CHINA CONSTRUCTION BANK (ASIA) CORPORATION LTD v. KLARENKEN ENTERPRISE LTD AND OTHERS

HCA 1515/2023

[2024] HKCFI 2691

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1515 OF 2023

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BETWEEN

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DECISION

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A. Introduction

1.  By summons of 13 October 2023 (the “O.14 Summons”), the plaintiff (“P”) sought final judgment against all 3 defendants (“D1”, “D2” and “D3”, and collectively “Ds”). Having heard parties, Master Rita So on 11 April 2024 allowed the application and ordered that final judgment in the principal sums of US$250,366.18 and HK$12,937,606.82, together with late fees and interest, be entered against all Ds (the “Order”). By Notices of Appeal filed separately by D1 and D2, they appeal against that Order. There is no appeal by D3[1].

2.  This is the hearing of the appeal. Mr Forest Fong appeared for D1. Ms Lorinda Lau appeared for D2. Mr Anson Wong SC leading Mr Arthur Poon appeared for P.

B. Affirmations

3.  In support and in reply, P has filed:

(a) the 1^st and 2^nd affirmations of Chan Yan Yan[2] (“Chan”, and “Chan/Aff#1” and “Chan/Aff#2”). Chan is the First Vice President, Special Assets of the Risk Management Division of P;

(b) the affirmation of Chau Kai Man[3] (“Ernest Chau”, and “Chau/Aff”). Ernest Chau is the Senior Vice President of the Commercial Banking Division of P, and was the supervising officer of D1’s account in around April 2017 until around November 2017;

(c) the affirmation of Kwan Sze Wai[4] (“Jennifer Kwan”, and “Kwan/Aff”). She is the First Vice President of the Commercial Banking Division of P. She was the handling officer of D1’s account from around July 2017 to November 2020, and has resumed that position since July 2022;

(d) the 1^st and 3^rd affirmations of Poon Pui Pui[5] (“Poon”, and “Poon/Aff#1” and “Poon/Aff#3”). Poon is the Senior Vice President & the Head of Commercial Banking Centre of P, and was the supervising officer of D1’s account since around November 2017.

4.  In opposition, D1 relies on D2’s affirmation dated 2 January 2024 filed on its behalf (“D2/Aff#1”). For himself, D2 has filed his 2^nd and 4^th affirmations of 2 January and 12 April 2024 (“D2/Aff#2” and “D2/Aff#4”). In D2/Aff#2, he principally adopts the contents of D2/Aff#1. D2/Aff#4 was filed in response of some of the matters raised in P’s affirmations in reply

C. P’s pleaded case

5.  P’s case[6] is a straightforward one:

(a) It is a bank. D1 has been one of its customers. Relevant to and regulating their relationship is inter alia the General Agreement by Customer(s) (For Corporate Customer(s)) dated 1 February 2021 (the “General Agreement”);

(b) Loans have been extended to D1. They are:

(i) the “Revolving Loan”, extended pursuant to the terms of a facility letter dated 1 March 2021 as subsequently revised or supplemented by 3 letters (collectively the “2021 Facility Letter”[7]), and

(ii) the “SFGS Term Loan” (together with the Revolving Loan, collectively the “Loans”), extended pursuant to the terms of another facility letter of 15 October 2021 (the “SFGS Facility Letter”, together with the 2021 Facility Letter, collectively the “Facility Letters”) under the HKMC Small and Medium Enterprises Financing Guarantee Scheme (“SFGS”);

(c) D2 and D3 are guarantors of the Loans. They have executed:

(i) continuing Guarantees dated 13 April 2017 (the “13/4/2017 Guarantee”) and 1 February 2021 guaranteeing jointly and severally all past, present and future liabilities of D1 (the “Guarantees”); and

(ii) specifically guaranteeing the SFGS Term Loan, a guarantee dated 26 October 2021 (the “SFGS Guarantee”);

(d) D1 has failed to repay the Loans;

(e) D1 is hence liable as the borrower and debtor;

(f) D2 and D3 are hence liable as the guarantors.

D. D1’s and D2’s proposed defences

D.1. Further factual background

6.  The following further background facts provide the context necessary for the understanding of D1 and D2’s cases.

7.  D1 is a Hong Kong company. It was founded in 1994. It is a toy manufacturer. Mr So Man Po (“Mr So”, or the “Founder” as D2 has referred him as) was its founder. He was D2’s uncle. D2 has since 2003 been one of D1’s directors.

8.  Mr So passed away in November 2021. Letters of Administration with respect to Mr So’s estate (the “Estate”) was on 13 June 2022 granted. Mr Lau Shak Wah (“Mr Lau” or the “Administrator”) of Messrs Lau Wong & Chan (“LW&C” or “LWC”) has been appointed the administrator of the Estate. The Estate has been represented by LW&C.

9.  Vis-à-vis D1’s business, Mr So once had a business partner. That partner has been referred to as Mr Tam. D3 is Mr Tam’s daughter. Mr Tam and D3 had been shareholders of D1.

10.  I have mentioned above a number of P’s officers. Also involved in D1’s account with P were (i) Cheung Chung Yan, Grace (“Grace Cheung”). She was the handling officer of D1’s account in around April 2017. She left P’s employ on 18 December 2021; and (ii) Ms Lorraine Lee, which was a Senior Relationship Manager of Consumer Banking (Wanchai) of P.

11.  Whilst D1 is now being suing for the Loans extended in 2021, those Loans were not the first ones extended to it. D1 first requested from P a revolving loan in 2017. The matters were at that stage handled by Ernest Chau and Grace Cheung. They met Mr So, D2 and D3. A series of agreements were reached. They were (1) the General Agreement by Customers(s) of 13 April 2017, (2) the Facility Letter of 12 April 2017, (3) the Charge-Over Account Agreement of 13 April 2017 (the “COA Agreement”), and (4) the 13/4/2017 Guarantee mentioned above (collectively the “2017 Agreements”).

