PACIFIC HARBOR ADVISORS PTE LTD AND ANOTHER v. WINSON FEDERAL LTD AND OTHERS

HCMP 1285/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 1285OF 2015

(ON AN INTENDED APPEAL FROM HCA NO. 1257 of 2013)

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JUDGMENT
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Hon Yuen JA:

1. This is an application by Vincent Cho Woon Ming (“VC”) the 3^rd defendant in HCA 1257/2013 (“the action”) for an extension of time to appeal against an order made by DHCJ B Chu (as she then was) on 1 August 2014 (“the August Order”).

2. I shall set out and discuss the terms of the August Order later in this judgment as it is material to one of the arguments advanced on behalf of the plaintiffs in opposing the application.

The action

3. The action had been commenced in 2013 by the plaintiffs Pacific Harbor Advisors Pte Ltd (“PHA”) and Pacific Harbor Special Holdings Ltd (“PHSH”), which are respectively Singapore and BVI companies carrying on the business of investment funds. For present purposes it is not necessary to differentiate between the two plaintiffs.

- 2007 Loan Agreement

4. Pursuant to a Loan Agreement made on 3 December 2007 (“the 2007 Loan Agreement”), PHA advanced sums to the 4th defendant International Hoteliers & Associates Ltd (“IHA”) a Hong Kong company owned by VC and his father Carlos Cho (“CC”). Through corporate holdings the Chos had interests in a hotel project in Shenyang, PRC (“the Project”) and funds were needed to acquire the entire shareholding of the company controlling the Project.

- 2008 Loan Agreements

5.1. In 2008, two Loan Agreements were made between PHA and the 1^st defendant Winson Federal Ltd (“WF”) a Hong Kong company of which the registered shareholders were CC and the 5^th defendant Up Speed Investments Ltd, a BVI company of which CC was the sole shareholder.

5.2. A deed of novation was executed between PHA, IHA and WF pursuant to which IHA was released and discharged from its obligations under the 2007 Loan Agreement upon WF’s undertaking to perform and be bound by the obligations and terms of the 2007 Loan Agreement.

- Security for the 2008 Loan Agreements

6.1. Various items of security were provided in favour of PHA for the purpose of securing WF’s obligations for sums advanced under the 2007 Loan Agreement and for further sums to be advanced under the 2008 Loan Agreements.

6.2. The only security provided by VC personally was by a Letter of Undertaking (“LOU”) under which he undertook that, should WF fail to repay the monies outstanding, he would sell a property in Guangzhou (which he co-owned with CC) to satisfy WF’s indebtedness.

- Sums advanced

7. Sums totaling US$38m were advanced by PHA to WF, the last advance being in October 2008.

8. CC died on 14 November 2008. The 2^nd defendant, a solicitor, is the executor of his estate (“the Estate”).

9. Although the 2008 Loan Agreements provided for payment of interest every 3 months commencing 2 September 2008, WF only made one payment of interest in the sum of US$1.6m on 9 June 2009.

- Amendment agreements

10. By two Amendment Agreements drafted and signed sometime between 31 July 2009 and 21 August 2009, PHA and WF agreed that the deadline for repayment of the sums loaned would be extended to 4 December 2009.

- Subsequent Events

11. However no further repayments were made by WF. Meanwhile PHA paid for the Project’s operating expenses. Attempts were made by VC and PHA to find investors for the Project, but they were ultimately unsuccessful.

- Proceedings

12. In May 2013 a demand for repayment was made and in July 2013 a writ was issued by the plaintiffs against WF, the Estate, VC and other corporate defendants. The 5^th defendant and the 7^th defendant, both BVI companies, have not been served. I shall refer to the 1^st defendant, the 4^th defendant and the 6^th defendant as “the HK corporate defendants”.

- Reliefs claimed

13.1. The plaintiffs claimed different reliefs from the respective defendants.

13.2. The reliefs sought against WF and the Estate were:

(1) US$38m being money lent to WF;

(2) approximately US$38.75m being interest on the principal sum of US$38m until 30 August 2013;

(3) approximately US$2.24m being late charge;

(4) approximately US$1.75m being maintenance and legal costs for the Project paid by PHA;

(5) interest.

13.3. The relief sought against VC and the Estate was for specific performance of the LOU regarding the Guangzhou property (see para. 6.2 above).

13.4. There were also other reliefs claimed against the Estate and the corporate defendants which are not relevant to this application.

