KAPOK SPIRIT INVESTMENT LTD v. LAI LEONG (also known as LI LIANG)

HCA 1818/2023

[2025] HKCFI 5504

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1818 OF 2023

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D E C I S I O N

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INTRODUCTION

1.  This is the defendant (“D”)’s appeal against the decision of Master Ebony Ling (“the Master”) given on 6 January 2025 (“the Decision”).

2.  The case involves a guarantee provided by D. In a nutshell, the plaintiff (“P”) as assignee seeks to enforce the terms of a deed of guarantee (“the Deed of Guarantee”) executed by D (as guarantor/primary obligor) for payment of the outstanding sum due under a loan agreement dated 17 January 2020 (“the Loan Agreement”). D does not deny the signing of the Guarantee or dispute the terms of either the Loan Agreement or the Deed of Guarantee, including the express provisions under the Loan Agreement providing for the assignment of the Loan together with the benefit of the Guarantee.

3.  P obtained final judgment against D from the Master under the Decision.

4.  Specifically, under the Decision, the Master:-

(1)  granted summary judgment against D in favour of P in relation to P’s Order 14 summons issued on 13 August 2024 (“P’s Order 14 Summons”);

(2)  dismissed D’s summons taken out on 30 December 2024 for leave to file and serve the 2^nd affirmation of Lai Leong (“D’s Dec Affirmation Summons”); and

(3)  made no order in respect of D’s summons issued on 13 November 2024 for leave to amend D’s defence (“D’s Nov Amendment Summons”).

5.  By a notice of appeal filed on 20 January 2025 (“the NOA”), D appeals against the Decision and seeks the following orders before me:-

(1)  The summary judgment entered against D be set aside;

(2)  Leave be granted to D to amend his defence dated 27 May 2024 as per the draft annexed to D’s Nov Amendment Summons; and

(3)  Leave be granted to D to file and serve the 2^nd Affirmation of Lai Leong (“Lai 2^nd”) as per D’s Dec Affirmation Summons.

6.  D had previously been represented by a different firm of solicitors at the hearing before the Master. On 20 January 2025, when the NOA was filed, D was represented by another firm of solicitors (who are the same solicitors acting for him to date). However, for more than three months since January 2025, D and his new legal team took no action until 7 May 2025 (which was just weeks before the parties were to agree on the hearing bundles index and when preparation for skeleton submission was about to begin), when D took out another round of amendment application by summons issued on 7 May 2025 for leave to amend his defence (“D’s May 2025 Amendment Summons”). The application was purportedly supported by the 3^rd Affirmation of Lai Leong (“Lai 3^rd”) which was included in the appeal bundle without leave of the court.

7.  I also notice that D’s Dec Affirmation Summons was taken out just a few days prior to the hearing before the Master on 6 January 2025.

8.  Hence, in addition to the matters stated in the NOA, this court will also need to deal with D’s May 2025 Amendment Summons and D’s reliance on Lai 3^rd which was adduced without leave of the court.

BACKGROUND

9.  The following factual background, which has been summarized by P’s counsel Mr Adrian Leung, in P’s Skelton Submissions (“P’s Submissions”), is largely not disputed by D.

10.  P, the assignee, is and was a limited company incorporated in the British Virgin Islands.

11.  D, the guarantor, is and was a resident of Hong Kong.

12.  The lender, Joint Power International Limited (“Joint Power”), is and was a limited company incorporated in the British Virgin Islands.

13.  The borrower, SFund International Holdings Limited (“SIHL”), is and was a company incorporated in the Cayman Islands. Since 8 February 2021, the Hong Kong Stock Exchange (“HKEX”) has suspended the trading of SIHL’s shares. On 20 September 2022, the listing of SIHL’s shares was cancelled and SIHL was delisted under Rule 6.01A of the Consolidated Main Board Listing Rules for the reason that SIHL failed to fulfil the resumption guidance of the HKEX and failed to resume trading of its shares by 7 August 2022: see the HKEX Announcement on 15 September 2022 in relation to SIHL (stock code: 1367, de-listed since September 2022): (See “HS-3” s exhibited under P’s director Huang Shan’s affirmation filed on 12 August 2024).

The Loan Agreement between Joint Power & SIHL

14.  The material terms of the Loan Agreement dated 17 January 2020 have been set out in the statement of claim (“SOC”) at §§2-6.

15.  By the Loan Agreement, Joint Power (as lender) agreed to provide SIHL (as borrower) with a one-time loan of HK$75,000,000 (“the Principal Sum”).

16.  The following are the material terms of the Loan Agreement:-

(1)  Clause 1 of the Loan Agreement stipulates that “Guaranteed Obligations” means any Outstanding Sum, interest accrued and all other amounts payable by SIHL to Joint Power under the Loan Agreement.

(2)  Clause 2.1 provides that the said loan amount of HK$75,000,000 will be provided by Joint Power to SIHL on 17 January 2020.

(3)  Clause 5.2 stipulates that the SIHL is required to pay interest on the outstanding sum due under the Loan Agreement at an interest rate of 8.5% per annum.

(4)  Clause 6.1 provides inter alia that SIHL undertakes to repay the outstanding sum under the Loan Agreement, together with any accrued but unpaid interest in full on 17 January 2021.

(5)  According to Clause 5.4, it is stipulated that if all or any part of the outstanding sum, interest or amount payable by SIHL under the Loan Agreement becomes due and SIHL fails to repay the aforesaid amounts on or before the due date or upon demand by Joint Power, SIHL shall pay interest on the due and unpaid amount calculated at 20% per annum.

