CHAN FUN KWONG v. CHOI CHAK MAN AND OTHERS

HCA 862/2022

[2024] HKCFI 722

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 862 OF 2022

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BETWEEN

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DECISION

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1.  On 1 June 2023, Master KW Wong gave summary judgment on the entire claim of the Plaintiff (“P”) with costs against the 1^st to 4^th Defendants (respectively “D1”, “D2”, “D3” and “D4”, together “Ds”) on the following 4 sums with interest:

a. HK$60,000,000 (“the Loan”) with interest at 1% above the prime rate of HSBC from 3 May 2022 to 1 June 2023 and thereafter at judgment rate until full payment (“Claim 1”);

b. HK$6,680,000 (“Outstanding Interest on the Loan”) with interest at judgment rate from 1 June 2023 until full payment (“Claim 2”);

c. HK$10,657,534.70 (“Balance of the S&P Payment”) with interest at 1% above the prime rate of HSBC from 1 March 2022 to 1 June 2023 and thereafter at judgment rate until full payment (“Claim 3”); and

d. HK$1,278,904.10 (“Interest on Balance of the S&P Payment”) with interest at judgment rate from 1 June 2023 until full payment (“Claim 4”).

2.  By a Notice of Appeal dated 14 June 2023, the Ds appeal against the Master’s said order granting the summary judgment.

3.  This is the contested hearing of the appeal, which, as is trite, is conducted by way of a re-hearing. The Plaintiff was represented by Mr Wong SC leading Mr Koo and Mr Tang, and Ds by Mr Whitehead SC leading Mr Yau.

A. Background transaction - sale by P and Lee and purchase by Rensino of the entire shareholding of D4

4.  The parties pleaded and alluded to the captioned sale and purchase by way of background. Save the parts specifically stated to be in dispute, the following matters in this section are common grounds or not serious disputed.

5.  P and his wife Madam Lee Sau Fong (“Lee”) used to own the entire shareholding of D4, consisting of 2 shares, with each of them owning one. The main asset of D4 was its 100% shareholding in a PRC company known as 陸河祥盛針織有限公司 which in turn owned or had the use of a number of land use certificates in the Mainland.

6.  By a Sale and Purchase Agreement of Shares dated 30 January 2018 (“the 2018 SPA”), P and Lee agreed to sell and Rensino Investment Limited (“Rensino”) agreed to purchase the entire shareholding in D4 together with the shareholder’s loan owed by Rensino to P at the total consideration of RMB 237,544,142.00 equivalent to HK$293,315,069.20 (“the S&P”), and the S&P was to be completed on 28 March 2019.

7.  According to P, he had many years of friendship with D1 and D2. This is not disputed by Ds. In fact, in Ds’ 20210505 Letter (defined below), D1 and D2 said that they had been good friends of P and Lee.

8.  It is not entirely clear from the materials before me regarding the relationship among Ds. The materials only show (a) D1 and D2 shared the same residential address[1] and they wrote jointly to P and Lee in various correspondence mentioned below, and (b) the residential address of D3 given in his affirmation was the unit directly below that of D1 and D2.

9.  At the time of the signing of the 2018 SPA, D2 and D3 were the directors and the only 2 shareholders of Rensino. According to D2 and D3, not serious disputed by P, D3 has been the sole beneficial owner of all the shareholding of Rensino, and D2 had on 12 May 2020 transferred the 50% shareholding in Rensino registered in her name back to D3.

10.  On 23 April 2019:

a. The S&P was completed upon payment of half of the said consideration (ie. HK$146,657,534.60);

b. Rensino became the sole shareholder of D4 and D3 became a director of D4;

c. P, Lee and Rensino signed a supplemental agreement (“the 2019 Supplemental SPA”) whereby they agreed that the closing date of the S&P was extended from 28 March 2019 to 23 April 2019, and that the balance of the consideration at HK$146,657,534.60 would be paid by Rensino to P and Lee in 3 tranches, instead of being payable on completion:

i. HK$40,000,000 on 30 April 2019 (the “1^st Tranche Payment”);

ii. HK$60,000,000 on 2 May 2019 (the “2^nd Tranche Payment”); and

iii. HK$46,657,534.60 on or before 31 May 2019.

11.  The 1^st Tranche Payment was apparently made on time.

B. The Plaintiff’s case

B.1. The Payment Agreement

12.  It is P’s case that Rensino was unable to pay the 2^nd Tranche Payment on its due date, namely 2 May 2019, and that upon the request of D1 and D2, P agreed to lend HK$60,000,000 to them and to use the same for the payment by Rensino of the 2^nd Tranche Payment (“the Payment Agreement”)^[2].

13.  In his 1^st affirmation[3], P deposed to the Payment Agreement and its performance thus:

“15. In addition, with respect to the second installment of payment of HK$60 million (the “HK$60 million payment”) payable by the Buyer to the Seller on the 2 May 2019, the 1^st Defendant (CHOI CHAK MAN) and the 2^nd Defendant (CHEUK HUNG CHUEN) proposed to me to borrow HK$60,000,000 (HK$60 million) from me in their personal names, as the Buyer’s (Rensino) payment of “the HK$60 million payment” to me and my wife (Lee Sau Fong), thus asking me to agree to loan the Sum.

