CHAN FUN KWONG v. CHOI CHAK MAN AND OTHERS

CACV 136/2024, [2026] HKCA 357

On appeal from [2024] HKCFI 722

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 136 OF 2024

(ON APPEAL FROM HCA NO 862 OF 2022)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the court):

1.  This appeal is brought by D1, D2 and D4 against the decision of Deputy High Court Judge KC Chan handed down on 15 March 2024 (“Decision”)[1]. For ease of reference, we adopt the terms and expressions in the Decision.

2.  By the Decision, the judge dismissed the appeal of D1 to D4 against the summary judgment granted by Master K W Wong on the entire claim of P, which is made up of: HK$60 million (“Loan”); HK$6,680,000 (“Outstanding Interest on the Loan”); HK$10,657,534.70 (“Balance of the S&P Payment”); and HK$1,278,904.10 (“Interest on Balance of the S&P Payment”).  Interest was awarded on all four heads of claim.

3.  On appeal, Ds appeared by Mr Robert Pang, SC[2]. P was represented by Mr Anson Wong, SC[3].

4.  We dismissed the appeal at the conclusion of the hearing.  These are the reasons of the court.

Background

5.  The judge gave a detailed narrative in §§4 to 53 of the Decision of the relevant transactions, correspondence, partial payments and the respective cases of the parties.  For present purpose, this may be stated as follows.

6.  P and his wife Madam Lee Sau Fong (“Lee”)  used to own the entire shareholding of D4, consisting of two shares, each owning one share.  The main asset of D4 was its 100% shareholding in a PRC company known as 陸河祥盛針織有限公司 (“Luhe Xiangsheng Knitting”)  which in turn owned or had the use of a number of land use certificates in the Mainland.

7.  By a Sale and Purchase Agreement of Shares in Chinese dated 30 January 2018 (“2018 SPA”), P and Lee agreed to sell and Rensino Investment Limited (“Rensino”)  agreed to purchase the entire shareholding in D4 together with the shareholder’s loan owed by Rensino to P at the total consideration of RMB 237,544,142.00 equivalent to HK$293,315,069.20 (“S&P”).  The S&P was to be completed on 28 March 2019.

8.  It is not in dispute that P and Lee had been good friends with D1 and D2 for many years.  D1 and D2 shared the same residential address in Hong Kong, and wrote jointly to P and Lee in the correspondence mentioned in the Decision.  D3’s residential address was one floor below that of D1 and D2.

9.  D2 and D3 were the directors and only shareholders of Rensino at the time the 2018 SPA was signed.  D3 has been the sole beneficial owner of all the shares in Rensino. On 12 May 2020, D2 transferred the shares registered in her name back to D3.

10.  On 23 April 2019, the S&P was completed upon payment of half of the consideration being HK$146,657,534.60.  Rensino became the sole shareholder of D4, and D3 became a director of D4.  P, Lee and Rensino signed a supplemental agreement in Chinese (“2019 Supplemental SPA”)  whereby they agreed that the closing date of the S&P was extended from 28 March 2019 to 23 April 2019, and that the balance of the consideration at HK$146,657,534.60 would be paid by Rensino to the joint bank account of P and Lee in three tranches, instead of being payable on completion: HK$40,000,000 on or before 30 April 2019 (“1^st Tranche Payment”); HK$60,000,000 on 2 May 2019 (“2^nd Tranche Payment”); and HK$46,657,534.60 on or before 31 May 2019.

11.  The 1^st Tranche Payment was made on time but not the 2^nd Tranche Payment.

12.  It is P’s case that at the request of D1 and D2, in view of their many years of friendship, he agreed orally to lend HK$60,000,000 to them and to use the same for the payment by Rensino of the 2^nd Tranche Payment (“Payment Agreement”).

13.  On 2 May 2019, P, D1, D2 and D3 signed a document in Chinese entitled 借款協議 (loan agreement; “2019 Loan Agreement”).  P’s signature was witnessed by his solicitor Lai Yung Louis of TK Tsui & Co (“Lai”; “TKT”)  and the signatures of D1 to D3 were witnessed by their solicitor Ma Cheuk Lam of Woo, Kwan, Lee & Lo.

14.  By the 2019 Loan Agreement, P agreed to lend HK$60,000,000 to D1 and D2 as borrowers (“Loan”), and it was agreed that the Loan and a lump-sum interest would be payable a year later on 1 May 2020, and that D3 agreed to be the guarantor guaranteeing D1 and D2’s payment obligations.  Attached to the 2019 Loan Agreement and immediately following the execution page was a receipt clause signed by D1 and D2 dated 2 May 2019 (“Receipt Clause”), stating that “the Borrowers hereby acknowledge the receipt of HK$60,000,000.”

15.  According to P, he issued the loan principal of HK$60,000,000 to D1 and D2 on 2 May 2019 in accordance with the 2019 Loan Agreement as Rensino’s payment of the 2^nd Tranche Payment to him and Lee[4].  After the signing of the 2019 Loan Agreement, P and Lee had never sought payment of HK$60,000,000 or any part thereof against Rensino, as they had always been of the view that Rensino had paid the HK$60,000,000 and on schedule[5].

16.  On 29 May 2019, P, D1, D2 and D3 signed and entered into another agreement in Chinese entitled 借款補充協議 (supplementary loan agreement; “2019 Supplementary Loan Agreement”), whereby it was agreed that clause 1.3 of the 2019 Loan Agreement be modified such that interest be charged and paid on a monthly basis instead of being paid by a lump sum on the loan maturity date.

