OUTSTANDING MANAGEMENT CONSULTATION LTD v. GOLD TOPMONT LTD AND ANOTHER

HCA 321/2022

[2023] HKCFI 155

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 321 OF 2022

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J U D G M E N T

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Introduction

1.  This is the hearing of the Plaintiff’s application for summary judgment under RHC O 14 r 1 against the 1^st Defendant by summons dated 12 May 2022 as amended (“Summons”). The Plaintiff’s claim is for HK$811,630,707.72 together with interest after 31 March 2022 pursuant to the Facility Agreement referred to below.

2.  The 1^st Defendant does not dispute the existence of the Facility Agreement or its receipt of HK$500 million under it. Its position is that the Summons should be dismissed or that unconditional leave to defend should be granted by reason of the triable issues on:

(a)  the validity and/or enforceability of the Facility Agreement under sections 7, 22 and/or 23 of the Money Lenders Ordinance, Cap. 163 (“MLO”) and/or the common law doctrine on illegality;

(b)  the quantum of the outstanding indebtedness under the Facility Agreement (“Outstanding Indebtedness”); and

(c)  the extended repayment date of the Outstanding Indebtedness.

3.  In support of the O 14 application, the Plaintiff has filed various affirmations of Mr Tian Wei (“Tian”), its director, both in this action and in HCMP636 of 2022 (“HCMP636”) in which the 1^st Defendant seeks an injunction against the Plaintiff restraining the presentation of a winding up petition against it. The 1^st Defendant’s evidence in opposition principally comes from the 2^nd Defendant (“Pan”), the ultimate beneficial owner and controller of the 1^st Defendant.

Material Facts

4.  On 28 May 2020, the Plaintiff and the 1^st Defendant[1] entered into a written Facility Agreement (“Facility Agreement”) under which the Plaintiff granted a loan facility of HK$500 million (“Loan”) to the 1^st Defendant.

5.  Clause 1.01 of the Facility Agreement provides:

(a)  “Final Maturity Date” means 3 months from the date of the first Drawdown Date.

(b)  “Interest Rate” means 2.5% per month equivalent to 30% per annum.

6.  Clauses 5 and 6.1 of the Facility Agreement provide:

“5. INTEREST

5.01 The Borrower shall pay interest on or in respect of the Loan in accordance with the provisions of this Clause 5.

5.02 Interest on the Loan for each Interest Period shall accrue at the Interest Rate (both before and after judgment).

5.03 Interest on the Loan for each Interest Period shall be paid in arrears by the Borrower to the Lender on each Interest Payment Date.

5.04 The Lender’s calculation of the amount of interest from time to time due and payable by the Borrower hereunder shall (save for manifest error) be conclusive and binding on the Borrower.

5.05 The amount of interest payable on the Loan shall be paid in HK Dollars and shall be calculated on the basis of the actual number of days elapsed in that month.

5.06 If the Borrower fails to pay any interest payable hereunder or under any of the Financing Documents within seven (7) days after it becomes due, the Borrower shall, without prejudice to any other rights or remedies of the Lender, whether under this Agreement or under any of the Financing Documents or otherwise, pay interest at a rate of forty-eight per cent (48%) per annum (both before and after judgment) on the amount of Outstanding Indebtedness beginning on its due date and ending on the date before the date of its actual receipt by the Lender. Such interest shall be calculated on the basis of the actual number of days elapsed and a 365-day year. The Lender’s calculation of the amount of Outstanding Indebtedness due and payable by the Borrower under this Clause 5.06 shall (save for manifest error) be conclusive and binding on the Borrower.

6. REPAYMENT AND RE-BORROWING

6.01 On the Final Maturity Date, the Borrower shall fully pay and settle in one lump-sum all the Outstanding Indebtedness in relation to the Drawing and all other amounts (if any) due hereunder…”

7.  Clauses 11.02 and 11.03 of the Facility Agreement further provide:

“11.02 The Borrower acknowledges and agrees (1) that the Loan is a private loan made available by the Lender to the Borrower; and (2) that the Facility made available to the Borrower in any event falls within exempted loans of Part 2 of Schedule 1 of the Money Lenders Ordinance (Cap. 163) by reason that:

(1) the ordinary business of the Lender does not primarily or mainly involve the lending of money, in the ordinary course of that business.

11.03 The Lender represents to the Borrower, and the Borrower agrees and acknowledges, that Messrs. LCP are legal advisers to the Lender and that the Borrower is advised to take, or has taken, independent legal advice in relation to the Loan and the transactions contemplated in the Finance Documents.”

8.  Clause 19.04 of the Facility Agreement further provides:

“This Agreement may not be amended save in writing duly executed by all the parties hereto.”

9.  Between 28 May to 2 June 2020, the Loan was drawn down in tranches and transferred to the bank account of the 1^st Defendant’s designated recipient.

10.  The final maturity date under the Facility Agreement was 28 August 2020. In breach of the Facility Agreement, the 1^st Defendant failed to repay the Outstanding Indebtedness on that day.

11.  On 1 September 2020, the Plaintiff, the 1^st Defendant and Pan as guarantor entered into a Supplemental Deed in relation to the Facility Agreement (“Supplemental Deed”).

