MINMETALS, INC v. YU WING KEUNG DICKY

HCA 1219/2019

[2023] HKCFI 3224

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1219 OF 2019

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J U D G M E N T

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Introduction

1.  In this action, the Plaintiff (“P”) claims against the Defendant (“D”) on the basis of a deed of guarantee dated 4 February 2017 (the “Guarantee”) entered into between P and D in connection with the settlement of a legal action commenced by P against Novo Commodities Limited (“Novo HK”) (i.e. HCA 721/2016) (“2016 Action”).

2.  The witnesses who gave evidence at trial are:

a.  Mr Miao for P; and

b.  Mr Yu, D.

3.  Essentially, the parties’ cases are as follows:

a.  P claims under the Guarantee. P acknowledges that D made some payments, but claims that most of them were paid to discharge another debt of Novo HK which had to be paid prior to the guaranteed debt.

b.  D claims that he left Novo HK before providing the Guarantee, and all payments he made were under the Guarantee, notwithstanding the guaranteed debt was not yet due.

c.  D also claims that he should receive credit for:

i.  a payment of US$800,000 which P claims never to have received; and

ii.  2 payments totaling US$191,000 made by Mark Chow, which D claims were made on his behalf.

Approach to witness evidence

4.  I adopt the summary given by DHCJ Eugene Fung SC in Hui Cheung Fai v Daiwa Development Limited, unrep., HCA 1734/2009 (8 April 2014) at paras. 77-81:

a.  Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

b.  In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

c.  In determining a witness’ credibility, the Court shall attach importance to the consistency of the witness’ evidence with undisputed or indisputable evidence and the internal consistency of the witness’ evidence;

d.  The internal consistency of the witness’ evidence is often tested by a comparison between the witness’ oral testimony and his or her witness statement;

e.  Apart from making reference to objective facts proved independently of their testimony and objective documents, reference shall also be made to the parties’ motives and overall probabilities.

5.  It is permissible for the Court to draw adverse inferences where a person without explanation fails to call as a witness a person who might reasonably be expected to give direct evidence on the matters in question. There must be a case to answer on an issue before the court is entitled to draw such an inference. However, if the absence of a witness can be credibly explained, even if not entirely justified, the potentially detrimental effect of his silence may be reduced or nullified. See Pacific Electric Wire & Cable Company Limited v Texan Management Limited, unrep., CACV 90-91, 93-96/2012 (17 September 2013) at paras. 106-107.

Undisputed facts

6.  Novo HK operated a steel trading business. Novo HK was at all material times a wholly-owned subsidiary of Novo Group Limited (“NGL”), and along with other subsidiaries was part of the Novo Group. The Novo Group was established in about 2005 and was owned, through corporate vehicle New Page Investments Limited (“New Page”), 70% by D and 30% by Mark Chow. In around 2008, NGL was listed on the Singapore Stock Exchange, and in 2010 it was listed in Hong Kong. D held the position of Executive Chairman and Executive Director of NGL, and Executive Director of Novo HK. Mark Chow was the Chief Executive Officer of the Novo Group. Mr Chow and D had been close friends and business partners whilst working together.

7.  By a sale and purchase agreement dated 14 August 2015, New Page, D and Mark Chow sold their shares in NGL to Golden Star Group Limited (“Golden Star”), a company owned and controlled by a third-party investor, Mr. Zhu Jun (“Mr. Zhu”) for a consideration of HK$352 million odd (“the SPA”).

8.  It was agreed that part of the consideration would be held in escrow to facilitate the release and discharge of guarantees of banking facilities, and that once such facilities were discharged that amount would become a loan owed by NGL  to New Page (“Escrow and Loan Arrangement”). After discharge of the relevant banking facility guarantees, New Page accordingly became a substantial creditor of NGL.

9.  The sale to Golden Star was completed on 5 October 2015. D resigned as director of the Novo companies including Novo HK by November 2015. Mr. Chow stayed in the Novo Group as the Group CEO and a director until around January 2018.

10.  In about 2016, D set up a new business venture in steel trading called Novostal Limited of which he was the 100% owner (“Novostal”).

11.  On 18 March 2016, P commenced the 2016 Action against Novo HK for the sum of US$10,940,000.

12.  On 26 August 2016, the Novo Group assigned receivables in the amount of US$12,600,521 (equivalent to approx. HK$98 million) to New Page, to be set off against the loans by New Page to the Novo Group between November 2015 and May 2016 totalling HK$230 million.

13.  With respect to the 2016 Action, a mediation session was held attended by Mr Jing and Mr Miao of P, and Mr Chow and D[1]. No final settlement terms were reached at the mediation, although there was an agreement to settle.