17.  The loan maturity date of 1 May 2020 was later extended by agreement.

18.  On 20 May 2020, P, D1, D2 and D3 entered into an agreement in Chinese entitled 借款協議 (loan agreement; “2020 Agreement”)  whereby it was agreed that the loan term/loan maturity date under the 2019 Loan Agreement be extended to 1 May 2021, and D3 would continue to guarantee D1 and D2’s payment obligations.  The parties’ signatures in the 2020 Agreement were all witnessed by Lai.

19.  The preamble in the 2020 Agreement recited the 2019 Loan Agreement, the 2019 Supplementary Loan Agreement and that it was on the request of D1 and D2 as borrowers and D3 as the guarantor that additional time was granted to repay the Loan to P as lender.

20.  On 15 April 2021, TKT wrote to D1 and D2 (“P’s 20210415 Letter”)  with the caption stating that it was about the outstanding payment under the S&P, the 2019 Loan Agreement, the 2019 Supplemental Loan Agreement and the 2020 Agreement.  By this letter, TKT reminded D1 and D2 to repay on or before 2 May 2021: (1)  the Loan, with the outstanding interests at HK$5,040,000; and (2)  HK$10,657,534.70, being the unpaid balance of consideration under the 2018 SPA as varied by the 2019 Supplemental SPA.

21.  D1 and D2 replied by a letter in Chinese dated 5 May 2021 addressed to P and Lee (“Ds’ 20210505 Letter”), in which they acknowledged receipt of P’s 20210415 Letter “concerning the balance of the consideration for the sale and purchase of” Luhe Xiangsheng Knitting, did not dispute their liabilities to repay the demanded sums, including the Loan and interest thereon, and instead promised: (1)  to pay on or before 31 July 2021 the interest for October 2020 to July 2021 in the total sum of HK$7,200,000; (2)  to pay on or before 31 December 2021 the balance of the price for the purchase of the land in the sum of HK$10,657,534.70 and RMB1,000,000 for the China-Hong Kong car(s); and (3)  to repay before 2 May 2022 the loan of HK$60,000,000, and requested P and Lee to accept such repayment schedule or plan.

22.  On 28 May 2021, P, D1, D2, D3 and D4 executed a deed in English entitled “The Deed of Loan” (“2021 Deed”)  with P as the lender, D1 and D2 as the borrowers, D3 as the 1^st guarantor and D4 as the 2^nd guarantor.  The execution of the 2021 Deed by all five parties was also witnessed by Lai.

23.  The recitals of the 2021 Deed stated the following: the 2019 Loan Agreement was entered into by P, D1, D2 and D3 and that under the same P lent D1 and D2 the Loan (recital (A)); subsequently, the 2019 Supplementary Loan Agreement was entered into by the parties and that it remained in force (recital (B)); the Loan failed to be repaid on the maturity date of 1 May 2020 under the 2019 Loan Agreement and the 2020 Agreement was entered into by the parties extending the loan term/loan maturity date to 1 May 2021 (recital (C)); D1, D2 and D3 failed to repay the Loan on 1 May 2021, and that the 2019 Loan Agreement, the 2019 Supplementary Loan Agreement and the 2020 Agreement remained in force; D1 and D2 also affirmed that the following amounts were still owed to P, namely: (i)  the Loan, (ii)  the interest on the Loan in the sum of HK$5,040,000, (iii)  payable balance of the price for the purchase and sale of Luhe Xiangsheng Knitting in the sum of HK$10,657,534.70, and (iv)  payment for China-Hong Kong cars in the sum of RMB1,000,000 (recital (D)).

24.  The 2021 Deed then provided, among other terms:

(1)  Under clause 1.1, the loan term/loan maturity date be extended to 1 May 2022;

(2)  Under clause 1.2, D1 and D2 would repay in full the Loan and interest thereon on or before the loan maturity date;

(3)  Under clause 1.3, D3 continued to guarantee and D4 would guarantee D1 and D2’s payment obligations; and

(4)  Under sub-clauses 2.1 to 2.6 of clause 2:

“2. Issuance and repayment of the loan

2.1 The Borrowers [D1 and D2] acknowledge that the amounts referred to in paragraphs D (i), (ii), (iii)  and (iv)  of this Agreement [i.e. the recitals] are still owed to the Lender [P].

2.2 The Borrowers [D1 and D2] undertake to repay RMB1 million (RMB1,000,000)  of China-Hong Kong cars payment to the Lender [P] on or before 30 June 2021.

2.3 The Borrowers [D1 and D2] undertake to repay on or before 31 July 2021 the interest owed on the Loan for a total of 10 months from October 2020 to July 2021 totalling to HK$7,200,000 to the Lender [P].

2.4 The Borrowers [D1 and D2] undertake to repay HK$10,657,534.70 being the payable balance of the purchase price for the purchase and sale of Luhe Xiangsheng Knitting Co., Ltd. and the interest thereof (for the period from 1 May 2021 and ending on 31 December 2021, the Parties agreed to a fixed interest rate of 1.2% per month), i.e. HK$1,023,123.33, on or before 31 December 2021.

