TIGER VENTURE FUNDING LTD v. FAITHFUL GOOD LTD AND OTHERS

HCA 933/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 933 OF 2014

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J U D G M E N T

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Introduction

1.  I have before me an application by the plaintiff by summons dated 26 June 2014 for final judgment against the defendants for the amount claimed in the Statement of Claim pursuant to Order 14, rule 1 of the Rules of the High Court.

The plaintiff’s claim

2.  The plaintiff’s claim is for repayment of the principal amount of US$6,698,337.50 (“the Loan”) advanced under what is referred to in the pleadings as the “Tiger Loan Agreement” dated 23 October 2012 entered into between the plaintiff as the “Lender” and the 1^st, 2^nd and 3^rd defendants as the “Borrowers”, together with interest thereon as provided for in the Tiger Loan Agreement.

3.  The 4^th and 5^th defendants are the guarantors of the 1^st, 2^nd and 3^rd defendants’ obligations under the Tiger Loan Agreement pursuant to two written guarantees both dated 23 October 2012.

4.  There is no dispute that the total principal amount of the Loan was advanced by the plaintiff to the 1^st, 2^nd and 3^rd defendants under the Tiger Loan Agreement.

5.  By clause 6.1 of the Tiger Loan Agreement, the Loan was due to be repaid by the 1^st, 2^nd and 3^rd defendants on 23 October 2013, being one year after the date of that agreement.

6.  The 1^st, 2^nd and 3^rd defendants failed to repay the Loan after the same had fallen due and despite written demands. Likewise, the 4^th and 5^th defendants failed to make good the 1^st, 2^nd and 3^rd defendants’ default under the Tiger Loan Agreement despite a written demand date 23 May 2014.

7.  The plaintiff commenced the proceedings herein by way of a writ of summons on 27 May 2014 seeking to recover the Loan and interest thereon from the defendants.

8.  The 1^st to 4^th defendants and the 5^th defendant through their respective solicitors gave notice of intention to defend on 10 June 2014.

9.  The Statement of claim herein was served on the 1^st to 4^th defendants’ solicitors and on the 5^th defendant’s solicitors on 11 June 2014.

10.  As earlier mentioned, the plaintiff’s application for summary judgment was made by a summons dated 26 June 2014.  The application was supported by the 1^st affirmation of Mark William Hilton also filed on 26 June 2014 in compliance with the requirements of Order 14, rule 2 of the Rules of the High Court.

The defence

11.  As I understand from the arguments of Mr Paul Lam SC (together with Ms Queenie Lau, for the 1^st to 4^th defendants), it is said that the defendants are not liable to repay the Loan and interest thereon under the Tiger Loan Agreement and guarantees respectively, essentially because of the implications arising from a Side Letter Agreement dated 29 May 2013.

12.  In order to understand the nature and effect of the Side Letter Agreement, I need to go back a little regarding the background of the dealings between the parties.

13.  The plaintiff is a wholly owned subsidiary of Tiger Group Investments Limited (“Tiger Group Investments”).  Mr Graham Porter and Mr Julian Proctor are the chairman and managing director respectively of Tiger Group Investments.

14.  Through its subsidiaries, Tiger Group Investments indirectly owns a fleet of vessels and is engaged in the business of chartering of such vessels to charterers, including members of the defendant’s group of companies (“the D Group”).

15.  Tiger Group Investments and its subsidiaries (including the plaintiff) will hereinafter be referred to as “the Tiger Group”.

16.  In about 2012, the D’s Group had difficulty keeping up with the prevailing level of hire charged by the Tiger Group.  In order to provide short term and long term solutions to the D Group’s financial difficulties, it was agreed (inter alia) that :

(1)   the plaintiff would provide short term facilities to the D Group to assist their short term financial needs; and

(2)   the Tiger Group and the D Group would form a joint venture company, to be held or owned on a 50‑50 basis.  The joint venture company would take over the D’s Group assets, and the Tiger Group would reduce the hire rate in respect of the chartering of vessels to the joint venture company.

17.  The short term facilities which the plaintiff agreed to provide to the D Group gave rise to the Tiger Loan Agreement.

18.  The arrangements regarding the establishment of the joint venture company and the reduction of the hire rate to the joint venture company were recorded in two written Memoranda of Understanding both dated 26 October 2012.

19.  The Side Letter Agreement was one of the agreements subsequently entered into with a view to implementing the proposed joint venture.  The parties to the Side Letter Agreement were:

(i) Epingle Enterprises Ltd (“EE”), a company in the Tiger Group;

(ii) two joint venture companies, namely, Epingle Ship Holdings Ltd (“ESH”) and Epingle Shipping Ltd (“ES”); and

(iii) three entities in or associated with the D Group, namely, Gao Yan Ming, Allwise Developments Ltd and United Source Group Limited (hereinafter collectively referred to as “the D Parties”).

