KING VICTORY INVESTMENT LTD v. CHAN HON WING AND ANOTHER

HCA 1702/2022

[2023] HKCFI 2292

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1702 OF 2022

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(By Original Writ and Order of Master Kent Yee to carry on dated 16 March 2023)

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REASONS FOR DECISION

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1.  This is an appeal by Yuen Sau Lin Florence, the personal representative of the estate of Chan Hon Wing, Deceased (“D1”) and Yuen Sau Lin Florence (“D2”), (collectively “the Defendants”) from the decision of Master Queenie Lau dated 6 July 2023 granting summary judgment to the plaintiff King Victory Investment Limited (“the Plaintiff”) on the outstanding balance of its loan of $15 million to the Defendants. At the conclusion hearing, the appeal was dismissed with costs to the Plaintiff, with certificate for 2 counsel. My reasons appear below.

Background facts

2.  The Plaintiff is an investment holding company and a wholly-owned subsidiary of Super Strong Holdings Limited (“Listco”), a Hong Kong listed company. Listco and its subsidiaries are engaged in the business of construction and building management.

3.  The Defendants were husband and wife. D2 had worked in the banking industry and held senior administrative positions in commercial institutions. From about 2013, through More Wealth Development Limited (“More Wealth”) a corporate vehicle they controlled, the Defendants began to purchase land in Tan Ka Wan, Sai Kung.

4.  Sometime in 2019, the Defendants’ son introduced the Defendants[1] to Kelvin Ko (“Mr Ko”) an executive director of Listco.

5.  On 8 August 2019, the Plaintiff and More Wealth entered into a joint venture agreement (the “JV Agreement”) to jointly carry out through a JV company (later renamed Grand Paradise Development Company Limited (“Grand Paradise”)) the business of the development of land situated on an island located at Tan Ka Wan totalling approximately 151,571 square feet (“the Lands”), the subsequent disposal of part thereof and the operation of a leisure paradise on the remaining part (“the Project”).

6.  The Plaintiff and More Wealth respectively owned 65% and 35% of Grand Paradise.

7.  The JV Agreement provided for (a) the injection of $12 million in cash by the Plaintiff as capital for Grand Paradise; (b) the assignment of the Lands to Grand Paradise by More Wealth in 3 stages; (c) the appointment of the project manager for the Project by the Plaintiff; and (d) 50% of the sale proceeds of the Lands received to be applied as dividends and distributed on a quarterly basis.

8.  The Plaintiff appointed W.M. Construction Limited (“WM”) an indirect subsidiary of Listco as project manager.

9.  On 18 October 2019, Mr Ko advised D2 by email of the approval by Listco’s Board of her request for a loan, and attaching a draft revised loan agreement for review.

10.  On 29 October 2019, the Plaintiff and the Defendants entered into a loan agreement (“the Loan Agreement”) which provided for a loan of $15 million to the Defendants with interest at 3% per annum (“the loan”). The loan together with all accrued interest was repayable 12 months from the date of the Loan Agreement (“the repayment date”) subject to the Defendant’s right by written notice served not later than one month before the repayment date to extend the repayment date by 6 months (“final repayment date”).

11.  The Defendants duly served a notice to extend the repayment date by 6 months such that 28 April 2021 became the final repayment date.

12.  No repayment was made on the final repayment date.

13.  Instead, the Defendants sought a three-month extension to 27 July 2021 and agreed to increase the interest rate from 3% to 6% per annum. The parties signed a “supplementary agreement” on 14 May 2021 to that effect and which stated that “there is no further extension clause”.

14.  Thereafter, the parties entered into several “supplemental agreements” under which the interest rate was 6% per annum. These together with the supplementary agreement mentioned in the preceding paragraph are summarised in the table below:

	Date of Supplemental Agreement	Extension Period
(1)	14 May 2021	28 Apr 2021 – 27 Jul 2021
(2)	29 Jul 2021	28 Jul 2021 – 27 Oct 2021
(3)	27 Oct 2021	27 Oct 2021 – 26 Feb 2022
(4)	28 Feb 2022	27 Feb 2022 – 31 May 2022
(5)	2 Jun 2022	31 May 2022 – 31 Aug 2022
(6)	2 Sept 2022	1 Sept 2022 – 30 Nov 2022

15.  Each of the extensions was for a period of 3 months except the 3^rd supplemental agreement which provided for an extension period of 4 months.

