CHINA CINDA (HK) ASSET MANAGEMENT CO., LTD v. LINCA INDUSTRY (HONG KONG) HOLDINGS CO LTD

HCA 1428/2018

[2019] HKCFI 2565

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1428 OF 2018

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REASONS FOR DECISION

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1.  This is an appeal against the orders of Master Vincent Lung dated 15 April 2019 (“the Master’s Orders”) whereby the 2^nd  defendant was granted unconditional leave to defend whilst summary judgment was granted in favour of the plaintiff against the 1^st  defendant.

2.  Both the plaintiff and the 1^st  defendant appealed against the Master’s Orders.  Before the hearing, the 1^st  defendant filed a Notice of Discontinuance.  There is no objection from the plaintiff. Accordingly, I made the following orders:

(1)  Leave be granted to the 1^st  defendant to discontinue its appeal against the Orders of Master Vincent Lung of the Court of First Instance, High Court, Hong Kong dated 15 April 2019;

(2)  Costs of and occasioned by the appeal be paid by the 1^st  defendant to the plaintiff on an indemnity basis, to be taxed, if not agreed.

3.  So what remained to be decided by this Court is the plaintiff’s appeal against the Master’s decision to grant unconditional leave to defend to the 2^nd  defendant.  At the end of the hearing, I allowed the plaintiff’s appeal and granted summary judgment against the 2^nd  defendant. I now give my reasons.

Background

4.  This is a very simple and straightforward case.

5.  The plaintiff’s claim against the 1^st  defendant is for specific performance of a put and call option deed dated 1 March 2017 (the “Option Deed”) entered between the plaintiff and the 1^st  defendant pursuant to a put option exercise notice issued by the plaintiff to the 1^st  defendant on 19 October 2017 (the “Put Option Exercise Notice”).

6.  The plaintiff’s claim against the 2^nd  defendant is for payment of the sum of HK$800,000,000 (the “Put Option Consideration”) pursuant to a personal guarantee dated 1 March 2017 signed and executed by both the plaintiff and the 2^nd  defendant qua guarantor (the “Personal Guarantee”).

7.  On 2 December 2016, the plaintiff and Guoyan Capital (Hong Kong) Limited (the “Placing Agent”), placing agent for International Business Settlement Holdings Limited (the “Listco”), signed a placing confirmation letter, pursuant to which the plaintiff agreed to subscribe for 640,000,000 ordinary shares at HK$1.25 each in the Listco (the “Placing Shares”).

8.  The plaintiff authorized two of its British Virgin Islands companies, both wholly owned by the plaintiff, to hold 554,000,000 and 96,000,000 of the Placing Shares respectively.

9.  Under the Option Deed:

(1)  The 1^st  defendant granted the plaintiff a put option to which the plaintiff may require the 1^st  defendant to purchase all of the shares in the first BVI company or both BVI companies (Clause 4.1 and Schedule 2).

(2)  The plaintiff granted the 1^st  defendant a call option pursuant to which the 1^st  defendant may require the plaintiff to sell all the shares in the first BVI company (Clauses 4.2, 4.3 and Schedule 4).

10.  On 14 July 2017, the plaintiff issued a margin call notice to the 1^st  defendant stating that (a) a margin call event has occurred; (b) the margin cash in the amount of HK$844,800,000 (the “Outstanding Margin Cash”) is immediately due and payable by the 1^st  defendant; (c) the 1^st  defendant shall pay the Outstanding Margin Cash into the Margin Cash Account within five days; and (d) failure to make the requested payment would constitute an event of default.

11.  There is no dispute that the 1^st  defendant failed to pay the Outstanding Margin Cash as requested.  Thus, an event of default has occurred pursuant to Clauses 6.4, 8.4(a) and (b) of the Option Deed.

12.  On 19 October 2017, the plaintiff exercised the Put Option and issued the Put Option Exercise Notice to the 1^st  defendant pursuant to Clause 8 of the Option Deed.

13.  Under Clause 5 of the Option Deed, the 1^st  defendant is required to pay the plaintiff a call option fee (the “Call Option Fee”) computed and accruing on a daily basis at the rate of 8% per annum on the amount equal to HK$1.25 per share times the number of shares in the Listco indirectly held by the plaintiff from the date of the Option Deed to the specified completion date of the Put Option Exercise Notice, namely,25 October 2017.  The Call Option Fee of HK$9,468,493.16 is required to be paid on 25 October 2017.

14.  Under the Personal Guarantee:

(1)  The 2^nd  defendant irrevocably and unconditionally agreed to,inter alia, (a) guarantee to the plaintiff punctual performance by the 1^st  defendant of the Secured Liabilities (as defined in the Option Deed); and (b) be liable as principal debtor and primary obligor to indemnify the plaintiff against any cost,loss or liability it incurs as a result of the 1^st  defendant not paying any Secured Liabilities on the date it is stated to be due (Clause 2.1).

