CHINA CONSTRUCTION BANK (ASIA) CORPORATION LTD v. ZHANG KANGYANG

HCCL 4/2021

[2022] HKCFI 2135

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 4 OF 2021

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D E C I S I O N

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1.  This is the summary judgment application of the Plaintiff (“Bank”). Its Summons was taken out on 3 May 2022. On 17 June 2022, 3 working days before the return hearing of the Bank’s Summons, the 3^rd Defendant (“Zhang”) took out a Summons to stay these proceedings in favour of the court of the Mainland.

2.  At the hearing on 23 June 2022, directions were given by this court for the further conduct of the Summonses with the view to having them heard today. As proposed by Zhang’s counsel, it was directed, inter alia, that no further evidence be filed without leave of the court. Unexpectedly, another Summons was issued by Zhang 1 day before this hearing for further evidence to be adduced in the form of a second affirmation from him and 5 affirmations from the staff of the Suning Group of companies and 1 ex-staff.

3.  Apparently, the Bank wanted to rely on certain acknowledgement in Zhang’s 2^nd affirmation and sought leave to adduce another affirmation as evidence. The parties reached agreement at the hearing on their respective Summons for further evidence. I formally make an order in terms of those Summonses.

Background

4.  Despite the large amount of money claimed against Zhang, the material facts of this case are not complex and can be succinctly stated as follows.

5.  In this action the Bank claims against Zhang for a sum in excess of US$255 million arising out of a refinancing transaction (“Refinancing”) in respect of the Suning Group’s “Suning Xiaodian Project” (“Project”). According to the Amended Statement of Claim (“ASOC”), Zhang is contractually liable to the Bank under 3 agreements, namely, 2 Guarantees and an Intercreditor Agreement all dated 20 August 2020. For the purpose of its application, the Bank confines its case to only the Intercreditor Agreement (“Agreement”).

6.  The aforementioned 3 agreements were part of a clutch of financial agreements which were typical for a major international financial transaction. Amongst those financial agreements were (a) a Facility Agreement dated 20 August 2020; (b) a Note Subscription Agreement dated 20 August 2020; and (c) a Trust Deed dated 25 September 2020.

7.  Under the Facility Agreement, a BVI company which was wholly-owned and controlled by Zhang, Great Matrix Ltd, was granted a loan of US$165 million (“Loan”). Pursuant to the Note Subscription Agreement and Trust Deed, on 25 September 2020 Great Matrix issued 7% secured notes due in 2021 (“Notes”) in the total sum of US$85 million.

8.  It is relevant to bear in mind that the Refinancing was in respect of Great Matrix’s existing borrowing which was incurred in 2019 in connection with the Project when it was spun-off from Sunning.com to Suning Smart Life. For the 2019 borrowing, a similar set of financial documents were executed (“2019 Documents”).

9.  Due to various events of default, which are not disputed on evidence, the sums owed by Great Matrix under the Loan and the Notes fell due on 5 July 2021 when the Bank sent Great Matrix a Notice of Acceleration and Demand declaring the Loan and Notes immediately due on the basis of events of default (the details were pleaded in the ASOC, §§25-32).

10.  It is not in dispute that upon the occurrence of any event of default, the Bank was entitled to declare the Loan and Notes immediately due under Cl. 19.16 of the Facility Agreement and Condition 9.3 of the Conditions of the Notes.

11.  In any event, the Loan and the Notes had matured on 10 September 2021 and had to be repaid. They are not.

12.  Clause 15.1(a) of the Agreement provided that :

“Each Debtor [Zhang included] shall promptly indemnify the Security Agent [the Bank] … against any fees, costs, expenses, demands, claims, Taxes, losses, charges, judgements, actions, proceedings or other liabilities whatsoever (together with any applicable VAT) incurred … by any of them:

(i) in relation to or as a result of: …

(E) any default by any Debtor [including Great Matrix] in the performance of any of the obligations expressed to be assumed by it in the Debt Documents;”

13.  Zhang’s defence is that his signatures which appeared the 2 Guarantees and the Agreements were forged. Such defence was raised for the first time in his 1^st affirmation dated 16 June 2022.