16.  The 3^rd, 4^th, 5^th and 6^th supplemental agreements were preceded by letters to the Plaintiff from the Defendants proffering various excuses: see the Defendants’ letters dated October 25, 2021[2], February 27, 2022[3]; May 30, 2022[4] and August 30, 2022[5].

17.  Under the 6^th supplemental agreement, repayment was due on 30 November 2022.

18.  On 7 November 2022, D2 met with Mr Ko and two directors of Listco. The parties have given conflicting versions of what transpired at that meeting. According to the Plaintiff and the 2 independent non-executive directors of Listco who were present at the meeting, D2 agreed to provide the Plaintiff with a repayment schedule on 11 November 2022[6]. That is denied in the letter dated 23 November 2022 from D2’s solicitors.

19.  On 14 November 2022, the Plaintiff’s solicitors, inter alia, gave notice that appropriate action would be taken without further notice if repayment were not made as provided by the 6^th supplemental agreement.

20.  While D1 made no response, D2’s solicitors did so at some length in their letter to the Plaintiff dated 23 November 2022.

21.  On 30 November 2022, the Plaintiff’s solicitors reiterated the demand for repayment to which D2’s solicitors replied and, on 5 December 2022, after the expiration of the repayment deadline, issued the writ in this action.

22.  It was only on 7 December 2022 that the Defendants’ solicitors replied to the letter of 30 November.

23.  The summary judgment summons was taken out by the Plaintiff on 11 January 2023 and heard by Master Queenie Lau who, on 6 July 2023, entered summary judgment in favour of the Plaintiff, culminating in the present appeal.

This appeal

24.  The Defendants seek to set aside the Master’s order on the basis that the Defendants have a real or bona fide defence based on a representation/assurance made/given by Mr Ko prior to the Loan Agreement such that it would be inequitable to allow the Plaintiff to rely on the strict terms of repayment; alternatively, they would give rise to promissory estoppel. The Defendants also raise a defence based on the Money Lenders Ordinance, Cap 163 (“MLO”).

Applicable principles

25.  It is trite that this appeal being an appeal from the Master is to be dealt with by way of a re-hearing of the application.

26.  A convenient statement of the proper approach to a summary judgment application may be found in the judgment of Ng J in Guanghua SS Holdings Limited v Lim Yew Cheng and Anor [2022] HKCFI 1052 at §13:

“(1) The Order 14 machinery works on the basis that if the plaintiff’s application is properly constituted, it is prima facie entitled to judgment unless the defendant shows cause to the contrary.

(2) The mere assertion in an affidavit of a given situation by the defendant responding to an application for summary judgment does not, ipso facto, ground leave to defend.

(3) The burden is on the defendant to show a real or bona fide defence or some other reason for a trial. The defendant must satisfy the Court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.

(4) In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, the Court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the Court must look at the whole situation.

(5) In assessing the credibility of the defendant’s factual case, while the Court will not embark upon a mini-trial on affidavit evidence, the Court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate.

(6) If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so.

(7) If the defendant’s evidence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.”

The defences

(A) Representation/assurance

27.  In outline, this defence (“the Representation defence”) is based on the representation/assurance described in §31 below said to have been made by Mr Ko. It is premised on there being an “Overall Collaboration Agreement” (“the OC Agreement”) that arose during the negotiations for the JV Agreement of 8 August 2019.

28.  According to D2[7], the OC Agreement comprised 3 components:

(i)  a capital injection by Listco into a JV company which would carry out the JV development on part of the Lands;

(ii)  the loan from Listco to the Defendants personally; and

(iii)  land development work on land (being non-joint venture land comprising an area of 330,000 square feet) to be carried out by a contractor nominated by Listco.

29.  After the introduction to Mr Ko[8], negotiations took place ‘mainly[9]’ between D2 and Mr Ko whom D2 stated she personally met twice. As the JV Agreement is dated 8 August 2019, those negotiations must have predated the JV Agreement. At the hearing, Mr Herbert Leung, counsel for the Defendants, confirmed that to be the Defendants’ position.

30.  According to D2, capital would be provided by the Plaintiff but Mr Ko explained that for regulatory reasons one half would take the form of a capital injection into the collaboration and the other half as a personal loan to the Defendants.

