INDUSTRIAL BANK CO LTD v. RICH CROWN INTERNATIONAL INDUSTRIES LTD AND OTHERS

HCA 298/2020

[2022] HKCFI 81

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 298 OF 2020

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BETWEEN

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J U D G M E N T

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A. INTRODUCTION

1.  Before me are:

(a) A summons dated 28 April 2021 taken out by the Plaintiff (“Bank”) for summary judgment (“O.14 Summons”);

(b) The Defendants’ summons dated 5 August 2021 for leave (“Leave Summons”) to adduce the 4^th affirmation of Zhang Liang (“Zhang 4^th”[1]); and

(c) After the hearing was concluded, the Defendants’ summons dated 6 December 2021 for leave to adduce fresh evidence (“Fresh Evidence Summons”) through the 6^th affirmation of Zhang Liang (“Zhang 6^th”).

2.  The Bank seeks to recover outstanding payments due under a Facility Agreement granted to the 1^st Defendant as borrower (“Borrower”). The 2^nd Defendant (“Ko”) and 3^rd Defendant (“Creaton”) are guarantors under the Facility Agreement. Ko is the ultimate owner of the Borrower, Creaton and an entity called Gorgeous Investment Group Holding Co Ltd (“Gorgeous”).

3.  The Defendants do not dispute that the principal amount of $785,000,000 (“Loan”) had been advanced to the Borrower. The Borrower defaulted in repayment, except that some interests had been paid.

4.  It is the Defendants’ case that one Li Liang (“Li”) and the Bank (via Dong Feng, “Dong”) introduced a project in Malaysia (“Malaysian project”) to Ko. The Malaysian project was a device to induce the Borrower to take out the Loan under the Facility Agreement and for proceeds to be used for the personal benefit of Li and/or his corporate vehicle. The Malaysian project turned out to be a sham. The Bank had knowledge that the Facility Agreement was such a device and that the Malaysian project was a sham.

5.  The Defendants resist the O.14 Summons on 4 grounds:

(1) Fraudulent misrepresentation: that Li induced Ko to enter into the Loan transaction by fraudulent misrepresentation and the Bank knew or ought to have knowledge of the same.

(2) Conspiracy: the Bank conspired with Li and/or Asia Elite to induce the Borrower to take out the Loan where the proceeds were to be misappropriated by Li or Asia Elite instead of being applied to the Malaysian project.

(3) Negligence: the Bank had negligently failed to employ an appropriate mechanism to ensure that any money advanced was only used for the purpose of the Malaysia project and/or to monitor the use of such money advanced. The Bank would have known that the Malaysian project was a sham and would not have parted with the principal money.

(4) Total failure of consideration: as the sum transferred by the Borrower to Asia Elite had been misappropriated by Li and/or Asia Elite, there had been a total failure of consideration on the part of the Bank.

6.  The Bank denies the Defendants’ case. The Malaysian project was never a project of the Bank. The Facility Agreement expressly provided that the Bank was not bound to monitor the application of any of the money borrowed. Ko had received independent legal advice before entering into the Loan transaction.

B. THE BANK’S CASE

7.  I adopt the summary in section B to the written submission of Mr Maurellet SC (leading Ms Connie Lee and Ms Ellen Pang), counsel for the Bank.

8.  The Facility Agreement was executed on 12 December 2018 between the Bank as lender, the Borrower, Ko and Creaton as guarantors, whereby the Bank agreed to make available to the Borrower a revolving loan facility not exceeding HK$800 million.

9.  On the same day, Gorgeous executed a share charge over about 43.65% shares in a listed company called China Smarter Energy Group Holdings Ltd (“CSE”) (“Charged Shares”) in favour of the Bank as security for the Loan.

10.  On 19 December 2018, the Borrower made a utilization request signed by Ko himself for the Loan. On the following day, the Bank transferred the sum of HK$753 million (being HK$785 million less handling fee of HK$32 million) to the Borrower’s bank account.

11.  The sum was subsequently transferred by the Borrower itself to Asia Elite. The transfer slip was signed by a Ms Zhao Li who was an authorized signatory on the Bank’s Account Opening Form. The Account Opening Form was signed by the shareholders and directors of the Borrower, including Ko himself.

12.  On 27 November 2019, the Borrower defaulted in repayment. By a letter dated 18 December 2019 to the Borrower and two letters dated 7 January 2020 to Ko and Creaton respectively, the Bank via its then solicitors demanded repayment of the Loan and interest. The Borrower made a further repayment of interest in the amount of HK$3,490,663.35 on 22 January 2020 and nothing thereafter.

