利率为Libor + 1，期限为三个月并可以滚存。

2. 步骤：

(A) 由桂港出具书面付款指令，光大垫支约943万美元汇入信创美元帐户，归还桂港对信创负债的本息余额。信创收到款后向桂港书面确认已全部清理完毕债权、债务;

(B) 由新力基出具书面付款指令，信创将500万美元及利息汇入新力基指定帐户，归还信创欠新力基的本息余额，新力基收到款后向信创书面确认已清理完毕债权、债务；

(C) 信创同光大签属存款协议，金额约为440万美元，利率为Libor + 1，期限为三个月，到期后可延期；

(D) 光大将垫支的约943万美元为购买浅水湾117工程所使用合资公司的入股资金并从所需投资款中扣除。光大与新力基在设计合资公司股权时办妥此入股资金的有关手续。

3. 应说明的若干事项：

(A) 光大和信创均有资金的清算帐户，因此调集资金时可以当天起息，不会产生因资金调集不到位所造成的利息损失；

(B) 如光大因垫支资金的筹集出现问题，信创可以用存款光大的方式协助解决资金问题；

(C) 在资金划拨中不宜过多地形成法律性文件，以免拖延时间；

(D) 资金划拨过程尽量与合资公司股份的入资时间同步，以免造成利息等纠纷；

(E) 上述资金调拨的精确数字应在调拨前五个工作日各方达成共识并确认；

(F) 应由各方承诺，此种方案在实施后不得对外泄露。

以上意见是我们周密考虑各种因素后拟定的理顺各方关系的方案，如有不妥，请各位领导指示！

信创投资有限公司

一九九六年十二月十六日"

12. Ms Cheung then went on to say in paragraph 4 of her first affirmation thus :

"As revealed in [the United Wide Letter], the said loan of HK$300 million was in fact the Plaintiffs' share of contribution towards a joint property investment through an associated company of the 1st Defendant ('Synergy') in relation to No.117 Repulse Bay, Hong Kong ('the Property'). As agreed between [Mr Zhu] and Mr Shao Zheng Kang (邵政康) of the Plaintiffs and Mr Lau of the 1st defendant in late 1996, Synergy purchased the Property from [Mr Ko] and/or his company (Team Base Development Limited), solely to assist the latter to repay an earlier loan advanced by United Wide or the Plaintiffs to [Mr Ko] or his company. The said loan of HK$300 million was advanced solely to facilitate and consummate the aforesaid scheme of debt re-structuring. In the event, because of the economic recession in recent years, the joint property investment turned out to be a complete fiasco and Synergy has suffered a loss in order of some HK$300 million. I am still locating all the source documents and working out the breakdown/exact amount of the loss."

13. Three points should be noted. First, as Ms Cheung had filed identical affirmations in all actions, the reference of "the 1st defendant ('Synergy')" applied to both Synergy Finance and Synergy Property. Second, she did not make any reference to the loan of US$20,000,000 in the 2nd action. Presumably, she relied on what was said by Mr Lau in paragraph 7 of the Summary. Third, the alleged loss suffered by the subsequent disposal of the land in the Repulse Bay was adjusted to HK$285 million in her second affirmation. But she had not produced any documentary evidence in support.

14. In her second affirmation, Ms Cheung exhibited as "CLF-4" various documents that the defendants seek to rely on to support Mr Lau's case on the First Collateral Agreement. I have already set out the United Wide Letter. The other documents are :

(a) A loan agreement dated 7 September 1994 whereby United Wide lent US$10 million to one Kwai Gang, to be repaid within a year.

(b) A supplemental agreement of the same date between United Wide and Kwai Gang supplementing the above agreement. The original loan of US$10 million was spilt into two parts. US$8 million remained to be repaid within one year. The balance of US$2 million was to be repaid within 10 days.

(c) A loan agreement dated 24 October 1995 under which China Industry and Commercial Group Limited, another company related to Ko, borrowed HK$1 million from United Wide to be repaid within one month. The fourth document is also a loan agreement dated 12 December 1996 whereby China Everbright borrowed US$3,500,000 from United Wide, to be repaid within two weeks.

