XCHRX YICK FUNG SHIPPING AND ENTERPRISES CO. LTD. v. NEW CENTRAL INTERNATIONAL (HOLDINGS) CO. LTD.

HCCL211/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO.211 OF 1999

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J U D G M E N T

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Introduction

1. This is the plaintiff's application by summons dated 24 January 2000 for final judgment pursuant to RHC Order 14. It is a case characterized by relatively poor evidence and by quite extraordinary sums of money - the plaintiff seeks judgment in the sum of HK$380,401,729.68, together with interest on the principal sum of $273 million at the contractual rate of 30% per annum from 1 October 1999 until the date of judgment. It is also a case which stems, in large part at least, from the turmoil in the property market in Guangzhou brought on by what is now generally referred to as the "Asian economic crisis".

2. The plaintiff sues on an agreement in writing dated 16 July 1998. It is a multi-party agreement in which the plaintiff is referred to as 'Party B' and the defendant as 'Party C'. Two other entities are involved : they are COSCO (Hong Kong) Group Limited ("COSCO") ("Party A") and Guangzhou Central Properties Development Limited ("GCP") ("Party D").

The background

3. How did this come about? In outline, the background is thus :

4. In 1993, the plaintiff, Yick Fung Shipping & Enterprises Co. Ltd ("Yick Fung") and GCP came to an agreement to develop a commercial building in Guangzhou, now known as the Guangzhou New Central Building. On 8 October 1993, Yick Fung agreed to lend HK$100 million to GCP. Repayment of which was to be on 25 October 1996. This much is undisputed.

5. On 18 December 1993, Yick Fung apparently agreed to take up most of the floor area of 16,970 sq.m. of the New Central Building at HK$9,000 per sq.m. for the total sum of HK$152,730,000. This agreement is evidenced by a notarized Exclusive Sales Agent Agreement. Payment date of this sum fell due on 30 June 1996.

6. Thereafter, in or about May 1996, I am told that the management of Yick Fung merged with COSCO (Hong Kong) Group Limited. I also understand that in breach of its obligations under the Exclusive Sales Agent Agreement, Yick Fung and/or COSCO did not pay the money due, and did not take up the underwritten areas of the building on the specified date, namely 30 June 1996.

7. In May 1998, COSCO indicated that they wanted their investment back, and although COSCO had threatened to sue GCP for the outstanding loan, what actually occurred was that on 16 July 1998, Yick Fung, COSCO, GCP and the defendant, New Central International (Holdings) Company Limited, entered into an agreement ("the Agreement") which is the Agreement at the heart of this case.

The terms of the Agreement

8. The Agreement recites the existence of the loan by the plaintiff to GCP, which was used by GCP in the construction of the building in question. The Agreement goes on to recite that GCP has not made any repayment of principal or interest.

9. Clause 3 of the Agreement provides that in consideration of the plaintiff, Yick Fung, forbearing to sue GCP, the defendant agrees to assume joint and several liability with GCP to repay the loan. Moreover, the amount of the loan outstanding as at May 1998 is expressly acknowledged to be HK$273 million : in the specific words of clause 3, the defendant and GCP "agree and confirm that the above-mentioned loans and the outstanding amount to be factual and are willing to assume joint and several liability".

10. Clause 3 further provides that if GCP and the defendant pay a total of HK$170 million or RMB181,630,000 by four instalments, the plaintiff will waive the balance of the loan. However, in the event of failure by GCP and the defendant to pay the sum of HK$170 million by 16 November 1999, the defendant shall be obliged to repay the full value of the loan outstanding as at May 1998 (namely HK$273 million) together with the contractual interest thereon at the rate of 30% per annum from 1 June 1998.

11. It was a further express term of the Agreement that in consideration of the plaintiff's granting indulgence to GCP, and in consideration of the plaintiff's willingness to accept HK$170 million in full and final settlement of the loan, if paid within 16 months, any contracts previously entered into by the plaintiff with GCP in relation to the New Central Building Project would cease to have effect.

The argument

12. Mr Sussex SC, for the plaintiff, submitted that the defendant plainly had no defence. The affirmation of Mr Cheng Hui did not dispute the validity of the Agreement, albeit there was dispute as to the interpretation of that part of the Agreement within clause 3 dealing with acceptance of the lesser sum of $170 million and the cessation of effect of prior agreements relating to the New Central Building. In this connection, Mr Sussex submitted that Mr Cheng's position was illogical, maintaining that the consideration for the Agreement that earlier contracts relating to the New Central Building Project would become null and void was obviously the plaintiff's agreement to accept a lesser sum in full and final settlement of the loan, and that it would make no sense for those contracts to become null and void only if and when GCP and the defendant actually paid the lesser sum in accordance with the instalment schedule provided in the Agreement.