Stay

14.  The court was invited by Ms Eu SC, who appeared with Mr Kwong, Mr Lok and Mr Liu for Zhang, to consider the stay application first.

15.  The Bank relies on Clause 24 of the Agreement :

(1)  Cl. 24.1(a) provided that: “The courts of Hong Kong have exclusive jurisdiction to settle any dispute arising out of or in connection with this Agreement (including a dispute relating to the existence, validity or termination of this Agreement) (a Dispute)”;

(2)  Cl. 24.1(b) provided that: “The Parties agree that the courts of Hong Kong are the most appropriate and convenient courts to settle Disputes and accordingly no Party will argue to the contrary”.

16.  Zhang relies on the jurisdiction clauses in the 2 Guarantees on which he is also sued by the Bank. The clauses are identical. Clause 15.1 of both documents stated :

(1)  Cl.15.1(a) provided that: “The competent PRC court shall have exclusive jurisdiction to settle any dispute arising out of or in connection with this Guarantee (including a dispute relating to the existence, validity or termination of this Guarantee) (a Dispute)”;

(2)  Cl. 15.1(b) provided that: “The Personal Guarantor agrees that the court set out in (a) above is the most appropriate and convenient court to settle Disputes and accordingly the Personal Guarantor will not argue to the contrary”;

(3)  Cl. 15.1(c) provided that: “This Clause 15.1 is for the benefit of the Security Agent [the Bank] only. As a result, the Security Agent shall not be prevented from taking proceedings against the Personal Guarantor relating to a Dispute in any other courts with jurisdiction. To the extent allowed by law, the Security Agent may take concurrent proceedings in any number of jurisdictions”.

17.  There are a number of related arguments. I deal firstly with a legal submission of Ms Lam SC, who appeared with Mr Yu and Mr Chua for the Bank, that it is not open to Zhang to invoke the jurisdiction clauses in the Guarantees so long as he is alleging that those documents are the products of forgeries. Zhang is not allowed to advance fundamentally inconsistent cases. The allegation of forgery cannot stand together with a reliance on the jurisdiction clauses in the Guarantees: see Gain Park v Eversino Investments, unrep, HCA 1638/2013, 26 November 2014, [45]-[50], per DHCJ Wilson Chan (as he then was).

18.  On the other hand, this court was referred by Ms Eu to the case of Deutsche Bank AG v Asia Pacific Broadband Wireless Communications Inc [2008] 2 CLC 520, [24], where it was held that: “… Even in such a case [signatures to the agreement were alleged to be forgeries] someone has to decide whether the signatures were in fact forged. It might well be thought that a mere allegation to that effect could not have the effect of rending a jurisdiction clause inapplicable”.

19.  I note that the above dicta of Longmore LJ was obiter because it was not a case of forgery and the learned Lord Justice was giving examples in his analysis.

20.  Further, Ms Lam sought to distinguish Deutsche Bank by pointing out that there the bank was suing on a credit agreement which contained a jurisdiction clause, and the borrower company (under a new management) argued that the agreement was void because the old management did not have the company’s authority for the transaction or that the transaction was not in the best interest of the company, to the bank’s knowledge. Hence, there was no inconsistent case being run by the borrower.

21.  There is much force in Ms Lam’s submission. Although a jurisdiction clause is a separable agreement (see Deutsche Bank, [24G]), a point emphasised by Ms Eu, I am inclined to the view that a fundamental challenge to the Guarantees with an allegation of forgery would not be consistent with the reliance on part of that document (the jurisdiction clause). I fail to see the basis of such reliance. Forgery means that Zhang had never agreed to the jurisdiction clauses. Being separable from the Guarantees does not change the premise that Zhang had never agreed to those clauses, according to him. For this reason alone, I would reject the stay application.

22.  I turn next to Ms Lam’s submission that the Stay Summons is bound to fail as Zhang had agreed to the exclusive jurisdiction clause in the Agreement, which is the only agreement on which the Bank seeks summary judgment. I have to say that, apart from the “centre of gravity of the claim” argument (see below), I see no real answer to this submission.

