AMUSE PEACE LTD v. CHINA CITY CONSTRUCTION (INTERNATIONAL) CO. LTD

HCA 2913/2016

[2018] HKCFI 1644

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2913 OF 2016

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(by original action)

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(by counterclaim)

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J U D G M E N T

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Background

1.  This is the application made by the Plaintiff (“Amuse”) for summary judgment to be entered against the Defendant (“CCC International”). The claim made in the Amended Statement of Claim (“SOC”) is for repayment of a loan of HK$540 million (“Loan”). According to the SOC, there was a written agreement dated 17 June 2016, under which Amuse lent the sum of HK$450 million to CCC International for a period of 3 months, at an interest rate of 1.5% per month, which loan was due on 16 September 2016. Thereafter, on 19 June 2016, the parties entered into a “supplemental agreement”, under which the principal sum of the loan of HK$450 million was increased by HK$90 million to HK$540 million, while the interest rate and the repayment date remained unchanged.

2.  According to the SOC, on 17 June 2016, the sum of HK$450 million was transferred by Amuse to the bank account of CCC International in Hong Kong, whilst a further sum of $90 million was transferred on 20 June 2016.

3.  The SOC pleads that on 17 June 2016, CCC International delivered to Amuse a postdated cheque dated 16 September 2016, in the sum of HK$470,250,000 (“Cheque”), which sum represents the principal sum of HK$450 million and interest for 3 months in the sum of HK$20,250,000, for partial repayment of the Loan. Upon presentation, the Cheque was dishonoured.

4.  Amuse claims against CCC International in the action the sum of HK$470,250,000 under the Cheque; further or alternatively, the Loan of HK$540 million, HK$40,500,000 representing interest at 1.5% for 5 months from the date of the Cheque of 17 June 2016 to the date of the Writ, and further interest until payment.

5.  A Defence was filed by CCC International on 8 February 2017 (“Defence”), whereby a myriad of facts and transactions were introduced, on the basis of which a Counterclaim was made against Amuse and 9 other parties. The facts of the Defence and Counterclaim are substantially a reproduction of the facts which are the subject matter of HCA 2814/2016 (“HCA 2814”), and other related proceedings. The relevant material facts which are common to HCA 2814 and these proceedings are summarized in paragraph 20 of the Judgment handed down by B Chu J on 6 November 2017 in HCA 2814 (“2814 Judgment”), which will not be repeated here in full.

6.  In essence, and as pleaded in the Defence, CCC International claims that the Loan was in fact part of a larger and complicated web of transactions, and that CCC International had in fact agreed (“Security Agreement”) to provide to Amuse shares in a company known as CCCC Financial Limited (“CCCC Financial”), as security for the Loan (paragraph 21 of the Defence). Pursuant to the Security Agreement, the shares in CCCC Financial (“Financial Shares”) were transferred to Amuse’s alleged nominees, CHNC Investment Co Ltd (“CHNC”) and Sincere Wealthy Investment Group Limited (“Sincere”) (which were said to be parties acting in concert with Amuse), on the basis that a charge over the Financial Shares would be created in favor of Amuse (paragraphs 5, 21 and 22 of the Defence). CCC International further claims (in paragraph 27 of the Defence) that it was also coerced into transferring to Amuse’s nominee, under duress, further shares it owned in the Bank of Zhengzhou Company Limited (“ZZ Bank Shares”), as additional security for repayment of the Loan (“Additional Securities Agreement”).

7.  CCC International claims that Amuse acted in breach of the Security Agreement and the Additional Securities Agreement, by permitting CHNC and Sincere to misappropriate the Financial Shares and the ZZ Bank Shares (together referred to as “the Security”) to their own use, by assuming control over CCCC Financial, by refusing to transfer the Security back to CCC International, and by dissipating the ZZ Bank Shares. It is alleged that the value of the Security far exceeded the amount of the Loan, and that CCC International is entitled to set-off against the outstanding Loan the loss and damage it has sustained as a result of Amuse’s breach of the Security Agreement. It claims that Amuse had repudiated the loan agreement and the Security Agreement, which repudiation it accepts, and further, that the Additional Securities Agreement is liable to be rescinded on the ground of duress.

