JIANGSU SHAGANG MATERIALS TRADING CO., LTD v. DAILY-TECH HONGKONG CO., LTD

HCA 1093/2022

[2025] HKCFI 4377

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1093 OF 2022

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BETWEEN

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D E C I S I O N

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Introduction and Background

1.  By Summons dated 7 May 2024, the Plaintiff (“P”) applied for final judgment be entered against the Defendant (“D”) for the sum of HK$787,617,362.78 (“the Sum”) together with interest thereon.

2.  P’s case is that between January to March 2020 and September 2020 and May 2022, it had paid in total the Sum to Global Switch Hong Kong Limited (“Global”) on behalf of D pursuant to its obligation under a Guarantee executed by P and Daily-Tech Beijing Co., Limited (“DTBJ”), D’s parent company, in favour of Global (“the Guarantee”). By the Guarantee, P and DTBJ agreed to guarantee the performance of D under the Services Agreement entered into between D and Global (“the Services Agreement”). The Guarantee was in the form as set out in Schedule 6 to the Services Agreement. P claims that it is entitled to enforce its right of indemnity against D.

3.  On the other hand, essentially, D’s case is that as D did not owe Global anything under the Services Agreement (rather Global owed D monies) and given there are ongoing proceedings between D (as plaintiff) and Global and P (as defendants)[1] as to whether D owes any sum to Global under the Services Agreement, D was not legally compellable to pay Global. Furthermore, P is not presently entitled to enforce any right arising from the Guarantee given the terms of the Guarantee.

4.  By Order and Judgment dated 22 October 2024, Master Frances Lok SC ordered inter alia that:

(1) Final and interlocutory judgment be entered for P against D for the sum of HK$386,432,359.83 (“Partial Sum”) together with interest thereon (“Partial Judgment”); and

(2) Unconditional leave be granted to D to defend P’s remaining claims (“the Remaining Claims”) in this action (“Unconditional Leave Order”).

5.  Before me was the substantive hearing of the respective appeals of P and D;

(1) By Notice of Appeal to a Judge in Chambers dated 4 November 2024, P appeals against the Unconditional Leave Order and seeks judgment to be ordered on the Remaining Claims or alternatively, conditional leave be given to D to defend the Remaining Claims (“P’s Appeal”); and

(2) By Notice of Appeal to a Judge in Chambers dated 5 November 2024, D seeks to set aside the Partial Judgment and for D to be given unconditional leave to defend in respect of the Partial Sum (“D’s Appeal”).

6.  Mr Anson Wong SC leading Mr Martin Kok, counsel, appeared for P. Mr Douglas Lam SC leading Ms Clara Wong, counsel, appeared for D. I am grateful to counsel for their abled assistance in this matter.

Applicable Principles

7.  It is trite that an appeal from a master to a judge in chambers pursuant to O.58 of Rules of the High Court, Cap.4A (“RHC”) is dealt with by way of an actual rehearing of the application which led to the order under appeal, and the judge treats the matter as though it came before him or her for the first time: see Hong Kong Civil Procedure 2025, Vol.1, §58/1/2.

8.  The applicable principles for O.14 of RHC are also trite. These were summarised by Ng J in Guanghua SS Holdings Limited v Lim Yew Cheng & Another [2022] HKCFI 1052 at §13 as follows:

(1) The Order 14 machinery works on the basis that if the plaintiff’s application is properly constituted, it is prima facie entitled to judgment unless the defendant shows cause to the contrary;

(2) The mere assertion in an affidavit of a given situation by the defendant responding to an application for summary judgment does not, ipso facto, ground leave to defend;

(3) The burden is on the defendant to show a real or bona fide defence or some other reason for a trial. The defendant must satisfy the Court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence;

(4) In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the Court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the Court must look at the whole situation;

(5) In assessing the credibility of the defendant’s factual case, while the Court will not embark upon a mini-trial on affidavit evidence, the Court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate;

(6) If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so; and

(7) If the defendant’s evidence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.