31.  During those negotiations, Mr Ko was said to have stated that the land development works in respect of that part of the Lands to be sold would take one year. He agreed to include a time extension provision to cater for any delay in construction. As regards Listco’s right to take over the Defendants’ 35% shares in Grand Paradise in the event that the Defendants still could not repay, Mr Ko had represented:

“that it was only ‘on paper’ and we could sort things out if and when delay happened (verbatim in Cantonese: ‘寫我就係咁寫到時我哋可以商量嘅’). Given the context of our discussion, I understood Ko (acting on behalf of the Listed Company) to have made a representation that the Listed Company would grant an extension of time for the repayment of the loan until proceeds were reaped from the sale of lands after the completion of land development works (‘the Representation’).”

32.  The following extract from the Defendants’ written submissions encapsulates their understanding and interpretation of the Representation:

“16. As a result, D2 understood Ko to have represented that the ListCo would grant an extension of time for the repayment of the loan until proceeds were reaped from the sale of lands after the completion of land development works (under the joint venture project), which formed a common understanding.

17. Furthermore, there was common understanding that [the Defendants] were not obliged to repay the loan until the completion of the land development work and the sale of the lands.

18. In other words, there was a promise made to [the Defendants] that no demand for repayment of loan would be made before the receipt of sale proceeds.

19. The JV Agreement dated 8 August 2019 was executed based on the [OC] Agreement and common understanding.”

33.  Apart from D2’s 2^nd affirmation which made those bare assertions, the Defendants have not adduced any documentary evidence in support: there is no document, record or communication in the form of WhatsApp or WeChat that corroborates the assertions.

34.  In their written submissions at §35, Mr Victor Dawes SC and Mr Lau Ka Kin, counsel for the Plaintiff, highlighted the total lack of particulars concerning the Representation. There were no particulars as to when it was made, where it was made and how it was made.

35.  The Defendants took issue with that submission, relying on D2 2^nd §§10, 13-16a. However, they do not provide the missing particulars.

36.  As regards the negotiations, other than 2 meetings with Mr Ko, there is no evidence that negotiations were carried out by other means such as through telephone calls. It is also accepted that there were no written exchanges between D2 and Mr Ko evidencing the negotiations before the court.

37.  There are no particulars of the dates (even approximate ones) of the 2 meetings nor of the interval that elapsed between them except that both meetings took place prior to the JV Agreement.

38.  The upshot of the Defendants’ case must be that by the 2^nd of the 2 meetings D2 had with Mr Ko, there was consensus not only regarding the terms of the OC Agreement but also those of the Loan Agreement.

39.  In those circumstances, the credibility of the Defendant’s factual case has to be assessed against the totality of the available evidence. In that regard, it should be noted that:

(a)  the Representation contradicts the clear terms of the Loan Agreement and the 1^st to 6^th Supplemental Agreements;

(b)  it also sits uncomfortably with the written extension requests made in 2021 and 2022 which proffered various “reasons” for the delay in making payment, thus implicitly recognising the obligation to make payment instead of taking issue with the obligation having arisen;

(c)  had the Representation been made, the response one would have expected from the Defendants would be that the demand was premature;

(d)  the Defendants have not explained why, if the Representation had been made prior to the Loan Agreement, they agreed (by entering into the 1^st Supplemental Agreement) to increase the interest rate from 3% to 6% as from 28 April 2021;

(e)  it is inexplicable that the Representation defence did not feature at all in the letters dated 23 November 2022 and 7 December 2022 from the D2’s solicitors in response to the Plaintiff’s demands for payment of 14 and 30 November 2022 and was only put forward in D2 2^nd made more than 4 months after the commencement of this action;

(f)  D1 never replied to the letters from the Plaintiff’s solicitors and his silence has never been explained[10];

(g)  assuming, in the Defendants’ favour, that Mr Ko had said to D2 that the repayment provision “was only ‘on paper’ and we can sort things out if and when delay happened”, to take those words to mean that

(i)  the Plaintiff would extend repayment deadline until “after the completion of the land development works” and

(ii)  “proceeds were reaped from the sale of lands”

requires a huge quantum leap in logic;

(h)  as already noted, there is a total absence of relevant particulars relating to the Representation.

40.  At the hearing, the Defendants only sought to address §39 (b) above. The Defendants, (relying on D2’s bare assertions (D2 2^nd at §§41-46[11]) submitted that the reasons contained in the written extension requests were suggestions provided by Mr Ko.

