FLY SMART LTD v. 林廷謙 AND ANOTHER

HCA 380/2023 and HCA 416/2023
(Heard together)

[2024] HKCFI 276

HCA 380/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 380 OF 2023

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AND

HCA 416/2023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 416 OF 2023

_____________

_____________

(Heard Together)

________________

D E C I S I O N

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1.  Fly Smart Limited (“Fly Smart”) is the Plaintiff in both HCA 380/2023 and HCA 416/2023. 林廷謙 (“Lam”) and 柯兆堅 (“Jacky”) are the two Defendants in both actions. In HCA 380/2023, Lam is the 1^st Defendant and Jacky the 2^nd Defendant; while in HCA 416/2023, Jacky is the 1^st Defendant and Lam the 2^nd Defendant.

2.  By Fly Smart’s respective summonses issued in the two actions both dated 26 April 2023, which were ordered to be heard together, Fly Smart applies against Lam and Jacky (together “Ds”) for summary judgment, or alternatively, interim payment :

a.  in HCA 380/2023, to enforce a written Chinese settlement agreement dated 1 February 2023 (“the Settlement Agreement”) under which (i) Lam agreed to pay Fly Smart HK$19,500,000 (“the Settlement Sum”) on or before 1 March 2023 and (ii) Jacky agreed to guarantee Lam’s payment obligations thereunder; and

b.  in HCA 416/2023, to enforce a written Chinese subscription agreement dated 1 February 2023 (“the HTI Agreement”) under which (i) Jacky agreed to purchase from Fly Smart 106,728,000 shares in Hao Tin International Construction Investment Group Ltd (“HTI”) at HK$0.28 per share for HK$29,883,840 (“the HTI Sum”) to be paid on or before 1 March 2023 and (ii) Lam agreed to guarantee Jacky’s payment obligations thereunder.

3.  Days before this hearing, final judgments were entered against Jacky in the two actions pursuant to the joint applications by Fly Smart and Jacky by consent summonses. Therefore, remain contentious are Fly Smart’s applications as against Lam in both the actions.

4.  Mr Maurellet SC (leading Mr Lai and Mr Yeung) appeared for Fly Smart. Mr Chang SC (leading Mr Tam) appeared for Lam.

Factual background and events leading to the signing of the Settlement Agreement and the HTI Agreement

5.  These two actions share the same set of factual background matters summarized below which are largely uncontentious. The contentious parts will be expressly stated.

6.  Lam came from a well-off family and is a businessman running food and beverage businesses which include award winning Japanese restaurants under the brand names “Sushi Man” and “Torikin”, both of which have more than 20 branches in the Mainland. Lam had worked as a securities broker for a year and a half before he started his restaurant business.

7.  Lam acquainted Jacky in September 2020. Jacky is the youngest son of Ke Junxiang (“Ke”). Ke is the executive director and chairman of CIL Holdings Limited, a listed company. Ke was active in the securities market and, as said by Lam and not seriously disputed by Fly Smart, was well-connected with management boards and beneficial owners of various listed companies.

8.  Lam narrated in some detail in his affirmations certain prior dealings between him and Jacky in 2021. They are not material and Mr Chang did not say they are. I therefore will make no further mention of them.

9.  On 3 January 2022, Jacky told Lam that China Ruyi Holdings Ltd (“CR”), a Hong Kong listed company, planned to issue new shares of which around 200 million shares at HK$2.7 each had been reserved for Ke. Jacky claimed that the price of CR shares would go up to HK$4 per share after placement and he was seeking interested investors (“the CR Investment Opportunity”).

10.  On the same day, Lam introduced Jacky to Chen Jiarong Marco (“Marco”) and a tripartite WeChat group was set up for the three of them (“the Tripartite WeChat Group”).

11.  Marco was a classmate of Lam’s in the University of British Columbia, with whom Lam has remained in contact and was on good terms. Marco was a co-founder and had been the Chief Executive Officer of Kingkey Enterprise Holdings Limited, and the former Chairman of Kingkey Intelligence Culture Holdings Limited, a listed company. He and his father hold various shareholdings and directorship in the “Kingkey” group of companies some of which are listed companies.

12.  In mid-January 2022, Marco took up the CR Investment Opportunity on the condition that he would share the profit to be earned equally with Jacky. However, Marco ended up making a loss rather than any profit on that occasion.

13.  To make up for Marco’s loss, Jacky offered Marco in early September 2022 another opportunity to invest in CR shares. Jacky claimed that the chairman of CR, Ke Liming, had access to certain option shares in CR with exercise price at HK$0.96 (“CR Option Shares”) and 100 million CR Option Shares were reserved for Ke and from whom Jacky had obtained 50 million shares to offer to Marco on the same condition that Marco and Jacky were to share the profits equally. Marco was interested.

