STORCHEN CREDIT LTD AND OTHERS v. HIRANAND KAMLA LAL AND ANOTHER

HCA 11/2023

[2024] HKCFI 2498

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 11 OF 2023

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BETWEEN

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REASONS FOR DECISION

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1.  By a summons dated 27 February 2023 (“the Summons”), the Plaintiffs seek summary judgment against the 1^st Defendant Madam Hiranand Kamla Lal (“Madam Hiranand”) and the 2^nd Defendant Mr Ravine Lal Hiranand (“Mr Hiranand”) (collectively, “the Defendants”) for (i) outstanding sums due and owing under 2 Deeds of Guarantee dated 10 June 2021 (“the Guarantees”) which, as at 2 of December 2022, stood at HK$498,597,770; (ii) interest; and (iii) costs.

2.  At the outset of the hearing, the Court granted leave to the Plaintiffs to file the 3^rd affirmation of Lau Ho Yin (“Mr Lau”), a director of the 6^th Plaintiff (“P6”) providing evidence of the recent sale of the Property described in §11 below.

3.  The Defendants no longer have legal representation. However, Madam Hiranand and Mr Hiranand filed affirmations on 12 May 2023 and 18 May 2023 respectively to oppose the application.

4.  Shortly after the commencement of the hearing, Madam Hiranand appeared in person. Mr Hiranand was said to be unwell and was absent.

5.  On 11 September 2024, the day prior to the hearing, D1 had sent a fax consisting of 33 pages[1] to the Court at 19:37 hours.

6.  At the conclusion of the hearing, the Court granted summary judgment in the amount outstanding under the Guarantees with costs on an indemnity. My reasons appear below.

Relevant background

7.  Under a Facility Agreement dated 8 June 2021 (“FA”) made between (1) Kamsh (PTC) Limited (“Kamsh”) as Borrower, (2) the Defendants as Guarantors, (3) P1 as Facility Agent, (4) P1, P2, P3 and P4 (collectively as Lenders), (5) P5 as Arranger, and (6) P6 as Security Agent, Kamsh borrowed HK$420 million (“the Loan”) from the Lenders repayable 12 months from the drawdown date.

8.  Kamsh is wholly owned by Madam Hiranand.

9.  Negotiations between the parties for the Loan commenced in early 2021. They used term sheets to record the main terms at every stage.

10.  On 8 June 2021, Madam Hiranand and her legal advisor reviewed the draft FA. Madam Hiranand was concerned that Kamsh might not be able to repay principal, interest and the “Arrangement Fee” on time under the terms of the draft FA and requested more lenient terms to which the Plaintiffs agreed.

11.  The FA was executed on 8 June 2021. One of the conditions precedent of the FA was the due execution of the Legal Charge in favour of P6.

12.  On 10 June 2021, before the Mortgage was executed, Kamsh assured P6 that the Mortgage over 8 Purves Road, Hong Kong (“Property”), is binding and enforceable under BVI law. It provided P6 with a copy of its board resolution of 7 June 2021, a legal opinion dated 10 June 2021 from BVI lawyers of the enforceability of the Mortgage and Madam Hiranand’s letter of 10 June 2021 confirming and ratifying the Mortgage in her capacity as sole beneficial owner of Kamsh.

13.  Another condition precedent of granting the facility under the FA was the due execution of a Guarantee by each of Madam Hiranand and Mr Hiranand in favour of the Facility Agent (P1).

14.  On 10 June 2021, the Mortgage and the Guarantees were duly executed and Kamsh drew down the Loan.

15.  Under the terms of the FA, interest for the 1^st Interest Period (in excess of $4.7 million) and an “Arrangement Fee” ($2.1 million) became due and payable on 10 December 2021. Prior to that date, by letters dated 22 and 26 November 2021, Kamsh’s solicitors had requested an extension or top-up which requests the Plaintiffs refused.

16.  Kamsh defaulted on 10 December 2021, entitling P6 to enforce the Mortgage.

17.  A demand letter dated 13 December 2021 was sent to Kamsh and its solicitors giving notice that unless the amounts and interest were paid within 7 days, enforcement action would be taken without further notice. There was no reply and no payment was made.

