歌斐資产管理有限公司 v. YANG KAI AND OTHERS

HCMP 703/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 703 OF 2017

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REASONS FOR DECISION
AND FURTHER DECISION

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Orders made on 16 June 2017

1.  I had the following 8 summons before me on 16 June 2017:

(1) P’s summons issued on 29 March 2017 for the continuation of the ex parte injunction order granted on 27 March 2017 (“the 1^st Injunction Order”) obtained by P against D1, D2 and D4;

(2) P’s summons issued on 6 April 2017 for the continuation of the ex parte injunction order granted on 5 April 2017 (“the 2^nd Injunction Order”) obtained by P against Eminent Ace Limited (“D5”);

(3) P’s summons issued on 13 April 2017 for leave to add D5 as the 5^th defendant in these proceedings in accordance with §8 of Schedule 2 to the 2^nd Injunction Order (“Joinder Application”);

(4) D1, D2, D4 and D5’s summons issued on 18 April 2017 for the discharge of the 2^nd Injunction Order and, further or alternatively, the discharge of the 1^st Injunction Order (“Discharge Application”);

(5) Consent Summons issued on 12 June 2017 for leave to D1, D2, D4 and D5 to file and serve the 5^th Affirmation of Mok Kwok Leung (“Consent Application”);

(6) D1, D2, D4 and D5’s summons issued on 12 June 2017 to strike out references in the parties’ evidence on the telephone call between D1 and P’s representatives on 3 April 2017 (“Strike Out Application”);

(7) P’s summons issued on 13 June 2017 to file 2 further affirmations (“Further Evidence Application”); and

(8) P’s summons issued on 13 June 2017 for leave to file 2 further expert reports (“Further Expert Opinion Application”).

2.  Ds were keen to conclude the hearing on 16 June 2017 and late that afternoon, Mr Johnny Mok SC abandoned reliance on material non-disclosure.  The hearing concluded at around 6 pm on 16 June 2017. I had reached a firm conclusion on the discharge of the 2 Injunction Orders, but I would like to have more time to consider other matters, the resolution of which would not affect my conclusion.  The fatal points against P were:

(1) P has not shown any arguable cause of action against D1 under《保证合同》; and

(2) As for the P’s reliance on Article 108 of 《中华人民共和国合同法》, despite my repeated requests to Mr Timothy Harry to point to a demand, P has not identified any demand (“要求”).  A demand is a pre-requisite for Article 108 to apply.  Thus, P has not shown any arguable cause of action under Article 108.

3.  My conclusion on the 2 points referred to in §2 above is decisive against the grant or continuation of the injunctions.  I discharged the 2 Injunction Orders with costs of the proceedings, including all costs reserved, to be taxed and paid by P to Ds, with certificate for 2 counsel.  Mr Johnny Mok SC asked for costs forthwith.  Under my costs order, Ds are entitled to immediate taxation and payment of their costs, see my judgment in Xcelom Ltd and another v BGI-Hongkong Co Ltd and another (No 2), [2017] 1 HKLRD 436. 

4.  Mr Timothy Harry asked for a short stay.  He said a stay was necessary or the appeal might be rendered nugatory.  I considered my conclusion on the 2 points referred to in §2 above plainly correct which meant that, in my judgment, there was no prospect of success in the (intended) appeal.  I declined to grant a stay.  My previous grant of a short stay in another case did not meet with the Court of Appeal’s approval.  See Sinom Shanghai Import & Export Co Ltd v Exfin (India) Mineral Ore Co Pvt Ltd, unreported, CACV 208/2006, 21 June 2006 where Rogers VP said at §7:

“ In paying tribute to the recorder below, the only matter with which I would disagree was that he granted a stay pending the application to this court. That is something I would not have done. But I have no doubt he did that in deference to this court and therefore no criticism falls on him in that regard.”

5.  Thus, applications (1)[1], (2)[2] and (4)[3] referred to in §1 above had been disposed of.

6.  There was no controversy about applications (3)[4] and (5)[5] referred to in §1 above, and I made orders in terms of those summonses.

7.  I said reasons for my decision would be handed down together with my decision on the remaining applications.  This I now do.

Background facts

8.  On 24 March 2017, the plaintiff commenced a civil claim (“PRC Action”) in Shanghai Second Intermediate People’s Court in PRC against (among others) D1, D2 (D1’s wife) and D3 (a listed company in Hong Kong) (中国辉山乳业控股有限公司).  D4 is said to be a company wholly owned and controlled by D1 and was D1’s nominees holding assets on his behalf.

