WU YUAN HONG v. CHINA ZENITH CHEMICAL GROUP LTD

HCA 2082/2023

[2025] HKCFI 228

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2082 OF 2023

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D E C I S I O N

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A.  INTRODUCTION

1.  This a hearing of both parties’ appeals against a Master’s decision.

2.  The Plaintiff claims for principal and interest under a bond issued by the Defendant. On 23 August 2024, a Master gave the Defendant leave to defend and to amend the Defence on condition that the latter do pay, amongst others, HK$9,000,000 into Court.

3.  The Plaintiff filed an appeal on 2 September 2024, seeking summary judgment, to be heard at this hearing. The Defendant also filed a notice of appeal on 5 September 2024 to seek unconditional leave to defend and to amend the Defence, but it has not fixed any date for hearing. Meanwhile, the Defendant has, despite extension of time and in breach of 2 unless orders, failed to comply with the condition imposed by the Master. Accordingly, the Plaintiff would have been entitled to final judgment on 21 November 2024.

4.  The Plaintiff takes the preliminary point that (i) he is entitled to judgment already; and (ii) that the Court should not hear the Defendant’s appeal which the Defendant has not fixed a date of hearing.

5.  I am unable to agree. The Defendant lodged an appeal out of abundance of caution: Hong Kong Civil Procedure 2025, Vol 1, §14/4/42. It precisely tackles the situation in the present case where the Plaintiff argues that she is entitled to judgment and does not need to pursue the appeal notwithstanding the Defendant’s clear intention to appeal against the Master’s decision. I permit the Defendant’s appeal to proceed. In future, it would be prudent for a defendant in a similar situation to fix the same date for hearing.

6.  In this appeal, the Plaintiff’s claim is for the principal and interest due under a bond issued by the Defendant (“the Bond”).

7.  On the other hand, the Defendant relies on the limb of “there ought for some other reason to be a trial” under Order 14, rule 3(1) and relies on 2 defences:

(1)  The Plaintiff has not provided evidence of her payment for the Bond. In the light of many suspicious circumstances surrounding the claim, further investigation is required (“Evidence of Payment Issue”); and

(2)  There is a triable issue as to whether the Plaintiff is entitled to interest under Clause 4 as the first bondholder upon issue of the Bond (“Clause 4 Interest Issue”).

8.  In relying on the 2 defences, the Defendant has effectively abandoned its pleaded defences[1], except the Clause 4 Interest Issue which first appeared in §13 of the original Defence.

B.  BACKGROUND

9.  The primary facts are not in dispute and are taken from the summary of Mr Lim, counsel for the Defendant.

10.  By a deed poll dated 11 September 2013, the Defendant constituted a bond with an aggregate principal of up to HK$400 million at 7.5% interest per annum for 8 years (“2013 Bond Issue”). The bonds were governed by a set of terms and conditions (“T&C”).

11.  There are 3 key features to the 2013 Bond Issue:

(1)  The Defendant did not personally administer the 2013 Bond Issue but had appointed agents:

(a)  Anglo Chinese Corporate Finance Limited (“AGCCF”) arranged the 2013 Bond Issue and Anglo Chinese Securities Limited acted as placing agent.

(b)  Anglo Chinese Nominees (“AGCN”) would collect the subscription monies from investors and pay the balance to the Defendant after deducting fees, expenses and prepaid interest as provided for under Clause 4 of the T&C (“Clause 4”).

(c)  Royal Bank of Canada Trust Company (Cayman) Limited (“RBC”) issued bond certificates and maintained the register of bondholders (“Register”).

(2)  Under Clause 4, the entirety of the interest due under the Bond was payable in advance by the Defendant to the first holder of such bonds as appears on the Register upon issue of the Bond. In other words, AGCN would have deducted 60% of the principal payment (7.5% x 8 years) and paid it in advance to the first bondholder upon subscription.

(3)  The bonds were transferable by delivering a completed form of transfer together with the original bond certificate.

12.  On or around 10 January 2014, RBC issued Certificate No. 13 for the Bond on behalf of the Defendant to Mr To Hang Ming (“Mr To”) under the 2013 Bond Issue with a principal of HK$10 million.