23.  Ms Eu attempted to answer this submission by referring to the Bank’s pleaded case, which relied on both Guarantees and the Agreement, and contended that the Bank is bound by the same. It is clear from the pleading that the Bank is suing on the same debts under 3 different routes, namely, the Guarantees and the Agreement. The debts arose from the Loan and Notes. On proper analysis, Zhang cannot be in a better position than one where he is only sued on the Agreement or where the Bank had amended its pleading to delete the 2 Guarantees.

24.  Further, in light of the exclusive jurisdiction clause in the Agreement, it is not enough for Zhang to show that Mainland court is appropriate for the trial of this action. He must show “strong cause” to stay proceedings commenced pursuant to an exclusive jurisdiction clause: see Noble Power Investments Ltd v Nissei Stomach Tokyo Co Ltd [2008] 5 HKLRD 631, [37], per Ma CJHC (as he then was).

25.  As to what may constitute “strong cause”, I had been referred by Ms Lam to Hong Kong Civil Procedure 2022, vol 1, [11/1/154] and the examples given at [11/1/161]. Apart from matters of convenience regarding the location of Zhang’s witnesses (2 of them were said to be critical to Zhang’s case of forgery) and that the business of the relevant Suning entities was conducted in the Mainland, there is little in Zhang’s evidence which attempted to show a “strong cause” for his stay application.

26.  I do not believe that a strong cause has been demonstrated. In respect of the “forgery witnesses”, it is little more than a self-serving allegation unless there is substance in the forgery allegation. It will be seen below that there is no such substance.

27.  As regards the location of business of the Suning entities, it is not clear (and not been shown) why that is relevant when Zhang is sued for the non-payment under the Loan and Notes.

28.  I have considerable doubt whether the location of Zhang’s witnesses is relevant for the present purpose. Even if it is, it must be balanced against the fact that the Refinancing was negotiated with a bank in Hong Kong; it involved lenders outside the Mainland; the lawyers acting for Great Matrix (who must be important to the forgery claim (see below)) are likely available in Hong Kong; and the money was paid to Great Matrix in Hong Kong. Such balancing exercise is not in favour of a stay.

29.  Plainly, Zhang’s company took advantage of the well-established financial market in Hong Kong for the Refinancing by which very substantial amount of money was raised from entities outside the Mainland. International advisors were employed for the transaction, and the application of Hong Kong law, which is well-established and accepted in the financial world, was agreed upon (with the exception of the Guarantees (see below)). I am unable to see any “strong cause” for Zhang’s stay application.

30.  Next, Ms Eu submitted that where there is an overall agreement package containing different choice of jurisdiction clauses, the correct approach is to look at the centre of gravity of the claim. However, the focus must be on the cause of action “as opposed to the remedy or the defence”. To focus on the defence would give rise to “a complete lack of certainty”: see Capital Wealth Holdings v 南通嘉禾科技 [2021] HKCFI 272, [36]-[38], per K Yeung J.

31.  Ms Lam had helpfully referred the court to the recent English CA authority of BNP Paribas SA v Trattamento Rifiuti Metropolitani SpA [2020] 1 All ER 762, [68], setting out a summary of the proper approach where different jurisdiction clauses exist :

“(1) Where the parties’ overall contractual arrangements contain two competing jurisdiction clauses, the starting point is that a jurisdiction clause in one contract was probably not intended to capture disputes more naturally seen as arising under a related contract: …

(2) A broad, purposive and commercially-minded approach is to be followed – …

(3) Where the jurisdiction clauses are part of a series of agreements they should be interpreted in the light of the transaction as a whole, taking into account the overall scheme of the agreements and reading sentences and phrases in the context of that overall scheme: …

(4) It is recognised that sensible business people are unlikely to intend that similar claims should be the subject of inconsistent jurisdiction clauses: …

(5) The starting presumption will therefore be that competing jurisdiction clauses are to be interpreted on the basis that each deals exclusively with its own subject matter and they are not overlapping, provided the language and surrounding circumstances so allow: …

(6) The language and surrounding circumstances may, however, make it clear that a dispute falls within the ambit of both clauses. In that event the result may be that either clause can apply rather than one clause to the exclusion of the other – …”

32.  It must be remembered that Clauses 15.1 of the Guarantees were asymmetric jurisdiction clauses. The exclusive jurisdiction of the Mainland court was expressly stated in Cl. 15.1(c) to be “for the benefit of the Security Agent [the Bank] only”, and “the Security Agent shall not be prevented from taking proceedings against [Zhang] relating to a Dispute in any other courts with jurisdiction”. Thus, the Guarantees expressly entitled the Bank to institute proceedings against Zhang before the court of Hong Kong.

