INTEGRATED CAPITAL (ASIA) LTD v. PENG YI INVESTMENTS LTD AND OTHERS

HCA 530/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 530 OF 2013

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J U D G M E N T

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1.  This is an Order 14 summons taken out by the plaintiff, who is a licensed money lender, against the 1^st defendant only in HCA 530/2013. There is no dispute between the parties that a cheque for HK$83,958,356 was issued by the 1^st defendant payable to plaintiff dated 29 October 2012. There is no dispute either that the cheque was dishonoured on presentation to the bank.

2.  It is further accepted that the cheque was a purported repayment of a short term loan taken out by the 1^st defendant with the plaintiff for HK$80,000,000 on 19 September 2012. The amount of the cheque represented the principal sum plus accrued interest.

3.  To complete the picture it is also fact that on 21 December 2011 the 2^nd defendant entered a similar loan agreement with the plaintiff for HK$70,000,000. Also on 29October 2012 another cheque for $95,534,189 (representing the principal sum plus accrued interest for 10 months) was drawn in favour of the plaintiff but was dishonoured on presentation to the bank.

4.  The plaintiff commenced proceedings in April 2013. The amended Statement of Claim is dated 7 June 2013. The claim is based on the dishonoured cheques. A defence and counterclaim of all three defendants was duly served dated 19 July 2013. The defence and counterclaim concerns a substantial set-off, the facts of which are not relevant to this summons (as was conceded by Mr Christopher Chain, counsel for the 1^st defendant)

5.  Mr Chain acknowledges that, save in exceptional circumstances, a pleaded set-off is no answer to a claim on a dishonoured cheque and there are no such exceptional circumstances in this case.

6.  Mr Chain’s submission that no order should be made in these Order 14 proceedings arises because of events which occurred after pleadings had been served. In short, he submits that it is at least arguable that the principal sum of $80,000,000 has now been repaid (as also has the $70,000,000 loan) and that what remains in dispute between the parties is the unpaid interest on the loans which Mr Chain correctly observes can form part of his set-off claim.

7.  The purported repayment of the principal sums stems from payments made during September 2013 from two PRC Companies totalling RMB 140,000,000. Regardless of the fact that these payments were actually made to four other PRC Companies (referred to as companies A, B, C and D) it is an agreed fact that the payments were made towards the repayment of the original loans of HK$70 million and $80million in December 2011 and September 2012 respectively. The plaintiff’s case is a simple demonstration of the fact that whilst the $70 million loan (plus interest) has been paid off, HK$82,768,646 of the $80 million loan (plus interest) still remains unpaid and he therefore seeks judgment for that sum based on the dishonoured cheque.

The law

8.  Mr Anthony Chan, counsel for the plaintiff, correctly summarizes the court’s task in this summons as follows. Once it has been demonstrated that this is a suitable case for Order 14 proceedings, which it plainly is, and a prima facie case has been established, which it plainly has, it is for the defendant to show that there is an arguable defence or a triable issue. The defendant must condescend to particulars and point to credible evidence in support of a bona fide defence.

Arguable defence or a triable issue?

9.  The crux of Mr Chain’s submission is that when the RMB 140 million was paid, it is at least arguable that an agreement existed between the plaintiff and the 1^st defendant as to the appropriation of the payments. In the absence of any direct evidence concerning such an agreement he submits that an inference is capable of being drawn that it was intended that the RMB140 million was to be utilized for the discharge of principal only in relation to both debts first of all. Any remaining balance could then be used to reduce such interest that was still outstanding.

10.  Before considering the credibility and bona fides of this submission it is necessary to outline, in a little more detail, the plaintiff’s position with regard to the September 2013 payments of RMB 140 million. There is no challenge (save for the exchange rate) to the following facts and arithmetic.

11.  Between 2 and 16 September 2013 six payments (namely RMB 30 million, 30 million, 20 million, 32 million, 18 million and 10 million) were received by companies A (56 million), B (56 million), C (18 million) and D (10 million). i.e. 140 million in total.

12.  The $70 million loan was repaid first. In order to repay principal and accrued interest in respect of that loan at the relevant time (using the plaintiff’s exchange rate) RMB 102,797,043 out of the total sum of 140,000,000 was required.

13.  The balance of RMB 37,202,957 was credited against the HK$80 million loan plus accrued interest.  As at 16 September 2013, after the deduction of RMB 37,202,957 there remained outstanding HK$ 72,979,408 of the principal sum plus interest.  Since 16 September 2013 interest continued to accrue and as at the date of the plaintiff’s most recent affirmation (27 December 2013) the interest amounted to $9,787,238. Thus the total amount of the claim as at 27 December 2013 was $82,768,646.

14.  Mr Chan submits that these figures are unarguable. The defence submission that there was an actual or implied appropriation agreement in September 2013 is at best an afterthought designed to convert the outstanding debt into the interest element only, so that it can be properly included in the set-off claim the main action.

15.  I agree with Mr Chan’s submission. Even the defendant’s most recent affirmation makes no mention, either express or implied, of any such appropriation agreement. There is no evidence of any discussions or negotiations at the time as to how the money was to be apportioned. Mr Chain’s submission, valiantly made, that it is at least arguable that there must have been, is not good enough.

16.  The only contemporary documents which throw any light on the parties’ intention at the time are emails dated 31 August 2013 and 3 October 2013 from the 1^st and 2^nd defendants to the plaintiff. These simply confirm the details of the particular bank accounts and when money would be remitted “to repay to your company the principal and interest of the loans...”

17.  In my judgment the defence has not condescended to particulars, has not adduced credible evidence of a bona fide defence and has not persuaded the court that there is any basis to draw inferences in the 1^st defendant’s favour to establish an arguable defence or a triable issue.

18.  What remains is an undoubted outstanding debt of $82,768,648 (as at 27 December 2013) between the plaintiff and the 1^st defendant and a dishonoured cheque for $83,958,356 dated 29 October 2012 from the 1^st defendant to the plaintiff. All the formalities with regard to the dishonoured cheque have been complied with.

Order

1. Final judgment be entered for the plaintiff against the 1^st defendant in the sum of $82,768,646

2. Interest at the rate of 4% per month on the sum of $72,979,408 from 28 December 2013 until the principal sum has been fully repaid.

3. Pursuant to clause 8.1(b) of the said loan agreement the costs of the Order 14 proceedings shall be to the plaintiff on an indemnity basis. This costs order is on a nisi basis.

4. There will be an order in terms on the summons dated 6 January 2014.