16. In view of my many years of friendship with the 1^st Defendant and the 2^nd Defendant, I accepted their request and on 2 May 2019, I signed “the 2019 Loan Agreement” with the 1^st Defendant (CHOI CHAK MAN) and the 3^rd Defendant (TSOI WAI) witnessed by our representing solicitors (T.K. Tsui & CO., Solicitors and Woo Kwan Lee & Lo). …

…

18. I also issued the loan principal of HK$60,000,000 (the “HK$60 million Principal” to the 1^st Defendant and the 2^nd Defendant on 2 May 2019 in accordance with the “2019 Loan Agreement” as Rensino’s payment of[4] the “HK$60 million payment” to me and my wife (Lee Sau Fong)…”

(my emphasis by underline and in bold)

B.2. The 4 subsequent written agreements

14.  Pursuant to the Payment Agreement and on 2 May 2019, P, D1, D2 and D3 signed and entered into a written agreement entitled “The Loan Agreement” (“the 2019 Loan Agreement”)^[5] whereby, among others, P agreed to lend HK$60,000,000 to D1 and D2 as borrowers (“the Loan”), and it was agreed that the Loan and a lump-sum interest would be payable a year later on 1 May 2020; and D3 agreed to be the guarantor guaranteeing D1 and D2’s payment obligations.

15.  In the 2019 Loan Agreement, P’s signature was witnessed by Mr Lai Yung, Louis, a solicitor of T K Tsui & Co, Solicitors (respectively “Lai” and “TKT”), while the signatures of D1, D2 and D3 were witnessed by Mr Ma Cheuk Lam, a solicitor of Messrs Woo Kwan Lee & Lo (“WKKL”).

16.  Attached to the 2019 Loan Agreement and immediately following the execution page was a receipt clause (“the Receipt Clause”)[6]:

“The Borrowers hereby acknowledge the receipt of HK$60,000,000.”

signed by D1 and D2 and dated 2 May 2019.

17.  It is not disputed that at the time and at least up to the signing of the 2021 Deed (defined below), P was advised by TKT and D1, D2 and D3 were advised by WKKL.

18.  Shortly after and on 29 May 2019, P, D1, D2 and D3 signed and entered into another written agreement entitled “The Supplementary Loan Agreement” (“the 2019 Supplementary Loan Agreement”)^[7] whereby it was agreed that Article 1.3 of the 2019 Loan Agreement be modified such that interest be charged and paid on a monthly basis instead of being paid by a lump sum on the loan maturity date.

19.  On 24 April 2020, P through TKT issued a letter to WKKL^[8] to remind D1 to D3 to repay the Loan by 1 May 2020 (“P’s 20200424 Letter”).

20.  On 20 May 2020, P, D1, D2 and D3 signed and entered into another written agreement entitled “Loan Agreement” (“the 2020 Agreement”)^[9] whereby it was agreed, among others, that the loan term/loan maturity date under the 2019 Loan Agreement be extended to 1 May 2021 and D3 would continue to guarantee D1 and D2’s payment obligations.

21.  The pre-emble in the 2020 Agreement recited the 2019 Loan Agreement, the 2019 Supplementary Loan Agreement and that it was on the request of D1 and D2 as borrowers and D3 as the guarantor that additional time was thereby granted to repay the Loan to P as lender. The parties’ signatures in the 2020 Agreement were all witnessed by Lai.

22.  About two weeks before the loan maturity date as provided by the 2020 Agreement and on 15 April 2021, P through his solicitors sent a letter to D1 and D2 (“P’s 20210415 Letter”)^[10]. The letter was stated to be in the matter of outstanding payment under the S&P, the 2019 Loan Agreement, the 2019 Supplemental Loan Agreement and the 2020 Loan Agreement. In this letter, P reminded D1 and D2 to repay the Loan, together with the outstanding interests thereon at HK$5,040,000 on or before 2 May 2021; and reminded them of the indebtedness in the sum HK$10,657,534.70, being the unpaid balance of consideration under the 2018 SPA as varied by the 2019 Supplemental SPA.

23.  On 5 May 2021, D1 and D2 replied by a letter in Chinese addressed to P and Lee (“Ds’ 20210505 Letter”)^[11] in which they acknowledged the receipt of P’s 20210415 Letter “concerning the balance of the consideration for the sale and purchase of 陸河祥盛有限公司 [sic]”^[12], did not dispute their liabilities to repay the demanded sums, including the Loan and interest thereon, and instead promised (a) to pay on or before 31 July 2021 the interest for October 2020 to July 2021 in the total sum of HK$7,200,000, (b) to pay on or before 31 December 2021 the balance of the price for the purchase of the land in the sum of HK$10,657,534.70 and RMB1,000,000 for the China-Hong Kong car(s)^[13], and (c) to repay before 2 May 2022 the loan of HK$60,000,000^[14], and requested P and Lee to accept such repayment schedule or plan.

24.  On 28 May 2021, P, D1, D2, D3 and D4 executed a deed entitled “The Deed of Loan” (“the 2021 Deed”)^[15] with P as the lender, D1 and D2 as the borrowers, D3 as the 1^st guarantor and D4 as the 2^nd guarantor. The execution of the 2021 Deed by all 5 parties was also witnessed by Lai.