(6)  Clause 12.1 provides that an event of default includes the failure of SIHL to repay Joint Power on 17 January 2021 any amounts payable by SIHL under the provisions of the Loan Agreement.

(7)  Clause 12.3 further stipulates that within 10 days after the occurrence of an event of default (unless the same has been remedied), Joint Power may issue a notice in writing to SIHL declaring the loan be cancelled and immediately revoked and to notify SIHL that all outstanding sum, accrued interest, and all amounts due by SIHL under the Loan Agreement is to be immediately repayable and shall be promptly repaid.

(8)  Clause 16.2 expressly provides inter alia that SIHL as lender can at anytime (without obtaining the written consent of the borrower) assign all or part of its rights and benefits under this Loan Agreement to any party; in appropriate circumstance, the assignee would be entitled to enforce its rights and interest against the borrower as if it were the original party to the Loan Agreement. [emphasis added]

(9)  Lastly, Clause 18 provides that the Loan Agreement is governed by the laws of Hong Kong and all parties irrevocably submit to the non-exclusive jurisdiction of Hong Kong.

The Deed of Guarantee executed by D

17.  On the same day as the parties entering the Loan Agreement, D (as guarantor) executed the Deed of Guarantee in favour of Joint Power (as lender) which D irrevocably and unconditionally guaranteed SIHL’s repayment of all sums due under the Loan Agreement.

18.  The followings are the material terms of the Deed of Guarantee:-

(1)  Clause 1 provides that D irrevocably and unconditionally guarantees to Joint Power the timely repayment of the Guaranteed Obligations as defined in the Loan Agreement; D also undertakes that if at any time SIHL fails to pay any due and owing Guaranteed Obligations, D shall upon request make such payment as if D were the borrower.

(2)  Clause 2 provides that the Deed of Guarantee is a continuing guarantee and extends to the final balance payable by SIHL under the Loan Agreement, regardless of any full or partial interim payment or release.

(3)  Clause 3 stipulates inter alia that if any payment to or release granted by Joint Power for whatever reason becomes invalid or reduced, the obligations of D under the Deed of Guarantee shall remain effective as if the payment, release, invalidity, or reduction had not occurred.

(4)  Clause 4 further stipulates that D’s liability under the Deed of Guarantee shall not be affected by any acts, omissions, matters which but for this clause 4, would have reduced or impaired the said liability including but not limited to (a) granting to SIHL any extension of time, waiver, or consent; (b) SIHL or any other person entering into a debt restructuring agreement or arrangement with SIHL (or any member of its group) or being discharged from any liability thereof; ….(f) any persons’ liability under the Loan Agreement or other related documents being unenforceable, illegal or invalid…..(h) the Loan Agreement or any other document not being signed by any party to the agreement or not being binding on any party to the agreement.

(5)  Clauses 14 and 15 provide inter alia that the Deed of Guarantee is governed by the laws of Hong Kong and the Hong Kong Courts have exclusive jurisdiction to resolve any dispute arising out of or in connection with this deed (including disputes related to the existence, validity or termination).

The Deed of Assignment of Debt from Joint Power to P

19.  The background leading to the entering of the Deed of Assignment of Debt and the relevant terms of the Deed of Assignment have been stated in the SOC §§7-12. It is not necessary for me to repeat them here.

20.  What is important to note for the present purpose however are the following facts. It is not in dispute that in breach of Clause 6.1 of the Loan Agreement, on 17 January 2021, SIHL failed to repay Joint Power any part of the Outstanding Sum and interest accrued thereon under the Loan Agreement. By a Deed of Assignment of Debt dated 30 June 2022 (“the Deed of Assignment of Debt”), Joint Power (as lender) assigned all the rights, title and interest present or future in the Loan Agreement and including all rights under the Deed of Guarantee to P (as assignee) upon P’s payment of HK$80,301,369.86 to Joint Power.

21.  The relevant terms of the Deed of Assignment of Debt include the following:-

(1)  Clause 1 of the Deed of Assignment of Debt defined “Assigned Rights” as all rights, title, interests and benefits under inter alia the Deed of Guarantee.

(2)  Under Clause 3.1, the assignor of this Deed (Joint Power) unconditionally, irrevocably and absolutely transfers the Assigned Rights to the assignee (namely P herein).

(3)  Clause 11.1 of the Deed of Assignment of Debt provides that the deed is exclusively governed by the laws of Hong Kong.

22.  By a notice of assignment of debt dated 7 July 2022 (“the Notice of Assignment of Debt”), Joint Power (as lender) and P (as assignee) jointly informed D of the execution of the Deed of Assignment of Debt.

23.  In breach of the Loan Agreement, SIHL failed to repay to Joint Power any part of the Principal Sum and the interest accrued thereon under the Loan Agreement.

24.  Therefore, on 19 October 2023, P’s solicitors Mess K.C. Ho & Fong (“KCHF”) issued a demand letter to D for repayment of, inter alia, the Principal Sum and the default interest in the total sum of HK$105,123.287.67 due under the Loan Agreement and the Deed of Guarantee.

25.  The pre-action letter by KCHF dated 19 October 2023 issued to D further stated that unless D repays the said outstanding sum by 27 October 2023 at 2 p.m., legal proceedings will be commenced by P without further notice.

26.  On 9 November 2023, P issued the generally indorsed writ of summons. On 8 February 2024, P filed and served its SOC on D. D filed his defence on 27 May 2024.

Issues to be deal with

27.  In this decision, I propose to firstly (1) deal with the D’s May 2025 Amendment Summons and D’s purported reliance on Lai 3^rd which was included in the hearing bundle within leave of the court; and then (2) deal with the matters listed out under the NOA.