(d) A letter dated 31 January 1997 issued by Mr Lau as the chairman of Synergy Finance to United Wide ("Mr Lau's Letter"). It read :

"致：信創投資有限公司

從即日起'桂港'及'中商'對信創投資有限公司目前債務(本息+利息及對信創投資有限公司潛在的任何債務)均由新立基財務有限公司全部承擔。

至此，'桂港'及'中商'與信創投資有限公司之間王再有債權債務關系。請信創投資有限公司正式通知'桂港'及'中商'有關事宜。有關手續近日內我司約信創投資有限公司商議，確定和辦理。"

15. The other purported collateral agreement affecting the 1st action is set out in paragraph 6 of the Summary. It read :

"6. 第二笔的贷款3.5亿是在下面的情况贷下来的：97年底，光大的股价跌得利害，朱就向我说这是很好的机会，他说可以贷款3.5亿给我，部分返还我公司已到期的货款，部份可以去买光大的股票，一方面支撑光大的股价，一方面也可以赚钱，朱向我保证光大的股价不会再跌，最差我们也只是平手离埸。因此我们买大量的光大股票，最后止蚀离场。我在光大的股票上亏掉2亿多的港币。"

I will call this the Second Collateral Agreement.

16. In paragraph 5 of her first affirmation, Ms Cheung summarised the defendants' case in this way. The alleged loan was used to buy shares of China Everbright to support their value. Mr Lau had relied on the expressed assurance of Mr Zhu that Synergy Finance would not suffer any loss as a result of its efforts to support the share price. But because of the significant drop in share price subsequently, Mr Lau and Synergy Finance had suffered an aggregate loss of HK$200 million. In her second affirmation, Ms Cheung said further that Synergy Finance purchased most the shares through China Everbright Securities (HK) Ltd ("CES"), a subsidiary of China Everbright. Because of the drastic fall of the share price, CES froze Synergy Finance's account and sold all the shares in the account including those not related to the plaintiff. She exhibited as "CLF-3" a portfolio summary of profit and loss as at 31 December 1998 showing that Synergy Finance had suffered substantial loss as at 31 December 1998. According to this summary, Synergy Finance did trade substantially in China Everbright's shares.

17. The plaintiffs had not filed any evidence in reply to deal with the defendants' assertions or documents.

Burden

18. When a defendant seeks to rely on a collateral agreement to defend an application for summary judgment under Order 14, the burden, Mr Chain for the plaintiffs submitted, lies strictly on him to prove such agreement. He derived support from Bank of India v. Surtani Murlidhar Parmanand [1994] 1 HKC 7, where Nazareth JA said at pp.11I-12C :

"Since the defence rests upon a collateral oral agreement, the sole effect of which is to vary the settlement deed, the threshold onus is in a sense compounded by the onus to strictly prove such agreement. That onus, as approved by Lord Goff in Universal Dockyard Ltd v Trinity General Insurance Co Ltd [1989] 2 HKLR 160, 164, was propounded in the following way by Lord Moulton in Helibut, Symons & Co v Buckleton [1913] AC 30 at 47, 48:

Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are therefore viewed with suspicion by the law. They must be proved strictly. Not only the terms of such contracts, but the existence of an animus contrahendi on the part of all the parties to them, must be clearly shown. Any laxity on these points would enable parties to escape from the full performance of the obligations of contracts unquestionably entered into by them and more especially would have the effect of lessening the authority of written contracts by making it possible to vary them by suggesting the existence of verbal collateral agreements relating to the same subject matter."

As I understand Ms Ip, she did not seem to have contended otherwise. I will however add one observation. These are applications for summary judgment. While the court will consider all the evidence adduced, it will not and indeed should not embark on a mini trial on affidavit : Mass International Ltd v. Hillis Industries Ltd [1996] 1 HKC 434, per P Chan J (as he then was) at p.439. The test is simply whether the defendants' assertions are believable and whether they are believable is a question to be answered not by taking those assertions alone but by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute : Re Safe Rich Industries Ltd [1994] HKLY 115, per Bokhary JA (as he then was). Although the defendants have to prove the collateral agreements strictly, they will in my view be able to discharge the burden for present purposes if they satisfy this test.