2.5 If the Borrowers [D1 and D2] fail to pay in full the relevant amount to the Lender [P] by the aforesaid dates of June 30 2021, 31 July 2021 and 31 December 2021 as agreed, the Lender [P] shall be entitled to treat the entire arrears/Loan or the remaining amount of the arrears/Loan as immediately due, and the Lender may immediately seek recovery from the Borrowers [D1 and D2] and/or the Guarantors [D3 and D4] and take legal proceedings against the Borrowers [D1 and D2] for the Loan, arrears, interest and legal expenses.

2.6  The Borrowers [D1 and D2] undertake to deposit the outstanding loan principal and the corresponding interest payable on or before the loan maturity date of 2 May 2022 into the designated bank account for which the lender shall notify the Borrowers [D1 and D2] in writing at least 7 days prior to the loan maturity date.”

25.  In breach of clause 2.3, D1 and D2 failed to pay the interest on the Loan for the period from October 2020 to July 2021 in the agreed sum of HK$7,200,000.00 on or before 31 July 2021.

26.  By two letters issued by TKT dated 18 August 2021 and 29 September 2021 addressed to D1 and D2, P stated that Ds failed to pay the agreed interest on the Loan on or before 31 July 2021 in accordance with the 2021 Deed, and threatened to take legal action against them if they continued to fail to repay.

27.  In response to P’s demands, D1 and D2 made two partial payments on 11 October 2021 and 12 November 2021 of HK$2,000,000 each, for the outstanding interest on the Loan (“1^st & 2^nd Partial Payments of Interest”).

28.  By a letter of TKT to D1 and D2 dated 20 December 2021, P acknowledged receipt of the 1^st & 2^nd Partial Payments of Interest totalling HK$4,000,000, and reminded D1 and D2 to pay the Balance of the S&P Payment of HK$10,657,534.70 on or before 31 December 2021 in accordance with the 2021 Deed.

29.  D1 and D2 replied by a letter in Chinese addressed to P and Lee dated 30 December 2021 (“Ds’ 20211230 Letter”)  and promised to pay on or before 28 February 2022: (1)  interest from October 2020 to February 2022 totalling HK$8,240,000; and (2)  “the land purchase balance of HK$10,657,534.70 and the interest (for the period)  from 1 May 2021 to 28 February 2022 (totalling)  HK$1,278,904.16 (monthly interest rate: 1.2%).”  They mentioned their economic losses due to the impact of the pandemic and requested P and Lee to accept the proposed repayment plan.

30.  Further correspondence was exchanged between TKT and D1 and D2:

(1)  TKT’s letter dated 4 January 2022 (“P’s 20220104 Letter”)  in which P insisted that the interest owed must be paid at HK$2 million per month in accordance with the “original revised plan” and within seven days of the letter and the balance must be fully repaid before 28 February 2022.  As for D1 and D2’s request to defer payment of the land purchase balance of HK$10,657,534.70, P agreed to defer payment to 28 February 2022;

(2)  D1 and D2’s response by email sent on 22 February 2022 by one Wendy Chik (“Ds’ 20220222 Email”)  to Lai in which the existence of the Loan was not disputed and further time was requested to pay the interest on the Loan to March 2022, and the balance price of the land and interest thereon be deferred to end of April 2022; and

(3)  TKT’s response by letter 24 February 2022 (“P’s 22020224 Letter”)  rejecting the request for time in Ds’ 20220222 Email and insisting that repayment of all sums due (the land purchase balance of HK$10,657,534.70 and interest thereon of HK$1,278,904.16, arrears of interest on the Loan up to 28 February 2022 of HK$8,240,000.00)  must be made on or before 28 February 2022 failing which legal action would be taken.

31.  In response to P’s demands, D1 and D2 made another partial payment of the outstanding interest on the Loan in the sum of HK$3,000,000 on 14 March 2022 (“3^rd Partial Payment of Interest”).

32.  No further repayment was made by D1 and D2 and they defaulted in repaying the Loan on or before the loan maturity date of 1 May 2022.

33.  On 3 May 2022, TKT issued a demand letter to D1 and D2 (“P’s 20220503 Letter”)  seeking payment of all sums due under the 2021 Deed on or before 13 May 2022, failing which legal action would be commenced for recovery.

34.  P issued the writ in this action on 12 July 2022 against D1 to D4, claiming the four sums mentioned at the outset of this judgment.  It is not in dispute that P and Lee have not chased after Rensino or taken legal action against Rensino for the 2^nd Tranche Payment since the signing of the 2019 Loan Agreement.  As for the Balance of the S&P Payment, save for the correspondence mentioned above in which TKT chased after D1 and D2 for payment, there was no suggestion and no evidence that Rensino was pursued at any time.

35.  D1 and D2 denied the existence of the Payment Agreement.  They pleaded that the 2019 Loan Agreement and the 2019 Supplementary Loan Agreement were not based on the Payment Agreement.  They relied on clause 4.2 of the 2019 Loan Agreement which provided that “This Agreement sets out the entire agreement and understanding of the Parties hereto …”.  They asserted that they had no reason to enter into the Payment Agreement and had never agreed to P using the Loan as Rensino’s 2^nd Tranche Payment.  They alleged that P never granted the Loan to them and they never received it.

36.  D1 to D3 admitted they signed the 2019 Loan Agreement, the 2019 Supplementary Loan Agreement and the 2020 Agreement.  All four defendants admitted they entered into the 2021 Deed.  They denied liability for P’s claims and contended before the judge they have real and bona fide defences:

(1)  As regards all four heads of claim (being the Loan and the Balance of the S&P Payment with interest on each):

(i)  P did not advance the Loan, hence there was and is no outstanding debt owed by D1 and D2 to P under the 2021 Deed;

(ii)  the 2021 Deed is unenforceable for want of consideration;

(iii)  insofar as the HK$60 million was purportedly applied by P to discharge Rensino from its payment obligation, it was invalid as neither Lee nor Rensino was a party to the 2021 Deed; on this basis the 2021 Deed is also unenforceable for want of consideration.