12.  Under Clause 2.1 of the Supplemental Deed, the Plaintiff agreed to extend the Final Maturity Date and to replace Clause 6.01 of the Facility Agreement with the following:

“a. the Borrower shall repay to the Lender the accrued interest of the Loan for the period from 29 May 2020 to 28 August 2020 in the sum of HK$37,500,000.00 on or before 20 September 2020;

b. the Borrower shall repay to the Lender part of the Loan in the sum of HK$200,000,000.00 (‘1^st part of the Loan’) on or before 30 September 2020…;

c. the Borrower shall repay to the Lender the remaining part of the Loan in the sum of HK$300,000,000.00 (‘2^nd part of the Loan’) together with

i. the accrued interest of the 1^st part of the Loan for the period from 29 August 2020 to 30 September 2020 in the sum of HK$5,333,333.00; and

ii. the accrued interest of the 2^nd part of the Loan for the period from 29 August 2020 to 10 November 2020 in the sum of HK$18,225,806.00

on or before 10 November 2020. ”

13.  In breach of the Supplemental Deed, the 1^st Defendant failed to repay the Outstanding Indebtedness on or before 20 and 30 September and 10 November 2020.

14.  On 4 December 2020, the Plaintiff, the 1^st Defendant and Pan as guarantor entered into a second supplemental Deed in relation to the Facility Agreement (“2^nd Supplemental Deed”) in which all parties acknowledged that as at that date, all the Loan and accrued interest were outstanding.

15.  Clause 2.2 of the 2^nd Supplemental Deed provides: 

“2.2

…

(b) the definition of the “Final Maturity Date” shall be amended to mean 8^th January 2021;

…

(d) …

(2) the definition of “Interest” shall be amended to mean four percent (4%) per month equivalent to forty-eight per cent (48%) per annum in place and instead of two point five (2.5%) per month equivalent to thirty (30%) per annum, for the avoidance of doubt, with effect from 29 May 2020.”

16.  Pursuant to the conditions set out in Clause 3.1 of the 2^nd Supplemental Deed, on or about 9 December 2020, Pan issued and delivered 3 cheques to the Plaintiff:

(a)  A cheque dated 8 January 2021 payable to the Plaintiff in the sum of the Loan ie HK$500 million.

(b)  A cheque dated 8 January 2021 payable to the Plaintiff in the sum of HK$92,465,753.42 for accrued interest (calculated at 30% per annum) from 29 May 2020 to 8 January 2021.

(c)  A cheque dated 9 January 2021 payable to the Plaintiff in the sum of HK$55,479,452 for the difference in accrued interest (calculated at 48% per annum) from 29 May 2020 to 8 January 2021.

(collectively “Cheques”)

17.  In breach of the terms of the 2^nd Supplemental Deed, the 1^st Defendant failed to repay the Outstanding Indebtedness on 8 January 2021.

18.  On 12 January and 31 May 2021, the Plaintiff presented the Cheques for payment. The Cheques were all dishonoured.

19.  On the Plaintiff’s calculation, it had received various repayments of the principal sum of the Loan on behalf of the 1^st Defendant by its agent and/or third party, totaling HK$103,776,000; hence the total outstanding principal was reduced to HK$396,224,000:

8/2/2021	Repayment	(3,776,000)	Outstanding principal   496,224,000
17/6/2021	Repayment	(5,000,000)	491,224,000
6/7/2021	Repayment	(5,000,000)	486,224,000
13/7/2021	Repayment	(10,000,000)	476,224,000
9/9/2021	Repayment	(10,000,000)	466,224,000
30/9/2021	Repayment	(50,000,000)	416,224,000
10/1/2022	Repayment	(4,000,000)	412,224,000
18/1/2022	Repayment	(1,000,000)	411,224,000
24/1/2022	Repayment	(5,000,000)	406,224,000
25/1/2022	Repayment	(5,000,000)	401,224,000
27/1/2022	Repayment	(5,000,000)	396,224,000
Total Repayments		(103,776,000)	Total outstanding principal 396,224,000.00
Total accrued interest at 48%			415,406,707.72
Total Outstanding Indebtedness as of 31/3/2022			811,630,707.72

20.  On the 1^st Defendant’s calculation, a total of HK$220 million, instead of HK$103,776,000, had been made on its behalf as partial repayment of the principal of the Loan between January 2021 to January 2022 so that the difference of HK$116,224,000 (HK$220 million - HK$103,776,000) should also be credited as repayment of the principal sum. In that case, the amount allegedly due to the Plaintiff (subject to its other defences) would be:

Total outstanding principal: HK$396,224,000	- HK$116,224,000
=	HK$280,000,000
Total accrued interest:	HK$349,457,095
Total Outstanding Indebtedness	HK$629,457,095

21.  At the heart of this part of the dispute is the nature of the following 3 payments on behalf of the 1^st Defendant totaling HK$120 million (“120M Repayment”).

Date	Repayment amount
13 January 2021	HK$50,000,000
29 January 2021	HK$50,000,000
8 February 2021	HK$20,000,000

22.  Out of the 120M Repayment, the Plaintiff has attributed only HK$3,776,000 towards repayment of the Loan whereas the 1^st Defendant argues that the entirety of it was repayment of the Loan. This is the triable issue on quantum. At the hearing, Mr Tong SC submits that if this court is mindful of the disagreement as to quantum, it should at least give Judgment on HK$280,000,000 as outstanding principal. After the hearing, the Plaintiff’s solicitors have submitted their calculations of the Outstanding Indebtedness on that basis.