14.  Further discussions ensued among Marco (on behalf of Fly Smart), Lam and Jacky. They had a meeting on 25 September 2022 (“the Meeting”) leading, among others, to an agreement that a back-to-back structure would be adopted such that Lam would acquire the CR Option Shares from Jacky, which Lam would then on-sell to Fly Smart.

15.  Concerning Fly Smart, Lam said he understood that Fly Smart was beneficially owned by Marco and that in the Meeting Marco said that the funds that would be used to purchase the CR Option Shares were lent to him by “the lender”; while it is Fly Smart’s case that the sole legal shareholder of Fly Smart was one Madam Peng who is a relative of Marco’s girl friend and that his girl friend was the ultimate source of the funds for Fly Smart’s purchase of the CR Option Shares and the HTI Shares, as narrated below, upon Marco’s recommendation. Nothing significant turns on these as it is not disputed that Marco has all along been acting for and on behalf of Fly Smart.

16.  It is Lam’s case that in the Meeting Marco gave “Marco’s 1^st Assurance” (defined below) to him on which he relied. This is disputed and denied by Marco and Fly Smart.

17.  On 28 September 2022, a written Chinese agreement[1] and a Chinese supplemental agreement[2] (respectively “the CR Subscription Agreement” and “the CR Supplemental Agreement”, collectively “the CR Agreements”) were executed by Fly Smart and Lam whereby :

a.  By clause 2.1(a) of the CR Subscription Agreement, Fly Smart was required to pay to Lam a deposit of HK$13,000,000 on or before 30 September 2022;

b.  By clause 2.2 of the CR Subscription Agreement as amended by the CR Supplemental Agreement, Lam was required to deposit 45,000,000 CR Option Shares in Fly Smart’s designated securities account on or before 31 October 2022; and

c.  By clause 2.1(b) of the CR Subscription Agreement as amended by the CR Supplemental Agreement, Fly Smart shall pay to Lam HK$30,200,000 (“the Remaining Balance”) within 5 working days after completion.

18.  Also on 28 September 2022, Jacky and Lam entered into 2 back-to-back agreements (also a written agreement[3] and a supplemental agreement[4]) identical to the CR Agreements[5] for the sale by Jacky and purchase by Lam of the 45,000,000 CR Option Shares. These 2 agreements were signed by Jacky only and not Lam.

19.  By 3 transfers into Lam’s bank account made on 29 September, 30 September and 8 October 2022, Fly Smart duly paid the said deposit of HK$13,000,000 in equivalent RMB pursuant to the CR Agreements. It is not disputed that Lam transferred the exact same amount to Jacky’s designated bank account pursuant to the said agreements between Jacky and Lam. I note that there was no mention of any complaint from anyone regarding the slight lateness in the payment by Fly Smart by way of the 3^rd transfer on 8 October 2022.

20.  The price of CR shares, however, continued to fall by late October 2022 to below HK$1.5. It is common ground that Jacky has made a repurchase proposal that Ke Liming was willing to repurchase all of the 45,000,000 CR Option Shares at HK$2.00 each as an incentive to Fly Smart not to sell the CR Option Shares in open market, thereby depressing its price further (“the Repurchase Proposal”). At some point Marco has caused to be drafted back-to-back repurchase agreements for Fly Smart and Lam, and for Lam and Jacky, but the same were never executed.

21.  The 45,000,000 CR Option Shares were not deposited into Fly Smart’s designated securities account despite the lapse of the deadline of 31 October 2022.

22.  Marco made enquires with Lam for updates several times in mid to late November 2022. Jacky said that Ke required the payment of the Remaining Balance be made before providing the 45,000,000 CR Option Shares. Eventually, Marco accepted Jacky’s suggestion to effect payment of the Remaining Balance by “escrowing” some shares, namely acquiring some shares in the market on behalf of Jacky / Ke or their associates. Jacky later informed Marco that shares in HTI were to be so “escrowed”. Between 16 to 21 December 2022, Fly Smart purchased from the market a total of 106,728,000 shares in HTI (“the HTI Shares”) at the total cost of HK$29,902,647.56[6].

23.  There were some discussions in December 2022 that instead of providing to Fly Smart the 45,000,000 CR Options Shares, which would be repurchased at HK$2.00 each, Fly Smart would be paid the total sum of HK$66,600,000 (being 45,000,000 CR shares x HK$2.00 net the half profit to be paid to Jacky/Ke) with Meitu stocks in equivalent value, while the HTI Shares would be transferred to Ke’s associate (“the Meitu Payment Discussion”).