14.  By a deed of settlement dated 4 February 2017, Novo HK agreed to pay and P agreed to accept US$10,940,000 (“the Settlement Sum”), in full and final settlement of the 2016 Action (“the Settlement Deed”). The terms of settlement included:

a.  At Clause 1, approximately US$4,117,336.49 was acknowledged as paid to P prior to the signing of the Settlement Deed;

b.  At Clause 2:

“2.1 Novo HK shall pay [P] the sum of US$1,382,663.51 as partial payment of the Settlement Sum on or before 1 March 2017 [(“the Clause 2.1 Liability”)[2]];

2.2  Novo HK shall pay [P] the remaining principal settlement sum of US$5,440,000.00 (the “Remaining Principal Settlement Sum”) divided into instalments as follows:

i.  US$1,800,000.00 to be paid by two equal half-yearly instalments on or before 30 June 2017 and 31 December 2017 respectively;

ii.  US$1,800,000.00 to be paid by two equal half-yearly instalments on or before 30 June 2018 and 31 December 2018 respectively;

iii.  US$1,840,000.00 to be paid by two equal half-yearly instalments on or before 30 June 2019 and 31 December 2019 respectively.” (“the Clause 2.2 Liability”)

c.  At Clause 3:

“Stay of proceedings.

The Parties hereby consent to, and shall take all necessary steps, to obtain an Order in substantially the form of the draft Order in Annex A, upon [P’s] receipt of US$1,382,663.51 pursuant to Clause 2.1 of this Deed.”

d.  Annex A contained a draft consent order for staying the 2016 Action upon the terms of the Settlement Deed.

15.  Also on 4 February 2017, in order to secure Novo HK’s performance under Clause 2.2 of the Settlement Deed, D provided the Guarantee to P; and Mark Chow and his wife, and Nathan Ji (the general manager of Novo HK), provided P with mortgages over their properties. The 2 properties had insufficient value to cover the US$5.44 million so D was asked to provide a guarantee limited to US$2.2 million.

16.  The Guarantee provides:

a.  At the recital titled “Background”, that P and Novo HK had entered the Settlement Deed; that the Remaining Principal Settlement Sum should be paid by Novo HK to P by 31 December 2019; and that D had agreed to guarantee the performance by Novo HK of the Guaranteed Liabilities.

b.  At Clause 1.1:

“‘Guaranteed Liabilities’ means the Remaining Principal Settlement Sum up to US$2,200,000… subject to the limit and condition as stated in Clauses 3.1 and 3.2 of this Guarantee”

c.  At Clause 2:

“2.1 [D] hereby irrevocably, absolutely and unconditionally:

2.1.1 as principal obligor guarantees to [P] the due and punctual payment, performance and observance by Novo HK of the Guaranteed Liabilities up to US$2,200,000…;

2.1.2 undertakes with [P] that whenever Novo HK does not pay any Guaranteed Liabilities in accordance with the terms of the Settlement Deed, [D] shall immediately on demand by [P] pay that amount as if [D] instead of Novo HK were expressed to be the principal obligor;

  …”

d.  At Clause 3:

“Limit on Guaranteed liabilities

3.1  [D’s] obligations for the Guaranteed Liabilities are limited to the sum of up to US$2,200,000…”

3.2  For any partial settlement of Remaining Principal Settlement Sum shall be paid by Novo HK to [P] on or before 31 December 2019 in the manners as stipulate in the Settlement Deed, such partial settlement amount will reduce [D’s] obligations for the same amount simultaneously. Subject to Clause 4 (Reinstatement) of this Guarantee, once the settlement amount has been paid up to US$2,200,000… [D’s] obligations under this Guarantee will be discharged in full and thus this Guarantee shall be null and void. ”

17.  D accepted that he had read the Settlement Deed before he signed the Guarantee, and he was aware of the distinction between the Clause 2.1 and 2.2 Liabilities.

18.  On 27 February 2017, Samuel Ma (head of operations of NGL[3]) sent an email to Mr Jing and Mr Miao of P, which was copied to Mark Chow and D, amongst others. The email stated that Novo HK was due to repay P US$1,382,663.51 by 1 March 2017; that Novo HK would only be able to pay US$470,000 which was short about US$910,000; and asked for an extension of time until 15 April 20017 to make payment.[4]

19.  It is undisputed that from shortly after the execution of the settlement documentation, Mr Miao made phone calls to D requesting payment.

20.  In February 2017, the Novo Group paid P RMB 3.2 million (equivalent to US$464,960.84).

21.  In March 2017, the Novo Group made 3 payments to P totaling RMB 842.465 odd (equivalent to US$122,089 odd).

22.  P then received the following payments from D and Mark Chow totaling US$671,000 as follows:

a.  US$ 200,000 on or about 22 March 2017 from D (“Payment 1”);

b.  US$ 140,000 on 30 March 2017 from D (“Payment 2”);

c.  US$ 140,000 on 3 April 2017 from D (“Payment 3”);

d.  US$ 100,000 on 6 April 2017 from Mark Chow (“Payment 4”);

e.  US$ 91,000 on 7 April 2017 from Mark Chow (“Payment 5”).

23.  These 5 payments, on top of the monies paid by the Novo Group, brought the position of repayment to P close to the position promised by Samuel Ma’s email to be achieved by 15 April 2017. Once 2 debit notes were set-off, that gave a credit to the Novo Group of  US$24,869.52, bringing the position by the end of April 2017 of a repayment to P of US$1,382,919.94, which was slightly more than was owed under Clause 2.1 of the Settlement Deed.

