HANSOM FINANCE LTD v. LAI LEONG

HCA 40/2019

[2021] HKCFI 409

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 40 OF 2019

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REASONS FOR DECISION

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1.  This is the Plaintiff’s (“P”) appeal against the order of Master Sabrina Ho dated 10 August 2020 granting the Defendant (“D”) unconditional leave to defend the action.

2.  After hearing the parties, I allowed the appeal, set aside the order of the learned Master and entered final judgment against D for the sum of HK$32,697,000.26 together with interest.  These are the reasons for my decision.

Factual background

3.  P was at the material time a licensed moneylender and an indirect wholly-owned subsidiary of Freeman Fintech Corporation Limited (“FFCL”), a company then listed on the Main Board of the Hong Kong.

4.  By a written agreement dated 14 July 2017 (“Loan Agreement”), P agreed to extend to D a loan facility of HK$55,000,000 (“Loan”) for a period of 6 months, with interest at 12% per annum. 

5.  The Loan Agreement contained, inter alia, the following terms:

5.1  Clause 15.2: This Agreement and the documents referred to herein constitute the entire obligation of P and supersede any previous expressions of intent or understandings in respect of this transaction.

5.2  Clause 15.5: 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 P.

6.  On the same day, D issued a Notice of Drawing requesting to draw down the Loan in full.  On the same date, P drew a cheque in favour of D in respect of the Loan.

7.  D failed to repay any part of the Loan by the due date on 13 January 2018.

8.  On 7 March 2018 and 2 May 2018, D made partial repayments of the Loan to P of HK$10,000,000 and HK$20,000,000 respectively.  After these repayments, D’s outstanding indebtedness was reduced to around HK$30 million.

9.  On 4 June 2018, P and D signed a written repayment agreement (“Repayment Agreement”) in which, inter alia:

9.1  D expressly confirmed that the outstanding principal amount of the Loan as at 4 June 2018 was HK$30,162,659; and

9.2  D agreed to repay all outstanding sums under the Loan Agreement to P in full by 3 December 2018.

10.  By letter dated 3 October 2018 to D, P through its solicitors (1) requested a proof of assets from D, and (2) reminded D to repay the Loan together with all accrued interest by 3 December 2018 (“Oct 3 Letter”).

11.  On 9 October 2018, D through his secretary, Ms Shirley Shiu (“Ms Shiu”), provided proof of his assets by an email (which was copied to D). 

12.  D did not make any further repayment of the Loan, whether by 3 December 2018 as agreed in the Repayment Agreement or otherwise. 

13.  By a letter dated 11 December 2018, P (through its solicitors) (1) alleged that D had breached the Loan Agreement and the Repayment Agreement, and (2) demanded D pay the sum of HK$32,314,537.79 within 7 days (“Dec 11 Letter”).  D did not respond to this letter.

14.  P commenced the present action on 8 January 2019, claiming HK$32,314,537.79, being the outstanding principal and interest accrued thereon as at that date.  The parties exchanged witness statements on 27 November 2019.  By summons dated 17 January 2020, P applied for summary judgment in respect of its claim. 

D’s Defence

15.  D’s defence is that, in early May 2018, he had a telephone conversation with a Mr Zhang Yongdong (“Mr Zhang”), a former director of FFCL, in which Mr Zhang informed him that P would need to undergo an audit very soon, and the Loan would have to be fully settled by then to prevent auditors from raising questions.  In view of the close personal and business relationship between D and Mr Zhang, and given that Mr Zhang owed D roughly RMB 20 to 30 million in other business transactions, Mr Zhang told D that he would settle D’s indebtedness under the Loan Agreement so long as D arranged a further payment of HK$10,000,000 (“Alleged 1^st Representation”).

16.  D asserts that he understood the Alleged 1^st Representation to mean that upon payment of the HK$10,000,000, either (1) Mr Zhang would personally settle D’s remaining indebtedness, or (2) Mr Zhang would on behalf of P agree to waive D’s remaining indebtedness.

17.  Allegedly in reliance on the Alleged 1^st Representation, D drew a cheque for HK$10,000,000 in favour of Mr Zhang personally on 16 May 2018. 