9.  On 24 March 2017, P applied for asset preservation orders in the PRC Action against Ds to freeze their assets in the PRC.  An asset preservation order was granted on 27 March 2017.

10.  By an Originating Summons dated 27 March 2017, P commenced HCMP 703/2017 in Hong Kong against D1 – D4 under sections 21L and 21M of the High Court Ordinance, Cap 4, for a freezing injunction in respect of Ds’ assets in Hong Kong and ancillary disclosure order in support of P’s claim in the PRC Action.

11.  (1) On 27 March 2017, P applied ex parte and obtained the 1^st Injunction Order against D1, D2, and D4. 

(2) P’s case is that D4 is a company wholly owned and controlled by D1 and was D1’s nominees holding assets on his behalf. 

(3) Ds contended that P did not have a cause of action against D1  as at 27 March 2017[6] and thus the 1^st Injunction Order should be discharged. 

12.  (1) On 5 April 2017, P applied ex parte and obtained the 2^nd Injunction Order against D5.

(2) P’s case is that D5 is an offshore corporate nominee of D1.

(3) Ds contended that P did not have a cause of action against D1 as at 27 March 2017[7] and thus the 2^nd Injunction Order should be discharged.

The due dates

13.  On 17 March 2016, P entered into a series of transactions pursuant to which it purchased the receivables from a debt in the amount of RMB590 million owed by Huishan Dairy (China) Co Ltd (“Huishan China”) (辉山乳业(中国)有限公司) to Liaoning Huishan Group (Shenyang) Co Ltd (“Liaoning Huishan”) (辽宁辉山乳业集团(沈阳)有限公司) (the “Loan”). By way of security, the obligations of Huishan China to repay P was guaranteed by, among others, D1.

14.  (1) The Assignment of Account Receivables (“Assignment”) (应收帐款转让合同) was dated 17 March 2016 and made between P (assignee) (甲方) and D1 (guarantor) (丁方).

(2) According to P, the contractual due dates for the debtor to make payments were 31 March 2017 and 1 April 2017.  Needless to say, neither contractual due date had arrived by the date of issue of the Originating Summons on 27 March 2017.

Accelerated payment?

15.  Since the contractual due dates had not arrived by 27 March 2017, D1 had no contractual liability as the guarantor.

16.  The next question is whether P has made out an arguable case of accelerated payment.

17.  (1) The Guarantee (保证合同) was dated 17 March 2016 and made between P and D1.

(2) Clause 8 provides that:

“ 8.1 本合同生效后，债权人和保证人均应履行本合同约定的义务，任何一方不履行约定义务的，应当承担相应的违约责任，并赔偿由此给对方造成的损失。

8.2 保证人未按时履行保证责任的，应承担本合同第8.1条的违约责任。”

(3) In plain and simple Chinese, Clause 8.2 provides that the liability of the guarantor under Clause 8.1 may arise only if the guarantor does not perform its guarantee obligations “on time” (“按时”).  There is a critical time frame.

(4) Clause 2.2 provides as follows:

“ 若债务人未按主合同的约定履行其义务，债权人有权直接要求保证人在被担保债务的范围內履行清偿上述相关应付未付款项的义务而无须先向债务人追偿。保证人应在接到债杈人书面通知后五(5)个工作日内将相关应付未付款项支付至债杈人届时指定的银行帐户。”

(5) In plain and simple Chinese, Clause 2.2 provides that the following events, in sequence, must take place before the guarantor’s liability under Clause 2.2 may arise.

(a) The debtor does not perform its contractual obligations on time (“若债务人未按主合同的约定履行其义务”).

(b) The creditor has the right to make a direct demand (直接要求) on the guarantor without being required to seek recovery from the debtor (“债权人有权直接要求保证人在被担保债务的范围內履行清偿上述相关应付未付款项的义务而无须先向债务人追偿。”).

(c) The guarantor should within 5 working days from the receipt of the creditor’s written notification pay the relevant amount due into the bank account specified by the creditor (“保证人应在接到债杈人书面通知后五(5)个工作日内将相关应付未付款项支付至债杈人届时指定的银行帐户。”).  A written notification or demand (书面通知) is indispensable. 

18.  The only written communication from P to D1 on payment was the 《还款通知函》dated 23 March 2017.  On P’s case, it was received by D1 on 25 March 2017. 5 working days from 25 March 2017 takes us to 31 March 2017.

