LIAO JIN v. YICK HING CONSTRUCTION CO LTD

HCA 1311/2019

[2021] HKCFI 3290

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1311 OF 2019

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DECISION

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1.  The plaintiff (“Liao”) applied before the master but failed to obtain summary judgment against the defendant (“Yick Hing”). Liao now appeals.

Background

2.  The parties came together because of a joint property development project at DD 120, Lot 4041 in Yuen Long, New Territories (“the Land”).  The New Grant of the Land contained, amongst other conditions, a covenant by Ip & Fu as the grantee to build on the Land (“the Building Covenant”).

3.  Ip & Fu Investment Co Limited (“Ip & Fu”) was at the material times the registered owner of the Land.  Liao held 1 issued share of Ip & Fu while Guan Zhigang (“Guan”) held the other 2,999 issued shares through his company Wing Kee Properties Development Limited.  Guan and Liao were the directors of Ip & Fu at the material times, but Liao resigned from his directorship on 1 November 2019. Both of them are said to be businessmen based in the Mainland.

4.  Yick Hing was and is a Hong Kong construction company owned and under the sole directorship of Yuen Chung Yuen, Edward (“Yuen”).  Yick Hing and Ip & Fu entered into agreement to jointly develop the Land by erecting houses there.  Each would be entitled to a designated number of the houses erected under the project.

5.  On 9 November 2015, Ip & Fu (through Liao) and Yick Hing (through Yuen) entered into a construction and design works contract (“the Works Contract”).  Yick Hing would carry out the construction work and obtained the occupation permit in the following 18 months. The construction cost was agreed at HK$130 million.

6.  On 25 January 2016, Ip & Fu (through Liao) and Yick Hing (through Yuen) also entered into a related joint development agreement (“the Development Agreement”) whereby the former agreed to provide the Land and the latter agreed to undertake the construction cost up to the issuance of the occupation permit in a sum of not less than HK$130 million as mentioned above.

7.  The Development Agreement contained, amongst others, the following terms:

 Under duties and obligations

(1)  With Yick Hing’s assistance, Ip & Fu would apply for building mortgage loan and to pay to Yick Hing part of the construction cost not exceeding HK$30 million. Yick Hing would fully reimburse Ip & Fu the expenses and interest of the mortgage loan upon completion of the project (clause 4);

(2)  In the event that the mortgage loan was not approved prior to the commencement of building works by Yick Hing, Ip & Fu would provide the title deeds to the Land and procure personal guarantees from the shareholders of the company (clause 5);

(3)  Yick Hing would be responsible for the design and construction cost (clause 6);

(4)  Yick Hing would be responsible for any surcharges levied by the government occasioned by the design and construction (clause 9);

 Under distribution of profit

(5)  Ip & Fu and Yick Hing would respectively be entitled to 8 and 7 houses as well as half of the remaining house in the project (or their sale proceeds) as their return from the development (clauses 1 to 3);

 Under mutual promise and assurance

(6)  Yick Hing promised and assured that it would undertake the construction cost and related cost (clause 4).

8.  The parties have since entered into several variation work contracts and supplemental development agreements.

9.  Construction works commenced in February 2016.

10.  The contractual deadline for Yick Hing to complete the construction works and to obtain the occupation permit would have exceeded the then deadline for the compliance with the Building Covenant.  For the extension of the deadline, land premium would have to be paid.  That was done in late June 2016.

11.  In July 2016, Ip & Fu took out a building mortgage with Bank of East Asia, Limited(“the Bank”) for a loan of HK$130 million (“the Building Mortgage”).  Yick Hing has since made payments, including interest payments, to the Bank in connection with the Building Mortgage.

12.  For further extension of the deadline of the Building Covenant, land premium was levied on Ip & Fu.  In December 2016, Yick Hing paid the premium, and the deadline was further extended to the end of June 2017.  However, construction was yet to be completed by then or the contractual deadline pursuant to the Works Contract.  Further land premium was levied on Ip & Fu, and paid by Yick Hing, for extension of the deadline of the Building Covenant at the end of June 2017.

13.  In September 2017, the construction works came to a halt due to construction issues taken by the Buildings Department.

14.  Amongst the above dealings, there were what Liao claims to be his personal loans to Yick Hing.

15.  There is no dispute that Liao did make the following payments by his personal cheques to Yick Hing:

Date of payment	Amount
29 September 2017	HK$3,000,000
6 October 2017	HK$2,000,000
6 November 2017	HK$7,000,000

16.  There is also no dispute that the parties have signed the following written Chinese agreements to record the above payments as personal loans by Liao to Yick Hing:

Date	Amount
3 October 2017	HK$5,000,000   (“1st Loan Agreement”)
6 November 2017	HK$7,000,000   (“2nd Loan Agreement”)

17.  The two loan agreements respectively provided that Yick Hing, as the borrower, should pay to Liao, as the lender, monthly interest (20% p.a.) until the principal was repayable in full after the completion of the project.

