NEW WORLD FINANCE CO LTD v. UTAHLOY (CHINA HOLDINGS) CO LTD

HCA3367/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.3367 OF 2002

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J U D G M E N T

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1. This is an appeal against the judgment of Master Au Yeung given on 6 January 2005 ordering that final judgment be entered against the defendant for $27,026,129, with interest and costs on a full indemnity basis.

2. It is not in dispute that the parties entered into a Loan Agreement dated 5 February 1999 whereby the plaintiff made available to the defendant a loan of $20,000,000.  The loan was for a period of two years.  The defendant did not repay the loan.  The plaintiff through solicitors demanded repayment on 5 July 2001 and the defendant defaulted in making payment.  The claim is for the principal sum plus interest up to 23 July 2002.

3. The gist of the defence is as follows.  The plaintiff is the nominee and agent of its parent company, New World Development Company Ltd (“New World”).  Through nominees, the defendant and New World entered into a joint venture for the development and sale of land in Beijing (“the Project”) in about 1994.  One Winlok Investment Ltd, a company in which the defendant held a 50% shareholding, would be paid by way of management fees a total amount of $200,000,000.  $100,000,000 had been paid on and before the execution of the agreement.  A further $50,000,000 was to be paid upon the obtaining of all required PRC government and other consents for the sale and/or pre-sale of the first batch of the properties constructed on the development sites, and the balance of $50,000,000 was to be paid six months after the obtaining of those consents. 

4. New World delayed in making progress with the development.  In about February 1999, the defendant demanded that New World speed up the progress of the works on the other project so that the payment of the management fees could be expedited.  In an attempt to compensate for the lack of progress, New World indicated that it was prepared to lend the defendant $20,000,000 through its nominee, the plaintiff.

5. The defendant avers that despite the fact that the Loan Agreement was expressed to be repaid on expiry of 24 months from the date of signing the Loan Agreement, New World represented to the plaintiff that :

(1)	The loan shall not be repayable unless and until the pre-sale consents were obtained so that the management fees would be paid;
(2)	The loan shall only be repayable out of the management fees and the repayment period of 24 months would be more than adequate for the obtaining of the pre-sale consents; and the loan facility was in fact the interim remedy for the lack of progress or substantial delay in the Project and the consideration for Winlok’s efforts having been made to complete the Project.

6. It was in reliance on these representations that the defendant executed the Loan Agreement and a related Deed of Assignment of shares in Winlok, and refrained from taking any action on account of the delay caused by New World.  The plaintiff is accordingly estopped from demanding payment of the loan other than out of the management fees.

7. Before the Master, evidence for the plaintiff in support of the Order 14 summons came from its company secretary, Au Tak Cheong.  He refers to letters dated 30 January 2002 and 15 April 2002 from the defendant as being admissions of indebtedness. 

8. Evidence for the defendant came from its director Madam Wong Choi Ha (“Madam Wong”) who says that she had various meetings with one Madam Lam Yim King (“Madam Lam”) of the plaintiff between mid-December 1998 and February 1999 to try to obtain the management fees which were due to the defendant.  She says that at a meeting in late January 1999 Madam Lam on behalf of the defendant said that she would positively look for some practical solution as an interim measure.  Then at a meeting on 1 February 1999, Madam Lam told Madam Wong that New World was prepared to arrange for a subsidiary company with a moneylender's licence to lend money to the defendant.  A loan of $20,000,000 was proposed, this being somewhat less than the 45% share of the third instalment of management fees which would be due to the defendant.  Madam Lam made various other statements including the representations relied on by the defendant.  In reliance on these representations Madam Wong proceeded to sign the loan and security documentation are prepared by the plaintiff's solicitors as a matter of formality.

9. Since the hearing before the Master, Madam Lam has filed an affirmation in which she says that she does not recall whether the meeting on 1 February 1999 took place, or what was discussed, but in any event she denies making the representations as alleged that by Madam Wong.  There is no denial, however, of the evidence regarding the joint venture and agreement to pay management fees.

10. Madam Wong filed a further affirmation in reply in which she says that she was accompanied to the meeting in late January 1999 by Mr Francis Law Sau Fai, a director of a company from which the defendant was seeking finance.  She reiterates that at that meeting, Madam Lam ensured her that she would look for a practical solution as an interim measure to ease the defendant’s cash flow problem.  On being asked what she meant, Madam Lam said that her side was probably looking at some loan proposal as an interim measure.  Madam Wong then said that if the defendant was to receive payment by way of a loan, the defendant would have no money to pay it back other than out of the outstanding management fees.  Madam Lam did not give a direct answer to this but seemed tacitly to acknowledge it.

11. There is also an affirmation by Mr Law who confirms that he was present at a meeting in late January 1999 and heard what was said between Madam Wong and Madam Lam, as stated by Madam Wong.

12. In her further affirmation, Madam Wong also denied that the letters relied on by the plaintiff amounted to an admissions of indebtedness.

