CHINA GOLD FINANCE LTD v. CIL HOLDINGS LTD AND OTHERS

HCA 2900/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2900 OF 2001

BETWEEN

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REASONS FOR DECISION

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The application

1.  This application was taken out by the 1st defendant and the 3rd defendant by a summons dated 14 August 2012 on the formulation of the issues to be put to PRC legal experts for expert opinion upon considering the parties’ respective formulations as shown in the letters attached to the summons.  This application arises from my direction given in the 2^nd Case Management Conference on 25 April 2012, in which the parties had informed me that they had problem in agreeing the issues for expert opinion.  I had directed that the parties should, within 21 days from the date of the order, use the best endeavours to agree the issues between themselves, failing which, they were at liberty to take out a summons to seek the court’s further direction.  The parties had attempted to agree the issues themselves.  But they were unable to reach agreement.  This can be seen from the correspondence attached to the summons.  Master Levy had adjourned the hearing to me for hearing of one hour.

2.  Counsel S. Kwan acts for the plaintiff and Counsel M. Wong acts for the 1st defendant and the 3rd defendant.

The issues of dispute

3.  The plaintiff claimed against the 1st defendant a loan under a written Loan Agreement (the Loan Agreement) with interest and against 2nd defendant and 3rd defendant under a written personal guarantee in respect of the 1st defendant’s loan.

4.  The principal loan of HK$40,000,000 together with interest thereon amount to HK$213,898.082.58.

5.  The 1st defendant admitted that a sum of HK$40,000,000 was advanced to it, but it denied that it had made the Loan Agreement or any agreement for the loan at all.  The 3rd defendant, being the guarantor had also denied liability accordingly.  This factual issue will be determined at the trial.

6.  In the 1st defendant’s alternative pleaded defence, the 1st defendant said that all the interest under the Loan Agreement had been assigned under a written transfer agreement dated 15 September 2005 to a company called Hainan Guotai Real Estate Development Company Limited (HGRED) for the consideration of RMB 1. (the first transfer agreement)

7.  By another written agreement dated 8 December 2005 HGRED assigned the interest under the loan agreement to Guangdong Zhong Ling Technologies Company Limited (GZLT) for RMB 2. (the second transfer agreement)

8.  It was stipulated in the above written transfer agreements that they were governed by the PRC law.

9.  Finally, in May 2006, the 1st defendant and GZLT reached a settlement.^[1]

10.  The 3rd defendant runs that same line of defence as the 1st defendant’s.

11.  The 1st defendant and the 3rd defendant therefore said that the plaintiff was no longer the creditor and was not entitled to issue this action against them.

12.  In reply to the defendants’ alternative defence, the plaintiff had raised two points.  The first point was that the first transfer agreement had no effect because HGRED had failed to pay RMB 1 and, contrary to the term of the agreement, the plaintiff had never delivered the original Loan Agreement to HGRED.^[2]  The second point was that the first transfer agreement had been cancelled by consent in September 2005.^[3]

13.  From the pleadings, it seems that the main defence falls on the first transfer agreement and the second transfer agreement is irrelevant.  This is logical in view of the fact that if the first transfer agreement is effective, the plaintiff had already assigned its interest in the loan to HGRED.  It had no legal basis for its claim against the defendants.  However, in the proposed formulated issues of the plaintiff^[4], the plaintiff proposed the legal opinion to cover both the first and second transfer agreements. The defendants’ proposed issues^[5] might also cover the second transfer agreement.  This morning, I have had the assistance of Mr. Wong, who has confirmed to me that the second assignment is not relevant to the issues of disputes between the parties.  It was pleaded simply for the sake of supplying information as to what had happened after the first assignment. At the trial, the parties should bear this in mind and should refrain from introducing evidence or submissions on the second issue in order to save costs and time.

The formulation of issues by the plaintiff

14.  The plaintiff’s proposed formulation of issues for expert opinion is summarized here:

a. Whether, under the PRC law, there would be instantaneous transfer of the debt at the time when the parties entered into the first transfer agreement or whether the debt would be transferred only upon the parties therein having performed their obligations under the first transfer agreement;

b. Whether, under the PRC law, notice of transfer of debt given by the assignee of the debt (HGRED) could exonerate the 1st defendant from repaying the assignor (the plaintiff), or the notice should be given by the assignor in order to exonerate the debtor’s liability to repay the debt to the plaintiff; and

c.  Whether, under the PRC law, there would be instantaneous transfer of the debt at the time when the parties entered into the second transfer agreement or whether the debt would be transferred only upon the parties therein having performed their obligations under the second transfer agreement.