18.  The 1^st Loan Agreement provided that construction up to the issuance of the occupation permit should be completed by 31 January 2018 or else Liao would be entitled to take over Yick Hing’s half share of interest in a designated house under the Development Agreement at its market value subject to the maximum of HK$20 million as compensation.

19.  The 2^nd Loan Agreement provided that the principal would be repayable by 15 January 2018 or else Yick Hing should convey its office property in Cheung Sha Wan, Kowloon to Liao for sale in the market and for the sale proceeds to be applied to repayment to Liao.

20.  There is no dispute that the construction was not completed by the end of January 2018.  The deadline of the Building Covenant was also repeatedly extended upon payment of further land premium in late 2017 and 2018 by Yick Hing.  Construction works resumed just before the last quarter of 2018.

21.  The defendant also avers that Ip & Fu and Yick Hing entered into another variation of the Development Agreement in as late as June 2018.  Essentially, the total building cost was adjusted from HK$130 million to HK$220 million, and the deadline for completion of construction up to occupation permit was extended to that of compliance with the Building Covenant as last extended.  The obligation of Ip & Fu also changed in that it now agreed to arrange building mortgage loan for HK$170,000,000.  This contract purported to take effect on 1 February 2016 in place of the previous agreement.  However, unlike the previous contractual documents, Ip & Fu signed this new agreement by Guan, not Liao.  In any event, this 2018 variation could not have the effect of superseding the events that have happened or the rights, if any, crystallised by then between Yick Hing and Liao, who was never a party to the Development Agreement.

22.  On 10 April 2018, Liao wrote to Yick Hing demanding the repayment of the outstanding principal and interest under the two loan agreements by 30 April 2018 or else legal proceedings would be commenced.

23.  On 13 July 2018, Liao through solicitors issued a written demand to Yick Hing for the repayment of the outstanding balance of the principal and interest.  Liao also continued to chase Yick Hing for payment on the telephone including via WeChat.

24.  Yick Hing has made some payments to Liao thereafter until it is said to have abandoned the project altogether in early 2019, notwithstanding extension of the deadline for compliance with the Building Covenant at the end of November 2018.

25.  On 18 April 2019, Liao through solicitors issued further written demand to Yick Hing for the repayment of outstanding principal and interest under the two loan agreements.

26.  In July 2019, Liao commenced the present action.

27.  In September 2019, the Land fell into receivership upon the Bank’s enforcement of the Building Mortgage.

28.  After the close of pleadings in the present action, Yick Hing applied for security for costs against Liao.  Liao responded by his summons filed on 19 November 2020 for summary judgment or alternatively interim payment (“the O14 Summons”).  The application for security for costs has since been adjourned pending the disposal of the O14 Summons.

29.  After hearing on 23 April 2021, the master gave unconditional leave to defend to Yick Hing with costs in the cause.

30.  Liao filed his notice of appeal on 26 April 2021 to appeal the master’s decision.

31.  For resisting the O14 Summons, Yick Hing relied on the 3^rd affirmation of Yuen filed on 27 January 2021 (“Yuen 3^rd”), which in turn referred to his affirmation filed on 22 October 2020 for the purpose of its application for security for costs mentioned above (“Yuen 1^st”).

32.  Days before the present hearing, on 3 August 2021, Yick Hing filed a summons (“the New Evidence Summons”) for leave to rely on a new and the 5^th affirmation of Yuen (“Yuen 5^th”).

33.  At the present hearing, Yick Hing did not merely seek to uphold the master’s decision.  Counsel for Yick Hing went further by asking this court to dismiss the O14 Summons with costs.

Liao’s case

34.  Essentially, Liao claims that he has extended personal loans to Yick Hing at the request of Yuen on its behalf to resolve its financial difficulty in paying for the land premium and the construction.  On behalf of Yick Hing, Yuen signed the 1^st Loan Agreement and the 2^nd Loan Agreement.

35.  Yick Hing has since made various interest payments under the two loan agreements between December 2017 and June 2018.  Yick Hing has also repaid part of the principal of the loans by June 2018, leaving an outstanding principal of HK$9,500,000.  Hence his solicitors’ demand to Yick Hing in July 2018 for the repayment of the then outstanding principal and interest.

36.  The WeChat correspondence and telephone conversation between Liao and Yuen from August to November 2018, as recorded, evidence the former’s repeated requests for repayment and Yuen’s reference to Yick Hing’s cash flow difficulty and need for indulgence in making repayments.

37.  In the circumstances, Liao says that the contemporaneous documents and the post-contractual conduct of Yick Hing demonstrate that Yick Hing has no valid or credible defence.  Further, it is implied term of the two loan agreements that the debt would become repayable when the project did not manage to reach completion.  Hence his entitlement to summary judgment as claimed or alternatively interim payment.

