UNITED OVERSEAS BANK LTD (HONG KONG BRANCH) v. TOTAL ENTERPRISE LTD AND OTHERS

HCA 513/2023

[2025] HKCFI 558

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 513 OF 2023

BETWEEN

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DECISION

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Introduction

1.  By summons dated 25 March 2024 amended and refiled on 10 September 2024 (“the Amended Summons”), the United Overseas Bank Limited (Hong Kong Branch) (“the Bank”) applies for summary judgment against Chief Lead Corporation Limited (“the Company”) for the amount of HK$250,880,311.30 and interest thereon on the strength of a letter of guarantee dated 25 May 2022 executed by the Company in its favour (“the Guarantee”).

2.  Mr Tsoi, the 2^nd Defendant herein, was the sole shareholder and director at the time of signing the Guarantee. The Guarantee covers all money and liabilities due, owing or incurred to the Bank, among others, Total Enterprise Limited (“the Borrower”), the 1^st Defendant herein, under two facility letters both dated 27 May 2022 (“the Facility Letters”).

3.  Mr Tsoi, as with some other Defendants herein, have provided securities for the loans extended to the Borrower under the Facility Letters. The Bank has obtained default judgments against the Borrower, Mr Tsoi, the 5^th to 8^th, 13^th to 17^th and 20^th to 25^th Defendants.

4.  Mr Lok for the Bank submits that this is a typical summary judgment application for the purpose of the enforcement of a guarantee whereas Ms Eu SC leading Mr Wong and Mr Au-Yeung, for the Company, says that the claim of the Bank as against the Borrower and the Company is defective and there is a bona fide dispute about Mr Tsoi’s authority to execute the Guarantee on behalf of the Company. The Company even goes so far as to say that the Guarantee was a sham.

Background facts

5.  The Bank has filed a Chronology of Events from which the most of the following undisputed facts are extracted.

6.  The Facility Letters comprise two facility letters respectively known as “Term Loan Facility Letter” (“TLF Letter”) and “Uncommitted Banking Facility Letter” (“UBF Letter”). The total facility limit of the former is HK$183,026,328.43 and that of the latter is HK$56,020,000.

7.  The Bank and the Borrower jointly executed both of the Facility Letters. The 2^nd to 25^th Defendants countersigned and acknowledged the Facility Letters.

8.  Each of the TLF Letter and the UBF Letter contains a condition precedent to the grant of the facilities thereunder demanding a duly executed Guarantee delivered to and accepted by the Bank[1].

9.  Against this background, Mr Tsoi executed the Guarantee in favour of the Bank. He further provided to the Bank a board resolution of the Company dated 25 March 2022 (“the Resolution”) authorising Mr Tsoi to execute, among other things, the Guarantee on behalf of the Company.

10.  Mr Tsoi became a shareholder of the Company and was appointed as one of its directors on 7 March 2013. He became the sole director of the Company on 18 July 2018 and its sole shareholder on 27 August 2018.

11.  The sole asset of the Company is a property known as Flat A, 3^rd Floor, Tower 5 and Car Parking Space No.P121 on Basement 1 Floor, Providence Peak, No. 8 Fo Chun Road, Tai Po, New Territories, Hong Kong (“the Property”). The Property was acquired on 17 June 2013.

12.  On 21 April 2022, Mr Tsoi as vendor and Zhao Ruifeng and Cheng Po Pui as purchasers (“the Purchasers”) entered into a Provisional Agreement for Sale and Purchase for the purchase of the entire share capital in the Company and the sale debt owing by the Company to Tsoi (“the Provisional Agreement”).

13.  On 23 August 2022, the Purchasers became the directors of the Company and Mr Tsoi resigned from the directorship on the same day.

14.  On 26 August 2022, Mr Tsoi transferred his entire shareholding in the Company to the Purchasers. The Purchasers became the shareholders of the Company.

15.  On 10 October 2022, the Bank issued a demand letter to the Borrower asking for immediate payment of all sums due and owing by the Borrower to the Bank (“the Borrower’s Demand Letter”).

16.  On the same date, the Bank issued a demand letter to each of the 2^nd to 24^th Defendants including the Company (collectively “the Guarantors’ Demand Letter”) making the same payment demand.