18.  P6 issued HCMP 2/2022 on 3 January 2022 (“HCMP 2”) to enforce the Mortgage against Kamsh.

19.  Despite their enforcement efforts, the Plaintiffs still tried to assist the Defendants to pay off the Loan by introducing potential financiers and investors to the Defendants on 20 January 2022 and 10 February 2022 and arranging for a potential financier to visit and inspect the Property in May 2022.

20.  On 7 June 2023, Cheng J heard HCMP 2 which Kamsh resisted based, inter alia, on an oral agreement and a counterclaim:

(a) Madam Hiranand alleged that shortly before the parties signed the FA, the Mortgage and the Guarantees, she reached an oral agreement with a Mr Daniel Mok of CBRE on behalf of P6 and the Lenders. The parties orally agreed that the Loan would be extended until Kamsh could refinance the Loan or sell the Property, and no enforcement action would be taken under the FA, the Mortgage, or the Guarantees in the meantime (“the Collateral Agreement”);

(b) The Plaintiffs wrongfully prevented Kamsh from repaying the Loan by telling investors not to refinance or purchase the Property. The allegations are relied on to support a counterclaim for breach of the Collateral Agreement, breach of implied term of cooperation and the prevention principle, a clog on the equity of redemption, a defence of equitable set-off, a defence precluding enforcement by P6, and the defence of unclean hands.

21.  Cheng J rejected the several defences raised, finding them “incredible” and entered summary judgment against Kamsh on 30 June 2023 (“the Judgment”).

22.  Kamsh unsuccessfully applied for a stay of execution pending appeal. Cheng J dismissed the application on 3 November 2023, again finding those defences “incredible”.

23.  The Court of Appeal dismissed Kamsh’s appeal against the refusal of a stay of execution on 10 April 2023. Kamsh’s appeal against the Judgment is still pending although Kamsh has not taken any steps to prosecute the appeal after the April hearing.

24.  Meanwhile, on 2 December 2022, the Plaintiffs’ solicitors issued demand letters to the Defendants, stating that Kamsh owed HK$498,597,770 under the FA and demanding that the Defendants pay the same under the Guarantees.

25.  When no payment was made, the Plaintiffs commenced these proceedings on 6 January 2023 and took out the Summons on 27 February 2023.

Applicable legal principles

26.  It is trite that in an application for summary judgment, it is for the defendant to show that there is a fair probability or reasonable grounds that a bona fide defence exists. The evidence adduced must be credible. Mere assertions in an affidavit are insufficient: John Joseph McGee v Nold (HK) Ltd [2022] HKCFI 3598 at §21; Hong Kong Civil Procedure 2024 at §§14/4/3, 14/4/4, 14/4/9 and 14/4/9A.

27.  Where the defence rests upon a collateral oral agreement, the defendant’s threshold onus is compounded by the onus to strictly prove such agreement: see per Nazareth JA in Bank of India v Surtani Marlidhar Parmanand t/a Ajanta Trading Corp [1994] 1 HKC 7, cited in Asia Develop Limited v Glory Mark Investment (Group) Limited [2021] HKCFI 1572 at §37 and HKCP at §14/4/4.

Grounds of defence

28.  The Defendants’ affirmations filed in these proceedings referred to and relied on their evidence filed in HCMP 2 in relation to the Collateral Agreement and the “poisoning the well” counterclaim.

29.  Madam Hiranand’s affirmation largely concentrated on the Collateral Agreement defence. It was filed approximately 6 weeks prior to the Judgment. Mr Hiranand’s affirmation dealt almost exclusively with the “poisoning the well” counterclaim. Their evidence is summarised below.

Collateral Agreement

30.  Madam Hiranand relied on all the factual disputes and triable issues raised in HCMP 2 and the 1^st, 2^nd, 3^rd and 4^th Affirmations[2] filed therein in their entirety to show that Kamsh and, therefore, Madam Hiranand have a good defence on the merits as to whether the sum due under the FA is in fact due.

31.  Madam Hiranand summarised this defence in §18 of her affirmation in the following terms:

“18.1. by a collateral agreement, common assumption and/or assurance entered into between P6, the Lenders and Kamsh in around mid-2021, it was agreed that the Lenders would advance the Bridging Loan as transitional financing to Kamsh;

18.2. that Kamsh would use reasonable endeavours to seek alternative longer term financing or to sell the Property and P6 would use reasonable endeavours to introduce potential longer-term financiers to Kamsh; and

18.3. until such time as Kamsh is able to obtain longer-term financing or sell the Property, the Bridging Loan would continue to be extended and P6 would refrain from taking any enforcement action.

