ASIA DEVELOP LTD v. GLORY MARK INVESTMENT (GROUP) LTD AND ANOTHER

HCA 2532/2018

[2021] HKCFI 1572

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2532 OF 2018

______________

______________

____________________

DECISION

____________________

Introduction

1.  This is the appeal of the defendants (“D1”, “D2”, and together “Ds”) against the decision of the Master made on 22 October 2020 allowing the application by the plaintiff (“P”) for summary judgment. 

2.  Mr Issac Yung appeared for Ds.  Mr Patrick Chong appeared for P.

The Claim

3.  P’s claim may be summarized as follows.

4.  P carries on business as a money lender.

5.  P’s claim is based on a written loan agreement of 27 April 2015 (the “Original Loan Agreement”).  It was between P as the lender, D1 as the borrower, and D2 as the guarantor.  The amount of the loan was HK$5m (the “Original Loan”).  The Original Loan was advanced to D1 on 30 April 2015.  The term was for one year.  The principal of the Original Loan together with interest were therefore repayable on 29 April 2016.

6.  On 29 April 2016.  D1 defaulted in repayment.  

7.  Despite the default, an extension was agreed upon (the “Extended Loan Agreement”).  The principal became HK$5.39m (the “Extended Loan”). The term was for another year, from 30 April 2016 to 29 April 2017.

8.  According to the 1^st affirmation of Chen Jing (“Chen”, being a director of P) filed on behalf of P in support of its application for summary judgment, the “Extended Loan Agreement was made orally between the parties”.

9.  On 29 April 2017, D1 again defaulted in repayment. 

10.  P on 29 October 2018 took out the Writ herein.

Ds’ defence

11.  On 13 February 2019, Ds filed their defence.  In gist, Ds’ pleaded defence, so long as relevant to this appeal, is that:

(a)   P was not licensed as a money lender at the material time, and that the Original Loan was made in contravention of certain provisions of the Money Lenders Ordinance, Cap 163 (the “MLO”).  (I will for ease of reference call this the “MLO Defence”); and

(b)   the Original Loan was, with knowledge on P’s part (via 黃學彬, (“Wong”)), the then Chief Financial Officer of P), obtained by D1 as agent for a Zhang Zhi Meng (“Zhang”).  For that reason, Ds owe P no personal liability.  (I will for ease of reference call this the “Agency Defence”.)

12.  Ds have joined Zhang as a third party.

13.  There are other matters which have been pleaded in the Defence.  They however have not been picked out and developed by Mr Yung in support of this appeal.

Application for summary judgment

14.  By summons of 1 June 2020, P seeks summary judgment against Ds. The application is supported by the 1^st affirmation of Chen. Relevantly, she at §23 thereof recites in gist Ds’ Agency Defence, which she calls the “Alleged Arrangement”.  She then says that “I was told by [Wong] that he had no idea about the Alleged Arrangement”.

15.  On 17 August 2020, D2 made an affirmation in the Mainland in opposition.  It is a brief affirmation.  He states, in summary, that:

(a)   He and Zhang were from the same village.  He has known him for a long time (§8);

(b)   In 2015 round about Chinese New Year, Zhang told him that P had agreed to advance a loan of HK$5m to him (Zhang).  Zhang asked him to use D1 to accept the loan, and then to transfer the money to an account to be designated by him.  Zhang told D2 that P had agreed to that arrangement.  D2 agreed (§§5-8);

(c)   On 27 April 2015, D2, Zhang and Wong had a meeting.  D2 and Wong agreed that D1 would borrow the loan on behalf of Zhang.  Wong knew that the money would then be transferred to Zhang.  The relevant loan documents were signed in front of Wong (§§9‑10);

(d)   On 30 April 2015, D1 received HK$5m from P.  On 4 May 2015, D1 transferred HK$4.8m to an account designated by Zhang.  The balance of HK$200,000 represented repayment of a separate private loan that D2 had previously made to Zhang (§§11-12).

16.  Chen on 2 September 2020 filed an affirmation in reply.  It is a brief document.  She only says that the contents of D2’s affirmation are irrelevant and inadmissible.

17.  Wong has filed no affirmation himself.

The MLO Defence

18.  At the time when the Original Loan was advanced, P, whilst carrying on business as a money lender, had not been licensed as such.  It only became licensed from 4 June 2015. 