17.  On 7 March 2023, the Bank commenced winding up proceedings against the Borrower under HCCW 113/2023.

18.  On 14 March 2023, its demand having been ignored, the Bank issued another demand letter to each of the 2^nd to 25^th Defendants including the Company again.

19.  None of the Defendants complied with the demand. The Bank commenced these proceedings by the writ dated 4 April 2023.

20.  On 2 August 2023, the petition of the Bank against the Borrower was granted and the Borrower was ordered to be wound up.

21.  On 4 January 2024, the Bank obtained a final and interlocutory judgment against the Borrower, Mr Tsoi, the 5^th to 8^th Defendants, the 13^th to 17^th Defendants and the 20^th to 25^th Defendants on account of their failure to file a notice of intention to defend.

22.  Up to the present moment, the Bank has filed its Amended Writ of Summons (with Amended Statement of Claim endorsed thereon) and the Company has filed its Amended Defence.

Applicable legal principles

23.  The relevant principles for summary judgment are well-settled and the summary made by in DHCJ Lisa Wong SC (as she then was) in Menfond Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor [2013] 2 HKC 259 at §61 is helpful:

(1) It is for the defendant to show that there is an arguable defence or triable issue. In doing so, the defendant must condescend to particulars. The mere assertion in an affidavit of a given situation by the defendant does not, ipso facto, ground leave to defend.

(2) The defendant must satisfy the court that his evidence is capable of being believed and that on the basis of such evidence, there is a fair or reasonable probability of the defendant having a real or bona fide defence.

(3) The court does not isolate each factual issue and consider whether it is possible that the defendant’s story on that issue is credible. Rather, the court must look at the whole situation.

(4) In assessing the credibility of the defendant’s factual case, while the court will not embark on a mini-trial on affidavit evidence, the court is not obliged to suspend its critical faculties and assume that the defendant’s evidence is accurate.

(5) If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the court must say so. If the defendant’s defence is incredible in any material respect, it cannot be said that there is a fair or reasonable probability that the defendant has a real or bona fide defence.

24.  It should be borne in mind that any alleged defence will not be taken at face value, but have its inherent probability considered and tested against the evidence, including contemporaneous documents, and whether there has been inconsistency in defence, or whether the defence is raised only recently despite an earlier opportunity to do so: see Time Rich 08 Limited v DBE (HK) Limited [2018] HKCA 404 at §5.2 per Cheung JA.

25.  Ms Eu reminds this court that before looking at the defence, the plaintiff’s case must be scrutinised and if possibly genuine weaknesses are exposed in the plaintiff’s case, summary judgment should be refused: Wang Fang Fang v China Asia Group (HK) Ltd [2022] HKCFI 2109 at §23 per Au-Yeung J (citing Yuen JA and Ribeiro JA (as Ribeiro PJ then was)).

26.  With these principles in mind, I now turn to the respective cases of the parties.

Alleged defects in the claim of the Bank

27.  The liability of the Company is set out in Clause 1 of the Guarantee as follows:

“For good and valuable consideration, receipt of which is acknowledged, [the Company] hereby unconditionally and irrevocably:-

(a) guarantees to the Bank due and punctual performance by the Borrower of all the Guaranteed Indebtedness;

(b) undertakes with the Bank that whenever the Borrower does not pay any amount of the Guaranteed Indebtedness when due, the Guarantor will immediately on demand by the Bank pay that amount as if the Guarantor instead of the Borrower was the principal obligor”; and

(c) as an independent and primary obligation, indemnifies the Bank immediately on demand against any loss or liability suffered by the Bank if any of the Guaranteed Indebtedness is or becomes unenforceable, invalid or illegal”. (emphasis added)

28.  Ms Eu submits that the following three conditions (“Three Conditions”) have to be met before any liability of the Company under the Guarantee could arise:

(1) when the Borrower fails to pay any sum that is due;

(2) after the Bank has made a proper demand to the Company; and

(3) when the liability of the Company, if any, is only limited to the extent of that sum due to the Bank as at the day of the demand.

29.  Ms Eu submits that none of these three conditions was fulfilled when the Bank demanded the Company to make payment and so the claim of the Bank is defective. Summary judgment should be refused outright even without examining the defence case.