- Defence

14.1. The defence of VC and the HK corporate defendants was that “since early 2009, [PHA] had, by words or conduct, repeatedly indicated that it would not enforce or call for the repayment of the Loans until the successful liquidation or monetization of the ... Project”.

14.2. The words relied upon were as follows.

(1) The 1^st representation alleged was that at a lunch meeting on 30 April 2009, Wayne Ang [“Mr Ang”], an associate director of PHA, represented to VC that PHA “would not call for the repayment of the Sums Loaned at the deadline of repayment but would only ask for repayment when [WF] had the financial means to repay the entire loan including principal ...” (para.16, VC’s Amended Defence; para. 20, HK corporate defendants’ Defence).

(2) The 2^nd representation alleged was that during a telephone conversation on 3 June 2009, Mr Ang represented to VC that “there was no urgency to the repayment of the interests and [WF] could pay whatever amount and whenever it was comfortable to make payment ... ” (para. 17, VC’s Amended Defence; para. 21, HK corporate defendants’ Defence).

It would be noted that these alleged representations were made before the Amendment Agreements were negotiated and signed between July and August 2009.

14.3. The conduct relied upon were as follows.

(1) After the expiry of the repayment date in the Amendment Agreements, the Estate and IHA engaged PHA to provide referral services for 6 months to find a purchaser for the Project in return for a fee on a successful sale (para. 19, VC’s Amended Defence; para. 23 HK corporate defendants’ Defence).

(2) PHA co-operated with and assisted WF in the maintenance and continued development of the Project with a view to seeking suitable investors for either capital injection into the Project or an outright sale of the same (para.20, VC’s Amended Defence; para. 24 HK corporate defendants’ Defence).

(3) From early 2010 to early June 2013, PHA had not made any demand for repayment of the sums loaned or “indicated that it would imminently seek to enforce any of the guarantees or security documents executed in relation to the Loans” (para.21, VC’s Amended Defence; para. 25 HK corporate defendants’ Defence).

14.4. It was pleaded by VC and the HK corporate defendants that in reliance on those representations and conduct,

(1) WF did not budget or prepare for repayment of the sums loaned (or interest thereon) before the successful liquidation or monetization of the Project;

(2) WF did not make full repayment of outstanding interest payments;

(3) WF continued to incur expenses for the Project;

(4) WF focused its efforts on completing or selling off the Project, and let substantial interest accrue; and

(5) WF agreed to accede to or take into account the views of PHA in relation to the Project.

(para. 23, VC’s Amended Defence; para. 27 HK corporate defendants’ Defence).

15. There was no pleading by VC or the HK corporate defendants of any representations regarding any proposal for a joint-venture partnership between the plaintiffs and the Estate.

16. As far as the 2^nd defendant (the executor of CC’s Estate) was concerned, the above matters pleaded in VC’s and the HK corporate defendants’ Defences were repeated in his Defence, and it was averred that if they “succeed in their defence ... the Plaintiffs are not entitled to make the claim against [CC]” (para. 25).

- Summary judgment proceedings

17. On 6 December 2013, the plaintiffs commenced summary judgment proceedings. The summons was served on all defendants but the order sought was as follows:

“final judgment in this action against theDefendants for the reliefs claimed in the Amended Statement of Claim and costs, save and except the relief of specific performance of the [LOU] as to the Guangzhou Property”. (Emphasis added)

As noted above, the only relief sought against VC was specific performance of the LOU. Be that as it may, affidavit/affirmation evidence was filed by all the parties, including VC on his own behalf.

- Judgment and the August Order

18. The following was specifically noted by the learned judge in her Judgment (paras. 59 - 60):

“59. On 6 December 2013, Ps took out the present summons under Order 14 rule 1 of RHC in which they sought final judgment against all the defendants for the reliefs claimed in the ASOC, except the relief of specific performance of the LOU in relation to the Guangzhou Property. It was subsequently clarified by Mr Pow [leading counsel for the plaintiffs before the judge] that the summary judgment application was solely concerned with the ‘monetary claims’ in the ASOC.

60. Ps’ monetary claims in the ASOC were against [WF] and/or the Executor and/or [the 7^th defendant] only. As [the 7^th defendant] had not been served yet, the Ps’ Order 14 summons should be confined to only [WF] and/or the Executor”.

