PROFOUND SUCCESS INVESTMENT LTD v. MULTI SUCCESS TRADING LTD AND ANOTHER

HCA 238/2024

[2025] HKCFI 3022

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 238 OF 2024

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DECISION

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I. INTRODUCTION

1.  This is an appeal against Master’s decision in favour of the Plaintiff’s Amended Summons filed on 16 September 2024, whereby the Plaintiff sought summary judgment against the 2^nd Defendant on a claim for a debt and correspondingly sought to strike out the 2^nd Defendant’s counterclaim.  On 21 January 2025, the Master granted summary judgment and struck out the 2^nd Defendant’s counterclaim.

II.  RELEVANT PARTIES

2.  The Plaintiff is a limited company incorporated under the laws of the British Virgin Islands.  At the material times, its director was Grant Chien and the alternate director was Chan Wai Ming Henry (“Henry Chan”).  Behind the Plaintiff was a “conglomerate of investors who invested in the [Facility Agreement (mentioned below)] through the Plaintiff”: see §10.3 of the 2^nd Defendant’s Skeleton Submissions.

3.  On 3 September 2019, the 2^nd Defendant was re-appointed as the Executive Director of Fullsun International Holdings Group Co. Ltd, a Bermuda company listed in Hong Kong (“ListCo”)  and on the same day, his father Pan Weiming (“Pan Senior”)  gifted all his shares to the 2^nd Defendant, making the latter the majority and controlling shareholder of ListCo.

4.  Before June 2023, the 1^st Defendant, a limited company incorporated in Hong Kong, was wholly owned by ListCo.  As regards the composition of the board:-

(1)  Initially, on the board of the 1^st Defendant were two directors representing ListCo. 

(2)  On 23 January 2019, Grant Chien was appointed as director and Henry Chan as the alternate director of the 1^st Defendant.

(3)  By 2022, only one ListCo director was on the board.

(4)  On 19 December 2023, Henry Chan was appointed as a director of the 1^st Defendant.  Since then, the Plaintiff has been in full control of the 1^st Defendant.

(5)  On 7 June 2024, Grant Chien resigned and was replaced by Ang Mei Lee Mary.

5.  Melissa Tse was at the material times the Deputy General Manager of ListCo.

III.  BACKGROUND NOT IN DISPUTE

6.  On 23 January 2019, the 1^st Defendant as borrower and the Plaintiff as lender entered into a Facility Agreement dated 23 January 2019 (the “Facility Agreement”), as subsequently amended on 28 January 2019 and 9 April 2019, and amended and restated on 29 August 2019. Clause 3 of the Facility Agreement provided that:-

(1)  The 1^st Defendant shall apply the loan of US$63,700,000 under MX Facility towards the MX Project Company, a ListCo’s company; and

(2)  The 1^st Defendant shall apply the loan of US$92,200,000 under CL Facility towards the CL Project Company, a ListCo’s company.

7.  Both MX Project Company and CL Project Company were companies in the PRC developing properties in Changsha, PRC.

8.  According to the Plaintiff, the Plaintiff had advanced to the 1^st Defendant:-

(1)  As at 29 January 2019, a total of US$86,480,400 (the “CL Facility Loan”)  under the CL Facility; and

(2)  As at 5 September 2019, a total of US$56,568,900 (the “MX Facility Loan”)  under the MX Facility.

9.  The Loans totalled approximately US$143,049,300.

10.  On 29 August 2019, ListCo had been the major guarantor of the Loans, and the 2^nd Defendant became an additional guarantor upon his execution of the Amendment and Restatement Deed with the Plaintiff and other relevant parties (the “Guarantee”), and 9 companies acted as security providers.  

11.  By mid-2021, ListCo ran into liquidity problem.

12.  On 31 January 2022, a letter of intent (the “2022 Draft LOI”)  was drafted which would limit the 2^nd Defendant’s liability to US$19,000,000.  This was not agreed.

13.  On 19 March 2022, a creditor of ListCo, Harbor Sure (HK)  Investments Limited, presented a winding-up petition against ListCo in Bermuda.  At that time, by virtue of ListCo’s guarantee of the Loans, the Plaintiff was the largest creditor of ListCo at the time.  It believed that a white knight could be found to fund a creditors’ scheme of arrangement in Hong Kong to prevent winding-up of ListCo and losing its listing status.

14.  Therefore, the Plaintiff and ListCo entered into debt restructuring negotiations.  Grant Chien and Henry Chan, on behalf of the Plaintiff, met the board of ListCo regularly.  They reached an understanding that the Plaintiff would have to take a substantial haircut from the indebtedness.

15.  On 15 December 2022, ListCo applied to the Hong Kong Court to convene a creditors’ meeting to vote on a Scheme of Arrangement (the “Scheme”).  

16.  The Scheme consisted of three parts.  For the present purposes, I do not have to delve into the details.  Suffice to say that the three parts were:-

(1)  Capital Reorganisation, by which (a)  ListCo would issue the white knight, a fund known as CIS, new shares for a total subscription proceeds of HK$136,000,000 (the “Cash Consideration”); and (b)  as a result of the issuance of new shares, the 2^nd Defendant’s shareholding would be diluted from 56.45% to 4.52%;

(2)  Group Reorganisation, by which (a)  the 2^nd Defendant relinquished all his roles in ListCo on 26 July 2023; (b)  the 1^st Defendant would become one of the 15 scheme subsidiaries (the “Scheme Subsidiaries”)  which would be held by a scheme company (the “SchemeCo”)  to be established; and

(3)  Debt Restructuring, by which (a)  the Cash Consideration and the “Residual Value” from the Scheme Subsidiaries would constitute the “Scheme Assets”, which would be the source of dividends distributed to the scheme creditors as determined by the scheme administrator (the “Scheme Administrator”); (b)  the recovery rate would be enhanced from 0.001% in the liquidation scenario to 5.94%; (c)  the Plaintiff became the scheme creditor with the highest claim; and (d)  the Plaintiff’s rights and the 2^nd Defendant’s liability under the Guarantee would be unaffected.