25.  In the 2021 Deed, it was recited, among others, that:

a. the 2019 Loan Agreement was entered into by P, D1, D2 and D3 and that under the same P lent D1 and D2 the Loan (pre-emble A);

b. subsequently, the 2019 Supplementary Loan Agreement was entered into by the parties and that it remained in force (pre-emble B);

c. the Loan failed to be repaid on the maturity date of 1 May 2020 under the 2019 Loan Agreement and that the 2020 Agreement was entered into by the parties extending the loan term/loan maturity date to 1 May 2021 (pre-emble C); and

d. D1, D2 and D3 failed to repay the Loan on 1 May 2021, that the 2019 Loan Agreement, the 2019 Supplementary Loan Agreement and the 2020 Agreement remained in force, and that D1 and D2 affirmed that the following amounts were still owed to P, namely (i) the Loan, (ii) the interest on the Loan in the sum of HK$5,040,000, (iii) Balance of the price for the purchase and sale of Luhe Xiangsheng Knitting Co., Ltd. [陸河祥盛針織有限公司] in the sum of HK$10,657,534.70, and (iv) payment for China-Hong Kong cars in the sum of RMB1,000,000 (pre-emble D).

26.  The 2021 Deed then provided, among others:

a. Under Clause 1.1, the loan term/loan maturity date be extended to 1 May 2022;

b. Under Clause 1.2, D1 and D2 would repay in full the Loan and interest thereon on or before the loan maturity date;

c. Under Clause 1.3, D3 continued to guarantee and D4 would guarantee D1 and D2’s payment obligations; and

d. Under Sub-clauses 2.1 to 2.6 of Clause 2:

“2. Issuance and repayment of the loan

2.1 The Borrowers [D1 and D2] acknowledge that the amounts referred to in paragraphs D (i), (ii), (iii) and (iv) of this Agreement are still owed to the Lender [P].

2.2 The Borrowers [D1 and D2] undertake to repay RMB1 million (RMB1,000,000) of China-Hong Kong cars payment to the Lender [P] on or before 30 June 2021.

2.3 The Borrowers [D1 and D2] undertake to repay on or before 31 July 2021 the interest owed on the Loan for a total of 10 months from October 2020 to July 2021 totalling to HK$7,200,000 to the Lender [P].

2.4 The Borrowers [D1 and D2] undertake to repay HK$10,657,534.70 being the payable balance of the purchase price for the purchase and sale of Luhe Xiangsheng Knitting Co., Ltd. [陸河祥盛針織有限公司] and the interest thereof (for the period from 1 May 2021 and ending on 31 December2021, the Parties agreed to a fixed interest rate of 1.2% per month), i.e. HK$ HK$1,023,123.33, on or before 31 December 2021.

2.5 If the Borrowers [D1 and D2] fail to pay in full the relevant amount to the Lender [P] by the aforesaid dates of June 30, 2021, 31 July 2021 and 31 December 2021 as agreed, the Lender [P] shall be entitled to treat the entire arrears/Loan or the remaining amount of the arrears/Loan as immediately due, and the Lender may immediately seek recovery from the Borrowers [D1 and D2] and/or the Guarantors and take legal proceedings against the Borrowers [D1 and D2] for the Loan, arrears, interest and legal expenses.

2.6 The Borrowers [D1 and D2] undertake to deposit the outstanding loan principal and the corresponding interest payable on or before the loan maturity date of 2 May 2022 into the designated bank account for which the lender shall notify the Borrowers [D1 and D2] in writing at least 7 days prior to the loan maturity date.”

B.3. The failure to pay, further correspondence and the commencement of this action

27.  By 31 July 2021, D1 and D2 failed to pay the interest on the Loan for the period from October 2020 to July 2021 in the agreed sum of HK$7,200,000.00 on or before its due date, in breach of Clause 2.3 of the 2021 Deed.

28.  By two letters issued by TKT respectively dated 18 August 2021^[16] and 29 September 2021^[17] addressed to D1 and D2, P stated that Ds failed to pay the agreed interest on the Loan on or before 31 July 2021 in accordance with the 2021 Deed, and threatened to take legal action against them if they continued to fail to pay the same.

29.  In response to P’s said demands, D1 and D2 made 2 partial payments on 11 October 2021 and 12 November 2021, HK$2,000,000 each, of the outstanding interest on the Loan (together “the 1^st & 2^nd Partial Payments of Interest”).

30.  On 20 December 2021, P through TKT issued a letter addressed to D1 and D2^[18] acknowledging receipt of the 1^st & 2^nd Partial Payments of Interest totalling HK$4,000,000, and further reminded D1 and D2 to pay the Balance of the S&P Payment in the sum of HK$10,657,534.70 on or before 31 December 2021 in accordance with the 2021 Deed.

31.  In reply, D1 and D2 wrote a letter in Chinese addressed to P and Lee on 30 December 2021 (“Ds’ 20211230 Letter”)^[19] and promised to pay on or before 28 February 2022 (a) interest from October 2020 to February 2022 totalling HK$8,240,000, (b) “the land balance of HK$10,657,534.70 and the interest (for the period) from 1 May 2021 to 28 February 2022 (totalling) HK$1,278,904.16 (monthly interest rate: 1.2%)”^[20].

