KEEN LLOYD ENERGY LTD v. BANK OF CHINA (HONG KONG) LTD

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 36 AND 37 OF 2008

(ON APPEAL FROM HCA NO. 1299 OF 2004)

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  These were 4 appeals from decisions and judgments of Poon J.  The first 2 were in respect of a decision of 4 January 2008 whereby the judge refused the plaintiff’s application to adduce and rely firstly on a letter dated 18 May 1998 from the defendant, which was then known as the Sin Hua Bank Ltd, Hong Kong Branch (“SHHK”) to the Hong Kong Monetary Authority (“HKMA”), and secondly on a letter dated 17 July 1998 from the HKMA to SHHK.  The admission of those two letters was sought in respect of the applications by SHHK to strike out the statements of claim in the two actions HCA 1299 of 2004 and HCA 1096 of 2006.  The hearing of those applications had already taken place and the decisions were pending.  The other 2 appeals were in respect of the decision dated 11 January 2008 whereby the judge struck out the writs and statements of claim in the two actions.

2.  At the conclusion of the hearing of these appeals they were dismissed with costs with reasons to be given in writing which we now do.

Background

3.  There were a number of companies in what may be termed the Keen Lloyd group of companies (“the group”), whose chairman was one Chin Kam-chiu (“Chin”).   The holding company had been Keen Lloyd Resources Ltd, formerly known as Keen Lloyd Investments Ltd (“Resources”) and Keen Lloyd Ltd.  The group had general banking facilities with SHHK which comprised: (a) HK$1.656 billion to HK$1.827 billion between July 1997 and February 1998 and (b) HK$1.75 billion between April and September 1998.  The facilities were secured by, among other things, pledges over property owned by various companies in the group.

4.  At the end of 1998 the group ran into difficulties.  By November 1998, the group owed large sums of money to SHHK, mainly in respect of overdue trust receipts and SHHK had exercised its rights to retain the group’s goods.  From about the year 2000 defaults occurred and SHHK began to take action to recover the outstanding debts.  Eventually two of the companies within the group, including Resources, were wound up.

5.  In March 2004, Chin and four officers of SHHK were convicted of conspiracy to defraud SHHK for having dishonestly applied for and negotiated 25 letters of credit between 19 November 1998 and 16 April 1999 when there was no underlying commercial transaction behind them.  The conspiracy had caused SHHK to lose its security over the detained goods.

6.  On 1 June 2004, after Chin’s conviction, the plaintiff, which was one of the companies of the group, commenced HCA 1299 of 2004 against the defendant.  The original indorsement on the writ claimed damages of HK$5 billion in respect of fraudulent misrepresentation.  On 12 December 2005, application was made for leave to amend the claim.  Leave was granted by the Registrar on 21 December 2005.  That was followed by the filing of a statement of claim.  The defendant then appealed the grant of leave to amend the writ.  The appeal was heard by Deputy High Court Judge L. Chan.  By the decision of 12 April 2006, the Deputy Judge set aside the amendment to the writ and the statement of claim and restored the original indorsement.

7.  As the Deputy Judge said in the decision, the statement of claim with which he was concerned, that had been filed pursuant to leave that had been granted and was under challenge, alleged two misrepresentations made at different times.  The first misrepresentation was alleged to have been made in the period from around July 1997 to December 1997 was that that the general banking facilities granted by SHHK would be increased from HK$1,656 million to HK$2,400 million.  The second misrepresentation was alleged to have been made in around early to late 1998 and was that SHHK would further increase the general banking facilities to HK$3,080 million with part of the funds being provided by the Shenzhen branch of the bank.

8.  As the judge on these applications said in paragraph 26 of the decision of 11 January 2008, the Deputy Judge had plainly decided the case on the basis that:

  (a)  The limitation period for the cause of action based on the second misrepresentation would have expired before 12 December 2005 (i.e. the date the application to amend the writ had been made) and that the plaintiff had failed to show that the defendant “had no reasonably arguable defence of limitation to it.”

  (b) The limitation period for the cause of action based on contract would have also have expired before 12 December 2005 and the same consideration applied.

  (c) It was “plain and obvious that these so-called representations, which were mere promises, do not disclose any reasonable cause of action.”

9.  On 22 May 2006 the plaintiff issued the writ endorsed with the statement of claim in HCA 1092 of 2006.  In the statement of claim the plaintiff relied upon an alleged misrepresentation which was in virtually the same terms as the second misrepresentation that had been struck out by the Deputy Judge.  The only material difference would seem to be that the upper figure of the promised general banking facilities had been changed to HK$3,100 million.  It was said that Chin on behalf of the plaintiff and other companies in the group had relied upon that representation and maintained SHHK as the key bank of the group and charged various properties and other assets of the group as security.  It was also said that because of that there was a binding contract that the defendant would increase the general banking facilities to HK$3,100 million.