17.  In respect of the Residual Value, the board of ListCo took the view, expressed in the Explanatory Statement, that:-

“Taking into account the current market condition of the PRC property market, it is expected that there would be no Residual Value available for the Scheme Creditors for the time being. Nevertheless, the Board is of the view that there would be a potential upside for the Scheme Creditors if the tension in the PRC Property market has been eased.”

18.  Before the said meeting was convened:-

(1)  On 18 March 2023, Henry Chan circulated another draft letter of intent (the “1^st Draft LOI”)  which would limit the 2^nd  Defendant’s liability to US$70,000,000;

(2)  On 22 and 27 April 2023 respectively, Henry Chan circulated a further draft letter of intent (the “2^nd Draft LOI”)  changed by Melissa Tse to reduce the liability to US$40,000,000 and yet another draft (the “3^rd Draft LOI”)  changed the liability back to US$70,000,000; but

(3)  None of the Draft LOIs were signed.

19.  On 19 May 2023, the said meeting was convened, and the creditors approved the terms of the scheme of arrangement presented to them (the “Scheme”), which the Hong Kong Court sanctioned on 26 June 2023.

IV.  PLAINITFF’S CLAIM 

20.  According to its Statement of Claim, the Plaintiff’s claim is that:-

(1)  The 1^st Defendant, as borrower, had failed to pay the debt under the Facility Agreement, in the total respective sums (the “Debt”)  of:-

(a)  US$156,757,362 being the CL Facility Loan (interest included)  (§18 of the Statement of Claim); and

(b)  US$102,653,042 being the MX Facility Loan (interest included)  (§18 of the Statement of Claim); and

(2)  The 2^nd Defendant, as guarantor under the Guarantee, is liable to pay the Debt.

V.  2^ND DEFENDANT’S DEFENCE AND COUNTERCLAIM

21.  The 2^nd Defendant’s defence on liability is set out in §§18-22 of the Amended Defence and Counterclaim.  In essence, the Plaintiff and the 2^nd Defendant agreed that the Plaintiff would not or would not strictly enforce its rights against the 2^nd Defendant under the Facility Agreement or the Guarantee:-

(1)  In the negotiation leading to the terms of the Scheme, “it was made known to all the parties involved in the negotiations right from the outset that one important term of the negotiations would involve the waiver and release of the guarantee between the Plaintiff and the 2^nd Defendant for the Debt”: see §18 of the Amended Defence and Counterclaim;

(2)  “In the period between May 2022 and March 2023, in the course of such negotiations, it was agreed between Grant Chien and Henry Chan for the Plaintiff, [ListCo] and the Defendants that, inter alia, the maximum amount of the 2^nd Defendant’s total liability owed under the Facility Agreement to the Plaintiff would be reduced to US$70 million ie the Plaintiff would not enforce against the 2^nd Defendant under the Facility Agreement or any other agreement otherwise for more than HK$70 million.  Shortly thereafter, it was further agreed between Grant Chien and Henry Chan for the Plaintiff, [ListCo] and the Defendants that in consideration for, inter alia, [ListCo] agreeing to implement the [Scheme] and allowing the subscriber to invest into [ListCo] to avoid the company being put into liquidation as a result of the Winding-up Petition, the Plaintiff would not enforce the guarantee against the 2^nd Defendant and would waive any liability owed by the 2^nd Defendant under the Facility Agreement or any other agreement otherwise to the Plaintiff for the Debt or any part thereof” (emphasis added): see §19 of the Amended Defence and Counterclaim;

(3)  “It was therefore expressly (and/or impliedly)  agreed orally and/or in writing and/or by convention or otherwise” that the Plaintiff would “not strictly enforce its rights” under the Facility Agreement or any other agreement… for the Debt or any part thereof against the 2^nd Defendant (the “Agreement”)”: see §20 of the Amended Defence and Counterclaim;

(4)  By the Agreement, the Plaintiff is estopped from asserting its rights under the Facility Agreement or any other agreement for the Debt against the 2^nd Defendant: see §21 of the Amended Defence and Counterclaim.

22.  In relation to the time of reaching the Agreement “between May 2022 and March 2023” and “shortly thereafter”:-

(1)  In the further and better particulars of the 2^nd Defendant’s Defence, the 2^nd Defendant pleads that the agreement to reduce liability under the Guarantee “occurred shortly before 13 December 2022” (emphasis added); and

(2)  In §61 of the 2^nd Defendant’s affirmation filed in opposition to the Plaintiff’s Order 14 Application, he deposed that “by around May 2022, the Agreement [not to enforce the Guarantee at all] had already been orally agreed.” (emphasis added)

23.  The 2^nd Defendant raises a defence on quantum in §§23-24 of the Amended Defence and Counterclaim, pointing out that the Plaintiff is a scheme creditor and should have received payment under the Scheme. Therefore, the Plaintiff should account for the monies received for the repayment of the Debt.

24.  Further, the 2^nd Defendant mounts a corresponding counterclaim, which I shall set out in full later when considering whether to strike it out as the Plaintiff seeks.

VI.  PLAINTIFF’S REPLY

25.  The Plaintiff’s reply to the 2^nd Defendant’s defence on quantum is worth mentioning.  In §7 of its Reply and Defence to Counterclaim, the Plaintiff admits the defence, and avers that it had received a total amount of HK$88,809,630.68 under the Scheme, and that the amount of the Debt shall be reduced by this amount accordingly.

VII .  2^ND DEFENDANT’S GROUNDS OF OPPOSITION TO PLAINTIFF’S ORDER 14 APPLICATION

26.  Mr Norman Nip SC (leading Mr Oliver Tse), counsel for the 2^nd Defendant, raises the following grounds in opposition to the Plaintiff’s Order 14 Application:-

(1)  The Plaintiff’s pleaded case is defective, in that the amount of the Debt in the Plaintiff’s Statement of Claim, verified by the Plaintiff’s supporting affirmation, is overstated, and I shall refer to this ground as the “Defective Pleading Ground”;

(2)  The Plaintiff’s claim in itself is genuinely weak, in that not only the amount is overstated, but also that the evidence in respect of the amount of the claim is inadequate to raise a prima facie case entitling the Plaintiff to Order 14 judgment.  I shall refer to this ground as the “Genuine Weakness Ground”;

(3)  An account to ascertain the amount recoverable is necessary, and I shall refer to this ground as the “Account Ground”;

(4)  There is triable issue or arguable defence as to the existence of the Agreement, and I shall refer to this ground as the “Agreement Ground”; and

(5)  Further investigation into the text message between the Plaintiff and the 2^nd Defendant, and I shall refer to this ground as the “Text Message Investigation Ground”.

