INTEGRATED CAPITAL (ASIA) LTD v. CHAN TING

HCA 1778/2022

[2024] HKCFI 3242

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1778 OF 2022

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DECISION

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A. Introduction

1.  This appeal concerns 2 term loans (the “1^st Loan” and the “2^nd Loan”, and collectively the “Loans”)  advanced by the plaintiff (“P”)  to the defendant (“D”), and 2 undated cheques which D issued to P as security of the same (the “Cheques”).  By summons of 27 November 2023 (the “Summons”), P sought summary judgment against D.  Having heard parties, Master K W Wong granted D unconditional leave to defend (the “Decision”).  By Notice of Appeal of 4 March 2024, P appeals against the Decision.  P seeks either summary judgment be entered against D, or that D be ordered to pay in the sum claimed (or any other sum which the Court may order)  as condition for leave to defend.

2.  This is the hearing of the appeal.  Mr Jonathan Chang SC leading Mr Martin Ho and Mr Adrian Kwan appeared for P.  Mr William Wong SC leading Mr Adrian Lai and Mr Martin Lau appeared for D.

B.  The parties

3.  P is a licensed money lender.  It is the lender of the Loans.  Mr Yam Tak Cheung (“TC Yam”)  is its director and majority shareholder.

4.  D is the borrower of the Loans. 

5.  Relevant to D’s defences are the following additional background facts:

(a)  D’s parents are Mr Chan Tung Mei and Madam Cheung Kwai Lan (“Father” and “Mother”, and collectively the “Parents”);

(b)  The Parents are the founders of a listed company called Sinopharm Tech Holdings Limited (“Sinopharm”, which abbreviation includes the same entities before previous changes of names);

(c)  D and Parents were directors and shareholders of Sinopharm;

(d)  The Parents held their interests in Sinopharm through a corporate vehicle called Best Frontier Investments Limited (“Best Frontier”). They held the entire 910 shares in it, 1 by Father, and 909 by Mother (“Father’s BF Shares”, “Mother’s BF Shares”, and altogether the “Best Frontier Shares”);

(e)  Another substantial shareholder of Sinopharm was TC Yam.  He held his interest therein via his company Integrated Asset Management (Asia)  Limited (“IAMA Limited”).  Round about the time of the 1^st Loan, IAMA Limited held 10.76% of the shares in Sinopharm;

(f)  In February 2022 prior to the transfers described below, Best Frontier held 632,920,856 shares in Sinopharm;

(g)  On about 17 March 2022, D and Mother respectively transferred to Best Frontier 23,076,923 and 41,366,585 (64,443,508 in total)  of their shares in Sinopharm.  After the transfers, Best Frontier held 697,364,364 shares in Sinopharm (approximately 15.37% of the shares in Sinopharm, the “Sinopharm Shares”).

C.  The pleadings and affirmations

6.  The present Writ was issued on 16 December 2022.  A Statement of Claim was indorsed therein.  On 8 November 2023, the Statement of Claim was amended (the “A-SoC”).

7.  D filed his Defence on 17 May 2023.  It was amended and re-filed on 31 January 2024 (the “A-Def”).

8.  The Amended Reply was filed on 27 June 2024.

9.  In support of the Summons and in reply, P has filed 2 affirmations of Mr Yip Lung Sang (“LS Yip”, “Yip/Aff1” and “Yip/Aff2”)  and one affirmation of TC Yam.  LS Yip describes himself as an authorised representative of P in this action.  He also says that he oversees the transaction in relation to the Loans.

10.  In opposition D has filed one affirmation (“D/Aff”).

D.  Parties’ cases

11.  As said, P’s claim concerns the 1^st and 2^nd Loans which it has advanced to D.  They were advanced pursuant to 2 sets of loan agreements and written memoranda dated respectively 10 February 2021 (the “1^st LA” and “1^st LM”)  and 18 November 2021 (the “2^nd LA” and “2^nd LM”, and the 1^st LA and 2^nd LA are collectively referred to as the “LAs”).  The principal sums were respectively HK$10 million and HK$3 million.  The terms were 1 month and 6 months respectively.  The draw-down and advancement dates coincide those of the documentations.  On the date when each of the Loans were advanced, D provided P with an undated cheque in the amount of the principal (the “1^st Cheque” and the “2^nd Cheque”, and collectively the Cheques mentioned above).  The Cheques were provided as security.  P says that D has failed to repay the Loans.  On 11 November 2022, P presented the Cheques.  Both were dishonoured.  The reason was stated to be “Refer to drawer”.