13.  On 12 March 2020, the Bank commenced the present action against the Borrower and the Guarantors.

14.  On 7 December 2020, the Bank appointed Receivers over the Charged Shares. Gorgeous commenced the action in HCA 356/2021 against the Bank (“Gorgeous Action”) and the Receivers seeking to set aside the Share Charge on substantially the same bases as the defence put forward in this action.

15.  Gorgeous applied, amongst others, for a prohibitive injunction to restrain the Bank and the Receivers from disposing of the Charged Shares. That application was dismissed by B Chu J on 1 June 2021 on the same day after hearing. Her Ladyship held, amongst others, that Gorgeous had not been able to demonstrate any serious issues to be tried. There was no appeal against that decision (“the Decision”).

C. DEFENDANTS’ CASE

16.  Ko and Li were business partners who had known each other for more than 20 years. As a result of their long-standing close business relationship, Ko had a high degree of trust and confidence in Li.

17.  Ko bought a controlling interest in CSE from Li. Li encouraged Ko to use that shareholding to raise finance for the purpose of investment. Li had good connections with banks in Hong Kong but Ko did not. Ko could not speak or read English. Li introduced Ko to Dong (in charge of the marketing division of the Bank) and Mr Xia (Dong’s senior).

18.  Originally, Ko had intended to raise funds for a project in Panama but the Bank would not lend money for such a project. Li and Dong “steered” Ko towards a Malaysian project and away from his preferred Panama project. Ko would borrow money (eventually under the Facility Agreement) to invest in the Malaysian project via Asia Elite, a corporate vehicle owned by Li.

19.  Li and the Bank proposed to Ko that the money borrowed from the Bank should be used solely for the purpose of enabling it to be channelled to Asia Elite for Li’s benefit.

20.  The Borrower and Asia Elite entered into an Investment Cooperation Agreement on 6 December 2018 (“ICA”). Under the terms of the ICA, the Borrower was to inject $125 million into Asia Elite by way of a loan. Asia Elite was to inject an additional US$165 million itself into the Malaysian project. The ICA had provisions governing the use of the $290 million for acquiring the project holding company and for construction and development of the site of the Malaysian project.

21.  The Facility Agreement and drawdown of $785 million were not disputed by the Defendants. However, they say that there was no documentary trace of what had happened to the Borrower’s $753 million. The Defendants’ only knowledge of what happened to it was what Li later told Zhang Liang (“Zhang”), the chairman and executive director of CSE who assisted Ko in business affairs.

22.  On 2 October 2019, Zhang met Dong, who demanded the Borrower to make interest payment under the Facility Agreement. Dong informed Zhang that information regarding the Malaysian project had been provided to the Bank by persons acting on behalf of Li.

23.  There followed a site visit of the Malaysian project on 21 October 2019 in Kuala Lumpur with Dong and other Bank representatives present. On the Defendants’ case, not only was there no proper development but the site appeared to be abandoned, contrary to what was depicted in the photos that Zhang had received before the site visit. Zhang was of the view that the Malaysian project was a sham.

24.  Dong had not provided evidence in relation to this site visit. According to the Defendants, the representatives of the Bank (including Dong) had not even questioned the validity of the Malaysian project. In fact, after the site visit, Dong reported to Zhang that he considered everything was in order.

25.  Following the concerns raised by the site visit, and upon investigations, Zhang discovered that certain statements in the ICA were not true, including: beneficial ownership of the site, the machinery and land in the Malaysian project. Moreover, a receiver and manager had been appointed for the operating company of the Malaysian project prior to execution of the ICA.

26.  During meetings since October 2019 between Zhang and Li, Li expressly admitted to Zhang that he had taken all of the money loaned by the Bank and remitted by the Borrower to Asia Elite for his personal use and not for investment (“Li’s admission”). Li said that he had taken the money because Ko owed him money, which Ko denied.

27.  Zhang told Dong about Li’s admission on 10 November 2019 but Dong appeared unconcerned about this. Dong told Zhang that the Bank was aware of certain disputes between the Defendants and Asia Elite/Li, but the Bank would not care what Li did because the Defendants were the parties who signed the Facility Agreement and were required to repay the Bank.