24.  On 27 April 2017, NGL (under its new name Yorkshine Holdings Limited) issued a public announcement stating that the 2016 Action had been stayed by court order; that as at the date of announcement, Novo HK had paid P US$5.5 million under the Settlement Deed and that the remaining US$5.44 million would be paid in 6 half-yearly instalments. Mr Zhu and Mark Chow are listed as members of the board of NGL at the time of the announcement.

25.  On 26 June 2017, Novostal paid US$800,000 to Novo HK[5].

26.  By an email dated 5 July 2017, Mark Chow of Novo HK informed P that Novo HK was unable to pay the US$900,000 which was due on 30 June 2017; that Novo HK had used best endeavours to raise US$5.5 million by the end of April 2017; that the difficulties were short-term and that it was requested that the payment required by Clause 2.2(i) of the Settlement Deed (i.e. US$900,000) be postponed by a year to 30 June 2018.[6]

27.  Further payments were made to P in 2018:

a.  US$250,000 on 29 March 2018 by Mark Chow[7];

b.  US$150,000 on 20 June 2018 by Mark Chow[8];

c.  US$400,000 on 21 June 2018 by Novostal.

28.  On 20 June 2018, Samuel Ma of NGL sent D a photo of the remittance of US$400,000 by Novostal to P, and stated if there was no other issue, he would forward it to Mr Miao. D responded “send asap”. Mr Ma replied that Mark Chow already remitted US$150,000 and that he had already informed Mr Miao through WeChat[9].

29.  The following messages were then sent between Mr Miao and Samuel Ma; and Samuel Ma screen-captured and sent the messages to D[10].

a.  On Friday 29 June 2018, Mr Miao messaged Samuel Ma to chase the US$550,000 due at the end of June, requesting it be paid that day.

b.  On the same day, Mr Ma replied to Mr Miao that D was on a business trip and was arranging payment, stating it might be a few days’ late, stating that part of the payment may be in RMB and asking for the RMB account details.

c.  Mr Miao replied later that day to say this was not possible, it was agreed to pay 30 days in advance, they had reported to the same to the internal regulatory department of the group.

d.  On 2 July, Mr Miao informed Mr Ma  that the legal department had come to ask them; asking for immediate payment;

e.  On 2 July, D asked Mr Ma for the RMB account details.

f.  Later that day, Samuel Ma sent D Mr Miao’s message setting out the RMB account details.

g.  On 3 July, D messaged to Mr Ma “noted”.

30.  On 5 July 2018, RMB 2 million (equivalent to US$302,206.10) was paid to P by D.

31.  By this time there was approx. US$1.9 million odd outstanding between Novo HK and P (namely US$100,000 from the June 2017 instalment, and 2 further instalments due by end of June 2018 of US$1.8 million).

32.  In a message dated 19 to 20 July 2018, Mr Miao of P asked Mr Samuel Ma to inform D, Mr Chow and Mr Ji:

a.  There was a precedent  of not paying on time since the Settlement Deed;

b.  They had promised to pay US$1.35 million by the end of June 2018, but were now again delaying payment;

c.  Requesting immediate compliance with the payment obligation of the first half of the year.

33.  D made further payment to P of US$ 250,000 on 25 July 2018.

34.  In a WeChat group which included Mr Jing, D, Mr Chow and a Jeff Wong (also of Novo Group):

a.  On 27 November 2018, Mr Jing referred to the second instalment payment of the year, stated P’s concern about payment, and asked for payment to be made by mid-December.

b.  On 18 December 2018, Mr Jing stated that after communication with headquarters, if payment could be made of US$350,000[11] by 25 December, Mr Jing would be able to explain, his personal situation would not be affected, and things would not go out of control.

c.  Mr Jing chased for replies twice more on 18 December, and again on 26 December 2018.

35.  US$100,000 was paid to P on 28 December 2018 by Mark Chow[12].

36.  As at 28 December 2018, payments to P since the stay of the 2016 Action totaled US$1,452,206.10, so that was approx. US$348,000 short of the US$1.8 million due by the end of 2018.

37.  On 5 June 2019, P’s solicitors sent a letter of demand to D stating that the outstanding liability of Novo HK under Clauses 2.2 and 2.3 of the Settlement Deed was US$2,147,537.47 and interest; and requiring D to pay that amount plus interest under the Guarantee.

38.  This action was started by writ dated 8 July 2019.

The issues

39.  P claims that, making allowance for the 2018 payments, the amount outstanding under the Guarantee is US$747,537.47. However, D claims that he has fully discharged his liability under the Guarantee.

40.  The issues at trial are:

a.  What was the purpose of Payments 1 to 5;

b.  Whether Payments 4 to 5 were paid by Mark Chow on behalf of D;

c.  Whether US$ 800,000 which D paid to Novo HK on 26 June 2017 was paid to P (“US$ 800,000 Payment”).

41.  I will take those issues in reverse order.

42.  I will say at the outset that there is an extraordinary dearth of relevant contemporaneous documents before the Court.

Was the US$800,000 Payment paid to P?

43.  The single relevant banking document is a DBS transaction report of a payment made by Novostal to Novo HK of US$800,000 on 26 June 2017. There is no doubt that that payment was made. There is no contemporaneous document shedding light on the reason for such payment to Novo HK.