Deliberation

23.  Just to recap, the alleged triable issues raised by the 1^st Defendant can be summarised as follows:

(a)  The Facility Agreement is unlawful, invalid and/or unenforceable for breach of the MLO and/or on the ground of illegality owing to the Plaintiff’s questionable source of funds. In this regard, the 1^st Defendant is actually accusing Tian, rather than the Plaintiff.

(b)  The Outstanding Indebtedness is miscalculated owing to the Plaintiff’s failure to give full credit for the entirety of the 120M Repayment.

(c)  The repayment date of the Loan under the Facility Agreement as amended has been varied and extended by a verbal agreement or understanding in January 2021 between a Mr Fong Tim (“Fong”) and Tian by the so-called Extension Agreement in which the Plaintiff agreed not to demand for the repayment of the Loan and not to commence legal proceedings until completion of the Acquisition (as defined below). After the Extension Agreement, there were further verbal extensions including the so-called “16 March 2022 Agreement” owing to the delay of the Acquisition.

MLO defences - sections 7, 22 and 23 of MLO

24.  Mr Wong SC submits that the Plaintiff was an unlicensed money lender so that it is not entitled to recover any sum under the Facility Agreement by virtue of sections 7 and 23 of the MLO. Mr Wong SC further submits that the Facility Agreement prima facie contravenes section 22(1)(c) of the MLO as Clause 5.06 provides directly for the rate or amount of interest to be increased from 30% per annum to 48% per annum upon the default in the payment thereunder.

25.  Section 7 of the MLO provides that no person shall carry on business as a money lender without a licence.

26.  A “money lender” is defined in section 2:

“money lender ( 放債人 ) means every person whose business (whether or not he carries on any other business) is that of making loans or who advertises or announces himself or holds himself out in any way as carrying on that business, but does not include—

…

(b) as respects a loan specified in Part 2 of Schedule 1, any person who makes such loan.”

27.  Paragraph 5 Part 2 of Schedule 1 exempts a “loan made by a company… whose ordinary business does not primarily or mainly involve the lending of money, in the ordinary course of that business.”

28.  Section 22 of the MLO provides:

“(1) Any agreement made for the loan of money by a money lender shall be illegal if it provides directly or indirectly for—

…. (c) the rate or amount of interest being increased by reason of any default in the payment of sums due under the agreement:

...

(2) Notwithstanding subsection (1), if the court before which the legality of any agreement comes in question is satisfied that in all the circumstances it would be inequitable that any such agreement which does not comply with this section should be held to be unenforceable, the court may order that such agreement is enforceable to such extent, and subject to such modifications or exceptions, as the court considers equitable.” (emphasis added)

29.  Section 23 of the MLO provides:

“No money lender shall be entitled to recover in any court any money lent by him or any interest in respect thereof or to enforce any agreement made or security taken in respect of any loan made by him unless he satisfies the court by the production of his licence or otherwise that at the date of the loan or the making of the agreement or the taking of the security (as the case may be) he was licensed:

Provided that if the court is satisfied that in all the circumstances it would be inequitable if a money lender who did not satisfy it that he was licensed at the relevant time was thereby not entitled to so recover such money or interest or to enforce such agreement or security, the court may order that the money lender is entitled to recover such money or interest or to enforce such agreement or security to such extent, and subject to such modifications or exceptions, as the court considers equitable.” (emphasis added)

30.  It can be seen from the terms of sections 7, 22 and 23 that only a money lender, as defined in section 2, falls within their ambit. Mr Wong SC does not seek to argue otherwise. Indeed, the bulk of his oral submission is centered on establishing the Plaintiff was a money lender. In this regard, the burden in establishing that the Plaintiff was a moneylender is squarely on the 1^st Defendant: Chow Wun Sing Winston v Yiu Chun Luk unrep, HCMP2923 of 2002, 25 July 2006, Chu J (as she then was) at [64]. This is also not disputed.

31.  In Link Excellent Ltd v Ruijun Technology Ltd unrep, HCA 1993 of 2016, 6 November 2017, at [20], Lisa Wong J observed that the carrying on of a “business” requires a degree of repetition, system and continuity. Accordingly, a single loan, or even several isolated loans, is generally insufficient to cause a lender to be treated as a “money lender” within section 2 of MLO.

32.  This court agrees with the observation of Lisa Wong J in principle. However, the fact that the loan is an isolated transaction or that there is just one single loan is not conclusive of whether a lender is in the business of making loans: Chow Wun Sing Winston v Yiu Chun Luk supra at [68]. Ultimately, the determination of whether a person is a moneylender is fact sensitive and each case must necessarily depend on its own facts: Wealthy Land Investments Group Ltd v Florescent Holdings Ltd [2022] HKCFI 649 at [21] and [39].

33.  Mr Wong SC, at paragraph 71 of his written submissions, argues that, on the available evidence, the Plaintiff has been carrying on the business of making loans and/or has held itself out as engaging in the money lending business. This court does not agree.

34.  First, it is argued that the Plaintiff does not seem to have businesses other than the business of making loans. In particular, there is no business proof adduced by the Plaintiff that it has ever been engaged in its alleged “property investment and Hong Kong stock market investment”[2] nor any income proof to show the extent to which its money lending activities generated income for the Plaintiff.

35.  The short answer is that the 1^st Defendant is seeking impermissibly to shift the burden of proof from itself to the Plaintiff. As a matter of law, there is no need for the Plaintiff to prove what its business was at the material time - the burden is on the 1^st Defendant to prove that the Plaintiff was a moneylender. Anyway, there is a denial on oath in Tian 1 that the Plaintiff had ever engaged in money lender business. But that is not all.