19. Before turning to the substantive arguments, it is convenient to deal with the preliminary points raised by Ms Ip to support her contention that the applications for summary judgment are inapt. She submitted that Mr Lau, the principal protagonist, is unavailable because he is now stranded in the Mainland. The corporate defendants are now run by Ms Cheung, who had tremendous difficulty in obtaining instructions from Mr Lau and locating the relevant documents. In my view, the absence of a material witness alone does not necessarily amount to a reason for trial. It all depends on the circumstances of the case. Here, I am not satisfied that the personal difficulty that Mr Lau may have has prevented the defendants from putting forward their defence. Mr Lau had been able to produce the Summary apparently without any difficulty. It was given to Ms Cheung in May 2002. Ms Cheung has not explained why since then, Mr Lau has not been able to give further instructions to her to defend the applications. I am not prepared to draw the inference that he has been so handicapped from the mere fact that he was stranded in the Mainland. There is no suggestion that he is now detained by the authority or that he is unable to communicate effectively with Ms Cheung himself or through his PRC attorney. The difficulty in locating documents should not be over-emphasised. After all, it is the defendants' case that the Collateral Agreements were oral agreements. And despite the alleged difficulty, the defendants have now pinpointed a particular document in support of their case on the First Collateral Agreement, namely, the United Wide Letter. Ms Ip further submitted that sufficient factual matters had been raised by the defendants, which had not been denied by the plaintiffs. Those matters cannot be resolved without a trial. In my view, it begs the essential question whether the defendants' assertions are believable. To this, I now turn.

The First Collateral Agreement

20. I first examine the First Collateral Agreement. In this regard, as noted, heavy reliance is placed on the United Wide Letter by Ms Cheung in paragraph 4 of her first affirmation : see paragraph 12 above. Ms Ip submitted that the First Collateral Agreement was confirmed in writing by the Union Wide Letter, evidencing a restructuring of the debts among China Everbright, Kwai Gang and Synergy Finance and China Everbright's agreement to invest in joint venture to develop the land at Repulse Bay. China Everbright was to contribute to its share in the form of a loan, which would later be treated as the capital contribution in the joint venture company when it was set up. But this submission does not in my view bear a closer scrutiny of the relevant documents for a number of reasons.

21. First, the Union Wide Letter is not an agreement to restructure. It is a mere restructure proposal made by United Wide to other parties for their consideration. There is no evidence before me that all the parties concerned had subsequently agreed to it.

22. Second, the proposal contained in the Union Wide Letter is inconsistent with Mr Lau's assertions in some important aspects :

(1) In paragraph 1 of the Summary, Mr Lau referred to the loan of US$6,500,000 due from Ko or his company. This is not supported by any of the loan agreements produced as part of exhibit "CLF-4". Those loan agreements only show that there were prima facie debts between United Wide as lender and various borrowers : (1) Kwai Gang (in September 1994); (2) China Industry and Commerce Group Limited (in October 1995), and (3) China Everbright (in December 1996.) According to Mr Lau, this loan of US$6,500,000 provided Mr Lau and his company the premise to take over, as it were, Ko's land in the Repulse Bay. The plan to develop the land was at the core of the First Collateral Agreement which was said to be evidenced by the Union Wide Letter. But, surprisingly, the Letter did not make any mention of that loan at all. Instead, it referred to a loan of US$5 million due from United Wide to Synergy Finance. But this loan is not supported by any documentary evidence either.

(2) According to the Union Wide Letter, China Everbright was to transfer some US$9,430,000 into United Wide's account to pay off the debts owed by Kwai Gang. Then the sum so transferred would in due course be counted as China Everbright's capital contribution in the joint venture company to be established. But it was never mentioned that China Everbright would have to enter into any of the First or Second Loan Agreements or indeed any purported loan agreements at all with any of the corporate defendants as its capital contribution in the joint venture company.

(3) In paragraph 3 of the Summary, the amount to be invested by China Everbright was said to be HK$300 million, which is significantly greater than the sum of US$9,430,000 referred to in the Union Wide Letter. Mr Lau had not explained why China Everbright would subsequently agree to increase its stake to such an extent.

