BEST DYNASTY INVESTMENTS LTD v. CHAN TAK WING OSWALD AND OTHERS

HCA 3296/2016

[2019] HKCFI 1254

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3296 OF 2016

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REASONS FOR DECISION

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Introduction

1.  This was an appeal by Chan Tak Wing Oswald (“D1”), Lock See Yan Nick (“D2”) and Cheung Ching Lam Carmen (“D3”) (collectively “the Defendants”) against Master Loh’s two orders of 16 August 2018 granting (a) leave to the plaintiff to amend its Statement of Claim and Summons for summary judgment and (b) partial summary judgment against them.  However, only D3 was appealing the Master’s order in respect of the amendment of the plaintiff’s statement of claim and summons for summary judgment.

2.  The appeal related to an outstanding loan of US$2 million (“Loan”) under a loan agreement dated 3 March 2016 (in Chinese) (the “Loan Agreement”) executed by the plaintiff as lender (“Lender”), and D1–3 respectively as borrowers (“Borrowers”).

3.  D1 and D2 filed their respective Notices to Act in Person on 30 August 2018 and appeared in person at the hearing.  They conceded liability to the Loan and only disputed quantum of the amount due from them to the plaintiff.  Their appeal was therefore not proceeded with. 

4.  The plaintiff and D1 and D2 reached an agreement on the latter’s liability for the Loan during the hearing and a consent order was made in the following terms (“Consent Order”):

(a)   their appeal be dismissed with costs to be taxed if not agreed;

(b)   judgment be entered against each of D1 and D2 for HK$4,400,000;

(c)   each of D1 and D2 shall pay the said sum of HK$4,400,000 to the plaintiff on or before 3 June 2019; and

(d)   there be interest on each of said sums of HK$4,400,000 atjudgment rate, to be assessed and calculated from 3 June 2019 to be paid by D1 and D2 to the plaintiff.

5.  D3’s solicitors applied to this court for and obtained an order ceasing to act for her immediately before the hearing of the appeal.  She did not appear at the hearing of her former solicitors’ application, or the hearing of her appeal.  An order was made in her absence in respect of her appeal in the following terms:

(a)   Her appeal be dismissed;

(b)   Judgment be entered against her in the sum of HK$4,886,666 with pre-judgment interest at prime rate plus 1% from 15 December 2016 to 3 May 2019 and post-judgment interest at judgment rate from 3 May 2019 until full payment;

(c)   The costs of this action in respect of D3 including her appeal be to the plaintiff on an indemnity basis, to be taxed if not agreed.

6.  As D3 was absent at the hearing, I shall set out the background of the dispute, a brief summary of her pleaded case to the plaintiff’s claim, the evidence contained in her various affirmations in opposition to the plaintiff’s summary judgment application, and the reasons for my decision.  But before I do that it is worth to be reminded how this court should deal with her appeal.

Appeal from Master to Judge in Chambers

7.  An appeal from a Master to a Judge in chambers is dealt with by way of an actual rehearing of the application which led to the order under appeal, and that the Judge treats the matter as though it has come before him for the first time.  The Judge will give the weight it deserves to the previous decision of the Master but he is in no way bound by it.  The Judge in chambers is in no way fettered by the previous exercise of the Master’s discretion, and on appeal from the Judge in chambers, the Court of Appeal will treat the substantive discretion as that of the Judge, and not of the Master.  (Hong Kong Civil Procedure 2019, 58/1/2.)

Background

8.  The Defendants entered into the Loan Agreement with the plaintiff on 3 March 2016.  The main terms of the Loan Agreement[1] are as follows:

(a)   The Loan was for a period from 3 March to 2 September 2016 with the repayment date agreed to be 2 September 2016 [Clause 3];

(b)   The purpose of the Loan was described to be a “流動資金借款”, which in English is “liquid capital loan” [Clause 2];

(c)   Interest was agreed to be 1% per month or 12% per annum [Clause 4];

(d)   The Loan was guaranteed by three guarantors, namely Patrick Ng, Stephen Chen and Hui Yat Ming (the “Guarantors”);

(e)   D1–3’s obligation as borrowers and debtors was defined as: “按合同約定的期限內支付利息和歸還本金，金額由借款人平均攤分” [Clause 6.2], which in English is“Repayment of the principal and interest shall be made by the Borrowers in equal shares within the prescribed period”;

(f)   By way of a security for the Loan, D1–3 were required to pledge their 800,000 shares in Amarillo Biosciences Inc (a company listed in the OTC Market) to the Lender on or before 15 April 2016 [Clause 6.3];

(g)   “借款人…在下方簽字，以此證明其…接受並同意上述所提及的事項”, which in English is “The Borrowers and Guarantors confirm their agreement to the terms above by their signatures below”.

9.  The Loan of US$2 million (or HK$15.56 million) was advanced by the plaintiff to D1 by two cashier orders on 4 March 2016.

10.  From October 2016 to 12 April 2017, D1 repaid a total of HK$606,000 to the plaintiff as interest for the Loan (HK$150,000 in October 2016; HK$156,000 on 9 January 2017; two payments each of HK$150,000 on 13 April 2017 [2] ).