The defence

38.  Pleadings were closed with the defence and counterclaim of Yick Hing already amended thrice, the last of which was dated September 2020.  Yick Hing put forward the following pleaded case:-

(1)  The land premium was the liability of Ip & Fu.  Yick Hing paid the premium only at the request and on behalf of Liao.

(2)  At Liao’s request, Yick Hing also made the payments to the Bank concerning the Building Mortgage taken out by Ip & Fu in July 2016.

(3)  Subsequently, Yick Hing also made the payments of interest owed by Ip & Fu under the Building Mortgage at the requests of Liao.

(4)  The above payments made by Yick Hing constituted its loans to Liao personally.

(5)  The 1^st Loan Agreement and the 2^nd Loan Agreement evidence no genuine loan, and are not intended to be enforceable. They served the sole purpose of enabling Liao to show them to his Mainland lenders, Zhang Jian (“Zhang”) and Chau Hung Wan (“Chau”), in order for him to borrow from them.

(6)  The total sum of HK$12,000,000 under the two (purported) loan agreements received from Liao was deployed to (i) repay what Liao has owed to Yick Hing as mentioned under (1) to (4) above, (ii) pay further land premium for Ip & Fu but on behalf of Liao, and (iii) pay further interests under the Building Mortgage for Ip & Fu but again on behalf of Liao.

(7)  As to what Liao says to be interest payments received from Yick Hing pursuant to the loan agreements between 1 December 2017 and 4 January 2019, Yick Hing avers that they were its further loans to Liao to enable him to pay interests owed by him to his Mainland lenders.

(8)  In addition to the above, Yick Hing paid further land premium plus overdue interest and penalty for Ip & Fu, but again on behalf of Liao.

(9)  Yick Hing is entitled to set off what Liao paid it against what he owed it.

39.  Presumably on the alternative basis that the 1^st Loan Agreement and the 2^nd Loan Agreement do evidence genuine loans by Liao to Yick Hing, Yick Hing contends that it is in any event not liable to Liao for the following reasons:

(1)  Liao is breach of section 24 of the Money Lenders Ordinance, Cap 163 (“MLO”), as the 2^nd Loan Agreement entails the liability of Yick Hing to effectively pay excessive interest above the statutory limit.

(2)  Yick Hing is no longer liable to repay on the ground of frustration when the development project was unable to complete and the Land was received by the Bank due to the fault of Ip & Fu and/or Liao.

40.  On the above basis, Liao is said to still owe Yick Hing a sum of nearly HK$18,000,000, which Yick Hing claims by way of counterclaim.

Liao’s reply

41.  Liao joined issues with Yick Hing on its defence.  Amongst others, the following issues are pertinent:

(1)  Liao disputes the alleged liability of Ip & Fu to pay the land premium.  He contends that the liability was agreed to be that of Yick Hing pursuant to clause 9 of the Development Agreement.

(2)  Liao reiterates that Yick Hing was liable to Ip & Fu for the payments in respect of the Building Mortgage pursuant to clause 4 of the Development Agreement.

(3)  In any event, Ip & Fu was not his alter ego or nominee, and he could not be personally liable for his requests made on its behalf to Yick Hing for the various payments.

(4)  The loans under the 1^st Loan Agreement and the 2^nd Loan Agreement were advanced by Liao to Yick Hing.

(5)  Liao was not a money lender.  In any event, the terms of the 1^st Loan Agreement and the 2^nd Loan Agreement were not in breach of the MLO.

(6)  The development project failed because of Yick Hing’s breach as a matter of fact, and there was no frustration as a matter of law.

The principles

42.  An appeal under O58, r1 of the Rules of the High Court, Cap 4 (“RHC”) is a re-hearing of the application before the master that is under challenge.

43.  Insofar as the O14 Summons is concerned, the principles are trite.  While the plaintiff has the burden of proving his claim, the defendant in an application for summary judgment has the burden of demonstrating a credible defence that raises issues that should be tried or alternatively that the case should go to trial for some other reason: see O14, r3(1).

44.  In discharge of its burden, the defendant has to condescend upon particulars.  Mere assertions do not suffice, and the defence must be credible, though not to be believed.  Credibility of the defence is tested by inherent probability and the state of the contemporaneous documents: see Paul Y Management Limited v Eternal Unity Development Limited & Ors CACV 16/2008 (12 August 2008) at §19.  This is however not a mini-trial on affidavits: see On Loong Investment Company Ltd v IO of Wah Luen Industrial Centre HCA 341/2014 (8 January 2016) at §20.