19.  《还款通知函》was sent to, among others, D1.  It read as follows:

“ …

现我司获悉贵方高级管理人员葛坤已失联，贵司于2017年3月23日召开债权人会议商讨到期债务偿还事宜。贵方已触发《应收账款转让合同》第5.4条等相关约定。我方认为贵方的上述情形将损害我方债权及相关权益，我方主张及通知如下:

一， 辉山乳业集团(中国)有限公司应于2017年3月23日前向我方足额清偿全部应收账款，计算至2017年3月23日的应偿付金额为 $546,067,382.89。

二， 辽宁辉山乳业集团(沈阳)有限公司应履行回购义务，并应于2017年3月23日前向我司支付回购价款546,067,382.89元。

三， 杨凱…对上述偿付义务承担保证责任，应立即支付上述款项。”

20.  Plainly, 《还款通知函》does not trigger off D1’s liability under Clause 2.2 of 《保证合同》 for the following reasons:

(1) 《还款通知函》made demands on the debtors and the Guarantor simultaneously, instead of sequentially.  The terms of 《还款通知函》showed that the debtor was hitherto not in default.  But, the debtor had to be in default before P could resort to D1.  See §17 above.  The demand on D1 was thus premature.

(2) Demands on the debtors are incapable of being complied with and are thus invalid.  

(3) 《还款通知函》was dated 23 March 2017 but it demanded payment before 23 March 2017, not on or before 23 March 2017 (应于2017年3月23日前).

(4) Under Clause 2.2 of 《保证合同》, D1 has 5 working days from the receipt of the creditor’s written notification to pay the relevant amount.  As the written notification was, on P’s case, received by D1 on 25 March 2017, D1’s deadline for payment was 31 March 2017.  It is plain and obvious that P has no cause of action against D1 under Clause 2.2 of 《保证合同》on 27 March 2017 when it issued the Originating Summons.  The Originating Summons was premature.

Article 108 of 《中华人民共和国合同法》

21.  Mr Timothy Harry did not refute the contentions[8] of Mr Johnny Mok SC that P had no cause of action against D1 under 《保证合同》.  Mr Timothy Harry contended that P could sue under Article 108 of PRC’s Contract Law (《中华人民共和国合同法》).

Article 108 of 《中华人民共和国合同法》

22.  Article 108 of 《中华人民共和国合同法》provides as follows:

“ 当事人一方明确表示或者以自己的行为表明不履行合同义务的，对方可以在履行期限届满之前要求其承担违约责任。”

23.  In plain and simple Chinese, Article 108 of 《中华人民共和国合同法》makes it plain that a demand (“要求其承担违约责任”) is a pre-requisite for invoking Article 108.

24.  I asked Mr Timothy Harry many times to draw my attention to the Article 108 demand (要求). He failed to do so.  I concluded there is none.

25.  Mr Timothy Harry asserted that a demand is not necessary for invoking Article 108 under Chinese law.  The passages he read to me dealt with a different article, not Article 108.  Those passages are irrelevant and unhelpful.

26.  Throughout his submission, Mr Timothy Harry repeatedly harped on the theme that under the transactional documents, they were all governed by Chinese law and that various questions were not for me to decide, but must await the decision of the Chinese courts. 

27.  With respect, I did not agree with his submission.  If P did not have a cause of action, P had no arguable case and no injunction ought to be granted or continued.  The grant or refusal of an injunction was and is clearly a matter for the Hong Kong judge.

28.  Moreover, it is trite and accepted by Mr Timothy Harry that, in the absence of evidence on Chinese law, I assume that Chinese law is the same as Hong Kong law.  There is no evidence on Chinese law showing that any of my reasoning or conclusion above is wrong under Chinese law.

No injunction against D1, D4 and D5

29.  Irrespective of my conclusion on the other summonses, the Injunctions could not stand against D1 and no fresh injunction ought to be granted.  The case against D4 and D5 falls with the case against D1.

Case against D2

30.  P contends that D2 became a guarantor under 《保证合同》by virtue of a document called 《配偶同意函》from D2 to P dated 17 March 2016.

31.  I reject the suggestion that D2 became a guarantor under 《保证合同》by virtue of《配偶同意函》.

32.  Clause 3 of 《配偶同意函》provides that:

“ 在发生债权人依据《保证合同》有权向保证人追索的情形时，对债权人可能处分本人与保证人所共同共有的财产的行为不提出任何异议，愿意承担由此引起的法律责任，并放弃任何抗辩权。”

33.  D2’s agreement was premised on the creditor having a right to seek recovery against D1 (“在发生债权人依据《保证合同》有权向保证人追索的情形时”).  For reasons given above, P had no right to seek recovery against D1.  No right under 《保证合同》 against D1 has accrued by 27 March 2017.  That is the end of the case against D2.  No amount of diversion can change this plain and obvious conclusion.