11.  The plaintiff issued a writ against D1–3 on 15 December 2016, and served its statement of claim on 16 March 2017 claiming HK$15,720,800, being the then outstanding balance of the Loan and interest thereon.

12.  After the issue of the Writ of Summons and the Statement of Claim, on 12 April 2017 D1 made two repayments to the plaintiff (each of HK$150,000) for part of the accrued interest of the Loan [3].

13.  The plaintiff took out an application for summary judgment (“Summary Judgment Application”) against the Defendants on 3 August 2017, claiming (a) HK$15,420,800 and (b) interest thereon at the rate of 12% per annum.

14.  Subsequently, the plaintiff amended (with leave from the Court) the Statement of Claim and Summons for the Summary Judgment Application, among other amendments, adjusting the figure of the outstanding principal down to HK$13,380,000.

15.  Subsequent to the Summary Judgment Application, D1 and D2 made three further repayments in the total sum of HK$2,180,000 to the plaintiff by three cheques (two from D1 dated 29 December 2017 for the respective sums of HK$500,000 and HK$1,000,000 and one from D2 dated 18 August 2017 for HK$680,000).

16.  Having conceded liability for the Loan and agreed with the plaintiff the amount each of D1 and D2 has to pay to the plaintiff, and in the light of the Consent Order, there is no need for me to go into detail their pleaded case and the evidence contained in their affirmations in answer to the plaintiff’s claim.  Suffice it to say that they had denied they were the ‘actual economic borrowers’ of the Loan.  They claimed that the actual borrower was Patrick Ng (“Ng”), one of the Guarantors, and the Loan wasremitted by D1 to various payees in Taiwan and the U.S. in accordance with Ng’s instructions.  They had put forward arguments in support of their contention which, again, I need not go into in view of the Consent Order.

D3’s Defence

17.  As D3 did not appear at the hearing, and judgment was entered against her for HK$4,886,666 with interest thereon and costs, I shall set out briefly below her pleaded case and evidence in her affirmations in response to the plaintiff’s claim.

18.  While D1 and D2 took the same position in their initial defence and their subsequent agreement with the plaintiff, D3 distanced herself from D1 and D2 and the position taken by them.

19.  The gist of her Defence is as follows:

(a)   The Loan was not a loan but an investment into a yet to be formed company called Amarillo Biosciences (Hong Kong) Limited [4] ;

(b)   Despite Clause 6.1 of the Loan Agreement that she could use the Loan within the period and for the purposes provided, she had never received or been paid with the Loan or any part thereof [5] ;

(c)   There was a total failure of consideration between her and the plaintiff [6] ;

(d)   Clause 3 of the Loan Agreement regarding evidence of the advance of the Loan to D1 did not necessarily mean she had given authorization to D1, express or implied, to receive the Loan on her behalf [7] ;

(e)   The repayments of HK$150,000 and HK$156,000 were not made by her, that she had never paid any interest to the plaintiff,and there is no acquiescence or admission of liability for the repayment on her part [8] ;

(f)   Even though she drew a cheque on her account in favour of the plaintiff on 5 June 2018 for HK$3,800,000 for the purpose of settlement with the plaintiff, that was in anticipation of funding from Ng, which did not materialize, and she had no intention of settling the plaintiff’s claim with her own money [9] ;

(g)   Even if she is liable for the amount claimed by the plaintiff,which she denies, her liability should be shared among the Defendants in accordance with Clause 6.2 of the Loan Agreement, namely in equal shares[10].

20.  In her evidence filed in opposition to the plaintiff’s Summary Judgment Application, she claimed, among other things, that:

(a)   She came to live in Hong Kong from Suzhou PRC when she was 1 year old. She grew up in Hong Kong and received her tertiary education in Canada.  She started her business when she returned to Hong Kong in about 1989 and had been engaged in a wide range of business such as spa, facial services and boutiques;

(b)   She had no knowledge of any of the dealings which D1 and D2 had with the plaintiff;

(c)   She came to know D1 and D2 in 2005, and in August 2015, she became acquainted with one of the Guarantors, Dannis Hui, through the introduction of D1 and D2;

(d)   Prior to the Loan Agreement, she did not know any of the people from the plaintiff (including Madam Yuan Hui, a deponent of the plaintiff’s affirmations in support of its Summary Judgment Application);

(e)   D1 asked her to sign the Loan Agreement when she was drinking and singing with D1 and D2 in a karaoke;

f)   D1 made a number of representations to her, including the following:

(i)   The Loan would be for ‘operating capital’ from the family company of Gavin Chen from the plaintiff;

(ii)   A new company would be set up in Hong Kong and shares from the new company would be allotted to Gavin Chen’s family company;

(iii)   D1 would be responsible for repayment of the Loan to Gavin Chen’s family company;

(iv)   She would not be liable even by signing the Loan Agreement as it was signed as a record that the advancement was made as the intended Hong Kong company had not been formed;

(v)   D3 took it that D1 was making the above representations to her on his own and also the plaintiff’sbehalf;

(vi)   As she was slightly intoxicated and the place was dark,relying on D1’s representation, she signed the Loan Agreement without reading the Loan Agreement closely.