36.  Mr Tong SC points out that the terms of the Facility Agreement are self-explanatory - in Clause 11.02, the 1^st Defendant expressly acknowledged as a fact that the ordinary business of the Plaintiff did not primarily or mainly involve the lending of money. The fact that it is a private loan between the Plaintiff and the 1^st Defendant rather than a business loan made in the course of business is also acknowledged by the 1^st Defendant as a fact in Clause 11.02. Mr Tong SC also points out that there is no suggestion by Pan that any pressure had been brought to bear on Pan/ the 1^st Defendant to execute the Facility Agreement so that weight should be placed on the 1^st Defendant’s acknowledgment of the facts recorded in it.

37.  This court agrees.

38.  While Mr Tong SC very properly accepts that the parties cannot contract out of any illegality, there is no reason why this court cannot take into consideration what the 1^st Defendant has accepted as a fact in the Facility Agreement. Pan is the chairman and executive director of a listed company in Hong Kong viz Goldin Financial Holdings Limited (“Goldin Financial”) and a director of several related companies with the Goldin Group. It is hard to believe he procured the 1^st Defendant to entered into the Facility Agreement for such a large sum of money other than with his eyes wide open. Further, for a businessman like Pan, it is also hard to believe he had difficulty in telling the difference between a private loan and a business loan as a matter of fact. Last but not least, there are contemporaneous emails between the in house legal team of Goldin Financial/ Goldin Group and the Plaintiff’s solicitors LCP on 28 and 29 May 2020 in which the draft Facility Agreement was exchanged for comment. It is reasonably clear that Pan/the 1^st Defendant all along acted under legal advice before agreeing to the terms of the Facility Agreement.

39.  Second, it is submitted that, on the Plaintiff’s own case, there were at least three loans to Pan or his companies plus another instance where he[3] lent a substantial sum of HK$150 million to 盧志強 (“Lo”).

40.  This submission misguided.

41.  On the Plaintiff’s own case, save for the Facility Agreement, all the other loan transactions were entered into by Tian personally as lender, rather than the Plaintiff. This is stated in Tian 1 and supported by the contemporaneous loan documentation all naming Tian as the lender viz.

(a)  A 1-page IOU in Chinese dated 8 June 2020 for the HK$100 million loan to Pan personally (“100M IOU” and “100M Loan”).

(b)  A 3-page Loan Agreement in Chinese dated 29 June 2020 (“16.224M Loan Agreement” and “16.224M Loan”), as well as a Corporate Guarantee and a supplemental Loan Agreement both dated 4 December 2020, for the HK$16.224 million loan to a Goldin Group company ie Goldin Global Holdings Limited (“Goldin Global”).

(c)  A 3-page Loan Agreement in Chinese dated 28 December 2020 for the HK$150 million loan to Lo[4].

42.  At the hearing, Mr Wong SC very properly accepts that on the documentation evidence, the Plaintiff itself had made 1 loan only.

43.  It should be noted that the said 3 loans were for all a very short duration, respectively 2 weeks, 3 months and 1 month and the loan documentation was relatively simple. In addition, the HK$150 million loan to Lo was stated to be interest free. In Tian 1 at paragraph 55, he explained that Lo was a friend of over 15 years and he lent the sum to Lo without interest and merely as a personal favour. Mr Tong SC submits and this court agrees that the short duration and the simplicity of the documentation tend to suggest these were private loans rather than loans from a moneylender in the course of business.

44.  Further, the omission to refer to the 1^st Defendant’s evidence in Mr Wong SC’s submissions is revealing.

45.  In Pan’s 1^st affirmation in HCMP636 (“Pan 1”) at paragraph 14 (a), he refers to Tian as a loan shark. At paragraphs 46 and 47, Pan affirms that:

“46. Further to the above, I am advised and verily believe that Outstanding Management and/or Mr. Tian are in breach of the Money Lenders Ordinance (Cap. 163) (“MLO”) for the following reasons:-

(a) There is reason to believe that Outstanding Management and/or Mr. Tian have been carrying on the business of making loans and/or hold themselves out in a way as engaging in money lending business, as:-

(i) Mr. Tian himself stated to me that he “always helped people” (「幫開人」) by advancing various loans with interests charged to famous people…;

(ii) For instance, on one occasion Mr. Tian told me that he advanced substantial loans to an individual named 盧志強, the Chairman of泛海集團; and

(iii) It is Mr. Tian’s own case that he has advanced various substantial loans to me with interest charged at 48% per annum; and

(iv) Outstanding Management does not seem to have other business other than the business of making loans.

47. I am advised and verily believe that, in accordance with section 7 of MLO, Outstanding Management and/or Mr. Tian ought to have a money lender’s license under the MLO to carry on business as money lender...”

46.  It can therefore be seen that, on Pan’s own evidence, he is  undecided as to whether to accuse the Plaintiff or Tian himself of carrying on illegal moneylending business - so he accuses them both without any evidence of substance in support. In this court view, the description “all surmise and Micawberism” is apt to apply to Pan’s said evidence.

47.  Worse still, the 1^st Defendant’s own case is that the 100M Loan and the 16.224M Loan were not loans at all. The former was the so-called “purchase credit” for wines to be purchased by Tian from time to time and the latter was the actual purchase price of wines from Pan’s company: Pan 1 at paragraph 12. This is the gist of the 1^st Defendant’s case on the quantum of the Outstanding Indebtedness.