19. For reasons set out in the Judgment, the judge gave an order as follows (para.154):

(1) final judgment in the total sum of US$38m under the Loan Agreements and the Amended Agreements in favour of Ps “against [WF] and/or the Executor”;

(2) interest on the above principal sum in the sum of US$43,307,387 until 10 June 2014;

(3) interest on the above principal sum at 20% pa on US$10m from 11 June 2014 to date of judgment and at 22% pa on US$28m from 11 June 2014 to date of judgment, and thereafter at judgment rate;

(4) reimbursement by WF to Ps of maintenance costs of HK$12,708,405;

(5) “Ds be given leave to defend on the rest of Ps’ claims in the ASOC”.

20. The sealed Order (ie the August Order) was in the following terms:

“IT IS ORDERED that Final Judgment be entered for the 1^st and 2^nd Plaintiffs against the 1^st and 2^nd Defendants for:-

1. The sum of US$38,000,000 [etc]. ...

IT IS FURTHER ORDERED that the 1^st, 2^nd, 3^rd, 4^th and 6^th Defendants be given leave to defend on the rest of the Plaintiffs’ claim in the Amended Statement of Claim”. (Emphasis added)

- Costs order

21.1. The judge gave directions for the parties to provide written submissions on costs. Only the plaintiffs provided submissions.

21.2. On 13 February 2015, the judge handed down a decision in which she ordered that the costs of and occasioned by the plaintiffs’ Order 14 summons “be paid by the 1^st and the 2^nd defendants to Ps” (para. 11). No order was made regarding VC, although he was represented by a separate firm of solicitors from the HK corporate defendants (although they instructed the same counsel). By the time of the submissions on costs, VC was acting in person and he did not make any submissions on costs.

VC’s application for extension of time to appeal

22. It is not disputed that the deadline for appealing the August Order fell on 28 September 2014. Neither the 1^st defendant (WF) nor the 2^nd defendant (the executor of CC’s Estate) lodged appeals.

23.1. On 26 May 2015, VC issued a summons in this court for extension of time to appeal. The application is supported by his affirmation in which he seeks to adduce fresh evidence including an audio recording of a telephone conversation between his mother Ruby Cho (“Mrs Cho”) and Mr Ang on 4 May 2015. A transcript was prepared on 11 May 2015 which we have read de bene esse for the purpose of the application.

23.2. VC’s contention is that during the conversation Mr Ang said he had been trying to structure a deal independently of the plaintiffs, that Warren Allderige, the plaintiffs’ managing director, had not been aware of his personal interest in the matter, and (according to VC’s interpretation) “as part of [Mr Ang’s] restructuring proposal, he was going to buy out [the plaintiffs’] debt which would mean that interest was not a relevant consideration”. VC’s contention is that this lends support to the defendants’ case that Mr Ang had said that WF could repay whatever amount of interest whenever it wanted to.

23.3. VC alleges that the conversation also showed that there was a proposal for a joint-venture involving the Estate.

24. The plaintiffs opposed VC’s application on a number of grounds.

Discussion

- Locus standi?

25. The first consideration must be the issue whether VC has locus standi to appeal the August Order which has been set out in para. 20 above.

26.1. Mr Edward Chan SC leading counsel for the plaintiffs submitted that it is well-established that an appeal can only lie against an order, save in rare situations such as public law cases where it was necessary to consider reasons for a judgment so as to provide guidance of general application for future cases (Lau Yue Kui v Philip Chan & Co CACV120/2013, 19.9.2013, unrep. para. 10).

26.2. Mr Chan SC is clearly right when he said that in the August Order, the judge made no order against VC. Indeed VC is not mentioned in the Order save and except to be given unconditional leave to defend - which leave seems to have been given out of an abundance of caution, as summary judgment was not sought against him: see paras.59-60 of the Judgment reproduced in para. 18 above.

27.1. In response to this point, Mr Manzoni SC, representing VC, first submitted that as VC was a party to the action, that in itself entitles him to appeal against the order.

27.2. Mr Manzoni SC has not been able to refer us to any authorities for the proposition that any party to an action can appeal against any order made in the action, even though it was not made against him. He referred us only to a sentence in para 59/3/2 of Hong Kong Civil Procedure 2015 which stated “any party to the action may appeal (for example, one alone of several plaintiffs Beckett v Attwood (1881) 18 Ch D 54, at 56, 57) ...”. However a review of that case shows that an order had been made against a number of plaintiffs, including the plaintiff who wished to appeal, even though the other plaintiffs did not wish to do so. That case does not support Mr Manzoni SC’s wide-sweeping proposition.