28.  Dong said he would help the Defendants negotiate with Li to cause Li/Asia Elite to repay the Loan to the Bank. In the light of Dong’s offer to help, which would avoid a forced sale of the CSE shares by the Bank, the Borrower made 4 further payments regarding the Loan, 3 in November 2019 and the 4^th on 22 January 2020. However, Dong did not make good his offer to help, so the Borrower ceased further payments.

D. LEAVE SUMMONS

29.  Where the Court has given directions previously that no further affirmation is to be filed without leave of the court, it has been held to be inconceivable that leave would be granted in the absence of “genuine extenuating circumstances”, meaning circumstances that would normally fall within the rule in Ladd v Marshall. In exercising the discretion to grant leave, the court is bound to have regard to the underlying objectives set out in Order 1A, rule 1 and to seek to promote the attainment of such objectives. See Jose Miranda Da Costa Junior v Lorenzo Yih (unrep, HCA 156/2010, 28 April 2014) at §§9-13, DHCJ Le Pichon. The Defendants accept this principle in §§12-14 of the submission dated 31 August 2021 of Mr Strachan SC leading Mr James Wood, counsel for the Defendants.

30.  The ruling of DHCJ Le Pichon was upheld on appeal: HCMP 1127/2014, 21 July 2014. Lam VP (as he then was) held that in respect of late application for admission of evidence, the court in the exercise of its case management power must pay regard to timetable already in place and the potential disruption such late application may cause to any substantive hearing (at §6).

31.  In respect of the O.14 Summons, the Defendants have filed 2 rounds of affirmations already. They took out the Leave Summons only on 5 August 2021, less than a month before this hearing. It was supported by a draft 3^rd affirmation of Zhang Liang (“Zhang 3^rd”), which sought to adduce a draft Zhang 4^th.

32.  However, the notarized version of Zhang 4^th (a) contained substantial changes from the draft Zhang 4th referred to in Zhang 3^rd; and (b) included additional exhibits.

33.  Although the draft Zhang 4^th had been given to the Plaintiff about 4 weeks and the notarized version 2 weeks before this hearing, it was still unfair to the Bank as the Bank was left with little time to respond with evidence whilst having to prepare for this hearing.

34.  The Bank has had no difficulty in getting Dong to file Dong 1^st and 2^nd after he has left employment on 9 April 2021. For present purposes, I assume that the Bank could have got hold of Dong to file a further affirmation, if needed.

35.  In substance, Zhang 4^th added the following evidence:

(1) The Bank had detailed knowledge about the Malaysian project in and after July 2018, months before the Facility Agreement was executed in December 2018. The Bank was in fact acutely interested in seeking out information from Li and in monitoring progress of the Malaysian project.

(2) There was a meeting between Zhang and Dong on 2 October 2019.

(3) The Bank’s risk management division would perform an annual audit on the Malaysian project and asked for progress report as to development of the Malaysian project. The Bank asked members of a WeChat group what explanation to provide to the manager of the Bank’s risk management division given that the construction appeared not to have begun.

(4) Dong repeatedly urged Zhang to attend the site visit saying that “it would be beneficial for [Zhang] in the future” if Zhang could establish direct connection with the Bank’s risk management division.

(5) Dong was trying to persuade Zhang to speak favourably about the development of the site by saying things that were untruthful such as “say you are still selecting contractors or something of that sort” to play down the lack of progress at the site. Dong was keeping a close watch on the Malaysian project.

(6) Zhang did have meetings with Li in October 2019 and on 10 February 2020 in which Li’s admission was made.

(7) The Borrower has instituted an action against Asia Elite and Li and had sought discovery against the Bank to ascertain the destination of the $753 million after it was transferred to Asia Elite.

(8) The Bank has taken enforcement action by appointing Receivers over the Charged Shares.

(9) The Borrower did not retain lawyers for the negotiation of the Facility Agreement.

36.  All but item (7) really concerned occurrences or documents which came into existence in 2018 to 2019. Zhang himself was a party to most of the occurrences. He was also a party to most of the documents and has been in possession of them. The Bank’s enforcement of the charged shares was done in December 2020, well before the O.14 Summons, and hence not an update. There was no explanation as to why the Defendants saw fit to produce such evidence, if they were at all material, in their earlier rounds of affirmations.

37.  Item (7) was a “new” development in response to B Chu J’s comment that the Defendants had not even sued Li/Asia Elite despite the alleged fraud. It added nothing of substance to the defence because the fact that the Defendants could be indemnified by third parties was no answer to the Bank’s right of recovery of the Loan.

