CHOW TAI FOOK NOMINEE LTD v. GATEWAY ASIA RESOURCES LTD AND ANOTHER

CACV 493, 494 & 495/2021
(Heard together)

[2022] HKCA 1060

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 493 OF 2021

(ON APPEAL FROM HCA NO. 85/2020)

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 494 OF 2021

(ON APPEAL FROM HCA NO. 86/2020)

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 495 OF 2021

(ON APPEAL FROM HCA NO. 92/2020)

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(Heard together)

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D E C I S I O N

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Hon Cheung JA (giving the Decision of the Court) :

I. Introduction

1.  There are three identical applications by the 2^nd defendant in the three appeals for leave to adduce new evidence in the three appeals. The applications are opposed by the plaintiff in CACV 493/2021 and CACV 494/2021, Chow Tai Fook Nominee Limited (‘CTFN’) and the plaintiff in CACV 495/2021, Idea Perfect Holdings Limited (‘IPH’). The 1^st defendant in CACV 493/2021, Diamond City Limited (‘Diamond City’), and the 1^st defendant in CACV 494/2021 and CACV 495/2021, Gateway Asia Resources Limited (‘Gateway Asia’), adopt a neutral position.

II.  Background

2.  Diamond City and Gateway Asia are companies owned by the 2^nd defendant. Briefly stated, for the purpose of financing a joint venture exercise with Chow Tai Fook Enterprise Limited (‘CTFE’) to purchase the assets of Sino‑Forest Corporation (‘Sino‑Forest’), Gateway Asia and Diamond City entered into two loan agreements in October 2015 and June 2016 respectively (i.e. the Gateway Asia Loan Agreement, and the Diamond City Facility Agreement) with CTFN. The 2^nd defendant executed two guarantees as well as a share mortgage and a share charge charging respectively the share capital of Gateway Asia and Diamond City as securities for the repayment.

3.  In April 2016, IPH extended a short-term bridging loan to Gateway Asia under a loan agreement (i.e. the IPH Loan Agreement) secured by guarantees executed by the 2^nd defendant and the 3^rd defendant in CACV 495/2021 (‘AC’).

4.  Diamond City and Gateway Asia failed to make any repayment under the Diamond City and Gateway Asia Loan Agreements, while Gateway Asia only partially repaid the loan under the IPH Loan Agreement. CTFN and IPH commenced the three actions below to recover the loans.

5.  The 2^nd defendant’s defence is that in 2014 he orally agreed with Dr. Cheng, a director of CTFN and CTFI, about the acquisition of the assets of Sino‑Forest with a view to re‑selling them for profit. Both his side and Dr. Cheng’s side would cause funds to be injected for the acquisition, and the funds were not intended to be repaid until the acquired assets were disposed of (‘Alleged Initial Investment Agreement’). Further, at the time of executing the Gateway Asia Loan Agreement, the Diamond City Facility Agreement and the IPH Loan Agreement, there was a common understanding and/or an assumed state of affairs between him and Dr. Cheng and Mr. Chong that the loans from CTFN were not repayable until after the completion of the Alleged Initial Investment Agreement, i.e. the sale of the Sino‑Forest assets so acquired (‘Alleged Common Understanding’).

6.  The 2^nd defendant also claimed that in July 2019, IPH, through Mr. Chong, offered or represented that, notwithstanding the express provisions in the IPH Loan Agreement, the debt needed not be repaid until the conclusion of the negotiation on the acquisition by China Forestry Group Corporation of the Sino‑Forest assets. Mr. Chong further relayed a similar offer or representation from Dr. Cheng in relation to the loans from CTFN. It is the 2^nd defendant’s case that the offers of IHP and CTFN had been accepted (‘Alleged CTFN/DC Variations’). Accordingly, he contended, CTFN and IPH were in breach by declaring an event of default under the loan agreements, and they were further estopped from declaring an event of default under the loan agreements. A counterclaim was raised by him against IPH.

III.  The judgment

7.  In the three actions below, Wilson Chan J (‘the Judge’) ordered :

1)  Summary judgment be entered against the defendants;

2)  The 2^nd defendant’s counterclaim against IPH be struck out;

3)  The costs of and incidental to the actions to be paid by the defendants on indemnity basis, to be taxed if not agreed with certificate for two counsel.

8.  In his determination, the Judge had considered, amongst other things, the lack of contemporaneous documents which supported the 2^nd defendant’s case and also the evidence which contradicted his case such as his acknowledgement to CTFN that the CTFN loans were ‘due’ and his proposal for its settlement. He found the 2^nd defendant’s case to be unbelievable.