12.  Relevant to the COA Agreement[8]:

(a) Mr So and D2 are the 2 chargors;

(b) They thereby as security for the payment of all present and future obligations and liabilities of D1 charge the “Credit Balance” to P by way of first fixed charge (Clauses 1 and 2);

(c) “Credit Balance” means the aggregate credit balance of all the Charged Accounts referred to in the Schedule (Clause 1);

(d) The Charged Accounts in the Schedule include “each time deposit which is now or at any time in the future maintained in the name of the Chargor (to which the Chargor is beneficially entitled) with [P]” (the Schedule[9]);

(e) Clauses 13 and 14 are in the following terms:

“13. Additional security

This Charge is additional to and is not in any way prejudiced by, and will not prejudice, any other security or guarantee now or subsequently held by the Bank in respect of any Secured Liability.

14. Set-off, combination and appropriation

(a) Upon the occurrence of an Event of Default, the Bank may without demand, notice, legal process or any other action with respect to the Chargor:

(i) set-off all or any part of the Secured Liabilities against the liabilities of the Bank in respect of the Credit Balance (if held by the Bank): or

(ii) debit any account of the Chargor (whether sole or joint) with the Bank at any of its offices anywhere (including an account opened specially for that purpose) with all or any part of the Secured Liabilities from time to time; or

(iii) combine or consolidate any account in the name of the Chargor (whetl1cr sole or joint) in any currency at any of its offices anywhere with the account relating to the Credit Balance; or

(iv) apply or appropriate the Credit Balance in or towards the payment or discharge of the Secured Liabilities in such order as the Bank sees fit.

(b) If the Bank takes any action referred to in paragraph (a) above, the Bank will give notice of such action to the Chargor as soon as practicable afterwards.”

D.2. D1 and D2’s core evidence, and P’s in response

13.  In relation to the Revolving Loan, central to D2’s defences is D1’s allegations that D1, Mr So and D2 had reached “D1 Refinancing Agreement”, and that P, Mr So, D1 and D2 had reached the “Collateral Agreement”, or that P’s representatives had made the “P’s Representations” to them. The crux of D2’s evidence is as follows:

(a) D1 first arranged revolving credit line with P in about 2017;

(b) For that purpose and in around 2017[10],

“19. … the Founder, myself, and [D1] agreed that:

(a) the Founder and myself shall place fixed time deposits at [P] as collateral for the revolving credit line with [P];

(b) in the event of [P] demanding repayment from [D1], the Founder's fixed time deposits collaterals solely shall firstly be used and if insufficient my fixed time deposits shall follow to be used to satisfy such demand in order to prevent me and the [D3] from becoming liable for any amount covered under the collaterals by way of fixed deposits under our personal guarantees.

(“the [D1] Refinancing Agreement”)

20. During the process of applying for and negotiating the revolving loan facility with [P], the Founder (I was also present) informed the then handling staffs of [P] (who were Miss Grace Cheung and Mr Ernest Chau to the best of my recollection) acting on behalf of [P] of the [D1] Refinancing Agreement and sought [P’s] confirmation that in the event of [P] having to issue payment demand on [D1], [P] shall solely and firstly apply the Founder's fixed time deposits collaterals for repayment and, if insufficient, my fixed time deposits collaterals (if any) shall then be used to satisfy such demand in order to prevent the personal guarantors from becoming liable under the personal guarantees for any amount already covered under the collaterals by way of fixed deposits. [P] confirmed their agreement to the above (“the Collateral Agreement”) (“[P’s] Representations”). The particulars of the Collateral Agreement entered into between [P], the Founder, [D1] and me are as follow:

(a) The terms included, inter alia:

(i) in the event of [P] demanding repayment from [D1], [P] shall solely and firstly apply the Founder's fixed time deposits collaterals for repayment and the Founder shall not object to the same and, if insufficient, my fixed time deposits collaterals shall then be used to satisfy such demand;

(ii) [P] shall not hold the guarantors liable unless and until after the said fixed deposits collaterals had been applied to satisfy such demand;

…

(d) At the said meeting, induced by and acting on [P’s] Representations, the Founder, me and [D3] signed the respective personal guarantees.

…”

(c) Prior to March 2021, D1 only needed to draw down about HK$2 million. In about March to May, due to Covid, and because also of its strategic change, D1 started to draw nearly fully the revolving credit line;

(d) At that stage, the revolving credit line was collateralized by 4 of Mr So’s fixed time deposits, and one of D2’s in the amount of HK$5 million. Mr So and D2 had a discussion. The D1 Refinancing Agreement would continue unchanged, save that D2 would withdraw his fixed time deposit and inject the same into D1 to “finance ongoing capital needs on an contingent and if-need basis”. Mr So would then put in 2 more fixed deposits. Hence, upon renewal of the revolving credit line in March 2021, it was collateralized by 6 RMB fixed time deposits of Mr So’s (which D2 refers to as “the 6 RMB Time Deposits Collateral”). At §§30 and 31 of D2/Aff#1, he says this:

“30. I emphasize that during the March 2021 credit renewal, just like during every renewal since 2017, [P] orally expressly reconfirmed their agreement to the Collateral Agreement and repeated [P’s] Representations to the Founder, me and [D1].

31. Thus, on around 8^th March 2021, [D1’s] revolving credit with [P] was renewed with the Founder putting up the 6 RMB Time Deposits Collateral as collateral.”