38.  For the reasons given in this Section, no extenuating circumstances have been demonstrated to justify granting leave to adduce Zhang 4^th. The Leave Summons is thus dismissed.

E. O.14 SUMMONS

39.  The applicable principles have been summarized in Ko Siu Ping v Chan Shu Hung [2020] HKCFI 2993, §§22-23, Au-Yeung J:

(1) The burden is on the defendant to show a bona fide defence or some other reason for a trial. This is normally done by affidavit and it is incumbent upon the defendant to “condescend upon particulars” in such affidavit;

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

(3) Order 14 is only for clear cases, and ought not to be applied in cases where there are serious material factual disputes, or a difficult point of law not fit for summary determination, unless it is obvious that the defence put forward is “frivolous and practically moonshine”;

(4) The Court should not embark on a mini trial on affidavits. Where there are factual disputes, the issue is not whether the defendant’s assertions are to be believed; it is whether those assertions are believable; and

(5) The Court must, of course, also scrutinize the strength of the Plaintiff’s case and the veracity of the Plaintiff’s evidence. If the Court harbours any doubt about the Plaintiff’s case, the Defendant should be granted unconditional leave to defend.

40.  In considering whether there are triable issues, the court will, of course, not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The court will also consider the inherent probability of the defence: Paul Y Management Ltd v Eternal Unity Development Ltd, CACV 16/2008, 12 August 2008 at §19.

41.  Where there are unexplained features of both the claim and the defence which are disturbing because they bear the appearance of falsity and disreputable business dealings and questionable conduct, the court should not make tentative assessments of the respective chances of success of the parties or the relative strengths of their good or bad faith, and should not on such an examination grant the defendant conditional leave to defend, but should give unconditional leave to defend: Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262 at 266E-I, 268C-D.

42.  Allegations of fraud or serious dishonest conduct should be supported by cogent evidence: Choy Bing Wing v Chief Executive of HKSAR & ors [2006] 1 HKLRD 666 at §9. Practitioners pleading fraud (as in the present case) must ensure there is proper basis and/or credible material to support such a claim Chinachem Charitable Foundation Ltd v Chan Wai Tong Christopher [2021] HKCFI 1347, G Lam J (as he then was) at §§22-24.

43.  In the context of a debtor and creditor relationship, the bank’s obligations do not extend to “detective and investigative work, aimed at establishing whether or not a payment which potentially may have been made in furtherance of a fraud really is suspect”: Luk Wing Yan v CMB Wing Lung Bank Ltd [2021] HKCFI 279 at §167, Coleman J.

44.  There is no proper basis for imposing liability upon a bank in respect of alleged omissions which, viewed from the perspective of the purpose behind the suggested duty to act, really relate to testing the genuineness of the recipient of the monies rather than the genuineness of the instruction to pay the monies (whatever the circumstances behind that instruction may be, and whether or not the paying person might have a compelling claim in deceit against the recipient as a result of them): Luk Wing Yan, at §178.

45.  The Bank’s case as set out in Section B above is not disputed by the Defendants and I accept the same. It is for the Defendants to raise triable issues.

F. FRAUDULENT MISREPRESENTATION AND CONSPIRACY

46.  The same facts are pleaded for both causes of action. For present purposes, I shall assume that the Malaysian project turned out to be a sham.

47.  I have considered the inherent probabilities of the fraudulent misrepresentation and conspiracy in the light of the contemporaneous circumstances. I have taken into account the Decision. The parties in the Gorgeous Action were different from those in the present. The hearing before B Chu J was for interlocutory relief. Issue estoppel does not apply: Re Chime Corporation Ltd (No.2) [2003] 2 HKLRD 945, §23, Kwan J (as she then was).

48.  However, Gorgeous as chargee of shares, the Borrower and the Guarantors ran substantially the same defences to resist repayment of the same Loan. The Decision remains highly persuasive. I would, of course, take into account any updates since that Decision.

49.  Firstly, even on the Defendants’ own case, the alleged fraud was committed by Li and his representatives who sought to create a false impression that the Malaysian project was progressing normally when in fact the site was abandoned and Li misappropriated the borrowed sum.

50.  The fact that Ko was introduced to the Bank by Li or that Li had a close relationship with the Bank could not be equated with knowledge on the part of the Bank that Li was fraudulent. The fact that Dong did not give any detailed account to contradict the Defendants’ case would not advance the Defendants’ hollow case.