21.  She claimed that given she did not plead D1’s representations in her Defence, she would have to amend her Defence.

22.  In so far as her claim that she believed D1 made the representations on his own and the plaintiff’s behalf, even in her own case, she said she had not met Gavin Chen until after she had signed the Loan Agreement.

23.  Mr Chan, counsel for the plaintiff, relied on a number of authorities regarding the position of a debtor who approached a surety as required by his bank to obtain security for loan facilities to rebut D3’s agency argument.  The court held in these cases that the debtor’s approach to the surety did not mean that he was acting as agent of the bank.  (See Bank of China (Hong Kong) Ltd v Tsang Sheung Bun [2013] 5 HKLRD 62, para 4, per Kwan JA (as she then was); Bank of China (Hong Kong) Ltd v Wong King Sing [2002] 1 HKLRD 358, para 63, per Mr Recorder Geoffrey Ma SC (as he then was); Barclays Bank Plc v O’Brien [1994] 1 AC 180, pp 193G – 194B.)

24.  D3 did not provide any evidence to show that D1 was acting as the plaintiff’s agent.  She of course did not attend the hearing of the appeal to make good her argument. 

25.  She also challenged Master Loh’s decision to grant leave to the plaintiff to amend its Statement of Claim and summons for the Summary Judgment Application which had the effect of reducing the principal amount of the Loan.

26.  As D3 chose not to appear at the hearing, her appeal was dismissed.

How the Judgment against D3 was arrived at

27.  In the absence of D3, Mr Chan took the latest amount of HK$15,560,000 claimed in the Amended Statement of Claim[11] as the starting point in calculating D3’s liability for the outstanding Loan.  He divided the amount by three in accordance with Clause 6.2 of the Loan Agreement, namely that the Defendants are liable for the Loan in equal shares.  The plaintiff had of course agreed with D1 and D2 on the respective shares of their liability which were incorporated into the Consent Order.

28.  Despite D3’s claim that none of the repayments by D1 and D2were from her, and her statement in her own evidence that she wouldnot use her own money to repay the plaintiff [12], Mr Chan said the plaintiffwould make a concession and attribute HK$300,000 of the repayments madeby D1 and D2 to her as if it was her contribution so that her liability for hershare of the principal sum of the outstanding Loan will be HK$4,886,666 (“Judgment Debt”) which is calculated as follows:

(a)   HK$15,560,000 ÷ 3 = HK$5,186,666

(b)   HK$5,186,666 – HK$300,000 = HK$4,886,666

29.  The plaintiff also claimed pre-judgment interest on the Judgment Debt at 1% above prime rate from 15 December 2016, being the date of the writ, until 2 May 2019, and post-judgment interest at judgment rate from 2 May 2019 until payment.

Costs

30.  Mr Chan sought costs against D3 on an indemnity basis.  He submitted that the chronological history of the litigation and the way in which D3 had conducted the litigation should be considered and deplored by the court.  Such conduct includes her vehement resistance of the Summary Judgment Application in respect of a commercial deal, her serious allegations against D1 and Ng which were not made good.  He further submitted that D3 was a cunning debt dodger.  I said at the hearing the court would make an indemnity costs order if the conduct of the party against whom such an order was sought constituted an affront to the court: 

“ 5. Costs are in the discretion of the court. Such discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be appropriate: Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114, at §§16 & 17.

6. In KJ v KMLM [2014] HKFLR 227 at §§21 – 23, To J expounded a practical way for deciding if indemnity costs should be ordered for hostile litigation:

(1) The starting point in hostile litigation is that costs should be taxed on party and party basis. To qualify for costs on indemnity basis, the successful party should show some special or unusual feature in the case. The proceedings must be instituted or prosecuted in circumstances as to constitute an affront to the court. Usually there must be something disgraceful in the conduct of the losing party or his legal representatives such as to cause the court to feel a proper sense of indignation: at §21.

(2) If unreasonable conduct is relied on, the losing party’s conduct would need to be unreasonable to a high degree. In this context, ‘unreasonableness’ does not mean merely wrong or misguided in hindsight. Advancing a case which is difficult, unlikely to succeed or which in fact fails, or without any foundation in law or fact, or devoid of merits, is not necessarily in itself a sufficient reason for an award of indemnity costs: at §22.

(3) The court’s finding that the claim or ground of defence is plainly and obviously incredible on the fact, or that the evidence has been deliberately untruthful will not necessarily in itself warrant an order for indemnity costs. The conduct of the losing party must be of a more venalkind and the conduct of the litigation has in some sense been wicked: at §22.

(4)   The court may also mark its disapproval of the conduct pertaining to part only of a party’s case by ordering costs of that part only to be assessed on an indemnity basis, with the rest assessed on party-and-party basis: at §23.”

(Choi Lisa Mei Yin v Yau Pak Kin [2019] HKCFI 854 (HCA 3/2012, 1 April 2019) per Au Yeung J.)

31.  Having considered Mr Chan’s submissions and D3’s overall conduct of the litigation, and her absence from the hearing today, I was satisfied that an indemnity costs order should be made.