45.  As to the alternative application for interim payment under O29, r1, an order may be warranted if the materials before the court demonstrate that if the case proceeds to trial, the plaintiff would succeed in his claim and obtain a substantial amount of damages.  The court must be satisfied that the defendant has no arguable defence or that there are sufficient doubts regarding the genuineness of the defence, so much so that the court would not grant the defendant unconditional leave to defend in a summary judgment application.  This is said to be similar to the test for granting conditional leave to defend where the defence is shadowy: see Rich Profit Creation Limited v. Ko Chung Lun & Ors [2020] HKCFI 1459 (8 July 2020) at §§15-16.

46.  During the present hearing, counsel for Liao submitted a further option for this court.  If this court takes the view that the defence is shadowy, leave to defend on condition of payment into court, so he submitted, may be ordered instead of interim payment.

The defence of set-off as pleaded

47.  The alleged loans by Liao are said to have been extended so that Yick Hing could make various payments, namely, the land premium occasioned by the extension of the deadline for complying with the Building Covenant, the construction cost and payments to the Bank.  Yick Hing argues that whether Yick Hing was under such liabilities, and thus had the reason to borrow from Liao, is triable issue.

48.  As to the land premium, the primary liability of that should land on Ip & Fu as the owner of the land in question.  Hence the demands issued by the Buildings Department to Ip & Fu.  What is being argued must refer to the contractual liability.

49.  When the Works Contract and the Development Agreement were entered into between the parties in November 2015 and January 2016 respectively, it was agreed that Yick Hing had 18 months to complete the construction up to the issuance of the occupation permit.  The then deadline for complying with the Building Covenant would fall at the end of June 2016 well before the 18-month contractual period has elapsed.  In the circumstances, it seems unlikely that Yick Hing would somehow agree to take up contractual liability for the payment of such land premium for extension already contemplated at the time of the parties’ agreement.  This is at least arguable.

50.  That said, clause 9 of the Development Agreement provided for the contractual liability of Yick Hing for any government charges or levied occasioned by the design and construction. Insofar as the construction is concerned, for which Yick Hing was indisputably responsible, there was nothing inherently implausible for it to take up contractual liability to pay the subsequent land premium as a result of any construction issue, including for instance delay, by clause 9.

51.  That Yick Hing was contractually responsible for the construction cost is also indisputable.  Yick Hing sought to attribute blame to Ip & Fu on the basis that Ip & Fu was allegedly responsible for funding the construction by way of the Building Mortgage.  However, clause 4 of the Development Agreement provided that Yick Hing would assist Ip & Fu to obtain a building mortgage so as to pay to Yick Hing only part of the construction cost in a sum of not exceeding HK$30 million.  It was not the agreement of the parties that Ip & Fu would be responsible for the agreed construction cost of HK$130 million.

52.  As to the payments to the Bank in connection with the Building Mortgage, Yick Hing would be responsible for reimbursing Ip & Fu the expenses and interest, though upon completion of the project.

53.  According to the WeChat messages between Liao and Yuen in 2018, the latter’s responses indeed reflect his company’s assumption of responsibility to make the various payments and repayments.  One may argue that the conversation is subject to interpretation.  However, had it been Yick Hing which has repeatedly lent to Liao as alleged, the understanding and indulgence that Yuen apparently sought in his responses to Liao would have called for some explanation.

54.  The recorded telephone conversation between Yuen and Liao in April 2019 suggested that Yuen actually admitted that (i) only Liao had lent to him; and (ii) he still owed Liao a sum of HK$9 million odd, an amount in line with the then outstanding principal being claimed by Liao.  Yuen suggested that the conversation was recorded without his knowledge. However, that per se would not improve Yick Hing’s rebuttal.  One may again say there could be an issue of interpretation of such conversation.  If Yick Hing is suggesting that it was always the lender who had been going the extra mile to meet the repeated financial requests of Liao, I say the recorded conversation between Liao and Yuen objectively gives the opposite impression.

55.  The above arguments aside, even assuming that Yick Hing has only made payments for what would have been the liabilities of Ip & Fu, those payments would only result in a debt owed by Ip & Fu to Yick Hing.  That Liao has made the requests to Yick Hing to make those payments could only be understood to be those made for and on behalf of Ip & Fu.  As mentioned, Liao was but holder of 1 share in Ip & Fu.  That could not render him personally liable for the liabilities of his company as alleged.

56.  In the circumstances, the pleaded contention that those payments were made by Yick Hing for Liao personally, and therefore resulted in debt owed by Liao personally to Yick Hing, is far removed from commercial and common sense.  It is artificial and incredible.  The contention of set-off, which is premised on such alleged personal liability of Liao, will equally fall.