12.  In the original Statement of Claim, P only sued D for repayment of the Loans and interests(the“Loans Claim”). In the A-SoC, §19 has been added.  P thereby sues D also for the 2 dishonoured Cheques (the “Dishonoured Cheques Claim”).

13.  D does not dispute the advancement of the Loans.  The factual basis of his case may be summarised as follows:

(a)  At the material time, Sinopharm was in financial difficulties. D approached P for the 1^st and 2^nd Loans.  He managed to obtain them;

(b)  Sinopharm’s financial situation did not improve.  Negotiation ensued.  An “understanding and/or agreement”[1] was reached:  repayment of the Loans be postponed, a third loan in the sum of HK$10 million (the “3^rd Loan”)  be granted, and securities to be provided for all the loans (1^st, 2^nd and 3^rd included).  The securities were intended to be in 2 forms: one being over several landed properties owned by the Parents (the “Property Mortgage”), and the other being over Mother’s BF Shares (the “Share Mortgage”);

(c)  Subsequently, P did not insist upon having the Property Mortgage.  Due to the further Sinopharm shares injected by D and Mother into Best Frontier (which after the transfers held the Sinopharm Shares), the value of the 909 shares was regarded as sufficient as security;

(d)  In respect of the above, D signed an addendum of the 1^st and 2^nd Loans[2] (the “Addendum”), a loan agreement and a memorandum for the 3^rd Loan (“3^rd LA” and “3^rd LM”), Mother executed documents for the Share Mortgage in favour of P, and Best Frontier executed documents in favour of P in respect of the Sinopharm Shares (the “Share Charge”);

(e)  Despite the above, P in the end did not advance the 3^rd Loan;

(f)  On 27 July 2022, D had a meeting with P’s representatives. TC Yam was one of them.  The Global Settlement Agreement was orally agreed.  Its main terms included the following:

(i)  The ownership of Best Frontier would be transferred from Parents to one Lam Yui Keung (“YK Lam”);

(ii)  YK Lam was TC Yam’s nominee;

(iii)  D and Mother would resign as directors of Sinopharm;

(iv)  The agreement in relation to the 3^rd Loan need not be performed;

(v)  As agreed by TC Yam on behalf of P, the 1^st and 2^nd Loans would be waived;

(vi)  TC Yam would inject HK$4 million into Sinopharm;

(g)  It is an implied term of the Global Settlement Agreement that upon D and Parents performing their parts thereof, P would refrain from presenting the Cheques;

(h)  Parents subsequently signed blank forms of instrument of transfer and sold notes for the Best Frontier Shares.  YK Lam signed the bought notes;

(i)  D and Parents also resigned as directors of Sinopharm;

(j)  There were non-compliance of the Money Lenders Ordinance, Cap 163 (“MLO”), and in particular sections 18(1), 19(1)  and 7 thereof.

14.  I have mentioned above that the Dishonoured Cheques Claim are added by §19 of the A-SoC.  To that D pleads in §36A of the A-Def as follows:

“Paragraph 19 [of the A-SoC] is denied. It is averred that:

(a)  The 1^st Cheque or 2^nd Cheque were delivered only on the condition that the 1^st and 2^nd Loans remained payable. As the 1^st and 2^nd Loans have already been settled by way of the Global Settlement Agreement and/or the enforcement of the Share Charge, [P] was obliged to return the 1^st Cheque or 2^nd Cheque to [D].

(b)  Further or alternatively, [D] was no longer under any obligation to honour the 1^st Cheque or 2^nd Cheque by reason of the Global Settlement Agreement.”

15.  Arising from the above, and as summarised by Mr Wong in his written submissions[3], D’s defences are as follows:

“(a)  Firstly, the Cheques were given to [P] on the condition that the same would be presented only if the 1^st and/or the 2^nd Loans remain payable (“Condition”); and

 (b)  Secondly, the Condition was not met at the time when [P] presented the Cheques for payment because the Loans had already been settled by the Global Settlement Agreement and/or through enforcement of the security[4].

 (c)  Further or alternatively, the Loans were not enforceable for want of compliance with the [MLO][5].

