NICE PLAN DEVELOPMENT LTD v. KE JUN XIANG

CACV 259/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.259 OF 2014

(ON APPEAL FROM HCA 652 OF 2014)

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REASONS FOR JUDGMENT

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Hon Chu JA (giving the Reasons for Judgment of the Court):

1. This is the defendant’s appeal against the judgment of Deputy High Court Judge Mayo given on 24 November 2014 whereby summary judgment was entered against the defendant for the sum of HK$30,000,000 together with interest and costs. After hearing submissions, we dismissed the appeal with costs to the plaintiff to be taxed if not agreed. Our reasons appear below.

The claim

2. The plaintiff’s claim against the defendant is for repayment of a HK$30 million loan made pursuant to a loan agreement dated 30 March 2011 (“Loan Agreement”) executed by the plaintiff as lender, the defendant as borrower and a Mr Ho Pui Tsun Peter (“Mr Ho”) as guarantor. The parties were separately represented in the transaction, with the defendant and Mr Ho represented by the same firm of solicitors.

3. The Loan Agreement contains the following express terms:

(1) The loan should be applied exclusively for the purpose of enabling the defendant to partially repay a judgment debt and to avoid a bankruptcy order being made against him (clause 2.2).

(2) The defendant was to repay the loan by two instalments, namely, HK$5 million on or before 6 April 2011 and the balance of HK$25 million on or before 30 June 2011 (clause 5.1).

(3) The defendant was required to pay interest in arrears on the loan at the rate of 36% per annum up to the repayment of the loan (as well after as before judgment) (clauses 6.1 and 6.3).

(4) The defendant was required to provide four post-dated cheques, which the plaintiff was entitled, without notice, to present for payment in the event the defendant failed to make repayment as stipulated in clause 5.1 (clause 5.2 and Schedule §1).

(5) In the event the defendant defaulted in making repayment, Mr Ho shall upon notice of the same being given, pay the plaintiff all the amounts payable by the defendant (clause 10.1(1)).

(6) Mr Ho was required to deposit with the plaintiff four post-dated cheques, which the plaintiff was entitled without notice to present for payment in the event Mr Ho failed to make payment when called upon (clause 10.1(1) and Schedule §2).

(7) As security for Mr Ho’s performance of his obligations under clause 10.1(1), Mr Ho was required to pledge to the plaintiff, prior to the drawdown date, 92,680,000 shares in CIL Holdings Limited (“CIL”) and to provide to the plaintiff the share certificates of the shares and the documents of transfer executed in blank (clause 10.1(2) and Schedule §3).  

4. The loan was advanced on the same day as the execution of the Loan Agreement.    It is not disputed that the securities that the defendant and Mr Ho were required to give under the Loan Agreement had not been provided.

5. It is the plaintiff’s case that the defendant has neither repaid the loan nor made any interest payment. The plaintiff therefore claims against the defendant for the repayment of the loan together with interest at the contractual rate of 36% p.a.

The defence

6. The defendant did not dispute the execution of the Loan Agreement or the receipt of the HK$30 million loan. He, however, denied being liable to the plaintiff as claimed on the basis that:

(1) The loan was in fact advanced by Mr Ho, who was his close friend at the time. He and Mr Ho were respectively the chairman and vice chairman of CIL, which is a publicly listed company.

(2) Mr Ho arranged for the loan to be advanced through the plaintiff, who was his nominee or corporate vehicle.

(3) At the request of Mr Ho, he executed the Loan Agreement. As he does not understand English, he did not pay attention to the name of the plaintiff which appeared at the signature page of the document.

(4) He was unable to make repayment as stipulated in clause 5.1 of the Loan Agreement. In about the end of June 2011, he and Mr Ho reached an agreement (“Settlement Agreement”) under which he was to cause 40,000,000 shares in CIL to be transferred to Mr Ho or his nominee in full and final settlement of his liability under the Loan Agreement.

(5) Pursuant to the Settlement Agreement,

(a) On 29 June 2011, the defendant caused the share certificate of 20,000,000 shares in CIL, together with the Sold and Bought Notes, Instrument of Transfer and Standard Form of Transfer duly executed in blank by the transferor, to be sent to a Mr Viva Chan, who was nominated by Mr Ho to receive the shares; and 

(b) On or about 30 June 2011, the defendant personally handed to Mr Viva Chan the share certificate of another 20,000,000 shares in CIL together with the duly executed Sold and Bought Notes, Instrument of Transfer and Standard Form of Transfer.

7. The defendant said that as at the date of the settlement, the 40,000,000 shares in CIL had a market value of HK$33,200,000, and hence, he had fully discharged his indebtedness under the Loan Agreement.