18.  D contends that in light of the above, P is estopped from recovering the remaining indebtedness under the Loan Agreement from D. 

19.  D accepts that he signed the Repayment Agreement, but contends that he did so because he had been told by Mr Zhang that the Repayment Agreement was prepared for P’s internal audit use and was not intended to have any legal effect (“Alleged 2^nd Representation”).  He denies having read the Oct 3 Letter or the Dec 11 Letter, and claims that Ms Shiu replied to the Oct 3 Letter on her own initiative. 

Discussion

20.  The relevant principles governing an application for summary judgment are well-established and I do not repeat them here. 

21.  Mr Thomas Wong, counsel for P, submits that D’s case is factually unbelievable in that:

21.1   It is absurd to suggest that a commercial entity like P would agree to give up HK$30 million.  The suggestion that Mr Zhang had promised to settle D’s remaining indebtedness on his behalf is similarly implausible.  D attempts to rationalize this by claiming that Mr Zhang owed him RMB 20 to 30 million, but this bare assertion is wholly unparticularized and not substantiated by any documents. 

21.2   The 2 Alleged Representations are entirely contradicted by the Repayment Agreement and not mentioned in any contemporaneous document.  It is most surprising that D is unable to produce any written record of the Alleged Representations, when he claims to be “good friends” with Mr Zhang and regularly met each other “at least twice per week”.  In view of their close relationship, if the Alleged Representations had indeed existed, the subject would have been alluded to in at least some of their communications. 

21.3   D conspicuously failed to mention the Alleged Representations even after he had been asked by P’s solicitors to repay the Loan in the Oct 3 Letter and the Dec 11 Letter.  D’s claim that he did not read either letter beggars belief when (1) both letters were sent to D’s residential address by registered post, and (2) Ms Shiu’s reply to the Oct 3 Letter was copied to D. 

21.4   D has failed to tender any evidence from Mr Zhang to corroborate his defence.  This is despite his assertion that they are “good friends” and stayed in touch even after the commencement of this action.  As such, the Court is entitled to infer that Mr Zhang’s testimony would have undermined his case even in the context of the present summary judgment application.

22.  Mr Wong further submits that even if the Alleged Representations existed and were relied upon by D, they were plainly not made on behalf of P.  Mr Zhang had no actual authority to act for P.  As for apparent authority, D has not pleaded or alleged any representation as to Mr Zhang’s authority that was made by or traceable back to P.  An alleged agent cannot acquire apparent authority simply by representing to the third party that he has such authority. 

23.  Mr Vincent Lung, counsel for D, relies on the fact that D only ever dealt with Mr Zhang in matters relating to the Loan.  The only factual matters before the Court suggest that: (1) P first came into contact with D via Mr Zhang, (2) P contacted D as regards the overdue payments via Mr Zhang, and (3) P negotiated the Repayment Agreement with D via Mr Zhang.  He submits that this course of conduct or dealings gave rise to a representation that Mr Zhang had authority to act on behalf of P. 

24.  Mr Lung then points to the close connection between P and FFCL, and the fact that Mr Zhang was a former chairman of FFCL’s board and still is a current substantial shareholder of FFCL.  He submits that these matters support D’s case that Mr Zhang was in control of both FFCL and P at the material time, such that it is hardly surprising that P would have permitted Mr Zhang to act as its agent in relation to the Loan.

25.  Mr Lung finally submits that D’s case is corroborated by the undisputed fact that D issued a cheque of HK$10 million to Mr Zhang.  P has no explanation as to the genesis of the cheque.

26.  In my judgment, D fails to demonstrate any credible defence to P’s claim.  Mr Lung simply has no answer to the forensic points raised by Mr Wong, most significantly the absence of any contemporaneous documents which support D’s assertions.  All Mr Lung can point to is the HK$10 million cheque.  However, as Mr Wong submits, and I accept, the cheque does not assist D’s case that it was for full and final settlement of the Loan given that it was issued to Mr Zhang and not to P.  No explanation has been proffered as to why this cheque was not issued to P, which was how the previous partial repayments of HK$10 million and HK$20 million were made in March and May 2018.  At the hearing, Mr Lung fairly accepts that the existence of the HK$10 million cheque is at best a neutral point. 