20.  It is not in dispute that neither the plaintiff, nor any of the defendants, was a party to the Side Letter Agreement.

21.  The provisions of the Side Letter Agreement, and a number of other documents signed on the same date, are of considerable complexity.  For the present purpose, it is not necessary to analyse those documents in great detail.  The provision which Mr Lam most heavily relies upon is clause C(9) of the Side Letter Agreement, under which (inter alia) the parties thereto were required, on the date of occurrence of certain other events, to “procure that their respective relevant Affiliates approve, execute and deliver”:

(1)   a secured loan agreement (“the New Tiger Loan Agreement”) to be entered into by the plaintiff as lender and the 4^th defendant as borrower; and

(2)   an assumption and release agreement (“the Assumption and Release Agreement”) to be entered into by and among the plaintiff as lender, the 4^th defendant as new borrower, and the 1^st, 2^nd and 3^rd defendants.

22.  According to Mr Lam, the intended effect of the New Tiger Loan Agreement and Assumption and Release Agreement was as follows:

(1)   under the Assumption and Release Agreement, the defendants (save and except the 4^th defendant) would be released from their obligations under the Tiger Loan Agreement, and the 4^th defendant would become the only debtor assuming liability in respect of the Loan; and

(2)   under the New Tiger Loan Agreement, subject to various conditions, the plaintiff shall advance a sum equivalent to the amount of the Loan to the 4^th defendant.

23.  It was further provided in the Assumption and Release Agreement that the money to be advanced under the New Tiger Loan Agreement would, effectively, be “set off” against the amount due under the Tiger Loan Agreement.

24.  There is no dispute that:

(1)   the “Affiliates” referred to in clause C(9) of the Side Letter Agreement include the plaintiff; and

(2)   neither the New Tiger Loan Agreement nor the Assumption and Release Agreement has been executed.

25.  There is, however, a dispute between the parties as to whose fault it was that caused the non‑execution of those agreements.

26.  On the basis that the court cannot, in the present application for summary judgment, determine this dispute, Mr Lam goes on to argue that:

(1)   in as much as EE, ESH and ES are obliged to procure the plaintiff to sign the New Tiger Loan Agreement and the Assumption and Release Agreement, they are also bound by an implied term in the Side Letter Agreement to procure the plaintiff not to demand or sue for repayment of the Loan under the Tiger Loan Agreement pending the performance of clause C(9) of the Side Letter Agreement;

(2)   hence, the D Parties, which the defendants intend to join as parties to these proceedings, are entitled to seek appropriate remedies including specific performance and injunction against EE, ESH and ES;

(3)   in the circumstances, there must also be an implied agreement between the plaintiff and the defendants under which they agree to sign the New Tiger Loan Agreement and the Assumption and Release Agreement when being procured to do so, and that the plaintiff shall not sue for repayment of the Loan in the meantime; and

(4)   the Side Letter Agreement intends to confer a benefit on the defendants such that, when all necessary parties have been joined and are before the court, it should stay or dismiss the plaintiff’s action against the defendants in the interest of justice, because such action constitutes an abuse of process.

27.  In my view, it is obvious that the first and second points above do not give rise to any arguable defence to the plaintiff’s claim.  This is because, even if there is an implied term in the in the Side Letter Agreement which obliges EE, ESH and ES to procure the plaintiff not to demand or sue for repayment of the Loan under the Tiger Loan Agreement pending the performance of clause C(9) of the Side Letter Agreement, such implied term cannot be enforced against the plaintiff, for the simple reason that it is not a party to the Side Letter Agreement.  Equally, even if the D Parties, after having been joined as parties to these proceedings, are entitled to seek remedies including specific performance and injunction against EE, ESH and ES, such remedies can only be directed against them and not the plaintiff.

28.  As I see it, the real issue is whether Mr Lam is right in his contention that there is in existence an implied agreement between the plaintiff and the defendants under which the plaintiff agrees to sign the New Tiger Loan Agreement and the Assumption and Release Agreement when being procured to do so, and not to sue for repayment of the Loan in the meantime (ie the third point above).

29.  The answer to this question will also have a significant impact on the question of whether the plaintiff’s action should be stayed or dismissed on the ground of an abuse of process (ie the fourth point above).