34.  In any event, my construction (in the absence of any evidence on Chinese law on this point) of Clause 3 of 《配偶同意函》is as follows. Her willingness to bear the resulting legal liability (“愿意承担由此引起的法律责任”) was in respect of the “punishment” or disposal of her properties which were co-owned with D1 (“债权人可能处分本人与保证人所共同共有的财产的行为”).  If she had agreed to be added as a guarantor, she could easily have said so expressly.  “由此引起的法律责任” refers to “债权人可能处分本人与保证人所共同共有的财产的行为”, not to the 《保证合同》.

35.  Moreover, P’s case of dissipation of assets by D2 is perverse. 

36.  If she were disposed to dissipate, she would not have agreed to have her co-owned properties made available to P by 《配偶同意函》.  Instead of dissipating her properties, she made her co-owned properties available to D1’s creditor.  Her signing of 《配偶同意函》showed that she was a decent fellow, not a dissipater.

37.  There is no evidence that D1 would try to cause her to dissipate.  There is no evidence that D2 would dissipate. 

38.  P’s case against D2 is a pathetic try on.  The 1^st Injunction Order should be discharged so far as D2 is concerned and no fresh injunction should be granted.

Case management order

39.  By order dated 21 April 2017, Lok J ordered, among others, that:

(1) The 13 July 2017 hearing date be vacated and all the outstanding summonses be fixed for argument on 16 June 2017.

(2) Deadlines for each party to file and serve affidavit evidence were imposed, with an order that “no further affidavits be filed without leave of the Court”.

40.  The case management order of Lok J showed that there was urgency in having the applications heard and that is why the 13 July 2017 hearing date was made to give way to the 16 June 2017 hearing date.

41.  The prohibition against affidavit evidence out of time must be understood in light of the urgency of the matter.

The Further Evidence Application

42.  This summons was filed on 13 June 2017, just 2 clear days before the hearing date of 16 June 2017. The ground as set out in §7 of the 3^rd Affirmation of Wong Zi Wei was that:

“ The facts and circumstances surrounding the 1^st Defendant and the Huishan Group (being the group companies owned by the 3^rd Defendant and controlled by the 1^st Defendant) continue to unfold and be revealed. Since the Li Affirmation, further factual information has become available. The Plaintiff believes that this further factual information will assist the Court in determining the Plaintiff’s Summons [sic] and the Discharge Summons. The Plaintiff therefore seeks leave to file this further new factual information in these proceedings, as set out in the 2^nd Lam Affirmation.”

43.  Facts will continue to “unfold and reveal” in almost all cases.  This is not a sufficient reason to admit new evidence in view of the “guillotine” on evidence set by Lok J, making 16 June 2017 an “unmovable” date.  Cases must move on under CJR. 

44.  If the “new” evidence is admitted, Ds are bound to get an adjournment.  This is prejudicial to Ds because of the likelihood for the 2 Injunction Orders to be continued during the adjournment.  If Ds do not get an adjournment, this is prejudicial to Ds.  Mr Johnny Mok SC has drawn my attention to Wise Union Industrial Ltd v Hong Kong Science and Technology Parks Corporation, HCAL 12/2009 (21 September 2009) where A Cheung J (as he then was) refused an application to put in further evidence 2 weeks before the hearing and cautioned against adjournment as a solution, holding that:

“ 2. We are now in the post-CJR era. A late application to amend or to introduce new evidence has a fairly high threshold to pass.”

“ 9. Talking about prejudice, I do not accept that in this new era, the fact that the innocent party can ask for an adjournment (even if one that is to be paid for by the other side) would mean that there is no prejudice. In my view, at least nowadays, an adjournment itself is a prejudice. Equally, the fact that a party, not wanting to lose a hearing date, refrains from asking for an adjournment, does not mean that there is no prejudice. The unenviable position that such a party finds himself in is in itself a prejudice.”

45.  Significantly, the new evidence does not deal with the date of accrual of a cause of action by P against Ds, a fatal point against P.  The new evidence creates more red herrings. 

46.  Taking into consideration all the relevant facts, and in the exercise of my discretion, I decline to grant leave for the admission of new evidence.  I dismiss the Further Evidence Application.

P’s summons issued on 13 June 2017 for leave to file 2 further expert reports (“Further Expert Opinion Application”).