D’s May 2025 Amendment Summons

28.  D’s amendment application above was taken out on 7 May 2025, just slightly over 3 weeks before the appeal hearing.

29.  D proposed to amend the defence dated 27 May 2024 in the manner as shown in the draft amended defence and counterclaim attached to the D’s May 2025 Amendments Summons (“New Draft AD&C”).

30.  As explained by D in Lai 3^rd §§2 and 33, the reason for the amendments sought is that, based on the advice recently received from his new legal team, D has additional defences as well as counterclaim which should have been (but were not) pleaded before.

31.  D’s counsel, Mr Hectar Pun SC (leading Mr Anson Wong Yu-Yat), in D’s skeleton argument (“D’s Skeleton”) summarised the new pleas under the New Draft AD&C when compared with the old draft amended defence considered by the Master on a de bene esse basis at the hearing (“Old Draft AD”) as follows:-

(1)  SFund Holdco guaranteed SIHL’s repayment of all sums due under the Loan Agreement by entering into the SFund Guarantee Deed. Under Clause (13) of the SFund Guarantee Deed, SF Fund Holdco shall not claim against the Defendant for any compensation by virtue of the Deed of Guarantee. The Loan Agreement, the Deed of Guarantee and the SFund Guarantee Deed all form part and parcel of the arrangement of the Debt.

(2)  The implied terms pleaded in §10A are modified. Consequently, the breaches of the implied terms under §11C are also modified accordingly.

(3)  On 31 May 2022, Joint Power commenced the Action against SFund Holdco. Pursuant to the Deed of Assignment of Debt, P agreed to pay Joint Power the Principal Sum and the interest accrued thereon under the Loan Agreement. By virtue of the Plaintiff’s payment to Joint Power in the sum of HK$80,301,369.86 in return for the Deed of Assignment of Debt (“the Alleged Assignment”), P’s Group could, on the one hand, stop the Action against SFund Holdco, and on the other hand, demand (through P) repayment from D under the Deed of Guarantee.

(4)  P’s Group is able to demand payment from D or claim against D for compensation under the Deed of Guarantee, notwithstanding the prohibition in Clause (13) of the SFund Guarantee Deed.

(5)  P’s Group (of which P is being part) caused SIHL’s default under the Loan Agreement and/or acted in bad faith towards D, and/or positively acted so as to prejudice D in an unfair way.

(6)  P did not make any demand and/or commence any action against SIHL (being the principal debtor) and SFund Holdco (being a guarantor under the SFund Guarantee Deed), both of which are members of P’s Group.

(7)  If, which is denied, P is entitled to its claim or any part thereof, D is entitled to reply on his counterclaim herein by way of set-off in diminution or extinction of P’s claim.

(8)  D added a counterclaim against P, the Guangzhou Company and SFund Holdco based on the tort of conspiracy to injure by lawful means.

32.  It is beyond dispute that D’s May 2025 Amendment Summons was taken out very late in the day, just over 3 weeks before the appeal hearing. It is also beyond dispute that D’s New Draft AD&C raised a lot of new pleas and defences which did not appear in the Old Draft AD which was considered by the Master at the hearing below.

Applicable Principles

33.  While it is trite that for the purpose of determining the real question in controversy between the parties to any proceedings, the court may at any stage of the proceedings, either on its own motion or on the application of any part to the proceedings, allow an amendment (See Order 20, rules 8(1) and 8 (1A) of the Rules of the High Court (“RHC”), I do not find the case of CCMD Overseas Limited v SINOM Investments Limited & Anor [2023] HKCFI 2912 (Recorder Eugene Fund SC (as he then was) cited by D’s counsel particularly helpful as it deals with the general situation where amendments are sought (See §17). It does not specifically deal with a late amendment application in the context of an appeal against a master’s decision.

34.  In this regard, I find the District Court case of Midland Realty (Shops II) Limited v Rich Field International Development Limited [2024] HKDC 18 (Deputy District Judge Queenie Lau) cited by Mr Adrian Leung, P’s counsel, much more relevant and applicable to our present case.

35.  In Midland Realty, the court was also faced with a very late amendment application (which was supported by an affirmation filed without leave) in an appeal against a master’s decision context. The facts of the case are almost on all fours with our present case. I find the following passages at §§15-27 in the judgment of DDJ Queenie Lau particularly helpful:-

“C1. Amendment Summons

15. The Defendant took out the Amendment Summons only about two weeks before the hearing of the Defendant’s appeal against the Master’s Decision. The Amendment Summons was supported by Luk’s 2^nd Aff. However, and importantly, there was no application to adduce further evidence.

16. I accept the submission of Mr Byron Chiu for the Defendant that Order 20 rule 8 of the Rules of the District Court (“RDC”) permits amendments to pleadings at any stage for the purpose of determining the real question in controversy between the parties to any proceedings. See TTI Global Resources Hong Kong Ltd v Hongkong Myphone Technology Co Ltd & Ors [2021] HKCFI 306, §7. However, whilst I am clearly able to allow the amendments at the present stage, the question is whether I should or should not do so.

17. Having considered the matter and the parties’ respective submissions, my view is that I should not allow the Amendment Summons.

18. First, I agree with Mr Chan that this is a very late application, and that the explanation given by the Defendant for the lateness is wholly unsatisfactory. The Defendant has sought to explain at paragraph 11 of Luk’s 2^nd Aff that its director, Ms Irene Luk, “had previously understood that these points [in the proposed amendments] may be peripheral to the key issue of whether the Plaintiff should be held to its bargain as per the Supplemental Agreement”, but I do not find this explanation adequate at all. As Mr Chan has pointed out:

18.1. This purported explanation reinforces the point that the matters sought to be introduced by the Defendant were known to it for a long time, and could have been advanced in the hearing below. It was a judgment call that had led to those points not having been previously advanced.