30.  First, Ms Eu points out that the Bank had no right to demand immediate repayment from the Borrower under the Facility Letters. She further takes me through the Borrower’s Demand Letter and submits that it failed to give any indication as to which event of default and which provisions of the Facility Letters the Bank relied upon.

31.  Next, Ms Eu submits that the Bank has adduced no evidence to prove that the Borrower’s Demand Letter was properly served on the Borrower.

32.  Ms Eu further argues that since the Borrower’s Demand Letter and the Guarantors’ Demand Letter were despatched simultaneously on the same date, at the time when the Company was demanded to make payment, the Borrower was yet to default on payment. Thus, the demand on the Company was invalid.

33.  Lastly, Ms Eu submits that on the evidence, no demand was ever made on the Company before the service of the Writ of Summons herein.

34.  On the other hand, Mr Lok submits that the provisions of the Facility Letters and the Guarantee provide a complete answer to the allegations of defects of the claim of the Bank.

35.  In the first place, Clause 3.2 of the Standard Terms in the UBF Letter provides,

“The Bank has the overriding right to terminate or cancel any Facility and require immediate repayment of all sums which are now or will in the future become due, owing or payable to the Bank by the Borrower (whether actual, contingent and whether alone or jointly with any other person) under the Facilities and/or the Facilities Documents (“Indebtedness”) at any time without giving any reason or prior written notice to the Borrower. The Borrower shall on demand pay the Indebtedness to the Bank and upon demand being made, all sums owing or payable under the Facilities and/or the Facilities Documents shall become immediately due and payable by the Borrower to the Bank.”

36.  Thus, it is evident that the Bank was entitled to demand immediate repayment without giving any reason or prior written notice.

37.  Whilst the Three Conditions apparently emerge from Clause 1(b), Clauses 1(a) and (c) could not be ignored.

38.  The entire Clause 1 is not an uncommon provision in commercial guarantees. The Court of Appeal in Southwest Securities (HK) Brokerage Limited v Nieumarket Investments Ltd [2021] HKCA 740 considered a very similar provision in a guarantee. Cheung JA at §5.9 held that a clause similar to Clause 1(c) imposed a concurrent liability with the debtor on the guarantor.

39.  In Wong Man Kam Patrick v Ecosuccess Limited [2021] HKCFI 1725, DHCJ MK Liu, having referred to Southwest Securities (HK) Brokerage Limited, had this to say about a similar provision in a guarantee at §36,

“The clear objective of Clause 9(c) is to preclude any debate or discussion about the validity or enforceability of BMC’s liability to Ecosuccess. The effect of the Clause 9(c) is that (a) the Applicants cannot rely on the “co-extensiveness principle” (ie the guarantor’s liability is secondary and co-extensive with the liability of the principal), even in the event that BMC’s liability to Ecosuccess were invalid, illegal, or unenforceable, and (b) the Applicants would be under a concurrent liability in debt to Ecosuccess as guarantor.”

40.  The learned deputy judge also referred to X v Y [2019] HKCFI 2880 in which DHCJ Maurellet SC similarly found such a clause to be effective to exclude the operation of the co-extensiveness principle.

41.  It is therefore obvious that in light of Clause 1(c), the Company’s liability under the Guarantee is concurrent with that of the Borrower and is not dependent on the position of the Borrower or its default. It is primary in nature. The Bank was perfectly entitled to proceed against the Company without first exhausting its remedies against the Borrower: McGuiness v Norwich and Peterborough Building Society [2011] EWCA Civ 1286 at §66.

42.  This primary and concurrent nature of the liability of the Company renders the allegations of the lack of a valid demand on the Borrower irrelevant. As held by DHCJ Saunders in FWD Life Insurance Company (Bermuda) Limited v Cheng Wing Yiu Dumas and Anor. (unreported, HCMP 2365/2014, 8.7.2016) at §55, when the guarantor is also a principal debtor, no prior demand (both on the borrower and the guarantor) would be required for liability to arise under the guarantee.