The New Evidence Summons

57.  This is the convenient juncture to turn to the New Evidence Summons.

58.  Yick Hing seeks to rely on Yuen 5^th for the sole purpose of adducing a letter dated 17 May 2014 from Ip & Fu’s solicitors then, Deacons, to Yick Hing (“the Deacons Letter”).  It allegedly supports Yick Hing’s contention that the liability to pay the land premium always remained with Ip & Fu.  Counsel for Yick Hing goes so far as submitting that this court somehow must take this letter into account regardless of whether Yuen 5^th is allowed to be filed.

59.  What Yick Hing did not disclose to this court was its aborted attempt to adduce the Deacons Letter into evidence before the master.  This court discovered that from the court documents and the transcript of the proceedings before the master.  As counsel for Liao points out, less than two clear days prior to the hearing before the master, Yick Hing took out its summons for leave to rely on the 4^th affirmation of Yuen (“Yuen 4^th”) essentially to adduce the Deacons Letter.  However, after exchange between the master and counsel for Yick Hing during the hearing, the latter not only abandoned the application but also confirmed that he would proceed to argue his client’s case without the letter.  By the New Evidence Summons, likewise taken out belatedly before the present hearing of the appeal, Yick Hing renews its similar application, though this time to adduce the letter via Yuen 5^th.

60.  Somehow the master did not make any order formally disposing of Yick Hing’s above summons before him.  The master may be taken to have effectively made no order in respect of the summons or given leave to Yick Hing to withdraw the summons. In either case, the taking out of the New Evidence Summons by Yick Hing to renew the same application is an abuse.  The abuse lies in Yick Hing’s seeking to assert a position regarding whether to rely on such document for the purpose of resisting the O14 Summons contrary to that expressly confirmed by its counsel to the master.

61.  Counsel for Yick Hing somehow argues that the Deacons Letter is not new evidence, as the same was exhibited to another affirmation of Yuen.  He also complains that the New Evidence Summons would have been unnecessary, had Liao agreed to include that other affirmation of Yuen in the hearing bundle for the present appeal.  This is misleading.  What counsel refers to is an affirmation of Yuen filed for the purpose of quite another application, not the O14 Summons.  Pursuant to the order of the court dated 18 December 2020, no further affirmation after Liao’s affirmation in reply in respect the O14 Summons was allowed without leave of the court.  Yick Hing must have been aware of that.  Hence its last minute application to file Yuen 4^th before the master.  Affirmation evidence for the purpose of another application in the action does not qualify as evidence for the application before the court if not referred to or incorporated by an affirmation filed specifically for such purpose.

62.  Now as an application before this court for the purpose of the appeal, the rule is that no further evidence (except for that which came into existence after the master’s order being challenged) may be received except on special grounds: see O58, r1(5).  It is trite that by special grounds, the three conditions set out in Ladd v Marshall [1954] 1 WLR 1489 must be satisfied, namely:

(1)  The further evidence could not have been obtained with reasonable diligence for use at the hearing below.

(2)  The evidence must be such that, if given, it would probably have an important influence on the result of the case, though it need not be decisive.

(3)  The evidence must be such as is presumably to be believed, not incontrovertible but apparently credible.

63.  Where it was a conscious decision upon legal advice to abandon the use of the evidence revealed before the master, it is inconceivable that Yick Hing can satisfy the first condition.

64.  As also explained above, that Yick Hing has so far made payments allegedly for Ip & Fu could not amount to any right of Yick Hing to set off and thus defence against its liability to Liao.  Therefore, the Deacons Letter, even in terms of support of Yick Hing’s case that the liability to pay the land premium remained with Ip & Fu, would not have material impact on the issue of the defence of set-off in resisting the O14 Summons. In other words, the second condition under Ladd v Marshall is not satisfied either.

65.  In the circumstances, the New Evidence Summons should be dismissed.

The two loan agreements not intended to be enforceable

66.  Yick Hing admits having signed the 1^st Loan Agreement and the 2^nd Loan Agreement.  It is not contending that the two loan agreements were vitiated on legally recognised grounds such as mistake.  Such contention would have been unmeritorious, when there is no basis for suggesting that Yuen, with the scale of his company’s business and his experience, was unable to understand the terms of the agreements which were written in Chinese.

67.  Yick Hing contends that the loan agreements were not intended to have any effect between the parties.  They were created for the sole purpose of enabling Liao to show them to his Mainland lenders in order to obtain their financial advances.  There was no genuine loan between the parties pursuant to the agreements, albeit signed.

68.  It is said that the terms of the two loan agreements per se demonstrate that the parties could not be serious about them.  Amongst others, the deadline for the completion of the construction and the repayment the loans under the two loan agreements is said to be unrealistic.

69.  The agreements entered into in October and November 2017 provided for the completion of the construction, and thus repayment, in January 2018.  That per se does not readily demonstrate the alleged improbability, including that of Yick Hing agreeing to that.