E.  The Summons

16.  As seen above, P’s claim after amendment comprises both the Loans Claim and the Dishonoured Cheques Claim.

17.  In the Summons, P seeks summary judgment on the Loans Claim, and alternatively the Dishonoured Cheques Claim.

F.  The applicable law

18.  Counsel have no dispute over the general principles governing applications for summary judgments.

19.  Given the issues involved in the present appeal, those specific considerations pertaining to dishonoured cheques may however be highlighted:

(a)  A bill of exchange is defined in section 3(1)[6] of the Bills of Exchange Ordinance, Cap 19 (“BOEO”).  A cheque is a particular form of bill of exchange – section 73[7] of the BOEO.  Read together, the 2 sections inform us that a cheque is an unconditional order in writing requiring the bank to pay on demand, or at a fixed or determinable future, a sum certain in money to a specified person – and see Prosperity Lamps & Components Ltd v Rotegear Corp Ltd [2000] 2 HKC 638, 640I-641B;  

(b)  Cheques are not issued in vacuum.  There are normally underlying transactions which require their issue for discharge or performance of duties and obligations, or which otherwise put their issue in context;

(c)  The obligations created by a cheque are however distinct from those which the underlying transaction gives rise to.  As observed and reiterated recently by G Lam JA in T v W[2022] 1 HKLRD 610 at §26:

“A bill of exchange is a separate and distinct contract from the underlying transaction. An unliquidated cross-claim under the underlying agreement is no defence to an action on the bill. A bill is treated as the equivalent of cash and moreover is so regarded generally.”

(d)  A cheque, being a distinct contract, is hence equally subject to the parol evidence rule.  Extrinsic evidence is, in general, inadmissible to prove that the terms of the contract differs from those expressed in writing on the cheque – Lam Tai Kwan v Lo Wai Kit [2007] 1 HKLRD 367, per Le Pichon JA in §10;

(e)  The above is subject to one important exception.  The parol evidence rules does not apply:

“where the evidence is of a condition precedent to the contract, that is, a condition which prevents the coming into force of the contract contained in the bill of exchange.”

(f)  That exception is regulated by sections 21(2)(b)  and (3)  of the BOEO, which provide that:

“(2)  As between immediate parties, and as regards a remote party other than a holder in due course, the delivery—

…

(b)  may be shown to have been conditional or for a special purpose only, and not for the purpose of transferring the property in the bill;

but if the bill is in the hands of a holder in due course, a valid delivery of the bill by all parties prior to him, so as to make them liable to him, is conclusively presumed.

(3)  Where a bill is no longer in the possession of a party who has signed it as drawer, acceptor, or indorser, a valid and unconditional delivery by him is presumed until the contrary is proved.”

(g)  Section 21(2)(b)  has to be read together with and subject to sections 3(1)  and 73 of the BOEO.  In using the word “conditional”, section 21(2)(b)  is referring not to the terms of the bill or cheque, which must be unconditional to satisfy the definitions of sections 3(1)  and 73, but to the terms on which possession is transferred to the transferee – Dextra Bank v Bank of Jamaica [2002] 1 All ER (Comm)  193, per Lord Bingham and Lord Goff at [19];

(h)  The purports and effects of section 21(2)(b)  have been explained and summarised in Chalmers & Guest on Bills of Exchange and Cheques(19^th Edn)  at §2-152, as follows:

“By para.(b)  it may be shown that the delivery was conditional or for a special purpose only, and not for the purpose of transferring the property in the bill. Thus it may be shown that the delivery was in escrow, i.e. that the instrument was to be delivered so as not to take effect as a bill until a certain condition should have been fulfilled … The condition or special purpose must, however, be communicated by the transferor to the transferee. A bill may also be delivered conditionally as collateral security, it being agreed that it will become operative only in the event of default. Upon fulfilment of the condition, a conditional delivery becomes complete and takes effect at that time.”

(i)  On the need for communication of the condition or special purpose, Dextra Bank is cited in Chalmers & Guest.  Mr Chang also highlights the same ([19] Dextra Bank), that:

“It seems clear that any condition or special purpose must be communicated by the transferor to the transferee, since the commercial efficacy of the transaction depends on the transferee knowing that he may not, at least for the time being, present or negotiate the bill: see Equitable Securities Ltd v Neil [1987] 1 NZLR 233”;

(j)  It has been judicially observed that section 21(2)(b)  only offers the drawer a very limited defence.  In Li Yu v Hui Yan Sui William (HCA 993/2009, 12 October 2009), Master Marlene Ng (as she then was), having referred to section that subsection, observed in §26 that:

“This is plainly a very limited defence. As explained by the Court of Appeal in Lin Hsien Tseng v So Sin Mui Bonnie [2004] 4 HKC 532, 535, the defendant had to establish that the parties ‘intended that the "cheque" should be held in escrow by the payee such that the document did not have the qualities of a cheque at all as it had not been delivered. Certainly it is not enough to refer to the oral testimony of conditions which have allegedly been imposed before the cheque can be presented for payment. The question which has to be determined in this action is whether the cheque in question was delivered in escrow or whether an attempt was being made to orally attach conditions to the payment of the cheque’.”