8.  By reason of the matters raised in the Defence, it was argued on behalf of CCC International that Amuse has failed to establish a good, verified claim on the face of the SOC, and that there is at least a triable issue that the Loan is secured by assets provided by CCC International, that Amuse has tampered with and destroyed the value of the Security, and that as a matter of law, CCC International has a defence to the claims made by Amuse in respect of the Loan and under the Cheque.

9.  On behalf of Amuse, it was argued that CCC International has no credible defence, and that summary judgment should be entered against it.

Applicable legal principles and issues in dispute

10.  The principles applicable to an application for summary judgment are well established. The policy of Order 14 is to prevent delay in cases where there is no defence, and once the court concludes that there is no triable issue, and there is no other reason for trial, it will ordinarily give judgment for the plaintiff (European Asian Bank Att-Gen v Punjab and Sind Bank (No 2) [1983] 1 WLR 642 at 654). The defendant must show that there are triable issues, that he has a real or bona fide defence, or a fair probability or reasonable grounds that a bona fide defence exists. If a defendant makes an allegation, it must be credible or believable in the light of the evidence placed before the court (paragraph 14/4/9 Hong Kong Civil Procedure 2018). Significantly, the defendant’s affidavit must condescend upon particulars, and state clearly and concisely what the defence is, and what facts are relied on to support it (paragraph 14/4/4 Hong Kong Civil Procedure 2018).

11.  On behalf of CCC International, it was emphasized that the court must first examine the plaintiff’s claim, and be satisfied that it is entitled to summary judgment on the face of the SOC. In this respect, I am satisfied that Amuse has established a prima facie and sustainable case for repayment of the Loan and for payment under the Cheque.

12.  As has been highlighted by Leading Counsel for Amuse, it is material that the Defence does not dispute: (1) the fact of the Loan having been agreed in June 2016 (CCC International’s case being that the Loan was agreed at the Shenzhen Meeting held in early June 2016); (2) the receipt of the Loan from Amuse, which was advanced on 17 June 2016 and 20 June 2016; and (3) CCC International’s issue of the Cheque in favor of Amuse. The Defence admits (in paragraphs 19 and 26) that whereas the agreement was originally for the advance of a loan of HK$650 million, it was subsequently reduced to HK$540 million only, which was the sum actually advanced and received.

13.  Neither the Defence nor the affirmations filed in opposition to the application for summary judgment raise any issue as to the rate of interest agreed with respect to the Loan, or the date due for payment, being September 2016.

14.  Nor is there any issue raised, that the Loan was not repaid, and that the Cheque was dishonoured.

15.  There is no merit in the point made by CCC International, that on the evidence, the 2^nd Proof of Loan dated 19 June 2016 (“2^nd Proof”) relied upon by Amuse cannot be said to be a “supplemental agreement” as pleaded, as the 2^nd Proof was identical to the 1^st Proof of Loan dated 17 June 2016, save for the increased loan amount. The 2^nd Proof states that the sum of HK$450 million had already been received on 17 June 2016, and to that extent can be said to be supplementary. No issue turns on the error of HK$650 million in the 2^nd Proof. Zhang Xiaodong (“Zhang”) of Amuse has verified the fact of the Loan of HK$540 million, the issue of the Cheque for HK$470,250,000, the dishonor of the cheque, and the default in payment of the Loan. On the face of the SOC and the verifying affirmation of Zhang, Amuse has raised a plausible and prima facie sustainable case.

16.  The only issues raised by CCC International are whether there was an agreement made with Amuse for the Financial Shares to be provided and transferred to Amuse as security for payment of the Loan, whether the Additional Securities Agreement was made with Amuse under duress, or at all, and the alleged breach of the Security Agreement by Amuse.

Whether triable issues or bona fide defence raised

17.  I accept the submissions made on behalf of Amuse, that CCC International has failed to raise any credible assertions of facts which may arguably raise a good and bona fide defence or triable issues, such that summary judgment should be denied.