18.2. The Defendant has been legally represented throughout these proceedings.

18.3. The Defence was originally settled by counsel (albeit not Mr Chiu).

18.4. The enforceability of the Supplemental Agreement for want of consideration was the sole basis of the Plaintiff’s summary judgment application and was all along disputed in the hearing below, and it must have been clear to the Defendant that the question of enforceability of the Supplemental Agreement was the crux of the case when the Master’s Decision was made. Yet more than three months elapsed after the Master’s Decision before the Amendment Summons was taken out on 11 October 2023, less than two weeks before the present hearing. The Defendant has not proffered any explanation for this three-month delay after summary judgment was entered against the Defendant.

19. Secondly, in deciding whether amendments should be allowed, I need to consider whether the amendments raise new points and new evidence which will cause unfairness to the Plaintiff. See Chan Chi Wai v Chan Sau Wah [2019] 3 HKLRD 330, §35. Even though it is well-established that appeals from Masters’ decisions are hearings de novo, and even though I agree with Mr Chiu that new points can be taken in such appeals, I agree with Mr Chan that a major problem with the proposed amendments in the present case is that the proposed new pleas are not supported by admissible evidence.

20. Pursuant to Order 58 rule 1(4) of the RDC, no further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal against a Master’s decision except on special grounds. It is well-established that before new evidence can be admitted in an appeal against a Master’s decision, the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 have to be satisfied. See Wang Yuexian v Xinyang Maojian Group Limited formerly known as China Zenith Chemical Group Limited [2023] HKCFI 3236, §§20-21.

21. In the present case, not only is there no application by the Defendant to adduce further evidence, even if there were such an application I cannot see how even the first of the Ladd v Marshall conditions could be met. Very clearly, the matters now sought to be pleaded could have been obtained with reasonable diligence for use at the hearing before the Master.

22. For completeness, I note that Mr Chiu relied on Fortis Insurance Company (Asia) Limited v Lam Hau Wah Inneo, CACV 86/2010, 28 October 2010, §18, to argue that the Ladd v Marshall conditions should be relaxed in the present case given that we are presently dealing with an interlocutory application, namely a summary judgment application, as opposed to a trial. However, given that there is no suggestion that the Defendant was under any particular time pressure in filing its evidence in opposition, and given the nature of the matters contained in Luk’s 2^nd Aff, I do not consider that the time available to the Defendant to prepare its evidence in opposition was so tight that the Court should relax the requirement of reasonable diligence. See Wang Yuexian v Xinyang Maojian Group Limited formerly known as China Zenith Chemical Group Limited, §§22-24, 26.

23. Mr Chiu fairly accepted that there are limitations on what fresh evidence could be adduced by the Defendant in this appeal: if the Defendant were to try to apply for Luk’s 2^nd Aff to be adduced as evidence in this appeal, the Ladd v Marshall conditions would need to be considered. Mr Chiu did not suggest (in my view, entirely correctly) that the Defendant could succeed in applying for Luk’s 2^nd Aff to be adduced as evidence in the appeal. Rather, Mr Chiu suggested that I could have regard to Luk’s 2^nd Aff (even if it were not adduced as fresh evidence) in that I have already seen and considered it in deciding whether to allow the proposed amendments. However, as I indicated at the hearing, I do not consider that it is permissible for me to have regard to Luk’s 2^nd Aff other than to determine the Amendment Summons, otherwise I would be influenced by or allowing in evidence through the back door without the Ladd v Marshall conditions being satisfied.

24. By way of example, Mr Chiu invited me to take note that Luk’s 2^nd Aff exhibited a letter dated 5 November 2018 by which the Defendant complained to the Plaintiff about the use of the Property. The Defendant complained in the letter that it had repeatedly emphasised that the purchaser of the Property needed to guarantee that the Property would not be used as an old people’s home, but had discovered that day that the Property was in fact rented out as an old people’s home. In that letter, the Defendant referred to its having considered claiming against Midland, but that as it had promised the previous week that the Plaintiff would receive its commission cheque that Tuesday, the Defendant did not want to go back on its word and thus post-dated the date of the cheque (for HK$1,500,000) to three months later, February 2019, as “punishment”. The Defendant also said that if the Plaintiff did not interfere with matters, that cheque could be cleared, but if the Plaintiff did interfere, then the Defendant would stop the cheque and sue the Plaintiff. I do not consider that I can take this letter into account given that there is no application to adduce Luk’s 2^nd Aff as evidence in this appeal against the Master’s Decision.”

Ruling on D’s May 2025 Amendment Summons

36.  Following the same line of reasoning as stated by DDJ Queenie Lau in Midland Realty above, I consider that D’s May 2025 Amendment Summons should be dismissed.

37.  First, not only D’s application was made very late in the day (it was taken out just over 3 weeks before the appeal hearing), the purported explanation given by D in Lai 3^rd in my view is totally unconvincing.

38.  As stated, the NOA was issued by D as early as in January 2025 when his current solicitors took over the case and started to represent him. Yet for more than 3 months, D and his lawyers had taken no action to try to make those amendments.

39.  D’s explanation as contained in Lai 3^rd is that he had “recently” changed his legal team and subsequently received further advice in relation to the action. It was in light of those further legal advices that he had received from his current legal team that he made Lai 3^rd to (1) further elaborate on the relevant background and circumstance in support of his defence; and (2) tried to seek leave to amend the defence dated 27 May 2024. Having received advice from his new legal team, he believed that he has additional defences as well as counterclaim which should have been (but were not) pleaded before.