(collectively, “Collateral Agreement”).”

32.  She relied on the terms of the Collateral Agreement set out in 13 to 15 of her 1^st Affirmation.

33.  Cheng J summarised the material aspects of the Collateral Agreement and Madam Hiranand’s explanation as to why those terms were not recorded in writing in §§35-37 of the Judgment which I gratefully adopt and reproduce the same below:

“35. The material aspects of the Collateral Agreement were that:

35.1 the Loan would be secured by a first legal charge over the Property and two personal guarantees from Madam Hiranand and Mr Hiranand;

35.2 during the term of the Loan, the Defendant would use reasonable endeavours to seek alternative longer-term financing and/or to sell the Property at a reasonable price on the market in order to pay off the Loan principal and interest, and the Plaintiff would use reasonable endeavours to locate and introduce potential lenders who could offer longer-term financing to the Defendant;

35.3 if the Defendant had used the aforesaid reasonable endeavours, or conversely, the Plaintiff had failed to use the aforesaid reasonable endeavours on its part, and the Defendant had not successfully obtained longer-term financing or sold the Property at a reasonable price, then:

35.3.1 the Loan would continue to be extended on its existing terms until such time as the Defendant was able to obtain longer-term financing or to sell the Property at a reasonable price, and

35.3.2 the Plaintiff would refrain from taking any enforcement action (1) under the Loan agreement, including but not limited to declaring the Loan immediately due and payable, or (2) in respect of the first legal charge over the Property and/or the personal guarantees, until such time as the Defendant was able to obtain longer-term financing or to sell the Property at a reasonable price;

35.4 these terms were to bind the parties notwithstanding any terms to the contrary in any written agreements to be entered into between the parties, including terms precluding oral modification of the said written agreements.

36. Madam Hiranand says that the Plaintiff and the Lenders did not want to record some of these terms, in particular in relation to the extension of the Loan and the non-enforcement of the Loan agreement and the first legal charge over the Property, because they were “rather unconventional” terms that the Plaintiff and the Lenders would not always offer to borrowers. She also says that the Plaintiff and Lenders did not want to alter their “standard form written agreements” to incorporate the special terms so as to avoid setting a precedent.

37. Madam Hiranand says that she executed the Facility Agreement and the Mortgage in consideration of; and in reliance on, the Collateral Agreement.”

34.  Cheng J found the Collateral Agreement “incredible”. In so far as the Defendants rely on that same ground as one of their defences to the Guarantees, it cannot possibly succeed.

35.  Mr Cristian Tsang, counsel for the Plaintiffs, highlighted 6 grounds for concluding that the Collateral Agreement defence is incredible. Not surprisingly, since the Defendants essentially relied on their evidence filed in HCMP 2, the 6 grounds echo the meticulous and comprehensive reasoning set out in §§39-46 of the Judgment for rejecting that defence.

36.  For present purposes, it suffices to summarise the reasons why the Collateral Agreement is incredible as follows:

(1) It is totally uncommercial. On Madam Hiranand’s evidence, the Loan is entirely open-ended and unsecured.

(2) That parties would reach an oral agreement and then execute comprehensive, professionally drawn legal documents to contradict its key terms defies belief.

(3) The Defendants’ evidence is self-contradictory and inherently implausible:

(a) If Madam Hiranand’s evidence referred to in §20 (a) above is to be believed, why should she express concern[3] just before the signing of the FA if the Collateral Agreement was already in place as she asserts?

(b) The Defendants have not explained the basis on which Mr Mok of CBRE acquired authority to act on behalf of the Lenders or why Mr Mok was conducting negotiations when there were parallel negotiations between P6 and Kamsh regarding the terms of the Loan.

(4) It is remarkable that there is not a single document suggesting the existence of the Collateral Agreement when the parties:

(a) documented their negotiations with term sheets[4];

(b) communicated through email and WhatsApp when negotiating or concerning the Loan[5];

(c) were legally represented throughout, it being inconceivable that the legal representatives would not have recorded the Collateral Agreement in any manner.