44.  D’s evidence is that:

a.  In around June 2017, either Mr Miao or Mr Jing called to say Mr Zhu was playing games with them, and asked D to pay US$900,000 via Novo HK. That would be in respect of the first instalment of the RPSS due on 30 June 2017. They said if the money was routed via Novo HK that would indicate to Mr Jing and Mr Miao’s superiors that Novo HK was performing. They said that this along with the US$671,000 already paid would go towards D’s maximum US$2.2 million liability.

b.  D did not have enough cash available at that time and procured Novostal to pay US$800,000 to Novo HK on 26 June 2017 and  “instructed” Samuel Ma to ask Jenny Yiu (finance manager of Novo HK) to transfer  that sum to P.[13] 

c.  Samuel Ma reported to D that he had checked with Jenny Yiu who confirmed that she had made onward payment of the US$800,000 to P;

d.  In July 2017, Mr Jing told D that P had not received US$800,000. D had himself called and obtained oral confirmation from Jenny Yiu that she had made onward payment of the US$800,000 to P, and when D asked for documentary proof, she had told him she was not allowed by Mr Zhu to provide D with any company documents;

e.  D had no idea if P was telling the truth or not about the non-receipt of US$800,000 but he was confused as to what had happened;

f.  D had no reason to pay US$800,000 to Novo HK;

g.  He no longer had Jenny Yiu’s contact details in order to ask her to give evidence for him;

h.  D Whatsapp messaged Samuel Ma on 8 April 2020 stating that he was defending P’s claim on the Guarantee, and asked Mr Ma if he had any record of P, especially Mr Jing, chasing D for payment in 2017-2018. Mr Ma replied that he did not keep the information. (These messages were in evidence before the court). In cross-examination, D confirmed that he did not ask about the US$800,000 payment here nor did he here ask for Jenny Yiu’s contact details.

i.  In cross-examination for the first time, D said that in a telephone call in 2020, Mr Ma had told him that he did not wish to get involved in these matters, and when D had asked for contact details of other people Mr Ma had said he did not know. (This last-minute suggestion of a relevant conversation was not convincing).

j.  In cross-examination in the context of a question about communications with Samuel Ma, D said he no longer had e-mail records because he had moved house. When challenged that he would still have e-mail records available online, D disagreed. (This evidence was inherently unsatisfactory)

k.  When challenged in cross-examination about the fact that Mr Miao’s supplemental witness statement dated 26 April 2022 pointed out the absence of any corroborating evidence from Ms Yiu or Mr Ma, D confirmed that he did not ask Mr Ma or Ms Yiu to give corroborating evidence, notwithstanding the US$800,000 Payment would (if genuine) be the largest payment he had made.

l.  In cross-examination for the first time, D said that he had chased Mr Zhu about the US$800,000 and asked for a remittance slip, and he intended to deal with it at the same time as the New Page/NGL loan, but as Mr Zhu did not revert on satisfying the loan, D/New Page made demand on NGL under the loan in July 2018. (This last minute assertion does not make sense and is unconvincing).

45.  Mr Miao’s evidence was:

a.  P did not receive the US$800,000;

b.  D was welcome to look at P’s bank records to check.

46.  D did not seek discovery in this action of P’s bank accounts for the relevant dates in order to check the position.

47.  There is no direct evidence of any onward payment of US$800,000 to P by Novo HK.

48.  I note that the US$800,000 payment made by Novostal to Novo HK was at the end of June 2017, shortly before the 1^st instalment of US$900,000 of the Clause 2.2 liability was due. As against that, there does appear to have been an ongoing creditor-debtor relationship between New Page and the Novo Group, although the evidence only indicates loans by New Page to the Novo Group up until May 2016.

49.  If D’s case is correct, it seems extraordinary that D would not at the time have contacted his friend Mark Chow (still at Novo Group) to ask what had happened to his US$800,000 if it had been misapplied. Even more so, on D’s case that Mark Chow spoke to him shortly before the 5 July 2017 email in general terms about needing to contact P about repayment. If D had just paid US$800,000 on 26 June 2017 to be paid to P, one might expect that to be a topic of conversation between them, if not documentary record.

50.  Indeed, there is no contemporaneous documentary evidence of any discussion or dispute as to payment of US$800,000 in June 2017, which one would expect if that amount of money had gone missing.

51.  When asked about this in cross-examination, D’s answer was very odd. He said there was no need to obtain a written receipt from P for payments under the Guarantee. This does not address the problem of a common sense expectation that the disappearance of US$800,000 would lead to some investigation and correspondence.

52.  In these circumstances, given the amount of money involved, I would expect D to have tried to get evidence from one or more of Jenny Yiu, Samuel Ma and Mark Chow and/or to write formally to Novo HK for clarification of the use of the US$800,000 transferred on 26 June 2017 and/or to seek specific discovery of P’s banking records.

53.  However, I do not believe it is necessary to draw any adverse inference against D from the absence of corroborating witnesses. The evidential position is simply this: D has not established that the US$800,000 payment was made to P.

Were Payments 4 to 5 made by Mark Chow to P paid on behalf of D?