40.  However, a closer examination of Lai 3^rd reveals that it mentioned matters and events which took place in 2016, 2017 and 2019: see Lai 3^rd §§4-8. Further, the further elaboration by D in Lai 3^rd §§18-27 deposed to matters happened between 2020 and 2022. In my view, they are matters which were known to D long time ago and matters which could have been advanced in the hearing below. It was a judgment call made by his previous solicitors and counsel not to include them.

41.  I agree with Mr Leung for P that the enforceability of the Deed of Guarantee, of which D being the personal guarantor, was the sole basis of P’s summary judgment application. Thus, the question of the enforceability and the D’s grounds of setting aside the Deed of Guarantee have always been at the centre of the arguments between the parties when the Decision was made by the Master. Yet D had done nothing for 4 months between the Master’s Decision (on 6 January 2025) and taking out D’s May 2025 Amendment Summons (on 7 May 2025). D did not offer any explanation in Lai 3^rd of the reasons for the delay in making the application.

42.  Further, while it is trite that appeals from masters’ decisions are conducted by way of hearing de novo and new points can be taken at the appeal, I agree with Mr Leung that that one of the major problems with the proposed amendments as contained in the New Draft AD&C is that the proposed new pleas (such as the tort of conspiracy to injure by lawful means at §24) are not supported by any admissible evidence.

43.  In this regard, I accept the following submissions made by Mr Leung on behalf of P:

(1)  Pursuant to Order 58 rule 1(5) of the RHC, no further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal against a master’s decision except on special grounds.

(2)  It is well-established that before new evidence can be admitted in an appeal against a master’s decision, the conditions laid down in Ladd v Marshall [1954]1 WLR 1489 have to be satisfied. See Wang Yuexian v Xinyang Maojian Group Limited formerly known as China Zenith Chemical Group Limited [2023] HKCFI 3236, §§20-21; see further Midland Realty;

(3)  There is no application by D to adduce further evidence set out in Lai 3^rd by way of summons;

(4)  Even if there were such an application by D to adduce Lai 3^rd, P submits the first of the Ladd v Marshall conditions could not be met; and

(5)  Very clearly, the matters sought to be pleaded could have been obtained and advanced with reasonable diligence for use at the hearing before the Master.

44.  In the aforestated premises, I would dismiss D’s May 2025 Amendment Summons.

D's Reliance on Lai 3^rd

45.  Another matter which this court has to decide is D’s reliance on Lai 3^rd which was included in the appeal bundle without leave of the court.

46.  It is trite that the Ladd v Marshall rule is applicable to applications to adduce further/supplemental affirmation in an appeal hearing from a master’s decision: see Wang Yuexian v XinYang Maojian Group Limited formerly known as China Zenith Chemical Group Ltd [2023] HKCFI 3236 §§18-28, per DHCJ H. Au-Yeung (as he then was); see also Sun Man Wai Kennis v Sun David Tse Chien [2021] HKCFI 591 §§46-49, per Recorder Eva Sit SC. More recently, Wang Yuexian has been applied in Li Yizhou v China Zenith Chemical Group Ltd [2024] HKCFI 3654 §§73-82, per DHCJ Andrew Li.

47.  In Wang Yuexian, DHCJ H. Au-Yeung (as he then was) stated in §§18-21 that:-

“18. On 15 November 2023, the defendant filed a summons (“the Further Evidence Summons”) and asked for leave to file and serve the 4^th Affirmation of Ma Kin Ling in support of the defendant’s appeal. This is a short affirmation, in which he deposed that during his review of the file on 13 November 2023 for the purpose of the hearing of the appeal, he discovered that the copy of the Bond exhibited by the plaintiff (“WYX-3”) is different from the Bond that the defendant had in its records. He stated that the interest rates appearing in the two copies of the Bond are different. He therefore sought to exhibit the copy of the Bond which he found.

19. This application had been dismissed in the appeal hearing. For record, I include the reasons of dismissal below.

20. Order 58 rule 1(5) of the Rules of the High Court (Cap.4A, Laws of Hong Kong) (“RHC”) provides that:

“No further evidence (other than evidence as to matters which have occurred after the date on which the judgment, order or decision was given or made) may be received on the hearing of an appeal under this rule except on special grounds.”

21. Given the same words “special grounds” are used in both Order 58 rule 1(5) and Order 59 rule 10(2) of the RHC, it is now well-established that the same test should be applicable to the aforesaid rules. In other words, before new evidence can be admitted in an appeal against Master’s decision, the conditions laid down in Ladd v Marshall [1954] 1 WLR 1489 have to be satisfied. Under those conditions, further evidence is admissible on appeal only when such evidence:

(1) could not have been obtained with reasonable diligence for use at the hearing below;

(2) would or might, if believed, have an important influence on the result of the case, though it need not be decisive; and

(3) is apparently credible though it need not be incontrovertible.”

48.  For similar reasons, I would reject D’s attempt to rely on the contents of Lai 3^rd which was included in the hearing bundle without leave of the court.

49.  First, there is no formal application made by D to adduce Lai 3^rd as new evidence to be relied upon by D at the hearing of the appeal.

50.  Second, while the contents of Lai 3^rd may be used to support D’s May 2025 Amendment Summons, it cannot be used for the purpose of opposing to P’s Order 14 Summons. In other words, D cannot introduce new evidence via the back door without first having satisfied the conditions under Ladd v Marshall. In my view, it was wrong and improper for D to ask the court to consider the contents of Lai 3^rd for the purpose of P’s summary judgment application without him first demonstrating to the court that he has satisfied the conditions under Ladd v Marshall: see Midland Realty §23.