32.  Later, further correspondences were exchanged between P (through TKT) and D1 and D2 : (a) TKT’s letter dated 4 January 2022 (“P’s 20220104 Letter”)^[21] in which P persisted in demanding D1 and D2 to make payments in accordance with the 2021 Deed, (b) D1 and D2’s response by email sent on 22 February 2022 by one Wendy Chik (“Ds’ 20220222 Email”)^[22], in which the existence of the Loan was not disputed and further time to pay the interest on the Loan, the balance price of the land and interest thereon until end of April 2022 was requested[23], and (c) TKT’s response by letter 24 February 2022 (“P’s 22020224 Letter”)^[24] extending the time to 28 February 2022 for D1 and D2 to pay the land balance price, the interest of HK$1,278,904.16 and the interest on the Loan up to 28 February 2022 in the sum of HK$8,240,000.00 to 28 February 2022.

33.  In response to P’s said demands, D1 and D2 made another partial payment of the outstanding interest on the Loan in the sum of HK$3,000,000 on 14 March 2022 (“the 3^rd Partial Payment of Interest”)^[25].

34.  After D1 and D2 defaulted in repaying the Loan on or before the due date of 2 May 2022, P (through TKT) issued a demand letter dated 3 May 2022 (“P’s 20220503 Letter”)^[26] seeking immediate payments of all sums due under the 2021 Deed.

35.  On 12 July 2022, P commenced this action and claims against D1 and D2 (a) in respect of Claim 1, pleading the Payment Agreement, the 2019 Loan Agreement, the 2019 Supplementary Agreement, the 2020 Agreement and the 2021 Deed[27], (b) in respect of Claim 2, interest on the Loan between 2 May 2019 to 1 May 2022, and pleading the various provisions in the said 4 written agreements concerning interest, (c) in respect of Claim 3, pleading Clause 2.4 of the 2021 Deed, and (d) in respect Claim 4, also pleading Clause 2.4 of the 2021 Deed. P claims against D3 and D4 as guarantors under Clauses 1.3 and 3 of the 2021 Deed.

B.4. P and Lee have not chased after or sued Rensino for the 2nd Tranche Payment and the balance of payment under the S&P

36.  Lastly, in §19 of his 1^st affirmation, P deposed that after the signing of the 2019 Loan Agreement

“I and my wife (Lee Sau Fong) had always been of the view that Rensino … had paid the HK$60 million in full and on schedule, and therefore we had never sought against Rensino for the HK$60 million or any part thereof”.

37.  The fact that P and Lee have not chased after or taken any action against Rensino for payment of the 2^nd Tranche Payment since the signing of the 2019 Loan Agreement is not disputed by Ds in their affirmations or at this hearing.

38.  Regarding the balance payment for the S&P, save the correspondence and action mentioned above by which P and Lee chased after D1 and D2 for payment, there was also no suggestion, not to mention evidence, that P and/or Lee have in any way or at any time from then to date also chased or pursued Rensino for the same.

C. D’s Case

C.1. D’s pleaded case

39.  Ds admitted having entered into the 2019 Loan Agreement and the 2019 Supplementary Loan Agreement (§§6 and 7 of the Defence), but denied the existence of the Payment Agreement and averred that

a. The 2019 Loan Agreement and the 2019 Supplementary Loan Agreement were not based on the Payment Agreement and they further relied on Article 4.2 of the 2019 Loan Agreement that “This Agreement sets out the entire agreement and understanding of the Parties hereto…”;

b. In any case D1 had no reason to enter into the Payment Agreement (§5 of the Defence);

c. D1 and D2 never agreed to P using the Loan as Rensino’s 2^nd Tranche Payment (§8 of the Defence);

d. Under Clause 2.1 of the 2019 Loan Agreement, P was to lend D1 and D2 the Loan, but P never granted the Loan to D1 and D2, and D1 and D2 never received it (§8 of the Defence).

40.  Ds admitted having entered into the 2020 Agreement (§9(2) of the Defence) and the 2021 Deed with P (§9(4) of the Defence), but denied P’s averment relating thereto and averred that

a. P has never granted the Loan or release the same to D1 and D2;

b. The 2020 Agreement was “premised on the Plaintiff, the 1^st Defendant, the 2^nd Defendant and the 3^rd Defendant entering into a supplementary loan agreement dated 29 May 2019 [the 2019 Supplementary Loan Agreement]. However, in fact, the Plaintiff, the 1st Defendant, the 2nd Defendant and the 3rd Defendant did not jointly sign the [2019 Supplementary Loan Agreement] on the same signature page” (§9(2)(b) and (§9(4)(b) of the Defence);

c. P did not pay any consideration thereunder, and the 2020 Agreement and the 2021 Deed were thus unenforceable.

41.  As against P’s claim for interest on the Loan, Ds raised the same defence (§12 of the Defence) that the Loan was not granted or released to D1 and D2 and therefore no interest payable thereunder.

42.  As against P’s claim for the Balance of the S&P Payment and interest thereon, Ds pleaded

a. That P has no right to recover on behalf of Lee her share of the Balance of the S&P Payment (§16 of the Defence); and

b. For the matters mentioned in paragraph 40 above that the 2021 Deed was unenforceable.