(k)  That distinction between permissible proof of delivery in escrow on the one hand, and impermissible attempt to import and prove oral conditions in defeasance of a party’s liability on a cheque on the other, has also been explained in Lam Tai Kwan at §10 and SY Chan Ltd v Choy Wai Bor [2001] 3 HKLRD 145 at §26;

(l)  But limited though the defence may be, illustrations can be found showing its recognition:

(i)  In Alsager v Close 152 ER 600, a bill of exchange was deposited with the defendant by a bankrupt.  It was deposited as an indemnity to a third party against a bond which the third party had executed jointly with the bankrupt to the petitioner creditor.  The defendant refused to deliver up the bill on the demand of the assignees of the bankrupt, although they showed him the bond in a cancelled state.  The defendant then discounted the bill and raised £800 upon it.  The assignees for the bill sued in trover for its return.  At pages 603-604 of the judgment, Lord Abinger C.B. observed that:

“The bill was deposited with the defendant for a special purpose, and his duty was to hold it until that purpose was determined. I do not think that a man who holds a bill for a particular purpose of this nature has a right, without authority, to go and receive money on the bill. I think, therefore, the receipt of the £800 was an actual conversion …”

(ii)  In Millennium Commodity Trading Ltd v BS Tech Pte Ltd [2017] SGHC 58 Coomaraswamy J, having cited Alsager, Clifford Chance v Silver [1992] 2 Bank LR 11 and Marina Sports Ltd v Alliance Richfield Pte Ltd [1990] 1 SLR(R)  385, observed at §76 that:

“It can be seen from these cases that it is possible to effect conditional delivery of a bill where that bill is intended as a form of collateral for an obligation to pay arising from an underlying contract, whether that contract is a bond (Alsager), a contract for the sale of land (Clifford Chance)  or a contract for the brokerage of a sale of a chattel (Marina Sport). But these cases also demonstrate that the intention to effect conditional delivery must be objectively established. In each of these cases, it was objectively clear that the transferee had taken physical delivery of the bill subject to an express condition which the transferor had clearly attached to the delivery.”

(iii)  In Phoneyork Company Ltd v Chesson International (Holdings)  Ltd (HCA 2192/2007, 21 August 2008)  at §§7-10 and 39-40, and Xie Shili v Cheung Wai Keung [2018] HKCFI 2431 §§14-19, the Courts were satisfied that arguable defences had been raised to the effects that the cheques concerned were “sincerity cheques”, so that their deliveries were conditional under s.21(2)(b), so that unconditional leaves to defend were granted;

(iv)  The question as to whether a delivery is conditional is indeed fact-sensitive:

(1)  As observed by A Cheung J (as the CJ then was)  in Phoneyork at §§40 and 42:

“40. … If the defendant’s story is accepted, the cheque was never meant to be handed over to the vendor. Put in legal terms, there was no delivery or effective delivery. Or, delivery was conditional …

…

42.  It is relatively rare for the court to give leave to defend in a dishonoured cheque case.  But each case depends on its own facts and the applicable principles are the same …”

(2)  As observed by Deputy Judge Victor Dawes SC in Xie Shili at §19:

“As demonstrated from the case law referred to above, the idea that the provision of a cheque is only a symbolic gesture is not inherently inconceivable. It all depends on the underlying circumstances …”

20.  I apply the above.

G.  The Conditional Delivery Defence

21.  I consider the Conditional Delivery Defence first.

G.1.   The approach

22.  The Conditional Delivery Defence is not purely a legal one.  It consists of a number of factual constituent elements.  The prime ones are whether the Property Mortgage had been insisted upon (D says no and P says yes), whether the 3^rd LA has been entered into (D says yes and P says no because Mother had failed to provide the Property Mortgage), whether the Global Settlement Agreement existed (D says yes and P says no), whether the Share Charge existed and if so whether P had enforced the same through acquisition of the Sinopharm Shares via YK Lam as TC Yam’s nominee (D says yes and P says no).  Those facts are, as indicated, hotly disputed.  Extensive competing evidence has been filed.  Certain contemporaneous documents have also been produced (notably the Addendum, the 3^rd LA, 3^rd LM, and various documents relating to the Share Mortgage and Share Charge)  which quite clearly show that there had been negotiation for postponement of the repayment or even settlement of the Loans. The resolution of those issues on affirmations without a trial is clearly unrealistic.