54.  D has given evidence that Payments 4 and 5 were made on his behalf by Mr Chow.

55.  He gave evidence supported by bank transaction advices that he had made 2 payments totaling US$170,370 to Mr Chow on 23 February 2017. He stated that these were to enable Mr Chow to make payments as needed for D’s daughter who was abroad studying, at a time when D would be travelling. He also provided travel records showing that he left Hong Kong on 23 February 2017 and returned on 22 March 2017. This was unchallenged.

56.  D gave evidence that he asked Mr Chow to make payments of US$200,000 to P on his behalf, but Mr Chow only had US$191,000 available so he paid that; and that either D or Samuel Ma[14] called Mr Miao shortly after the payments to state that the payments were made on behalf of D.

57.  Mr Miao gave evidence that he had called Mr Chow and asked him to pay US$200,000 which was more than was needed, and Mark Chow paid US$191,000 which was the correct sum to make up full repayment. In cross-examination, Mr Miao denied being told the payments by Mark Chow were on behalf of D, although he had not raised this in response to D’s witness statement. Mr Miao said he did not know the dealings between Mr Chow and D, and he did not know that D claimed the payments were for him until he saw D’s witness statement, and he did not accept the payments by Mr Chow were on D’s behalf.

58.  D also gave evidence that Mr Chow had made payments of US$500,000 on D’s behalf to P in 2018. That meant that, on D’s case, Mr Chow had paid a total of US$691,000 to P on the D’s behalf.

59.  D’s evidence was that he and Mr Chow were close and often made payments on each others’ behalf when necessary, and then they would later account to each other. D stated with supporting bank documentation that he and Novostal made 5 further payments to Mr Chow in 2018 and 2019 so that the total amount paid to Mr Chow was US$692,015 which (he said) fully discharged the amount paid by Mr Chow to P on D’s behalf.

60.  D stated that he and Mr Chow had a meeting in late 2019 where they confirmed that all outstanding amounts had been cleared between them.

61.  P submitted that the individual amounts paid to Mr Chow did not match the individual amounts that had been paid to P. Whilst true, that does not advance matters, in my view. Had the amounts been matching then of course that would have assisted D significantly.

62.  It is not disputed that P has pursued Mark Chow under his mortgage. There is a complete absence of any evidence as to what is happening in P’s action against Mark Chow. In particular, there is no evidence as to whether Mark Chow asserted that any payments he made were on his own or D’s behalf.

63.  However, the fact remains that there were payments made by Mr Chow at a time when Mr Chow also had personal liabilities to P. Further, there is no contemporaneous document indicating that the payments made by Mr Chow were made on D’s behalf, and P disputes that it was ever so informed. Whilst Mr Miao’s evidence expanded in cross-examination, his witness statement clearly stated that he was chasing Mark Chow at the same time as he was chasing D, and that Mr Chow had made the payments of US$191,000 in April 2017 and that he and Mr Chow had agreed it was with respect to the Clause 2.1 Liability. Whilst D’s counsel sought to cross-examine Mr Miao on this, I felt no inroad was made, in the absence of contradictory evidence from Mr Chow or the documents.

64.  That seems to me to give rise to a case to answer for D.

65.  Clearly, Mr Chow would have been able to give direct evidence as to whether he had made payments on the D’s behalf. I believe that the threshold is reached for me to draw an adverse inference about D not calling Mr Chow to give evidence on this point. Mark Chow was D’s friend at the material time and still the director of Novo HK. D said that he and Mark Chow were still friends but no longer so close now that they did not work together; that, however, is not a reason not to request someone to give important evidence. D stated in one of his witness statements that, after late 2019, D and Mr Chow did not have “further contacts on this matter since we were both defending [P’s] claims against us”. D did not say he has no contact with Mr Chow. Further, he clarified in cross-examination that he did not mean that there was a conflict between him and Mr Chow. D stated that he knew all about this case and he felt his own evidence would be sufficient. D accepted he had not even asked Mr Chow to give supporting evidence. Where P’s witness statement is pointing out the absence of corroborating witnesses, and where there is an absence of documents to support D’s case, I do not consider that D has provided a credible, let alone justified explanation, for not asking Mark Chow to give supporting evidence.

66.  I do draw an adverse inference from the absence of supporting evidence from Mr Chow against D’s assertion that payments made by Mark Chow were made on D’s behalf.

67.  I do not find on the balance of probabilities that the payments made by Mr Chow were made on D’s behalf.

What was the purpose of Payments 1 to 5?

68.  It is common ground that D’s liability under the Guarantee is only in respect of Clause 2.2 under the Settlement Deed up to a maximum of US$2.2 million.

69.  However, P claims that D nevertheless made payments on behalf of Novo HK to discharge the Clause 2.1 liability. D denies this and claims that he made early payment under the Guarantee at P’s request.

70.  Frankly, both claims are contrary to normal commercial expectations.  I will explore the evidence further and then consider it as against the very limited contemporaneous documents.

71.  Mr Miao’s witness statements, adopted as evidence in chief, asserted that in respect of each of the payments made by D, D had agreed that the payment could be used in reduction of the Clause 2.1 liability. No particulars were given in Mr Miao’s evidence in chief as to how the agreements were made or the gist of the words used.

