HARBOR PROSPER (HK) INVESTMENTS LTD v. HE JIANLIANG AND ANOTHER

HCA 1296/2019

[2020] HKCFI 1144

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1296 OF 2019

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BETWEEN

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DECISION

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INTRODUCTION

1.  This is the Plaintiff’s application for summary judgment of US$60,434,311.70 against the 1^st and 2^nd Defendants (husband and wife) as guarantors under two deeds of guarantee in respect of the debt under the note issued by one YIHE Tourism & Healthy Lifestyle Investment Company Limited (the “Issuer”), controlled by the 1^st Defendant. 

PLAINTIFF’S CLAIM

2.  On 23 October 2017, among others, the Plaintiff as investor, the Issuer as the issuer, YIHE Di Chan Group Ltd (controlled by the 1^st Defendant) (“YIHE PRC”) as corporate guarantor and the 1^st Defendant as personal guarantor entered into an investment agreement relating to subscription and issue of a senior guaranteed note due 2018 of a principal amount of US$50,000,000 of the Issuer (the “Investment Agreement”).  Pursuant to the Investment Agreement, a note certificate dated 27 November 2017 executed as a deed poll was issued with the terms and conditions (the “Terms and Conditions of the Note”).  The final maturity date was 25 November 2018. 

3.  Repayment was not made on 25 November 2018.  On 28 November 2018: -

(1) The parties and the 2^nd Defendant entered into a supplemental deed (the “Supplemental Deed”) to extend the maturity date to 24 May 2019. 

(2) The 1^st Defendant executed an amendment deed to extend his guarantee in respect of the payment obligation of the Issuer under the Investment Agreement.  I shall refer to this guarantee as the 1^st Defendant’s Guarantee. 

(3) The 2^nd Defendant executed a personal guarantee in favour of the Plaintiff.  I shall refer to this guarantee as the 2^nd Defendant’s Guarantee in respect of the payment obligation of the Issuer under the Investment Agreement. 

4.  Clause 9.1 (d) of the Supplemental Deed provided that: -

“The Corporate Guarantor irrevocably and unconditionally undertakes to register the Hangzhou Qingcheng Equity Pledge and Guangzhou Weituo Equity Pledge with SAIC as soon as possible after the execution of such documents, and in any event within thirty (30) days following the execution of such documents (or such other date as may be approved by the Initial Noteholder).”

5.  Clause 9.1(e) of the Supplemental Deed provided that: -

“The Corporate Guarantor shall procure the other shareholders of Hangzhou Qingcheng to cooperate and to execute all documents necessary to complete the registration of Hangzhou Qingcheng with SAIC as required in accordance with Clause 9.1(d).”

6.  YIHE PRC still fails to register the Hangzhou Qingcheng Equity Pledge and thus breached the undertakings set out in Clause 9.1(d) and Clause 9.1(e) according to the Plaintiff’s case.  The Plaintiff contends that this constitutes an event of default, and thus now claims against the 1^st and 2^nd Defendants as guarantors. 

ARGUABLE DEFENCE AND/OR TRIABLE ISSUE

7.  I agree with Mr Patrick Siu, counsel for the Plaintiff, on the evidence (mainly documentary) that the Plaintiff has established its claim for the purpose of an Order 14 application.  The question is whether the 1^st and 2^nd Defendants raise any arguable defence and/or triable issue. 

8.  The first defence raised by the 1^st and 2^nd Defendants is that the Supplemental Deed and the 1^st and 2^nd Defendants Guarantees were entered into in a rush, without affording the 1^st and 2^nd Defendants an opportunity to be explained, to understand the contents and to seek legal advice, and under pressure, and in the circumstances, the Plaintiff knew or ought to have known that the 1^st and 2^nd Defendant would rely on the Plaintiff.  Ms Cherry Xu, counsel for the 1^st and 2^nd Defendants, contends that these amount to undue influence. 

9.  This defence is stated to be dismissed.  I cannot see how those circumstances could constitute any undue influence in any manner.  Those circumstances, without more, are just day to day circumstances where parties enter into a certain legal relationship taking into account their bargaining positions in the normal course of business.  This defence is totally unmeritorious. 

10.  The second defence raised by the 1^st and 2^nd Defendants is that there was no event of default because (1) their obligation was not to secure a successful registration but simply to procure such registration though not necessarily successful; and (2) in any event, by taking steps to try to procure the registration, the Plaintiff had assumed the obligation of the registration and thus any failure was not the YIHE PRC’s breach. 