9.  It has also been held that O.14 is for clear cases only, that is, cases in which there is no serious material factual or legal dispute. The procedure is entirely inappropriate where the plaintiff’s entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. See Lesnina H DOO v Wave Shipping Trade Co Ltd [2022] 2 HKLRD 727 at §36 and Hong Kong Civil Procedure 2025, Vol.1, §14/4/9.

10.  The following legal principles on a surety’s right to indemnity, are also not in dispute:

(1) The right of the surety to be indemnified as against the principal may arise on two legal bases: (1) under an express or implied contract of indemnity; and (2) under restitution in quasi-contract: see Millett QC, Law of Guarantees, 7^th Edn, §10-002;

(2) In principle, where a surety has undertaken liability as a result of an express or implied request by the principal, there would be a prima facie presumption that the request of the principal debtor is for the surety to “pay if I do not” rather than “pay if I do not and if I am legally compellable to pay”: see ibid §10-007; and Argo Caribbean Group Ltd v Lewis [1976] 2 Lloyd’s Law Reports 289 at 295;

(3) A request may be inferred if the majority of the directors of the debtor company knew that the surety intended to guarantee the company’s debts and acquiesced in the provision of the guarantee for the benefit of the company. In such a case, the debtor company will be taken to have requested the guarantee, and the guarantor will have an implied right of indemnity: see Phillips and O’Donovan, The Modern Contract of Guarantee, 4^th Edn, §12-001;

(4) Where a surety has undertaken liability at the valid request by the principal there will usually be an implied contract of indemnity, whether or not the surety’s payment conferred a benefit on the principal debtor: see Law of Guarantees, §10-002 applied in On Sky Enterprise (HK) Ltd v Lanco International Holdings Ltd [2017] 1 HKLRD 941 per Ng J at §110;

(5) Moreover, in the absence of express contractual provision, it is not usually open to the principal to argue that instead of paying the creditor, the surety should have availed himself of defences which may have been available to him on the guarantee alone, or even that he should have raised defences which may or would have been available to the principal, unless the claim to an indemnity is based purely on principles of restitution: see Law of Guarantees, §10-017;

(6) Ultimately, the nature and extent of the implied promise to repay will depend on the intention of the parties: see ibid, §10-007;

(7) However, under a claim in restitution, where the surety is not legally compellable to pay the debt or discharge the liability of the principal to the creditor, whether because the principal is not legally liable or because the surety himself is not legally liable, the surety cannot claim an indemnity by way of restitution: see ibid.

Discussion

11.  Mr Lam submitted that there are 3 triable issues raised by D such that summary judgment ought not be granted:

(1) D never requested for the Guarantee, and as is common ground, the legal consequence of this is that P is only entitled to seek an indemnity from D if D had not paid Global and D was in fact legally compellable to pay Global;

(2) D did not in truth owe any sum of Global and P is not entitled to seek indemnity or restitution for the sums which D is not legally liable to pay Global; and

(3) P’s claim is premature; by reason of Clause 3(a)(ii) of the Guarantee, P is not presently entitled to bring any proceedings against D so long as the Guarantee is in force and/or the obligations under the Services Agreement is not fully settled.

12.  Mr Lam accepted that the first two of the issues raised are related and would only afford D a partial defence (such that judgment should be entered in favour of P for the sum of HK$669,481,244.85, being indisputably the correct amount of the invoices due by D to Global). However, he submitted that the third issue would entitle D to unconditional leave to defend the entirety of P’s claim as it is a complete defence to P’s claim.

13.  On the first issue, Mr Wong had relied on the contemporaneous WeChat messages between Mr Yang for D and Mr Gu for P which he submitted demonstrate that initially D requested P to assist on obtaining bank guarantees for the purposes of D’s intended services agreement with Global, but later when the Bank of China (“BOC”) said that because P was not a party to the intended services agreement the bank guarantee cannot be issued, BOC then came up with the idea that P be added as one of the guarantors which P agreed to[2]. Mr Wong also submitted that, at the very least, D impliedly requested the Guarantee as D knew that P had entered into the Guarantee and acquiesced to its provision as demonstrated in its letter to Global dated 17 October 2019 (“the Letter”) which stated inter alia that P was one of the guarantors under the Guarantor and Global should ask P for concurrent payment of part or all of the outstanding fees[3].