30.  I shall now turn to consider these two points, bearing in mind the principles applicable to an application under Order 14, which are too well known to require recitation, and which have recently been summarised in the judgment of Deputy High Court Judge B Chu in Pacific Harbor Advisors Pte Ltd and Another v Winson Federal Ltd and Others, HCA 1257/2013 (1 August 2014), at paragraphs 61 to 66.

The implied agreement defence

31.  Although the question of whether there is in existence an implied agreement as argued by the defendants is a question of fact, this is not a case where one side alleges the existence of an oral contract which is disputed by the other side.  Rather, this is a case where the existence of the alleged agreement between the plaintiff and the defendants would largely depend upon an objective appraisal of the implications and effects arising from various agreements or arrangements entered into between other persons or entities associated with the plaintiff or the defendants, including in particular the Side Letter Agreement.

32.  Mr Lam argues that a legally binding contract may be inferred from the conduct of the parties; and in considering whether a contract should be implied, the court adopts an objective test.  Mr Lam further argues that a contract will only be implied where it is necessary to do, and the relevant test is, in substance, no different from the test adopted in the implication of a contractual term.   In this regard, he refers me to the judgment of the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at paragraphs 36 to 40, per Ribeiro PJ.

33.  While I have no doubt that the court would not imply an agreement unless the test of “necessity” is satisfied, I would point out the obvious difference between the situation where the court is asked to imply a term where there is undoubtedly a contract between two parties, and where the court is asked to imply a fresh agreement between two parties.  The latter situation would surely demand the court to scrutinise the contention that an implied agreement exists with greater care.

34.  Mr Benjamin Yu SC (together with Mr Bernard Man, for the plaintiff) has also placed emphasis on the following statement of principle by Bingham LJ (as he then was) in The Aramis [1989] 1 Lloyd’s Rep 213 at 224:

“… it would, in my view, be contrary to principle to countenance the implication of a contract from conduct if the conduct relied upon is no more consistent with an intention to contract than with an intention not to contract. It must, surely, be necessary to identify conduct referable to the contract contended for or, at the very least, conduct inconsistent with there being no contract made between the parties to the effect contended for. Put in another way, I think it must be fatal to the implication of a contract if the parties would or might have acted exactly as they did in the absence of a contract.”

35.  To the same effect is the following statement of principle by Staughton LJ in Mitsui & Co Ltd v Novorossiysk Shipping Co (The Gudermes) [1993] 1 Lloyd’s Rep 311 at 320:

“… it is not enough to show that the parties have done something more than, or something different from, what they were already bound to do under obligations owed to others. What they do must be consistent only with there being a new contract implied, and inconsistent with there being no such contract.”

36.  In other words, in order to give rise to an implied contract by conduct, the party propounding the contract must be able to point to some conduct of the parties which is consistent with, and only with, the contract contended for by that party.

37.  For the sake of completeness, I should mention that there is also a subjective element which qualifies the objective test for determining the existence of an implied contract by conduct, namely, that there will be no contract if (despite the objective appearance of agreement), the party seeking to rely on the contract either actually knows that the other party has no intention to contract with him (or to contract on the terms alleged), or does not in fact intend to be bound thereby: see Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79 at paragraphs 40 to 46, per Ribeiro PJ.

38.  As put by Mr Lam at paragraph 5.1 of his skeleton argument on behalf of the 1^st to 4^th defendants, it is contended that there must, in law, be an implied agreement between the plaintiff and the defendants coming into existence at the same time when the Side Letter Agreement was executed to the effect that:

(1)   the plaintiff and the defendants, when procured by their respective affiliates who are parties to the Side Letter Agreement, shall execute (inter alia) the New Tiger Loan Agreement and the Assumption and Release Agreement; and

(2)   in the meantime, the plaintiff shall not demand or sue the defendants for repayment of the Loan under the Tiger Loan Agreement.

39.  In my view, the conduct of the plaintiff and the defendants up to and inclusive of 29 May 2013, being the date of the Side Letter Agreement, does not give rise to any triable issue regarding the existence of the alleged implied agreement, for the following reasons:

(1)   First and foremost, the defendants have not been able to point to any conduct of the plaintiff (or, indeed, of the defendants) which is consistent with, and only with, the existence of the implied agreement contended for by them.  The conduct relied upon, namely, the execution of the Side Letter Agreement and other documents, was by other parties, albeit that some of them were affiliated with the plaintiff.

(2)   Mr Lam’s argument is, in substance, that because the plaintiff’s affiliates had agreed to procure the plaintiff to execute the New Tiger Loan Agreement and the Assumption and Release Agreement and the person who controlled the plaintiff (ie Mr Graham Porter) had knowledge of this agreement by the plaintiff’s affiliates, the plaintiff must be regarded as also having agreed to execute the New Tiger Loan Agreement and the Assumption and Release Agreement.  While it may well be reasonable for there to be an agreement on the part of the plaintiff to do so, the test for implication of an agreement is necessity, not reasonableness.