18.  First, it is for CCC International to condescend to particulars, and state clearly and concisely what facts are relied on to support its alleged defence. As succinctly stated in the oft cited judgment of Megarry VC in Lady Anne Tennant v Associated Newspapers Group Ltd [1979] FSR 298:

“A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism.”

19.  Despite all the references to the obscure and allegedly complex transactions and arrangements between the different protagonists and camps, CCC International has failed to particularize and substantiate the precise allegations which are made against Amuse in order to support the Defence. There are only broad sweeping assertions that Amuse had agreed to the arrangements and acts of third parties, and that Amuse was in breach of the alleged agreements made: but without any particulars as to who had acted on behalf of Amuse, and how Amuse had participated in the alleged acts of breach, duress, procurement, or misappropriation. There is only the bare, unsubstantiated assertion in paragraph 5 of the Defence, that Amuse had “acted in concert” with CHNC and Sincere.

20.  In particular, the arrangements and agreements alleged to have been made at the Shenzhen Meeting, as to the manner of advance of the loans referred to as the “RMB Loan” and the Loan, were not alleged to have been made with Amuse or in the presence of any representative of Amuse. Although it is claimed that the Loan from Amuse was “arranged” by one Zhong MW (“Zhong”), it is not claimed that Zhong acted for or was authorized to represent Amuse, and it has not been explained how Zhong’s agreement can bind Amuse. Whilst it is claimed in paragraph 21 of the Defence that the Financial Shares were “required by Amuse” as security, no particulars of such “requirement” were ever pleaded, and it has not been explained in the evidence filed on behalf of CCC International, as to how the Financial Shares were required by Amuse, by whom of Amuse they were so required, to whom such requirement was expressed, the terms of the Security Agreement required by Amuse, etc.

21.  The alleged defence and counterclaim, on the basis of Amuse’s breach of the Security Agreement, is pleaded in paragraphs 30 and 38 of the Defence. Paragraph 30 only makes the assertion that Amuse had breached the Security Agreement “by permitting the security to be converted/misappropriated by CHNC and Sincere”. Paragraph 38 claims that Amuse was in breach “by reason of CHNC and (Sincere)’s having misappropriated/converted” the Financial Shares to their own use. No particulars have ever been given (in either the Defence or the affirmations filed in opposition to the O14 application) as to how and by whom Amuse had acted, in permitting or authorizing CHNC and Sincere to convert or misappropriate the Financial Shares. The lack of these essential particulars is particularly obvious and require explanation, since it is alleged (in paragraph 30 of the Defence) that the taking over of the control of Financial had been on the instructions of Zhong, and other individuals named as Chong Wing Kin and Chan Kwan Chai, whose relationship with Amuse is not apparent.

22.  The allegations made by Yuan Qing (“YQ”) of CCC International, of his having been forced, or duressed, into providing guarantees for the RMB Loan, and entering into the Additional Securities Agreement with Amuse, are also totally unparticularized as to Amuse’s involvement.

23.  Last but not least, I accept the submissions made on behalf of Amuse, that the allegations made by CCC International: (1) as to the transfers of the Financial Shares made on 17 June 2016 (“17/6/16 Transfers”), and which are the subject matter of the alleged Security Agreement; and (2) that the Additional Securities Agreement had been made with Amuse under duress; have been shown to be totally unbelievable, by virtue of the findings and observations made by the Court in the 2814 Judgment. In the 2814 Judgment, the learned judge pointed out that on the evidence adduced in HCA 2814, YQ himself had by emails instructed the solicitors of Financial to prepare the documents for the 17/6/16 Transfers to CHNC and Sincere, with no mention to the solicitors that the 17/6/16 Transfers were on the basis of a share charge in favor of Amuse, or as security for the Loan. Further, YQ himself had filed affirmations in HCA 2814, to depose that the 17/6/16 Transfers had nothing to do with the security for the Loan, but were to reflect the share structure after the acquisition intended to be made by Baoneng and then Power Universal as purchasers of the shares in China City Construction Holding Group Company. In the 2814 Judgment, the learned judge had no hesitation in finding that the 17/6/16 Transfers had nothing to do with the Loan, and that the claim made, that the Financial Shares were security for the Loan, was clearly inconsistent with the evidence adduced by YQ - the same person who has filed evidence on behalf of CCC International and made the same assertions against Amuse in this action.