48.  The Plaintiff denies the 1^st Defendant’s case about the purchase of wine this part of the case will be dealt with later in this Judgment. The point here is that the 1^st Defendant tends to blow hot and cold and that inevitably impacts on whether this court can take its assertions as believable.

49.  Third, it is argued that the Plaintiff’s contention that neither it nor Tian had ever advertised or held itself out as carrying on the business of money lending completely misses the point. The basis of the argument is that Tian was different from a usual money lender in the traditional sense since he was a high-stake private lender who targeted high net worth individuals through social events. Under such modus operandi, Tian did not and need not advertise his money lending business to the general public.

50.  It seems to this court that argument is self-contradictory and self-defeating. Either there is evidence that the Plaintiff has advertised or held itself out as a money lender, or there is not - curiously, the 1^st Defendant’s case is that Tian did not and need not advertise his money lending business. After suggesting that Tian did not and did not need to advertise his money lending business, the 1^st Defendant goes on to highlight the following as evidence of Tian’s holding out:

(a)  Tian had told Pan that he “always helped people” by advancing interesting-bearing loans to them: Pan 1 at paragraph 9.

(b)  On one dinner occasion, where numerous guests attended, Tian showed off by saying “he” lent HK$600 million to Mr Xu Jiayin (許家印), the founder of Evergrande Group (恆大集團) at 60% interest for 3 months when Mr Xu was in financial difficulties: 2^nd affirmation of Pan in this Action and HCMP636 (“Pan 2”) at paragraph 48.

51.  Such evidence, taken to its highest and even if accepted as true for the present purpose, only means Tian himself was ready and willing to lend to people in financial difficulties and charged interest on the loans. It is not evidence that Tian had authority from the Plaintiff and acted on its behalf to advertise, announce or hold itself out as being in the business of moneylending.

52.  This court has not lost sight of the other factors relied upon by the 1^st Defendant in evaluating the nature of the Loan ie the Plaintiff and the 1^st Defendant had no pre-existing relationship, the amount advanced under the Facility Agreement was substantial, the rate of interest was significant and the documentation was sophisticated and professionally drawn under legal advice. But the weight that can be placed on them must be counterbalanced by the lack of evidence showing any system, repetitiveness or continuity on the part of the Plaintiff in making loans or its holding out as carrying on the business of money lending.

53.  To conclude, taking the evidence as a whole, this court is not satisfied that the 1^st Defendant has discharged the requisite burden of establishing the Plaintiff was a moneylender or the Loan was not exempted under paragraph 5 Part 2 of Schedule 1. If so, the MLO defences whether under sections 7, 22 or 23 fail.

Illegality defence

54.  This defence is dealt with in one paragraph in Mr Wong SC’s submissions. The gist of this defence is that Tian may have been using different loan arrangements as an unlicensed “loan shark” to launder the proceeds of corruption or other illegal activities. Thus, the Facility Agreement is arguably void and/or unenforceable for illegality and/or being contrary to public policy due to its illegal and/or questionable source of funds.

55.  The evidential basis of this defence can be found in Pan 1 at paragraphs 53 and 54:

“53. Not only the 500M Loan Agreement should be rendered invalid for breach of MLO, as stated in paragraphs 13-14 above, Mr. Tian was reported to have been arrested and prosecuted for corruption in Mainland China, and was even removed as a Member of the National Committee of the Chinese People’s Political Consultative Conference. He was further alleged to be involved in money laundering activities.

54. Pending further discovery and/or interrogatories, I therefore suspect that Mr. Tian may have been using different loan arrangements as an unlicensed “loan shark” to launder the proceeds of corruption or other illegal activities by lending those out to debtors who are in need of financing and could not obtain further loans from banks. I am advised and verily believe that, if suspicion is proven true, the 500M Loan Agreement would be void for illegality.” (emphasis added)

56.  In this court’s view, the so-called evidence in support of the illegal or questionable source of funds is no more than suspicion based on unproven allegations. To the credit of Mr Wong SC, he does not press upon it at all at the hearing.

57.  In conclusion, this illegality defence is completely devoid of merits and must be rejected.

Miscalculation of the Outstanding Indebtedness - The Quantum point

58.  This issue hinges upon the nature and the Plaintiff’s treatment of the 120M Repayment. As stated earlier, the 1^st Defendant submits that the Plaintiff should have applied the entire sum towards repayment of the principal of the Loan whereas the Plaintiff has attributed only HK$3,776,000. The difference between the two is HK$116,224,000.

59.  The 1^st Defendant submits that the HK$116,224,000 relate to Tian’s purchase of wines from Pan or his wine company. It puts forward a case on (1) a HK$16,224,000 Wine Agreement and (2) a HK$100 million wine purchase credit which the Plaintiff strenuously denies. On the Plaintiff’s case, the HK$116,224,000 had been applied towards the settlement of the principal sum of 2 other loans transactions in which Tian was the lender ie (1) the 16.224M Loan from Tian to Goldin Global and (2) the 100M Loan from Tian to Pan.

60.  At the heart of this Quantum point is the credibility of the 1^st Defendant’s case on wine purchase. If the 1^st Defendant’s case is found to be believable, then the HK$116,224,000 should for the present purpose also be treated as having reduced the principal sum of the Loan.