24.  Lam’s case is that it had been so agreed (or that the existence of such an agreement was at least triable). Marco’s evidence and Fly Smart’s case is that it was discussed but never agreed. In any case, it is common ground that no Meitu share certificates have been tendered by Lam, Jacky or Ke to Fly Smart, nor has Fly Smart received any.

25.  In January 2023, Marco has been repeatedly pressing Lam and Jacky to perform their end of the bargain. On 9 January 2023, Fly Smart by its solicitors issued a letter to Lam demanding repayment of the deposit of HK$13,000,000 and reserving its right to claim against Lam for loss. Lam gave no response.

26.  On 31 January 2023, there were a number of WeChat messages exchanged among Marco, Lam and Jacky, among others, relating to the preparation of the Settlement Agreement and the HTI Agreement. It is Lam’s case that on that day Marco made “Marco’s 2^nd Assurance” (defined below) on which he relied. Again, this is denied and disputed by Marco and Fly Smart.

27.  The next day on 1 February 2023, Fly Smart, Lam and Jacky respectively executed the Settlement Agreement and the HTI Agreement.

The Settlement Agreement and the HTI Agreement, their breach, the two actions and the selling of the HTI Shares

28.  It is not disputed that the Settlement Agreement and the HTI Agreement were professionally prepared by lawyers, and that prior to their execution they have been circulated in the Tripartite WeChat Group[7] and in the WeChat conversation between Lam and Marco[8].

29.  Regarding the Settlement Agreement, it is not disputed by Lam that :

a.  Its preamble, consisting of 6 paragraphs, recorded, among others, that Lam had acted in breach of the CR Agreements, that the breach had caused loss to Fly Smart who demanded Lam to return the HK$13,000,000 deposit and to compensate it all its loss, and that the parties had reached a settlement according to the terms of the agreement.

b.  Pursuant to Clauses 3 to 7, Lam was obligated to pay the Settlement Sum of HK$19,500,000 on or before 1 March 2023.

30.  Regarding the HTI Agreement, it is not disputed by Lam that :

a.  As mentioned in paragraph A of the preamble and pursuant to Clause 2.1, read with the definition of the terms provided by Clause 1.1, Jacky was obligated to pay Fly Smart the HTI Sum of HK$29,883,840 (at HK$0.28 per share x 106,728,000 shares) on 1 March 2023.

b.  Pursuant to Clause 2.2, within 3 days after having received the HTI Sum, Fly Smart shall transfer and deposit the HTI Shares into Jacky’s or his designated account.

c.  Pursuant to Clause 2.5(a), Lam would guarantee Jacky’s performance of his payment obligations.

31.  It is not disputed that the Settlement Agreement and the HTI Agreement each contains:

a.  An identical Clause - Clause 16 in the Settlement Agreement and Clause 5.3 in the HTI Agreement - to the effect that any amendment, addition or change or waiver against any breach must be made in writing;

b.  An identical Clause – Clause 19 in the Settlement Agreement and Clause 5.6 in the HTI Agreement – stating that the agreement has binding effect as against all parties and their successors and assigns; and

c.  An identical Clause – Clause 20 in the Settlement Agreement and Clause 5.7 in the HTI Agreement – to the effect that the entire agreement reached between the parties are contained in this written agreement which replaces all prior agreements, arrangements, representations or transactions.

32.  There is no dispute that on 1 March 2023, Lam and Jacky did not pay the Settlement Sum or the HTI Sum, and that Lam was thus in breach of the Settlement Agreement, Jacky was thus in breach of the HTI Agreement and Lam became liable to guarantee Jacky’s obligation under the latter.

33.  On 2 March 2023, a letter before action was sent to each of Lam and Jacky. No response was received from them. Lam did not deny having received the letter.

34.  On 14 March 2023 and 20 March 2023 respectively, Fly Smart commenced HCA 380/2023 and HCA 416/2023.

35.  Pursuant to Clause 2.5(c) of the HTI Agreement, Fly Smart on 8 occasions between 6 March 2023 to 10 August 2023 sold all the HTI Shares save 304,000 shares[9] and received the total net proceeds of HK$14,730,897.17.

The defences Lam deposed to

36.  In §66 to 70 of both his affirmations[10], Lam deposed to the defence that:

a.  He has fallen victim to a sophisticated investment scam orchestrated by Jacky and Ke.

b.  It was because of Jacky and/or Ke’s false promises, together with Marco’s 1^st and 2^nd Assurances (together “Marco’s Assurances”) that he had executed the Settlement Agreement and the HTI Agreement. The 2 agreements are thus voidable.

c.  Marco was estopped from enforcing the 2 agreements due to his making of the 1^st and 2^nd Marco Assurances.

d.  Given the complex factual background, there are live issues to be tried.

e.  Fly Smart owed a duty, and is now in breach of it, to obtain the best possible selling price when it subsequently sold the HTI Shares.