13.  Mr To transferred the Bond to T-Loft Property Development Ltd (“T-Loft”), who was issued with Certificate No.14, and who in turn transferred it to the Plaintiff pursuant to a sale and purchase agreement (“SPA”). RBC issued Certificate No. 15 to the Plaintiff.

14.  On 5 October 2021, the maturity date of the bonds under the 2013 Bond Issue was extended for 4 years from 11 September 2021 to 10 September 2025. Meanwhile, an event of default occurred with the filing of a winding-up petition against the Defendant on 23 June 2023, re-filed on 3 July 2023.

15.  By a letter dated 19 December 2023, the Plaintiff issued a written notice to the Defendant stating that pursuant to Clause 8 of the T&C, the full amount of principal and accrued interest had become immediately due and payable. The Defendant failed to pay. It triggered the default interest of 9.5% per annum from the date of the event of default to the actual date of payment.

16.  On 22 December 2023, the Plaintiff issued the writ in this case.

17.  On 24 April 2024, the Plaintiff issued the Order 14 Summons, the subject of this appeal.

18.  On 9 May 2024, the Defendant filed a Defence under compulsion of an unless order.

19.  On 2 August 2024, the Defendant issued a summons seeking leave to amend its Defence, the subject of this appeal as well.

20.  On 23 August 2024, Master Lewis Law ordered as follows:

(1)  Leave be granted to the Defendant to defend this action upon the following conditions:

(a).  The Defendant shall pay a sum of HK$200,000 to the Plaintiff’s Solicitors within 14 days;

(b).  Upon completion of the examination of the original bond, the Defendant do pay a further sum of HK$9,000,000 into Court within 28 days thereafter;

(2)  Subject to the Defendant’s compliance with the 2 conditions, leave be granted to the Defendant to amend its Defence.

(3)  Unless the 2 conditions in sub-paragraph (1) are complied with by the Defendant, the Defence filed on 9 May 2024 be struck out and final judgment be entered in favour of the Plaintiff.

21.  On 6 November 2024 Master Thomas Kwong granted an unless order extending time for payment to 20 November 2024. The date went by without the Defendant making payment into Court.

C.  Legal principles applicable to summary judgment

22.  The principles on O.14 summary judgment are summarized in Xue Xiaoyun v Wu Shang Ying [2024] HKCFI 1776 at §§8-9 per DHCJ Man:

(1)  An O.14 application proceeds on the case as pleaded, and it is those facts which have to be verified on affidavit.

(2)  The defendant bears the burden of satisfying the Court that (1) he has a real or bona fide defence (i.e. that there are triable issues), or that (2) there ought for some other reason to be a trial of the Plaintiff’s claim.

(3)  That does not mean that the Court will focus solely on what the Defendant says in its defence. When assessing the strength of the application, the Court will also consider the basic premise of the Plaintiff’s claim and its inherent strength or weakness.

(4)  A complete defence need not be shown. Then defence set up need only show that there is a triable issue or that for some other reason there ought to be a trial; and leave to defend ought to be given unless there is “clearly no defence in law” and “no possibility of a real defence” on the question of fact.

(5)  The Court will not embark upon a mini-trial of the action on paper. Leave to defend will be granted unless the defence raised “is so incredible” or “so contradicted by contemporaneous documents or circumstances” that it becomes clear that the defence “is a sham”.

(6)  The test is not whether the Defendant’s assertions are to be believed, rather it is whether those assertions are believable, i.e. capable of being believed. If so, the Defendant “must have leave to defend”.

(7)  Whether the Defendant’s assertions are believable is a question that should be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as either undisputed or beyond reasonable dispute.

23.  It sometimes happens that a defendant may not be able to pinpoint any precise issue to be tried, but nevertheless it is apparent that for some other reason there ought to be a trial. This includes the following:

(1)  Where there are circumstances relevant to an issue in dispute which require close investigation.

(2)  Where the Defendant reasonably and properly requires to cross-examine the Plaintiff.

(3)  Where the Defendant is unable to get in touch with some material witnesses who might be able to provide him with material for a defence.

See Hong Kong Civil Procedure 2025 at §14/4/10.