10.  On 2 June 2006 the plaintiff amended the writ in HCA 1299 of 2004 and filed a new statement of claim.  In that statement of claim the plaintiff relied upon a similar alleged misrepresentation to the first misrepresentation in the statement of claim that had been struck out by the Deputy Judge save that it was said that the misrepresentation was that the general banking facilities granted by SHHK would be increased from HK$1,656 million to HK $2,600 million.

11.  The defendant applied to strike out the writs and statements of claim in both HCA 1299 of 2004 and HCA 1092 of 2006 on the basis that they disclosed no reasonable cause of action, were scandalous, frivolous or vexatious and or alternatively were an abuse of the process of the court.  The judge heard the strike out applications on 17 to 19 July 2007.  On 21 November 2007, before his decision was given, the plaintiff applied to adduce further evidence namely affirmations disclosing and dealing with the letter dated 18 May 1998 sent by SHHK to the HKMA and the letter dated 17 July 1998 sent by the HKMA to SHHK.  The judge gave the decision in respect of the application to adduce further evidence shortly prior to handing down his decision in relation to the strike out applications.

12.  The judge held that the claims based on the first misrepresentation in HCA 1299 of 2004 and the second misrepresentation, the subject of the claim in HCA 1092 of 2006, and the contract pleaded in the latter action were all caught by the issue estoppel created by the decision of the Deputy Judge.  Having decided that it was, as he said, unnecessary to continue further, but he also held that the claims in HCA 1096 of 2006 were all time-barred for the same reasons as the Deputy Judge had held.  He then went on to consider the attack that the misrepresentations pleaded were not statements of fact and that there was no actionable loss that had been pleaded.  On that ground also he considered that the two statements of claim had to be struck out.

13.  In relation to the application to adduce further evidence after the hearing of the strike out applications the judge refused to admit them because he said that the letters were of minimal relevance and, more importantly, even if they were to be admitted, they would not have any significant bearing on the outcome of the strike out applications.

This appeal

14.  On this appeal Mr Yuen SC, who appeared on behalf of the plaintiff, argued that the decision of the Deputy Judge did not debar the bringing of HCA 1096 of 2006.  In this respect his argument was that the decision of the Deputy Judge had been in relation to the effect of an amendment to the writ but that it did not prevent the issue of a new writ in which the limitation point could be argued on a different basis, without the complication of the validity of the amendment having to be taken into consideration.

15.  The argument went further that the first and second misrepresentations did involve factual assertions namely that the bank had been in a position to increase the general banking facilities whereas the letters sought to be relied upon demonstrated that it had not been in such a position.

16.  In relation to the admission of the new evidence it was said that the judge had erred in principle, and that the letters were clearly relevant and would not have caused any prejudice or embarrassment to the defendant since they were letters which formed part of a chain of correspondence in which SHHK had been involved.

17.  In my view, the first difficulty which the plaintiff must face is that whatever agreement or promise might have been made to provide general banking facilities it is quite clear that those facilities could have been withdrawn at any time.  The bank documentation in this case was no different from any other bank documentation and provided for the bank to be able to call in any loan or overdraft.  Hence any representation that the bank would allow general banking facilities was not a commitment which could, in any event, be said to have extended over any specific period of time.

18.  That matter is a fundamental difficulty which exists in addition to the fact that the statements relied upon were promises and not statements of fact.  The approach of the judge that there was no actionable loss pleaded is, in my view, correct.  Indeed it is said that following investigations by the HKMA, SHHK had to take measures to reduce the general banking facilities granted to the group.  This highlights the point that general banking facilities are not something which would exist in perpetuity.  It is not suggested that the HKMA could by itself legislate or create a law by any other means, nor could it alter a contract between a bank and its client.  All it could do would be to give advice to a bank.  Technically, a bank was free to accept and act on that advice or take other action as it deemed fit.

19.  With regard to the new action, HCA 1096 of 2006, I can see no basis other than that the action must be statute barred.  No real reason to the contrary was suggested in argument.  The simple point must be that even if the representations had been made it must have been quite clear that they were not being honoured when the bank called in the various loans and overdrafts.  In those circumstances, as the Deputy Judge held and the judge agreed, it would be inevitable that the plaintiff had the necessary knowledge to bring any action well before the writ in the action was issued.

20.  With regard to the appeal in relation to the refusal to admit further evidence, I do not consider that it can be said that the judge erred in principle.  In those circumstances, no appeal would lie.  Furthermore, it must be extremely rare that a judge would allow the admission of new evidence and the reopening of argument which would have been inevitable on the admission of any further evidence after the hearing had been completed.  Finally, the judge was clearly entitled to say that the admission of the letters would have had no bearing on the outcome of the cases.

21.  For these reasons I considered that there was no merit in these appeals and that they fell to be dismissed.

Hon Le Pichon JA:

22.  I agree.