Marco’s Assurances – no defence or triable issues

37.  In his written submissions, Mr Maurellet submitted that there was no triable issue arising from the allegations of Marco’s Assurances, as they were completely incredible and unbelievable. Mr Chang in his written submissions did not address the court directly on Marco’s Assurances as such, but shifted the focus of the opposition against summary judgment to other matters by a different angle, which I will turn to in due course. I will therefore deal with Marco’s Assurances succinctly.

38.  In his affirmations[11], Lam said that Marco said that “the lender” required back-to-back agreements to be executed, as “his lender required a trusted middleman because she had not met Jacky before, and insisted that there could be an additional someone to go after even if Jacky/Ke Liming defaulted”. Lam then said that on Marco’s assurance that “the agreement that [Lam] was to sign with [Marco] is never meant to have any effect because [Marco] would not sue his best friend [ie. Lam] … [Marco] would go after Jacky directly” (“Marco’s 1^st Assurance”), he agreed to the back-to-back agreements structure and signed the CR Agreements.

39.  Lam further said[12] that on 31 January 2023, he “conceded to such request” by Marco – “signing a new set of agreements to name Jacky as a contracting party to both agreements in order to enable [Marco] to sue Jacky directly” – in reliance upon his trust and good faith in Marco. And then on the next day, ie 1 February 2023, the day the Settlement Agreement and the HTI Agreement was signed, Marco assured him that “[his] name was included because (a) [Marco] has to please his lender who only knew [Lam] but not Jacky; and (b) as [Lam] was named as the vendor in the CR Subscription Agreement and the Repurchase Agreement, so it was more appropriate to name [Lam] as the defaulting party in the Settlement Agreement, according to Marco’s advisors, but (c) [Marco] promised that he would not sue [Lam] under either the Settlement Agreement or the HTI Subscription Agreement because I am his best friend but also that we were on the same boat being defrauded by Jackie and Ke” (“Marco’s 2^nd Assurance”).

40.  I accept Mr Maurellet’s submissions that Lam’s allegations on Marco’s 1^st and 2^nd Assurances are completely incredible and unbelievable.

41.  Firstly, as pointed out by Mr Maurellet, which I accept, the undisputed context were :

a.  The Settlement Agreement and the HTI Agreement were professionally prepared by lawyers;

b.  The said 2 agreements stated on the face of their terms that they were intended to be enforced in that they expressly stated by their terms to be binding, cannot be modified orally, represented the entire bargain of the parties, and expressly replaced all prior arrangements and representations, which would include the alleged Marco’s Assurances;

c.  The said 2 agreements were evidently designed to achieve a serious commercial purpose of settling all of the 3 parties’ (Fly Smart, Lam and Jacky) dealings and disputes or potential disputes relating to the 2 sets of back-to-back CR Agreements, the Repurchase Proposal, the “escrowing” of the HTI Shares, and the Meitu Payment Discussion;

d.  These dealings and disputes involved relatively substantial sums of money of close to HK$50 million; and

e.  While Marco and Lam at the time might have been good friends, they both were seasoned businessmen.

42.  Moreover, in my view it should have been evidently clear to Lam, as to Marco, that the purpose of the back-to-back structure was, and it’s effect would be, that Lam would be made, in place of Jacky, the sole party that Fly Smart would look to for performance and contractual responsibility; and that under the back-to-back structure, Fly Smart could not sue Jacky direct and Lam was not a party additional to Jacky that Fly Smart could sue. Thus, if the CR Agreements were not meant to have effect or that Fly Smart/Marco would not sue Lam on them, Fly Smart would have no recourse whatsoever. Fly Smart/Marco would be in a much worse and indeed completely vulnerable position as compared to signing an agreement directly with Jacky.

43.  Considering the matters alluded to in the previous 2 paragraphs, I accept Mr Maurellet’s submission that it defies belief that Marco would have told Lam, or that Lam would have believed and relied on any assurance, that the Settlement Agreement and the HTI Agreement somehow would not be enforced against Lam.