(4) According to the Union Wide Letter, the debts due from Kwai Gang to United Wide would be absorbed by China Everbright. But in the Summary, Mr Lau said at the end of 1996, he agreed to chase after Ko for his companies' debts on behalf of Union Wide and that before Ko was sued, those debts were transferred to him. This point is evidenced by Mr Lau's Letter, which stated that those debts had been taken over by Synergy Finance as at 31 January 1997.

23. In the circumstances, the Union Wide Letter cannot not possibly confirm or evidence the First Collateral Agreement or indeed any agreement of restructuring as contended by Ms Ip. At best, it is evidence of some negotiation or discussion process. Those documents exhibited as "CLF-4", which are not disputed, show the background as follows. Ko's companies had since September 1994 owed United Wide some US$10,000,000. As at December 1996, those debts were not repaid. At the same time, Union Wide owed Synergy Finance US$5,000,000. China Everbright and Union Wide themselves were involved in some form of financial transactions, as demonstrated by the loan agreement dated 12 December 1996 referred to in paragraph 14 above and the reference to the deposit of US$4,400,000 by Union Wide with China Everbright in the Union Wide Letter. The parties were then discussing how to restructure the loans and relationships among them. The option of jointly developing the land in the Repulse Bay by China Everbright and Synergy Finance was raised. According to the Union Wide Letter, China Everbright would absorb the debts due from Ko's companies by transferring US$9,340,000 into United Wide's account. The transfer would be treated as its capital contribution in the joint venture company to be formed. The proposal that China Everbright would absorb the debts of Ko's companies was apparently not accepted or implemented. Subsequently, as demonstrated by Mr Lau's Letter, Synergy Finance agreed to take over those debts. (It should be noted that on Mr Lau's case, Synergy Finance's agreement to take over those debts had nothing do with the loans advanced under the First and Second Loan Agreements.) There is a huge lacuna, which is unexplained on the evidence before me other than the bare assertions by Mr Lau, between these background facts and the First Collateral Agreement.

24. Ms Ip further submitted that the commercial reality of the transactions must suggest that there is some form of collateral agreement. She said no lender would lend some HK$800,000,000 to the corporate defendants when the profits of their related company was only HK$57 million a year. She was referring in this connection the financial report of Synergy Sport International Limited for the year ended 31 December 1999 exhibited as part of "CLF-2" to Ms Cheung's first affirmation. She also made the point that the extension of US$20,000,000 under the Second Loan Agreement showed that the lender intended to give effect to the First Collateral Agreement and not to enforce the loan. For by then, payments under the First Loan Agreement were already in default. But on the materials before me, Mr Lau and his companies are not small business investors or traders. In paragraph 2 of the Summary, Mr Lau referred to the incident that he paid US$5,000,000 to United Wide. He and his companies were on his own case resourceful. I will not attach particular weight to the sizes of the loans.

25. Further, the First and Second Guarantees do not sit well with the First Collateral Agreement. The defendants have failed to explain why it was necessary to ask Mr Lau to personally guarantee the loans. If the loans were in fact capital contribution as alleged, why would the plaintiffs bother to ask Mr Lau to provide the Guarantees? The corporate defendants would not be asked to repay the purported loans. The need to guarantee them by Mr Lau personally in case of default simply would not arise. On the Second Loan Agreement, the defendants' case is even weaker. Mr Lau's assertion was that China Everbright agreed to contribute HK$300,000,000. He did not say that China Everbright had agreed to increase the contribution by a further US$20,000,000. He only said that China Everbright lent that sum to him to enable him to repay the mortgagor bank. Indeed, any assertion that the said loan was indeed further capital contribution must be flatly contradicted by the subsequent part repayment of US$1,000,000. If the loan was capital contribution, why was repayment ever necessary? The defendants did not offer any explanation.

26. Mr Chain for the plaintiffs complained that the defendants had wholly failed to condescend on particulars of the alleged collateral agreement, including the terms thereof. I agree. Ms Ip sought to overcome this difficulty by again referring to the fact that Mr Lau is stranded in the Mainland. But as I have already pointed out, given the First Collateral Agreement was an oral one, Mr Lau should have no difficulty in giving full details on the terms of the alleged collateral agreement in the Summary.