(2)  As regards the claim for the Balance of the S&P Payment with interest thereon:

(i)  D1 and D2 are not liable for Rensino’s liabilities to P under the 2018 SPA or the 2019 Supplemental SPA;

(ii)  P has no authority to pursue Rensino’s liabilities under the 2018 SPA or the 2019 Supplemental SPA on behalf of Lee; and

(iii)  the 2021 Deed could not have validly extinguished Rensino’s liabilities under the 2018 SPA or the 2019 Supplemental SPA, hence the 2021 Deed is unenforceable for want of consideration.

37.  As for D3 and D4, they asserted that they should not be liable as guarantors as P has no right to recover the sums claimed.

The Decision

38.  Having reviewed the evidence adduced in the context of all the circumstances, the judge came to a firm view that the matters put forward by Ds “fall very far short of what is required to raise a triable issue” and had “no hesitation … there is no triable issue that the Payment Agreement was made as alleged by P”[6].

39.  He made an express finding that the references in the correspondence and the 2021 Deed to outstanding balance price for “land purchase” or “purchase and sale” of Luhe Xiangsheng Knitting Co, Ltd or 陸河祥盛針織有限公司 meant the outstanding balance price for the S&P, as this is abundantly borne out by the evidence and there was no suggestion otherwise from any party[7].

40.  As there is no triable issue concerning the Payment Agreement, he reasoned that it follows it has been established that at the request of D1 and D2, and agreed to by P, it had been agreed that P was to use the Loan for the payment by Rensino of the 2^nd Tranche Payment to P and Lee.  It has also been clearly established that such use of the Loan was at D1 and D2’s direction[8].

41.  He concluded on the evidence there is no triable or bona fide dispute that P has used the Loan to pay to himself and Lee as Rensino’s 2^nd Tranche Payment, and no triable or bona fide dispute that the Loan has not been advanced[9].

42.  As for the contention that Rensino’s liability to pay the 2^nd Tranche Payment to P and Lee has not been effectively discharged, the judge considered this a non-issue, as once a borrower directed that the loan amount be paid to a third party and the lender accordingly so paid, the loan has been advanced, regardless of whether that payment to the third party in fact settled the underlying liability the borrower might or might not owe to that third party.  In any event, he was of the view that the 2^nd Tranche Payment has been paid[10]. There is no triable issue that the 2021 Deed is not enforceable for want of consideration[11].

43.  Regarding the “entire contract” clause in the 2019 Loan Agreement, the judge held this raises no triable or bona fide dispute[12].

44.  For the Balance of the S&P Payment, it is clearly shown by Ds’ 20210505 Letter, D1 and D2 themselves promised to pay P and Lee the sum of HK$10,657,534.70 and other sums by way of interest and requested for time to pay.  Then, by the 2021 Deed, they have undertaken to pay this said sum, the interest thereon and the unpaid interest on the Loan.  The judge rejected the bare assertion that D1 and D2 have not assumed the liability of Rensino[13].

45.  The judge therefore dismissed Ds’ appeal against the summary judgment granted by the master.

This appeal

46.  The notice of appeal seeks to set aside the Decision and an order that D1 to D4 be given unconditional leave to defend, alternatively the Order 14 summons be dismissed.

47.  Mr Pang in his submissions invited the court to allow the appeal or remit the case to another judge for retrial.  If his submissions were held to be of substance and validity, the appeal would be allowed, with the orders sought in the notice of appeal.  It is not apparent why a re-trial should be ordered before a different judge.

48.  The notice of appeal sets out nine grounds of appeal.  Mr Pang grouped them into six.  They will be discussed in the order raised by him.

Ground 1 – no loan was released or advanced to D1 and D2

49.  This appears to be the main contention of Mr Pang.  His submissions may be summarised as follows:

(1)  The Loan was never “released or advanced” to D1 and D2.  The judge’s conclusion that the Loan had been advanced pursuant to the Payment Agreement was “fundamentally flawed” in two respects: (i)  he failed to accord sufficient weight to the fact that P’s allegations on the Payment Agreement were “unparticularised and vague”; (ii)  he wrongly reversed the burden of proof and imposed an impermissible burden on Ds to prove the non-existence of the Payment Agreement.

(2)  P’s claims against Ds for the Loan as pleaded in the statement of claim are only on the strength of the 2021 Deed and no reliance is placed on any of the antecedent agreements or the Payment Agreement.  It is impermissible in an application for summary judgment to rely on any alternative legal basis to claim against Ds in respect of the Loan, namely, the Payment Agreement, and P must proceed on the case as pleaded[14].

(3)  The term “Payment Agreement” as defined in §4 of the statement of claim did not feature in P’s 1^st affirmation at §§15 to 18.  P merely stated there was a “request” of D1 and D2 for a loan and he “accepted” their request.  Hence, the Payment Agreement has not been “properly verified by affidavit evidence” and remains an “unproven assertion”.

(4)  The Payment Agreement is wholly unparticularised.  No details have been provided regarding the time, place or date it was made.  The lack of particularity undermines the inherent probability of its existence and demonstrates “genuine weakness” in P’s case.  It is “highly anomalous”, given that subsequent agreements were reduced into writing.  There is at least a triable issue concerning the existence of the Payment Agreement.