(5) The Collateral Agreement is contradicted by objective contemporaneous evidence such as the documents referred to in §12 above and the requests made on 22 and 26 November 2021 referred to in §19 above.

(6) Tellingly, notwithstanding written communications[6] between the parties or their representatives between 22 November 2021 and 10 January 2022, the very first time that the Collateral Agreement surfaced was not until D1 1^st dated 31 May 2022 and filed on 1 June 2022.

The “poisoning the well” counterclaim

37.  The essence of this defence is that the Plaintiffs prevented Kamsh from repaying the Loan in that since November 2021, Mr Matthew Cheung of C & S Co had been telling investors “not to get involved with the Property” (and, adopting the sobriquet used in D1 2^nd [7]), thus “poisoning the well”.

38.  Mr Tsang submitted that that defence is a post-hoc invention. The Defendants’ case[8] is that they first realised that the Plaintiffs were putting off investors in April and May 2022. However, D1 1^st filed on 1 June 2022 made no mention of this. Instead, it states that the Plaintiffs introduced investors to the Defendants, most recently in May 2022[9].

39.  Second, Mr Hiranand’s affirmation is replete with names of individuals[10] and financiers reportedly informing him that Mr Cheung had spread negative sentiments in the market (for financing or real estate) regarding the Property. However, despite extensive name-dropping, the allegations are based on multiple hearsay with little content and, relevantly, there is a total absence direct affirmation evidence from any individual, family office or firm said to have been approached by Mr Cheung and warned off from buying the Property or financing Kamsh.

40.  Instead, there are WhatsApp exchanges between Mr Lau and the Defendants’ handling solicitor on 12 and 17 May 2022 showing that Mr Lau was instrumental in introducing a potential financier to the Defendant’s solicitor and arranging a site visit to the Property.

41.  Third, the Lenders seek repayment of the Loan. It beggars belief that the Lenders would want to undermine that objective. Rather, as noted in §19 above, there is evidence of the Plaintiffs taking steps to assist Kamsh to secure refinancing and to introduce potential investors to the Defendants.

42.  Madam Hiranand who addressed the Court at the hearing did not make any submissions in relation to the defences she and Mr Hiranand had advanced in their affirmations.

The new evidence

43.  The Plaintiffs referred to Lau 3^rd that was admitted into evidence and explained that they were only able to provide the evidence now as the sale of the Property was only completed on 30 August 2024. §13 of Lau 3^rd shows that the amount outstanding under the FA as of 9 September 2024 stood at HK$633,407,950.41.

44.  After applying the sale proceeds towards that amount, the principal remaining outstanding under the FA and the Guarantees as of 9 September 2024 is HK$273,407,950.41. The Plaintiffs therefore seek summary judgment in respect of that amount.

45.  Madam Hiranand complained that she was not given advance notice of the sale of the Property and professed to have been taken by surprise to learn ‘very recently’ that it had been sold for only $360 million. She requested an adjournment so that she could be legally represented.

46.  Mr Tsang (who represented the Plaintiffs at the 2 hearings in the CA in relation to their stay of execution appeal) informed the Court that in her affirmation filed on 5 August 2024 in the Court of Appeal proceedings (CACV 236/2023), Madam Hiranand stated that she was aware of the sale by the Receivers.

47.  On that basis, Madam Hiranand has known for more than a month about the sale. She was also well aware of the hearing today, having been present on 31 May 2024 when the hearing date was fixed. Had she been serious about having legal representation, she has had ample time to do so. I see no reason for granting the adjournment requested.

Conclusion

48.  As the Defendants have not shown by credible evidence that there is any bona fide defence to the Plaintiffs’ claim, the Plaintiffs are entitled to enter summary judgment against the Defendants in the amount of HK$273,407,950.41.

49.  The Plaintiffs are entitled to indemnity costs under §16.01 (iii) of the FA. Accordingly, costs are awarded on an indemnity basis.

50.  The papers lodged for this hearing include the Plaintiffs’ statement of costs for summary assessment. I consider summary assessment appropriate for this case.

51.  Accordingly, (i) the Plaintiffs are directed (if they have not already done so) to serve a copy of their statement of costs on the Defendants within 7 days of these Reasons; (ii) the Defendants are directed to lodge their statement of objections limited to one page within 14 days thereafter.