(e) After Mr So’s death, the Administrator made a request to P to close all of Mr So’s accounts and to withdraw all the funds in them. D2 was told of this by Lorraine Lee. D2 says that that was in breach of the D1 Refinancing Agreement and the Collateral Agreement. He says that P did not comply “obviously due to the existence of the Collateral Agreement”[11]. Lorraine Lee further informed D2 that having consulted Shirley Poon, and in view of the complicated situation, P would cancel the Revolving Loan. D2 was not happy, but “instructed Shirley Poon on behalf of [P] to apply the 6 RMB Time Deposits Collateral to fully repay the same pursuant to the Collateral Agreement.” Further communications between him, Shirley Poon and Jennifer Kwan followed. On about 27 March 2023, Jennifer Kwan couriered some documents to him to sign. D2 has produced them as CKTC-11[12]. They were 6 instruction letters (the “6 D1 Instruction Letters”). Each referred to a particular loan, with their own maturity dates between 20 April and 10 May 2023. Each then said:

“Please be informed that we would like to fully repay the above mentioned loan on [the maturity date] by debiting [Mr So’s] (deceased) Account no.xxx[13].

For revolving loan interest payment and all other charges, please debit our HKD Saving/Current Account No.xxx[14]”

The instruction letters were all drafted for D1’s execution, with a request on a sticker on each of them saying “Please sign/with chop and send back”. D2, chopped, signed and returned them;

(f) On the basis of the above, D2 says that[15]:

“By reason of the aforementioned, [D1’s] indebtedness to [P] had been fully settled in around End September 2022 or alternatively on 10 May 2023 at the latest (“[D1’s] Repayment Date”). [P’s] subsequent demands to [D1] for repayment of the alleged outstanding loans were therefore wrongful.”

14.  In relation to the SFGS Term Loan, central to D2’s defences is D1’s allegations that P had made to Mr So, D1 and D2 the “SFGS Term Loan Representation”. The crux of D2’s evidence is as follows[16]:

“34. In around August 2021, [D1] inquired with [P] whether [P] participated in [SFGS] and whether the HKSAR Government will act as the sole guarantor for the loans advanced to [D1] under this scheme. [P] represented to the Founder, me and [D1] that such term loan will be guaranteed by the HKSAR Government and is totally unrelated to any personal guarantees executed by the Founder or me (“the SFGS Term Loan Representation”).

35. Induced by and in reliance on the SFGS Term Loan Representation, [D1] applied for HK$1,000,000 loan under the SFGS Scheme with [P] as the lending party. The application was subsequently approved and [D1] drew down the HK$1,000,000 loan on around 8 November 2021 … I would add that in fact at the material times, [D1] maintained at least HK$1,000,000 balance (in USD equivalent) in Account No. xxx[17] with [P]. Up till today, that remains true save that [P] had frozen the said account … In any event, at all material times, [D1] had been servicing the said Term Loan without any default.”

15.  D2 has also said that:

(a) as a result of P’s breach of an agreement with D1 to process D1’s further application for an SFGS loan in September 2022, D1 has suffered loss of orders and profit, for which D2 will counterclaim[18] (the “2022 SFGS Agreement”);

(b) P induced the Administrator to breach the D1 Refinancing Agreement and the Collateral Agreement, and that P and Administrator have conspired to injure D1[19].

16.  P dispute Ds’ allegations. It denies the existence of the D1 Refinancing Agreement, the Collateral Agreement, P’s Representations, and the SFGS Term Loan Representation. Relevant to the 6 D1 Instruction Letters and D2’s suggestion that D1’s indebtedness had been fully settled:

(a) Poon produces the contemporaneous correspondence between LW&C and P as part of exhibit PPP-1. She says at §§34 and 37 of Poon/Aff#1 that (inter alia):

“34. … Between September 2022 and early 2023, Jennifer Kwan and I maintained contact with [D2]. I wish to highlight the following three points in relation to our contact with [D2] during this period:-

…

(b) Second, the parties did explore during this period the possibility of applying the 6 RMB Time Deposits Collateral for the purpose of repaying all outstanding indebtedness owed by [D1] to [P]. Nevertheless, I understand that Jennifer Kwan has made clear to [D2] that to successfully effect repayment of the outstanding indebtedness this way:-

(i) The administrator of the Estate (i.e. Mr. Lau) must consent and provide written instructions to [P] to settle the outstanding indebtedness through set-off; and

(ii) [D1] would also need to concurrently provide written instructions to the Plaintiff on the same.

37. … I wish to highlight the following:-

(a) [P’s] position is always to ensure that it is able to recover the outstanding indebtedness under the Revolving Loan Facility and the Term Loan Facility in the most cost-effective and efficient manner – this provides the commercial context as to why [P] initially explored the possibility of enforcing against the 6 RMB Time Deposits Collateral, which could be achieved with relative ease by way of a set-off without initiating any legal proceedings;

(b) The above initial preference of [P] is clearly without prejudice to [P’s] right to enforce the clear terms of the agreements signed by [Ds], including the terms of the Guarantees dated 13 April 2017 and 1 February 2021; and

(c) At no point did I or [P] ever represent or commit to [D1]/[D2] that [P] would only look to the 6 RMB Time Deposits Collateral for the purpose of recovering any outstanding indebtedness owed by [D1] to [P].”

Poon then refers to the correspondence between P and LW&C. She then says that:

“38. By way of letter dated 29 May 2023, LWC requested [P] to provide copies of agreements between [P] and [D1], including copies of the Guarantees. On 7 June 2023, [P] duly provided the relevant documents to LWC …

39. To the surprise of the Plaintiff, on 16 June 2023, LWC wrote back to [P] claiming that the Founder's liability under the Guarantees cease once [P] had notice of the death of the Founder ...”

Poon refers to further correspondence that followed. She says:

“40. … I note that in the letter dated 28 August 2023, LWC claimed that the Estate of the Founder was not liable under the Charge-Over Account Agreement, and demanded an immediate release of the 6 RMB Time Deposits Collateral.