43.  As against D3 and D4’s liability as guarantors, it is pleaded that based on the above alluded matters, D3 and D4 should not be liable and in any case P “has no right to recover” all the sums claimed (§22 of the Defence).

C.2. Ds’ affirmation evidence

44.  Each of D1, D2 and D3 filed an affirmation in opposition to P’s application for summary judgment.

45.  D1’s affirmation[28] was very short, consisting altogether 9 paragraphs. He confirmed the contents of D2’s affirmation, averred to no other factual matters save that he stressed that he was never a shareholder or director of Rensino and he did not know whether P all along represented Lee.

46.  Conspicuously and notably, in D1’s affirmation,

a. he said nothing to seek to refute P’s case and evidence on the Payment Agreement; in fact, he did not even mention it;

b. despite the fact that D1 personally signed the 2019 Loan Agreement, the 2019 Supplementary Loan Agreement, the 2020 Agreement and the 2021 Deed, he did not say anything at all about how they came to be agreed and signed by him;

c. in light of the fact that it is Ds’ case that the Loan amount was never “released or advanced” to him and D2, yet he did not say why he signed the Receipt Clause and signed the latter 3 written documents which by their pre-embles and/or contents acknowledged the Loan;

d. he gave no factual circumstances indicating any reason as to why P did not “released or advanced” the Loan to him and D2 despite the 2019 Loan Agreement having been signed;

e. he did not offer any explanation about Ds’ 20210505 Letter, Ds’ 20211230 Letter and Ds’ 20220222 Email, which 2 letters were written by him and the said email written on his behalf, in which the obligation to pay various sums was essentially acknowledged and payment at later date(s) was requested upon his and D2’s promise so to pay;

f. he did not mention, not to say explain, the 1^st & 2^nd and 3^rd Partial Payments of Interest to P; and

g. he did not mention at all any communication whatsoever by which he, or any one of Ds, pointed out or complained that the Loan has in fact not been “released or advanced” to him and D2.

47.  In D2’s affirmation, she first recounted the background of the 2018 SPA, stressed that she was not the beneficial owner of Rensino (who was D3), pointed out that under the 2018 SPA it was not stated that P was entitled to receive Lee’s share of the consideration on her behalf, and raised disputes as to the use of the land owned by D4.

48.  In respect of the crucial factual dispute of whether there existed the Payment Agreement, D2 barely denied it, and then essentially raised arguments that the Payment Agreement was impossible or incredible[29], and stressed that she has not actually received the Loan, nor had Lee indicated she had received half of the 2^nd Tranche Payment. In relation to P’s claim for the Balance of the S&P Payment and interest thereon, she said the payment obligations were on Rensino and not on herself or D1.

49.  Conspicuously and notably, in D2’s affirmation,

a. despite the fact that D2 personally signed the 2019 Loan Agreement, the 2019 Supplementary Loan Agreement, the 2020 Agreement and the 2021 Deed, she did not say anything at all about how they came to be agreed and signed by her;

b. and particularly, in light of the fact that it is Ds’ case that the Loan amount was never “released or advanced” to D1 and her, yet she did not say why she signed the latter 3 written documents which by their pre-embles and/or contents acknowledged the Loan;

c. she gave no factual circumstances indicating any reason as to why despite the 2019 Loan Agreement having been signed, the Loan was not “released or advanced” to D1 and her pursuant to it, as Ds now alleged;

d. she did not offer any explanation about Ds’ 20210505 Letter and Ds’ 20211230 Letter, written by D1 and her, in which the obligation to pay various sums was essentially acknowledged and payment at later date(s) was requested upon their promise so to pay;

e. she did not mention, not to say explain, the 1^st & 2^nd and 3^rd Partial Payments of Interest to P; and

f. she did not mention at all any communication whatsoever by which she, or any one of Ds, pointed out or complained that the Loan has in fact not been “released or advanced” to D1 and her.

50.  In her affirmation, the only signature D2 explained was her signature of the Receipt Clause, thus :

“26. Although page 4 of the 2019 Loan Agreement indicates that the 1^st Defendant and I have received the principal of HK$60 million, the 1^st Defendant and I only signed that page as part of the Loan Agreement at that time. In fact, the 1^st Defendant and I have never received the principal of HK$60 million, nor did the Plaintiff state that we did receive HK$60 million. The 1^st Defendant and I never agreed that the Plaintiff could use the long principal as the consideration of HK$60 million that Rensino shall pay the Plaintiff.”[30]

51.  The affirmation of D3 was also very short, consisting of also 9 paragraphs. He also stated that he did not know P had the right to act for Lee, that P had not lent the HK$60 million to D1 and D2. He then stated that

“Therefore, although the 4^th Defendant and I agreed to act as guarantors, there were no events that triggered the responsibilities of the 1^st Defendant and the 2^nd Defendant, and therefore the 4^th Defendant and I did not have any obligations which would require us to perform for the Plaintiff as guarantors.”[31]

He then said P and Lee breached the warranties under the 2018 SPA.