23.  In the course of the hearing, I invited Mr Chang to assist me as to how this Court should approach those factual disputes.  Fairly and perhaps also realistically, he invited this Court to assume the constituent facts in D’s favour.  He submitted that even on that approach, summary judgment should still be entered against D.  The crux of the question, as Mr Chang put it, is whether D has established any triable cheque-specific defence[8].

G.2.   Parties’ submissions in gist

24.  Mr Chang’s submissions run thus[9]: Valid and unconditional delivery of the Cheques is presumed under section 21(3)  of the BOEO.  The Cheques were delivered in 2021.  D himself accepts that they were given and delivered as security for the Loans.  It is not pleaded that they were delivered in escrow.  Such a plea cannot be reconciled with D’s acceptance that the Cheques were effective security.  The post-delivery Global Settlement Agreement, which took place subsequently in 2022, could not have the effect of rendering the hitherto unconditional deliveries conditional.  Any condition or special purpose were in any event not communicated.  Even if the deliveries of the Cheque had originally been conditional upon the Loans being payment, they ceased to be upon maturity of the 1^st and 2^nd Loans respectively on 10 March 2021 and 18 May 2022.

25.  Mr Wong’s reply, at in core, is that P has got the basic premise (that the deliveries of the Cheques were unconditional to start with)  wrong.  Mr Wong relies on the context leading to their issue, the terms of the loan agreements, the fact that the Cheques were undated, and P’s own pleaded case that the Cheques were issued as security.  He also relies on the various authorities discussed above.  He submits that all those suggest that the Cheques were delivered conditionally for the special purposes of being a collateral for the repayment of the 1^st and 2^nd Loans, and that once the Loans had been repaid, the basis for delivery of the Cheques fell away.  He submits therefore that D has a bona fide defence to the Dishonoured Cheques Claim.

G.3.   Discussion

26.  For the following reasons, I am of the view that D has established an arguable cheque-specific defence:

(a)  The starting point is the loan agreements.  The 1^st LA and 2^nd LA are in similar terms.  I refer hence simply to the 1^st LA;

(b)  Clause 3.1 thereof sets out 6 conditions precedent which P’s obligation to advance the 1^st Loan was conditional upon.  Clause 3.1(e)  is in the following terms:

“[D] having delivered to [P] an undated cheque to be drawn in favour of [P] (or as it may direct)  for principal amount of the Loan, ie. HK$10,000,000.00, as security for repayment of the Loan under this Agreement;”

I shall mention that Clause 3.1(f)  requires the provision of another undated cheque as security for payment of the accrued interest.  Nothing turns on that, except to put other terms of the 1^st LA in context;

(c)  Repayment is governed by Clause 6.  In gist, and without prejudice to Clause 13.2 (relating to Events of Default which I will go to), D “shall repay … on the Repayment Date” (6.1), or upon 15-day notice by P for early repayment (6.4);

(d)  Clause 6.3 is relevant.  It stipulates that D:

“hereby expressly agree to repay [P] the Loan together with the interest accrued thereon on the Repayment Date either in form of cash or other means acceptable to [P].”

Under Clause 6.3, the use of the 1^st Cheque is not specifically envisaged;

(e)  As mentioned above, Clause 13 relates to Events of Default. Clause 13.1 defines what those events are, and the one defined in Clause 13.1(a)  is:

“[D] fails to pay any principal, interest or any sum due from him under this Agreement in the manner specified herein on the due date of payment;”

(f)  Clause 13.2 stipulates that:

“Upon the occurrence of an Event of Default and at any time thereafter, [P] may by notice in writing to [D]:-

(a)  declare the Loan, all interest accrued thereon and all other monies payable under this Agreement to be forthwith due and payable whereupon the same shall be forthwith due and payable, and all the obligations of [P] under this Agreement shall lapse; and

(b)  date and deposit the cheques pursuant to Clause 3.1(e)  and 3.1(f)”.