41.  In denying those assertions, Mr Ko exhibited a screencap of exchanges he had with Ms Flora So on 30 May 2022 who had asked him whether the Defendants’ draft written request for extension was okay: see Mr Ko’s 2^nd affirmation dated 26 June 2023 (“Ko 2^nd”) at §36. It is clear from the transcript that Mr Ko did not comment on the draft or provide amendments. The fact that the Defendants did approach Mr Ko for advice on that occasion cannot amount to evidence that the reasons in the Defendants’ requests for time extensions came from Mr Ko.

42.  In so far as the OC Agreement and the JV Agreement are concerned, the evidence shows that

(a)  the JV Agreement contained an “Entire Agreement” clause[12];

(b)  the “Project” was limited to the development of “the Lands”[13]

(c)  the JV and Loan Agreements were not made contemporaneously but with an interval of approximately 3 months;

(d)  the Defendants were advised on 18 October 2019 of the approval by the Plaintiff’s Board of their request for a loan of $15 million and on the same day they were provided with a revised draft loan agreement prepared by the Plaintiff’s solicitors;

(e)  also, on 18 October 2019, Grand Paradise entered into a construction contract with WM:

(i)  clause 1.1 (ii) stated that the construction period for stage I[14] of the development was anticipated to be 2 years; and

(ii)  More Wealth gave an undertaking that in the event that it (More Wealth) proposes to commence any other construction work on the Island[15], the Plaintiff or its related company shall be given priority relating to tender of such construction work[16];

(f)  11 days then elapsed before the parties entered into the Loan Agreement.

43.  The Defendants considered that the specific time period of the 6-month extension in the Loan Agreement, the promise by the Defendants to provide updates of the Defendants’ acquisition of the Lands[17], and the obligation to procure More Wealth to transfer Land C (particularised in Part III of the Appendix to the JV Agreement) support D2’s veracity.

44.  I fail to see how any of those matters which are entirely consistent with the obligations under the JV Agreement can advance the Defendants’ case or assist in establishing the Representation.

45.  In light of the matters set out in §42 above, the Defendants had ample time to seek legal advice before entering into the Loan Agreement. By then, the Defendants must have known that the loan would mature well before completion of the Project. Yet, they signed the Loan Agreement without demur.

46.  As Mr Ko held an important position in a listed company (Listco), D2 stated that the Defendants “trusted”[18] Mr Ko. However, it is not the case that D2 was a novice or unversed in business matters. Rather, she had worked in the banking industry and had held senior positions in commercial institutions.

Conclusion

47.  Taking a holistic view of the totality of the evidence and for the reasons set out above, the Defendants’ factual case is simply not credible. It is particularly telling that the Defendants did not even seek to proffer an explanation (much less a valid one) for not advancing the Representation defence until well after the commencement of the action.

48.  In those circumstances, it is unnecessary to address a point of law raised by Mr Leung concerning a passage from the judgment in Lau Sun Kiu v Chan Suk Gay, CAMP 47/2017, 17 November 2017 at §25.

(2) The MLO defence

49.  In their written submissions, the Defendants raised an alternative defence based on the MLO to the effect that the Loan is irrecoverable because the Plaintiff who made the loan is not a licensed money lender under the MLO and the loan is not within the exemption set out in paragraph 5 of Part 2 of Schedule 1[19] to the MLO.

50.  At the hearing, the Defendants did not make any oral submissions but relied on their written submissions. The short point is whether the exemption under paragraph 5 of Part 2 of Schedule 1 to the MLO applies to the loan.

51.  Whether a person is a money lender in relation to a particular transaction is highly fact-sensitive and the burden is on the Defendants to show an arguable case that the Plaintiff was a money lender at the relevant time: Re Florescent Holdings Limited [2022] 2 HKLRD 203 at §§39-40.

52.  The Defendants accept that the loan was connected to the JV Project[20]. It enabled the Defendants/More Wealth to acquire some of the Lands. The evidence shows that the Plaintiff’s ordinary business was that of investment holding. At the time of the Loan Agreement, the only interest revenue of Listco and its subsidiaries was from deposits and an insurance policy.

53.  That being the case, the loan is an exempted loan within paragraph 5 of Schedule 1, Part 2 and the MLO defence must fail.