27.3. On the contrary, in Lin San Jih and others v Chai Zhen Zhong and others CACV211/2011, 4.10.2012, unrep., this court (Cheung Yuen and Chu JJA) held that defendants who were appointed directors of a company pursuant to some agreements were not entitled to pursue the appeal after another defendant (the party to the agreements who appointed them) had abandoned the appeal to challenge the order for rescission of the agreements.

28.1. Mr Manzoni SC then submitted that VC was affected by the order against the 2^nd defendant as he is a beneficiary under CC’s will.

28.2. However it is well-established that a beneficiary has no legal or beneficial interest in the assets of a deceased person’s estate until administration and distribution. What a beneficiary has is only a chose in action to have the deceased person’s estate properly administered and applied for his benefit when the administration is complete: see Commissioner of Stamp Duties v Hugh Duncan Livingston [1965] 694 at 708 and 717. There is no evidence before the court that that has occurred and that a trust has already arisen in favour of VC.

29. In the course of the discussions in court regarding any “legal interest” that VC might have which would entitle him to appeal the August Order, the court drew attention to the monetary judgment against WF for which indebtedness VC had given the plaintiffs as security the LOU over the Guangzhou property. Mr Manzoni SC however did not wish to express a view on the issue whether there might be issue estoppel against VC.

30. In these circumstances, I take the view that VC does not have locus standi as he is not a party against whom an order has been made from which he can appeal (let alone apply to appeal out of time).

- Test for extending time to appeal satisfied?

31. Even if I am wrong, and VC does have locus standi to appeal, I would not have extended time for him to appeal the August Order. I shall briefly set out my reasons below.

32. First, it is well-established that in determining whether to extend time to appeal, the court will consider (1) the length of the delay; (2) the reason advanced for the delay; (3) the chances of success if an appeal is allowed to proceed out of time; and (4) the prejudice, if any, to the intended respondents.

- Length of delay

33. In the present case, it cannot be disputed that the delay of some 8 months is substantial.

- Reason for delay

34.1. The only reason advanced for the delay is that the telephone conversation between Mrs Cho and Mr Ang (recorded without the latter’s knowledge) occurred in May 2015. However there is no explanation why VC could not have undertaken the same covert exercise prior to the hearing before the judge. Mr Ang was no longer in the plantiffs’ employ, and as discussed below, he was friendly with Mrs Cho and had expressed his willingness to clarify matters. If, as VC said, he (VC) thought it was only the plaintiffs who denied the representations in their own interests and Mr Ang personally had been acting bona fide, there would have been all the more reason for him (VC) to think that Mr Ang would have confirmed the allegations in the Defence in a covertly-recorded conversation.

34.2. Had VC wished to initiate such a conversation to obtain Mr Ang’s confirmation of the alleged representations, he had the means and ample opportunity to do so much earlier than May 2015.

34.3. First, according to Mrs Cho’s affirmation of 22 June 2015, she had first met Mr Ang in 2008, and had “exchanged contacts in or around February 2011" (which incidentally contradicts what VC’s solicitor Chan Kin Wo said in para. 12 of his affirmation of 26 May 2015, viz that “there was no way of contacting Mr Wayne Ang before he initiated contact”).

34.4. Moreover it is telling that Mrs Cho said “throughout the years, Mr Ang did approach me using the pretence of some celebratory dates, for example, Christmas and/or Chinese New Year and had some casual conversation with me” (emphasis added). This shows that Mr Ang was interested in keeping up with Mrs Cho. Certainly the tenor of the recorded conversation showed Mr Ang was respectful, friendly and talkative. The conclusion is clear that he would have taken Mrs Cho’s calls had she reached out to him earlier.

34.5. Further, according to Mrs Cho, “in late 2013 (after Mr Ang resigned from [the plaintiffs]) and shortly after [the plaintiffs] commenced proceedings ... Mr Ang did approach me and asked if we need any assistance in clarifying certain issues for these proceedings ...”. Although she said when she “hinted/asked for his help to [be] a witness of the Defendants, he refused to do so” and she did not therefore press or ask him further to assist and be a witness, neither she nor VC explained why, given Mr Ang’s helpful approach, VC did not undertake the exercise of covertly recording a conversation with him until May 2015. This suggests it was an after-thought which is not a satisfactory reason for delay.