33.  In my view, the preliminary Mainland law expert evidence adduced by Zhang misses the point. The possibility that Cl. 15.1(c) may be regarded as unenforceable (“無效”) under Mainland law, leaving intact Cl. 15.1(a) and 15.1(b), does not assist in eliciting the intention of the parties or determining where lies the centre of gravity of the Bank’s claim.

34.  Considered in light of the circumstances of this case, the asymmetric clauses serve to demonstrate that the parties’ intention was that Hong Kong court was the chosen forum for dispute resolution, with a choice given to the Bank to institute proceedings against Zhang in the Mainland under the Guarantees if it so wishes.

35.  Further, on centre of gravity of the claim, Zhang had only been able to point to his defence and matters of convenience (which have been dealt with above). On the other hand, the Bank is seeking summary judgment on the Agreement. All the jurisdiction clauses in the other transaction documents (the Facility Agreement, Note Subscription Agreement and the Trust Deed) provided for Hong Kong exclusive jurisdiction. The only exceptions being the 2 Guarantees. I bear in mind also the point made in para 29 above. I am left with no doubt that the centre of gravity of the claim here is Hong Kong.

36.  For completeness, the preliminary opinion of the Mainland law expert was based on the premise that Clause 15.1(c) was a standard clause agreed without any negotiation (“格式條款是當事人為了重複使用而預先擬定，並在訂立合同時未與對方協商的條款”). Such premise is contradicted by the Bank’s evidence that the Guarantees were reviewed and commented upon by Messrs Sullivan & Cromwell (“S&C”) who were acting for Great Matrix in the Refinancing.

37.  Moreover, the terms of Cl. 15.1 largely followed the terms of a previous guarantee given by Zhang in the initial financing of the Project (see para 8 above), which were the subject of negotiation and comments from S&C as well as Great Matrix’s Mainland legal advisers. Zhang’s guarantees in both transactions shared the same asymmetric jurisdiction clause. Therefore, it is not clear why Cl. 15.1(c) was said to be in unnegotiated standard form.

38.  For these reasons, I decline Zhang’s stay application.

O.14

39.  The applicable principles are trite and can conveniently be found in HKCP 2022. The obligation is on Zhang to satisfy the court that there is a triable issue (HKCP 2022, vol 1, [14/4/3]). Zhang must “condescend upon particulars” of his defence ([14/4/4]). If he does, the issue is whether his assertions are “believable”. The court will not take the alleged defence at face value but will test it against the contemporaneous documents, the inherent probability of the alleged defence, and whether the alleged defence was only recently raised despite opportunity being given to him to respond earlier ([14/4/9A]).

40.  Further, even in summary judgment applications, an allegation of forgery “is a serious allegation which the defendant will bear the burden of proving by cogent and compelling evidence since it is trite that the more serious the allegation, the less likely it is that the event occurred” (see Billion Wealth v Strategic Media, unrep, HCMP 2586/2009, 3 May 2010), [40], per Fok J (as he then was)).

41.  On the evidence before the court, I am unable to accept that Zhang has shown a believable defence of forgery. His evidence, assessed against the undisputed background circumstances, is contrary to inherent probabilities and common sense, and his explanations on various evidential fragilities ring hollow.

42.  I first set out the background of Zhang, who was (and is) clearly a sophisticated person and one who held senior executive positions in the Suning Group, which was a well-known Mainland private enterprise of considerable size. He is the son of the founder and Chairman of the Suning Group. He graduated from The Wharton School, University of Pennsylvania, worked at Morgan Stanley and is the President of the Inter Milan Football Club.