(g)  It is material to note that in contrast with Clause 6.3 where the repayment method is to be either in cash or otherwise at large and be agreed upon, the use of the 1^st Cheque by dating and depositing the same were specifically provided for and permitted by Clause 13.2 upon service by P of the requisite notice in writing;

(h)  It is further material to note that even upon non-payment on due date of payment, being by itself an Event of Default, a notice in writing is still required to be served under Clause 13.2 before the 1^st Cheque could be dated and deposited;

(i)  In my view, from the above, just by the wording and structure of the loan agreements, it is quite clearly arguable that the delivery of the Cheques were conditional as security only, and may only be used, dated and deposited as cheques according to the terms of the 1^st and 2^nd LAs;

(j)  The above go against the basic premise of P’s submissions that the Cheques were delivered unconditionally, and that P is seeking impermissibly to use subsequent acts to impose conditions upon their deliveries;

(k)  As the terms of the LAs show, the acceptance by D (indeed P also)  of the Cheques being effective security under the LAs can be reconciled with the notion that deliveries of the same were conditional. I do not accept Mr Chang’s submissions to the contrary;

(l)  The above support an important plank of P’s pleaded defence. Whether the terms of the Condition as pleaded can be made is an issue for trial;

(m)  I have discussed the authorities above. In particular, I respectfully repeat the observations of Lord Abinger C.B. in Alsager, that “The bill was deposited with the defendant for a special purpose, and his duty was to hold it until that purpose was determined”, which I my view apply;

(n)  I respectfully reiterate also the discussions in Phoneyork and Xie Shili. The Courts there were concerned with “sincerity cheques”. We are here concerned with “security cheques”. The scenarios are comparable. The reasoning in those cases in my view equally applies;

(o)  Mr Chang raises the issue of communication. In my view, it is at the very least arguable that the terms of the LAs by themselves are sufficient for that purpose. I refer to the observations of Lord Bingham and Lord Goff at [19] in Dextra which I have cited above. The transferee can gather from the terms of the underlying contract the knowledge “that he may not, at least for the time being, present or negotiate the bill”. If necessary, I refer also to the following observations of Coomaraswamy J in Millennium, that:

“70. A transferor must also communicate this intention clearly to the transferee … This is an objective test to be satisfied by the party who claims that such an intention exists. Whether a communication is sufficiently clear will depend on the circumstances of the case. But as a general rule, strong evidence will need to be shown to demonstrate that the transferor of a bill of exchange did not intend for title to the bill to pass to the transferee with delivery. These strict requirements are necessary to preserve commercial efficacy, in service of which the principle of cash equivalence exists …

71.  The logical prerequisite for the realisation of these advantages is that the transferee must know with certainty whether and when he may present or negotiate the bill.  To the extent that he is uncertain about the status of his bill as a cash equivalent, the very purpose of a bill of exchange is frustrated.  In this regard, it is the proper function of the law to minimise the scope and possibility of such uncertainty in the interests of commercial efficacy …”

The very terms of the LAs are in my view useful evidence on the question of communication, and can clearly be relied upon to minimize uncertainty in the interests of commercial efficacy which the rule requiring communication, as observed by the learned judge, seeks to address;  

(p)  Mr Chang submits that even if the deliveries of the Cheques had been conditional to start with, they had become unconditional when the Loans fell due.  Mr Wong submits that it might well be so, but P did not present the Cheques during the window between the due dates and the settlement of the Loans[10], and by the time of the presentment, the Loans were no longer due for payment, and the Condition was not met.  Mr Chang in reply submits that that exposed the fallacy of D’s defence.  If the deliveries of Cheques had at any stage become unconditional, subsequent events cannot have the effect of rendering the deliveries conditional again.  Reliance upon any subsequent events for such purpose is impermissible;

(q)  But whether there had been such a window is fact-sensitive:

(i)  D’s pleaded case is that negotiation for deferral of repayment started before the repayment date for the 2^nd Loan[11], and the 3^rd LA entered into around mid to late March 2022[12]. There might not have been any window in relation to the 2^nd Loan;

(ii)  Even in respect of the 1^st Loan, there are a number of factual issues to be investigated, as follows;

(iii)  According to LS Yip[13], it was him who circulated the draft Share Mortgage[14];

(iv)  §§(B)  and (D)  and (E)  of that draft Share Mortgage read:

“(B)  The [1^st Loan] was fully drawn on 10 February 2021 and should be repaid in one lump sum on 9 March 2021. However, [D] failed to repay the [1^st Loan] and the interest accrued thereon on 9 March 2021 and therefore has triggered an Event of Default under the Loan Agreement.