51.  Third, as mentioned, the matters stated in Lai 3^rd §§4-8, 18-27 which are events took place between 2016 and 2022, are clearly evidence that could have been obtained with reasonable diligence for use at the hearing before the Master. No satisfactory explanation has been given by D as to why it was not adduced earlier: see Sun Mun Wai Kennis, §48(1), per Recorder Sit SC.

52.  Lastly, other than saying that this was due to the advice from his new legal team, D was not able to offer any convincing reason why those new matters could not have been included in his affirmation filed for the purpose of opposing P’s Order 14 Summons. There is no room for the court to relax the requirement of reasonable diligence in this case: see Wang Yuexian, at §26 per DHCJ H. Au-Yeung (as he then was).

53.  In the aforesaid premises, I would reject any attempt on the part of D in relying on the contents of Lai 3^rd, other than for the purpose of using it for the court’s consideration of D’s May 2025 Amendment Summons (which I have dismissed).

D’s Appeal against the Master’s Decision

54.  Given my rulings above, this leaves only the matters stood before the Master when she made the Decision for this court to decide. In other words, the court does not need to and will not consider the new defences belatedly introduced under D's New Draft AD&C and Lai 3^rd.

55.  Under the summary judgment application, P sought the following orders before the Master:

(1)  Final judgment be entered against D for the sum of HK$75,000,000 being the outstanding principal sum due under the Loan Agreement dated 17 January 2020 and for the sum of HK$30,123,287.67 being default interest on the sum of HK$75,000,000 at 20% per annum from 20 October 2023 until payment (“the Order 14 Application”) ;

(2)  Alternatively, D do pay p an interim payment of HK$105,123,287.67 (being the outstanding amount due and owing under the said Loan Agreement as at 19 October 2023) or such other amount that the Court thinks fit or just within 14 days from the date of the order to be made (“the Interim Payment Application”).

56.  P’s case against D is rather simple and straightforward. It seeks to enforce the terms of the Deed of Guarantee executed by D for the payment of the outstanding sum due under the Loan Agreement which D has guaranteed to repay as primary obligator under the said Guarantee. It is not disputed by D that he has signed the Deed of Guarantee. D also does not dispute the terms of the Loan Agreement or the Deed of Guarantee. P’s position is that D has no arguable defence to P’s claims and therefore summary judgment should be entered against D.

57.  It is therefore for D to demonstrate to the court that he has arguable defences in the action.

58.  After P filed its SOC on 8 February 2024, D filed his defence on 27 May 2024. However, for a 5-month period between June 2024 and October 2024, D did not take out any application to amend his defence.

59.  After P issued the Order 14 Application on 13 August 2024, D only then took out a summons to amend its defence on 13 November 2024. That was 3 months after P filed its supporting affirmation for the Order 14 Application. Hence, D has had plenty of opportunity to consider its position and to put whatever amendments he needs in the draft AD when he filed the application to amend his defence on 13 November 2024.

60.  Like the Master, I am prepared to consider the draft amendments to the defence (as contained in the Old Draft AD attached to D’s Nov Amendment Summons) on a de bene esse basis when deciding the summary judgment issue.

D's Purported Defences

61.  Mr Pun SC in D’s Skeleton stated that D relies on 4 broad defences. They are:

(1)  breaches of implied terms;

(2)  material variation;

(3)  P’s group of companies (of which P is being part) caused SIHL’s default under the Loan Agreement and/or acted in bad faith towards, and/or positively acted so as to prejudice D in an unfair way (“the Unfair Prejudice Defence”); and

(4)  set-off by counterclaim based on the tort of conspiracy to injure by lawful means (“the Tort of Conspiracy Claim”).

62.  As the Unfair Prejudice Defence and the Tort of Conspiracy Claim are newly added defences and counterclaim made by D under the New Draft AD&C and introduced under D’s May 2025 Amendment Summons, given my rulings above on that application and on Lai 3^rd, it is not open for D to advance those grounds on appeal. Hence, it is not necessary for me to consider those two new defences under (3) and (4) above.

63.  The only two defences left for me to consider on appeal are: (1) breaches of the implied terms of the Loan Agreement and/or Deed of Guarantee; and (2) the material variation of the Deed of Guarantee.

(1)  Breaches of Implied Terms Defence

Applicable Principles

64.  The applicable principles on implied terms of a contract are well established: see Lo Yuk Sui v Fubon Bank (Hong Kong) Limited [2019] HKCA 261. At §§30-32, after a review of recent CFA and UK Supreme Court cases, the Court of Appeal stated that for a term to be implied, the following conditions (which may overlap) must be satisfied:-

“ (1) it must be reasonable and equitable;

(2) it must be necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(3) it must be so obvious that “it goes without saying”;

(4) it must be capable of clear expression; and

(5) it must not contradict any express term of the contract.” [emphasis added]

65.  A term is to be implied “only if it is necessary to make the contract work, and this may be if (i) it is so obvious that it goes without saying (and the parties, although they did not, ex hypothesi, apply their minds to the point, would have rounded on the notional officious bystander to say, and with one voice, “Oh, of course”) and/or (ii) it is necessary to give the contract business efficacy”: see Lo Yuk Sui at §32.

66.  Mr Pun SC submits on behalf of D that given the Loan Agreement, the Deed of Guarantee and the SFund Guarantee Deed all form part and parcel of the arrangement of the Debt, it is arguable that in order to represent “the obvious intention of the parties” and/or give business efficacy, the Loan Agreement, the Deed of Guarantee and/or the SFund Guarantee Deed contained the following implied terms:

(1)  Any purported assignment of the Load Agreement would be a bona fide transfer of interests.