11.  First, to procure the registration is not the same as using one’s best endeavours to procure the registration.  The latter means that the obligation is discharged once best endeavours have been used, clearly indicating that there is a possibility that registration may not be successful.  If the parties here did intend to mean this, “best endeavours” or “best efforts” would have been used.  In the present case, to procure the registration means what it says. 

12.  Second, insofar as the 1^st and 2^nd Defendants use the term “assumption” of the obligation to procure the registration, I do not understand this term to be a term of arts or have any legal effect.  To have any legal effect in favour of the 1^st and 2^nd Defendants, this assumption has to be a waiver of the Plaintiff’s right to the performance of this obligation by YIHE PRC.  It is trite that a waiver must be made in clearest term.  There is none here.  At highest, what the Plaintiff did was simply to assist YIHE PRC in its procurement of the registration.  Even if it did not demand YIHE PRC anymore to perform its obligation, this silence still does not amount to a waiver in any clearest term. 

13.  This second defence, again, is not arguable. 

14.  The third defence raised by the 1^st and 2^nd Defendants is that the parties entered into a debt restructuring agreement on or around 22 August 2019, and thus the debt has been discharged and their obligations as guarantors have also been discharged. 

15.  First, the Plaintiff made it clear that it had not agreed to the debt restructuring agreement. Although it put its signature on the execution page and the investor introduced by the Defendants for the debt restructuring agreement, namely, Guangzhou Shimao Xin Li Cheng Real Estate Development Co Ltd (“Shimao”), kept the execution page, by an email of 8 November 2019 to the Defendant and Shimao, the Plaintiff made it clear that the debt restructuring agreement was still pending confirmation by the Plaintiff who would then authorise Shimao to release the signed execution page.  Second, Clause 2.2 of the debt restructuring agreement made it clear that agreement to the terms thereof was a condition precedent to the coming into effect of the agreement itself.  Even in paragraph 36 of the Defendants’ affirmation filed on 30 October 2019, the Defendants allege that the finalisation of those documents were expected in a month.  However, when the Plaintiff filed its reply affirmation on 30 November 2019, such finalisation still had not been agreed upon.  Third, in the 2^nd affirmation of Liao, an updating affirmation dated 15 May 2020 which I gave leave to file today, it is clear that the debt restructuring agreement would not be agreed to by Shimao, and thus it would not be finalised.  Fourth and in any event, the fact that now the Plaintiff pursues the present action and application only means that there can be no agreement at all.  It follows that the debt restructuring agreement has not been effective yet, and the underlying debt has not been discharged. 

16.  Ms Xu relies on the PRC legal opinion adduced by the 1^st and 2^nd Defendants to contend that the Plaintiff has a good faith obligation to work towards the satisfaction of the condition precedents, and by the present action and some other matters the evidence of which is not before me, such good faith obligation has been breached.  Even if I am willing to proceed on this basis, because the 1^st and 2^nd Defendants are not the parties to the debt restructuring agreement, and indeed as Ms Xu also fairly confirmed during the hearing, the 1^st and 2^nd Defendants will not raise any counterclaim.  As such, no defence by way of counterclaim could be raised, whether for any sort of order restraining the Plaintiff from carrying on the present action or for any monetary order for set-off.  Thus, this contention does not assist the 1^st and 2^nd Defendants at all. 

17.  In any event, Ms Xu also accepts that at best, such good faith obligation contention would not make the substantive contents of the debt restructuring agreement, notably the debt restructuring itself, become effective.  If the debt still has not been restructured, I do not see how the 1^st and 2^nd Defendants’ obligations under the Guarantees would be affected.  

18.  Ms Xu raises the fourth defence, namely, the debt restructuring agreement released the 1^st and 2^nd Defendants from their guarantee obligations as a matter of law.  This defence is premised on the effectiveness of the debt restructuring agreement, which I have rejected.  In any event, the reservation of rights clause in the 1^st and 2^nd Defendants’ Guarantees made it clear that they should still be liable to the Plaintiff despite any variation, waiver or release of obligation of any or all of the Issuer, and such clause is valid: see The Modern Contract of Guarantee (3^rd ed), paragraph 6-106.  The authorities relied upon by Ms Xu do not advance her submissions further.  It is a matter of contractual construction which is decided on a case-by-case basis. 

CONCLUSION AND ORDER

19.  In the circumstances, I make the order that The 1^st and 2^nd Defendants do jointly and severally pay the Plaintiff: -

(1) damages of US$60,434,311.70;

(2) pre-judgment interests thereupon at (a) 10% prior to 25 November 2018; (b) 15% for 26 November 2018 to 28 February 2019; and (c) 25% from 1 March 2019 until today; and

(3) post-judgment interest from today at judgment rate.