61.  The 1^st Defendant’s case on the HK$16,224,000 Wine Agreement is that Pan proposed to sell to Tian HK$16,224,000 worth of wines which would be evidenced by a wine selling contract and that Tian would pay the purchase price first and collect the wines whenever he needed later. In support, the 1^st Defendant relies on inter alia (i) an Agreement in Chinese in June 2020 which on its face was signed by Dynasty Select Limited (“Dynasty”) on 13 June 2020 and by Tian on 27 June 2020 (“HK$16,224,000 Wine Agreement”) and (ii) a cheque dated 29 June 2020 issued by Tian for HK$16,224,000 in favour of Dynasty.

62.  Pan however admits in Pan 1 that as requested by Tian, he had signed a loan agreement dated 29 June 2020 for the sum of HK$16,224,000 on behalf of Goldin Global as the borrower with Tian as the lender ie the 16.224M Loan Agreement. Pan’s explanation is that this was insisted upon by Tian as the means to guarantee the delivery of wines whenever he was ready to accept delivery.

63.  At the outset, this court finds Pan’s explanation rather dubious. If Tian was seriously concerned that Pan might not deliver the wines as agreed because he did not trust him, he could simply have agreed to a term of payment upon delivery, which is not at all uncommon in a sale of goods contract, instead of drawing up a loan agreement when there was no loan at all and expecting Pan to sign it. Further, Pan as a serious businessman should know full well what the legal consequences of signing a loan agreement were. Why Pan acceded to Tian’s request cannot easily be explained just because Tian insisted upon it.

64.  The 1^st Defendant’s case on the HK$100 million is that separately, Tian had proposed to deposit a sum of HK$100 million with Pan as his purchase credit for wines. Pan is quite vague about when this happened but judging from the HK$100 million cheque issued by Tian in favour of the 1^st Defendant which was dated 8 June 2020, it should be around May or early June 2020. Pan said Tian again insisted the purchase credit should be evidenced by a loan agreement between Tian and Pan as a means to guarantee the delivery of wines. As the HK$100 million was for Tian’s prospective purchases of wines from time to time, the parties did not sign a wine purchase agreement similar to the HK$16,224,000 Wine Agreement.

65.  Again, this court finds Pan’s explanation for signing a loan agreement, presumably referring to the 100M IOU, but not signing a wine purchase agreement even more dubious. First, the amount involved is much larger. Second, there is no logical reason why a wine purchase agreement or a wine purchase credit note could not be signed just because the delivery of wines was in the future. After all, under the HK$16,224,000 Wine Agreement, the delivery of wines was also in the future.

66.  In support of the 1^st Defendant’s case on the HK$100 million wine purchase credit, Pan alleges that wines in the total sum of HK$95,254,016 out of the HK$100 million have been purchased and delivered to Tian from June 2020 to July 2021, the particulars of which are set out in the 2^nd affirmation of Pan dated 13 July 2022[5] (“Pan 2”) and corroborated by an affirmation of Li Cheuk Pan who was responsible for buying and selling wines on behalf of the Goldin Group and an affirmation of Zhang Li, the butler/housekeeper of Pan. There are also some photos of the wines.

67.  It seems to this court that the 1^st Defendant’s case on the HK$16,224,000 Wine Agreement and HK$100 million wine purchase credit is wholly unbelievable, not just for the reasons already stated above  but importantly it is contradicted by a large number of contemporaneous documents adduced by the Plaintiff to show the 2 sums were loans. Without purporting to be exhaustive, the following is more than enough for the present purpose.

68.  The 16.224M Loan is evidenced not only by the 16.224M Loan Agreement dated 29 June 2020 between Tian and Goldin Global (signed by Pan as its director), it is also evidenced by a Supplemental Loan Agreement dated 4 December 2020 between Tian as lender, Goldin Global as borrower (signed by Pan as its director) and the 1^st Defendant as guarantor (“Supplemental Loan Agreement”) and a corporate guarantee dated 4 December 2020 issued by the 1^st Defendant in favour of Tian (“Gold Topmont Guarantee”). Further, Goldin Global had issued a cheque to Tian dated 24 September 2020 in the sum of HK$16,224,000  which was signed by Pan himself [6]. This shows that Pan on behalf of Goldin Global intended to repay the loan to Tian albeit the cheque was dishonoured upon presentation. There is also a demand letter from LCP to Goldin Global and Pan dated 13 November 2020 after the cheque had been dishonoured.

69.  The 100M Loan is evidenced by the 100M IOU from Pan to Tian and a cheque for HK$100 million issued by Tian to the 1^st Defendant, both dated 8 June 2020. According to the 100M IOU, the 100M Loan was repayable within 2 weeks and Pan had issued a cheque dated 24 June 2020 to an unnamed payee for HK$100 million. As the cheque was dishonoured upon presentation sometime in November 2020, Pan sent Tian a written undertaking dated 13 November 2020 promising to repay the 100M Loan[7]. The 100M Loan is further recorded in a corporate guarantee dated 4 December 2020 executed by the 1^st Defendant in favour of Tian.

70.  Subsequently, the 100M Loan and the 16.224M Loan (as well as the Loan) were further recorded in a personal guarantee given by Fong (“Fong Guarantee”) and a corporate guarantee issued by Hundred Gain International Holding Limited (“Hundred Gain”) both dated 15 January 2021 and the latter was signed by Fong as its sole director (“Hundred Gain Guarantee”). In the 2 guarantees, Fong and Hundred Gain acknowledged that as at that date, the 2 loans (as well as the Loan) and accrued interest were still outstanding.