(5)  The judge failed to consider the above matters and instead incorrectly shifted the burden to Ds to provide particulars of their denial of the Payment Agreement.  In effect, he reversed the burden of proof, requiring Ds to prove the non-existence of the Payment Agreement.  Ds had provided circumstantial evidence to explain why the Payment Agreement is inherently incredible, in that D1 and D2 never had beneficial interest in Rensino.

(6)  The judge failed to analyse the evidence properly.  He wrongly concluded there are “overwhelming circumstances and evidence” pointing to the existence of the Payment Agreement.  The coincidence between the date/amount of the 2019 Loan Agreement and the 2^nd Tranche Payment does not prove the existence of the Payment Agreement.  The fact that D2 was a shareholder/director of Rensino must be weighed against the evidence that she was merely a nominee with no beneficial interest.  The judge wrongly relied on P’s allegations as independent corroboration of the existence of the Payment Agreement.  The correspondence referred to by the judge and the 2021 Deed do not assist P as the court is not bound by Ds’ concession in those documents[15].  The partial payments of interest do not constitute admission of the validity of the Payment Agreement.

50.  We do not think Mr Pang’s arguments in Ground 1 are viable.

51.  In this action, P sued for breach of the 2021 Deed, a document admittedly executed by Ds.  In the 2021 Deed, D1, D2 and D3 acknowledged they entered into the 2019 Loan Agreement under which P lent D1 and D2 the Loan.  D1 to D4 acknowledged they failed to repay the Loan on the maturity date of 1 May 2020 which was extended to 1 May 2021 and affirmed that the amounts set out in recital (D)  (being the Loan and the Balance of the S&P Payment with interests)  were still owed to P.  By the 2021 Deed, they requested a further extension to repay by 1 May 2022, D1 and D2 undertook to do so, and D3 and D4 jointly and severally guaranteed such liabilities.  No vitiating factor has been pleaded or alleged to challenge the 2021 Deed.  Ds are legally bound by the 2021 Deed executed by them.

52.  The contention that no loan was released or advanced to D1 and D2 is irrelevant to their liability to repay under the 2021 Deed.  A deed takes effect even without consideration (Chitty on Contracts (36^th ed)  vol 1, §1-131; Butterworths Common Law Series The Law of Contract (7^th ed), §2.136).

53.  In any event, the complaints of Mr Pang are simply not justified.

54.  P did not rely on the Payment Agreement as an alternative legal basis to claim against Ds in respect of the Loan.  On a proper reading of the statement of claim, the Payment Agreement was pleaded in §4 as background leading to the execution of the 2021 Deed.  Other agreements and correspondence (the 2019 Loan Agreement, the 2019 Supplementary Loan Agreement, the 2020 Agreement, Ds’ 20210505 Letter)  were also pleaded in §§5 to 8 as part of the background.  P’s claims are solely based on Ds’ failure to comply with their obligations under the 2021 Deed, see §§9, 13, 17, 21 and 24 of the statement of claim.  This was apparently accepted by Mr Pang but he contended there was a deviation from this case as pleaded.  We do not agree.  As for his contention that the Payment Agreement referred to in the statement of claim did not feature in P’s 1^st affirmation and was not verified by affirmation, this is simply a bad point.

55.  The judge arrived at the view Ds’ assertion that there was no Payment Agreement is plainly unbelievable, having tested the assertion against indisputable circumstances, the correspondence issued by the parties, the acknowledgments in the 2021 Deed, and the three Partial Payments of Interest on the Loan by D1 and D2[16].  

56.  Against such “overwhelming circumstances and evidence”, the judge stated that “it all the more behoves Ds to condescend into particulars as to what their case disputing the Payment Agreement is, and to show that the evidence in support is at least capable of belief, such as to satisfy the Court that there is a triable dispute.”[17]  He analysed Ds’ affirmation evidence in §§45 to 52 of the Decision and made pertinent observations: D1 did not refute P’s evidence there was the Payment Agreement whereas D2 only made a bare denial; D1, D2 and D3 did not explain why they had signed various agreements (2019 Loan Agreement with the Receipt Clause[18], 2019 Supplementary Loan Agreement, 2020 Agreement, 2021 Deed)  acknowledging the receipt of and liability for the Loan as borrowers and guarantor; D1 and D2 did not explain why they issued letters and email to P and Lee acknowledging liability to repay the Loan and requesting further time to repay; D1 and D2 did not mention, not to say explain, why they arranged for partial payments on interest on three occasions in 2021 and 2022; D1 and D2 did not complain in any contemporaneous communication that the Loan had not been “released or advanced”; D3, as the sole shareholder and director of Rensino, did not mention any communication or action by P or Lee to chase Rensino for the 2^nd Tranche Payment.

57.  We see no error in the judge’s approach.  To resist an application for summary judgment, the burden is on Ds to demonstrate a triable issue with believable evidence which condescends upon particulars[19]. This is not reversing the legal burden of proof, or requiring Ds to prove the non-existence of the Payment Agreement.  Ds were merely required to show a triable issue on their assertion that there was no Payment Agreement.  As the judge has found, in light of the many unexplained features in Ds’ affirmation evidence, Ds “clearly fall very far short of what is required to raise a triable issue”[20].

58.  Mr Pang did not identify any palpable error for the appeal court to interfere with the judge’s evaluation of the evidence.