51.  Secondly, the Defendants alleged that the fraudulent misrepresentation was made by Dong. At §25 of the defence, it was pleaded that the Bank and Li made the alleged misrepresentation and the Bank had knowledge that the Malaysian project was a sham and that the Facility Agreement was such a device. The purpose was to induce the Borrower to take out the Loan.

52.  The misrepresentation and knowledge of the Bank were not particularized. In terms of evidence the same misrepresentation had been rejected by B Chu J. For this hearing, in §46 of Mr Strachan SC and Mr Wood’s written submission, it was virtually conceded that the Bank was not a party to Li’s fraud.

53.  Thirdly, the site visit took place 10 months after the Loan was advanced. It could not be an overt act to implicate the Bank in the making of the Loan. There was nothing to show that the Bank or Dong had personal knowledge before the Loan was advanced that the Malaysian project was a sham or that Li would misappropriate the money.

54.  Fourthly, the fact that Dong or the representatives of the Bank who attended the site visit raised no queries at best supported the Defendants’ case that the Malaysian project was a sham at the time of the site visit, but not that the Bank or Dong had personal knowledge of Li’s fraud or prior knowledge of the sham.

55.  Fifthly, the time at which the fraud was discovered was inconsistent on the Defendants’ own case. According to the statement of claim in the Gorgeous Action and Ko’s first affirmation, Ko discovered that the Malaysian project was a sham in October 2019 as a result of Li’s admission. This was inconsistent with the pleaded defence that Li’s admission was made since January 2020.

56.  If the discovery was in October 2019, it made no sense for Ko to continue making a total of 4 payments of interest until 22 January 2020. This was especially so since it is now alleged that Dong was going along with Li’s desire to cover up the sham to avoid termination of the Loan by the Bank’s risk management division (§47(5) of Mr Strachan’s written submission).

57.  It was plain that the defence had to plead the date of discovery in January 2020 as an afterthought to justify Ko’s payment of 4 instalments of interest despite being allegedly defrauded.

58.  Sixthly, despite the Bank’s demand letters dated 18 December 2019 and 7 January 2020, neither the Borrower nor the Guarantors had ever raised a complaint against the Bank for the fraud. Rather, Ko sent a letter to the Bank on 5 March 2020 acknowledging that the Borrower had defaulted in repayment of the Loan, not due to the need to investigate the fraud, but “due to the business environment and operating conditions both internally and externally”. Ko stated in the same letter that the Borrower and himself were actively raising funds to repay the Loan and interest by disposing of assets. Ko asked the Bank to give him more time to dispose of his assets and undertook to repay the Loan as soon as possible.

59.  To explain away Ko’s letter, Zhang 3^rd in the Gorgeous Action explained that the last payment under the Loan was 6 weeks before this letter. Dong allegedly had been telling Zhang of the Bank’s pressure on Dong to secure repayment of the Loan and the Bank’s threat to start recovery proceedings and to dispose of the Charged Shares. Dong allegedly suggested that if Ko was to write a non-binding letter of intent to the Bank, it would increase Dong’s efforts to calm down the credit control department and would continue to help secure a settlement with Li. Dong told Zhang what to put in the letter to ensure that the Bank would not commence legal proceedings.

60.  B Chu J in her Decision has rejected Zhang’s account. Ko still relies on it in these proceedings. Even if Zhang’s account was correct, he plainly knew that the letter was of a non-binding nature to fend off recovery proceedings temporarily pending settlement. No settlement was reached with Li. The Bank could not in any way be bound. Still less could that letter support the Defendants’ case of fraud on the part of the Bank.

61.  The fact that Dong had assisted Ko to try and calm down the credit control department could not, in the absence of other evidence, be evidence that Dong wanted to cover up Li’s misconduct as Mr Strachan SC suggests. Still less could it prove that Dong had any ulterior motive at the time the Loan was made.

62.  Seventhly, neither the Borrower nor the Guarantors have made a criminal complaint to the authorities at all. They did not even commence any action against Asia Elite or Li until 4 August 2021, ie after B Chu J in her Decision commented that the absence of such complaint was surprising. Her Ladyship held that the allegations of deceit, misrepresentation, conspiracy to defraud, dishonest assistance against the Bank were “an afterthought only and there was no evidence to support those allegations”. I agree, on the evidence before me.