(2)  Any repayment under the Loan Agreement (in full or in part) would not be dressed up as an assignment of debt.

(3)  The Loan Agreement and the Deed of Guarantee would not be used and/or engineered to generate profit for the Plaintiff’s Group as a whole or any of the Guangzhou Company, SIHL or the Plaintiff.

(4)  Any purported assignment of the Loan Assignment would not enable the Plaintiff’s Group to demand any payment from the Defendant or claim against the Defendant for any compensation under the Deed of Guarantee.

67.  Mr Pun SC further submits that given Clause (13) of the SFund Guarantee Deed, the implied term in (4) above is so obvious that it goes without saying.

68.  However, as (4) above is only added as §10A.4 in the New Draft AD&C in D’s May 2025 Amendment Summons, given the fact that I have dismissed D’s application to introduce the new amendments, it is no longer necessary for the court to consider whether (4) above is part of the implied terms or not.

69.  Thus, one has to go back to what was said by D under the Old Draft AD. In §§7B, 10A of the Old Draft AD, D alleges that, to give business efficacy to the Loan Agreement and the Deed of Guarantee, the following implied terms should be incorporated:-

(1)  the Assignment of the Loan Agreement would be a “bona fide” transaction;

(2)  the Loan Agreement “would not dress up any repayment as assignment of debt”; and

(3)  the “Loan Agreement and the Deed of Guarantee would not be used to generate profit for the Plaintiff’s Group”: see draft Amended Defence §§7BA,10A. (hereinafter, collectively, the “Implied Terms”)

70.  D further alleges P (the assignee) and SIHL (borrower) are substantially owned and/or part of the corporate structure of the Guangzhou Company and should be collectively referred to as the “Plaintiff’s Group”; by operation of the Assignment, P effectively became the lender of SIHL and that the Plaintiff’s Group stands to profit from its debt. D says the Assignment amounts to breaches of the Implied Terms of the Loan Agreement and Guarantee and hence, D is no longer bound by the terms of the Guarantee: see draft Amended Defence §§4A,11B-11D; see also Lai 1^st §§9-16.

71.  In my judgment, D’s contention that the Implied Terms should be incorporated into the Loan Agreement and the Deed of Guarantee has been misconceived and bound to fail:-

(1)  Clause 16.2 of the Loan Agreement provides that SIHL as lender can at any time (without obtaining the written consent of the borrower) assign all or part of its rights and benefits under the Loan Agreement to any party. Thus, it is in my view not only unnecessary to incorporate the Implied Terms like “the assignment must be bona fide” and/or that “no assignment should be made to entities related to the alleged P’s Group” but they would flatly contradict with the express provision under the Loan Agreement;

(2)  It is trite that a term should “implied only if it is necessary to make the contract work”. In this case, it is clear that both the Loan Agreement and the Deed of Guarantee work effectively without the proposed implied terms; and

(3)  This is not a case where it must be so obvious that “it goes without saying” that the Implied Terms should be incorporated into the Loan Agreement and the Deed of Guarantee. In fact, the contrary is true. There was nothing unclear about the express terms in the Loan Agreement and the Deed of Guarantee that they need the alleged implied terms to make them work.

72.  Based on the above, I find D’s purported defence based on the breaches of the alleged Implied Terms are not arguable.

(2)  Material Variation Defence

73.  In Lai 1^st §§17-19, 29, D alleges that the Deed of Assignment caused a “material variation” of the terms of the Loan Agreement. D says the material variation alters the basis on which D agreed to become liable under the Deed of Guarantee and “impose a new bargain” upon D. D is thus prejudiced by such new bargain and material variation. D asserts that the Deed of Guarantee is therefore discharged and D is no longer bound by the same: see Old Draft AD §§11E-11F.

74.  Mr Pun SC submits that the Loan Agreement, the Deed of Guarantee and the SFund Guarantee Deed all form part and parcel of the arrangement of the Debt. He submits it is arguable that the alleged assignment amounted to a material variation of the terms of the Loan Agreement and/or the Deed of Guarantee and/or the SFund Guarantee Deed, in that it altered the basis on which D agreed to become liable under the Deed of Guarantee and imposed a new bargain upon D.

(1)  P’s Group and/or SIHL and/or P stand to benefit and profit from its own debt.

(2)  D is prejudiced or potentially prejudiced by the alleged assignment and/or the discharge of liability on the part of SIHL.

(3)  P’s Group is able to demand payment from D or claim against D for compensation under the Deed of Guarantee, notwithstanding the prohibition in Clause (13) of the SFund Guarantee Deed.

75.  Mr Pun SC therefore submits that it is arguable that the Deed of Guarantee is discharged.

76.  With greatest respect, I consider D’s argument based on this ground has been completely misconceived and bound to fail.

77.  In Lai §§17-19,29, D alleges that the Deed of Assignment caused a “material variation” of the terms of the Loan Agreement. D says the material variation alters the basis on which D agreed to become liable under the Deed of Guarantee and “imposes a new bargain” upon D. D is thus prejudiced by such new bargain and material variation. D asserts that the Deed of Guarantee is therefore discharged and D is no longer bound by the same: see Old Draft AD §§11E-11F.

78.  P submits that D’s propositions advanced under the Material Variation Ground above are contrary to established authorities and bound to fail.