Ground 2 – Rensino’s liability to pay the 2^nd Tranche Payment has not been effectively discharged

59.  Mr Pang contended that even if the Payment Agreement did exist, the judge still erred in concluding that the Payment Agreement was sufficient to substantiate the 2021 Deed or constitute a valid loan on the basis that “P was to use the Loan for the payment by Rensino of the 2^nd Tranche Payment to P and Lee”[21].

60.  His submissions went along these lines:

(1)  The judge erred in holding that P satisfied the requirement that the completion of a loan arrangement was achieved by “payment or transfer of the requisite amounts … to a third party at [the borrower’s] direction”.  On P’s own evidence, there was no actual payment or transfer of funds to Rensino or anyone else.  Nor is P’s case that D1 and D2 had directed P to pay or transfer the Loan to Rensino.  P’s case relies on the notion that P and Lee “have regarded that the 2^nd Tranche Payment was thereby paid by Rensino fully and on time”[22].

(2)  Despite P and Lee having regarded the 2^nd Tranche Payment as paid by Rensino, that does not constitute a valid loan.  This is because a notional “set-off” involves agreement by two parties to record their transactions between them in a running account[23]. In this situation, the parties were different, with P and D1 and D2 on the one hand, and Rensino, P and Lee on the other hand.  Without a transfer of value to Rensino, the loan to D1 and D2 was never “released or advanced”.  The judge was wrong to equate P and Lee’s subjective view with the legal requirement of payment or advancement.

(3)  Even if D1 and D2 had “notionally directed” P to pay or transfer the loan amount of HK$60 million to Rensino, the Loan was still not properly constituted.  This is because Rensino’s liability to P and Lee was never validly discharged, hence D1 and D2 received no benefit or value in exchange for their assumption of liability and the consideration for the 2021 Deed failed.  There is at least a triable issue whether Rensino’s liability remains extant for these reasons:

(i)  Lee was a joint creditor of Rensino under the 2018 SPA.  She was not a party to the Payment Agreement or the 2021 Deed.  There is no evidence Lee has extinguished her right to claim the 2^nd Tranche Payment from Rensino.  There is no evidence she has positively discharged Rensino’s liability.  The judge’s finding that “P has positively affirmed to the payment to himself and Lee, and that they have regarded that the 2^nd Tranche Payment was thereby paid by Rensino fully and on time”[24] is based on hearsay in P’s affirmations and is insufficient to waive a debt under the 2018 SPA.

(ii)  The 2018 SPA requires variations or waivers to be in writing signed by all parties, by virtue of clause 14 (the entire agreement clause)  and clause 15 (which provided that each party shall obtain the written consent of the other party before transferring its rights and obligations under the agreement to a third party).  Rensino could not have been validly discharged without the agreement of Lee and Rensino.  Lee and Rensino had not agreed to vary the 2018 SPA by the 2021 Deed as they were not parties to the 2021 Deed.  There is no evidence Lee had agreed to assign her right to receive the consideration under the 2018 SPA to P, nor evidence that Rensino had consented to assign its payment obligation to D1 and D2.  Rensino therefore remains at risk of being sued by P and/or Lee for the 2^nd Tranche Payment.

61.  The above submissions are wholly untenable.

62.  As mentioned under Ground 1, the contention in Ground 2 is likewise irrelevant to the liability of D1 and D2 to repay under the 2021 Deed, which takes effect without consideration.

63.  The judge found on the entirety of the evidence there is no triable or bona fide dispute that, as P has affirmed, P had used the Loan to pay to himself and Lee as Rensino’s 2^nd Tranche Payment[25].  There is simply no basis to interfere with his finding.  No palpable error has been identified.

64.  The law on offset of items where transactions between two parties are by agreement recorded in a running account is of no relevance at all.

65.  The contention that there was no valid discharge of Rensino’s liability to pay the 2^nd Tranche Payment as neither Lee nor Rensino was a party to the 2021 Deed was considered by the judge.  For the reasons given in §§65 to 68 of the Decision, with which we agree, he came to the view there is no triable or bona fide dispute that P has used the Loan to pay to himself and Lee as Rensino’s 2^nd Tranche Payment.  He is entitled to accept the evidence in P’s affirmations even though it is hearsay as regards Lee, and reject Ds’ assertions in their affirmations which are inconsistent with their clear acknowledgment of indebtedness in contemporaneous correspondence and their action in making three partial payments of interest of substantial amounts on the Loan.

66.  As for the additional points taken by Mr Pang, whether the Loan was used to repay the 2^nd Tranche Payment would not involve any variation of the terms of the 2018 SPA.  The provisions in clauses 14 and 15 he referred to are irrelevant.  As Lee and P were joint creditors, as accepted by Mr Pang, given that P has confirmed on affirmation that the Loan was released and used to settle the 2^nd Tranche Payment on 2 May 2019[26], this would be sufficient to discharge the 2^nd Tranche Payment from Rensino.  It is wholly unrealistic to suggest that Rensino remains at risk of being sued by P and/or Lee for the 2^nd Tranche Payment, not to mention that more than six years have lapsed since 2 May 2019.

Ground 3: error in construing entire agreement clause

67.  Mr Pang submitted that the judge erred in construing clause 4.2 of the 2021 Deed which provides that: “This Deed sets out the entire agreement and understanding of the Parties hereto with respect to the transactions under this Deed, and supersedes any prior oral or written agreement, memorandum or understanding between the Parties hereto with respect to the transactions contemplated by this Deed.  Unless the written consent of the Parties hereto is obtained, no modification or supplement can be made to this Deed.”