19.  However, D1 has a paid up capital of HK$1m.  Under §12(a) of Part 2 of Schedule 1 of the MLO, the Original Loan was an exempted loan.  P does not fall within the definition of “money lender” as defined in section 2 of the MLO.  The number of sections which Ds in their Defence complain that P has failed to comply with have no application to P or the Original Loan.

20.  Mr Yung is no longer pursuing the MLO Defence, as his written submissions show (which I will next turn to).  During the hearing, he fairly confirmed that to be so.

Parties’ submissions

21.  Mr Yung’s principal submissions are that:

(a)   The Original Loan Agreement was not intended to express the entire agreement between the parties;

(b)   There exists two collateral contract (the “Alleged Collateral Contracts”):

(i)   one between Zhang and D2 for D1 to receive the Original Loan for Zhang (the “1^st Alleged Collateral Contract”); and

(ii)  one between Zhang, P and Ds that P would advance the Original Loan to D1 as agent of Zhang (the “2^nd Alleged Collateral Contract”);

(c)   D1 is not liable to P as Wong knew that D1 was only accepting the Original Loan as agent on behalf of Zhang;

(d)   There being no “principal obligation” between P and D1, D2 is not liable as the guarantor.

22.  In gist, Mr Chong submits that:

(a)   the Agency Defence is bad in law.  In any event, Ds’ evidence is not capable of belief; and

(b)   the proposed defence based on the Alleged Collateral Contracts is also bad in law.  Ds have failed to condescend upon particulars, and Ds’ evidence is not capable of belief in any event.

Discussion

23.  It is firstly important to understand what, according to Mr Yung, the relevance of the Alleged Collateral Contracts is.

24.  At §18 of his written submissions, he says that:

“ … construing the two collateral contracts with the Loan Agreement is indicative of D1 only acting as an agent on behalf of Mr. Zhang when it received the Loan.”

25.  The existence of the Alleged Collateral Contracts is therefore not put forward as a separate defence, but is put forward in support of the Agency Defence.  When making his oral submissions, Mr Yung confirmed that that is so.  He also accepted that Ds’ entire case is dependent upon this Court accepting the existence of the Alleged Collateral Contracts.  If not, the Agency Defence will have nothing to stand on.

26.  A number of issues arise:

(a)   whether evidence is admissible to prove the existence of the Alleged Collateral Contracts;

(b)   if yes, and applying the test applicable to an application for summary judgment, whether Ds have proved the existence of the Alleged Collateral Contracts to the requisite threshold; and

(c)   even if “yes” to both, whether Ds have raised a real and bona fide defence.

27.  If an agent contracted in such terms as to imply that he was the real and only principal, extrinsic evidence would not be admissible to prove parties’ intention that he should not be personally liable.  In Shenzhen Baoming Ceramics Co Ltd v Companion-China Ltd [2000] 2 HKLRD 288, Keith JA observed at 290J‑291E that:

“ The admissibility of extrinsic evidence is the subject of art.102 in Bowstead and Reynolds on Agency (16^th ed.). At para.9‑037, the authors write:

Where it is clear from the terms of a written contract made by an agent that he contracted personally, extrinsic evidence is not admissible to show that, notwithstanding the terms of the contract, it was the intention of the parties that he should not be personally liable on it, because such evidence would be contradictory to the written contract.

A similar statement of principle appears in Halsbury’s Laws of England (4^th ed.) Vol.1(2), para.137:

If … the agent contracts in such terms as to imply that he is the real and only principal, evidence to contradict the terms of the contract will not be admitted.

That is to be contrasted with the case of an agent who ‘contracts in his own name but not in terms which are consistent only with his having done so as principal’. In such a case, ‘oral evidence may be admitted to prove the identity of the principal’. These are also quotations from Halsbury’s Laws of England (4th ed.) Vol.1(2), para.137, as is the statement that “[w]hether he has contracted in such terms or not depends upon the construction of the particular contract.”