44.  Secondly and importantly, and essentially undisputed by Lam, there is not one shred of contemporaneous documentary evidence corroborating or mentioning in any way the existence of Marco’s Assurances (save that Lam argued one WeChat message did, to be discussed below), when it is clearly shown, and also undisputed, that WeChat was the usual mode of communication among Marco, Lam and Jacky, and between Lam and Marco, and yet none such evidence was found in the prolific messages produced in the hearing bundles consisting of about 200 pages of screenshots of such WeChat messages and 76 pages of transcripts of audio messages exchanged by WeChat.

45.  Thirdly, Mr Maurellett also pointed out, and was undisputed, that Lam’s own conduct was inconsistent with Marco’s Assurances having been made at all, namely :

a.  Lam had expressed a wish to review the draft Settlement Agreement and the draft HTI Agreement before they were executed[13], which is contradictory to Lam’s assertion that he was told and believed Marco’s 2^nd Assurance to the effect that the 2 agreements were executed for “show” only and would not be enforced against him.

b.  At no time until the filing of Lam’s affirmations herein has Lam mentioned Marco’s Assurances, and importantly all along Lam has made no protest against Fly Smart/Marco’s breach of the Marco’s Assurances, when according to Lam’s own allegations, he ought to have protested strongly. Lam clearly ought to have protested strongly and immediately when a letter before action was issued to him on 2 March 2023 - the next day after the breach of the Settlement Agreement and the HTI Agreement, and when these 2 actions were commenced against him, also promptly, on 14 March 2023 and 20 March 2023.

46.  For the foregoing reasons, I do not find Lam’s allegations regarding the Marco’s Assurances capable of belief.

Genuine weaknesses in Fly Smart’s case ? Sham and want of consideration in relation to the Settlement Agreement ?

47.  Mr Chang relied on the cases of Li Mingren v Questex Development Inc & Another (CACV 141/2014, unrep., 18 November 2015) applying Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262 for the proposition that if possibly genuine weaknesses are exposed in the plaintiff’s case, the court should not grant summary judgment. In Billion Silver Development Ltd, Ribeiro JA (as the PJ then was) said at 268:

“The importance of there being doubts or suspicion as to the plaintiff's case is that such doubts detract from the plaintiff’s right to summary judgment. It is not to the point to dismiss them on the basis that they did not improve the quality of the defence and ‘raise it’ beyond the category of ‘shadowy’. If possibly genuine witnesses were exposed in the plaintiff’s case, this casts doubt on the plaintiff’s right to invoke the summary procedure in the first place.”

48.  Mr Maurellet did not dispute the principle, but disputed its application on the facts.

49.  The question of whether there are possibly genuine weaknesses in the plaintiff’s case no doubt is a fact-sensitive question. In Li Mingren, the plaintiff sued on an alleged loan of HK$40 million which was allegedly made by 6 tranches of funds transferred from the plaintiff’s brother, but the court found that the bank documents evidenced an unusual “round-robin” of the 6 tranches of funds which were transferred to the accounts of 2 associates of the plaintiff and eventually transferred back to his brother. The Court of Appeal there allowed the defendant’s appeal against the summary judgment granted by the CFI.

50.  In Billion Silver Development, the plaintiff sued on a loan agreement for the outstanding balance of a loan not repaid. The defence claimed that the whole arrangement was a sham to conceal the fact that the plaintiff was investing in an overseas project contrary to PRC Banking regulations. The judge concluded that the defence was shadowy but also expressed doubts and suspicion about the plaintiff’s case, and on those footing ordered conditional leave to defend. On appeal, the order was set aside and unconditional leave was granted instead.

51.  Here, Mr Chang said that there was complex factual background, the “commercial reality” was that “Lam was never treated as the counterpart that [Fly Smart] dealt with, and there are “many unexplained features”.

52.  Mr Chang elaborated and submitted that it was arguable that the Settlement Agreement (and not the HTI Agreement) is not enforceable for want of consideration, in that (a) the CR Agreements are a sham, and/or (b) the Repurchase Proposal “superseded Lam’s obligations under [the CR Agreements] to deliver [the CR Option Shares]. From that he submitted that if a claim is baseless, the forbearance to sue thereon is no valid consideration.