VIII.  DEFECTIVE PLEADING GROUND

27.  Under this Defective Pleading Ground, there is no dispute that in arriving at the amount pleaded in the Statement of Claim, credit is not given to the repayments received by the Plaintiff under the Scheme, pleaded in §7 of the Plaintiff’s Reply and Defence to Counterclaim. The overstatement, on the Plaintiff’s own case, is the amount of the payment it received under the Scheme.  While the judgment sought in the Plaintiff’s Order 14 Application has been amended to reflect the credit, the Statement of Claim remains unamended and thus overstating the amount.  Worse, Mr Nip submits, the Plaintiff still verifies the Statement of Claim in its supporting affirmation, and even after the 2^nd Defendant made it clear in his affirmation in opposition that it was wrong for the Plaintiff to verify such an overstated claim, the Plaintiff still once again verified the overstated claim in its reply affirmation. 

28.  It is trite that an Order 14 judgment can be given only when the Statement of Claim is complete, and the Statement of Claim must be supported by summons with a supporting affirmation.  Exceptionally, leave to amend may be given in an Order 14 judgment to make the Statement of Claim complete if the amendment is to correct clerical errors.  In the present case, the Plaintiff does not seek to make any amendment leaving the amount overstated.  Mr Nip, therefore, argues that the Statement of Claim for the correct amount is not complete, and worse, the Plaintiff knowingly made a false affirmation to verify a claim which to its knowledge is overstated.  Mr Nip submits that the Plaintiff has thus failed to comply with Order 14 rule 2 and no Order 14 judgment should be given.

29.  In my view, assuming that the Plaintiff knowingly made a false affirmation to verify the overstated claim, this false evidence would only go to the overstatement.  The overstatement may be defective, and it can be said that there is simply no case in this overstatement in itself.  However, for the remaining amount, the cause of action is still complete and verified, and there is nothing in itself arguable or triable, subject to the 2^nd Defendant’s burden to raise arguable defence or triable issue.  In the circumstances, I can still enter judgment on part of the claim “as may be just having regard to the nature of the remedy or relief claimed”: see Order 14 rule 3(1).

30.  Therefore, with respect to Mr Nip, I find no merit in this Defective Pleading Ground.

IX.  GENUINE WEAKNESS GROUND AND ACCOUNT GROUND

31.  Since both the Genuine Weakness Ground and the Account Ground concern the amount of the debt, it is convenient to deal with them together.  According to Mr Nip, the “weakness” arises from the figures leading to the amount of the Plaintiff’s claim.  Before I deal with his submissions and Mr Chen’s counter-submissions on the figures, it is convenient to deal with the legal principles under these two grounds first.

32.  In an Order 14 application, if there are “genuine weaknesses”, or “doubts and suspicion”, in the Plaintiff’s case, the Plaintiff would not be entitled to summary judgment: see Treasure Chain (HK)  Holdings Ltd v Treasure House Ventures Ltd [2020] HKCFI 2432 at §64 per DHCJ Jin Pao SC; 張嘉謙v龐克訓 [2019] HKCFI 2523 at §30 per DHCJ Hall-Jones.  Mr Nip refers me to the following cases as examples:-

(1)  Treasure Chain (HK)  Holdings Ltd v Treasure House Ventures Ltd, supra at §60, where the Court was not satisfied that the plaintiff has given it a complete picture of what actually happened;

(2)  Shinyei (Shanghai)  Trading Co., Ltd. v Jenus Top Ltd [2019] HKCFI 2377 at §§17-18 per DHCJ MK Liu, where the Court found material inconsistency in the plaintiff’s claim and the supporting evidence; and

(3)  張嘉謙v龐克訓, supra at §44, where the Court found that the evidence in the material aspect was inherently contradictory and/or the Plaintiff’s own evidence would lend credence to the Defendant’s defence.

33.  In the present case, the Plaintiff’s claim is a claim for a debt for a liquidated sum, that is, a pre-ascertainable liability under the agreement of the parties, even if the inputs under the agreement are yet to be supplied or are subject to dispute, so long as the inputs need no further agreements from the parties or assessment by the court by reference to general principles: see Re Grande Holdings Ltd [2016] 1 HKLRD 435 at §6.5 per Cheung JA and Tian Yao (Xiamen)  Property Development Co. Ltd v Right Margin Ltd [2016] 2 HKLRD 175 at §19 per Barma JA.   Mr Nip stresses that the cause of action of a debt claim for a liquidated sum cannot be segregated as between liability and quantum like a claim for breach of contract segregated between liability and unliquidated damages. Therefore, his argument goes, if there is weakness in the amount of the debt, the Plaintiff’s whole claim is in itself “genuinely weak”, and no Order 14 judgment should be granted.  

34.  With respect, I disagree.  Following Mr Nip’s logic, if the debt claim for a liquidated sum were to proceed to trial and if upon trial, the trial court would find that the amount should be less than the sum claimed in the Statement of Claim, the whole debt claim would not be made good and therefore would fail.  This logic is, with respect, not right.  If this is not how the logic would go, then it must mean that the trial court could enter judgment for a smaller sum.  If a court, upon trial, could enter judgment for a smaller sum on a debt claim, I cannot see why a court in an Order 14 application cannot, subject to all the usual requirements before an Order 14 judgment can be entered.  It follows, in my view, that even for a debt claim, partial judgment could be entered for a different amount.  This is entirely consistent with Order 14 rule 3(1), which provides that:-

“Unless on the hearing of an application under rule 1 either the Court dismisses the application or the defendant satisfies the Court with respect to the claim, or the part of a claim, to which the application relates that there is an issue or question in dispute which ought to be tried or that there ought for some other reason to be a trial of that claim or part, the Court may give such judgment for the plaintiff against that defendant on that claim or part as may be just having regard to the nature of the remedy or relief claimed.” (emphasis added)

35.  For example, in a claim for debt for a liquidated sum being a loan, if the defendant expressly admits its liability under a loan agreement, but reasonably disputes that it has already repaid 40% of the loan.  I do not see why judgment over the 60% cannot be entered first, leaving the remaining 40% for trial on whether repayment had been made. 