72.  P’s case was put on the basis that P was not alleging separate enforceable contracts  each time D was asked to make a payment, but that it was understood that the payments to be made in response to the requests were to satisfy the US$5.5 million (i.e. the Clause 2.1 Liability) that had to be paid before the court order to stay the 2016 Action, and that was the intention of both P and D when requesting and making payment.

73.  Accordingly, P’s case is that D voluntarily paid on behalf of Novo HK despite not being under any legal obligation to do so.

74.  D’s evidence as contained in his four witness statements (also adopted as evidence in chief) and as amplified in cross-examination was that:

a.  Despite having left Novo HK in late 2015, he agreed to provide the Guarantee for the following reasons:

i.  His new company Novostal was exploring business opportunities with P relating to the tender for a high-speed railway project in Thailand. D said that he took a commercial view of this as he expected to make a profit on the Thai project much larger than the US$2.2 million he was asked to guarantee, and he needed P’s cooperation in order to succeed in the bid, and to deliver the steel supply.

ii.  P assured him that his obligation would be reduced by any payments made by Novo HK, as reflected in Clause 3.2 of the Guarantee;

iii.  D had known Mr Jing for over 30 years, they had a good relationship and he wanted to help him out;

iv.  He did not want Novo HK to collapse with adverse effect on his close friend Mark Chow, and damage to D’s own business reputation.

b.  Mr Jing and Miao made calls to him from February 2017 just after the Guarantee was signed, asking him for payment under the Guarantee to show D’s “sincerity” for cooperation with P.

c.  D knew that the first payment of the Remaining Principal Settlement Sum was not due until the end of June 2017.

d.  He agreed to pay earlier because:

i.  He knew Jing and Miao were under intense pressure from their supervisors;

ii.  he played golf with Mr Jing and considered him a close friend, and

iii.  Jing and Miao told him that the earlier he paid, the earlier they could introduce business opportunities to him.

e.  There had been no mention by either Mr Miao or Mr Jing of needing payment to satisfy the Clause 2.1 liability or the US$5.5 million (as Mr Miao referred to it).

f.  He had left Novo HK in 2015 and did not read the 27 February 2017 e-mail; and he did not see the NGL public announcement of 27 April 2017 about the court order staying the 2016 Action nor the Mark Chow 5 July 2017 email.

75.  Mr Miao vigorously denied D’s case.

a.  He stated that the Thai project under discussion was an entirely separate matter;

b.  He knew that under the Guarantee, D’s liabilities were only in respect of Clause 2.2 and the Remaining Principal Settlement Sum, and he knew that D was no longer a director or shareholder of Novo HK but he was not concerned about that because he was a former director and he had a close association with Novo HK.

c.  He asserted that although D did not guarantee Clause 2.1 responsibilities, he had to be responsible for repayment of the Clause 2.1 liabilities. This was on the basis that he (along with Mr Chow) had a ‘responsibility’ to resolve P’s dispute with Golden Star (the new owners of Novo HK). His understanding was that Golden Star had bought NGL because they wanted a clean shell for new operations. He did not know the full details or arrangements between New Page and Golden Star but he took the view that D and Mark Chow were interested and that logic seemed to be effective because P managed to “grab” D and Mark Chow to give the Guarantee and mortgage.

d.  He said that when he called D to request payment, payment would follow, wherever it came from, and Mr Miao did not necessarily know who was handling the payment at Novo when it came from Novo, but it would follow a discussion about reaching the US$5.5 million.

e.  He asserted in his witness statement in respect of the 11 payments made to P between 14 February and April 2017, i.e. payments made by the Novo Group as well as Payments 1 to 5, that he had agreed with D in respect of each of the payments that the payments should be applied towards the Clause 2.1 liability. In cross-examination:

i.  He insisted such agreements were made in respect of all payments including the first five which were made by the Novo Group after D had left the Novo Group;

ii.  He stated that when money was owed, he would call D and say what was owed towards the US$5.5 million target;

iii.  When asked for detail, he said that he did not mention Clause 2.1 itself, he would only refer to the US$5.5 million liability, and “frankly speaking” he could not be 100% sure that he mentioned “the US$5.5 million”. However, there was no ambiguity that Mr Miao was asking for repayment of the US$5.5 million, and it was not a question of assumption. He said that in his calls with D, D never mentioned that the payments would be made under the Guarantee.

iv.  When he asked D to pay the US$5.5 million, D would say he would make arrangements, and he did make arrangements.

f.  He accepted that he had not spoken to Mr Jing, now retired, about D’s evidence, but stated that he knew they had the same purpose when calling D: he and Jing at all times had in mind the need for the US$5.5 million target to be achieved. Before the consent order was made to stay the 2016 Action, there was no way payments by D could be used to settle the liabilities under the Guarantee or that demand would be made for D to pay the Remaining Principal Settlement Sum. It was illogical for D to say that P had asked D to repay the Remaining Principal Settlement Sum early and that P would repay D if Novo HK paid it.

g.  When asked in cross-examination, he said there ought to be some written document where he reported to his risk assessment department that D was making payments towards the Clause 2.1 Liability but the reason he had not produced any was no one had asked him previously.

h.  He said he had used the same modus operandi with Mr Chow to refer to the target of US$5.5 million and ask for payment, and he agreed to pay and then paid. He said that Mr Chow had not said that any payment made in 2017 was in respect of is mortgage liability and/or the Clause 2.2 Liability.