24.  Mr Wong, counsel for the Plaintiff, submits that in resisting an application for summary judgment, the Defendant is not allowed to raise and rely upon a defence which has not been pleaded in his Defence: Kaefer A.G. v Winfield Marine Services Co. Ltd [2022] HKCA 807 at §§30-32; applied in Incu Global Ltd & Anor v D’Aguilar Capital Management Ltd & Anor [2022] HKCFI 3214 at §§32-36; Hong Kong Topkey Limited v Wintac (Hong Kong) Limited & Anor [2023] HKCFI 1711 at§§14-16.

25.  Having read those decisions, I respectfully disagree with Mr Wong:

(1)  RHC O.14 r.4(1) provides that a defendant may show cause against an application under rule 1 “by affidavit or otherwise” to the satisfaction of the Court.

(2)  As held by Recorder Fung SC in CCMD Overseas v Sinom Investments [2023] HKCFI 2912 at §39, what was decided in Kaefer “was specific to what happened in that case” and it was “not apparent that the Court of Appeal in Kaefer laid down any general rule”.

(3)  In Gao Xin Jian Group (Hong Kong) v Kin Lee Precast Concrete Products [2024] HKCFI 1058 at §§33-35, Cheng J took the same view, adding that showing cause includes exhibiting a draft defence to a defendant’s affidavit.

26.  I agree with the interpretations of Kaefer of Recorder Fung SC and Cheng J.

27.  The position is even clearer in the present case as the Defendant has presented a draft amended defence and new affirmation. It would not be in the interest of justice not to consider all his causes shown.

D.  Evidence of Payment Issue

28.  The Defendant claims that there were “suspicious circumstances surrounding the Plaintiff’s claim” raised in its affirmations to justify further investigation:

(1)  There is no evidence that Mr To or the Plaintiff had paid for the Bond, rendering it invalid. The Defendant’s own record does not show proof of payment in respect of the Bond. The Defendant has emailed AGCCF to request for documents relating to the issue of the Bond but AGCCF has not replied.

(2)  It was inexplicable that the Plaintiff would have paid HK$10 million for a Bond with no interest for her for the initial period, because the interest would have been paid to Mr To in accordance with Clause 4.

(3)  The SPA was entered into before T-Loft or even Mr To acquired the Bond. The Plaintiff and T-Loft entered into the SPA on 9 January 2014, when Mr To only obtained the Bond on the following day. On 23 January 2014, Mr To transferred the Bond to T-Loft, which in turn transferred it to the Plaintiff. Mr Lim submits that while a contract for the sale of future acquired property may not be suspicious in itself, the recital to the SPA expressly stated that T-Loft was, not would be, the legal and beneficial owner of the Bond. This suggests that Mr To, T-Loft and the Plaintiff were “connected parties”.

(4)  AGCCF and its affiliated entities administered the 2013 Bond Issue (including the Subject Bond) and handled the payments, but the Defendant has not been able to get in touch with AGCCF to obtain documents relating to the issue of the Bond.

29.  Mr Lim submits that there was more to the transaction than met the eye, which may render the Bond unenforceable by the Plaintiff against the Defendant. For example,

(1)  If Mr To knew or was involved in an arrangement with AGCCF for a bond certificate to be issue to him without requiring payment, Mr To would obviously know that AGCCF was acting outside its authority and such act would not bind the Defendant.

(2)  If the Bond never amounted to a binding act between Mr To and the Defendant, it follows that the purported transfer of the Bond onwards to the Plaintiff was of no legal effect since Mr To had nothing to transfer.

30.  Because the 2013 Bond Issue including the Bond is administered by third parties, the Defendant is not in a position to fully investigate the matter itself and flesh out its case at this point in time. Mr Lim submits that the Defendant should be given his day in court.

31.  In my view, the Defendant’s case really boils down to this: despite lapse of 8 years since the Bond was first issued until the Plaintiff’s first demand for payment in 2021, and the issue of 3 Certificates one after another in respect of the same Bond, the Defendant does not know if Mr To/the Plaintiff had paid for the Bond. The Defendant itself had no records. And yet Mr To, T-Loft and then the Plaintiff’s names appeared one after another in the Register.