The O.14 application

8. By summons filed on 19 August 2014, the plaintiff applied for judgment as claimed pursuant to Order 14 of The Rules of the High Court, Cap. 4A.

9. In his affirmation opposing the application, the defendant referred to the following matters as supporting his case that the plaintiff was the nominee and/or corporate vehicle of Mr Ho (at §5):

(1) Contrary to the terms of the Loan Agreement, Mr Ho had not deposited any post-dated cheque, share certificate or documents of transfer with the plaintiff. Despite this, the plaintiff still advanced the loan to the defendant.

(2) The plaintiff never called upon Mr Ho to discharge his obligations as guarantor and has not sued him.

(3) The plaintiff only has a nominal capital of HK$2.00.

(4) The plaintiff had previously issued a statutory demand against the defendant based on the loan. Mr Ho had also issued 5 statutory demands against the defendant. None of these statutory demands was proceeded with after the defendants solicitors wrote to rebut the claim. 

10. In support of his case that the liability under the Loan Agreement had been settled, the defendant exhibited a Chinese document dated 29 June 2011 signed by a Chan Wah Ha and addressed to the defendant’s solicitors (“Chinese Document”), the English translation of which states as follows[1]:

“To: Chong & Partners

I, Viva Chan, holder of Hong Kong Identity Card Number XXX[2], hereby confirm that I have received Mr. Ke Junxiang’s instructions to attend your office to collect the following documents on behalf of Mr. Ke:-

(1) Share Certificate of CIL Holdings Limited (holder of shares LEE BING KWONG, 20 million shares certificate number 142508);

(2) Bought & Sold Note signed by LEE BING KWONG;

(3) Instrument of Transfer signed by LEE BING KWONG;

(4) Standard Form of Transfer signed by LEE BING KWONG.

I confirm I have collected the above documents on behalf of Mr. Ke Junxiang at 12:05 on 29 June 2011, and have signed on copies of the above documents as confirmation.

(signed)

Name: Viva Chan

Date: 29/6/2011”

11. Copies of the four documents mentioned in the Chinese Document were also exhibited to the defendant’s affirmation. On the copy of the share certificate, there was an endorsement of a receipt in Chinese, the English translation of which reads[3]: 

“	Receipt
I hereby confirm receipt of this original Share Certificate on behalf of Mr. Ke Junxiang (20,000,000 shares) together with a blank SOLD NOTE BOUGHT NOTE and INSTRUMENT OF TRANSFER, and original Standard Form of Transfer signed by Lee Bing Kwong, holder of the shares.
		Received by: Viva Chan
		ID Card Number: XXX[4]
		Date: 29/6/2011”

12. Copies of the Sold and Bought Notes, the Instrument of Transfer and the Standard Form of Transfer all bear an acknowledgement of receipt of the original document written in Chinese dated 29 June 2011 and signed by Mr Chan.

13. The plaintiff denied being the nominee or vehicle corporate of Mr Ho in advancing the loan or that the loan was in fact provided by Mr Ho. In her affirmation in reply to the defendant’s affirmation, the plaintiff’s director, Ms Chan Wai Mee May, exhibited bank statements to show that the money for the loan came from the deposit of a company called City Friend Development Limited. She also exhibited company annual returns to show that the shareholders of the plaintiff and City Friend Development Limited are unrelated to Mr Ho. Ms Chan further explained that it was because the defendant required the loan urgently that the plaintiff executed the Loan Agreement and made the advancement even though Mr Ho had not provided the post-dated cheques or pledged the shares in CIL. Ms Chan also said that as the plaintiff did not want to incur further costs, no legal proceedings had been brought against Mr Ho.

The Judge’s judgment 

14. Before the Judge, the defendant resisted the summary judgment application on two bases.[5] First, it was said that there was a triable issue as to whether the loan had been settled between the defendant and Mr Ho. Second, it was argued that the loan transaction may well not be what it appeared on paper and there existed the suspicion of a sham, hence a reason for the action to proceed to trial.

15. The Judge did not accept that the circumstances indicated that the plaintiff’s case was a sham. He considered the defence basically amounted to not much more than a simple denial of the claim.[6] The Judge had regard to the fact that it was a loan of a substantial amount, yet there was no documentary evidence to support the alleged repayment.[7] The Judge further noted there was nothing in the documents adduced by the defendant to link the transactions stated in them to the subject matter of the claim or to show that there had been a full and final settlement of the loan by a transfer of the shares.[8] The Judge therefore entered summary judgment for the plaintiff as claimed with costs.

Reasons for judgment of the appeal

16. On appeal, Mr Wong who appeared for the defendant did not seek to argue that the defendant has made out a triable issue. The thrust of his complaint was that the Judge ought to have applied the principles in Miles v. Bull [1969] 1 QB 258 and granted leave to defend on the basis that the suspicious circumstances surrounding the transaction constitute some other reason for trial. 