27.  More fundamentally, D’s assertion that Mr Zhang had authority to make the Alleged Representations on behalf of P is plainly unsustainable.  Mr Lung confirms at the hearing that D relies only on ostensible authority, and that D’s case, taken at its highest, is that P represented that Mr Zhang had authority to act on his behalf by deciding to enter into the Loan Agreement after the discussions between Mr Zhang and D.[1]

28.  In my view, such conduct cannot possibly amount to a representation of authority.  A person who introduces two contracting parties and assists in passing communications between them does not necessarily act as an agent for either of them.[2]As such, the fact that one party agrees to contract with the other following such an introduction, without more, says nothing at all about whether the introducing party acted as his agent in effecting the introduction. 

29.  For completeness, even assuming Mr Zhang had ostensible authority to make the Alleged Representations on behalf of P, D has not articulated any basis to get around (1) the “no oral modification” clause in Clause 15.5 of the Loan Agreement (insofar as he relies on the Alleged 1^st Representation as a variation or waiver of the Loan Agreement)[3], or (2) the rule that promissory estoppel is generally suspensive and not extinctive in effect (insofar as his case is framed as one in promissory estoppel).[4]

Delay

30.  Finally, Mr Lung relies on the fact that P only brought its application for summary judgment after witness statements were exchanged.  He accepts that the Court is not prevented from granting summary judgment by reason of delay alone, but submits that the onus is on P to show that the delay was “justifiable under the special circumstances of the case” (Simsen Capital Finance Ltd v Jiang Quanlong HCA 1461/2015, 16 March 2017, §108 per B Chu J), and the Court should examine P’s case with greater circumspection in light of the delay. 

31.  Mr Wong, on the other hand, submits that B Chu J’s holding in Simsen Capital is inconsistent with the Court of Appeal’s decision in Morison, Son & Jones (Hong Kong) Ltd v Yiu Wing Construction Co Ltd [1989] 1 HKLR 432 and should therefore not be followed.  He further submits that there was no delay on the facts of the case: P took out its application after the parties exchanged their witness statements as it only became clear then that D was not able to procure Mr Zhang as a witness to corroborate his assertions, reinforcing P’s view that D’s case is hopeless.

32.  As Mr Lung fairly accepts, the Court is not prevented from granting summary judgment by reason of delay alone (Hong Kong Civil Procedure 2021 §14/2/2).  I further agree with Mr Wong that the proper approach is that stated by Clough JA in Morison, Son & Jones (Hong Kong) 437B-438C, namely that if the plaintiff has satisfied the court that, notwithstanding the delay, there is no defence to his claim, he is entitled to summary judgment albeit subject to the question of costs on account of delay, unless there are special circumstances which make summary judgment unjustifiable. 

33.  I do not think the proposition that the Court may view a plaintiff’s case with greater circumspection where he has delayed in bringing his application assists D.  This is because the defence advanced by D is itself factually and legally unsustainable. 

34.  In any event, Mr Lung is unable to point to any special circumstances which suggest that the length of delay was unjustifiable on the facts.  I do not see why any further time and costs should be expended on this action when D has no bona fide defence to the claim. 

Disposition and costs

35.  For the reasons above, I hold that D has no bona fide defence to P’s claim.  I allow P’s appeal and give judgment to P in the sum of HK$32,697,000.26 (being the total sum outstanding under the Loan Agreement as at 8 January 2019) plus interest at 12% per annum on the principal sum of HK$30,162,659.32[5] from 8 January 2019 until payment in full. 

36.  Mr Wong asks for costs of the action on the indemnity basis, relying on Clauses 11.1, 11.4 and 17 of the Loan Agreement.^[6]  Mr Lung does not oppose Mr Wong’s submission.  I therefore make an order that D do pay P’s costs of and occasioned by the action (including costs below and costs of the appeal) assessed on an indemnity basis, to be taxed if not agreed.