43.  Importantly, the Refinancing was for the benefit of Great Matrix which was wholly owned and controlled by Zhang. There is no suggestion that Zhang’s interest in Great Matrix was held on behalf of someone else.

44.  Zhang attempted to distance himself from the Refinancing with the allegations that he knew nothing about it, did not participate in it and had nothing to do with running the Project. He also alleged that “my directorship and shareholding in [Great Matrix] are matters that were decided and arranged by the management of the Suning Group”, and “I only acted on the directions of the management of the Suning Group and/or the relevant Department in connection with the matters of [Great Matrix]”. Such allegations simply fail to discharge Zhang’s obligation to condescend to particulars and to show a triable issue.

45.  Further, the allegations sit poorly with the position of Zhang in the Suning Group. Perhaps more importantly, Zhang accepted that various signatures on the 2019 Documents “should be his”. There is little room for doubt that he did participate in the original financing of the Project, and for which he had given his personal guarantees. Considered in such light, Zhang’s attempt to distance himself with the Refinancing has little merit. For completeness, the evidence that Zhang was not involved in the running of the Project does not really assist him. On the evidence adduced by Zhang, such task was apparently assigned to other management staff.

46.  Furthermore, Zhang’s evidence is contradicted by Suning.com’s public announcement published on 1 July 2019 which stated that, as a result of the spin-off of the Project, Zhang controlled 65% of Suning Smart Life through Great Matrix and Great Momentum Ltd, both of which were controlled by him. Zhang was also the 99% shareholder of 南京云致享网络科技有限公司, the immediate shareholder of Suning Xiaodian. I agree with Ms Lam that Zhang plainly had a material interest in the Loan and Notes, which were made to refinance Great Matrix’s borrowing in the Spin-Off.

47.  Another important background fact against which the forgery allegation has to be assessed is that S&C and Jingtian & Gongcheng (Mainland legal advisors) acted for Great Matrix in the Refinancing. Zhang’s evidence that he never instructed S&C in his personal capacity in connection with the Refinancing may be true but, given that the borrower was his wholly owned company, it is unreal to think that S&C or Jingtian did not have an eye on his interest in the Refinancing, especially in respect of the Agreement and the Guarantees under which he assumed personal liabilities. I note that a certified true copy of Zhang’s Mainland identity card was provided to the lenders as part of the due diligence process for the Refinancing.

48.  The signing arrangement for the financial documents, including the Agreement, was made via S&C. The execution pages of the various documents were gathered by S&C and sent to the lenders’ counsel, Ashurst, on 18 August 2020. Those documents were sent on the understanding that such action constituted the relevant party’s “representation, confirmation, authorisation and undertaking” that, inter alia, he/it had “approved the relevant documents” and “executed” them. I agree with Ms Lam that it is inconceivable that S&C would have acted without authority, and worse still, misrepresented the approval and authorisation of various parties.

49.  As a person alleged to have incurred a US$255 million liability, the failure of Zhang to complain against the forgeries until he filed his 1^st affirmation speaks volumes. Inexplicitly, not only did Zhang failed to alert the Bank and S&C immediately, there is no evidence that he reported the matter to the police (see the dicta in Prosperous Credit v Gen Hwa [1998] 1 SLR(R) 53, [16]).

50.  On 5 July 2021, a Notice of Acceleration and Demand was sent to, inter alia, Zhang. It referred to, inter alia, the Agreement and events of default. By that Notice, the Loan and Notes were declared immediately due, and it was suggested to each recipient of the Notice that he/it should seek legal advice on the matters.

51.  On 15 July 2021, Zhang attended a remote meeting with members of the lender group to discuss the default, the financial situation of Suning Group and repayment proposals. No suggestion was made by Zhang about forgery, nor that he knew nothing of the Refinancing. Zhang might be right that his personal liability was not part of the discussions at the meeting. However, any suggestion that he was not alive to such liability cannot be taken seriously when the Notice referred to the Agreement and a similar Intercreditor Agreement was one of the financial documents he had signed for the 2019 borrowing.