14.  Mr Lam did not seriously dispute Mr Wong’s summary of the effect of the WeChat messages and the Letter but stressed that D was not saying in the Letter that P would pay any outstanding sums demanded but only if D is in default, and that D had expressly reserved its rights to verify the amount of outstanding fees due[4].

15.  I am not satisfied that D has raised any triable issue that the Guarantee was not provided as a result of an implied request by D in view of the contemporaneous documents I have been referred. The consequence of this is there is a prima facie presumption that D had made an implied request to P to “pay if I do not” and not “pay if I do not and I am legally compellable to pay”.

16.  On the second issue, Mr Lam submitted that in any event, even if D had requested the Guarantee from P such as to give rise to a prima facie presumption that D had made a request to P of “pay if I do not”, there is a triable issue that the presumption has been rebutted given: (1) clause 1(a) of the Guarantee expressly provides that the guarantors (including P) are liable to pay Global if D is “in default of the due and proper performance… of any obligations” under the Services Agreement; and (2) in a commercial context, it is unlikely that the principal debtor impliedly agreed to pay the guarantor a sum that the principal debtor is not legally obliged to pay the creditor. Ultimately, he submitted that the question depends on ascertaining the intention of the parties (see Law of Guarantee, §10-007[5]). Furthermore, he submitted that there is uncertainty in the law as to whether a principal debtor agrees to indemnify the surety of whatever sum it has been asked to pay by citing Chitty on Contracts Hong Kong Specific Contracts, Vol.2, 7^th Edn, §23-133 which referred to the dicta of Tomlinson LJ in North Shore Ventures Ltd v Anstead Holdings Inc and Others [2012] Ch 31 at §65.

17.  With greatest respect to Mr Lam, I do not accept there is uncertainty in the relevant legal principles although the application of those principles to the facts of any particular may lead to different results. Tomlinson LJ at §64 of North Shore Ventures Ltd held that the decision of the Court of Appeal in IIG Capital LLC v Van Der Merwe [2008] 2 All ER (Comm) 1173 was distinguishable on the facts. Moreover, at §65, although he was doubtful of Waller LJ’s observations in IIG Capital LLC that “payment of what is found to be due from the guarantors will lead almost certainly to a right of indemnity from the company [the principal debtor] if the guarantee has to be paid”, he went on to say that it may be that Waller LJ was not intending to state a general principle but rather considered that the circumstance that the guarantors were there directors of the principal debtor company might be relevant the implication of a right of indemnity (which was not the case before him). The differing judicial opinions referred to in Chitty thus clearly arose from whether a right of indemnity should be implied on the particular facts and circumstances of the case.

18.  In the present case, there being a presumption that D requested P to “pay if I do not”, it is for D to demonstrate by credible evidence that there is a triable issue that the presumption is rebutted.

19.  Although it is true that arguably the effect of clause 1(a)[6] of the Guarantee is that P is to perform the obligations or cause D to perform all obligations under the Services Agreement where D is in default of the due and proper performance of such obligations, this has to be read together with clause 3(a)(i) of the Guarantee[7]. That clause plainly provides that P must not “reduce the Guarantors’ (or either of them) liability under [the Guarantee] by claiming that [D] or the Guarantors, or any other person, has a right to set off or counterclaim against [Global]”. Thus under the express term of the Guarantee, P had no right to raise any set-off or counterclaim against Global. As the Guarantee formed part of the Services Agreement (contained in Schedule 6 to the Services Agreement), D plainly knew that this was the case.[8] It is also consistent with clause 7.1 of the Services Agreement[9] which provides that D also has to pay inter alia service fees of Global without any deduction, counterclaim or set-off. Whilst the Services Agreement was subsequently amended with clause 7.1 deleted, this does not affect the intention of the parties at the time P requested D to execute the Guarantee.

