CHAN YU YAN v. IMPERIAL SIERRA GROUP LIMITED HOLDINGS AND ANOTHER

HCA 2048/2019

[2021] HKCFI 429

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2048 OF 2019

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REASONS FOR DECISION

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1.  The matter before the court was an appeal brought by the defendants against the decision of the Master allowing the application by the plaintiff for summary judgement. After hearing counsel for the parties, I dismissed the appeal and made a summary assessment of costs in favour of the plaintiff. I indicated that reasons for my decision would be given.

2.  The plaintiff’s claim is based upon a Subscription Agreement dated 3 February 2017 made between the plaintiff, 1^st defendant, and the 2^nd defendant as guarantor. By that Subscription Agreement the 1^st defendant was to issue convertible bonds (“the Bond”) in the principal amount of HK$5 million to which the plaintiff subscribed. The 2^nd defendant, in his role as guarantor, secured the performance of the 1^st defendant.

3.  The plaintiff’s claim is based upon a Subscription Agreement dated 3 February 2017 made between the plaintiff, 1^st defendant, and the 2^nd defendant as guarantor.  By that Subscription Agreement the 1^st defendant was to issue convertible bonds (“the Bond”) in the principal amount of HK$5 million to which the plaintiff subscribed.  The 2^nd defendant, in his role as guarantor, secured the performance of the 1^st defendant.

4.  In breach, the plaintiff says, the first defendant defaulted in payment on the (extended) maturity date, at which time, including the accrued contractual interest, the outstanding amount due was HK$6,232,876.71.

5.  None of the above facts are disputed by the defendants.  What is relied on by way of defence is that the Subscription Agreement and the Bond was issued as part of a wider transaction relating to the proposed listing of the 1^st defendant on the stock exchange.  The Bond was issued to raise money for the proposed listing and, it is said, as an incentive to the Sponsor of the proposed listing.  The said Sponsor was one Zhaobangji International Capital Ltd, and it is the defendants case that the plaintiff was merely a nominee for the Sponsor.

6.  The defendants contend further that there was an underlying agreement between the defendants and the Sponsor to the effect that the plaintiff, qua nominee, would not be entitled to redeem the Bond in the event that no listing took place.  In the alternative it is contended that the plaintiff is estopped from bringing his claim.

7.  The defendants submit that this line of defence raises issues which are, at the least, triable, requiring the matter to go to a hearing, and being therefore not susceptible to summary determination.  The role of the Sponsor in the proposed listing is not in dispute, and the plaintiff’s evidence in response to the suggestion that he was acting solely as a nominee is said to be no more than a bare denial.

8.  Some explanation for this is offered by the plaintiff in submissions.  The plaintiff had commenced a previous action in 2018 seeking the same relief as in the present action, but in that earlier action the only defence advanced by the defendants was that it was brought prematurely because, it was said, there had been a further oral extension agreed to the maturity date which had been disregarded by the plaintiff in commencing the earlier action. The plaintiff does not accept that but says that, rather than become engaged in unnecessary dispute, it discontinued that earlier action and commenced the present action after that alleged extension period had expired.

9.  The allegations as to the plaintiff’s position as a nominee and the oral agreements with the Sponsor are said therefore to be “an entirely new case”.  This is said to be noteworthy in particular because the defendants were legally represented throughout.

10.  Moreover, it is submitted by the plaintiff, the second defendant has given evidence previously that the plaintiff was not a nominee of the Sponsor, but rather a nominee of other investors.

11.  The central issue in the defence therefore is whether the role of the plaintiff was as principal or as nominee for others and, if the latter, whether having taken on the role precludes him from bringing a claim under the Subscription Agreement.

12.  In terms of the Subscription Agreement there is no question about the plaintiff’s entitlement. Moreover, that subscription agreement contains an entire agreement clause, constituting a contractual agreement between the parties to that Subscription Agreement to the effect that the full contractual terms are to be found in that document.  The defendants contend that an oral collateral agreement may constitute an exception to the entire agreement clause, and for present purposes I accept that in appropriate circumstances that may be the case.

13.  However, in order to merit such an issue going forward to trial, it would be necessary in my view for sufficient evidence to be made available as to the existence of that oral collateral contract, and in particular as to its effect and impact on the plaintiff’s title to sue in the present circumstances.  This is especially important if there is a lack of clarity as to who the plaintiff may have been a nominee for.  No such evidence has been adduced.  There is no written evidence supportive of the oral agreement and, as submitted by the plaintiff, it was not raised at any earlier point in the litigation.  No particulars are given as to when the agreement is said to have been made, nor indeed how the plaintiff was bound by it.  It is contradicted by the plaintiff’s evidence.

14.  Moreover, and again as pointed out by the plaintiff, the 2^nd defendant is not alleged to be a party to the oral agreement and, therefore, he would not be either bound by it or entitled to benefit from it.

15.  It is clear law that a defendant bears an evidential burden to show a triable issue or a bona fide prospective defence.  In my judgment, in the present case, the defendants have failed to rise above the level of mere assertion as to the proposed defence.

16.  In my judgment this is of particular significance given that the Subscription Agreement contains an entire agreement clause, and the collateral agreement alleged was such as to negate entirely the plaintiff’s express entitlements under the Subscription Agreement.

17.  For completeness, I record that I was far from persuaded that any issue of waiver or estoppel such as was proposed by counsel for the defendants arose in this case.  This was not clearly enunciated and the central elements, such as a representation made by the plaintiff, or detriment on the part of the defendants were absent.

18.  For those reasons, I was not persuaded that there was a bone fide defence shown or any issue which merited a trial of the action and, therefore, I dismissed the defendant’s appeal.