63.  In any case, the suit against Asia Elite or Li does not assist the Defendants in this case. The fact that the Defendants might have indemnification by some third parties would not undermine their liability to the Bank under the Facility Agreement: Hong Kong Civil Procedure 2021, Volume 1, §14/4/8.

64.  Eighthly, there were some specific allegations against Dong. It was alleged that Dong had benefit in the form of a substantial commission payment from the handling fee of HK$32 million. However, there was no evidence of such benefit both before B Chu J (§81 of the Decision) and this Court (§71 of Mr Strachan SC’s written decision). The submission in this respect was entirely speculative.

65.  Then it was said that Dong misstated his position in the Bank in his 1^st and 2^nd affirmations and his employment with the Bank ceased on 9 April 2021. Enquiries have been made of the Bank as to how the misstatement came about and reasons for his departure but the Bank’s solicitors declined to answer. Mr Strachan SC submits that with the unanswered enquires, it remains uncertain whether Dong’s departure from the Bank was connected to this case. Once again, such submission was speculative and did not advance the Defendants’ case.

66.  This line of defence is unarguable.

G. NEGLIGENCE

67.  In support of the defence in negligence, Mr Strachan SC cited various clauses in the Facility Agreement, such as Clause 4.1 which stated the purpose of the Loan, Clause 5.1 which required the Bank to be provided with the Acquisition Agreement and legal advice in relation to it. He also cited other provisions of the Facility Agreement which enabled the Bank to monitor that Asia Elite duly paid out the Loan money, to ensure that the Acquisition Agreement remained on foot and that work at the factory site proceeded as contemplated. The Bank had a right to cancel the facility and all outstanding amounts became immediately due and payable, eg upon termination of the Acquisition Agreement (Clause 8.5), upon termination of the operation of a factory site (Clause 8.6) and upon failure of the Borrower to provide documentary evidence that all amounts payable by Asia Elite at the closing of the Acquisition Agreement had been paid the designated entity.

68.  Mr Strachan SC submits that that while the Bank was the beneficiary of such contractual rights, it has shown a complete lack of interest in enforcing them. It constituted a pattern of conduct which was not commercially explicable and supported the view that the Loan was not genuine but was advanced in the irregular circumstances for which the Defendants contended.

69.  Mr Strachan SC also submits that the evidence showed that the Bank was “involved” or “interested” in the Malaysian project, as evidenced by the matters which occurred from mid-August 2019 to October 2019 which included receipt by the Bank of information from Li’s representatives and sending out 4 persons from the Bank to Malaysia for the site visit. And yet the Bank “distanced” itself from any involvement in the Malaysian project.

70.  To assert negligence, it has to be shown that a person owed a duty of care to the claimant. Here, the Defendants could not even show that the Bank had a duty to use an appropriate mechanism to ensure that any money advanced was used only for the purpose of the Malaysia project and/or to monitor the use of such money advanced (“Alleged Duty”).

71.  In fact, the Alleged Duty was directly contradictory to Clause 4.2 of the Facility Agreement which provided that:

“… the Lender is not bound to monitor or verify the application of any amount borrowed pursuant to this Agreement.”

72.  The Bank’s role was a lender. It was not the financial advisor of the Defendants. It was not a party to the Malaysian project, even though the Bank had received the ICA on 7 December 2018 before the Facility Agreement was executed. The “involvement” of the Bank between August 2019 and October 2019 as described in paragraph 69 above were all post-Facility Agreement. They could not give rise to the Alleged Duty.

73.  Further, Ko was a sophisticated business person with experience in making investments in and managing companies. The fact that he did not read English was irrelevant. The fact that he chose to invest in the Malaysian project instead of another project could not give rise to the Alleged Duty.

74.  Still further, there was nothing to put the Bank on enquiry because of the following reasons.

75.  Firstly, the Defendants had had independent legal advice when the Facility Agreement was negotiated and executed, as expressly acknowledged in Clause 19.6 of the Facility Agreement. The Bank had given a warning notice to Ko as guarantor dated 7 December 2018 advising him to instruct his own solicitor, to obtain the financial information of the obligors as defined in the Facility Agreement (ie the Borrower and Guarantors) and engage his own financial adviser. Ko had signed to confirm that he had sought independent legal advice. There was also an email from Eric Suen of CSE to the Bank dated 10 October 2018 stating that the former’s solicitor had read the draft Facility Agreement. The Defendants’ assertion that they had no lawyers was simply contrary to the contemporaneous documents.