20.  Furthermore, I agree with Mr Wong, the burden is on D to demonstrate a triable issue that the presumption is rebutted but no evidence has been filed by D that P is not legally liable to pay the Sum. Apart from asserting that there ongoing proceedings between Global and P, and that there was never any application to strike out D’s claims by Global, it is not said that D was not liable to Global for the Sum. In any event, any assertion that D is not liable to pay the Sum to Global is simply incredible in light of D’s position in the 866 Action that P had paid on behalf of D a total of HK$817,549,625.35[10]. It was on that basis that D claimed inter alia for a refund from Global of HK$310,663,282.89 being the difference between the sums paid by D in settlement of amounts due under the Services Agreement (HK$162,594,902.39), the HK$817,549,625.35 paid by P on behalf of D, and the amount of HK$669,481,244.85 being the amount which Global should have charged. D further averred in the Statement of Claim in the 866 Action that it would rely on the fact that P helped D in its capacity as guarantor to settle in full the outstanding invoices.[11]

21.  There being no other evidence adduced by D, apart from the submissions from the Bar table that the parties would not have intended D to indemnify P for any sum paid by P to Global even if D is not legally compellable to pay that sum to Global, in all, I am of the view that there is no triable issue raised by D that the presumption can be rebutted.

22.  On the third issue, Mr Lam submitted that under clause 3(a)(ii) of the Guarantee, P must not claim any amount from D in relation to a right of indemnity or contribution as long as the Guarantee is in force[12]. Given that there remains ongoing legal proceedings as regards D’s alleged breach of the Services Agreement, and Global’s position in the 866 Action is plainly that D had not fully performed its obligations under the Services Agreement, he submitted that the Guarantee remains in force. It was further submitted that this is unaffected by the Notice of Termination issued by Global (which effectively stated that the Services Agreement and the Guarantee shall cease to have effect immediately) as it relates only to future and not accrued obligations as of the date of that notice. It was also submitted that the Notice of Termination dated 26 May 2022[13] was an unilateral expression by Global that the Services Agreement and Guarantee are terminated but is still subject to clause 2 of the Guarantee[14] which provides inter alia that the Guarantor’s obligations under the Guarantee is to continue until performance of all obligations of D.

23.  I am afraid that I cannot accept Mr Lam’s submissions. It is plain from the Notice of Termination as confirmed by Global’s email dated 15 August 2023[15] that the Guarantee cease to have effect immediately and clause 3(a)(ii) no longer has effect. It is not arguable, whether as a matter of proper construction of the documents or as a matter of fact, that the obligation not to claim indemnity from D has accrued and continues after the Notice of Termination.

24.  Whilst Mr Lam submitted that it was not open to Global to unilaterally waive any operation of clause 3(a)(ii), no authorities in support were cited to me. The Guarantee was executed by P and DTBJ in favour of Global. I cannot see why as a matter of principle Global cannot unilaterally release the guarantors from further obligations under the Guarantee which is clearly beneficial to the guarantors.

25.  Given that clause 3(a)(ii) plainly has no effect, it not necessary to consider whether D not being a party to the Guarantee can rely on and enforce this clause against P by virtue of s.4 of the Contracts (Rights of Third Parties) Ordinance, Cap. 623.

26.  In all, I am not satisfied the three issues raised by D are bona fide and triable issues.

Disposition and Orders

27.  Accordingly, I will allow P’s Appeal, dismiss D’s Appeal and order judgment be entered against D in favour of P for the sum of HK$401,185,002.95 together with interest thereon in terms of paragraph 1 of P’s Notice of Appeal.

28.  I make a costs order nisi that the costs of this action (including the costs of these appeals and all reserved costs) be paid by D to P forthwith, with certificate for two counsel, to be taxed if not agreed.

29.  In the absence of any application to vary the above costs order nisi within 14 days from the date of the handing down of this Decision, the costs order shall become absolute.