The formulation of issues by the 1st defendant and the 3rd defendant

15.  The defendants’ proposed formulation of issues is:

“Under the PRC law, whether the transfer of the subject matter and hence the right to sue for the debt under the agreements took place

(a) at the time of the respective agreement was executed OR

(b) after all contractual obligations were performed by the relevant parties and, if there had been non-performance by either party of any obligation, under PRC law whether the other party has the right to (a) sue either for (i) performance of the consideration or (ii) damages for non-performance OR

(c) rescind the agreement or otherwise reverse the transfer and thus have the right to sue for the debt again and in either event, what is the suing party required to do or not to do under the PRC law”[6]

The legal principles

16.  In order to determine the formulation of issues for expert opinion, it will be useful to see what expert evidence will be admissible by the court at trial.  In Wong Hoi Fung v. American International Assurance Company (Bermuda) Ltd. and Shrila Chan HCA4576/2001, the Hon. Madam Justice Chu (as she then was) had stated the relevant principles:

“The relevant principles

11. Modern judicial authorities recognize that the court has inherent power to rule on the admissibility of expert evidence at a pre‑trial stage: Woodford and Ackroyd v. Burgess [2000] CP report 79, Ko Chi Keung v. Lee Ping Yan Andrew [2001] 2 HKC 63 and Annabell Kin Yee Lee & Others v. Lee Wing Kim (May Lee) & Anor (unreported), HCA9522/1997. Where the proposed expert evidence is plainly inadmissible or irrelevant, the court ought to exercise its discretion to refuse the admission of such evidence. But where the court cannot form a clear view on the relevance of the proposed expert evidence or where it considers that the proposed evidence is clearly relevant, then it should grant leave for the evidence to be adduced at the trial : Ko Chi Keung v. Lee Ping Yan Andrew (supra), at p.67 and Annabell Kin Yee Lee & Others v. Lee Wing Kim (May Lee) & Anor (supra), at p.15.

12. In deciding whether certain proposed expert evidence should be received, the relevant test has been stated to be a two-stage one. Firstly, the evidence has to be admissible as “expert evidence” for the purpose of section 58 of the Evidence Ordinance, Cap.8.[7] Secondly, the evidence must be relevant, in the sense that it is helpful to the court in arriving at its decision on one or more of the issues to be resolved : Barings plc (in Liquidation) & Anor v. Coopers and Lybrand & Ors, Lexis Transcript, 9 February 2001, Evans‑Lombe J at paras.44‑45.”

17.  The second question to ask is: what are the issues of dispute that require determination at trial?  They must be sought from the pleadings.  Mr Justice Ma CJHC (as he then was) said in Wing Hang Bank Limited v Crystal Jet International Limited [2005] 2 HKLRD 795, at 799A-F:

“(1) The purpose of pleadings is fairly and precisely to inform the other side of the stance of the pleading party so that proper preparation is made possible, and time and effort are not expended unnecessarily on other issues. The passage at paragraph 18/12/1 of Hong Kong Civil Procedure 2004 Volume I sets out the rationale for proper pleadings.

(2)  In a trial, particularly where evidence is given by witnesses, it becomes extremely important that each side knows exactly what are the live issues. …”

18.  Therefore, the expert evidence must be confined to the live issues of dispute between the parties over the legal effect of the first and second transfer agreements.

Discussion

19.  Counsel Kwan submitted his copy skeleton argument in the morning of 22 September 2012 (Saturday), which was only delivered to me on 24 September 2012 (Monday).  I have to put on record that this was despite my reminder through my clerk of counsel’s obligations under Practice Direction 5.4.[8]  The service on Saturday should not be taken into account.  Mr. Kwan’s written skeleton is therefore out of time.  Mr. Kwan explained that it was because of the late delivery of Mr. Wong’s skeleton submissions that caused the delay. I would like to take this opportunity of reminding the legal representatives to observe the Practice Direction 5.4.  Although I should take into consideration of their busy schedules, I hope they should also appreciate the court’s schedules as well and the court has to read the materials, which the parties’ legal representatives have had ample time to consider already, before the hearing in order to reduce the hearing time and be able to deliver the well-considered reasons for decision as early as possible.

20.  Mr. Kwan’s argument seems to be outside the scope of the summons.  He goes back to the basic question of whether leave should be given to the parties to adduce expert evidence.  In the Case Management Conference, it seemed quite clear that the parties had agreed that expert evidence would be necessary for the determination of the legal effects of the two transfer agreements, pleaded by the 1st defendant as the defence.  The question was, at the Case Management Conference, what issues should be put to the expert for legal opinion.  Out of 29 paragraphs, Mr. Kwan has used 21 paragraphs of his written skeleton argument, supported by 6 authorities, to discuss whether leave should be granted.

21.  This morning, I have raised this issue with Mr. Kwan, who submits that he has had second thought about the matter and come to a conclusion that even though the 1st defendant has raised the defence of the first transfer agreement between the plaintiff and the assignee, the question as to the validity of the first transfer agreement should be resolved by the Hong Kong Law despite the fact that the agreement expressly provided that it is to be governed by the PRC law.  The reason for his view is that between the plaintiff and the 1st defendant, the agreement is governed by the Hong Kong Law.  Only when we have to determine between the plaintiff and the first assignee, PRC law will apply.