17. Under Order 14 rule 3(1), there will be leave to defend if the defendant satisfies the court that “there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial”.  On the latter ground, Megarry J observed in Miles v. Bull (at 265G-266D):

“These last words seem to me to be very wide. They also seem to me to have special significance where, as here, most or all of the relevant facts are under the control of the plaintiff, and the defendant would have to seek to elicit by discovery, interrogatories and cross-examination those which will aid her. If the defendant cannot point to a specific issue which ought to be tried but nevertheless satisfies the court that there are circumstances that ought to be investigated, then I think that those concluding words are invoked. There are cases when the plaintiff ought to be put to strict proof of his claim, and exposed to the full investigation possible at a trial; and in such cases it would, in my judgment, be wrong to enter summary judgment for the plaintiff. … If I may adapt the language of Lord Parker of Waddington in Daimler Company Ltd v. Continental Tyre & Rubber Co (Great Britain) Ltd referred to in the notes to Order 14 in the Supreme Court Practice, 1967, p.122, if the circumstances of the case are ‘such as to require close investigation,’ this will ‘preclude the propriety of giving leave to sign judgment under Order 14 r.1.’ The question is thus whether this is such a case.”

18. The circumstances that Mr Wong argued are suspicious and ought to be investigated turn on the fact that the loan was advanced notwithstanding that Mr Ho had not provided the securities required under the Loan Agreement. It was said that the Loan Agreement was professionally drafted and contained specific provisions on the purpose of the loan and the securities to be furnished by Mr Ho.

19. In our view, in order that the court is satisfied that there is some other reason justifying a trial, the circumstances said to require investigation must be relevant to the issue in dispute.

20. On the undisputed facts of this case, the defendant had received HK$30 million from the plaintiff by way of a loan on the same date the Loan Agreement was executed. The core issue in dispute is whether this loan has been repaid and in the manner asserted by the defendant. Whether the plaintiff lent the money as the nominee or corporate vehicle of Mr Ho is not material to the outcome of the case.

21. The matters which are said to be suspicious relate to the question whether Mr Ho was genuinely a guarantor to the Loan Agreement or whether the guarantee was, as the defendant claimed, a sham. What the defendant seeks to investigate only relates to the peripheral issue of whether the plaintiff was Mr Ho’s nominee or corporate vehicle in advancing the loan to the defendant. The answer to this issue will not resolve the core dispute of whether the loan had been settled in the manner claimed by the defendant.

22. Mr Wong argued that if the case proceeded to trial and Mr Ho was called to testify, he could be asked questions on the Settlement Agreement and the discharge of the loan. This argument, however, overlooks the fact that on the materials now before the court, apart from the defendant’s bare assertion, there is nothing to support the existence of the Settlement Agreement and the discharge of the loan. As the Judge had observed, HK$30 million is a substantial sum of money. The defendant is an experienced businessman, being the chairman of a publicly listed company. It is extraordinary that he did not obtain from Mr Ho and/or the plaintiff a written receipt or acknowledgement of the settlement of the loan. We note, too, that the defendant had not given any explanation for this.

23. Furthermore, the Chinese Document, the receipt endorsed on the copy of the share certificate, and the writings on the copies of the Sold and Bought Notes, the Instrument of Transfer and the Standard Form of Transfer do not bear out the defence case that the loan had been settled in the way asserted by the defendant for a number of reasons.

24. First, they relate only to 20,000,000, not 40,000,000 shares, in CIL. Second, the shares were held in the name of Lee Bing Kwong and not in the defendant’s name, and there is no explanation from the defendant on the relationship between Mr Lee and him, if any. Third, the documents merely show that Mr Chan had, on the defendant’s instruction and on his behalf, collected the share certificate and the transfer documents from the defendant’s solicitors. They do not indicate the purpose for which the documents were collected.  Fourth and importantly, too, they do not show that Mr Chan was acting on behalf of or as nominee of Mr Ho or that he was collecting the documents for onward transmission to Mr Ho.

25. In an O.14 application, the defendant is required to satisfy the court that his case and his defence are credible. He is not absolved from that duty even though he is relying on the “some other reason for trial” ground. We do not read Miles v. Bull as suggesting this.

26. The documents produced by the defendant do not provide support to the defence that the loan had been settled. Their contents and the fact that there was no receipt or document evidencing the settlement of the loan cast serious doubts on the credibility of the defence. The defendant has simply not demonstrated that the circumstances of the case are such as to require close investigation and that it should proceed to the trial. The Judge was correct to conclude that the plaintiff is entitled to summary judgment.

27. For these reasons, we dismissed the defendant’s appeal with costs to the plaintiff, to be taxed if not agreed.