XCHRX KWONG IAN (HONG KONG) CONSTRUCTION AND REAL ESTATE DEVELOPMENT CO. LTD. v. KOMPAN FINANCE LTD.

HCA 2356/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2356 OF 2001

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J U D G M E N T

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1. This is an application by the defendant for final judgment under O.14 RHC on its counterclaim against the plaintiff for the payment of HK$29,307,810.92 being the balance payable by the plaintiff to the defendant under a loan agreement. The defendant also seeks to strike out the plaintiff's statement of claim on the basis that it is entitled to final judgment on its counterclaim and as a consequence of this the plaintiff's statement of claim should also be struck out and the action dismissed. The applicant to strike out is made further to the application for final judgment.

2. The action and counterclaim is in relation to a loan agreement in Chinese dated 18 August 1998. It is the defendant's case that the loan agreement was made between the plaintiff and the defendant whereby the defendant as the lender lent to the plaintiff as the borrower the sum of HK$33,175,000. It is the plaintiff's case that it was not a party to the loan agreement but that the borrower under the loan agreement was another company namely, Kwong Ian Construction and Real Estate Company Limited ("the Macau company"). The plaintiff Kwong Ian (Hong Kong) Construction and Real Estate Development Company Limited ("the Hong Kong company") is a Hong Kong incorporated company and is a separate legal entity.

3. By its counterclaim the defendant seeks repayment of the sum of HK$29,307,810.92 being the outstanding amount owing by the plaintiff under the loan agreement together with interest. The plaintiff raises three issues :

1) that it was not a party to the loan agreement;

2) that the loan agreement was a sham agreement for a loan. It is alleged that in about 1992 the Macau company reached an agreement with a state-owned corporation, Guangzhou City Economic Construction Development ("Guangzhou Construction") to make a joint investment in respect of a land project in Macau. By 1998 the project failed and Guangzhou Construction made a demand for compensation. It is alleged that the compensation to be paid would be dressed up as a loan agreement and the defendant was chosen by Guangzhou Construction as the lender. Hence it is alleged that the loan agreement was a sham;

3) that the loan agreement is unenforceable by virtue of s. 18 of the Money Lenders Ordinance (Cap. 163) in that the requirements of s. 18(2) were not complied with. This provides that the note or memorandum of the agreement should contain all the terms of the agreement and in particular should set out all the matters set out in (a) to (j) inclusive under s. 18(2). It is accepted that not all the matters in (a) to (j) inclusive under s. 18(2) have been set out in the loan agreement but it is contended on behalf of the defendant that notwithstanding this the court should exercise its discretion under s. 18(3) and order such agreement to be enforceable as it would be inequitable that such agreement should be held not to be enforceable. Mr. Yuen, counsel for the plaintiff, however submitted that under s. 18(3) the court has to consider all the circumstances before coming to a view that it would be inequitable that such agreement should be held not to be enforceable and that this should properly be investigated at trial rather than at the interlocutory stage. He relied also on the Court of Appeal decision of 24 November 1993 in Cheung Chow v. Cheung Ng Sheong Steven (Civil Appeal No. 119 of 1993).

4. On the first issue as to whether the Macau company or the Hong Kong company was the borrower there is plainly a dispute between the parties. It is necessary to consider the loan agreement. The agreement is between Party A and Party B. It is clearly stated therein that Party A is the defendant and Party B is the Macau company not the Hong Kong company. The name of the Macau company is given as the name of Party B and the address given is the Macau company's address in Macau. This is clearly set out in the description of the parties. Mr. Chan, counsel for the defendant, submitted that notwithstanding this the parties to the agreement were the defendant and the plaintiff but not the Macau company. He relied on the company chop of the plaintiff and the signatures of the two directors who signed the document for and on behalf of the plaintiff, that is, the Hong Kong company, but not for and on behalf of the Macau company. Mr. Yuen, on the other hand, submitted that in the various clauses of the loan agreement where they referred to Party B, that clearly was a reference to the Party B as described at the beginning of the loan agreement which was the Macau company and not the Hong Kong company. He also relied on the fact that the company chop of the Hong Kong company and the signatures of the two directors were placed after the word "Representative" thereby indicating that the Hong Kong company was the representative of the Macau company which was Party B under the agreement.

5. It seems to me that on a pure construction of the agreement it is certainly arguable that the contracting parties were the defendant and the Macau company and that the Hong Kong company was only acting as the representative of the Macau company when it affixed its company chop on the document and its directors signed the document.

6. Mr. Chan also relied on the fact that the loan was drawn down by the plaintiff and not the Macau company and that demands for payment and partial repayments were made by the plaintiff and not the Macau company. But it seems to me that if the Hong Kong company was acting as the Macau company's representative in the entering into of the loan agreement it would not be surprising if it continued to act as its representative in receiving the loan, receiving demands for payment and making repayments. Mr. Yuen also drew my attention to the fact that not all the demands for payment from the defendant were made to the plaintiff. At least one demand for interest payment in the evidence before me namely, at pg. 43 of the bundle of exhibits, was a demand addressed to the Macau company and not to the plaintiff. If the loan agreement was, as the defendant contended, an agreement between the defendant and the plaintiff, why was this demand addressed to the Macau company? No explanation has yet been proffered for this.

7. It seems to me that the plaintiff has raised a triable issue on the first issue as to whether it was the plaintiff or the Macau company who was a party to the loan agreement with the defendant. On that alone the plaintiff is in my judgment entitled to unconditional leave to defend the defendant's counterclaim. I grant the plaintiff unconditional leave to defend the defendant's counterclaim which will have to be resolved at trial. That being so and as there will have to be a trial of the counterclaim, it seems to me to be neither necessary nor desirable for me to express a view on the strength or weakness of the other two issues raised by the plaintiff. I bear in mind what Litton VP (as he then was) said in Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225 at 230 :

"In my judgment, all that the judge was called upon to do ― and all that he should have done ― was to have stated in a few words why he concluded that the plaintiff had failed to satisfy him that the defendant had no defence. Any observations beyond that were unnecessary and otiose."

8. The order I make is that the plaintiff be granted unconditional leave to defend the defendant's counterclaim. Para. 2 of the summons dated 28 June 2001 is dismissed.