13. The letters concerned are these.  On 30 January 2002, the defendant wrote to the plaintiff a letter in Chinese signed by Madam Wong in the following terms :

“	The 20 million Hong Kong dollars your company advanced to our company in 1999 (‘the Loan’)
	Our company has received the Loan from your company for a certain period of time.  Pursuant to the Loan Agreement dated 5 February 1999, the loan period for the loan should be 24 months calculated from the date of the advance of the loan and it has already expired on 4 February 2001 (the ‘Original Expiry Day’).  We are grateful that your company has all along been giving allowance to our company in delaying the repayment.
	For the purpose of better planning of the financial works of our company and for the purpose of providing our company are more stable environment to represent Winlok Investment Ltd. in pursuing the common interest in relation to the Beijing Lai Loi Project from Cheung Kong Group, our company hereby requests your company to acknowledge in writing, that our company may repay the principal with interest under the Loan Agreement in one lump sum on the day after three years time as calculated from the Original Expiry Day (that is for February 2004).”

14. This was followed by a letter in English dated 15 April 2002 from the defendant to the plaintiff, addressed to Madam Lam, in the following terms :

“	Re: Loan Agreement dated 5 February 1999 (‘the Agreement’)
	We refer to our letter dated 30 January 2001 and your approval to extend the expiry date of the Agreement up to the 4th day of February 2004.
	Please notify us when the necessary documents are ready for execution.”

15. This was followed by a letter from the plaintiff dated 19 April 2002 denying any agreement to extension of the repayment date of the loan and insisting that “You shall perform the Loan Agreement in accordance with its terms.” 

16. Madam Wong says that the letter of 30 January 2002 was written after she had spoken to Madam Lam to ask for an extension of time, and on the basis of the latter’s assurance that such extension would be forthcoming if requested in writing.

17. Thereafter the plaintiff attempted to recover payment.  No response was received from the defendant before the Writ was issued and nothing was said about any agreement until it surfaced in the affirmations.

18. I am told that the Master considered the defendant’s assertions to be incredible, even more so than those made by the defendants in Banque de Paris v. Costa de Naray [1984] 1 Lloyd’s Rep.21.  That case is of course authority for the proposition that a defendant must at the Order 14 stage must show that there are triable issues and must satisfy the court that he has a “real or bona fide defence”.  But the evidence the defendant puts forward must be believable in the light of the other evidence before the court. 

19. In Ng Shou Chun v. Hung Chun San [1994] 1 HKC 155 Godfrey JA said : 

“It will in future be sufficient for the court to ask itself the simple question: ‘Is what the defendant says credible?’.  If so, he must have leave to defend, if not, the plaintiff is entitled to summary judgment.  The issue is not whether the defendant’s assertions are to be believed, it is whether those assertions are believable.”

20. In Re Safe Rich Industries Limited, 1994 HKLY 83 Bokhary JA said :

“The test at the summary stage is indeed as simple as whether the defendant's assertions are believable.  But it must be recognised - because failure to recognise it would create a debt-dodgers’ charter – that whether the defendant’s assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.”

21. It is true that in the present case there is no evidence to contradict the defendant’s allegations of a joint venture by reason of which the plaintiff owed money to the defendant.  Perhaps the plaintiff was owed management fees and intended to use those management fees, once recovered to repay the loan; but that would not of itself infer an agreement that the loan was to be paid in this way.

22. The defendant alleges a representation which induced it to enter into the loan agreement; effectively the representation if made would contradict the express term of payment in the agreement.  Alternatively it is said that there was a collateral agreement. 

23. There is absolutely nothing in the correspondence emanating from the defendant in which an extension of time is sought to suggest that there ever was any representation by the defendant that the plaintiff would not have to pay up on the loan until it received the management fees, or any such collateral agreement.  It is said that the defendant, in the person of Madam Wong was not legally advised when the loan agreement was made but I do not think this counts for anything.  Madam Wong, dealing as she was, on her own evidence, in business worth hundreds of millions of dollars could not be expected to be naïve or unsophisticated.  In any event it takes no sophistication to know the difference between saying “please give me an extension of time to repay” and “we agreed that I would not have to repay you, until you paid me the management fees that you owe me.”

24. The defendant’s assertions are contradicted by its own correspondence and for that reason it seems to me that, looked at against that correspondence and the rest of the background, the assertions are unbelievable. 

25. So far as the assertion of a collateral agreement is concerned, the same applies.  But there is a further point, namely that what is asserted is not even a collateral agreement, properly so called; it is that the term of payment of the loan as written in the agreement is not what the parties agreed.  In other words, the defendant seeks to contradict by parol evidence the terms of the written agreement; and under the parol evidence rule, that it may not do; its evidence is inadmissible.  See Cheuk Tze-kwok v. Leung Yu-king [1993] 2 HKLR 169. 

26. A further point is that the loan agreement at Clause 17 contains an “entire agreement” clause; it reads :

“This Agreement and the documents referred to herein constitute the entire obligation of the Lender and supersede any previous expression of intent or understandings in respect of all transactions provided for or contemplated in this Agreement.”

27. It is true that this purports to deal with the entire obligation of the lender and not both parties.  However on the face of it this clause would appear to preclude any collateral warranty by the lender to give further time, or not to enforce the agreement until the payment by it of the management fees.  See Wing Siu Co Ltd v. Goldquest International Ltd  (No.2) [2002] 4 HKC 420; Inntrepereneur Pub Co. (GL) v. East Crown Ltd[2000] 2 Lloyd’s Rep.611. 

28. In conclusion, I am not satisfied that the defendant has a “real or bona fide defence”.  The plaintiff is entitled to summary judgment.  The appeal is dismissed with costs to the plaintiff to be taxed if not agreed, with certificate for two counsel.