…

43. In any event, by August 2023, as a result of the stance taken by LWC:-

(a) It is clearly unrealistic for [P] to obtain any consent from LWC to repay [D1’s] outstanding indebtedness through a set-off against the 6 RMB Time Deposits Collateral, and it would unlikely be cost-efficient to enforce against the Estate in relation to the 6 RMB Time Deposits Collateral;

(b) [P] was increasingly concerned whether it would be able to recover the outstanding indebtedness owed by [D1] …

44. [P] made the considered decision on 29 August 2023 to issue demand letters against [Ds], and enforce the outstanding indebtedness against [D2] and [D3] under the terms of the Guarantees.”

(b) Jennifer Kwan produces the WhatsApp messages between she and D2. She says at §§, 11, 14 and 15 of Kwan/Aff[20] that:

“11. … in March 2023, Shirley Poon and I did explore with [D2] the possibility of repaying the outstanding indebtedness of [D1] through the 6 RMB Time Deposits Collateral held in the name of the Founder. Shirley Poon has explained the commercial rationale and expediency behind this arrangement in her separate affirmation. We have however made it clear to [D2] that the viability of this arrangement would be subject to the consent and instruction from the Founder’s Estate (i.e. Mr. Lau as the administrator), on top of written instructions from [D1].

…

14. … it was not until sometime in April 2023 did I provide the [6 D1 Instruction Letters]. Nevertheless, I wish to make clear the following points:-

(a) The reason why I provided the written letters of instructions was because [P] would not act on any oral instructions given by a client;

(b) I have made clear to [D2] that to successfully effect repayment of the outstanding indebtedness by way of applying the 6 RMB Time Deposits Collateral:-

(i) The [Administrator] must consent and provide written instructions to [P] to settle the outstanding indebtedness through set-off; and

(ii) [D1] would also need to concurrently provide written instructions to [P] on the same;

(c) The provision of these letters of instructions does not in any way suggest that [P] has elected to look only to the 6 RMB Time Deposits Collateral for repayment, or could be interpreted as evidence supporting the existence of the alleged Collateral Agreement; and

(d) The mere return of the signed letters of instructions does not in any way relieve [D1] from its repayment obligation, which appears to be what [D2] is now suggesting at §58 of [D2/Aff#1].

15. Quite to the contrary, from the WhatsApp message between [D2] and myself, [D2] was fully aware that [LW&C] was still reviewing the documents pertaining to [D1’s] loan, and that its approval and consent is required before the repayment could be effected through set-off.”

D.3. D1’s and D2’s proposed defences

17.  Mr Fong summarises D1’s proposed defences as follows[21]:

“14. … D1’s defences include that:

(a) The payment obligations of D1 had already been discharged;

(b) P, the Founder and Ds had entered into collateral agreements as a result of which P is (i) prevented and (ii) estopped from demanding D1 for repayments before looking to the securities with P;

(c) Further, in relation to the collateral agreements, P was (i) in breach, (ii) P induced the administrator to breach the same and, P and [Mr Lau] were in an agreement to injure D1’s economic interest.

15. D1 also counterclaims for loss and damage caused by P due to

(a) P’s breach of an agreement with D1 to process a government loan application, and

(b) Loss of orders and profit there from.”

18.  In the course of the hearing, Mr Fong informed (or confirmed with) this Court that for the purpose of the appeal, he is not pursuing:

(a) The SFGS Term Loan Representation as a defence; and

(b) The alleged conspiracy between P and Mr Lau. D1 however does not abandon the allegation that P has induced the Administrator to breach the D1 Refinancing Agreement and the Collateral Agreement.

19.  D2’s proposed defences as summarised by Ms Lau are as follows[22]:

“(a) There is no primary obligation to repay as D1’s indebtedness has been fully settled in around end September 2022 or 10 May 2023 at the latest …

(b) There had been material/substantial change in the circumstances since D2 executed the personal guarantees now relied on by P, i.e. P wrongly failed to comply and execute the repayment instructions of D1, in breach of the Collateral Agreement, that D2 has never been consulted by P of any alteration in the nature of D2’s obligations under the guarantee. D2 did not agree to such materials alterations, which no doubt is seriously prejudicial to D2’s right/interests … for he would not have entered into a guarantee should he knew that P would simply ignore the directions of D1 concerning the use of Mr. So’s fixed deposits to repay the money lent to D1, and/or the agreement Mr. So entered into with P the bank, on behalf of D1:

(c) Misrepresentation of P rendering the personal guarantees voidable …

(d) Prevention principles …

(e) Promissory Estoppel and/or Estoppel by Convention …”

Ms Lau further submits[23] that in addition to those defences:

“… there are also the following triable issues in the present case which make it inappropriate and unfair for summary judgment to be granted including:

(1) What was the exact promise made by P?

(2) Whether death of the Founder terminated the liability of the Founder in using the 6 RMB Time Deposits Collateral for repaying of D1’s outstanding loan under the revolving credit (especially when P already confirmed to [Mr Lau] that all these loans were drew down during the lifetime of the Founder)?

(3) Whether Grace Cheung, the former Assistant Vice President has the authority to agree to use the 6 RMB Time Deposits Collateral of the Founders to settle the outstanding loan, and whether P would be bound by Grace Cheung’s conduct even she did not have the actual authority. D2 submitted that this makes perfect commercial sense because this will offer P the best protection over the loan, and also created more businesses for P, and is absolutely believable;

(4) Whether Grace Cheung or any officers of P made the representations relied on by D2;

(5) In 2017, Grace Cheung and Edmund Chau [sic.] were P’s representatives who engaged in negotiation and subsequently execution of documents related to the loan … Mr. Chau agreed that it was Grace Cheung who continued the meeting with the Found, D2 and D3. However, Madam Shirley Poon now said Grace Cheung allegedly told her over 2 phone conversations that she could no long recall D1 and D1 was likely not to be her own client …

(6) There is no reason why Madam Grace Cheung could not make an affirmation herself even she left the employment of P. In any event, this is a case which needs to investigate and/or Grace Cheung, and other witnesses (at least those who made the affirmations and/or whose name mentioned in the parties affirmations be called to testify in court during trial.