- Chances of success

35. Since VC’s intended case on appeal is dependent on adducing the audio recording as fresh evidence, he would first have to satisfy all three conditions set down in Ladd v Marshall [1954] 1 WLR 1489, viz (1) the fresh evidence could not have been obtained with reasonable diligence at the hearing before the judge; (2) the evidence would, or might, if believed, have a very important effect on the mind of the judge, though it need not be conclusive, and (3) the evidence is of the sort which is not improbable.

36.1. As far as the first condition is concerned, I have discussed earlier why the evidence in the audio recording could have been obtained if Mrs Cho had contacted Mr Ang earlier. Further the allegations in VC’s 5^th affirmation concerning proposals for a debt/equity conversion and/or joint-venture partnership were obviously matters which were within VC’s knowledge at the hearing before the judge: see para.36 of the affirmation. He sought to explain their absence from the Defence and his previous affirmations by saying that his then legal representatives advised against pleading it because of lack of corroborative evidence. I find that difficult to understand given that VC has produced what he considers to be corroborative evidence and he has not alleged that he only came by this evidence only after the hearing. Further he does not appear to have put this explanation before his former legal representatives for their comment. For all these reasons, I take the view that the first condition in Ladd v Marshall has not been satisfied.

36.2. As for the second condition, it is clear from a reading of the full transcript that the recording dealt with events after the alleged representations of 2009 pleaded in the Defence. There is no indication that even back in 2009 when the alleged representations were made, Mr Ang already had a proposal to raise funds from third parties to take over the plaintiffs’ loans with a view to a debt/equity conversion, or already had a joint venture proposal of his own, and as a result made the alleged representations of the plaintiffs’ position on interest. Most of the conversation was concerned with the situation in or after 2011 when Mr Ang visited Mrs Cho.

36.3. Moreover when Mrs Cho raised the topic of interest, Mr Ang merely explained that if the plaintiffs were to have sold the loans at a discount (ie in or after 2011), the actual amount of interest accrued due would not have mattered in the transaction between the sellers (the plaintiffs) and the purchasers (the third parties). This is confirmed by Mrs Cho in para. 15 of her affirmation:

“I also recall asking in Toronto [during Mr Ang’s visit in 2011] about the interest accrued but Mr Ang said that upon the debt/equity conversion, the interest would not matter ...”

That is very different from the alleged representations (in2009), which was that as between the lenders (the plaintiffs) and the borrower (WF), the lenders would not enforce or call for the repayment of the Loans until the successful liquidation or monetization of the Project. And, as noted earlier, these oral representations were made before the extended negotiations and eventual execution of the Amendment Agreements in July – August 2009 which the judge emphasized.

37. Thus I do not think the new evidence would have had much effect on the mind of the judge in any event, and the second condition is not satisfied either. It is not necessary to consider the third condition.

38. Since it would not be likely for the fresh evidence to be allowed in, the chances of success on appeal are not so high that this court can overlook the lengthy delay and the lack of good reasons for it.

- Prejudice

39. Furthermore, this is a case where the delay in prosecuting the appeal has caused prejudice to the proposed respondents. Things have moved on substantially since the judgment and positions have been altered.

40. The executor (the 2^nd defendant against whom the August Order was made) has not appealed the Order, and it is difficult to see why or how an order can be set aside against a party who does not dispute its binding nature and enforceability. The 2^nd defendant has already paid a sum of money to the plaintiffs and these parties have been undertaking ongoing settlement negotiations.

41. Further Mr Allderige has been made receiver of some companies within the Estate, and in that capacity, has caused further monies to be advanced by the plaintiffs for staff salaries and maintaining the Project. At the same time, negotiations with third party creditors and potential purchasers are in progress.

42. Moreover the plaintiffs have been granted an order for the examination of VC. Other legal procedures, based on the August Order, have been initiated in both Hong Kong and the Mainland.

43. If the appeal is permitted to proceed now, the costs incurred in the various legal procedures would have been wasted, with no guarantee of recompense from VC. Further, the continued maintenance of the Project by the receiver would be affected, and more importantly, negotiations with third party creditors and its potential purchasers would be destabilized.

44. Accordingly, in view of the prejudice that would be suffered by the proposed respondents should the appeal be allowed to proceed after such a lengthy delay, the court should in any event exercise its discretion to refuse the extension sought.

Order

45.1. For the reasons set out above, I would dismiss the 3^rd defendant’s summons for extension of time to appeal.

45.2. Having heard the parties on costs, I would make an order that costs should follow the event, ie the 3^rd defendant should pay the plaintiffs’ costs of the summons.

Hon Poon J:

46. I agree.