HANG LUNG BANK LIMITED v. WORLD-WIDE PROPERTIES CORPORATION LIMITED

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. The Writ in this action consists of a claim by Hang Lung Bank Ltd, ("Hang Lung") the Plaintiff Company, as assignee of a loan by Banco do Pacifico ("BDP") made to the Defendant Company, World-Wide Properties Ltd ("World-Wide") for recovery of the loan with interest.

2. The loan was in the sum of $15,150,000 and the benefit of the loan was advanced at the end of July in 1983. I say advisedly "the benefit of the loan" because affidavit evidence by and on behalf of both parties shows that the "advance" was simply a capitalisation of interest on previous loans made and repaid between BDP and World-Wide, and no actual sum of money moved into or out of World-Wide 's accounts in respect of this particular sum.

3. The assignment of BDP 's capitalisation of interest by way of loan, to give it its full meaning and effect, was purportedly entered into between the parties "for full and valuable consideration" on 24th November 1983.

4. The Writ was issued on 28th February 1984 and the Statement of Claim on 19th May 1984. On 7th November 1984 the Plaintiffs obtained summary judgment in the terms of the Writ.

5. It is against that Order for Summary Judgment that the matter comes before me.

6. After a brief introduction to the well-known principles from the White Book governing summary judgment Mr Cheung for World-Wide advanced his arguments by reference to various passages from Dicey and Morris on the Conflict of Laws as well as passages in much the same vein from Cheshire's Private International Law.

7. Mr Cheung posed two questions for consideration. First, what law should govern the rights of BDP as against World-Wide? Secondly, what law should govern the rights of Hang Lung as assignee against World-Wide?

8. For the answer to the first question my attention was drawn to Dicey 's Chapter 28 and to the Rule 145 propounded therein, with particular relevance being attached to the circumstances of this case by reference to Sub-Rule 2 and Sub-Rule 3.

9. Applying the two Sub-Rules to the Rule 145 it was argued that where, as here, there was no expressed intention of the parties to determine the proper law of the contract, and resort would therefore have to be made to the inferred intention of the parties, such inferred intention would be drawn to that system of law with which the transaction had its closest and most real connection. The only possible answer to posing the question that way, it was argued was that Macau was the system of law with which the transaction had its closest and most real connection.

10. In aid of this proposition the following case was cited:- Clare v. Dresdner Bank [1915] 2 K. B. 576 at 578.  That was a case where an accountholder with an account in the German Branch of the Dresdner Bank sued its London Branch, without first making a claim against the German Branch (the latter approach having been rendered somewhat implausible by the fact that World War I had broken out a few weeks before the claim was made). The accountholder was unsuccessful in its claim. It was held, by Rowlatt J., that there was "no obligation on a bank to pay in one country a debt due to a customer on current account in another country".

11. On the second question posed - the law appropriate to the rights of an assignee, my attention was directed to Dicey 's Rule 81 and in particular to the importance of drawing a distinction between questions of assignability, which would be governed by the proper law of the debt (Rule 81) and questions of intrinsic validity of the assignment, governed by the proper law of the assignment (Rule 82). As an example of the operation of this distinction the following illustration was given from an American Case cited as Note 89 on page 572.

                 "A policy of life insurance made in Wisconsin and valid by its law is assigned in Minnesota. By the law of Wisconsin, policies of insurance are assignable, but by the law of Minnesota, they belong to the beneficiary alone and cannot be assigned. It was held that the assignment was valid".

12. By analogy to this case, experts brought forward on behalf of World-Wide the Defendant Company have said categorically that the debt, being an activity of banking was subject to Macau Banking Law. An assignment of a Bank Debt was also a banking activity and that, so the Defendant's experts avowed, was prohibited by Macau Law. The object of this prohibition was said to be to prevent, for instance, a duly-licensed Macau Bank from assigning a huge debt to some powerful overseas Bank who might then be able to dominate the local financial scene in Macau.

13. The Wisconsin Case and its analogy to the facts in issue were used to support the argument that even if the debt could itself be said to be subject to Hong Kong Law, the right of assignment would still depend on the Macau Law concerning assignments. It was argued further that the fact that the Deed of Assignment in paragraph 7 specifically laid down "This Assignment shall be governed by and construed in accordance with the laws of Hong Kong" can take the matter no further than establishing rights as between Hang Lung and BDP, but cannot affect rights of assignment purportedly exercised by BDP in relation to World-Wide 's rights.

14. The fact that because Hang Lung, the Defendant, was in Hong Kong and the debt was incurred in Hong Kong was no conclusive basis on which to say that the proper law under which to sue the debtor was where the debtor was at any one time situated. Pursuing this line of argument by reductio ad absurdum, it could lead to the proposition that if, say, the Defendant had moved its seat of operations to Bermuda before the Writ was issued, then the law of Bermuda should apply.