(7) P’s explanation of how Madam Grace Cheung reacted towards Ds’ terms over the 6 RMB Time Deposits Collateral of the Founders to settle the outstanding loan is most incredible and certainly exposed the weakness of P’s own case OR that P has something to hide which no doubt strengthened Ds’ defence or Ds’ case AND showed clearly why this case should go to trial.

(8) D3 in [D3’s Letter] (esp. in paragraph 8) made it quite clear that P has been misleading her or denying her right under Clause 5 of the personal guarantee that she could limit her liability. D3 also confirm D1 and D2s’ case concerning the using of the 6 RMB Time Deposits Collateral for repaying of D1’s outstanding loan under the revolving credit. D3’s evidence bears weight because she already mentioned that she does not concern about the outcome of the Summary Judgment application. She only wrote the letter to tell the Court the truth of what happened.

and/or a trial is called for so that further investigation into any deals reached between [Mr Lau] and P which resulted in P suing only D1, D2 and D3, but not [Mr Lau] or the estate of Mr. So.”

E. Applicable law on Order 14 applications

20.  I have been cited a lot of authorities on the principles applicable to Order 14 applications. They include Menfond Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor [2013] 2 HKC 259 at §61, Time Rich 08 Limited v DBE (HK) Ltd [2018] HKCA 404 at §5.2, Classic Star Investments Ltd v China Land Holdings International Ltd [2019] HKCFI 141 at §47, Chow Tai Fook Nominee Ltd v Diamond City Ltd [2021] HKCFI 3019 at §38, Ju Yan Di Emperory Genesisy v Yau Wai Han [2015] 1 HKLRD 822, at 827, Canara Bank v Excel Triumph Ltd [2021] HKCFI 3747 at §11, Au Yeung Shun Mei v Jan Fung [2021] HKCFI 1432 at §14, China Everbright Holdings Co Ltd v Synergy Finance Ltd (HCA 933-935/2002, 18 December 2002, §18), Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262 at 268C-D, Lee Man Ching Mandy v Chiu Hing [2001] 4 HKC 280 at 283G-H, and various paragraphs from the Hong Kong Civil Procedure Vol.1 (including §§14/4/3, 14/4/9A, 14/4/9B, 14/4/10 and 14/4/14. There is no dispute between the parties on their application. Any difference is only a matter of emphasis. I have considered them. I apply them. I do not otherwise recite them.

F. The proposed defence that D1’s payment obligations having been discharged (the “Discharge Defence”)

F.1. The Discharge Defence as developed by D1

21.  I have reproduced §58 of D2/Aff#1. D2 says there that “[D1’s] indebtedness to [P] had been fully settled…”

22.  In the course of the hearing, Mr Fong confirmed that there is no dispute that the Loans have been extended to D1. There is further, despite what D2 has said in §58 of D2/Aff#1, no dispute that the Loans had not actually been repaid. The Discharge Defence which D1 intends to run goes in gist as follows:

(a) Mr Fong points to Kwan/Aff (§§11 in particular), wherein Jennifer Kwan talks about the need for (1) the Administrator’s consent and written instructions, and (2) D1’s written instructions;

(b) He submits that both of those conditions had been satisfied:

(i) In respect of (1) above, Mr Fong relies on 2 letters of 10 March[24] and 19 April 2023[25] (the “10/3/2023 Letter” and the “19/4/2023 Letter” respectively) respectively from the Administrator and LW&C to P (which 2 letters I will return);

(ii) In respect of (2) above, Mr Fong relies on the 6 D1 Instruction Letters;

(c) On the law, he relies on Trustor AB v Lindsay James Trevor Smallbone (CHAN. 1999 0787/3, 9 May 2000) §72;

(d) Mr Fong submits that by the combined effect of the above:

“40. … around March and April 2023 P did have on hand written instructions from both D1 and [Mr Lau] for using the funds in the Time Deposit Accounts and account # 999xxxx[26] to repay D1’s indebtedness.

41. By reason of the aforementioned, D1’s indebtedness to P had been fully settled since the securities of Ds and the Founder at P which had been held / frozen by P had been, by D1’s instructions, placed at the disposal of P, see Trustor AB (supra.). Regardless of the reason by which P chose not to apply those monies in settlement of D1’s outstanding loans, D1’s payment obligations owed to P had been discharged.”

(e) Mr Fong further submitted in the course of the hearing that whilst the Administrator might subsequently have changed his mind as to the Estate’s liability under the various guarantees, that change of mind is irrelevant, as D1’s payment liability had by then already been discharged;

(f) Mr Fong submits that this is an arguable defence.

F.2. Trustor AB

23.  At §72 of Trustor AB, Sir Richard Scott observed that:

“If a debtor wishes by a payment to his creditor to discharge his liability, the debtor must, in my judgment, make such a payment as places the money at the disposal of the creditor.”

I will for ease of presentation call this the “At-the-disposal Condition”.

24.  In Trustor AB, the question of discharge related to a sum of money paid into an overseas bank account of the creditor/claimant. There were instructions by the managing director to the bank to transfer the money back to its domestic account. The bank refused to comply, as the sum was subject to a rival claim started in Luxembourg by another bank. Sir Richard Scott held that that sum was never at the disposal of the creditor/claimant, and could not be at its disposal until the litigation in Luxembourg had concluded. At §73 of the judgment, the Vice-Chancellor further cited with approval the following 2 authorities:

“… In United Australia Ltd v Barclays Bank Ltd [1941] A.C.1. Lord Simon, at p. 21, said:−

‘What would be necessary to constitute a bar [to recovery] would be that, as a result of such judgment or otherwise, the appellants should have received satisfaction’.