28.  I have considered the Original Loan Agreement.  On its face, D1 signed as the “Borrower”.  There is nothing which suggests that it did so as Zhang’s (or anyone’s) agent.  Rather, the terms are consistent only with D1 having signed the same as principal.  I point in particular to the following terms:

(a)   “The Lender … agrees to make available to the Borrower the Loan …” (Clause 2.1);

(b)   “The Loan shall be applied and used by the Borrower for its general working capital …” (Clause 2.2);

(c)   “The Borrower may make a Drawdown by delivering to the Lender the Drawdown Notice …” (Clause 3.1);

(d)   “… the Borrower shall repay the Outstanding Principal together with all interest accrued thereon due and payable …” (Clause 5.1);

(e)   “The Borrower shall pay the interest accrued on the Outstanding Principal at the Interest Rate on the Interest Payment Date.” (Clause 6.1);

(f)   “The Borrower and the Guarantor jointly and severally represent and warrant to the Lender that:-

…

10.1.18   The Loan shall be applied and used by the Borrower for its general working capital …” (Clause 10.1.18);

(g)   “As primary obligor and not as surety only, the Guarantor:

15.1.1 guarantees to immediately make payment on demand of the Indebtedness due to the Lender from the Borrower under this Agreement;” (Clause 15.1.1).

29.  The Original Loan Agreement, properly construed, plainly suggests that D1 signed as principal.

30.  In my view, and on the authority of Shenzhen Baoming Ceramics, extrinsic evidence is not admissible to show that, notwithstanding the terms of the Original Loan Agreement, it was the intention of the parties that D1 should not be personally liable on it.

31.  In Shenzhen Baoming Ceramics, the defendant claimed that it was acting as the agent of another company.  No collateral agreement was alleged.  The Court of Appeal was therefore focusing its discussion on the inadmissibility of extrinsic evidence on the alleged true intention of the parties.

32.  Here, Ds are seeking to get round the problems they face by alleging the existence of the Alleged Collateral Contracts.  Mr Yung relies on Chitty on Contracts (33^rd ed) Volume I at §13-116, wherein it is suggested that:

“ Even though the parties intended to express the whole of their agreement in a particular document, extrinsic evidence will nevertheless be admitted to prove a contract or warranty collateral to that agreement. The reason is that ‘the parol agreement neither alters nor adds to the written one, but is an independent agreement’.”

33.  On the authorities placed before me, I am prepared to accept that extrinsic evidence can be admissible to prove the Alleged Collateral Contracts.

34.  The next question is whether the evidence, though admissible, should be accepted.

35.  It is trite that mere assertion does not, ipso facto, ground leave to appeal.

36.  As summarized at §14/4/4 of Hong Kong Civil Procedure 2021 Volume 1:

“ Where the defence rests on a collateral oral agreement, the defendant’s threshold onus is compounded by the onus to strictly prove the collateral oral agreement.”

37.  In Bank of India v Surtani Murlidhar Parmanand t/a Ajanta Trading Corp [1994] 1 HKC 7, Nazareth JA observed that:

“ Since the defence rests upon a collateral oral agreement, the sole effect of which is to vary the settlement deed, the threshold onus is in a sense compounded by the onus to strictly prove such agreement. That onus, as approved by Lord Goff in Universal Dockyard Ltd v Trinity General Insurance Co Ltd default [1989] 2 HKLR 160, 164, was propounded in the following way by Lord Moulton in Heilbut, Symons & Co v Buckleton default [1913] AC 30 at 47, 48:

Such collateral contracts, the sole effect of which is to vary or add to the terms of the principal contract, are therefore viewed with suspicion by the law.  They must be proved strictly.  Not only the terms of such contracts, but the existence of an animus contrahendi default on the part of all the parties to them, must be clearly shown.  Any laxity on these points would enable parties to escape from the full performance of the obligations of contracts unquestionably entered into by them and more especially would have the effect of lessening the authority of written contracts by making it possible to vary them by suggesting the existence of verbal collateral agreements relating to the same subject matter.”

38.  I accept, however, in the context of an application for summary judgment, the ultimate test is whether Ds’ defence is believable — see China Everbright Holdings Company Limited v Synergy Finance Limited and Anor,unrep, HCA 933, 934 & 935/2002, 18 December 2002, §18.