52.  The meeting was followed by a Notice of Demand which was sent to, inter alia, Zhang by the Bank on 26 July 2021 in respect of Zhang’s liability under the Guarantees. Zhang sought to explain his failure to respond to this Notice by alleging that Suning’s email system did not work well when he was overseas, and that none of the senior staff to whom the Notice was copied had followed it up with him. Such explanations do not sit with common sense or inherent probabilities and are simply incredible.

53.  Against these background facts, Zhang advanced a vague allegation that “it appears that some staff member(s) involved in the [Project] who had dealings with [the Bank] might have forged my signature to sign on behalf of [Great Matrix] and myself in order to assist with [the Refinancing]”. The allegation begs the question why the staff member(s) would have committed a serious crime when there is no suggestion that he/they had anything to gain. Self-evidently, the unparticularised allegation carries little conviction or crebility.

54.  Finally, at the hearing on 23 June 2022, Zhang requested that expert handwriting evidence be adduced. As a result, the single joint handwriting expert report of Mr SC Leung dated 4 July 2022 (“Report”) was produced. It may be seen that this last minute gambit by Zhang has backfired because the Report confirmed that 5 of the 6 signatures on a copy of the Agreement which was examined by Leung were written by Zhang. The remaining signature was an electronic copy. However, the signature which acknowledged Zhang’s personal liability was written by him.

55.  The parties had referred the court to CWG v MH, unrep, HCMP 643/2012, 14 November 2012, per DHCJ B Chu (as she then was), [13] :

(1)  There is a standard of cogency which must be satisfied before evidence is considered sufficient to raise a case of forgery. When allegations of forgery are combined or necessitated with conspiracy of others, evidence to very high standard of cogency is necessary;

(2)  In assessing allegations of forgery, the most important class of evidence is the direct evidence of attesting witnesses. Handwriting expert opinions are regarded as inherently of less weight and importance than the direct evidence. Handwriting evidence cannot and should not be considered as if there were no other evidence. If there is other evidence, then notwithstanding the handwriting experts’ evidence to the contrary, the court can still hold the documents to be genuine.

56.  I bear such principles in mind. However, even if the Report is ignore, there remains no believable case on forgery.

57.  Finally, I deal with 3 points arising from the Report. Firstly, Ms Eu complained that the signatures on the Agreement which was exhibited to the Bank’s evidence were at variance with those examined by Leung. The discrepancies had been sufficiently explained by Ms Lam with the support of the contemporaneous evidence. There were in fact 22 copies of the Agreement which were required to be signed. The exhibited copy came from a PDF file in the Bank’s possession, whereas the copy examined by Leung was the only physical copy of the Agreement which the Bank holds. I do not believe that there is anything in the point which detracts from the merits of this summary judgment application.

58.  Secondly, Ms Eu relied upon the existence of an electronically copied signature to cast doubt on the Agreement. I am unable to agree. The contemporaneous documents showed that the signing arrangement was agreed via the professionals and the Bank obviously relied upon what it was given. It is neither for the Bank nor the court to speculate on the reason for the use of an electronically copied signature. However, the critical signature where Zhang acknowledged his obligations as an “Original Debtor” as written by him.

59.  Thirdly, Zhang had produced his travel record to show that he was not in the Mainland on the 20 August 2020, the date of the Agreement. I agree with Ms Lam that the pages bearing Zhang’s signature could have first been scanned and delivered as PDF files with the originals then mailed to anywhere as required. This was in fact consistent with the manner of execution agreed between Ashurst and S&C. I therefore see nothing in this point.

60.  For these reasons, I grant summary judgment against Zhang in favour of the Bank. No submission had been advanced on behalf of Zhang on the quantum of the debts or the interest payable thereon.

Disposition

61.  The Stay Summons filed on 17 June 2022 is dismissed with costs to the Bank. I grant the order sought in paras 1(a) and 4 of the O.14 Summons filed on 3 May 2022. The costs of the additional evidence Summonses both filed on 4 July 2022 be to the Bank. For all the Summonses, I grant a certificate for 2 counsel. All costs orders are made on nisi basis.

62.  Last but not least, I am grateful to counsel for their assistance.