32.  These defences do not bear scrutiny.

33.  With regard to §28(1), the Defendant is self-contradictory in averring, on the one hand, that there is no evidence that Mr To had paid but, on the other, that the interest payable on the Bond from 31 January 2014 up to and including 10 September 2021 was already paid by the Defendant to Mr To, the first bondholder pursuant to Clause 4 (§13 of the Defence).

34.  Further, Mr To’s registration as a bondholder has been approved pursuant to the board resolution of the Defendant made 10 years ago and RBC was instructed to enter his name on the Register. It is incredible for such approval to be given if Mr To had not paid.

35.  With regard to §28(2), the Plaintiff may have made a bad deal or mis-interpreted Clause 4 but that does not disentitle her to payment of the principal as the bondholder. This is because Certificate No.15 was issued by the Defendant to her in these terms:

“Title to the Bonds passes only on due registration on the register of Bondholders and only the duly registered holder is entitled to payments on Bonds in respect of which this Certificate is issued.”

36.  The Defendant has admitted in the Defence that the Plaintiff is a bondholder and has entered her name in the Register. Reasons have to be provided to withdraw an admission in a pleading: Re Ng Wai Jing [2016] 2 HKLRD 1460, §§19-21. The only explanation was that the Defendant had recently undertook a detailed review of all documents in its possession. The Defendant has not withdrawn the admission.

37.  With regard to §28(3), the fact that Mr To, T-loft and the Plaintiff may be connected parties, even if true, does not prejudice the Defendant. The Defendant is only obliged to pay one bondholder, ie. the Plaintiff.

38.  With regard to §28(4), there is nothing to show that the agents were not acting properly or that the Plaintiff knew about the impropriety. What is more, while the Defendant has made enquiries with AGCCF, it is completely silent as to what enquiries it has made with AGCN (as to collection of payment from Mr To) or RBC (as to why Mr To or the Plaintiff was entered in the Register).

39.  All that the Defendant could conclude from the suspicious circumstances in §§28-29 above are but one speculation upon another.

40.  Viewed properly against the objective circumstances, the alleged suspicious circumstances are not capable of belief. I decline to give leave to defend on the first issue.

E.  Clause 4 Interest Issue

41.  For the initial term of the loan from 31 January 2014 to 10 September 2021, interest was governed by Clause 4. The parties agreed that the quantum should be HK$5,712,328.76 (ie.HK$10 million x 2,780 days / 365 days x 7.5%).

42.  The interest would have been pre-paid upfront by AGCN to Mr To, the first holder of such bonds. The Plaintiff simply does not fall within the terms of Clause 4 as a matter of interpretation.

43.  Mr Wong submits that it could not be right because the Plaintiff would not have subscribed for a bond but be deprived of interest for 8 years. The Defendant has not shown evidence of paying Mr To.

44.  With respect, the Plaintiff may have made a bad deal or misinterpreted the T&C, but there is an issue on the interpretation of Clause 4, which can be a complete defence to the claim for interest. I thus give the Defendant unconditional leave to defend on Issue 2.

F.  Conclusion

45.  In the light of the above analyses, I allow the appeal and set aside the order of the learned Master. There is no dispute as to quantum of principal and accrued interests. I order as follows:

(1)  There be judgment to the Plaintiff:

(a)  in the principal sum of HK$10 million;

(b)  HK$1,703,424.65, being interest at 7.5% per annum from 11 September 2021 to 19 December 2023 (i.e. HK$10,000,000 x 829 days / 365 days x 7.5%).

(c)  HK$892,739.72, being interest at 9.5% from 20 December 2023 to 26 November 2024 and accrues until the date of repayment (i.e. HK$10,000,000 x 343 days / 365 days x 9.5%).

(2)  There be unconditional leave to the Defendant to defend on the issue of interest from 31 January 2014 up to 10 September 2021, under Clause 4 of the T&C.

46.  Each party has won on one issue in this appeal. The 1^st issue took up more time. The costs before the Master should be 70% to the Plaintiff, 30% be in the cause. There should be no order as to costs for this appeal. I make an order nisi in terms of this paragraph.

47.  I thank Mr Wong and Mr Lim for their assistance.