53.  With respect, in my view the contention that the CR Agreements were a sham does not bear scrutiny at all.

a.  The so-called “sham” Mr Chang contended – the appearance of legal rights and obligations that are different from the actual legal rights and obligations which the parties intended to create – was that the CR Agreements were meant to have no effect (as opposed to the appearance that they were formal and valid agreements) and not that there were any other complicated or covert arrangements/agreements disguised as the CR Agreements.

b.  Insofar as such “sham” allegation depends on the facts alleged by Lam connected to the alleged Marco’s Assurances, I rejected such allegations as not capable of belief, as I analysed and reasoned above.

c.  Of the numerous WeChat written and audio messages, Lam could refer to but one audio message he said would show that the CR Agreements is a “sham”, which was sent by Marco to Lam at 14:28 on 27 September 2022 :

“好好好，因為我同律師講㗎啦，我話自己人，即係叫佢輕kang啲，做吓個形式就ok 㗎喇，所以你睇吓佢有咩改。”

While, in this message Marco said that the agreement was made between “自己人” suggesting that the contracting parties – he and Lam – were on friendly terms and that the agreement did not need to be “heavy”, he nevertheless asked Lam as to what changes Lam might like the lawyers to make. In my view, such a message is far from sufficient to found even an arguable case that the agreement was therefore a “sham”.

d.  The only other factual matters in support of this allegation of “sham” were said to be that in the discussion of the Repurchase Proposal, Lam was only conveying Jacky’s suggestions to Marco and “[Marco] treated it as a deal with Jacky”, and that the tenor of the evidence is that both Lam and Marco in January 2023 looked to Jacky to resolve the issue. In my view, these are all entirely consistent with the background that it was Jacky who ultimately would be selling the CR Option Shares, but they do not at all detract from the fact that the 3 parties have agreed to a back-to-back structure whereby Lam was made the direct contracting party with Fly Smart.

54.  I also cannot accept the submission that there is a triable issue pertaining to whether the Repurchase Proposal superseded Lam’s obligations under the CR Agreements. The parties had mentioned 2 “repurchase proposals”. The Repurchase Proposal mentioned by Marco was the one set out in paragraph 20 above, and as mentioned there, the draft agreement for which was never executed by the parties. The repurchase proposal referred to in paragraph 33 of Mr Chang’s written submissions concerned Lam’s evidence that “I understand it to mean that Marco and Ke had reached an agreement for the repurchasing the [HTI shares]”[14], which concerned only the share “escrowing” arrangement. Therefore, even according to Lam, the proposal he referred to was at best limited in scope and did not supersede his obligation under the CR Agreements. In any case and secondly, Lam himself never deposed in his affirmations that he understood that his obligations under the CR Agreements were so superseded. He merely said that he signed the Settlement Agreement (in which was clearly stated that he defaulted the CR Agreements) because of Marco’s 2^nd Assurance (which I rejected as unbelievable). Thirdly, there was no contemporaneous documents even hinting that the CR Agreements have been superseded. On the contrary, the WeChat messages between Lam and Marco showed that Lam had agreed to the signing of a settlement agreement and had reviewed a draft of the same.

55.  I am therefore not at all satisfied that there is a triable issue regarding this contention that by the time of the signing of the Settlement Agreement, all Fly Smart had was a baseless claim. Accordingly, I do not accept that there was such possibly genuine weakness exposed in Fly Smart’s case.

Triable issue regarding Lam’s obligation as a guarantor as a result of the sale of the HTI Shares by Fly Smart at undervalue ?

56.  It is Fly Smart’s case that the HTI Shares (save 304,000 shares[15]) were sold on various dates and fetched the total net proceeds of HK$14,730,897.17. Fly Smart now seeks judgment in HCA 416/2023 against Lam for the outstanding sum of HK$15,968,147 as on 10 August 2023, being the HTI Sum netting the sale proceeds plus contractual interest accrued up to that date.

57.  The sales are shown in the table below, and I will refer to the individual sale by their respective number in the left column :

58.  The sales were made pursuant to Clause 2.5, particularly Clause 2.5(c), of the HTI Agreement, which provides:

“2.5. 乙方及担保方确认并同意，如果乙方未能在交割日或之前支付交割金额的全款:

(a) 未支付的部分即构成乙方及担保方共同及各别地欠付甲方并即时到期应付的债项(“违约债項”) ，甲方可以即时向乙方及担保方进行追讨;

(b) ...

(c) 甲方有权随时按其绝对酌情权以任何价格在市场或第三方出售该等股份或其部分，有关出售款項，将先用以偿还或部分偿还第2.5(b)段的利息，剩余金额再用以偿还或部分偿还违约债項;”

59.  Sale nos 1 to 5 and Sale no 8 were sales made through the Hong Kong Stock Exchange, while Sale nos 6 and 7, selling the bulk of the HTI Shares (104,000,000 shares), were privately negotiated sales selling at prices – respectively HK$0.134[16] and HK$0.14[17] per share - which were only slightly more than half of the share price quoted by HKEX on the days of those sales at about HK$0.25 per share.