24.  Leading Counsel for Amuse has also pointed out the significant fact that CCC International’s claim and reliance placed on, firstly, the 17/6/16 Transfers under the alleged Security Agreement, and secondly, the alleged misappropriation of the Financial Shares, only make sense if Sincere and CHNC were in Amuse’s camp, or were controlled by Amuse, at the time of the Loan and the 17/6/16 Transfers. If CHNC and Sincere were not related to Amuse, Amuse could not have been secured by the alleged transfers of the Financial Shares to CHNC and Sincere.

25.  However, on the case and evidence presented by CCC International in HCA 2814, at the time of the Loan and the 17/6/16 Transfers, CHNC was in fact controlled by CCC International and its camp. The instruments of transfer and contract notes for the Financial Shares transferred on 17 June 2016 were signed by YQ himself, on behalf of CHNC. On YQ’s own evidence in HCA 2814, CHNC was said to be related to and controlled by the parties in CCC International’s camp, including one Wei LD (“WLD”) and the Huinong Fund, which was at all material times the owner of 100% of the shares of CCC International, held through its subsidiaries. The Defence of CCC International in this case pleads (in paragraph 6 (1)) that WLD represented CCC International’s camp in the Shenzhen Meeting, and in paragraph 12 of Zhong’s affirmation filed in opposition to the application for summary judgment, Zhong explained that he had at the material time been assisting WLD to find white knights for the CCC Group. Against this background, the claim that the Financial Shares were transferred to and held by CHNC as security for Amuse is inherently improbable.  On the same basis, the allegation that Amuse was in breach of the Security Agreement because CHNC had misappropriated the Financial Shares rings hollow.

26.  In his affirmation made in these proceedings on 8 January 2018, YQ put forward yet another version of events to explain the transfer of 22% of the Financial Shares to CHNC, as being “in recognition of Huinong Fund’s non-monetary contribution to the CCCC group of companies”.

27.  In short, therefore, the claims against Amuse which are made by YQ on behalf of CCC International have been shown to be constantly evolving, and are rife with inconsistencies and contradictions, such that they are totally unreliable, and unbelievable. They amount to no more than attempts to distract from and obscure the straightforward claims made by Amuse in these proceedings.

28.  It is not disputed that the Loan was advanced, and was not repaid. The assertion of the Security Agreement is rejected as unbelievable. There is no defence to the claim made under the Cheque, on the alleged basis of total failure of consideration. The cases relied upon by Leading Counsel for CCC International are totally distinguishable and are inapplicable to the facts of the present case. In Tan Khay Chuen v Ko Ping Shun Benson CACV 238/2015, 8 July 2016, the consideration relied upon to support the claim under the cheque issued to the 2^nd plaintiff was the guarantee, and there was a genuine triable issue as to whether the guarantee issued by the defendant to the 1^st plaintiff had been discharged. In Lomax Leisure Ltd (in liq) v Miller [2007] EWHC 2508 (Ch), the court held, on the peculiar facts of the case, that there was no consideration for the cheques issued for dividends, since there was no antecedent debt, or liability of the liquidators sued, to be absolved. In our present case, the consideration for the Cheque is clearly the Loan, and there is no dispute that the Loan was advanced by Amuse, received by CCC International, and remains unpaid.

29.  Whether the evidence of Zhang - that he did not know Zhong nor the wider transactions involving the RMB Loan - is in fact believable, is not in my view material to the consideration of whether CCC International has shown a bona fide defence, when the nature of the claims made in the SOC and the disputed issues raised in the Defence are borne in mind.

Orders

30.  For all the above reasons, summary judgment should be entered in favor of Amuse, for the outstanding Loan of HK$540 million, interest thereon at 1.5% per month from 17 June 2016 to the date of judgment, and further interest from the date of judgment, at judgment rate, until payment, together with the costs of the action (including the costs of and incidental to the application for summary judgment), to be taxed if not agreed, with certificate for two Counsel.