36.  Following from the same logic, if judgment can be entered on part of the claim in the sense that only a certain amount is entered, then the Court should also be able to just enter judgment on liability leaving the defendant to dispute the amount, as provided by Order 14 rule 1(1):-

“Where in an action to which this rule applies… the plaintiff may, on the ground that the defendant has no defence to a claim included in the writ, or to a particular part of such a claim, or has no defence to such a claim or part except as to the amount of any damages claims, apply to the Court for judgment against that defendant.” (emphasis added)

37.  Therefore, assuming that there is genuine weakness in the amount only, in my view, I should not dismiss the Order 14 application or grant leave to defence in relation to the whole claim, but if I think appropriate, should enter judgment on liability under the Guarantee. This approach may, at a first glance, seem inconsistent with the statement in Hong Kong Civil Procedure 2025 Vol 1 §14/4/13 that:-

“Leave to defend should be given where there is reasonable ground for an inquiry or account in order to ascertain the amount recoverable.”

which seems to suggest that once there is reasonable ground for an inquiry or account, leave to defend the whole claim should be given.  However, when one reads Contract Discount Corporation Ltd v Furlong [1948] 1 All ER 274, the most recent case cited in support in the commentary in support of the proposition, it is clear that leave to dispute the amount only can be given. 

38.  In that case, a manufacturing company agreed with the plaintiffs that the company would sell goods to purchasers as agents for the plaintiffs to whom it would forward the invoices and would guarantee punctual payment by the ultimate purchasers.  The plaintiffs claimed GBP19,811 from the company as either receipts by the company from purchasers or as debts due and unpaid by such purchasers, and the defendants directors of the company were sued on guarantee of the company’s liability.  In resisting the plaintiffs’ summary judgment application, the defendant directors admitted that they were indebted as guarantors to the plaintiffs, but deposed that to their best knowledge, information and belief, the amount should be GBP10,000 or thereabouts upon full investigation.  In his judgment, Lord Green MR, delivering the lead judgment, said at 275H to 276B that:-

   “… First, the claim is not against principal debtors, but against guarantors who in the ordinary case might or might not know the state of the account between the principal debtor and the creditor which they had guaranteed, but this was a case where one would expect the guarantors, in view of their position in the company, to know, if not in detail, at any rate with very close approximation, what the state of the account was.  They were the active directors.  It was they who would have been concerned in making the contracts with the ultimate purchasers, and it would be they who would be responsible for carrying out the manufacturing company’s agreement to hand over to the plaintiffs any sum they collected from the purchasers.  The next point to be remembered is that the liability of the defendants under the guarantee would be conditioned and ascertained by reference to more than one matter in respect of which the plaintiffs themselves are accounting parties.  The plaintiffs at one stage departed, and, no doubt, justifiably departed, from the terms of the agreement under which the manufacturing company were to collect the debts from the purchasers, and the plaintiffs collected debts direct.  We are told that the collections so made are included in the credit given in the statement of claim.  The amount owing to the plaintiffs can really only be ascertained on the taking of an account bringing in contra items in respect of which the plaintiffs themselves are accounting parties.  If the defendants had been in a position to swear: “We admit that we are under a liability, but we do not know what it is.  We have not got the materials.  We do not know the state of the accounts in the books of the plaintiffs, and the company’s books are not now available,” I should have thought that in a case of this kind, relating to a claim of this character, and depending, as it must, on matters of account, that would have justified, and, indeed, led, the court to give unconditional leave to defend.  In a case which is essentially a matter of account, where the amount can only be ascertained from the plaintiffs’ own accounts, it seems to me that it would be improper to deprive the defendants of their prima facie right to challenge the items in the account and insist on strict proof of them.  That is why I mentioned particularly the fact which is, I think, important in this case, that these defendants are guarantors and not principal debtors.  They are entitled to know the state of the account as between the plaintiffs and the principal debtors which they guaranteed.  If there had been a denial of liability or a challenging of the account, with an admission, possibly, of the kind I have mentioned, but a refusal to admit the amount and a demand to have it checked by the ordinary accounting process, the proper order to make might very well have been an order for judgment for such an amount as should be fund due on the taking of an account.  The effect of that would have been to give summary judgment, but to leave the amount unspecified until the account was taken and certified. Judgment could then have been signed and execution issued.” (emphasis added)

39.  As an aside, I do not read the above so far as to suggest that whenever it is an Order 14 application against a guarantor, only judgment on liability can be entered with the amount to be ascertained by trial.  It all depends on the facts of a particular case.  In the above passage, Lord Green MR refers to the end of a spectrum that if the guarantor admits the liability and the amount, the Court can enter summary judgment on the amount direct.  Away from the end of the spectrum may be the defendant’s failure to raise any arguable defence or triable issue or other reasons to have the amount proceed to trial.

40.  Coming back to my view that leave to defend can be given in relation to the amount only, Mr Nip submits that such limited leave to defend would be given only when the defendant guarantor admits liability. With respect, I disagree because:-

(1)  There is no principled reason why only upon the defendant’s admission to liability can such limited leave be given.  If in an Order 14 application, the Court is entitled to enter summary judgment upon finding no reasonable defence and no triable issue, I cannot see why in this specific context, a defendant’s non-admission to or bare denial of such liability would have to be treated differently.  If the Court has to treat such   non-admission or bare denial the same as to others in an Order 14 application, and if the Court finds nothing in such non-admission or bare denial, for the purpose of an Order 14 application, the ultimate effect should be the same as the defendant’s admission to liability.