(2)  The amount specified in a demand made by the plaintiff as to the amount of any Secured Liabilities or the amount due from the 2^nd defendant under the Personal Guarantee shall be conclusive and binding on the 2^nd  defendant save for manifest error (Clause 2.2).

(3)  Any outstanding and unpaid amount owed by the 2^nd  defendant to the plaintiff shall bear interest at the agreed rate of 0.1% per annum from the due date until the date of payment (Clause 2.3).

15.  Notwithstanding a letter of demand dated 19 June 2018 issued by Messrs White & Case to the 1^st and 2^nd  defendants:

(1)  The 1^st  defendant has failed to acquire the shares of both BVI companies pursuant to the Put Option, and pay the Put Option Consideration and the Call Option Fee, in breach of the Option Deed.

(2)  The 2^nd  defendant has failed to pay the Put Option Consideration in breach of the Personal Guarantee.

16.  There is no dispute that the 2^nd  defendant is a very sophisticated and seasoned business man.  There is also no dispute that he signed the Personal Guarantee.

The 2^nd  defendant’s defence

17.  I am informed that before the Master, the 2^nd  defendant mainly relied on the defence of non est factum.  His case is that whilst he admits that he did sign a signature page on a document, he said that he does not understand English and he cannot be certain that the page he signed was indeed page 68 of the Personal Guarantee.

18.  I agree with Ms Lam for the plaintiff that such defence cannot even get off the ground. If the 2nd  defendant chose to sign a document in Russian, but chose not to understand its content before he signed it, then it is a matter entirely for him. He should, nonetheless, be bound by what he signed.  He had all the opportunities to understand the content of the document he was about to sign before he appended his signature on the document.

19.  In Saunders (Executrix of the Will of Rose Maud Gallie, Deceased) v Anglia Building Society [1971] AC 1004, Lord Hodson at p 1019B–C said:

“ The plea of non est factum requires clear and positive evidence before it can be established. As Donovan L.J. said, delivering the judgment of the Court of Appeal in Muskham Finance Ltd. v. Howard[1963] 1 Q.B. 904, 912: ‘The plea of non est factum is a plea which must necessarily be kept within narrow limits.’ To take an example, the man who in the course of his business signs a pile of documents without checking them takes the responsibility for them by appending his signature. It would be surprising if he was allowed to repudiate one of those documents on the ground of non est factum.”

20.  Lord Reid at p 1016D–G said:

“The plea cannot be available to anyone who was content to sign without taking the trouble to try to find out at least the general effect of the document. Many people do frequently sign documents put before them for signature by their solicitor or other trusted advisers without making any inquiry as to their purpose or effect. But the essence of the plea non est factum is that the person signing believed that the document he signed had one character or one effect whereas in fact its character or effect was quite different. He could not have such a belief unless he had taken steps or been given information which gave him some grounds for his belief. The amount of information he must have and the sufficiency of the particularity of his belief must depend on the circumstances of each case.

Further, the plea cannot be available to a person whose mistake was really a mistake as to the legal effect of the document,whether that was his own mistake or that of his adviser. That has always been the law and in this branch of the law at least I see no reason for any change.

We find in many of the authorities statements that a man’s deed is not his deed if his mind does not go with his pen. But that is far too wide. It would cover cases where the man had taken no precautions at all, and there was no ground for his belief that he was signing something different from that which in fact he signed. I think that it is the wrong approach to start from that wide statement and then whittle it down by excluding cases where the remedy will not be granted. It is for the person who seeks the remedy to show that he should have it.” (emphasis added)

21.  The defence of non est factum is only allowed in exceptional circumstances and when there are very cogent evidence in support of such plea.  There is a heavy burden of proof on the person who seek to invoke such a defence.  (See Re Leung Lai Hing Cindy HCB 6777/2015,unreported, 3 April 2017, at §12 per Ng J; Wan Chow Ki v Wan Chow Kan HCA 1490/2002, unreported, 16 January 2004, at §§10 – 12 per Lam J (as he then was).)

22.  Ms Cheung for the 2^nd  defendant sensibly did not put forward non est factum as the 2^nd  defendant’s primary defence.  Ms Cheung relied on three defences, namely, misrepresentation, mistake and non est factum with an emphasis on the plea of misrepresentation.