13. Be that as it may. In a bid to shorten the ambit of the debate, Mr Sussex was prepared, for the purposes of Order 14 only, to pursue the present application on an alternative basis, namely that there be set against the figure of HK$273 million the cross-claim vesting in GCP in terms of the sum of HK$152,730,000 representing the payment the plaintiff, Yick Fung, was supposed to make pursuant to the Exclusive Sales Agent Agreement on or before 30 June 1996 (which was, of course, in fact not paid), and out of which the initial loan of HK$100 million was to be repaid. Accordingly, on this alternative basis, he submitted, his client was entitled to the figure of HK$273 million minus HK$152,730,000, which amounted to a bottom line figure of HK$120,270,000.

14. Ms Law, at the time of the first hearing appearing solely on behalf of defendant, made a number of submissions, in particular alleging the primary unenforceability of the Agreement by reason of its falling foul of the provisions of the Money Lenders Ordinance, Cap.163, and in particular section 24(1) thereof.

15. Ms Law made two further points : first, that the Agreement was void for uncertainty - whilst her client accepted that the loan of HK$100 million had indeed been made, she said that her client had no idea about the further figure of HK$75 million, which appeared in clause 1 of the Agreement as having been lent by Yick Fung to GCP, and was one of the constituent elements of the total principal sum of $273 million. She further suggested that the plaintiff's obligation, pursuant to the Exclusive Sales Agent Agreement to pay the sum of HK$152,730,000 by 30 June 1996 was, in effect, a condition precedent to the obligation to repay the loan.

16. The foregoing represented the position when the case was adjourned for further argument. At the resumed hearing, the defendant was also represented by Mr Mumford SC. At the outset Mr Mumford sought leave to put into evidence two further affidavits in opposition : a second affidavit from Mr Cheng Hui, the Chairman of the defendant, and an affirmation from Mr Wong Wai Kwok, the Deputy General Manager of the defendant. The burden of Mr Cheng's new evidence was that, at the date of his signing of the Agreement on 16 July 1998, he did not verify or check the figures in the Agreement because the two lawyers who were then accompanying his counter-party, Mr Zhu, had said :-

"In order to get approval from Beijing, we have to exaggerate a bit and you must sign it [the Agreement]. We all understood that the figures appear there are not important."

According to Mr Cheng, he then signed the Agreement upon their undertakings.

17. For his part, Mr Wong in his affirmation confirmed that :-

"I heard the representations made by COSCO's lawyers at the meeting as mentioned in Mr Cheng's affirmation."

Mr Wong also suggests that the sum of HK$152,730,000 due to be paid by Yick Fung under the Exclusive Sales Agent Agreement since 30 June 1996 attracted an interest rate of 30% per annum, and that in addition GCP had incurred "market rate management fees for Yick Fung's underwritten area of the building", the result of which was to boost Yick Fung's indebtedness to GCP (but not, I note, to the defendant) up to 30 June 2000 to the figure of HK$355,006,704.

18. These two new affidavits, which were admitted in the face of Mr Sussex's objections, founded Mr Mumford's bull point in opposition to the summary judgment application, namely that there was a collateral agreement or collateral warranty to the effect that Yick Fung/ COSCO would not enforce the Agreement. So that by saying that the Agreement was just for the approval of Beijing and that the stated figures were not important, the plaintiff promised and represented to Mr Cheng that they were not going to enforce the Agreement. Accordingly, said Mr Mumford, given the existence of such a collateral agreement in these terms - which in itself was not greatly surprising given that in the circumstances it was not clear why his client should be on the hook to Yick Fung at all - it would be inequitable and unjust to permit the plaintiff to enforce the Agreement, citing in this context the diverse judgments (and approaches) of their Lordships in the English Court of Appeal in Brikom Investments Ltd v. Carr [1979] 1 QB 467.

19. Whilst accepting the figure of HK$100 million as being that which was initially lent, Mr Mumford also attacked the validity of the constituent elements of the figures contained in the Agreement - in particular the sums of HK$75 million and HK$38 million respectively - and further in these curious circumstances prayed in aid the general Miles v. Bull approach, namely that in the circumstances there was "some other reason for trial". However, Mr Mumford did not deploy, except peripherally, the points initially taken on behalf of the defendant at the first hearing of this application. Nor, for that matter, does the main thrust of his argument, in its present form at least, appear in the defence which has been filed in this action. Indeed, Mr Mumford accepted the necessity to revamp that pleading and, if necessary, to add Guangzhou Central as a party by counterclaim. These difficulties notwithstanding, however, Mr Mumford asserted that there was clearly enough in the papers before the court to send this case to trial.