52.  Again, conspicuously and notably, in D3’s affirmation,

a. despite the fact that D3 personally signed the 2019 Loan Agreement, the 2019 Supplementary Loan Agreement, the 2020 Agreement and the 2021 Deed as a party thereto, he did not say anything at all about how they came to be agreed and signed by him;

b. he did not say whether he knew that the Loan was not “released or advanced” to D1 and D2, and whether as a guarantor to the Loan, he had made any enquiries;

c. in light of the fact that it is Ds’ case that the Loan amount was never “released or advanced” to D1 and D2, he did not say why he signed the latter 3 written documents which by their pre-embles and/or contents acknowledged the Loan; and

d. as the 100% shareholder and director of Rensino, he did not mention about any communication or action at all on the part of P and Lee to chase after the payment of the 2^nd Tranche Payment and the Balance of S&P Payment by Rensino from 2 May 2019 (due date of the 2^nd Tranche Payment and the date the 2019 Loan Agreement was signed) to the date of his affirmation.

C.3. Ds’ contentions at this hearing

53.  Ds contended that they have real and bona fide defences[32]:

a. As regards Claims 1 to 4, (i) P did not advance the Loan, there was and is no outstanding debt owed by D1 and D2 to P under the 2021 Deed, (ii) further or alternatively, the 2021 Deed is unenforceable for want of consideration, (iii) further or in the further alternative, insofar as the HK$60 million was purportedly applied by P to discharge Rensino from its payment obligation, it was invalid as neither Lee or Rensino was party to the 2021 Deed; the 2021 Deed therefore on this basis is also unenforceable for want of consideration.

b. As regards Claim 3 and Claim 4, (i) D1 and D2 are not liable for Rensino’s liabilities to P under the 2018 SPA or the 2019 Supplemental SPA, (ii) P has no authority to pursue Rensino’s liabilities under the 2018 SPA or the 2019 Supplemental SPA on behalf of Lee, and (iii) the 2021 Deed could not have validly extinguished Rensino’s liabilities under the 2 said SPAs, and as such, the 2021 Deed is unenforceable for want of consideration.

c. As regards D3 and D4’s liability as guarantors, the 2021 Deed is not enforceable against them in light of the non-existence of the subject matter of the principal contract.

D. Discussion

D.1. Triable dispute over the existence and contents of the Payment Agreement ?

54.  I have set out above P’s case and evidence thereon, and Ds’ case of bare denial of, and evidence concerning, or rather, the lack of evidence concerning, the Payment Agreement.

55.  Mr Whitehead contended[33] that the existence of the Payment Agreement and especially whether D1 and D2 effectively assumed the liability to pay the 2^nd Tranche Payment by entering into the 2019 Loan Agreement is a matter for trial, considering

a. D1 has never been a director or shareholder of Rensino and has no beneficial interest in Rensino; and

b. Although D2 was once a director and a nominee shareholder of Resino, she never had beneficial interest in Rensino, she therefore has no reason or motivation to assume personal liability for a sum payable by Rensino, “especially when the shares in D4 was already transferred to Rensino on 23 April 2019, before the 2019 Loan Agreement was made on 2 May 2019”[34].

56.  Mr Wong submitted that Ds’ assertion that there was no Payment Agreement is plainly unbelievable, as clearly shown by the documentary evidence before the Court and the conducts of Ds.

57.  Before this Court are:

a. The indisputable circumstances that (i) the 2019 Loan Agreement was made on the same date when the 2^nd Tranche Payment was due, ie. 2 May 2021, (ii) the amount of the Loan matched exactly the amount of the 2^nd Tranche Payment due to be made by Rensino, (iii) D2 was at the time a shareholder and director of Rensino, (iv) D3, the beneficial owner of 100% shareholding of Rensino, signed the 2019 Loan Agreement as a guarantor guaranteeing D1 and D2’s obligation to pay thereunder.

b. P’s allegation and evidence that the Payment Agreement was made at the request of D1 and D2, and that pursuant thereto the 2019 Loan Agreement was entered into.

c. P’s further allegation and evidence that after the 2019 Loan Agreement was signed he and Lee considered that Rensino had paid the 2^nd Tranche Payment in full and on time (see paragraph 36 above).

d. In all documentary evidence that followed, whether they be correspondence issued by the parties or contractual document : namely, (i) P’s 20210415 Letter, (ii) Ds’ 20210505 Letter, (iii) the 2021 Deed, (iv) Ds’ 20211230 Letter, (v) P’s 20220104 Letter, (vi) P’s 20220224 Letter, and (vii) P’s 20220503 Letter, the amount of the balance payment for the S&P or “land purchase” or “sale and purchase of 陸河祥盛針織有限公司” was invariably stated to be, and demanded by P, in the sum of HK$10,657,534.70, which could only be arrived at by treating the 2^nd Tranche Payment as having been paid.

e. D1 and D2 made the 1^st & 2^nd and 3^rd Partial Payments of Interest on the Loan.

58.  Against the above-mentioned overwhelming circumstances and evidence, it all the more behoves Ds to condescend into particulars as to what their case disputing the Payment Agreement is, and to show that the evidence in support is at least capable of belief, such as to satisfy the Court that there is a triable dispute. The matters put forth by Mr Whitehead (which essentially were those deposed to in D1 and D2’s affirmations) clearly fall very far short of what is required to raise a triable issue.