22.  Mr. Wong says that he has prepared for Mr. Kwan’s argument this morning.  I therefore entertain Mr. Kwan’s request to consider his new ground of objection on whether leave should be given to the parties to adduce expert evidence.

23.  Having considered the arguments between Mr. Kwan and Mr. Wong, I tend to agree with Mr. Wong that the court will have to determine the validity of the first transfer agreement, which, if it had validly transferred the debt by the plaintiff to the first assignee, the plaintiff’s claim against the defendants will fail.  The 1st defendant has raised this first transfer agreement in the defence.  The plaintiff has pleaded that the first transfer agreement had been cancelled or alternatively, had been rendered invalid for non-performance of the terms therein.  The court will have to refer to the PRC law to determine its validity at the trial.  I decide that leave should be given to the 1st defendant to adduce expert evidence.  Mr. Kwan submits that if leave is given to the 1st defendant, the same leave should also be given to the plaintiff to adduce expert evidence on PRC law.  I so order.

24.  Now we can concentrate on the scope of the expert evidence.

25.  The plaintiff’s proposed 14(a) and (c) coincide with the defendants’ proposal except that the defendants had also sought legal opinion on the possible consequences if there had been non-performance by either party of any of the obligations under the transfer agreements.  Mr. Wong only comments that the scope of the legal opinion should be enlarged to cover other consequences if there was a breach of the transfer agreements, which Mr. Kwan does not accept, relying on the ground that those consequences were not pleaded in the pleadings.

26.  As to the plaintiff’s proposal of 14(b), Mr. Wong submits that it should not be allowed because this issue of notice by the plaintiff as the assignor was not pleaded in the pleadings.

27.  As far as the plaintiff’s proposal at §14(b) is concerned, Mr. Kwan argues that the issue of notice has been sufficiently pleaded at §4.6 of the Re-amended Reply^[9]. At (v) of §4.6, it was the provision of the transfer agreement in these terms:“甲方負責在向乙方移交債權資料的同時,將債權轉讓的事實通知給債務人◦” meaning the plaintiff, as the assignor should give notice of the assignment of the debt to the 1st defendant.  The plaintiff did not give the notice, which was given by the assignee instead.  It is on this reason that Mr. Kwan argues that the notice issue has been pleaded.  But it is clear that the plaintiff had not pleaded that it relied on this ground to say that the first transfer agreement was invalid.  As such, this issue is not a live issue at trial. But even if the plaintiff had relied on this non-delivery by itself, it will be estopped by the trite “preventive principle” that the one in breach of a contract cannot take advantage of his own breach.  At §§ 96-97, the Court of Final Appeal[10] said:

“96.   On the basis of the foregoing discussion, it seems clear, based on the underlying principle that a person is not permitted to take advantage of his own wrong, that a contractual party who is in breach of an obligation owed to the other party, will be prevented from asserting rights or claiming benefits which arise in consequence of his breach.  The cases also show that where this “prevention principle” applies, it may be given effect in different ways.

97.  In many cases, it will be appropriate to implement it as a substantive principle of law that precludes the wrongdoer from taking advantage of his own wrong, whatever the contract may say and however clearly the contract may appear to confer on the wrongdoer an unqualified right to enjoy such advantages.  Cases like Rede v. Farr and the New Zealand Shipping case, may be considered examples.”

28.  For the above reasons, I find that the plaintiff’s proposal at §14(b) is not relevant for the trial and it is not necessary for legal opinion to be given on this issue.

29.  At the trial, the focus of the argument will be, given the factual circumstances, whether the first transfer agreement should be given the legal effect. The defendants’ proposed formulation will cover other possible consequences, given the facts as pleaded by the plaintiff, which will assist the trial judge to make a decision.  I tend to agree with Mr. Wong that the scope of legal opinion on PRC law should be enlarged to cover other possible consequences as proposed.

30.  I therefore hold that the proposed issues by the 1st defendant and the 3rd defendant as set out in the defendants’ solicitors’ letter dated 26 June 2012 on page 128 of the bundle should be adopted for the expert opinions to be given.

31.  As to the costs of this application and the hearing this morning, as agreed, the costs on the formulation of the issues for expert opinion be in the cause (with counsel’s certificate for today’s hearing); but the costs on whether leave should be given for expert evidence shall be given to the 1st defendant and the 3rd defendant, summarily assessed at $14,750, to be paid by the plaintiff to the 1st defendant and the 3rd defendant within 14 days from the date hereof.

32.  I shall now make an order in terms as follows:

a. Leave to the parties to call one legal expert on the PRC law on the issues as per paragraph 30 herein;

b. The parties’ expert shall exchange their expert reports within 42 days from the date hereof;

c. The parties’ experts shall within 21 days thereafter hold a without prejudice meeting between themselves and work out a joint expert report, setting out the common issues and the issues in dispute, with their respective reasons in support of their respective views;

d. Costs of this application, including the costs for this hearing be as provided in paragraph 31 herein.