(2)  Recorder Edward Chan SC took the same view in Wai Bo Construction and Engineering (H.K.)  Company Ltd v Wo Fung Engineering Ltd, HCA 7656/2000, 17 April 2001.  There, before referring to Contract Discount Corporation Ltd v Furlong, supra, his Lordship said that “even in relation to account, if the liability to account is disputed by the Defendant, but the Court should take the view that the liability to account is plainly established, there is nothing to stop the Court from ordering an account to be taken with unconditional leave to the Defendant to dispute his liability for the amount claimed in the taking of the account.”  After referring to Contract Discount Corporation Ltd v Furlong, his Lordship then cited Order 14 rule 1(1)  to say that the current proposition was made clear by the rule which allows the Court to enter judgment on liability but not quantum.

41.  Mr Nip also refers me to various authorities in support of his stance that leave to defend should be given in relation to the whole claim rather than limited to quantum.  Suffice to say that in none of those authorities the only disputable issue was on quantum only.  Therefore, I do not see how those cases could take Mr Nip further.

42.  As mentioned above, the parties made extensive submissions on the figures which the Plaintiff relies upon to arrive at the amount.  In gist, Mr Nip, for the 2^nd Defendant, submits that there were a lot of problems inherent in the figures, and thus the Plaintiff’s claim is genuinely weak and/or that the 2^nd Defendant is entitled to have the Plaintiff account for the figures, and therefore, leave to defend should be given.  Mr Chen, for the Plaintiff, makes submissions on how the figures were, in his submissions, correctly arrived at and so there is no weakness in the Plaintiff’s claim.  I summarise their submissions on the figures in the following, with my view expressed at the end of each set of submissions:-

(1)  Mr Nip points out that there is no evidence that the administration of the Scheme has been completed.  There is no evidence that all the Cash Consideration has been distributed under the Scheme.  There is no evidence that there is no realisable Residual Value for distribution under the Scheme.  While Mr Chen made written submissions that all the Cash Consideration had been depleted and there is no realisable Residual Value, during the hearing, he had to accept that there is no such evidence in support of this such written submissions.  Thus, Mr Nip submits that the 2^nd Defendant is in the dark as to whether there had been other receipts and that there may still be more distribution under the Scheme to come.  Mr Chen, in answer, submits that the burden lies upon the 2^nd Defendant to raise any triable issue on this and in any event, the principal creditor can sue the guarantor anytime and the question of double-compensation is a matter for execution of judgment.  In my view, the burden lies upon the Plaintiff to raise a prima facie case which would entitle it to summary judgment.  The way how the Scheme works, coupled with the fact that the Plaintiff only gives credit to the distribution thereunder in the Reply but not in the Statement of Claim, does warrant the Plaintiff to give positive evidence on the progress of the Scheme.  I do not agree with Mr Chen’s submissions that the 2^nd Defendant should himself have made enquiry with the Scheme Administrator.  The 2^nd Defendant is just a shareholder of ListCo and no longer a director.  As a shareholder, he is not entitled to corporate documents but is at the discretion of the Court as to whether grant him access to corporate documents: see section 740 of the Companies Ordinance (Cap 622).  In such circumstances, I do not see why the Scheme Administrator would be obliged to answer him.  True that the 2^nd Defendant did not even ask, but in such circumstances, in my view, it is the Plaintiff who would have to make good its prima facie case first.

(2)  Mr Nip points out that the disclosure of the Plaintiff’s account is incomplete. 

(a)  First, on 21 November 2019, US$14,539,993.30 was credited from the 1^st Defendant’s account into the Plaintiff’s account, but the repayment stated in the Plaintiff’s evidence was US$14,513,233.00.  In my view, although the discrepancy is about US$26,700, this is something I should consider in the overall scheme of things.

(b)  Second, on 17 September 2019 and 4 August 2020, US$184,237.68 and US$24,459.95 were credited from ListCo’s account into the Plaintiff’s account.  Mr Nip complains that the Plaintiff has not proffered any explanation about these amounts.  Mr Chen’s answer is (i)  it is not necessary for the Plaintiff to explain each and every entry randomly, and (ii)  in any event, had this query been raised in the evidence, the Plaintiff could have answered in the evidence earlier.  In my view, the entries in question cannot be said to be randomly picked.  The money flew from ListCo to the Plaintiff and it may be relevant to the repayment of the loan.  The Plaintiff cannot complain that the 2^nd Defendant did not raise the query about the Plaintiff’s own evidence earlier.  It is for the Plaintiff to put its house in proper order in the first place, and the 2^nd Defendant is entitled to rely on the Plaintiff’s own evidence and its inherent weakness in support of its stance. This discrepancy in the account is another matter I should consider in the overall scheme of things.

(c)  Mr Nip points out that the bank account now disclosed by the Plaintiff as the account to receive repayment is different from the account stated in the demand letters issued by its solicitors, and in any event, the account disclosed is only up to the date of 31 May 2021.  Again, there is no evidence to explain this, and the 2^nd Defendant is entitled to rely on the Plaintiff’s own evidence and its inherent problem in support of its opposition.  I shall consider this as one of the factors in the overall scheme of things.

(3)  Mr Chen heavily relies on a spreadsheet prepared by the Plaintiff (at page 470 of Bundle 2)  to explain the figures.  This spreadsheet, perhaps supposed to be self-explanatory, does not come with such evidence to explain.  In any event, Mr Nip’s points out that the information on the spreadsheet is supposed to be as of “28 August 2024” as suggested by its title, but the Plaintiff’s claim, as pleaded in §18 of the Statement of Claim, is as of 6 March 2024.  He also points out that in Annex I attached to Mr Chen’s skeleton submissions, which is a table showing how the figures were worked out, cannot be right to say that the balance is as of 6 March 2024, which Mr Chen had to accept to be a mistake.  All these show, Mr Nip submits, that the Plaintiff’s way of calculation is inherently unreliable.  In the light of how the evidence is presented, I think Mr Nip has a point.

(4)  Mr Nip submits that the dividends distributed under the Sceheme as well as the interest reserve should be applied to pay interest first before the principals, and that however, the Plaintiff applied them to the principals first before the interest.  He is right, but as Mr Chen points out, the Plaintiff’s application of the dividends and the interest reserve this way (erroneous it is)  is more favourable to the 2^nd Defendant because application to the principal means less interest to accrue.  Therefore, I do not think Mr Nip’s such submissions take him anywhere.