59.  In the premises, I have no hesitation to come to a clear view that there is no triable issue that the Payment Agreement was made as alleged by P.

D.2. “Land purchase” and “purchase and sale of Luhe Xiangsheng Knitting Co., Ltd. or陸河祥盛針織有限公司” meant the S&P

60.  In the parties’ correspondence mentioned above and in the 2021 Deed, there were references to outstanding balance price for the “land purchase” or “purchase and sale of Luhe Xiangsheng Knitting Co., Ltd. or陸河祥盛針織有限公司. For completeness, I will make an express finding at this juncture that those references in fact meant the outstanding balance price for the S&P, which is abundantly borne out by the evidence and there was no suggestion otherwise from any party.

D.3. Ds’ allegation that the Loan was not “released or advanced” triable or raises triable issues ?

61.  As can be seen above, this allegation that the Loan was not “released or advanced” by P to D1 and D2 is a main premise of Ds’ various contentions. I put the words “released or advanced” in quote as I understand that by those or similar words Ds meant that no cash or actual payment of money has ever been made by P to D1 and D2.

62.  In that connection, it was emphasized to this Court on behalf of Ds the propositions that “there can be no loan without the advancement of funds” and “if a loan as the subject matter of a deed did not exist in the first place as a debt, the execution of a deed would not perfect the same”[35].

63.  However, it is clear and trite law that

“The completion of a loan arrangement involves the advance of funds to the borrower and this is achieved by payment or transfer of the requisite amounts to the borrower or to a third party at his direction.” (my emphasis)

(§2-20 Goode on Payment Obligations in Commercial and Financial Transactions 4^th ed.[36])

64.  As there is no triable issue concerning the Payment Agreement, it follows that it has been established that at the request of D1 and D2, and agreed to by P, it has been agreed that P was to use the Loan for the payment by Rensino of the 2^nd Tranche Payment to P and Lee[37]. It has thus also been clearly established that such use of the Loan was at D1 and D2’s direction.

65.  It was contested by Ds that without a valid confirmation or formal receipt issued by Lee, there is no confirmation that the Loan indeed has been paid by P to himself and Lee as Rensino’s payment of the 2^nd Tranche Payment.

66.  However,

a. as set out in paragraphs 13 and 36 above, P has positively affirmed to the payment to himself and Lee, and that they have regarded that the 2^nd Tranche Payment was thereby paid by Rensino fully and on time;

b. there is no evidence, not even a suggestion, that P or Lee or both of them have in any way at any time pursued Rensino for payment of the 2^nd Tranche Payment after its due date of 2 May 2019;

c. all documentary evidence since 2 May 2019 stated or recorded a position that all concerned (including Lee and D3, the 100% shareholder of Rensino) treated the 2^nd Tranche Payment as having already been paid by Rensino. I said all concerned included Lee because Ds’ 20210505 Letter and Ds’ 20211230 Letter were addressed not only to P, but also to Lee, making mention and therefore informing Lee, among others, that the Balance of the S&P Payment was HK$10,657,534.70 (which, as said, was calculated on the basis that the 2^nd Tranche Payment had already been made);

e. Ds consistently acknowledged unequivocally in contractual written agreements and correspondence that the Loan was due and owing by D1 and D2; and

f. D1 and D2 made the 1^st & 2^nd and 3^rd Partial Payments of Interest.

67.  Considering the matters set out in the preceding paragraph, in my judgment, there is no triable or bona fide dispute that P has indeed, as he affirmed, used the Loan to pay to himself and Lee as Rensino’s 2^nd Tranche Payment.

68.  In the premises, there is no triable or bona fide dispute that the Loan has not been advanced.

D.4. Rensino’s liability to pay the 2^nd Tranche Payment to P and Lee has not been thereby effectively discharged ?

69.  As I understand it, Ds is raising this issue and is putting emphasize on whether Rensino’s liability has been effectively discharged and is spinning it in a number of manners : that Rensino was not involved in the 2019 Loan Agreement and was not a party to the 2021 Deed, that Lee was not a party to the 2021 Deed, and that there was no formal receipt issued by Lee as the 2^nd Tranche Payment was owed by Rensino to P and Lee, and that since the 2^nd Tranche Payment was not effectively discharged, there was want of consideration.

70.  I accept Mr Wong’s submission, and accordingly so hold, that this issue and its various spin-offs are non-issues.

71.  I so accept because, in my judgment, and as a matter of principle, once a borrower directed that the loan amount be paid by the lender to a third party and the lender accordingly so paid the loan amount over to that third party, the loan has been advanced, regardless of whether that payment to the third party in fact settled the underlying liability the borrower might or might not owe to that third party. In other words, this borrower cannot assert as against the lender that the loan was not “advanced”, or refuses to repay the loan on the basis, that for one reason or another the payment of the loan amount to that third party (per the borrower’s direction) turned out to be unable to settle the liability between the borrower and the third party.

72.  If I were wrong in my holding above, I would have held, as I so hold in paragraph 67 above, that the 2^nd Tranche Payment has been paid and its payment liability discharged by the payment of the Loan amount to P and Lee.