47.  This is another summons filed on 13 June 2017, just 2 clear days before the hearing date of 16 June 2017.  The ground as set out in §6 of the 4^th Affirmation of Wong Zi Wei was that:

“ A number of PRC law issues were raised in the 2^nd Supplemental Chen Report. The Plaintiff has therefore prepared the Plaintiff’s Further PRC Opinions in order to further clarify and narrow the issues in dispute, and in order to further assist the Court.”

48.  There must be an end to the filing of expert evidence to and fro.  For reasons the same as or similar to those in §§43 – 45 above, I decline to grant leave for the admission of new expert evidence.

49.  In any event, the new expert evidence contains nothing in answer to the decisive lack of a demand.  This reason is by itself decisive against granting leave.

50.  If P needs this expert evidence to make out an arguable case against Ds, P should have included such evidence in the grounding affidavit(s) in support of the ex parte applications, not after the deadline imposed by Lok J had past.

Strike Out Application

51.  It is Ds’ application issued on 12 June 2017 to strike out evidence (both P’s and Ds’) on a telephone conversation on 3 April 2017 between D1 and officers of P.  Ds contended that the conversation was without prejudice.

52.  P had taped the conversation and caused a transcript to be prepared.  P possessed both the tape and the transcript.  In Lam Kwok Fung Kenny’s affirmation affirmed on 4 April 2017, he gave evidence on the conversation in 3 paragraphs.  He produced neither the tape nor the transcript.  He did not even mention that P had the tape and the transcript.  Nor did he say that the conversation was without prejudice.

53.  D1 dealt with the telephone conversation in 2 paragraphs in his affirmation affirmed on 26 May 2017. 

54.  P responded by Li Lui’s affirmation affirmed on 31 May 2017 and he produced a copy of the transcript of the telephone conversation.

55.  Ds objected to evidence on the telephone conversation on the ground that it was a without prejudice conversation.

56.  P contended that D had waived the privilege.

57.  I have read the transcript and am convinced that it was a without prejudice conversation.

58.  The without prejudice privilege is an important principle in the administration of justice.  It encourages parties to negotiate with a view to resolving their differences without fear or concern that their negotiation might be used as evidence in litigation.

59.  D1 is alleged to have waived the privilege.  The conversation took place on 3 April 2017.  On 4 April 2017, Lam Kwok Fung Kenny gave evidence on the conversation in 3 paragraphs.  Lam Kwok Fung Kenny did not give any clue about the without prejudice nature of the conversation.  P’s conduct smacked of ambush and trap.  This forced D1 to respond.  D1 was driven into responding by affirmation affirmed on 26 May 2017, 1 month and 23 days after the conversation.  D1’s response does not in my judgment amount to a waiver.  I hold that there is no waiver by D1.

60.  Mr Johnny Mok SC helpfully drew my attention to Suh v Mace (UK) Ltd [2016] EWCA Civ 4 which is authority in support of my decision on the waiver point.  Vos LJ held:

“ 42. … it would, I think, be a violation of that privilege to hold the tenants’ conduct amounted to a waiver .… First … The [counterparty] had already brought the alleged [without prejudice materials] to court. The fact that the [objector’s] response was not as quick-thinking as it might have been should not be held against them. It would hardly protect the privilege and its overarching purpose if the party seeking to overcome it could secure its waiver by forcing the opposing party to respond to any application it was making to the court. Moreover, [the counterparty’s] application notice did not even suggest that the admissions relied upon might be covered by a without prejudice privilege.

…

45.  … [the counterparty] had already indicated that it intended to ignore that privilege by bringing the admissions to the attention of the court.  It would, therefore, be unjust and contrary to the requirement for the privilege to be protected to hold that the [objector’s] unguarded response to the [counterparty’s] conduct amounts to a waiver of the privilege itself.  As with the later events, the [objector’s] response was provoked by the [counterparty’s] actions in attempting to ignore the privilege that has now been held to exist.”

Conclusion

61.  I have disposed of applications (1), (2), (3), (4) and (5) on 16 June 2017.

62.  I make an order in terms of §1 of the Strike Out Application.  As I have already awarded costs of proceedings to Ds, I make no order under §2 of the Strike Out Application.

63.  I dismiss the Further Evidence Application.  As I have already awarded costs of proceedings to Ds, I make no order under the Further Evidence Application.

64.  I dismiss the Further Expert Opinion Application. As I have already awarded costs of proceedings to Ds, I make no order under the Further Expert Opinion Application.