70.  The contention that the two loan agreements were created for the sole purpose of enabling Liao to show them to his own funding sources, Zhang and Chau, to secure advances from them is premised on Liao having had to borrow in order to repay what he personally owed to Yick Hing for what it had paid for Ip & Fu.  As discussed above, such premise of personal liability of Liao is lacking.

71.  In support of its contention, Yick Hing also refers to two loan agreements between Chau and Liao.  However, the terms of those loan agreements do not cast positive light on the veracity of Yick Hing’s case against Liao.  The principal amount and interest rate under those agreements did not tally with those under the two loan agreements between Liao and Yick Hing.  Even assuming that Liao might have borrowed from these Mainland sources, which enabled him to lend to Yick Hing, that would have been a back-to-back advance arrangement which, if true, does not negative Liao’s case.

72.  As to the contention that the interest payments made by Yick Hing to Liao were the former’s further advances to the latter so as to enable to latter to meet his interest payment obligation owed to his Mainland funding sources, it should be noted that the amounts of such payments were indeed calculated on the basis of the outstanding principal (HK$12 million, and subsequently HK$9,500,000) and interest rate (20% per annum) under the two loan agreements between the parties instead of those under the alleged loan agreements between Chau and Liao.

The MLO

73.  The contention with reference to the MLO has no merits.  Liao never carries on the business of lending or holds himself out as carrying on such business.  That Liao entered into the two loan agreements with Yick Hing did not thereby render him a money lender for the purpose of section 2 of the MLO.  These are two loan agreements in terms as the parties had the freedom to commit to in their business context.

Defences revealed only by Yuen 3^rd

74.  There are also contentions by Yick Hing which do not transpire from its pleadings but only by way of affirmation, namely Yuen 3^rd.

75.  In Yuen 3^rd, Yick Hing suggested that Liao put together a scheme to defraud him for a sum of HK$9,406,467.84.  The interest payments by Yick Hing to Liao mentioned above, it says, were illusion.  No particular or documentary evidence of such allegations was provided.  Nor has the contention of such nature been properly pleaded with sufficient particulars: see Hong Kong Civil Procedure 2021 (Vol 1) at §18/12/16.

76.  It was not that those acting for Yick Hing were not aware of the pleading deficiency.  Yick Hing has also taken out a summons on 27 November 2020 for leave to amend its pleading for the fourth time. This was also brought before the master, who dismissed the same (though without prejudice to any further attempt of proper amendment).  There is no appeal against such order of the master.  One would question how the contention and assertions of such nature, if ever part of Yick Hing’s case, would have been left out of mention despite the previous amendments of its pleading.

77.  Related to the allegation against Liao discussed above is Yick Hing’s reference to what are described as outstanding proceedings relating to the development project. Specifically, they are HCA 1597/2019 and HCA 2189/2019.  Yick Hing is one of the defendants in these actions and has been faced with them by late November 2019.  However, none of these other proceedings, or contentions with reference to the allegations pleaded therein, was mentioned by Yick Hing in its amendments of its pleading in the present action since then until its last attempt to amend its pleading and for the fourth time.  As mentioned, such attempt was also dismissed by the master.

78.  HCA 1597/2019 was commenced by Chau against (i) Yick Hing, (ii) Yuen, (iii) Guan and (iv) Ip & Fu.  Essentially, Chau’s claim is based on a written agreement dated 28 November 2018 entered into as a result of the alleged approach made by Yuen (on behalf of Yick Hing) and Liao (on behalf of Ip & Fu).  By the agreement, Chau allegedly agreed to extend a loan of RMB 9 million for a fixed term of 5 months to Yick Hing, as the borrower, in return for an agreed 7% return per month.  Yuen and Guan entered into the agreement as the guarantors.  Ip & Fu is also allegedly bound by the promise it had made through Liao that its rights in the project would stand as security or collateral for the repayment and agreed return.  The sum was allegedly paid to Yick Hing on or about the same day.  Chau was allegedly given to understand that the loan was requested to enable Ip & Fu to pay the land premium for the development project at the end of November 2018.

79.  For its purpose in the present appeal, Yick Hing refers to what Guan and Ip & Fu contend in defence of Chau’s claim in HCA 1597/2019.  Essentially, Guan and Ip & Fu deny knowledge about the dealings between Liao and Chau, and contends that Liao had no authority to deal with Chau on behalf of Ip & Fu.  Guan goes so far as contending that Liao had been acting for his own interest in breach of his fiduciary duties to him and Ip & Fu since as early as 2016.  Guan denies liability as the guarantor. Amongst other things, he avers that he signed the agreement as guarantor as a result of the conspiracy between Chau and Liao.  The conspiracy took the form of Liao making use of his own money to enable Chau to lend to Yick Hing on exorbitant terms in order to extort money out of Yick Hing, Yuen, Guan and Ip & Fu.