79.  Similar defence premised on alleged material variation was advanced by another defendant in the Court of Appeal decision in Bank of China (Hong Kong) Limited v Chan Yuek Wai & Another [2007] 1 HKLRD 172 (CACV 26/2006; 16 October 2006); At §§33-35, Cheung JA rejected the defence in material variation and explained the legal position of the guarantee as follows:-

“Personal contracts and material variation of guarantee by change of creditor

33. The 2^nd defendant seemed to argue that the guarantees were in the nature of personal contracts. But as pointed out in Chitty on Contracts 29^th Edn. Vol. 1 para. 19-054, prima facie, contractual rights to the payment of money do not involve personal considerations and are capable of assignment. I accept that the benefit of a contract is only assignable in ‘cases where it can make no difference to the person on whom the obligation lies to which of two persons he is to discharge it’ but the question whether any assignment makes any difference to the debtor must be decided by the court on objective grounds, having regard to the nature of the contract and of the subject matter of the rights assigned: Chitty para. 19-053.

34. Further as pointed in Chitty at para. 10-175:

‘Generally there is no restriction upon the creditor assigning the principal contact which is guaranteed. It cannot be argued that this prejudices the guarantor because it is immaterial, from the guarantor’s point of view, to whom the guarantor owes the obligation.’

See also Wheatly v Bastow (1855) 7 De G.M. & G; 44 ER 102; Bradford Old Bank v Sutcliffe [1918] 2 KB 833 at 841; Banca Di Roma Societa Per Azioni v Lee Kai & Another [1998] 2 HKC 338.

Absence of notice of assignment

35. The 2nd defendant argued that it is triable issue whether the 2nd defendant had received or had notice of the assignment. The 2nd defendant had merely raised a bare allegation that he had not received the notice of assignment. The plaintiff on the contrary had provided evidence of the service of the notice of assignment. This is not a credible defence.” [emphasis added]

80.  Similar to Cheung JA’s holding in Bank of China Ltd §§33-35 above, the leading text on the law of guarantee, ie O’Donovan on ‘The Modern Contract of Guarantee English Edition’ (3^rd ed.) stated in §§6-111, 6-118, 6-119 to 6-120 that:-

“(1) §6-111 – ‘the principle contact may provide for the principal to assign its interest in the contact… the court stressed two factors. The first was that the principal contract contemplated an assignment so that it could not be said that there was a variation of the principal contract discharging the guarantor. The second was that the guarantee knew of the terms of the lease. However, even in the absence of any actual knowledge by the guarantor of the clause in the principal contract permitting assignment, it is thought that a guarantor who undertakes to guarantee all the principal’s obligations under a principal contract which permits an assignment should be deemed to be aware of the possibility of the assignment and should be regarded as having consented to it.’

(2) §6-118 – ‘Generally there is no restriction upon the creditor assigning the principal contract which is guaranteed. It cannot be argued that this prejudices the guarantor because it is immaterial, from the guarantor’s point of view, to whom the guarantor owes the obligation.’

(3) § 6-119 to §6-120 – ‘Generally, therefore, it is clear that if the principal obligation is assigned and the benefit of the guarantee is also assigned, the assignee may enforce both the principal obligation and the guarantee.’ In order for the assignee to enforce the guarantee, no notice of assignment of the principal obligation need to be given to the guarantor… Notice to the guarantor of the assignment of the guarantee will usually be necessary to make the assignment effective, but is otherwise unnecessary.’”

81.  Thus, by applying Bank of China Ltd and the legal principles stated in the text above, Mr Leung submits and I accept that the Material Variation Ground is no defence to P’s claims because:-

(1)  First, it is trite that generally there is no restriction upon the creditor in assigning the principal contract which is guaranteed. Further, it is undisputed that clause 16.2 of the Loan Agreement expressly provides that Joint Power (the lender) can at anytime assign all or part of its rights and interest under the Loan Agreement to any party (without obtaining the prior consent of the borrower). This is therefore the situation where the principal contract itself contemplated an assignment so that it cannot be said that there was a variation of the principal contact ie. the Loan Agreement discharging D the guarantor herein: see Modern Contract of Guarantee §6-111;

(2)  In this case, both the Loan Agreement and the Deed of Guarantee were assigned to a single party, ie P: SOC §§7-9. This is thus a classic situation of an assignment of a debt: see Bank of China Ltd §25, per Cheung JA;

(3)  Second, it cannot be argued that the Assignment in this case (ie the Deed of Assignment of Debt) prejudices D (the guarantor) because it is immaterial, from the guarantor’s point of view, to whom the guarantor owes the obligation: see Bank of China Ltd, §§34-35. It makes no difference to D because it is the same Guaranteed Obligations under the Deed of Guarantee that he has signed.

(4)  Third, it is not dispute that the “Notice of Assignment of Debt” was jointly given by P and Joint Power to D at the material time on 7 July 2022. D’s Defence §16 also admitted that “D was informed about the Deed of Assignment of Debt”.

(5)  Accordingly, this is a case where P has provided evidence of service of the Notice of Assignment of Debt on D and there is no room for D to suggest that he has not received such notice: see Bank of China Ltd §35, per Cheung JA.

82.  Based on the above, I am of the view that the D’s purported defence insofar as it relies on the Material Variation Ground must fail also.

CONCLUSION

83.  In conclusion, based on the above discussions and findings, I would grant final judgment in favour of P against D as per P’s Order 14 Summons, with costs to P, such costs to be taxed if not agreed.

84.  I would dismiss (1) D’s May 2025 Amended Summons; (2) D’s reliance on Lai 3^rd; (3) D’s Dec Affirmation Summons; and (4) D’s Nov Amendment Summons, with costs to P, such costs to be taxed if not agreed.

85.  I would further dismiss D’s appeal against the Master’s Decision, with costs to P, such costs to be taxed if not agreed.