(5)  Mr Nip submits that it is “doubtful” whether the Plaintiff is entitled to charge compound default interest beyond January 2020 for the CL Facility and September 202 for the MX Facility.  He refers me to Clauses 8.3 and 9.1(b)  of the Facility Agreement which seem to suggest that interest could on be charged beyond the expiry of “Interest Period”.  However, as Mr Chen points out, “Interest Period” is defined by the Facility Agreement to mean “in relation to a Loan, each period determined in accordance with Clause 9 (Interest Periods)  and, in relation to an Unpaid Sum, each period determined in accordance with Clause 8.3 (Default Interest), but Clause 8.3 does not have any definition of “Interest Period” for unpaid loan, and therefore, the Plaintiff is entitled to charged compound default interest until actual payment, while Clause 9.1(b)  defines “Interest Period” for the loan but not the unpaid loan.  Therefore, I do not think Mr Nip’s submissions on this compound default interest point give any mileage to the 2^nd Defendant.

43.  Having considered the matters in §§(1), (2)  and (3)  above, I take the view that there is “genuine weakness”, and “doubts and suspicion” in the quantum of the Plaintiff’s claim and that the 2^nd Defendant has raised triable issues thereon.  Further and in any event, having considered the matters in §§(1), (2)  and (3)  above, I also think that the 2^nd Defendant should not be deprived of his prima facie right to challenge the amount and to put the Plaintiff to strict proof.  Therefore, I would grant leave for the 2^nd Defendant to defend the claim on quantum. 

44.  The remaining question is whether I should also grant leave to defend the claim on liability, which hinges upon the existence of the Agreement.

X.  AGREEMENT GROUND

45.  In his valiant efforts, Mr Nip makes extensive submissions to convince me that there is an arguable defence or triable issue as to the existence of the Agreement.

46.  First, Mr Nip submits that there was little commercial incentive for the 2^nd Defendant to assist and cooperate in the Scheme if the Agreement had not been in place.  With respect, I disagree.  It is clear to me that the Scheme would reduce the amount of debt under the Facility Agreement and thus reduce the 2^nd Defendant’s liability under the Guarantee.  While the amount of the Cash Consideration may not be significantly contributory to reducing the amount of debt under the Facility Agreement, the board of ListCo took a commercial view that there might be chance that the property market in the PRC would improve and the Residual Value would enhance, thereby further reducing the debt under the Facility Agreement, among other debts.  There is nothing in the evidence to suggest that the board’s view was not taken bona fide, and there is nothing in the evidence to suggest that the 2^nd Defendant (being on the board as well)  would think otherwise in the light of the evidence of the board’s view.  In any event, it is the 2^nd Defendant’s his own evidence that it was largely he (or his father)  who would be able to convince the board to approve the Scheme. 

47.  A commercial view which turns out to be mistaken or not as expected does not mean that the commercial view was not taken at all in the first place.  It is just usual commercial life where decision-makers take risks (betting for a higher return upon higher risks and the potentially higher return is of course an incentive), and at times, the decision-makers may regret with the benefit of hindsight.  But this cannot be taken to mean that at the time when the decision was made or a commercial view was taken, the decision-maker had no incentive to make the decision at all.

48.  The 2^nd Defendant, with his indisputable liability under the Guarantee, simply did not have much choice. Either that he had to bear full liability to pay all the debt under the Facility Agreement, or if he could not, he would have to face the consequence like a bankruptcy, or that he had his shareholding diluted with some basis for a view that the debt under the Facility Agreement would be significantly reduced so that he would not have to pay all the debt as the guarantor.  Under the last choice, while his liability under the Guarantee remains intact, the 2^nd Defendant simply placed his hope on the potential reduction of the debt under the Facility Agreement upon the execution of the Scheme, in the absence of which there would not be any reduction at all.  This, to me, still serves some incentive for him, and serves some commercial rationale.

49.  Second, Mr Nip submits that the evidence is not disputed that there were extensive oral discussions at the material times and so the inherent probability of there being oral meetings and correspondences for the Agreement is high.  However, as Mr Nip fairly points out, the key factual dispute is not whether these oral discussions took place, but what these discussions resulted in.  Put another way, despite all these oral discussions, did they reach the Agreement?  In my view, the answer is unarguably in the negative, for the following reasons:-

(1)  While there is evidence of the oral discussions, there is no contemporaneous document of the Agreement at all.  As pointed out by Mr David Chen, counsel for the Plaintiff, in §35 of his Skeleton Submissions, “there is no documentary evidence of the parties discussing the terms of the Agreement (not even peripherally)  even though they communicated regularly via WeChat and email in 2022 and 2023.

(2)  The 2^nd Defendant tries to explain the absence of documentary evidence of the Agreement by alleging that the Plaintiff explained that their risk committee would not consent to putting any waiver of the Guarantee in writing and they could only offer an oral assurance not to enforce the Guarantee, with which they would find it easier to convince their shareholders and investors.  In this regard, Mr Nip refers me to the following WeChat conversation:-

(a)  On 24 September 2022, Henry Chan said “浩然PG [Personal Guarantee] 不可能现在解除 风控肯定是过不了的”;

(b)  On 2 November 2022, Grant Chien assured Melissa Tse that “Melissa 我们会帮忙董事长跟浩然。时间点现在很紧迫。法庭是不会等人的。我们的帮忙现在也有限。请相信我们的诚意。”;

(c)  On 2 November 2022, Grant Chien said “今天我们是最帮忙福晟还有潘家。希望他们理解”; and

(d)  On 30 March 2023, Henry Chan explained that for the purpose of the 2^nd LOI, the conditions of “法人+章” must be provided, “要不然过不了风控、投委会”.