15. By way of further comment on the correct selection of applicable law my attention was drawn to Dicey 's way of dealing with this under Rule 145 at pages 755/6 and to the case of Boissevain v. Weil [1949] 1 K. B. 482 for C.A. decision and [1950] A. C. 527 for the House of Lords decision.

16. This was a case where within one month of D-Day in 1944 in Monaco where the two parties were then resident, Mrs Weil, a British citizen by domicile of origin, persuaded Mr Boissevain, a Dutchman, to lend her a total of 960,000 francs supported by the promise to repay him £6,000 plus interest so soon as the law would allow. To buttress her expressed intention to repay, she issued cheques on a London Branch of the National Provincial Bank. It subsequently appeared that she did not at the time or at any time have any account with that Branch. Boissevain 's claim failed, depite the most rigorous support from Sir David Maxwell-Fyfe K. C. because, as a British citizen, who had not lost her citizenship, she was in breach of a section of the Exchange Control Regulations in existence at the time of her request for and receipt of the loan. This was the impregnable defence made on her behalf, and it prevailed by a unanimous decision of the House of Lords for which the leading speech was delivered by Lord Radcliffe, as well as, for slightly different reasons, by the Court of Appeal. Denning L. J. in the Court of Appeal took his stance from the fact that the proper law of the contract was English Law, the only connection with Monaco being that the original loan happened to have been made there.

17. If, it is argued, the Defendant's experts on law are correct, and the debt was not assignable by Macau Law to the Plaintiff, then the assignment is null and void ab initio, never mind what the parties may say about the applicable law in the Deed of Assignment. In these proceedings, of course, I do not have to go so far as to say whether those experts are right or not. I merely have to find that there is an argument in law on this point which presents an arguable defence.

18. Mr Clayton, for Hang Lung, in reply, first of all took me through a number of paragraphs of affidavits on behalf of both parties and relevant exhibits thereto. From these he asked me to draw the conclusion that the following facts were relevant to the law not only governing the loan itself, but also to its alignment. There were interlocking directorships between Hang Lung, World-Wide and BDP; effectively the request for the loan, the screening of the loan, and the orders for implementation of the loan - all originated in Hong Kong: the drawdown and repayments of the previous capital sums on which the loan was a capitalisation of unpaid interest were all done in and through the BDP 's account with Hang Lung in Hong Kong.

19. From the foregoing he asked me to draw the conclusion that taking into account all relevant matters there could be no argument but that Hong Kong Law should apply to the assignment. That was the first leg of his argument. If he had to look to Macau Law, which on the first leg he would argue was totally irrelevant, he would adopt as his second leg of argument clear statements in support of the validity of the assignment under Macau Law, opposed only by self-contradictory arguments advanced on behalf of the Defendants.

20. He also drew my attention to passages from Dicey. Of particular importance, he said, was a passage on p.569, as part of Rule 81, which ran "it is sufficient to note that the governing principle is that a debt is deemed to be situated where it is properly recoverable", and for all the reasons previously stated, HK law must be the law applicable to the debt and therefore also to its assignment. Put another way, he said that all signals point to Hong Kong - there were no signals in any other direction, or at any rate no sufficiently important signals. He emphasised this point still further by observing that the place of contracting was Hong Kong, the place of performance was Hong Kong, the place of residence of the debtor was Hong Kong throughout. All the necessary facts were now before the Court for a decision to be made for selecting the proper law for the contract. There was absolutely no need to look elsewhere, facts were all there plain to see.

21. Against this forcefully argued barrage of facts Mr Cheung observed in final submissions one very important fact, the consideration of which might undermine the importance of all the others. Why, he asked, did World-Wide choose a Portuguese Bank in the first place? There is no answer to that on record, but the selection of a Macau and not a Hong Kong Bank is a fact in evidence . In a home-made example I put to Mr Clayton I hypothesised a situation where an English manufacturer chose to borrow from a Swiss Bank, arranging the borrowing through his friend, the local English Branch Manager of the Swiss Bank, and I hypothesised that the reason in that case was to obtain a much lower rate of interest for his borrowing. The signposts brought out by Mr Clayton point to Hong Kong, but I do not believe he has pointed to all the possible signposts, nor do I think it possible to ignore possible answers inherent in posing the question - why choose a Macau Bank? Why not have the Hang Lung Bank as the lender in the first instance?

22. I am fortified in feeling I ought not to be carried away by Mr Clayton's enthusiasm for Hong Kong being the only possible location for deciding where the transaction had its closest and most real connection by considering a passage in Dicey at page 770/1. What is the correct formulation for deciding the closest and most real connection with the transaction? The learned author says this. "There is, however, some doubt whether the correct formulation is the law of the country or the system of law with which the transaction had its closest and most real connection". In the Boissevain v. Weil Case the loan. was entered into in Monaco, the parties were then both resident in Monaco, but in the end result the long arm of the English Exchange Control Regulations stretched out and rendered invalid the loan from the outset. So here, despite all the signposts leading to Hong Kong law being the law with which the transaction had its closest and most real connection, could it not be in the end result that the Macau Law on the non-assignability of Bank debts, if such be the Macau Law, would be the deciding factor.