76.  There is no contemporaneous document accompanying any of the 11 payments in 2017 indicating that any of the payments were made in discharge of either Clause 2.1 or Clause 2.2.

77.  The Samuel Ma email of 27 February 2017 taken with the dates of payments leading up to the court order do in my view indicate that the eleven payments in 2017 were made in discharge of the Clause 2.1 liability.

78.  I do not think it very likely that in respect of each of the eleven 2017 payments, Mr Miao or Mr Jing discussed payment with D and agreed with D that it would be paid towards the Clause 2.2 Liability or US$5.5 million. However, I think that Mr Miao accepted that in cross-examination, when he said that frankly speaking he could not be 100% sure that he mentioned US$5.5 million. In the context of his evidence, I understand him to have meant that he is not sure that he expressly referred to US$5.5 million in every conversation with D when he requested payment. However, I accept that all of his calls with D chasing payment were on the basis that he was targeting repayment of the US$5.5 million. That is the most likely position in light of the terms of the Settlement Deed and the fact that the Clause 2.1 Liability had to be discharged before the stay of the action, before the schedule for the balance of payments under Clause 2.2 would become relevant.

79.  I also agree with Mr Miao that D’s version of the conversation does not make sense. It is illogical for P to ask D to repay the Remaining Principal Settlement Sum early and say that P would repay D if Novo HK paid P the sums due, where more logically P would not call on D to make payment until Novo HK had failed to make payment.

80.  I agree with D that it is, in isolation, inherently implausible that D would voluntarily pay any part of the Clause 2.1 liability, when he is only legally liable to pay the guaranteed Clause 2.2 liability. However, as put by Mr Lincoln Cheung for P, it is also implausible that D would give the Guarantee when he had ceased to be a director of the Novo Group. P submits that D’s reasons of hoping for a bigger business opportunity, moral responsibility, and personal relationships are not credible.

81.  I certainly feel that the full truth of the situation has not emerged at trial.

82.  Had D walked away from Novo HK once he sold his interest and resigned as director, then I would be more inclined to believe that any payments by D were made in respect of the Guarantee liability. However, D appears to have remained closely involved in the resolution of the dispute with P.

a.  D, and not the new owner/director/chairman of the Novo Group, Mr Zhu, attended the mediation with Mr Chow.

b.  D and not Mr Zhu provided the Guarantee.

c.  P did not apparently correspond with Mr Zhu in respect of repayment. Mr Miao’s evidence was that D had told P not to contact Mr Zhu. However unlikely that sounds, the reality is there was no dispute that Mr Miao and Mr Jing were contacting D and Mr Chow in 2017 in order to get payment.

d.  D was still on the WeChat group with P and Novo Group’s Chow and Wong relating to repayment in November 2018.

83.  The fact that D was behaving in 2017-2018 in respect of the P/Novo HK dispute in the manner one would expect Mr Zhu (as the new owner/director) to behave suggests some arrangement whereby D was responsible for the dispute settlement.

a.  Whilst P’s counsel tried to explore the Escrow Agreement with D at the trial, that related to financial liabilities of the Novo Group at the time of the SPA and there was no evidence of any special arrangement in respect of trade liabilities such as the liability to P.

b.  There was no exploration of the “clean shell” point raised by Mr Miao only in cross-examination.

c.  The trial did not establish the reasons for D rather than Mr Zhu being a principal player on the part of Novo HK in 2017-2018.

d.  However, I find that D was playing that role on the available evidence.

84.  D was copied in to the Samuel Ma 27 February 2017 email. D said he does not remember seeing that email despite it having been sent to him. D’s own evidence indicates that he was giving instructions to Samuel Ma in April 2017 and June 2017 despite Samuel Ma being an employee of Novo HK until April 2018. Given D’s involvement with Novo HK affairs, I am not inclined to believe D that he was not aware of that email in February 2017: it was sent to him, and D was involved with the dispute at this time. This email plainly refers to the Novo HK liability to make payment by 1 March 2017, and sets out the intention to pay P US$1.382 million odd by mid April 2017. That was achieved with the assistance of payments by D.

85.  D gave evidence that Mark Chow briefly told him about the request for a 1-year extension of time in July 2017 but D did not see the email. In cross-examination, D claims that Mark Chow gave no detail. It seems inherently unlikely when they were both guarantor and surety that D and Mark Chow did not discuss the repayment position.

86.  When Mr Jing chased for repayment on the Whatsapp group in November 2018, D did not reply to say that this was nothing to do with him and/or that he had made full repayment under the Guarantee, as one might expect if he genuinely thought that his 2017 payments were early payments under the Guarantee. In cross-examination, D said he had repeatedly told Mr Jing that he had fully repaid his liabilities under the Guarantee so he ignored him. There is no contemporaneous documentary evidence of D informing P that he considered he had made full payment in respect of his Guarantee liabilities.