(3)  However, the above conversation does not support the 2^nd Defendant’s explanation that the Agreement was not evidenced by or reduced into writing because of the Plaintiff’s concern about the disapproval of the risk committee and their shareholders and investors.  First, the above conversation does, however, support that any release of the 2^nd Defendant from the Guarantee would not be approved by the risk committee.  Second, more fatally to the 2^nd Defendant, the 2^nd Defendant’s latest version of the time of reaching the Agreement, deposed by himself in §61 of his affirmation, is “around May 2022”.  In other words, by the time of all these text messages, the Agreement had been agreed, but clearly the messages were sent on the basis that the Guarantee would still be enforced, and there was not a single word to suggest the existence of the Guarantee.

(4)  As mentioned above, the Scheme expressly retained the 2^nd Defendant’s liability under the Guarantee intact. The Scheme was approved and sanctioned as a whole package, including this express retention of the 2^nd Defendant’s liability under the Guarantee.  If there were any side agreement, though not at the same level as between ListCo and creditors, that would go contrary to this package, it is inherently improbable that the Plaintiff (essentially a conglomerate of investors)  and the 2^nd Defendant (a sophisticated businessman), would not insist on something in writing to ensure that the Agreement would not be denied and would be accurately recorded in the light of the inconsistent Scheme published to the public.

(5)  Therefore, while there is evidence of oral discussions, this does not even arguably support any Agreement.

50.  Third, relatedly, Mr Nip submits that the Draft LOIs are consistent with the 2^nd Defendant’s allegation that although Draft LOIs were not as good as a written Agreement, it would at least provide some protection to the 2^nd Defendant in the event of the Plaintiff’s breach of the Agreement.  With respect, this allegation is self-serving.  The ultimate question is still whether there existed the Agreement.  According to the 2^nd Defendant’s own case, the initial agreement to reduce the liability to US$70 million was reached “between May 2022 and March 2023” and “shortly thereafter”, the Agreement not to enforce the Guarantee was reached: see §19 of the Amended Defence and Counterclaim quoted above, while his case in the affirmation was that “around May 2022” the Agreement was reached.  On any of the versions, the Draft LOIs go nowhere to reflect that the 2^nd Defendant’s liability would be reduced to nil.  Rather, in the 1^st Draft LOI, the limit was drafted to be US$70,000,000; in the 2^nd Draft LOI, US$40,000,000; and in the 3^rd Draft LOT, back to US$70,000,000.  This is inconsistent with the 2^nd Defendant’s version that there had been the Agreement.  If the 2^nd Defendant would rely on such Draft LOIs as “some protection”, it is inherently improbable that there was not a draft LOI where he or Melissa Tse would change the limit to nil.  In my view, at most, the Draft LOIs did show that the parties were negotiating for a reduction of the 2^nd Defendant’s liability, but at the end, no agreement was reached, and thus none of the Draft LOIs was signed.

51.  Further, as pointed out by Mr Chen, the 2^nd Defendant’s allegation that this served some protection is inherently improbable, in the absence of any written evidence of request for such protection and in the absence of any written evidence that the Draft LOIs would serve as such protection. 

52.  Fourth, Mr Nip submits that the conduct subsequent, admissible to prove the terms of an oral agreement: see Carmichael v National Power Plc [1999] 1 WLR 2042 at 2050G-2051B, shows that the 2^nd Defendant would not agree to the Scheme if there were no reduction of his liability.  Mr Nip refers me to the following WeChat conversations:-

(1)  On 1 November 2022, Melissa Tse texted in the WeChat group that “浩然那天說的方案你們怎麼看”, “如果不談，董事長不會讓重組繼續的”, “你們趕緊認真對待這個事情，他們說的是認真的，不談就不做了”, “他們一直糾結怎樣解除個人擔保”, “如果沒有明確談好，他們是不會繼續下去”, “對於他們，1.4b 還是108，都是被告pg [personal guarantee], 所以這個對他們來說，沒有任何推動作用”, “他們要求必須談清楚再繼續”, “很明確了”;

(2)  On 10 November 2022, Melissa Tse texted that “董事長很明確，不打折就不做了”, “被清盤也沒辦法了”;

(3)  On 19 November 2022, Melissa Tse sent out a link for conference meeting, and texted that “不能打折，董事長是不會同意重組”; and

(4)  On 30 March 2023, Melissa Tse texted, “这样等于no deal，再提法人+章董事长不会推进重组的了。4000 万换壳的钱，他们很明确。否则他们会什么都不做”.

53.  Mr Nip submits that the fact that the Scheme was eventually approved by the board shows that it is probable that the liability of the Guarantee was indeed reduced; otherwise, the 2^nd Defendant would do nothing and the Scheme would not have been approved as it was.  In my view, while the above WeChat messages do show that the 2^nd Defendant at certain points of time requested discharge or reduction of liability under the Guarantee, the messages also at the same time show that no agreement was reached and this explained why Melissa Tse kept on messaging, whether before or after the approval of the Scheme by the board before ListCo could apply on 15 December 2022 to the Court for convening a creditors’ meeting.  That there was still no agreement on the discharge or reduction of liability under the Guarantee is supported by the absence of any signed LOIs despite at least 3 LOIs being put forward, and goes contrary to the 2^nd Defendant’s latest version that “around May 2022” the Agreement was reached.  Viewed this way, I do not see how the approval of the Scheme would arguably mean that the Agreement existed.  The evidence can be explained by the obvious fact that at the time, ListCo (and in a sense, the Plaintiff and the 2^nd Defendant as well)  was under pressure to see to it that the Scheme would go through the board, and thus the 2^nd Defendant, trying the best he could to protect himself, tried to get some benefit for himself as much as possible, thus the negotiations.  But eventually, he failed, but would still see to it that the Scheme would go ahead which would still reduce the debt under the Facility Agreement to a certain extent.

54.  Fifth, Mr Nip accepts that the 2^nd Defendant has not pinpointed the precise time of the Agreement.  In particular, as mentioned above:-

(1)  The initial agreement to reduce the liability to US$70,000,000 was reached “between May 2022 and March 2023”, a period of 10 months.

(2)  In the further and better particulars, the 2^nd Defendant pleads that the Agreement was reached shortly before 13 December 2022.

(3)  In the 2^nd Defendant’s own affirmation, which is his latest version, he alleged that the Agreement was orally reached in “around May 2022”.