In Selangor United Rubber Estates v Cradock (No. 3) [1968] 1 WLR 1555 Ungoed−Thomas J., said, at p. 1651:−

‘Satisfaction must be true and real satisfaction and not part of what makes satisfaction a mockery’.”

25.  A related point in fact arises. Mr Fong reads §78 of Trustor AB as laying down the rule that fulfilment of the At-the-disposal Condition by itself discharge the liability. The Vice-Chancellor has never said that. Quite clearly in my view, if that condition is not fulfilled, the payment does not even start to qualify as a discharge. It is a necessary condition. But it is by itself not a sufficient one.

26.  The above is clearly supported by TSB Bank of Scotland Plc v Welwyn Hatfield District Council [1993] 2 Bank LR 267. As explained by Hobhouse J at 271 (col 2):

“ To discharge a debt there must have been an accepted payment of that debt not a mere receipt by the creditor of the sum of money. The late Dr Francis Mann at page 75 of ‘The Legal Aspect of Money’ says:

‘No creditor is under any legal duty to accept any payment and no debtor can force any payment of any kind upon his creditor without the latter's consent express or implied, precedent or subsequent.’

All the debtor can do is make an unconditional tender of the relevant sum to the creditor; if the creditor accepts the sum the liability of the debtor is appropriately discharged or reduced; if the creditor refuses to accept the tender, the debtor may, provided that he remains ready and willing to pay the relevant sum and pays it into court if action is brought against him, raise the defence of tender to the creditor's claim in respect of the debt. The unaccepted tender therefore does not discharge the debt but it provides the debtor with a protection in respect of costs and against any award of interest.”

27.  The At-the-disposal Condition which Sir Richard Scott explained in Trustor AB goes to the requirement that the tender has to be unconditional. But even when the tender is unconditional, there is no discharge unless and until it is accepted by the creditor. Failure or refusal to accept does not discharge the debt, but only gives the tenderer/debtor the defence of tender if and when being sued.

28.  In the course of the hearing, Mr Fong approached Trustor AB and TSB Bank as if the two cases conflict. He urged this Court to prefer the former to the latter, on the basis that the former was a decision of the English Court of Appeal. In my view, there is no conflict between the 2 decisions. They are entirely consistent with one another, as discussed above.

F.3. Application

29.  For the following reasons, I hold that the Discharge Defence is not reasonably arguable, and raises no triable issue.

30.  D1 relies heavily on the 10/3/2023 Letter and 19/4/2023 Letter:

(a) In respect of the 10/3/2023 Letter:

(i) It was signed off by Mr Lau;

(ii) It says inter alia:

“As personal representative of the Deceased’s estate, I now exercise the right of redemption of the existing charges against the Time Deposit Accounts. Please let me know the outstanding principal together with interest accrued thereon (if any) at your earliest convenience.

Meanwhile, please deduct from the Time Deposit Accounts all outstanding principal together with interest accrued thereon (if any) for redemption and release the remaining balance thereof and the balance of the Accounts … to [LW&C] as soon as possible.”

(b) In respect of the 19/4/2023 Letter:

(i) It was signed off by LW&C;

(ii) Its says inter alia:

“We are instructed that all the principals together with interest accrued thereon at the maturity dates of the Time Deposit Accounts respectively shall be credited into the Savings Account No.xxx[27] maintained by the Deceased with your bank.

We shall be grateful if you could kindly arrange to redeem the Loan No.84610000067159 with the principal sum of HK$1,000,000.00 on 20^th April, 2023 by deduction of the same from the said Savings Account No.xxx[28] direct.”

(c) By themselves, they give the impression that the Administrator had consented to setting off the fixed deposits against the Loans. Other evidence (which Mr Fong does not deal with in his written submissions) on the other hand shows clearly that no set-off has ever taken place:

(i) In the email of 22 May 2023 by D2 to the Administrator and Mr So’s widow[29], D2 was chasing the Administrator for release of signed documents so that P could “use the time deposit to settle the loan”;

(ii) On 24 May 2023, D2 told Jennifer Kwan via WhatsApp that he had asked and was told that “Mr Lau is reviewing the document …”[30];

(iii) By letter of 29 May 2023 from the Administrator to P[31], the former said “I have been informed that the following Time Deposit Accounts owned by [Mr So] have been charged to your bank.” He asked for inter alia a copy of the COA Agreement;

(iv) In reply on 7 June 2023[32], P provided to the Administrator the “Continuing Guarantee and Facility Letters”. P then said:

“Please provide us your Time Deposit Maturity Instruction and Loan Repayment Instruction at your earliest convenient for our further arrangement.”

(v) Then, on 9 June 2023, D2 messaged Mr So’s children[33] in effect pleading for their help in getting the Administrator to release his instructions to P. He concluded by saying “please help to inform Mr Lau to release the instruction to bank.”

(vi) On 14 June 2023, D2 sent an email[34] to the Administrator and the Mr So’s Widow again. He addressed the Administrator directly. The Uncle Kenny referred to therein is Mr So. Therein, he said D1 was nearly bankrupt and could not afford the interest. He said that the Revolving Loan “followed instructions from” Mr So. He concluded by saying that:

“I hope you can make the instruction to the Bank by the end of this week, or maybe you can invest in our company so we can more smoothly to running the business.”

(vii) On 23 June 2023, Mr So’s son messaged D2 saying that he could not do anything with the Administrator. He recited what his mother told him, that the Administrator was trying to resolve the matter, but that “the documentation took a very long time”;

(viii) In late June and early August 2023[35], P was still communication with D2 for repayment of the Loans.