23.  The plea of misrepresentation is as follows:

(1)  Mr Chen Zhiwei (“Mr Chen”), the managing director of the plaintiff, represented to the 2^nd  defendant:

(a)  The plaintiff had already obtained security from a third party;

(b)  The plaintiff’s risk management policy required a Hong Kong resident to sign documents as a matter of formality;

(c)  Since the 2^nd  defendant did not have any personal interest in the transaction, he did not need to bear any personal liability.

(2)  The 2^nd  defendant considered that maintaining good relations with the plaintiff and its parent company may be helpful to the 2^nd defendant’s own business.  He was also willing to facilitate the transaction between the plaintiff and the 1^st  defendant out of his sentiment towards the 1^st  defendant.

(3)  The 2^nd  defendant only signed on signature pages (but he cannot be certain if those signature pages are the signature pages of the Personal Guarantee or the Warning Notice) and had not read the Personal Guarantee and the Warning Notice as he could not understand English.

Analysis

24.  Despite Ms Cheung’s very able submissions, I am of the firm view that the 2^nd  defendant’s pleas on misrepresentation, mistake and non est factum are all unbelievable and indeed fanciful.

25.  First, as mentioned above, the 2^nd  defendant is a sophisticated and seasoned business.  He was listed in Forbes China and described as experienced in business, having founded the Linca Group in 1992 and is regarded as a “capital market absolute big brother.”

26.  It is unbelievable that he would have relied on his counterparty, Mr Chen, to advise him on the content of contractual documents that he was asked to sign as a guarantor.  There is no evidence as to why the 2^nd  defendant would have placed any reliance on Mr Chen’s alleged representation.  The 2^nd  defendant must have his team of legal advisers and he clearly knew what he was signing.  Further, he would have no difficulties in getting his staff to translation the Personal Guarantee to him if he so required.

27.  Secondly, indeed he signed a warning notice (the “Warning Notice”) at the same time as he signed the Personal Guarantee.  The Warning Notice is in both Chinese and English.  There is no suggestion that the 2^nd  defendant cannot read Chinese.  The 2^nd  defendant was expressly defined as the “Guarantor” in the Warning Notice.  The Warning Notice contains, inter alia, the following material terms:

“2.  Before you sign the Guarantee which you have to sign if you go on with the transaction you should instruct a solicitor to protect your interests and to ensure that your rights and liabilities under the Guarantee are properly protected.

3.  YOU ARE RECOMMENDED TO INSTRUCT YOUR SOLICITORS [original emphasis] who will be able at every stage of the transaction to protect your interest and to give you independent legal advice.

...

5.  YOU ARE STRONGLY ADVISED to obtain financial information of [the 1^st  defendant] and engage you own financial advisor to give you advice on such information before signing and executing the Guarantee.

6.  Your liability under the Guarantee will be unlimited if you decide to go on with the transaction and sign and execute the Guarantee and accordingly become liable to pay all the actual and contingent liabilities of [the 1^st  defendant], whether now or in the future under the [Option Deed]. If you become liable for such liabilities, these liabilities will become payable on demand which means you will be required to pay them to [the plaintiff] immediately upon [the plaintiff] demanding you to make that payment.

7.  You also have the choice not to proceed with the transaction in connection with the [Option Deed].

8.  Please think carefully therefore before deciding whether to proceed with the transaction. You are free to choose whichever option you prefer.

I, [the 2^nd  defendant], acknowledge receipt a copy of this warning and fully understand the contents thereof.”

28.  I am of the view that this Warning Notice duly signed by the 2^nd  defendant materially destroys his pleas on misrepresentation, mistake and non est factum.  He was given clear and unequivocal notice that (a) he will be signing the Personal Guarantee; (b) his liability under the Personal Guarantee is unlimited; (c) signing the Personal Guarantee meant that he would be liable to pay all actual and contingent liabilities of the 1^st defendant and (d) he would have to discharge such liabilities immediately upon the plaintiff’s demand.  I am of the view that given the clear terms of the Warning Notice, there is simply no room for the 2^nd  defendant to suggest that somehow he was misled or had been mistaken or somehow misunderstood the terms of the Personal Guarantee that he admitted to have signed.

29.  Thirdly, it is hard to fathom as to why the plaintiff had to go through the trouble of instructing Messrs White & Case to prepare a sophisticated Personal Guarantee and then made the representation to the 2^nd  defendant that no legal effects would be given to the Personal Guarantee.  I find it unbelievable and does not make any common and commercial sense.

30.  Indeed, one of the conditions precedent of the Option Deed is the execution of the Personal Guarantee.  Under the Option Deed, the personal guarantor is specifically defined as the 2^nd defendant, a permanent resident of Hong Kong with a Hong Kong identity card.  Ms Lam for the plaintiff submitted that the alleged representation is in direct contradiction with the specific terms of both the Option Deed and the Personal Guarantee. I agree. 