55.  Mr Nip refers me to Chitty on Contracts (35^th ed) §§4-033 – 4-034:-

“4-033 Continuing negotiations When parties carry on lengthy negotiations, it may be hard to say exactly when an offer has been made and accepted. As negotiations progress, each party may make concessions or new demands, and the parties may disagree in the end as to whether they had ever agreed at all. The court must then look at the whole correspondence and decide whether, on its true construction, the parties had agreed to the same terms. If so, there is a contract even though both parties, or one of them, had reservations not expressed in the correspondence. The court will be particularly anxious to hold that continuing negotiations have resulted in a contract where the performance which was the subject-matter of the negotiations has actually been rendered.

4-034 Negotiation after apparent agreement…Businessmen do not, any more than the courts, find it easy to say precisely when they have reached agreement, and may continue to negotiate after they appear to have agreed to the same terms. The court will then look at the entire course of negotiations to decide whether an apparently unqualified acceptance did in fact conclude the agreement. If it did, the fact that the parties continued negotiations after this point does not affect the existence of the contract between them…A fortiori, the binding force of an oral contract is not affected or altered merely by the fact that, after its conclusion, one party sends to the other a document containing terms significantly different from those which had been orally agreed.”

56.  That one cannot pinpoint the precise time of an oral agreement is not the same as the situation here, where the 2^nd Defendant initially provided a long range (10 months)  of time for the Agreement, then narrowed it to be before 13 December 2022, and then finally pinpointed it to be around May 2022.  No explanation has been proffered as to how he could start to remember the time with more precision.  This is a matter I am entitled to take into account when assessing whether there is any arguable defence and triable issue.  In my view, taking how the 2^nd Defendant’s case of the timing has evolved, this is something against the 2^nd Defendant.  However, I should consider this against all other matters above and below.

57.  Sixth, Mr Nip submits that the WeChat record produced by the Plaintiff is not complete, and points out that both Melissa Tse and the 2^nd Defendant do not have access to the WeChat record for the crucial period from May 2022 to March 2023 anymore.  In a similar vein, Mr Nip also submits that there is no affirmation from Grant Chien and Jack Xu who attended most telephone conferences and meetings and there is no evidence of the contents of various meetings.  Mr Nip submits that as a result, a trial is warranted.  With respect, I cannot agree that because of absence of the evidence, a trial should be warranted:-

(1)  The Plaintiff has made out its prima facie case for an Order 14 judgment.  The burden lies upon the 2^nd Defendant to show arguable defence or triable issue.

(2)  Absence of evidence may sometimes be used to strengthen the 2^nd Defendant’s case, if the 2^nd Defendant has established a prima facie case and one would expect that the Plaintiff would be able to adduce evidence to rebut such prima facie case.  However, in the present case, I cannot see what prima facie case the 2^nd Defendant has managed to raise such that the Plaintiff would have to adduce evidence from Grant Chien or Jack Xu, or to produce a complete set of WeChat record and contents of the meetings.  After all, insofar as the 2^nd Defendant suggests that Grant Chien or Jack Xu would have said or heard the agreement to the Agreement or the contents of any of the meetings would show the Agreement to the Agreement, this suggestion would be self-serving and would still be assessed against the matters above.  Insofar as the WeChat record is concerned, there is no suggestion that there should be in the WeChat record a message or two recording the Agreement (and in any event such record would contradict the 2^nd Defendant’s version that there could not be anything in writing as suggested by the Plaintiff); thus I cannot see how a complete set of the chat record, or absence thereof, would advance the 2^nd Defendant’s position.

58.  Lastly, Mr Chen points out that the 2^nd Defendant only raises this defence on the Agreement in the present proceedings, despite various pre-action correspondence exchanges.

59.  Having considered each of Mr Nip’s submissions whether on their own or cumulatively, I am not satisfied that an arguable defence or triable issue as to the Agreement has been raised. 

XI.  TEXT MESSAGE INVESTIGATION GROUND

60.  This Text Message Investigation Ground is raised as “other reason(s)” for trial under Order 14 rule 3.  For the reason I gave in §57 above, I find nothing in this ground.

XII.  STRIKING OUT OF THE 2^ND DEFENDANT’S COUNTERCLAIM

61.  As mentioned above, the 2^nd Defendant mounts a corresponding counterclaim.  In terms:-

“ COUNTERCLAIM

1. The 2^nd Defendant repeats his Defence herein.

AND THE 2^ND DEFENDANT CLAIMS AGAINST THE PLAINTIFF FOR:

1. A declaration that the Plaintiff is estopped from enforcing its rights under the Facility Agreement or any other agreement otherwise for repayment of the Debt or any part thereof against the 2^nd Defendant.

2. Further or alternatively, an account of the monies already received by the Plaintiff from the [Scheme] and/or the security provided by the Fullsun Group for repayment of the Debt, particulars of which are set out in the Schedule attached hereto.

3. Further or such other relief as the Honourable Court considers fit.

4. Costs.”

62.  Upon my finding of arguable defence and triable issue on quantum and my finding of absence of arguable defence and triable issue on the Agreement, I strike out relief 1 of the Counterclaim.

XIII.  DISPOSITION

63.  As I am not satisfied that there is any reasonable defence or triable issue on liability but satisfied that the quantum ought to go to trial, I make the following order:-

(1)  Master’s Order of 21 January 2025 be set aside;

(2)  Interlocutory judgment be entered on liability;

(3)  There shall be leave to defend for the 2^nd Defendant to defend on quantum; and

(4)  Relief 1 of the 2^nd Defendant’s Counterclaim shall be struck out.

64.  As regards costs, both parties urge me to make a costs order nisi, perhaps in anticipation of various possible permutations my Decision would have.  I would make a 50-50 apportionment on the issue on liability and the issue on costs.  I make a costs order nisi that:-

(1)  In respect of the costs before the Master, the 2^nd Defendant shall pay the Plaintiff 50% of the costs as assessed by the Master, and the remaining 50% be in the cause; and

(2)  In respect of the costs before me, taking a rough approach to set off the 50-50 against each other, I make no order as to costs.

65.  Lastly, I thank Mr Nip and Mr Tse, for the 2^nd Defendant, and Mr Chen, for the Plaintiff, for their assistance.