(d) Quite clearly, and to D2’s contemporaneous knowledge, the Administrator had not released the instructions and documents necessary for any set-off, that there was and has been no set off, and that the Loans have remained outstanding;

(e) In the course of the hearing, Mr Fong submitted that it could just be the case that D2 had no contemporaneous knowledge of the existence of the 10/3/2023 Letter and 19/4/2023 Letter. Any suggestion to any effect that the Administrator had given valid instructions (such that the At-the-disposal Condition had been fulfilled) but that both the Administrator and P chose not to tell D2 despite all the on-going communications is in my view entirely incredible;

(f) There is further no suggestion that any set-off, debit, combination, consolidation, application or appropriation under Clause 14(a) of the COA Agreement had taken place, or any notice required by Clause 14(b) of the same to be served upon the chargor had been served;

(g) The 6 RMB Time Deposits Collateral has not simply by the 10/3/2023 Letter, 19/4/2023 Letter and the 6 D1 Instruction Letters been placed at the disposal of P;

(h) Even if the At-the-disposal Condition had at one stage been met, until acceptance by P, there was no valid discharge. I repeat my discussions on Trustor AB and TSB Bank above. There has been no acceptance by P. The indebtedness subsisted. I reject Mr Fong’s submissions to the contrary;

(i) Very soon afterwards, by letter of 16 June 2023[36], and maintained since, the Administrator took the stance, as summarised in LW&C’s letter to P’s solicitors[37], that:

“our client ceased to be liable to your client on the date of death, or on the date (30 December, 2021) when your client received notice of his death, or at least on 28 February, 2022 when the guarantee given by the Deceased terminated by effluxion of time. As such, the 6 Time Deposits owned and charged by the Deceased as security for his guarantee to your client have to be released. The fact that your client entered a new loan agreement with new personal guarantee given by Mr. Chung and Ms. Tam should not affect the estate of the Deceased. Therefore, your client should release the monies standing in the credit of those accounts.”

(j) Whatever the effects of the instructions given by the Administrator in the 10/3/2023 Letter and 19/4/2023 Letter, his stance since latest 16 June 2023 has been that the 6 RMB Time Deposits Collateral should be released to the Estate. Even if there had been any unconditional tender before, it has since been retracted.

F.4. Conclusion on the Discharge Defence

31.  For the above reasons, I hold that the Discharge Defence is not reasonably arguable, and raises no triable issue.

G. The proposed defence based on the Collateral Agreement

32.  For the purpose of deciding whether there is an issue or question in dispute which ought to be tried, the Court is not to conduct a mini-trial. Whilst this is clear, it is equally clear that mere assertions by way of affirmation does not by themselves justify leave to defend. The Court is entitled, or indeed must, with regard to factors like inherent plausibility, consistency (or otherwise) with contemporaneous documents and conduct, and consistency (or otherwise) with other compelling evidence, reach a view as to whether the assertions are credible. If they are not, leave to defend based on them should be refused.

33.  I have considered the evidence. I have considered in particular the contemporaneous documents, and parties’ contemporaneous conduct. I am of the view that Ds’ assertions as to the existence of the Collateral Agreement and P’s Representations are incredible:

(a) There is a complete absence of contemporaneous records and reference to the Collateral Agreement and P’s Representations:

(i) There was no reference to the Collateral Agreement or P’s Representations in any of the contemporaneous correspondence Ds and the P;

(ii) The Collateral Agreement was said to be reached in 2017 when Revolving Loan was first sought. Revolving Loan had since been renewed and extended over the years via multiple facility letters. Various guarantees have also been entered into. The Collateral Agreement was not mentioned in any of those documents, or any written correspondence that led to them;

(iii) I have reproduced D2/Aff#1 §30 above. D2 claims that when the credit was renewed in March 2021, “just like during every renewal since 2017, [P] orally expressly reconfirmed their agreement to the Collateral Agreement and repeated [P’s] Representations to the Founder, me and [D1]”. There is no contemporaneous documentary record of or even reference to such alleged repeated re-confirmations. D1 and D2 have notably also failed to condescend to particulars as to how P, a limited company, effected the oral re-confirmation;

(iv) There was no mention of their existence even in the communications between D2, the Administrator, Mr So’s widow, and Mr So’s children. I do not accept Mr Fong’s oral submissions that there was some implied reference in some of the messages;

(v) Even when P subsequently sought to enforce the Guarantees, their existence was not asserted. The letters of demand went un-countered;

(b) On top of absence of record and reference, the existence of the Collateral Agreement or P’s Representations is inconsistent with and is contradicted by the terms governing parties’ rights and obligations in the divers loan documentation. I name just the following clauses as the prime examples:

(i) The 13/4/2017 Guarantee, Clause 10 (that obligations of guarantor not affected by inter alia the taking, variation, renewal or release of, or neglect to perfect or enforce, any rights, remedies or securities against any debtor or any other person)[38] and Clause 11 (the guarantor waiving any right he may have of first requiring the Bank to proceed against or enforce any other rights or security or claim payment from any person before claiming from the guarantor under the guarantee); and

(ii) The COA Agreement, Clause 13, which I have re-produced above;

(c) Chan has produced P’s internal protocol “Credit Commitment and Advice of it to Customers”. The agreement to the Collateral Agreement and the making of P’s Representations would have constituted multiple breaches of that protocol. I accept Mr Wong’s submissions that it is inherently implausible that multiple bank officers, not just Grace Cheung and Ernest Chau in 2017 to start with, but also some unspecified officers when subsequently allegedly re-confirming the same, would have for no apparently reasons acted in breach of the protocol.