71.  Fong has made an affirmation in HCMP636 (“Fong 1”) on the various verbal agreements described as the “Extension Agreement” and “16 March 2022 Agreement”. While Fong had referred to the said 2 guarantees in Fong 1, he had not explained why the 100M Loan and the 16.224M Loan were recorded as “loans” in the guarantees if the two sums were for the purchase of wines.

72.  In paragraph 94.4 of Mr Wong SC’s submissions, it is suggested that Fong and Hundred Gain had no personal knowledge of the private arrangements between Pan and Tian. This is hard to accept. It is only reasonable to think that Fong and Hundred Gain executed the guarantees in January 2021 at the behest of Pan when the 100M Loan and the 16.224M Loan had been overdue for quite some time and hence more security was called for. No one in his right mind would execute the 2 guarantees without first finding out from Pan what he was supposed to guarantee and there is no suggestion by Fong that he had in any way been misled. If so, the logical conclusion is that the 2 loans did exist and were outstanding and Pan’s so-called private wine purchasing arrangements between him and Tian is just not believable.

73.  Importantly, the 100M Loan and the 16.224M Loan (as well as the Loan) were also recorded in a written Undertaking dated 7 April 2021 among Hundred Gain, Pan, the Plaintiff and Tian (“April 2021 Undertaking”). The April 2021 Undertaking was signed by inter alia Pan and Fong which indicates their joint agreement to the existence of the 2 loans.

74.  As to the Plaintiff’s case on the sequence of allocation of the 120M Repayment ie (1) first towards the principal of the 16.224M Loan, (2) then the principal of the 100M Loan and (3) lastly the principal of the Loan, this was set out clearly in a Commitment Letter dated 15 January 2021 (“Commitment Letter”) drafted by Fong’s lawyers viz Messrs. Winston & Strawn and issued by Tian personally and on behalf of the Plaintiff to the 1^st Defendant, Pan and Goldin Global.

75.  This sequence is also supported by the April 2021 Undertaking which recorded that there were repayments on 13 January 2021 towards the 16.224M Loan and the 100M Loan, there were also repayments on 29 January and 8 February 2021 towards the 100M Loan and only the last repayment on 8 February 2021 was allocated towards the Loan. The April 2021 Undertaking was signed by inter alia Pan and Fong which indicates their joint agreement to the allocation of the 120M Repayment towards settling the 16.224M and the 100M Loans first before settling part of the Loan.

76.  The importance of Pan’s agreement to this sequence of repayments is self-explanatory. The importance of Fong’s agreement to this sequence of repayments is that, on his own evidence in Fong 1, it was he who arranged for the 120M Repayment on 13 January, 29 January and 8 February 2021. No doubt he did so at the behest of Pan. It is therefore reasonably clear that both he and Pan were agreeable to the allocation of the 120M Repayment in the way recorded.

77.  On the whole, that the contemporaneous documents which negate the 1^st Defendant’s case about wine purchasing is quite overwhelming. The only exception is the HK$16,224,000 Wine Agreement. Tian’s explanation for it is that Pan urged him to lend HK$16,224,000 but disguise it as a wine purchasing transaction so that it looked as though Pan’s wine business appeared more profitable than it actually was. This is not such an unreasonable explanation given that Tian had so much documentation in hand to evidence the 16.224M Loan so he should have relatively little to be concerned about regarding repayment. His explanation is certainly more credible that the 1^st Defendant’s case.

78.  To conclude, taking a holistic approach to the evidence, this court is in no doubt that the Quantum point is a bad one and should be rejected.

Extension of the repayment date of the Loan

79.  The allegation was made in Pan 1 but the detailed evidence in this regard comes from Fong 1. It is set out, sometimes verbatim, in Mr Wong SC’s submissions but can be simplified as follows.

80.  In around December 2020, Hundred Gain entered into a sale and purchase agreement to acquire the entire issued share capital of a company Smart Edge Limited (“Smart Edge” and “Acquisition”). Smart Edge is indirectly wholly owned by Goldin Financial and held a substantial piece of property in Kowloon Bay.

81.  At that time, the plan of the Acquisition was known to Pan, Fong and Tian. In particular, it was known to Tian that any litigation against Pan or his companies such as the 1^st Defendant would negatively affect the Acquisition. To eliminate the litigation risk, Fong was prepared to guarantee the Loan and set aside a portion of the sale proceeds in the Acquisition, expected to be around HK$14.3 billion, to repay the Loan.

82.  In light of the above, in around January 2021 there was a verbal agreement or understanding (“Extension Agreement”) between Fong (on behalf of himself, Hundred Gain, Pan and the 1^st Defendant) on the one hand and Tian (on behalf of the Plaintiff and himself) on the other in which:

(a)  Fong agreed to guarantee the Loan by himself and his company and Hundred Gain would set aside a portion of the sale proceeds of the Acquisition to repay the Loan.

(b)  As a gesture of goodwill, Fong was willing to arrange for partial repayment of the Loan.

(c)  In exchange, Tian and the Plaintiff should withhold demand for repayment from the 1^st Defendant or Pan and would not commence legal proceedings until the completion of the Acquisition.

83.  Pursuant to and in consideration of the Extension Agreement, on 15 January 2021, the Hundred Gain Guarantee and Fong Guarantee were executed in favour of the Plaintiff. In both guarantees, the Plaintiff agreed to conditionally withhold enforcement action against the 1^st Defendant as borrower and Pan as guarantor until 31 March 2021, the estimated date of completion of the Acquisition.