(3)   The plaintiff was not a party to the proposed joint venture under the Side Letter Agreement.  I am unable to see why it is necessary, in order for the Side Letter Agreement to work, that the plaintiff must be taken to have agreed to execute the New Tiger Loan Agreement and the Assumption and Release Agreement.  Granted that this was what EE, ESH and ES have agreed to procure the plaintiff to do, any refusal or failure on the part of the plaintiff to do so would give only rise to ordinary civil claims against them by the other parties to the Side Letter Agreement.

(4)   Clause C9 the Side Letter Agreement provides that the parties thereto shall procure their respective relevant Affiliates to “approve, execute and deliver” (inter alia) the New Tiger Loan Agreement and Assumption and Release Agreement.  I agree with Mr Yu that this wording suggests that the plaintiff’s approval of those agreements is something yet to be procured, and is inconsistent with the suggestion that the plaintiff has already approved them.

(5)   Lastly, the Side Letter Agreement and various other draft agreements and documents attached thereto were careful and elaborate documents apparently drafted by or at least with the assistance of lawyers.  Had it been intended that the plaintiff should be bound by any obligations of the nature or effect as mentioned in paragraph 38 above vis‑à‑vis the defendants, it would have been easy and obvious for the plaintiff and the defendants to be made parties to the Side Letter Agreement and for such obligations to be spelt out expressly.

40.  Mr Lam has also referred me to various letters and emails exchanged between the parties subsequent to 29 May 2013 which it is said show or support the existence of the alleged implied agreement.  It is not necessary for me to recite the contents of those letters and emails in this judgment.  In summary, they show that:

(i)      the parties were exploring various alternative options, other than refinancing under the New Tiger Loan Agreement, for the defendants to repay the Loan due under the Tiger Loan Agreement; and

(ii)     in some instances, there was recognition of a legal obligation to proceed with the refinancing under the New Tiger Loan Agreement. 

In my view, the fact that the parties were exploring alternative options for the defendants to repay the Loan due under the Tiger Loan Agreement plainly cannot be regarded as evidence which shows or supports the existence of the alleged implied agreement.  In so far as there was any recognition of a legal obligation to proceed with the refinancing under the New Tiger Loan Agreement, it should be noted that (i) those letters and emails were not written by or on behalf of the plaintiff, and (ii) EE, ESH and ES were indeed legally obliged to procure the plaintiff to execute the New Tiger Loan Agreement and the Assumption and Release Agreement in accordance with the terms and conditions of the Side Letter Agreement.  It begs the question whether the legal obligation referred to was that of the plaintiff.

41.  On the other hand, the plaintiff’s written demands for repayment of the Loan on 16 October 2013 and 19 November 2013 were inconsistent with the suggestion that the plaintiff considered itself to be under any legal obligation not to require the defendants to repay the Loan pending the execution of the New Tiger Loan Agreement and the Assumption and Release Agreement.

The abuse of process defence

42.  Having reached the conclusion that the defendants have failed to raise a triable issue that the plaintiff is bound by an implied agreement not to demand or sue for recovery of the Loans against them, I do not see how it can be said that the plaintiff’s action herein amounts to an abuse of process.  The two authorities that Mr Lam has referred me to, namely, Lucky Money Ltd and Others v Guangzhou Chung Kin Engineering Co and Others, HCA 542/2007 (6 January 2011), and Snelling v John Snelling Ltd [1973] 1 QB 87, are both distinguishable in that the plaintiff in each case was a party to an agreement with a third party the performance of which would be inconsistent with the claim sought to be advanced against the defendant.

43.  For the sake of completeness, I should record that Mr Ray K H Kwan (for the 5^th Defendant) adopts the submissions of Mr Lam and has not advanced any further argument in defence of the plaintiff’s claim against his client.

Disposition

44.  For the above reasons, I give summary judgment in favour of the plaintiff against the defendants for the amount of US$7,107,152.54 together with interest at the contractual default rate of LIBOR plus five per cent (5%) per annum on the principal amount of US$6,698,337.50 from 23 May 2014 to the date of the judgment herein.  I also make an order, pursuant to clause 13(b) of the Tiger Loan Agreement, that the defendants shall pay the plaintiff’s costs of the action, including the costs of this application, to be taxed on an indemnity basis if not agreed, with certificate for two counsel.

45.  Lastly, I wish to thank counsel for their helpful submissions to the court.