76.  Secondly, the Loan was in fact paid into the Borrower’s bank account as per the utilization request signed by Ko himself. The onward transfer of the Loan from the Borrower to Asia Elite created nothing suspicious because Zhao Li was an authorized signatory of the Borrower and the Defendants had not disputed her authority.

77.  Thirdly, the transfer from the Borrower to Asia Elite was entirely consistent with Clause 4.1 of the Facility Agreement which provided that the Borrower shall apply the Loan “towards advancing a loan or loans to [Asia Elite]” for investment in the Malaysian project.

78.  Fourthly, Ko never made a complaint to the Bank regarding the transfer of the Loan money.

79.  Fifthly, there was simply nothing to show to the Bank that at the time of the drawdown of the Loan or transfer of the Loan money to Asia Elite that there was an attempt to misappropriate the Borrower’s funds.

80.  Applying Luk Wing Yan, the defence was related to the genuineness of the recipient of the Loan monies, which was not the Bank’s duty, rather than the genuineness of the instructions to the Bank to pay the monies.

81.  This line of defence has no merits.

H. TOTAL FAILURE OF CONSIDERATION

82.  The money was advanced by the Bank pursuant to the Facility Agreement. The Borrower had received the Loan. The defence of total failure of consideration needs only to be stated to be rejected.

I. SUMMARY OF DEFENCES

83.  The defences are but clouds of dust to blur the true picture and desperate attempts to avoid judgment being entered against the Defendants. None of the defences are believable or triable. Accordingly, the Plaintiff is entitled to judgment. There is bear scrutiny.

J. FRESH EVIDENCE SUMMONS

84.  Just as this Court was about to issue a notice of handing down judgment, the Defendants filed the Fresh Evidence Summons on 6 December 2021 for leave to file Zhang 6^th and asked for the hearing of the O.14 Summons to be re-opened for argument. In substance, Zhang 6^th seeks to adduce a report of the BVI Liquidators of Asia Elite dated 29 November 2021 (“the Report”), which allegedly establishes conclusively that:

(i) The Malaysian project was a sham;

(ii) Asia Elite never acquired East Coastal;

(iii) East Coastal had no ownership interest in the Malaysian Companies purportedly operating the Malaysian project;

(iv) It is highly likely that HK$753 million was paid to Bright Ruby;

(v) There is next to nothing in Asia Elite’s accounts with the Bank; and

(vi) The Bank is resisting giving assistance as to where the HK$753 million was in fact paid when it left Asia Elite’s account with the Bank.

J(1). Test for adducing fresh evidence

85.  The admission of new evidence at a late stage of proceedings is always a matter of discretion that must be justified, balancing the competing interests of the parties and the court. The Ladd v Marshall principles would always be relevant if such discretion is to be exercised in a principled manner: Balram Chainrai v Kushnir Family (Holdings) Ltd [2018] HKCFI 17, §56, Lisa Wong J.

86.  Since Mr Strachan SC accepts that Ladd v Marshall applied to the Defendants’ Leave Summons for adducing additional evidence prior to the hearing (§§12-14 of his skeleton submission dated 31 August 2021), there is no reason why Ladd v Marshall should not apply to this late application made 3 months after the hearing.

J(2). Application of the legal principles

87.  The first limb of Ladd v Marshall is satisfied as the Report and the contents highlighted in paragraph 84 above only became available to the Defendants on 30 November 2021 after the hearing in September. The BVI Court ordered on 27 September 2021 that Asia Elite be wound up and Liquidators be appointed. The Liquidators obtained information in their Report during the past approximately 2 months using their investigatory powers in BVI and Hong Kong. The contents in the Report were not something that the Defendants were able to discover on their own.

88.  However, I agree with Ms Connie Lee, that the characterization of the Report by Zhang should be disregarded for the purpose of the Fresh Evidence Summons.

89.  The third limb of Ladd v Marshall is satisfied in that the Report, prepared by officers of the BVI Court, is apparently credible, although it need not be incontrovertible.

90.  The bone of contention is the second limb, ie that the evidence must be such as would probably have an important influence on the result of the O.14 application, though it need not be decisive: Keen Lloyd Energy Limited v Bank of China (Hong Kong) Limited, HCA 1299/2004 & HCA1092/2006, 4 January 2008, Poon J (as he then was), §§7 and 10.

91.  Even without the Report, I have already assumed in paragraph 46 above that the Malaysian project turned out to be a sham and have taken into account Li’s admission. So what does the Report really add to the Defendants’ case?