27. Mr Chain further submitted that Mr Lau in fact accepted that the HK$300,000,000 was a loan, albeit a temporary one until it was to be changed into capital contribution of the joint venture company when it was set up. But that joint venture was according to Mr Lau postponed and hence there was no binding agreement. Alternatively, he submitted that the same would be void for uncertainty. Ms Ip in reply argued that the defendants are entitled to rely on the First Collateral Agreement that the money would be treated as capital investment such the at the strict terms of the loan agreements to repay would not be enforced : Brikom Investment Ltd v. Carr [1979] 1 WLR 737. Once there is reliance on the part of the defendants, postponement did not matter. But it begs the question whether the First Collateral Agreement existed as alleged.

28. For the above reasons, I am not satisfied that the defendants have discharged the burden of proving the First Collateral Agreement for present purposes. In my view, the inconsistencies and unexplained features in the defendants' evidence have rendered their bare assertions relating to the First Collateral Agreement unbelievable. The defendants have not raised any dispute concerning the quantum of the claims, the plaintiffs' entitlement on interest and costs on indemnity basis where applicable. In the 2nd action, I will enter judgment for China Everbright against Synergy Property and Mr Lau for the sum of US$27,711,066.33 or its equivalent in Hong Kong currency at time of payment with interest on the sum of US$19,586,772.37 at the rate of 15.5% per annum from 19 October 2001 to 7 November 2001, at the rate of 15.25% from 8 November 2001 to 12 December 2001 and at the rate of 15.125% per annum from 13 December 2001 until payment. China Everbright will also have the costs of the action including costs of the application for summary judgment with any costs reserved on indemnity basis. In the 3rd action, I will enter judgment for China Everbright against Synergy Finance for the sum of HK$1,125,000 with interest at the judgment rate from date of writ until payment and costs of the action, including the costs of the application for summary judgment and any costs reserved on a party and party basis. I will also enter judgment for Everbright Investment against Synergy Finance and Mr Lau for the sum of HK$408,902,054.81 with default interest of HK$305,000,000 at 1.25% per annum above prime rate from 19 October 2001 until payment. Everbright Investment will also have costs of the action including costs of the application for summary judgment and any costs reserved against Synergy Finance on indemnity basis and against Mr Lau on a party and party basis.

The Second Collateral Agreement

29. I now turn to the Second Collateral Agreement. Mr Chain submitted that it is simply incredible for Mr Lau to act on Mr Zhu's assurance as alleged, if it was ever made at all. Prices of listed companies are prompt to fluctuation. Indeed, according to Mr Lau's own case, the share value of Everbright Holdings was then dropping. I agree.

30. However, Ms Ip submitted that the Collateral Agreement to support the shares of Everbright Holdings might have contravened the provisions in the Companies Ordinance prohibiting the lending money to others to purchase one's own shares. Although she did not refer to any particular section of the Ordinance, she must have in mind section 47A. The section provides :

"Subject to sections 47B and 48, where a person is acquiring or is proposing to acquire shares in a company, it is not lawful for the company or any of its subsidiaries to give financial assistance directly or indirectly for the purpose of that acquisition before or at the same time as the acquisition takes place."

At this stage, there is no evidence before me to contradict Mr Lau's assertion that Mr Zhu verbally agreed to provide financial assistance in the form of the Third Loan Agreement to buy China Everbright's shares. This issue has to go to trial. Mr Chain then submitted that if it is not necessary for China Everbright to plead or rely on the illegality, it can still enforce the loan and the Third Guarantee : Tinsely v. Milligan [1994] 1 AC 340. For my part, I am not inclined to decide this point now. Whether China Everbright can invoke this doctrine remains to be seen after full investigation of the relevant circumstances. This is a matter for trial. As I understand Mr Chain, he had not sought to rely on sections 47B or 48 for present purposes. I will accordingly give the defendants unconditional leave to defend the 1st action. Costs of the application for summary judgment will be in the cause.