84.  Notwithstanding what was stated in the 2 guarantees, it was nevertheless the parties’ intention and understanding that the Plaintiff would withhold legal action until the completion of the Acquisition.

85.  Completion of the Acquisition was delayed due to the Covid-19 pandemic. Fong informed Tian and Pan that the Acquisition would likely be delayed to 12 April 2021. Then came the April 2021 Undertaking among Hundred Gain, Pan, the Plaintiff and Tian. It is said in Fong 1 that the Plaintiff agreed to withhold legal action until 12 April 2021.

86.  There were further delays in the Acquisition due to the Covid-19 pandemic.

87.  On 24 December 2021, Fong caused HG Property Investment KLB Limited (“HG Property”), a wholly-owned subsidiary of Hundred Gain, to grant a corporate guarantee in favour of the Plaintiff (“HG Property Guarantee”), in which HG Property agreed to guarantee the payment under the Facility Agreement. In return, the Plaintiff conditionally agreed to withhold enforcement action against the 1^st Defendant, Pan, Fong, Hundred Gain and HG Property until 31 January 2022.

88.  In March 2022, it became evident that completion of the Acquisition may be further delayed. On or about 16 March 2022, a further verbal agreement or understanding was reached between Tian, on behalf of himself and the Plaintiff and Fong, on behalf of himself, Pan and Hundred Gain (“16 March 2022 Agreement”) in which inter alia:

(a)  Fong reassured Tian that the Acquisition was still being proceeded with and the delay was unintended and mainly caused by the pandemic and the substantial nature of the Acquisition.

(b)  Fong emphasised that once the Acquisition was completed, it could easily generate a very substantial amount of sale proceeds that can easily pay off the Outstanding Indebtedness under the Facility Agreement. It was therefore beneficial to everyone if Tian could withhold enforcement action pending the completion of the Acquisition which Tian agreed.

(c)  The Extension Agreement (and all the verbal agreements) was once again affirmed by Tian on behalf of himself and the Plaintiff.

89.  This court is not persuaded that the evidence in support of this extension of the repayment date of the Loan is believable. The reasons are these.

90.  First, the documentation relied upon by Fong and the 1^st Defendant e.g. the Hundred Gain Guarantee, the Fong Guarantee and the HG Property Guarantee all set out an agreement by the Plaintiff to withhold enforcement action until a specified date, the last one being 31 January 2022 in the HG Property Guarantee.

91.  But when it comes to the crux of the matter ie the Extension Agreement and the 16 March 2022 Agreement by which the Plaintiff is said to agree to withhold enforcement action until the completion of the Acquisition, the alleged agreement became a verbal agreement or understanding. This is clearly at odds with the way Tian and hence the Plaintiff conducted business ie their insistence on documentation. This is reflected by the numerous documentation regarding the Loan, the 100M Loan and the 16.224M Loan and all the associated personal and corporate guarantees.

92.  Second, there is no explanation by Fong as to why the Extension Agreement and the 16 March 2022 Agreement alone were not recorded or at least evidenced in writing. Fong and his companies were prepared to execute the various written guarantees in favour of the Plaintiff and the Plaintiff had accepted them and agreed to a specific deadline for not taking enforcement action. There is no reason why they did not offer more to the Plaintiff in return for the Plaintiff to agree to withhold enforcement action until a further date or a specific event ie completion of the Acquisition. But there was none.

93.  Third, few details have been given by Fong as to the complexity of the Acquisition and no details have been given by him as to why the Covid-19 pandemic could have derailed the completion of the Acquisition from 31 January 2021 to 16 March 2022 and beyond.

94.  Fourth, the first estimated date of completion of the Acquisition ie 31 March 2021 was only an estimate, which by its nature was general and indefinite. This is at odds with the evidence before this court, whether the Hundred Gain Guarantee, the Fong Guarantee and the HG Property Guarantee or the Facility Agreement, the Supplemental Deed and the 2^nd Supplemental Deed, the 100M IOU and the 16.224M Loan Agreement which invariably set out a definite date.

95.  Lastly, this court has already found Pan’s evidence to be unbelievable and that he blows hot and cold as and when it suits him. The 16.224M Loan and the 100M Loan were recorded in inter alia the Hundred Gain Guarantee and the Fong Guarantee as such. Yet that does not deter Pan from arguing the 16.224M Loan and the 100M Loan were not loans at all. For the above reasons, Fong’s evidence is not much more believable.

96.  To conclude, the alleged extension of time for enforcement action is but a bare assertion on the part of the 1^st Defendant, not supported by anything in writing and is contradicted by the numerous documentation before this court. That is the end of the matter as far as this issue is concerned.

Conclusion

97.  For all the above reasons, this court is satisfied that the 1^st Defendant has failed to show cause to resist the O 14 application. There shall be summary judgment in favour of the Plaintiff accordingly.

Disposition and costs order nisi

98.  There shall be summary judgment in favour of the Plaintiff against the 1^st Defendant in the sum of HK$811,630,707.72 as of 31 March 2022 together with interest as from 1 April 2022 at the agreed rate of 48% per annum until payment.

99.  There shall also be an order nisi that costs of the Action including this application be to the Plaintiff to be taxed if not agreed and paid by the 1^st Defendant forthwith, certificate for 2 counsel.