XCHRX XIN NAN (HK) TRADING DEVELOPMENT LTD. v. HO HUNG and Others

1997, No.A10685

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. The Plaintiff applied pursuant to O. 86 to enforce the agreement embodied in a deed dated 7 September 1997 entered into between the Plaintiff and the 1st and 2nd Defendants. In particular, the Plaintiff applied for an order that the 1st Defendant do forthwith deliver all the share certificates of the shares in the 2nd Defendant to the Plaintiff and that the 1st and 2nd Defendants do co-operate with the Plaintiff to place the control of 770,469,230 SeaUnion shares (a listed company in Hong Kong) in the hands of the Plaintiff together with other injunction orders and declaration.

2. The background to this case is that one Xiao Hui Rong ("Xiao") of the Plaintiff had, on behalf of the Plaintiff, advanced $83 million to the 1st and the 2nd Defendants for the purchase of the aforesaid SeaUnion shares in about December 1996. This loan was unsecured and there was no documentation. According to one Mr Zhou Yu Ning ("Zhou"), described by Xiao as his close friend, and also a director of the Plaintiff, Xiao was keen to remit funds pursuant to the oral agreement in October 1996 without any discussion on the terms of the loan. Xiao remained undecided about the nature of the financing until May 1997 when he finally requested to treat the financing as a loan with interest.

3. Apparently by September 1997, the parties agreed that the advancement was a loan and together with interests, the amount by then was $100 million.

4. Between 1 September 1997 to 6 September 1997 various meetings took place between Xiao and the 1st Defendant in Shanghai and Hong Kong in respect of the aforesaid loan. Various amendments were proposed and discussed. The last discussion took place in the evening of 6 September 1997 and the 1st Defendant eventually signed on the Deed in the early hour of 7 September 1997.

5. The Defences of the Defendants and the evidence adduced are to the following effects:

(1) by reason of the assurance and pleas of Xiao, director of the Plaintiff, both parties did not intend the purported Deed to be legally binding;

(2) the purported Deed was vitiated since it was induced by Xiao's misrepresentations and by his overbearing manner amounting to duress.

6. The Defendants filed and served five affirmations of five witnesses including the 1st Defendant and the aforesaid Zhou. They affirmed to the effect that :-

(1) All the witnesses present at the meetings of 6 and 7 September 1997 confirmed that the 1st Defendant repeatedly refused to sign the Deed. Xiao desperately pleaded with the 1st Defendant for her to sign the purported Deed in the middle of the night urgently so that he could deliver the same on the next morning to his superior in the Shanghai Government.

(2) Xiao said there was no time to make any amendments. He assured the 1st Defendant that the purported Deed was not intended to have any legal effect and could be amended at any time at Ho's request.

(3) Xiao pleaded to the 1st Defendant by saying he feared for his life if he could not explain and account for the funds he provided to the 2nd Defendant.

(4) The 1st Defendant was finally prevailed upon by Xiao to sign in the aforesaid circumstances by relying on Xiao representations.

7. Xiao did not reply to all the aforesaid allegations. He was actually arrested and has been detained by the PRC Shanghai prosecution office for offences relating to bribery and abuse of authority as a government official since 11 December 1997.

8. In an application for summary judgment, the following well established principles apply:

(1) in an application under O. 86 it is not a proper cause for the Court to embark on a mini-trial of the action on affidavit evidence.

(per Godfrey, J.A. in Ng Shou Chun v. Hung Chun Sau [1994] 1 HKC 155, p.158e to 159c);

(2) the test is whether the defence assertions are believable and not whether they are to be believed.

(per Godfrey, J.A. in Ng Shou Chun's case, supra, and National Westminster Bank plc. v. Daniel and Others [1993] 1 WLR 1453, p.1456d - p.1457f, per Glidewell LJ).

9. Having read the affirmations filed by the Defence, I cannot say the 1st Defendant's version of the circumstances under which the purported Deed was executed by Xiao and the 1st Defendant on 7 September 1997 is incredible. I would not go into detail in my analysis in order not to prejudice the trial. If the circumstances are believable, the Defences raised are, in my view, sustainable in law and unconditional leave to defend should be given in this case.

10. I would also like to mention that the case of Combined Rich Company Limited v. Sim Kok Keng (unreported) CA No.159/1997, 27 November 1997, is distinguishable. Here in the case before me, there is a plea of misrepresentation which amounted to fraudulent misrepresentation in the circumstances of the case and therefore there are pleas of fraud and misrepresentation. Further, Mr Xiao did not say who was his superior apart from saying his superior in the Shanghai Government. In other words he did not say it was his superior in the Plaintiff company.

11. The Plaintiff asked for the Plaintiff's summons to be dismissed with costs instead of granting the Defendants unconditional leave to defend on the ground that the Defence was filed before the summons was taken out and the BVI proceedings taken out by the 2nd Defendant against the Plaintiff had stated the circumstances of signing of the said Deed before this summons.

12. However, in my view, all those affirmations of the Defence were filed just shortly before the hearing between 12 and 14 January 1998. Accordingly in my view the proper order for costs should be costs in the cause which would not deprive the Defendants from having their costs should they succeed at the trial. Should they fail to succeed at the trial, it will be unjust in my view to allow the Defendants to have their costs of the summons.