…

(D)  The [2^nd Loan] was fully drawn on 18 November 2021 and should be repaid in one lump sum on 18 May 2022. However, [D] failed to repay the interest accrued on 18 December 2021 and therefore has triggered an Event of Default under the Loan Agreement.

(E)  [P] has served notice of default to the [D] (the “Default Notice”)  to [D].”

(v)  Consistent with the LAs, it appears that the author of the draft Share Mortgage regarded D’s failure to repay when due as Events of Default, which then engaged Clause 13.2 in relation to the service of notice in writing;

(vi)  In the course of the hearing, I enquired with Mr Chang as to whether there had been any notice of default. I was informed that he did not recall having seen one. He further submitted that it was not a condition which P had to meet. That submission, with respect, ignores Clause 13.2(b)  of the LAs;

(vii)  Mr LS Yip in his affirmations has not mentioned or produced any such notices. At §80 of Yip/Aff1, he mentions a demand letter from P’s then solicitors to D. No notice of demand is mentioned in that letter. Then, at §81 of Yip/Aff1, LS Yip says that “For completeness, as [D] had failed and/or refused to repay the 1^st and 2^nd Loans, I had arranged for the presentation of the 1^st Cheque and 2^nd Cheque to China Citic Bank International Limited … for payment on or around 11 November 2022.” No notice has been mentioned;

(viii)  Nor has any such notice been pleaded;

(ix)  If the mechanism provided for by Clause 13.2 of the LAs had not been followed, it is arguable that on the terms of the LAs, the deliveries of the Cheques had remained conditional, and that they did not cease to be so simply upon non-repayment of the principals on the due dates;

(x)  These are in my view matters that should be investigated during the trial in their full factual context.

G.4  Conclusion on the Dishonoured Cheques Claim

27.  For the reasons set out above, I am of the view that an arguable cheque-specific defence has been established, and that triable issues have been raised, so that the defence and issues ought to be investigated during the trial.

H.  The Loans Claim

H.1.   The No Oral Waiver Clause

28.  Mr Chang submits that even if any triable cheque-specific defence can be established, it does not necessary follow that leave to defend should also be granted in respect of the Loans Claim:

(a)  Mr Chang points to the what he calls the “No Oral waiver Clause” in the form of Clause 15.1 of the LAs, in the following terms:

“15.1 Any amendment or waiver of any provision of this Agreement and any waiver of any default under this Agreement shall only be effective if made in writing and signed by all parties hereto and thereto.”[15]

(b)  He points to the facts that the 3^rd LA has not been signed by P, and that the Global Settlement Agreement was according to D’s case made orally;

(c)  On law, Mr Chang relies on MWB Business Exchange Centres Ltd v Rock Advertising Ltd[2019] AC 119, §§12 to 16, GPP Big Field LLP v Solar EPC Solutions SL [2018] EWHC 2866 (Comm)  at §203.3 which applied the same, and Chow Tai Fook Nominee Ltd v Diamond City Ltd [2021] HKCFI 3019 at §48.  I have considered those authorities.

29.  I have considered the nature of the 3^rd LA and the Global Settlement Agreement.  I have considered the context in which they are averred to have reached.  I accept Mr Wong’s submissions that it is arguable that they are outwith the operation of Clause 15.1, that what was agreed thereby was an arrangement for repayment in kind, in the sense that D agreed to pay off his liabilities by way of surrendering the Sinopharm Shares.

H.2.   The MLO Defence

30.  In relation to the MLO Defence:

(a)  As mentioned, non-compliance of sections 18(1), 19(1)  and 7 are averred;

(b)  I deal with the alleged non-compliance of section 19(1)  first:

(i)  D’s pleas in respect of the 1^st and 2^nd Loans are identical[16], that:

“In breach of section 19(1)  of the [MLO], [P] did not also provide the requisite information and/or statement to [D] until the commencement of these proceedings.”

(ii)  The duty on the part of a moneylender to provide the specified statement to a borrower is only triggered “on demand in writing … made by the borrower”;

(iii)  No such written request has been pleaded;

(iv)  I raised this with Mr Wong during the hearing.  The only written demand that he pointed to was one made on D’s behalf by his legal advisers, which had been complied with[17];

(v)  No arguable defence arises out of section 19(1);

(c)  In respect of the alleged non-compliance of section 18(1):

(i)  the principal evidence upon which D’s complaint is made is what D says at §71(a)  of D/Aff, that:

“Upon a diligent search of my files, no record that the signed Loan documents were provided by [P] to me is found.”