IV.  The new evidence

9.  The 2^nd defendant now seeks leave to adduce new evidence in these appeals in the form of his affirmation dated 25 February 2022 together with the exhibits thereto. He intends to adduce two categories of documents.

10.  Category I. In support of the 2^nd defendant’s case that the parties had a common understanding that the loans were not to be repaid until the sale of Sino‑Forest assets, the proposed new evidence consists of the calendar on the 2^nd defendant’s phone showing an entry of a meeting between the 2^nd defendant, AC and Dr. Cheng and Mr. Chong on 29 February 2016, and the powerpoint slides outlining a plan prepared by the 2^nd defendant for the meeting, which demonstrated that the original proposed financing arrangement between Dr. Cheng’s side and the 2^nd defendant’s side involved collaterals from the 2^nd defendant’s side in the sum of US$100 million. The 2^nd defendant said that since Dr. Cheng was so confident about the project, and he truly considered the profits gained from the project must be much greater than the value of the loans, he eventually abandoned the requirement of collaterals and merely required the 2^nd defendant to be a guarantor and sign a Deed of Guarantee and to be a charger to sign a Deed of Share Charge and a Deed of Share Mortgage. Dr. Cheng also inserted Clause 2.2 into the Facility Agreement to restrict the use of US$57.5 million to ‘Acquisition’ purpose, i.e., for the project. The 2^nd defendant submitted that the act of dispensing with the proposed collaterals clearly supported the promise by Dr. Cheng that he would finance the 2^nd defendant and his companies to acquire the assets of Sino‑Forest by way of loans and their common understanding that the loans were not repayable until the acquired assets of Sino‑Forest were successfully sold to other buyers.

11.  Category II. The 2^nd defendant said that Diamond City has a 25% shareholding in New Plantations Limited (‘New Plantations’), which is one of the newly established joint venture companies. New Plantations owes shareholder’s loan to its shareholders. As a result, Diamond City is entitled to repayment of the shareholder’s loan by New Plantations as per its shareholding, which has been outstanding for a significant period. The 2^nd defendant submitted that the non‑payment of the shareholder loan enhanced the likelihood of the existence of the common understanding and/or the assumed state of affairs between him and Dr. Cheng and Mr. Chong. The new evidence that he seeks to adduce are two professional accounting reports of New Plantations for the financial years 2016 and 2017, one signed by the accountancy firm, and the other is an unsigned draft.

V.  Our view

12.  There is no dispute that the 2^nd defendant must satisfy all the three conditions in Ladd v Marshall before the Court will exercise its discretion to allow him to adduce the new evidence.

1)  The first condition : Evidence could have been obtained with reasonable diligence

13.  The 2^nd defendant admitted that the new documents were available at the time of the hearing before the Judge. In respect of Category I documents, he explained that it was because he was ‘completely unaware of (the documents’) existence’, and the focus of his former counsel was different from that of his current counsel that the new evidence was not disclosed until now.

14.  As for Category II documents, again, it was because the focus of his former counsel was different that the new evidence was not disclosed in the summary judgment applications below.

15.  We are of the view that the first condition is not satisfied. The 2^nd defendant did not explain why he had not previously looked into his old computer files for the Category I documents other than stating that he was ‘completely unaware’ of these documents. He had ample time to respond to the summary judgment applications and to prepare the affirmation evidence, and it only took him in the end three weeks to find the new evidence in his old computer. We agree with the plaintiffs that if the new evidence relates directly to the 2^nd defendant’s case that there was a common understanding and hence a positive case of promissory estoppel, it is highly unlikely that it would have escaped his mind to look for these documents. His explanation is unpersuasive and not convincing. In any event, on the 2^nd defendant’s own case, it is not that the new documents could not have been obtained even with reasonable diligence, given that he has always had them.