D.5. Potential disputes over certain legal principles not engaged

73.  Mr Whitehead has alluded extensively to the principles and cases concerning estoppel by deed, including, among others, whether Prime Sight Ltd v Lavarello [2014] AC 436 should be regarded as correctly decided, various UK cases decided after it, and the Hong Kong Court of Appeal case of Asgain Co Ltd v Cheng Ka Yan [2018] 4 HKC 56 in which Lam VP by postscript expressly mentioned that the CA had not received any submission on the correctness of Prime Sight in the application of the concept of estoppel to a receipt clause.

74.  The relevance of such principles of estoppel by deed to the present case was premised upon the fact that the Loan has not been “released or advanced” and that P was relying on estoppel by deed as a fallback contention. At the hearing, Mr Wong made it very clear that P’s primary position was that the Loan has been advanced per the Payment Agreement, as I alluded to above.

75.  As I analysed and held above that there is no triable issue that the Loan has not been advanced. The relevance or otherwise engagement of the principles of estoppel by deed falls away. Thus, the potential disputes over these principles and their application to the present case are not engaged. Therefore and without any disrespect to the rather extensive citation of cases and legal arguments skilfully presented by Mr Whitehead, I do not see the need, and I do not propose, to go into them here.

D.6. Triable issue raised by the inclusion of a “entire contract” clause in the 2019 Loan Agreement

76.  Ds relied on the “entire contract” clause in the 2019 Loan Agreement and contended that there is at least a triable issue that the Payment Agreement was thereby excluded.

77.  Clause 4.2 of the 2019 Loan Agreement reads:

“4.2 This Agreement sets out the entire agreement and understanding of the Parties hereto with respect to the transactions hereunder and supersedes any prior oral or written agreement, memorandum or understanding between the Parties hereto with respect to the transactions contemplated herein. Without the written consent of the Parties hereto, no modification or supplement can be made to this Agreement.” (my emphasis)

78.  The words I underline clearly shows that the ambit of this clause only covers “the transaction hereunder” and “the transaction contemplated herein”, which was the Loan. However, the Payment Agreement covered the parties’ agreement as to the use of the Loan after the same was obtained, and the use concerned using the Loan to pay off certain liability (the 2^nd Tranche Payment) owed by a third party (Rensino) to a fourth party (P and Lee).

79.  In my view, it is more than clear that the said clause in the 2019 Loan Agreement on its proper construction, in light of all the factual matrix, does not preclude the parties from concluding, performing or enforcing other dealings, arrangement or agreement outside of the Loan, and that the Payment Agreement is such agreement or arrangement outside the operation of this clause. I conclude that the said clause raises no triable issues or bona fide dispute.

D.7. The 2021 Deed was unenforceable for want of consideration

80.  As said above, one of the basis for contending that the 2021 Deed is unenforceable for want of consideration – that the Loan was not “released or advanced” – has been rejected as a matter over which there is no triable issue or bona fide dispute.

81.  The other basis contended was that the 2021 Deed was unable to discharge Rensino’s liabilities. It was submitted that

“insofar [sic] P is saying that consideration of the 2021 Deed lies in the discharge of Rensino’s payment obligation under the SPA, it is submitted that Ms Lee and Rensino being the parties to the SPA are not parties to the 2021 Deed. As such, Rensino could not have been validly discharged without the agreement of Rensino and Ms Lee …On this basis, no consideration would have been provided as well.”[38] (my emphasis)

82.  I do not find that such was what P said or was his case and thus find no basis for this submission and I reject it. Rather, Mr Wong has been submitting and relying on the trite law that no consideration is required for a deed (Chitty on Contract 34^th ed Vol. 1 §1-104; Treitel: The Law of Contract 15^th ed §3-172). I accept Mr Wong’s submission that such trite principle is to the facts of this case and hold that there is no triable issue that the 2021 Deed is not enforceable for want of consideration.

D.7. D1 and D2 have not assumed the liability of Rensino

83.  This is a bare assertion rather than an issue or dispute. Whether it be described as D1 and D2 assuming Rensino’s liability or described in any other way is neither here nor there; such assertion raises no defence or triable issue.

84.  As indicated above, I found no triable issue on the existence and performance of the Payment Agreement, which entailed D1 and D2 taking out a loan from P and from that loan paid the 2^nd Tranche Payment on Rensino’s behalf to P and Lee.

85.  As clearly shown by Ds’ 20210505 Letter, D1 and D2 themselves promised to pay P and Lee the sum of HK$10,657,534.70 and other sums by way of interest and requested for time to pay. Then, by the 2021 Deed, they have undertaken to pay this said sum, the interest thereon and the unpaid interest on the Loan.

D.8. Liability of D3 and D4

86.  In relation to D3 and D4’s liability, the only other contention raised was that “the 2021 Deed is not enforceable against them in light of the non-existence of the subject matter of the principal contract” (see paragraph 53(c) above). For the reasons expressed above, I do not accept that there is a triable issue over such a contention and thus I find no triable issue or dispute over the liability of D3 and D4 as guarantors.

E. Disposal

87.  In the premises, I dismiss Ds’ appeal with the order, on nisi basis, that Ds do pay the costs of P, with certificate for 2 counsel, to be taxed if not agreed.

88.  This Court thanks Mr Whitehead, Mr Wong and their junior counsel for their assistance.