92.  In my view, the Report may lend support to the Defendants’ action against Li and/or Asia Elite in HCA 1166/2021, but it would not alter the outcome of the O.14 application for the following reasons.

93.  Firstly, it is noteworthy that the Report does not suggest that the Bank was involved in any fraud or sham.

94.  Secondly, the only reference made to the Bank in the Report is in §§29-30 thereof, where it is stated that the Bank had responded to the Liquidators’ request for information and produced statements associated with the Bank’s Accounts for the period from 3 December 2018 to 31 October 2021 to the Liquidators.

95.  No doubt the Liquidators have made “repeated requests” to the Bank for information relating to Asia Elite. However, the Liquidators did not say that the Bank’s conduct amounted to “resistance” to discovery.

96.  Thirdly, Mr Strachan SC submits that to date the Bank’s disclosure in these proceedings has been woefully deficient and has steadfastly refused to provide the Defendants with any documents regarding Asia Elite or what happened to the HK$753 million after it left Asia Elite’s account with the Bank. In particular, the Bank has vigourously resisted 2 applications taken out by the Defendants in August 2021, before the hearing of this O.14 Summons:

(1) Specific discovery application, which was adjourned at the Bank’s request until January 2022, pending the outcome of this O.14 Summons; and

(2) Bankers’ books application, which could not progress because it has been impossible for the Defendants to locate and serve Mr Li.

97.  Mr Strachan SC submits that it was only after the Defendants were unable to make any progress in obtaining the purported fresh evidence in Hong Kong proceedings that they were able to obtain a winding-up order against Asia Elite in the BVI and resultant appointment of the Liquidators.

98.  With respect, the submission in the 2 preceding paragraphs cannot bear scrutiny. It is trite law that owing to the duty of confidence, the Bank should not provide or disclose bank information of another customer (Asia Elite) to the Defendants except pursuant to a court order for disclosure.

99.  The request of the Bank to adjourn the specific discovery application until after the decision of its O.14 Summons could not be seen as “resistance” to discovery. The Liquidators do not say so. The Defendants do not say that the Bank’s opposition to 2 applications for discovery was totally unmeritorious. The bankers’ books application could not proceed because of the need for service as directed by Master Lai and was not the fault of the Bank.

100.  It is a quantum leap to say that due to paragraphs 95 and 96 above, the Bank has something to hide or that its conduct supports the Defendants’ case that Dong and/or the Bank were complicit in the fraud.

101.  For the reasons given in paragraphs 93-99 above, the Defendants fail in satisfying the second limb of Ladd v Marshall. Even applying Mr Strachan SC’s test of whether or not interests of justice are better served by allowing or rejecting the application: Keen Lloyd Energy Ltd. The Fresh Evidence Summons ought to be rejected. It was but another attempt to adduce non-useful evidence to defer the inevitable judgment.

K. COSTS

102.  On costs, the Plaintiff is entitled to seek indemnity costs on all 3 summonses based on Clauses 16.2(a), (d) & (g) and 17.3 of the Facility Agreement, which provide that the Borrower shall indemnify the Bank against any costs, loss or liability incurred by the Bank as a result of, amongst others, (i) the Borrower’s failure to pay any amount due under the Finance Documents; or (ii) the exercise of any rights vested in the Bank under any Finance Document.

103.  Even on such contractual provisions, I do not see the need to engage 3 counsel for this case. I therefore make an order nisi that costs of both summonses be to the Plaintiff, with certificate for 2 counsel and 2 solicitors, to be on indemnity basis.

104.  The amount of costs claimed are enormous. I make a provisional summary assessment pursuant to Order 62, rule 9A(1)(b) that the Defendants do pay the Plaintiff the sum of $2,800,000.

105.  I order as follows:

(1) The Leave Summons to file Zhang 4^th be dismissed;

(2) The Fresh Evidence Summons to adduce the Liquidators’ Report be dismissed;

(3) Final judgment in this action be entered against the Defendants for the sum of HK$810,982,236.12 as of 9 March 2020 with interests at HIBOR + 9% up to judgment and thereafter at judgment rate until payment; and

(4) On a nisi basis, costs be to the Plaintiff on indemnity basis with certificates for 2 counsel and 2 solicitors. There be provisional summary assessment in the amount of $2,800,000 to be paid by the Defendants to the Bank.

106.  I thank counsel for their assistance.