2)  The second condition : The new evidence has important influence on the outcome of the case

16.  The 2^nd defendant submitted that the Category I documents, namely his phone calendar and the powerpoint slides that he prepared for the meeting with Dr. Cheng, showed that the proceeds of sale of Sino‑Forest assets would be used for the repayment of the loans. He emphasised that the statement (in Chinese) in the slides, namely ‘收回投資/借款’ and the draft terms of the shareholders’ agreement for setting up New Plantations included in the slides, namely ‘以項目套現的分成還款’, showed that the intention was to raise the market value of the new company and sell it in two to three years’ time, and to use the proceeds to repay the loans. He suggested that the statements used supported a promise that the plaintiffs would ‘only’ recover the loans after the Sino‑Forest assets had been realized. He believes that the evidence supports his case on promissory estoppel. He also suggested that the Category II documents, the two financial statements of New Plantations for 2016 and 2017, support his contention about the shareholders’ loans taken out by New Plantations. The loans are unsecured, interest‑free with no repayment term fixed. It is said that the fact that there is no due date for the repayment is consistent with the Alleged Initial Investment Agreement and the Alleged Common Understanding that the loans were not to be repaid until after the sale of the Sino‑Forest assets.

17.  We are not satisfied that the second condition is satisfied for the following reasons advanced by Mr. Ho SC (together with Mr. Phang) for the plaintiffs in CACV 493/2021 and CACV 494/2021 :

(1)  The Judge found that even if the Alleged Initial Investment Agreement or the Alleged Common Understanding existed, it would have been superseded by the terms of the loan agreements actually agreed upon by the parties and cannot give rise to any enforceable rights or obligations. The actual agreed terms stipulate a definite maturity date on which the CTFN loans would become due, and the parties had negotiated and agreed to extend the Gateway Asia Loan upon the 2^nd defendant’s provision of additional security. Further, IPH advanced a short‑term bridging loan repayable within three months to Gateway Asia through the IPH Loan Agreement. The 2^nd defendant and AC acted as guarantors of Gateway Asia’s repayment obligations. The maturity date under the IPH Loan Agreement was actually extended seven times by seven detailed, professionally drafted supplemental loan agreements, with the 2^nd defendant and AC signing corresponding deeds of confirmations to confirm their guarantees remain in full force. The new documents would have no important influence on the outcome of the case bearing in mind what the Judge had considered in finding against the 2^nd defendant.

(2)  The new documents are, in any event, not probative of the existence of the Alleged Initial Investment Agreement or the Alleged Common Understanding :

(i)  In respect of the Category I documents, the statements relied upon by the 2^nd defendant are just general statements of the investment objective and draft terms of a proposed shareholders’ agreement to be discussed between the parties which had not been agreed by and are not binding on the parties. As such, the Category I documents are plainly not evidence that Dr. Cheng had agreed that the CTFN Loans did not have to be repaid until the sale of the acquired assets.

(ii)  As for the Category II documents, the mere fact that New Plantations recorded a shareholders’ loan in its books and that the loan has no fixed repayment term does not, without more, enable an inference to be properly drawn that this is because of the existence of the Alleged Initial Investment Agreement and/or the Alleged Common Understanding.

(iii)  In view of the Judge’s finding that the contemporaneous documents ‘overwhelmingly contradict (the 2^nd defendant’s) assertions’, it is highly unlikely that he would have come to a different view even if the new documents were also placed before him.

3)  The third condition of Ladd : The new evidence must be credible

18.  The 2^nd defendant argued that the proposed new evidence were all contemporaneous documents and are credible. He stated that the Category I documents can show the meeting did take place and the intention of the financing arrangements. As for the Category II documents, one of the professional accountant reports was signed by the accountants. The other unsigned version is supported by a letter of representation.

19.  By reason of our views on the first and second conditions above, it is not necessary for us to decide on this.

VI.  Conclusion

20.  For the above reasons, the Ladd v Marshal requirements are not met. We therefore decline to admit the new evidence in the appeal and dismiss the application.

VII. Costs

21.  The costs of these applications are to be paid by the 2^nd defendant to the plaintiffs with certificate for two counsel. IPH has asked for the costs to be assessed on indemnity basis. The 2^nd defendant has not made submissions to oppose indemnity costs. In the Court below, the Judge had awarded costs to CTFN and IPH on indemnity basis having regard to the express provisions in the loan agreements. We consider the costs of these applications should also be on indemnity basis.

22.  CTFN has filed a statement of costs for summary assessment. The applications do not involve voluminous papers, complicated issues of fact or difficult questions of law and fact. Although the costs are assessed on indemnity basis, the number of fee earners involved in the work under items C1 and C4 (attendance on client and counsel), and D1 and D2 (preparation and perusal of documents) and the time claimed are excessive. Taking a broad-brush approach, we assess CTFN’s costs at $350,000.

23.  We also direct that IPH files and serves its statement of costs for summary assessment within seven days, and the 2^nd defendant may file and serve its statement of opposition (if any) within seven days thereafter.

CACV 493/2021

CACV 494/2021

CACV 495/2021