68.  Former counsel who appeared before the judge on behalf of Ds relied on an entire contract clause, not in the 2021 Deed, but in the 2019 Loan Agreement, to argue that there is a triable issue the Payment Agreement was thereby excluded[27].  Clause 4.2 of the Loan Agreement is worded in a similar way to clause 4.2 of the 2021 Deed, save that the transactions under and contemplated by the 2019 Loan Agreement would not be identical to the transactions under and contemplated by the 2021 Deed.

69.  Mr Pang prayed in aid clause 4.2 of the 2021 Deed and submitted that the judge was wrong to hold that the entire contract clause raises no triable or bona fide dispute that the Payment Agreement falls outside its scope[28].  He contended that the effect of clause 4.2 is to preclude reliance on any prior oral or collateral agreement, including the Payment Agreement[29].  Hence, it is impermissible to go beyond the 2021 Deed to look for an alternative basis for the Loan.  He also contended that the Payment Agreement was a “set-off involving third party” and by attempting to “re-characterise” the lending as a set-off arrangement via an extrinsic agreement, namely the Payment Agreement, this in effect contradicts recital (A)  of the 2021 Deed which simply states that “the Lender lent the Borrowers a fund of HK$60,000,000 (the ‘Loan’)”.

70.  We reject all the above contentions.

71.  As mentioned under Ground 1, P’s claims in this action are based solely on Ds’ failure to comply with the 2021 Deed, the Payment Agreement was pleaded as background not an alternative legal basis to claim against Ds in respect of the Loan.  The Payment Agreement is just one of the factual matters considered by the judge in his evaluation of the evidence whether Ds’ allegation that the Loan was not “released or advanced” to D1 and D2 is capable of belief.  Clause 4.2 of the 2021 Deed or clause 4.2 of the Loan Agreement does not preclude the judge from considering evidence relating to the Payment Agreement for this purpose.  As explained in Inntrepreneur Pub Co at §7, the operation of an entire agreement clause “is not to render evidence of the collateral warranty inadmissible in evidence” but “to denude what would otherwise constitute a collateral warranty of legal effect”.  Further, the Payment Agreement was not a contradiction of recital (A)  in the 2021 Deed that a loan of HK$60 million was made by P to D1 and D2.

Ground 4: error in holding the 2021 Deed is enforceable despite want of consideration

72.  Mr Pang sought to argue despite the legal principle that no consideration is required for a deed, the judge erred in law by “ignoring the uniqueness of an action on debt”.  He contended that unlike a claim for damages, an action on a debt is an exception to the legal principle aforesaid in that a claim for a debt requires “executed consideration”.  He termed this an “unsettled question of law”.  There is therefore a bona fide defence based on a lack of consideration when it comes to an action on a debt.

73.  He sought to back up this contention with these propositions: (1)  there can be no loan without the initial advance of funds; (2)  if a loan being the subject matter of a deed did not exist in the first place as a debt, the execution of a deed would not “perfect the same”[30]; (3)  there is a distinction between an action on a debt and an action on a contract[31] in that when it is an action on a debt, an “executed consideration” is required[32].

74.  We can find no support for the propositions of Mr Pang in the authorities he cited.

75.  The position in law is clear and stated in Chitty on Contracts (36^th ed), vol 1 at §1-131:

“No consideration required … Generally speaking, … the law does not enforce gratuitous promises but instead requires a certain reciprocity for the creation of a ‘simple’ contract … However, in contracts contained in a deed no such reciprocity is required, the rule being that a contract contained in a deed is good even against a party standing to derive no advantage from it. This mean that the common law actions of debt (for a promised sum of money)  or damages (for failure to perform promises more generally)  are available to the person for whose benefit they are expressed.”

76.  The passage in Fischer v Nemeske Pty Ltd relied on by Mr Pang at §193 from the dissenting judgment of Gordon J is taken out of context and not properly understood.  The case was concerned with a claim by executors for money had and received to recover the debt referred to in a deed of charge.  Gordon J took the view that this could not succeed as there was no effective charge because there was no debt to secure in that the trustee failed to exercise effectively the power to advance and apply in the trust deed (at §§181, 186, 192)[33].  He went on to state in §193 that in equity, no estoppel could arise in respect of a receipts clause in a deed (such as the recital in the deed of charge)  where the loan recited to have been advanced was not in fact made, and the execution of the deed of charge could not and did not perfect the creation of a debt.

77.  This is a far cry from the present situation.  We are concerned with a common law action on a debt, based on a deed in which D1 and D2 acknowledged that P made the Loan to them, affirmed that the Loan and other amounts were still owed to P, requested P for additional time to repay, and assumed the obligation to repay by the new extended loan maturity date.

78.  The discussion in Greer v Kettle does not advance Mr Pang’s arguments either.  The issue in that case was whether the guarantor was liable when it only agreed to give a guarantee on the basis that the debt was secured by certain shares, which in fact had not been issued.  As the agreement to guarantee was the repayment of a debt effectively secured by those shares, the guarantor was under no liability.  Further, on the proper construction of the deed of guarantee, the recital was intended to be the statement of the company to whom the guarantee was given and not to be that of the guarantor.  Hence, the guarantor was not estopped by the recital from relying on the fact that the debt was not secured by the shares.  The discussion at the pages relied on by Mr Pang has nothing to do with the issue in the present case.