(ii)  That is flimsy if not speculative;

(iii)  The Loan documents have been exhibited.  There is no suggestion that they were not contemporaneously prepared and executed.  According to Yip/Aff1[18], and in accordance with P’s usual practice, the relevant documents have been provided to D.  This is inherently probable;

(iv)  In my view, D’s allegation based on non-compliance of section 18 is based on flimsy and speculative evidence, and in inherently incredible;

(v)  No arguable defence arises out of section 18(1);

(d)  In respect of the alleged non-compliance of section 7:

(i)  Section 7(1)  of the MLO stipulates that:

“No person shall carry on business as a money lender—

(a)  without a licence;

(b)  at any place other than the premises specified in such licence; or

(c)  otherwise than in accordance with the conditions of a licence.”

(ii)  The basis of the complaint is that the 1^st LA and the 2^nd LA were not signed at P’s registered office;

(iii)  According to LS Yip[19], P’s money lending business was conducted at P’s registered address.  The 1^st LA, 1^st LM, 2^nd LA and 2^nd LM were not signed at P’s office because D needed the Loans urgently;

(iv)  I have considered Hao Tian Finance Co Ltd v Hung Yuk Ming [2020] HKCFI 465, per Ng J at §§115-124.  I have specifically considered §§121 and 122 thereof and the authorities cited therein, that (emphasis omitted):

“121. In The Annotated Ordinances of Hong Kong—Money Lenders Ordinance (Cap 163)  2015 Reissue at paragraph 7.02, the author noted:

‘If the money lending transaction is substantially arranged and started at the authorised place of business of the money lender, it would seem that this would not be in breach of the provision because not every stage or incident of the transaction needs to be carried out at the same address: Kirkwood v Gadd [1910] AC 422, Cornelius v Phillips [1916-1917] All ER 685, [1918] AC 199. It is generally accepted that the licensed money lender, to come within the terms of the provision, does not have to undertake the whole of his tasks at his place of business as shown in the licence …’ …

122. In Kirkwood v Gadd [1910] AC 422, it was held not to be a breach of the former UK equivalent of section 7(1)(b)  where the agreement for the loan, the advance of the money and the taking of security (a bill of sale)  all took place at the borrower’s private residence. At pp 423-4, Lord Loreburn LC explained why:

‘… This Act of Parliament cannot mean that every stage and every incident of every piece of the money-lending business is to be transacted at the registered office. That would be impossible, for such things as making inventories or taking possession of furniture under a bill of sale are part of the business and must be done where the goods are situated. Nor can it be intended to prohibit the employment of clerks and agents, or the transaction outside the registered address of every single thing that could by possibility be transacted within it. That would be needlessly oppressive and would strain the words. We must look at the nature of the mischief disclosed according to the approved canons of statutory construction. The mischief is that this dangerous business may be conducted by persons under false names or a variety of names without the security of an ascertained address, or at places where men may be taken unawares or off their guard. The words, which are in terms general, must be applied accordingly.

I do not propose to define what is meant by carrying on business lest I may facilitate evasion.  But I do think that if a moneylender really deals with a borrower at his registered address, whether by interview or correspondence, he may, without infringing the Act, transact negotiations, or conclude the actual contract, elsewhere.’ …”

(v)  I also regard as material that the MLO does not specify any civil consequence for any non-compliance of section 7;

(vi)  Applying the above, and despite the fact that those above mentioned loan documents were not signed at P’s registered office, I am not satisfied that any arguable defence has been raised on any alleged non-compliance of section 7.

H.3.   Conclusion on the Loans Claim

31.  Despite my view on the MLO Defence, I am of the view that triable issues have been raised in respect of the Loans Claim, so that the same ought to be investigated during the trial.

I.  Overall disposition

32.  For the above reasons, I dismiss P’s appeal.  The unconditional leave to defence granted by Master K W Wong stands.

J.  Costs

33.  I make a costs order nisi, absolute within 14 days, that P shall pay D costs of and occasioned by the present appeal, with certificate for 2 counsel, to be summarily assessed.  Unless any application is made in the meantime, D shall lodge and serve his Statement of Costs within 21 days from the date hereof, P to lodge and serve its Statement of Objection within 14 days upon receipt, and P to lodge and serve its reply within 7.