20. In reply, Mr Sussex SC asserted the primacy of the Agreement which had been signed by Mr Cheng on behalf of the defendant, suggested that it was not open to the defendant to tear up that document, as it now appeared it wished to do, and pointed out that this Agreement (at clause 8) was made specifically subject to the Laws of Hong Kong and to the jurisdiction of the Hong Kong courts. There had been a multi-party contractual engagement from which the defendant should not be permitted to resile.

Decision

21. As counsel are aware, this case has provided cause for concern, particularly so during the first hearing, albeit the unenforceability issue then predominantly relied upon has now gone. What is extraordinary about this case is not only the huge sums of money involved - "telephone numbers" is how Mr Sussex aptly described them - but what strikes me, at least, is the relatively informal manner in which very significant monetary transactions are arranged and documented, to say nothing of a distinctly free-form propensity in terms of inter-corporate accounting. Indeed, I note that the set-off that is currently prayed in aid in the defence as filed (at paragraph 15 thereof) is asserted in the name of Guangzhou Central, which, of course, has yet to become a party to this action. Clearly, therefore, this case, which culminates in the Agreement now sued upon, is revelatory of a certain manner of doing business which, if the matter is permitted to go further, is likely to require a considerable amount of untangling. The question, of course, is whether in the circumstances revealed on the evidence, the court should embark upon that process.

22. Although I am considerably tempted here and now to draw a line under the Agreement, I have ultimately decided that there are too many unanswered questions to permit of giving summary judgment for what, by any standards, is a vast sum. The background is convoluted, and these waters are simply too murky, particularly in light of the latest affidavits alleging the representations made. In short, judgment as requested by the plaintiff at this stage would cause a certain amount of judicial unease.

23. I make no bones, however, about the fact that the content of the two late affidavits which had been received invites considerable scepticism - the timing, if nothing else, provokes such immediate reaction - and that aspect apart, Mr Sussex made the point in reply that what is now being said does not tally with the content of a letter dated 15 November 1999 written on behalf of the defendant, the day prior to the termination of the instalment period for the payment of the reduced sum of HK$170 million, as provided in clause 4 of the Agreement. This letter apologized for the fact that "due to various reasons that fall beyond our control" repayment cannot presently be made "as stipulated in the Agreement", citing "the unfavourable events like the financial turmoil, macroeconomic manipulation, natural disasters and the GITIC incident [which] have severely affected our plan of realizing assets ...". As Mr Sussex drily remarked, there is no mention here of any collateral agreement not to enforce, which no doubt encouraged him to characterize the defendant's case as 'moonshine'.

24. I have, as I have said, been solely tempted to give judgment. I am also conscious of Mr Sussex's confident assertion that there is no defence to the case. Nevertheless, as Megarry J (as he then was) commented in John v. Rees [1970] 1 Ch.345 at 402 :-

"As everybody who has anything to do with the law well knows, the path of the law is strewn with examples of open and shut cases which, somehow, were not; of unanswerable charges which, in the event, were completely answered; of in explicable conduct which was fully explained; of fixed and unalterable determinations that, by discussion, suffered a change."

Whilst, a little closer to home in the case of Hutchison Asia Limited v. Asia Television Limited [1993] 2 HKC 510 at 541, Godfrey J (as he then was) noted :-

"That is a formidable case, no doubt. But any lawyer with any experience of private practice will be able to remember, only too well, those cases which appeared to be certainties but which, to his surprise, nevertheless failed and, by the same token, those cases which seemed bound to fail but which, to his surprise, nevertheless succeeded. It is for just this reason that the court will not embark, at this stage of an action, on a consideration whether the case of one side or the other is true or false. It will consider only whether the nature of the defence is such that it has to be characterized as an abuse of the process of the court, which is something else altogether."

25. Accordingly, after reflecting upon all the evidence and the submissions of counsel, I decline to grant summary judgment. I have concluded that the appropriate course, in all the circumstances of this unusual case, is to order leave to defend, but that such leave shall be conditional upon the defendant making a payment into court in such sum and in such manner as the court will in due course direct. I am conscious that the ambit and content of such condition may well require the court to consider the financial circumstances of the defendant, not least because Mr Mumford SC has indicated from the bar table that, at least on the state of his present instructions and as matters currently stand, the defendant is unable to meet the full sum presently claimed. In my view, he was correct to observe that further consideration of this matter should await the judgment of the court upon the plaintiff's application.

26. Since judgment has now been given, I will hear counsel on a date to be fixed as to such directions as may be necessary, and also as to costs.