60.  To give an overview, the parties have after the hearing compiled an agreed table showing the proceeds that would have been fetched if the same number of HTI shares were sold on the same dates at the highest price HKEX quoted on that day (“Day High Price”) and at the HKEX closing price on that day (“Day Closing Price”), as follows :

61.  It can be seen that there was a very substantial difference of about HK$11.9 million in the amount of proceeds if the 104,000,000 shares were sold at the respective Day High Price and Day Closing Price on those 2 days (which happened to be the same) as compared to the prices sold by Fly Smart.

62.  In his affirmations, Marco said barely that they were the best prices Fly Smart could secure[19]. He exhibited several strings of emails and some WeChat messages concerning enquiries made for selling the HTI Shares[20]. He did not say anything more about how the sales were negotiated and made.

63.  In Liu Zhe’s affirmation filed on behalf of Fly Smart in HCA 416/2023 on 27 April 2023, he spoke about Sale nos 1 to 6 and again merely set out the bare fact that Sale no 6 was made.

64.  Save that the Bought and Sold Notes in respect of Sale nos 6 and 7 were produced, no other documentary evidence in connection with the 2 sales were produced.

65.  Fly Smart’s evidence regarding Sale nos 6 and 7 is conspicuously scanty.

66.  The statement of Fly Smart’s stock broker uSmart Securities Limited printed on 26 January 2023 and produced by Fly Smart recorded that the price of HTI share as on that day was HK$0.26 per share and the 106,424,000 HTI shares held by Fly Smart was worth on that day HK$27,670,240[21].

67.  In the table showing the Day Closing Prices of HTI shares from 16 January 2023 to 24 July 2023[22] produced by Jacky and adopted by Lam and not disputed by Fly Smart, it was shown that the Day Closing Prices fluctuated between HK$0.26 on 26 January 2023 to the lowest of HK$0.209 on 6 March 2023, and reaching HK$0.29 and HK$0.305 on 29 and 30 March 2023, and was at HK$0.295 on 28 April 2023, and the price began to climb from 17 May 2023 at HK$0.315 to HK$0.55 on 23 May 2023. As we see above, the price of HTI shares was HK$0.59 per share on 10 August 2023. Evidently, Fly Smart had had access to the prior daily prices of the HTI shares before and at the time of Sale nos 6 and 7.

68.  Mr Chang on behalf of Lam advanced a number of contentions as being arguable. First, as it is Fly Smart’s case that under the HTI Agreement the HTI Sum is recoverable as a debt and Fly Smart was entitled under Clause 2.5(c) to sell the HTI Shares to satisfy the HTI Sum, the HTI Shares were thus a security and that if the benefit of the security was lost or diminished by Fly Smart as the creditor, Lam’s surety may be discharged (Law of Guarantees 7^th ed. §9-041). Second, akin to a mortgagee, Fly Smart was under a duty to take reasonable care to obtain a proper price when exercising his power of sale of the HTI Shares despite the fact that Clause 2.5(c) may authorize Fly Smart to sell in such manner and at such price as it might think fit (Bishop v Bonham [1988] WLR 742). Third, even, as Fly Smart contends, that it is simply under a duty to sell the security at the current market price, the market price of the HTI shares on 19 April 2023 and 27 April 2023 were respectively HK$0.25 and HK$0.249 per share, which were significantly higher than the prices Fly Smart sold them.

69.  Mr Maurellet submitted[23] that barely there is no basis for saying that the HTI Agreement created any such security interest. However, the submission was not further developed. I accept Mr Chang’s submission, particularly in light of Fly Smart’s stance that the HTI Sum under Clause 2.5 became a debt upon Jacky’s default, that it is arguable that under the HTI Agreement, the HTI Shares became a security upon Jacky’s default.

70.  Mr Maurellet next submitted that the wording of Clause 2.5(c) provides that Fly Smart may sell the HTI Shares at its absolute discretion, thus any duty on the part of Fly Smart to obtain “a fair price” is excluded.

71.  This is a matter of construction of Clause 2.5(c). In Bishop v Bonham at 753E Slade LJ held :

“In my judgment where the general law imposes a duty on a person to act with reasonable care in carrying out a particular transaction, the natural construction of words authorizing a person to carry out such a transaction in such manner and upon such terms and for such consideration “as you may think fit” is as authorizing that person to carry out the transaction in such manner (and so on) as he thinks fit, within the limits of the duty of reasonable care imposed by the general law - no more, and no less. The words do not in my judgment give the recipient authority, or carte blanche, to act as his thinks fit in disregard of that duty, …”

72.  Though in that case the English Court of Appeal was construing a clause with the expression “as you may think fit”, I accept that it is arguable that the same principle or reasoning might very well apply to the construction of Clause 2.5(c), such that it is arguable that Fly Smart’s duty was not excluded.