80.  HCA 2189/2019 was commenced by Guan against Liao and Yick Hing.  Essentially, Guan claims to have agreed to lend a sum of approximately HK$13 million to Yick Hing on 30 January 2018 as a result of the representation by Liao as agent of Yick Hing.  The representation was that the money was needed for the development project.  Guan paid the sum in tranches between the end of January 2018 and January 2019.  Guan claims that the representation was false in that the project was in fact not progressing well and has gone seriously over budget.  Apart from repayments made in 2018, Yick Hing has failed to make repayments as agreed.  Guan therefore claims for the outstanding principal sum with contractual interest or alternatively unjust enrichment.

81.  By suggesting in Yuen 3^rd that these other actions share much of the same factual matrix as the present case, including whether Liao was a renegade director of Ip & Fu who conspired with Chau, Yick Hing purports to establish the relevance of these other legal proceedings.

82.  The relevance is not readily apparent as a matter of fact.

83.  HCA 1597/2019 concerns an alleged loan agreement entered into on 28 November 2018 whereby Chau extended a loan of RMB9 million to Yick Hing on or about the same day.  HCA 2189/2019 concerns an alleged loan of approximately HK$13 million by Guan to Yick Hing in January 2018.  Whilst these subject matters are said to have had to do with the development project and the related parties, they were different from each other.  Both are also different from the subject matter of the present action, namely, the alleged loans of HK$5 million and HK$7 million extended by Liao to Yick Hing in October and November 2017 respectively.

84.  Importantly, whilst Yick Hing refers to the contentions and allegations made by Guan in defence in these other actions, it says absolutely nothing about its own case or the case of Yuen as parties, let alone disclosing their pleaded case, in these actions.  Whether and, if yes, to what extent Yick Hing and Yuen admit or endorse the contentions and assertions of Guan in these actions as well as how the issues derived from the parties’ cases in these actions become relevant to the present action are just unclear.  At the end of the day, all that Yick Hing seems to be able to point out is the existence of allegations of some parties concerned that may cast doubt on Liao’s credibility but only generally.  This could not be proper discharge of the burden of Yick Hing to condescend upon particulars in the present action with a view to raising triable issues.

85.  By Yuen 3^rd, Yick Hing is also making another contention, namely, it entered into the 1^st Loan Agreement and the 2^nd Loan Agreement as Ip & Fu’s agent, on the basis that the money under the agreements from Liao was received for the purpose of Ip & Fu in the project.  As discussed below, this eventually becomes the major contention argued by counsel for Yick Hing at the present hearing.

Arguments at the hearing

86.  At the present hearing, counsel for Yick Hing argued that the case should proceed to trial for the following reasons:

(1)  It is triable whether Yick Hing was only an agent of Ip & Fu in borrowing from Liao.

(2)  There are inconsistencies in Liao’s evidence and unexplained features of the loans under the 1^st Loan Agreement and the 2^nd Loan Agreement.

(3)  The present case and the other actions have overlapping issues.

(4)  The two loan agreements were vitiated by economic duress and coercion.

(5)  The contemporaneous evidence is not indicative of acknowledgement of the debt by Yick Hing.

87.  (1), (3) and (4) above are contentions that Yick Hing sought to introduce by way of further amendment to its pleaded case.  As mentioned, the application to do so was dismissed by the master.

88.  Yick Hing purports to advance the alleged agency as a “further or alternative” contention in the event that the 1^st Loan Agreement and the 2^nd Loan Agreements are held to be enforceable.

89.  A party may advance inconsistent cases but practically, there is a limit to that.  The problem stems from the primary contention of Yick Hing that the two loan agreements were created in the absence of genuine loans or intention to be enforceable.  They were created for the sole purpose of facilitating Liao to obtaining personal advances from his Mainland funding sources so that he could repay what he personally owed to Yick Hing.

90.  On the basis of the above primary factual contention, one wonders how Yick Hing may at the same time advance, even as an alternative case, that the two loan agreements were in fact genuine and enforceable, though against Ip & Fu instead of Yick Hing which was merely Ip & Fu’s agent.  Yick Hing even seeks to substantiate such alternative factual contention by relying on the Deacons Letter as documentary evidence of what counsel for Yick Hing describes as ratification of Yick Hing’s agency by Ip & Fu.  In court, counsel for Yick Hing sought to explain why the loans could not be matters between Liao and his company, if they served the purpose of enabling Ip & Fu to pay for the land premium and other expenses. Counsel also suggested that some of the payments by Yick Hing to Liao were in fact repayments pursuant to the terms of the two loan agreements though for and on behalf of Ip & Fu.  Liao, he argued, ought to look to Ip & Fu for repayment.

91.  By its alternative case that the two loan agreements were genuine and binding as a matter of fact, Yick Hing must contradict its primary factual contention and the defence of set off and counterclaim premised on that.  Counsel for Yick Hing had to acknowledge such difficulty of its case during the hearing.