23. I must therefore reject the first leg of Mr Clayton's arguments.

24. On the second leg of his argument perhaps the strongest support for the validity of the assignment under Macau Law would seem to come from the exhibit ''AC-1" being an unequivocal opinion by the Board of Directors of the Macau Banking Commission in favour of the validity of the assignment of the BDP loan to Hang Lung. This is an exhibit to an affidavit of one of the two experts on which the Plaintiff relies. The deponent himself adds the following categorical statement "the assignments of debts by Pacific Bank (BDP) to Hang Lung Bank do not constitute the "activity of banking"." That deponent's name is Antonio Correia.

25. The other Plaintiff's expert, one Joao Lourenco, says, in paragraph 6 of his affidavit "I have researched the relevant Banking ordinance and there is nothing in the Ordinance... which would prevent a Macau registered bank assigning a debt to a Hong Kong based bank."

26. Neither of these two deponents come anywhere near to matching the experience of one Fernando Correia Afonso, the principal expert on which I would have thought the Defendant would most wish to rely. He has not only been practising for "over 30 years" as compared with the total practice of 7 years of Antonio Correia and Joao Lourenco, but he is "Vice President of the Superior Council of the Portuguese Advocates Order," and is in addition, though this is of little relevance to the issue, a Member of Parliament in Portugal. The Vice-Presidency position sounds akin to a most senior leading Counsel at the English Bar. He may or may not be to-day's Maxwell-Fyfe of the Portuguese Bar, but to me at any rate his credentials seem impressive.

27. What does Mr Afonso say on the matters on which the Macau Banking Commission and the two Plaintiff experts are so categorical. He says, inter alia, "the assignments of debts and interests from a bank to another bank are .. bank activity" and later "BANCO DO PACIFICO cannot assign to HANG LUNG".

28. As I have said earlier, I do not have to decide the issue. I merely have to decide whether there is a triable issue.

29. Mr Clayton criticised Mr Afonso 's affidavit on a number of grounds. First of all because it appeared to contradict another of the Defendant's experts, a Mr Jorge Pote. Mr Pote refers throughout to Macau Law, whereas Mr Afonso says "To the activity of Banco do Pacifico Portuguese law is applied". Furthermore, says Mr Clayton, Mr Afonso in his governing affidavit says "I am familiar with the laws of Portugal as well as the laws of Macau which are applicable to the dispute between the parties" but without at that juncture distinguishing whether the laws of Portugal or the laws of Macau are "applicable to the dispute between the parties..."

30. Frankly I do not see any contradiction here or any muddle in the last cited remark. This is a situation with which we in Hong Kong are very familiar. It may well be that the Banking Ordinance of Macau is silent on such matters as whether an assignment is a banking activity or not. If it were thus silent, it is entirely likely that, for finding out the law on that point, a reference wider than the mere wording in the Macau Banking Ordinance would be needed, and for that wider reference the Laws of Portugal could be invoked to expound and to explain.

31. I repeat that I do not have to decide the law applicable to assignments. I am quite satisfied from Mr Afonso 's opinion, and from the experience behind such an opinion, that the Defendants do raise a triable issue on this point.

32. Finally I come to Mr Clayton's backstop position, as it were. He urged upon me that, if I were to find there was a triable issue, I ought to give only conditional leave to defend. In support of this he cited that part of the White Book shown at page 139 against 14/3-4/8 making mention of self-contradictory affidavits. Because there were apparent self-contradictions in the affidavits of the Defendant's experts, he says, I ought to regard their opinions with some suspicion, thus giving rise to the feeling that at best the defence is a shadowy one.

33. In exercising my discretion over whether to give conditional or unconditional leave to defend, I have to be wary of a trap. In order to find there is a defence on the merits, as I have found, I do not have to find the defence meritorious. In the Boissevain v. Weil Case Lord Radcliffe in his speech said:- "it would afford no material assistance to him (Mr Boissevain) if I were to express my sympathy with him in the predicament in which he is placed or my distaste for the attitude which the respondent (Mrs Weil) appears to have taken up against her benefactor". So here, it would serve no purpose and ought not to enter into my considerations whether or not to give conditional leave, were I to express distaste for the position of the Defendants appearing to wish to avoid paying interest on the very substantial loans previously obtained from BDP and now purportedly assigned to Hang Lung. The fact is that on my assessment of Mr Afonso 's experience the merits of the Defence are arguable and put forward responsibly. Mr Afonso may be wrong, but he is as categorical with his viewpoint as are Correia and Lourenco with theirs on the same points. I find nothing shadowy or contrived in the views expressed by Mr Afonso.

34. For these reasons I order as follows:-

Judgment in favour of the Plaintiff set aside. Unconditional leave to defend to the Defendant.