73.  Citing the Court of Final Appeal case of Strong Offer Investment Ltd v Nyeu Tin Chuang (2007) 10 HKCFAR 529, Mr Maurellet contended that a security holder is entitled to sell its security at any time it chooses, and the duty is to sell the security at the current market price.

74.  He then submitted that there was no reason to doubt that the ultimate sale prices were the best that Fly Smart could secure or were the market price.

75.  Fly Smart’s contentions essentially were that the amount of the HTI Shares to be sold far exceeded the daily trading volume at the relevant time, that selling the HTI Shares at high volume might significantly depress the share price of HTI, and that Fly Smart had made enquiries.

76.  Lam disputed those in that (a) the daily trading volume of HTI shares fluctuated significantly, (b) that low trading volume might very well be due to the lack of supply, and (c) that there were days when the trading volume of HTI shares and the price both went up together such that for HTI at the time, an increase in supply of its shares might in fact boost its price.

77.  In a summary judgment setting, particularly in light of the scanty evidence proffered by Fly Smart in connection with Sale nos 6 and 7, I do not think it suitable to, nor can I, conclude summarily that those prices were the best that Fly Smart could have obtained, as Mr Maurellet submitted. Evidently, these competing assertions of factual nature outlined in the preceding 2 paragraphs should be resolved at trial with proper evidence proffered.

78.  The parties also disputed about the consequence if Fly Smart had breached its duty and the security was adversely affected or diminished. On that point, the parties after the hearing have filed another round of short submissions. Mr Chang contended that arguably Lam’s guarantee would be discharged absolutely, citing Watts v Shuttleworth (1861) 5 H&N 353, The Fuji Bank Limited v Sanko Air-Conditioning Engineering Limited [2002] 1 HKC 468, Fujitsu PC Asia Pacific Limited v Technique Computer System (HK) Limited (HCA 1422/2003 unrep., 27 April 2006) and Citic Ka Wah Bank Ltd v Lau Kam Luen [2008] 2 HKLRD 167. Mr Maurellet contended that it was settled law that Lam’s guarantee could at best only be discharged Pro Tanto, citing Bank of Credit and Commerce Hong Kong Ltd v Quadrutec Hotel Management & Development Ltd [1996] 4 HKC 316, Re Nanik Dayaram (CACV 146/2013, 31 July 2014), Skipton Building Society v Stott [2001] QB 262, Indian Overseas Bank v Seabulk Systems Inc [2018] HKCFI 112, and a number of textbooks and commentaries.

79.  In sum, there are contentions as to the construction of the HTI Agreement, the extent of the duty of Fly Smart, if any, to obtain the proper or the current market price when it exercised its power to sell the HTI Shares, and if so, what those prices should be on the facts, and whether Fly Smart has breached such duty, and whether Lam’s surety would thereby be discharged absolutely or Pro Tanto, if at all.

80.  I conclude that there are triable issues on those matters and that it is not suitable for me at this juncture, when the full facts are not established, to attempt to resolve some of the legal points now hotly disputed by the parties. The same should be resolved together with the factual disputes at trial.

81.  In the round, I am persuaded by Mr Chang that, in light of the figures now before the court, the determination of some of these issues in Lam’s favour might lead to the result that Lam is not liable or is liable for only a minor amount, and therefore I should give unconditional leave to Lam to defend HCA 416/2023 and also that it is inappropriate to embark on guesswork to come up with the amounts under different potential scenarios with a view to ordering interim payment for what might very well be but a relatively minor amount.

Disposition

82.  In the premises, in HCA 380/2023 I order that judgment be entered against Lam that he be jointly and severally liable with Jacky for the sum of HK$19,500,000 with interest at prime plus 1% from 2 March 2023 until the date of this Decision and thereafter at judgment rate until full payment.

83.  On nisi basis to be made absolute within 14 days, Lam do pay Fly Smart the costs of HCA 380/2023, including the costs of its summons dated 26 April 2023 with certificate for 2 counsel, to be taxed if not agreed.

84.  In HCA 416/2023, I order that Lam do have unconditional leave to defend this action and that Lam do file and serve his Defence (and Counterclaim, if any) within 28 days. I will dismiss Fly Smart’s application for interim payment.

85.  As the application for interim payment was an alternative to the summary judgment application which seems to me did not take up any additional costs that are substantial, I would on nisi basis order simply that the costs of and occasioned by Fly Smart’s Summons dated 26 April 2023, with certificate for 2 counsel, be in the cause of HCA 416/2023.

86.  Lastly, I thank Mr Maurellet and Mr Chang and their junior counsel for their able assistance.