79.  Young v Queensland Trust was discussed in Big Island Construction (HK)  Ltd v Wu Yi Development Co Ltd at §§81 to 84.  It is clear from the discussion that the passages relied on by Mr Pang are quite simply irrelevant and provide no support for his propositions.

Ground 5: failure to address the Balance of the S&P Payment and interest thereon

80.  Mr Pang argued that the judge had conflated the issue concerning the Balance of the S&P Payment with the Loan.  Hence, the judge failed to address Ds’ submission that D1 and D2 never received any loan in the sum of the Balance of the S&P Payment (HK$10,657,534.70), and there is no basis for P to assert that D1 and D2 owed him such sum.  It was only pleaded in the statement of claim at §16 that D1 and D2 “agreed and undertook to pay” P the Balance of the S&P Payment on or before 28 February 2022.

81.  He further argued there is “significant ambiguity” whether the 2021 Deed referred to the Balance of the S&P Payment.  Recital (D)  referred to the “Payable Balance of the purchase price for the purchase and sale of Luhe Xiangsheng Knitting Co., Ltd”, whereas the statement of claim pleaded in §§2 and 3 that the subject matter of the 2018 SPA was the entire shareholding in D4.  There is a discrepancy in the 2021 Deed which has not been rectified.

82.  He submitted that the judge failed to appreciate that D1 and D2 had never validly agreed to assume liability for the Balance of the S&P Payment, which was owed by Rensino.  Even the Payment Agreement contained no stipulation that D1 and D2 would assume such liability.  There is no basis on which D1 and D2 could have undertaken any liability beyond the HK$60 million (the 2^nd Tranche Payment), which is the only outstanding sum under the 2018 SPA on P’s case.  The mere fact that P and Lee had not pursued Rensino does not, without more, transfer the liability to Ds.  The judge erred in treating P’s forbearance against Rensino as evidence of Ds’ liability.

83.  Lastly, Mr Pang submitted that even if D1 and D2 did assume liability for the Balance of the S&P Payment, this constituted an unenforceable variation of the 2018 SPA by virtue of clauses 14 and 15 of that agreement.  Hence, D1 and D2 received no consideration for their undertaking to assume personal liability.

84.  We do not agree with the above arguments.

85.  By clause 2.4 of the 2021 Deed, D1 and D2 clearly “undertake to repay HK$10,657,534.70 being the payable balance of the purchase price for the purchase and sale of Luhe Xiangsheng Knitting Co., Ltd. and the interest thereof (for the period from 1 May 2021 and ending on 31 December 2021, the Parties agreed to a fixed interest rate of 1.2% per month), i.e. HK$1,023,123.33, on or before 31 December 2021.”

86.  The judge found as a fact at §60 of the Decision that references to outstanding balance price for the “land purchase” or “purchase and sale of Luhe Xiangsheng Knitting Co., Ltd” meant the outstanding balance price for the S&P, being the entire shareholding in D4 with the shareholder’s loan owed by Rensino to P. There is no dispute that D4 held all the interests in Luhe Xiangsheng Knitting[34].  A sale of all the shares in D4 is in effect a sale of Luhe Xiangsheng Knitting.

87.  In light of the above matters, there is no basis to challenge the judge’s finding, and no support for the contention that D1 and D2 did not assume personal liability for the Balance of the S&P Payment by the 2021 Deed.

88.  The contention that the assumption of liability by D1 and D2 constituted an unenforceable variation of the 2018 SPA and hence no consideration for undertaking such liability in the 2021 Deed is misconceived.  D1 and D2 were not parties to the 2018 SPA, there was no variation of the 2018 SPA in their assumption of liability outside of the 2018 SPA.  Besides, regardless of whether there was consideration, P is entitled to claim against D1 and D2 for debt or damages in respect of the obligations assumed by them under the 2021 Deed.

Ground 6: no guarantor’s liability

89.  No independent argument was advanced in respect of the guarantor’s liability.  As we have rejected all the contentions raised in respect of the liability of D1 and D2, we reject the challenge on the guarantor’s liability as well.

Respondent’s notice

90.  P filed a respondent’s notice to contend that insofar as necessary, and without prejudice to his contention that his claims are founded on the 2021 Deed which is enforceable without consideration, the Decision should be affirmed on two additional grounds: (1)  P and Lee are joint creditors of the payments owed to them under the 2018 SPA and payment to one of the joint creditors would discharge a debt owed to them jointly; and (2)  payment to P as agent for Lee would have the effect of discharging payments due to P and Lee under the 2018 SPA.

91.  Having rejected all the grounds of appeal, there is no need to deal with the respondent’s notice.  We would just mention that it is not in dispute that P and Lee were joint creditors.  It was provided in the 2018 SPA that payment was to be made to the joint bank account of P and Lee (clause 3.2)  and that Rensino did not have to be concerned with how the consideration paid was to be shared or split between P and Lee (clause 3.1(c)).  Given that P has confirmed on affirmation that the Loan was released and used to settle the 2^nd Tranche Payment on 2 May 2019, we have already held this would be sufficient to discharge the 2^nd Tranche Payment from Rensino.

Orders

92.  For the above reasons, we have dismissed the appeal brought by D1, D2 and D4.

93.  We have heard submissions on costs.  We order these defendants to pay P’s costs of this appeal, with a certificate for two instead of three counsel, to be taxed on a party and party basis and not indemnity costs as suggested by P.