92.  As to the inconsistencies in Liao’s evidence and unexplained features of the loans, the allegation is not readily comprehensible.  What counsel for Yick Hing suggests in his submission is that there was falsity, disreputable business dealings and questionable conduct on the part of Liao.  By that, counsel is referring to (i) Liao’s claim as an alleged attempt of double recovery and (ii) the contentions in HCA 1597/2019.

93.  The alleged double recovery is again premised on the Deacons Letter.  Counsel argues that Ip & Fu is asserting a claim against Yick Hing for the land premium and penalties paid by Ip & Fu (through Yick Hing).  That is said to effectively duplicate what Liao seeks to recover from Yick Hing in the present action, as the amount claimed consisted of that applied towards reimbursement of Yick Hing for its payment of the land premium for Ip & Fu.

94.  However, even assuming that the Deacons Letter were admitted into evidence for the present appeal, this court would have failed to read from the Deacons Letter what counsel suggests.  Apart from requesting for arrangement of vacating the Land to enable Ip & Fu’s new contractor to resume the progress of the project as soon as possible, the Deacons Letter simply reserved the rights of Ip & Fu against Yick Hing for recovery of the loss and damage as a result of the alleged repudiation of the Works Contract and the Development Agreement by Yick Hing.  The attempt to double recover is not real.

95.  Chau’s pleaded case in HCA 1597/2019 was mentioned above.  As discussed, the subject matter of that is apparently different from that of the present case.  Counsel for Yick Hing somehow suggests that Chau could have been wrong about the timing of the loan alleged in that action, so that the subject loans in that case and the loans in the present case might well be the same.  On the basis of the materials before the court, such suggestion is nothing but bold.

96.  As to Yick Hing’s reference to the assertions of Guan in defence to Chau’s claim, the discussion above refers.  Relevantly, Guan asserts that it was Liao who provided his own money to Chau in order for her to lend to Yick Hing pursuant to the agreement entered in by Chau, Yick Hing, Guan and Yuen.  If the loan by Chau alleged in HCA 1597/2019 indeed covered the loans by Liao to Yick Hing under the two loan agreements in the present case, as Yick Hing seems to try hard to suggest, Guan’s case on the source of the funds in that action would contradict Yick Hing’s case in its pleaded defence in the present action.

97.  All matters considered, one can see the problem of Yick Hing in purporting to raise triable issue or some other reason for the trial of this action by reference to the contentions in HCA 1597/2019 or HCA 2189/2019.

98.  The allegation of economic duress and coercion advanced in the argument of counsel for Yick Hing is not raised by way of affirmation.  Nor is it pleaded.  The allegation appears to be premised on the contention of a fraudulent scheme of Liao in inducing Yick Hing to enter into the two loan agreements.  However, it does not appear that Yick Hing seeks to argue that the two loan agreements have therefore been vitiated.  Counsel for Yick Hing describes this as not a “full-fledged defence”.  He only raises this as “indicative of [Liao]’s disreputable behaviour”.  The precise nature and effect of the allegation on the enforceability of the two loan agreements is difficult to grasp.  Allegation like this and made this way hardly meets what is expected of Yick Hing in discharge of its evidential burden for the present purpose.

99.  In arguing that the contemporaneous evidence is not indicative of acknowledgement of the debt by Yick Hing to Liao, counsel is referring to the record of WeChat messages and telephone conversation already discussed.  I shall not repeat them here.

Conclusion

100.  All matters considered, including those specifically discussed above, this court can see why much may be said not only about the merits of the contentions of Yick Hing in defence but also how they have been raised, evolved and eventually argued before the court.  It is because of such consideration that whilst this court resolves not to deny Yick Hing the opportunity to argue its case at trial, if properly sorted out, its defence could only be described as shadowy.  It is appropriate to allow the defence like this to proceed to trial only on condition.

Order

101.  The order of the master made on 23 April 2021 is set aside and there will instead be leave to Yick Hing to defend on condition of its payment into court within 28 days a sum of HK$9,500,000 (being the principal sum of the claim).  In default, Liao shall be at liberty to enter judgment against Yick Hing with interest as claimed together with costs of his action, to be taxed, if not agreed.

102.  This court does not intend to disturb the order as to costs before the master.  However, Liao shall have his costs of the appeal.

103.  The New Evidence Summons is also dismissed with costs to Liao.

104.  The above order as to costs is nisi and shall become absolute in the absence of application in 14 days to vary. Upon the costs order becoming absolute, Liao shall submit and serve his statement of costs (of the New Evidence Summons and the appeal), which Yick Hing shall have 7 days upon service to lodge and serve its comment in writing.  This court will summarily assess the costs of this appeal in writing.