39.  In the present case, I find the allegations of existence of the Alleged Collateral Contracts incredible:

(a)   Their existence has not been pleaded in the Defence filed;

(b)   No reason has been given as to why it was deemed necessary for D1 to be interposed as the receiving agent;

(c)   D2 has failed to give any details on the terms of the 2^nd Alleged Collateral Contract;

(d)   In particular, D1 does not say that it has been agreed between Wong on behalf of P and D1 that D1 would not be personally liable for the Original Loan;

(e)   It would have been most incredible if Wong had so agreed.  That would have gone against all the essential terms of the Original Loan Agreement;

(f)   If Wong had so agreed, who should P be suing in case of default?  Would it have been Zhang?  But Zhang was not a contracting party to the Original Loan Agreement;

(g)   Further, if D1 were not the Borrower, and had no liability under the Original Loan Agreement, the question arises as to what the subject matter of D2’s guarantee was.  It has to be borne in mind that according to Clause 15.1.1 of the Original Loan Agreement, D2 guarantees “to immediately make payment on demand of the Indebtedness due to the Lender from the Borrower”, the “Borrower” being D1;

(h)   If Wong had agreed that D1 was not the Borrower and that D1 would not be personally liable for the Original Loan, D2’s guarantee would have been worthless.  P would have made the loan without any guarantee;

(i)   I find the above to be against commercial sense, and is entirely incredible.

40.  In any event, even if I were to accept D2’s evidence for the purpose of considering P’s application for summary judgment, I would still find that Ds have failed to establish any real and bona fide defence:

(a)   Even assuming the existence of the 1^st and 2^nd Alleged Collateral Contracts, it only means that D1 received the Original Loan as agent for Zhang;

(b)   But that does not mean as a matter of law that D1 has no personal liability under the Original Loan Agreement;

(c)   In Yeung Kai Yung v Hong Kong and Shanghai Banking Corporation [1981] AC 787 at 795, Lord Scarman observed that:

“ It is not the law that, if a principal is liable, his agent cannot be. The true principle of the law is that a person is liable for his engagements (as for his torts) even though he is acting for another, unless he can show that by the law of agency he is to be held to have expressly or impliedly negatived his personal liability.”

(d)   Yeung Kai Yung is an appeal from the Hong Kong Court of Appeal to the Judicial Committee of the Privy Council;

(e)   Yeung Kai Yung was followed by Deputy Judge Saunders in Rajeshkumar Nareshchandra Kantilal trading as K.L. GEMS v D.R.A. Trading Limited, unrep, HCA 4193/2003, 23 August 2005, which Mr Chong has cited to me;

(f)   Mr Yung sought to distinguish D.R.A. Trading on the facts. But with respect, it is not the facts in D.R.A Trading (nor indeed the facts in Yeung Kai Yung)which this Court is concerned with. This Court is concerned with the legal principles explained by Lord Scarman in Yeung Kai Yung as cited above;   

(g)   I repeat my observations above.  The Original Loan Agreement was on its face signed by D1 as principal.  All the essential terms support that construction.  D2 has failed to give any details on the terms of the 2^nd Alleged Collateral Contract.  He does not say that it was a term of the 2^nd Alleged Collateral Contract that D1 would not be personally liable under the Original Loan Agreement.  There is nothing which negatives D1’s personal liability under the same.  I do not accept Mr Yung’s submission to the contrary.

41.  In respect of D2’s liability as guarantor, the only point developed by Mr Yung is this, that as there was no “principal obligation” between P and D1, D2 is not liable as the guarantor. 

42.  I reject Mr Yung’s submission that there was no “principal obligation” between P and D1.  His case in respect of D2 falls away.

Some other reason to be a trial?

43.  I have separately considered whether the circumstances which have allegedly led to the extension of the Original Loan give rise to any reason to be a trial.

44.  I note in this regard that the extension of the Original Loan (pleaded at §6 of the Statement of Claim) has been denied by Ds (§13 of the Defence).  Chen says that the Extended Loan Agreement was made orally.  No other particulars have however been provided.  Wong has filed no affirmation in support.

45.  On the other hand, I regard as significant that D2 has not in his affirmation denied the extension of the Original Loan.  He has not at all challenged Chen’s evidence on the extension of the Original Loan. 

46.  Nor does Mr Yung rely on the circumstances leading to the extension as a ground in support of the present appeal.

47.  In the circumstances, on the evidence, and given the way the appeal has been argued (and fairly argued by Mr Yung I add), I see no other reason for there to be a trial.

Conclusion

48.  For the above reasons, I dismiss the appeal.

Costs

49.  I order that D1 and D2 shall bear the costs of the appeal, with certificate for counsel.

50.  On the strength of Clause 8.2.3 of the Original Loan Agreement, Mr Chong seeks costs on an indemnity basis.  Mr Yung accepts that he cannot dispute that.

51.  Mr Chong seeks summary assessment.  A statement of costs has been produced.  I have heard submissions on the same.  On a broad‑brush basis, I assess the costs which Ds have to bear at HK$135,000.