31.  Fourthly, Ms Lam for the plaintiff submitted that it is not at all clear as to what kind of misrepresentation the 2^nd  defendant is relying on. If the 2^nd  defendant is pleading a case of fraudulent misrepresentation,then particulars of fraud have to be given.  However, there is only a bare allegation that Mr Chen represented to the 2^nd  defendant that his signing of the Personal Guarantee was a mere formality and he would not be personally liable for the same.  I also agree.

32.  Indeed, as a matter of fact, the 2^nd  defendant did provide his Hong Kong identity card information and address proof to the plaintiff and such information were inserted into the Option Deed and the Personal Guarantee before the 2^nd defendant executed the Personal Guarantee.  This is not consistent with the 2^nd defendant’s case that he was only asked to be present and signed the Personal Guarantee as a matter of formality.

33.  Fifthly, there is also considerable force in Ms Lam’s submission that putting the 2^nd  defendant’s case to its highest, the alleged representation was as to the legal effect of the Personal Guarantee and not a representation of facts.

34.  Sixthly, Ms Cheung for the 2^nd  defendant submitted that the signature pages signed do not contain page numbers and the Warning Notice was initialled by one Mr Lu instead of the 2^nd  defendant.  I am of the view that these observations are irrelevant.  First, it is perfectly probable that the signature page which has no content contains no page number.  The 2^nd  defendant has not disputed the authenticity of his signature.  He could have obtained a full copy of the Personal Guarantee if he wished.  The plaintiff’s case is that he had a full copy of the Personal Guarantee.  It is neither here nor there.  Secondly, there is no requirement that the Warning Notice must be initialled by the 2^nd  defendant.  He knew the full content and he signed on it.  That is all that matters.

35.  Seventhly, I agree with Ms Lam’s submission that despite the 2^nd  defendant’s attempts to distance himself from the Personal Guarantee and the Warning Notice, the 2^nd  defendant has never once made any positive assertion that he did not in fact see or read the other pages of the Personal Guarantee or the Warning Notice, or that the other pages were not attached to the Personal Guarantee or the Warning Notice when the 2^nd  defendant signed the signature pages.  It is well established that,on an application for summary judgment, the burden is on the  defendant to condescend on particulars so as to demonstrate that there is an arguable defence or a triable issue. I agree that the 2^nd  defendant has not discharged such burden.

36.  There is no evidence to dispute or challenge the fact that the 2^nd  defendant was provided with both the Personal Guarantee and the Warning Notice and that he had read the same before appending his signatures to them. I agree that this is fatal to the 2^nd  defendant’s case.

37.  Ms Lam for the plaintiff further submitted that taking the 2^nd  defendant’s case at its highest, even if he had only seen the two signature pages, he would have at least read the last sentence on the Warning Notice. That alone would have been sufficient to raise alarm bells for a sophisticated businessman.  Yet, the 2^nd  defendant chose to do nothing and admitted that he never raised any questions as to what he was signing at the material time.

38.  Eighthly, Ms Lam for the plaintiff submitted that it is plainly unbelievable that if what the 2^nd  defendant alleges bears any truth,he would not have promptly responded to the Demand Letter by raising his objections then.  (See Chekiang First Bank Ltd v Ng Chun Hing Benjamin HCA 3473/2000, unreported, 12 December 2001, at §21 per Ma J (as he then was).)  The first time the 2^nd  defendant raised the allegations was in his Defence which was filed on 1 October 2018, some three and a half months after the Demand Letter.

39.  Ninthly and finally, I agree with Ms Lam for the plaintiff that whether the 2^nd  defendant had any personal interest in signing the Personal Guarantee is irrelevant to the question of whether he should be held in law to be bound by the Personal Guarantee.  Ms Lam also referred this Court to the evidence that as recently as 13 March 2018, the 2^nd  defendant had held himself out to the public, and was referred to, as the chairman of Linca Group’s board during the eBay Fujian Cross Border E-Commerce Summit.

Disposition

40.  For all the reasons stated above, I am of the view that the 2^nd  defendant has no bona fide defence to the plaintiff’s claims against him under the Personal Guarantee.  Accordingly, the plaintiff’s appeal is allowed and a summary judgment is entered against the 2^nd  defendant according to the terms of the plaintiff’s Summons dated 20 November 2018.

41.  I also make a costs order that the 2^nd  defendant is to pay the plaintiff the costs of and occasioned by the plaintiff in this action,the hearing before the Master and this appeal, on an indemnity basis, to be taxed, if not agreed.

42.  Finally, it remains for me to thank Ms Lam for the plaintiff and Ms Cheung for the 2^nd  defendant for their very able and helpful assistance rendered to this Court.