34.  Both Mr Fong and Ms Lau have highlighted the absence of any affirmation from Grace Cheung. Ms Lau also highlighted the evidence that Ernest Chau was not present throughout the meeting when Grace Cheung met Mr So and D2. According to the evidence, Grace Cheung has left P’s employ. For the purpose of the present case, Poon has contacted her. Grace Cheung told Poon that she could no longer remember D1 or the case. On the totality of the evidence before me, I am of the view that the absence of any affirmation by Grace Cheung does not assist Ds in discharging the onus on them to show cause. It is speculative on Ds’ part that cross-examination of Grace Cheung can somehow assist their defences. Mr Wong has referred this Court to §14/4/3 of the Hong Kong Civil Procedure 2024 wherein it is explained, and I agree, that:

“ ‘A desire to investigate alleged obscurities and a hope that something will turn up on the investigation cannot, separately or together, amount to sufficient reason for refusing to enter judgment for the plaintiff. You do not get leave to defend by putting forward a case that is all surmise and Micawberism’ (per Megarry V.-C. in Lady Anne Tennant v. Associated Newspapers Group Ltd [1979] F.S.R. 298 ).”

35.  D3 has in D3’s Letter expressed agreement to D2’s allegations in respect of the Collateral Agreement. Mr Fong and Ms Lau have asked this Court to heed that letter. I have. I also remind myself that cause may be shown by “affidavit or otherwise”. However, the fact remains that D3’s Letter is not under oath. And more importantly, what she claims does not cure any of the problems which I have discussed above in this section (Section G) of this Decision.

36.  Given my conclusion above, the other matters raised “in relation to the collateral agreements” (§14(c) of Mr Fong’s written submissions) are not engaged.

H. D1’s intended counterclaim

37.  As I have recorded above, for the purpose of these appeals, D1 is not pursuing the SFGS Term Loan Representation or the alleged conspiracy. The allegation of inducement of breach is premised upon the existence of the Collateral Agreement, which is not engaged given my conclusions above.

38.  What is left is D1’s intended counterclaim based on the 2022 SFGS Agreement.

39.  As explained in Hong Kong Civil Procedure 2024 §14/4/14:

“4. where the counterclaim arises out of a separate and distinct transaction or is wholly foreign to the claim, judgment should be for the plaintiff with costs without a stay”.

40.  In my view, the 2022 SFGS Agreement falls within that class, so that its existence and breach, even if substantiated, would have no effect on P’s entitlement to judgment.

41.  In any event, I am of the view that the contemporaneous documents produced by P show clearly that the reason why the application was not processed was because D1 had failed to provide P with the necessary documents.

42.  If necessary, I would hold that D1 has in any event failed to establish any triable issues in relation to this aspect of the 2022 SFGS Agreement.

I. Conclusion

43.  For the above reasons, I dismiss D1’s appeal.

J. D2’s case

44.  I have set out D2’s proposed defences as summarised by Ms Lau.

45.  Any reliance by D2 upon D1’s reliance of the Discharge Defence, for the same reasons explained above, fails.

46.  The alleged misrepresentation, the operation of the prevention principle and the issues of estoppel all hinge on the existence of the Collateral Agreement and P’s Representations. Given my conclusions above, they are not engaged, and do not assist D2.

47.  The alleged defence based on material change of circumstances is also premised upon the Discharge Defence and the alleged existence of the Collateral Agreement and P’s Representations. In any event, I heed the following terms of the 13/4/2017 Guarantee, that:

“2. Guarantee

For good and valuable consideration, receipt of which is acknowledged, the Guarantor irrevocably and unconditionally:

(a) as principal obligor guarantees to the Bank prompt performance by each Debtor of all its Guaranteed Obligations;

(b) undertakes with the Bank that whenever a Debtor does not pay any amount when due in connection with any of its Guaranteed Obligations, the Guarantor will immediately on demand by the Bank pay that amount as if the Guarantor instead of that Debtor were expressed to be the principal obligor; …

…

10. Arrangements with the Debtor and others; other security

The obligations of the Guarantor under this Guarantee shall not be affected by any matter or thing which but for this provision might operate to affect such obligations including without limitation (a) any time or indulgence granted to or composition with any Debtor or any other person, (b) the taking, variation, renewal or release of, or neglect to perfect or enforce, any rights, remedies or securities against any Debtor or any other person …

…

22. Joint and Several Liability

(a) If this Guarantee is executed by more than one person as Guarantor, the liabilities and obligations of each Guarantor under this Guarantee are joint and several.

(b) Each of the Guarantors agrees to be bound by this Guarantee notwithstanding that any others who were intended to sign or to be bound by this Guarantee may not do so or be effectually bound hereby and notwithstanding that this Guarantee may be invalid or unenforceable against any one or more of the Guarantors whether or not the deficiency is known to the Bank.

(c) The Bank shall be at liberty to release, compound with or otherwise vary or agree to vary the liability of; or to grant time or indulgence to, or make other arrangements with, any one or more of the Guarantors without prejudicing or affecting its rights, liabilities and remedies against any other Guarantor.”

48.  In the light of those terms, I accept Mr Wong’s submissions that those alleged change of circumstances does not affect D2’s liabilities under the Guarantees.

49.  In the light of the above, none of the alleged “triable issues” gives rise to, “with respect to the claim”, issue or question in dispute which ought to be tried. Nor is the “some other reason” limb engaged.

50.  I dismiss also D2’s appeal.

K. Overall conclusion

51.  For the above reasons, I dismiss both of D1 and D2’s appeals.

L. Costs

52.  I note Bank of China (Hong Kong) Ltd v Twin Profit Ltd (2012) 15 HKCFAR 560 per Ribeiro PJ at §§18-21. I note the indemnity clauses contained in Clauses 14 and 16 of the General Agreement, and Clause 19 of the 13/4/2017 Guarantee. Given those clauses, and in the exercise of my discretion on costs, I make an order nisi, absolute within 14 days, that D1 and D2 shall bear the costs of these appeals on an indemnity basis, to be summarily assessed. If any application for variation is made, further directions will be handed down upon receipt. In the absence of any, P shall within 21 days from the date hereof lodge and serve its statement of costs, Ds within 14 days of receipt lodge and serve their statements of objection, and P within 7 days thereafter lodge and serve its reply. The summary assessment will then be conducted on the papers.