87.  Looking at the matter in the round, P’s case is consistent with the contemporaneous documents. Principally, the 27 April 2017 court order and the public announcement of the same date by NGL presented a public picture that the Clause 2.1 Liability was discharged by the end of April 2017. The inference is that P and NGL were transparent about treating all D’s payments in 2017 as being in discharge of the Clause 2.1 Liability. D states he was unaware of these matters – I find that hard to believe given his involvement with the settlement of the dispute and his friendship with Mark Chow; but even if it were true, the reality is that P and NGL were not hiding their treatment of his payments. By contrast, D’s case is not consistent with the contemporaneous documents. Other than the Guarantee itself, nothing else bar D’s own testimony supports D’s case that the 2017 payments were early payments to discharge his Guarantee despite the principal debt not yet having arisen.

88.  I turn to D’s alleged reasons for giving the Guarantee or making early repayment under the Guarantee.

a.  Business opportunity. P was a leader in the steel trade, and D had been operating in the steel trade business and had known P for over 30 years, and had built up a listed company that he was able to sell for over HK$350 million. D claims he wanted P’s support for a tender for a Thai railway contract. D claims he expected to make more profit on the Thai railway project than the size of the Guarantee, so that it was commercially worthwhile.  P was not the party awarding the Thai railway contract but at best seemed to have influence with a steel supplier Handan. It seems highly unlikely that D would believe that assuming responsibilities for Novo HK’s debt when he no longer had any apparent interest in Novo Group would be the gateway to securing the Thailand railway contract. I think it credible that P was in a position to bad-mouth D in the steel industry. D claimed that Mr Zhu/Golden Star were aware of the trade debts and had factored those into the purchase price for the Novo Group (in contrast to the financial loan debts for which there was a separate Escrow Arrangement). If that is right, but D was interested in a satisfactory resolution with P, the commercially understandable thing to do was to press Mr Zhu to honour the debt. It simply does not make sense for D to take on any part of the debt to curry favour with P.

b.  Friendship. As to D’s wish to support his old friend Mr Jing so that he did not lose his promotion or job with P, I am not convinced that D would agree to effectively take on a US$2.2 million liability so that his good friend could keep his job. I think it credible that Mr Jing was in trouble with P for having a significant outstanding trade receivable, but not that D would take on the liability for this reason.

c.  I do not find D’s oral testimony in this regard sufficient to persuade me to take a different view from that indicated by the contemporaneous documents.

89.  As stated earlier, in isolation, I would find it difficult to accept that D made payments for any reason other than to discharge the Guarantee. However, in the context of the contemporaneous documents (limited as they are); D’s continued involvement with the affairs of Novo HK after his resignation as a director; and the timing of the undisputed payments, it seems to me that, for some reason which has not come out at trial, D was making payments in order to satisfy the Clause 2.1 liability.

90.  I also take into account the fact that the D has not called Mark Chow to give evidence where Mark Chow could no doubt have given relevant evidence. D claims that Mark Chow assisted him in making Payments 4 and 5 towards discharge of the Guarantee. Mr Chow as chairman of Novo HK was clearly aware of the state of repayment to P and knew in early April 2017 that there had been no satisfaction of the Clause 2.1 Liability yet and no court order staying the 2016 Action. Mark Chow was also on the board of NGL when it made its public announcement on 27 April 2017 that (effectively) the Clause 2.1 Liability had been discharged. Mark Chow knew that those payments of US$191,000 had been applied to discharge Novo HK’s Clause 2.1 Liability. If it were true that the payments were made by Mr Chow on behalf of D, Mr Chow would be able to cast even more light on the intention with which Payments 4 and 5 were made. To make payments under a guarantee before the principal debt is due is highly unusual. Mr Miao notably said several times in his evidence that, in contrast to D, Mark Chow had never suggested that the 2017 payments were made to discharge the Clause 2.2 liability (against which he had mortgaged his own house) rather than the Clause 2.1 liability. Given the dearth of contemporaneous evidence, and certainly any evidence to corroborate D’s assertion that he had (highly unusually) made payments under his Guarantee before the principal debt became due, a failure to seek Mark Chow’s evidence seems to me to be a situation warranting the drawing of an adverse inference against D. I do not find D’s explanations (as set out at para. 65 above) for not calling Mark Chow to be credible, quite apart from justified, particularly where he is legally represented.

Conclusion

91.  I have therefore found in favour of P on all issues.

92.  Accordingly, P is entitled to judgment in the sum of US$747537.47.

93.  P no longer pursues contractual interest, sensibly. P’s claim for statutory interest was not disputed and accordingly I order:

a.  Pre-judgment interest at the HSBC prime rate +1% on the sum of US$747,537.47 from date of the service of the writ to the date of judgment;

b.  Post-judgment interest at the judgment rate (from time to time) on the sum of US$747,537.47.

94.  On costs, I make an order nisi that the costs of the action be to P, to be taxed if not agreed, with certificate for two counsel. Should any variation of the costs order be sought, written submissions should be made within 3 days of judgment, with reply submissions 3 days thereafter; otherwise, the costs order becomes final.