43.  Further, the following passage in Law of Guarantees (7^th ed., §7-002) is apposite:

“A prior demand on the principal will only be obligatory if such a demand is necessary to complete the creditor’s cause of action, or if there is an express or implied contractual obligation on the creditor to make such a demand. Thus the creditor may proceed against the guarantor without making any prior demand on the principal even if the obligation of the principal is itself expressed in terms of a liability to pay “on demand” … The underlying principle is that “where a man engages to pay upon demand what is to be considered his own debt, he is liable to be sued upon that engagement, without any previous demand”.”

44.  In the Guarantee, there is no provision to the effect that the Bank should make a prior demand on the Borrower before it can enforce the Guarantee against the Company.

45.  Hence, whether the Borrower’s Demand Letter lacks important particulars, whether it was effectively served on the Borrower and whether the Borrower failed to comply with the demand are of little relevance.

46.  For completeness, I make it clear that I accept the evidence of Mr Ng, Managing Director of the Bank, that the final maturity date of Term Loan Facility 6 under the TLF Letter was 18 August 2023 and the Borrower failed to make any payment by that date. Such a failure constituted an event of default under Clause (I)(1) (Non-Payment) of the TLF Letter. The Bank has adduced no evidence in rebuttal.

47.  I do not accept Ms Eu’s submission that on a proper construction of Clause (J) of the TLF Letter, an event of default only gives rise to the Bank’s right to accelerate the loan and such a right is merely exercisable and not automatic. I agree with Mr Lok that the said provision entitles the Bank, on and at any time after the occurrence of an event of default, to declare the loans to be payable on demand and the same shall become due and payable immediately.

48.  The Borrower’s overriding right to demand immediate payment (Clause 3.2 of the Standard Terms) was expressly referred to and exercised in the Borrower’s Demand Letter. The Bank did not refer to any event of default and in any event it did not have to declare any such events of default. Under Clause (J), it merely has the right to declare the loans to be immediately due and payable or on demand.

49.  In the premises, I do not accept that the Borrower’s Demand Letter is defective.

50.  I have no difficulties in accepting Mr Ng’s evidence that the Borrower’s Demand Letter was issued to the Borrower. There is simply no contrary evidence. In the absence of any challenge raised by way of evidence, I am unable to accept Ms Eu’s submission that the Bank has failed to prove adequately the service of the Borrower’s Demand Letter by the production of the relevant waybill.

51.  Moreover, I am unable to accept the submission that the Borrower did not have reasonable time to comply with the demand in the Borrower’s Demand Letter and so there was no failure to pay on the part of the Borrower when the Guarantors’ Demand Letter was sent to the Company on the same day.

52.  In the first place, a prior demand on the Borrower is not necessary. Also, as a matter of law, money payable on demand is repayable immediately on demand being made. The borrower is allowed only such time as is necessary to implement the mechanics of payment needed to discharge the debt before being in default; they are not allowed to a reasonable time, for example, to muster the resources to pay the debt: Chitty on Contracts (35^th ed., §42-280).

53.  Now I deal with the allegation that the Company was not properly served with the Guarantors’ Demand Letters and that the Purchasers only came to know the alleged liability of the Company after the receipt of the Writ of Summons herein.

54.  As stated above, it is not necessary to serve the Guarantors’ Demand Letters for the liability of the Company under the Guarantee to arise.

55.  Mr Ng further gave an unchallenged account of how the Guarantors’ Demand Letters were despatched to the guarantors including the Company.

56.  In summary, he said that the address of the Company stated in the Guarantors’ Demand Letter was “Unit 4301-4308, 43/F, One Midtown, 11 Hoi Shing Road, Tsuen Wan, New Territories, Hong Kong” (“One Midtown Address”). The Guarantors’ Demand Letter to the Company was delivered by post to the One Midtown Address by OCS Hong Kong. A copy of the waybill issued by OCS Hong Kong was exhibited to his second affirmation (“the Waybill”).

57.  Ms Eu raises several objections to the purported service of the Guarantors’ Demand Letter on the Company.

58.  First, it is pointed out that the Waybill is undated and the contents of the Waybill are unascertainable. These matters do not cause me any concern on my acceptance of the evidence of Mr Ng, which is not rebutted by any contrary evidence.

59.  Then, it is complained that the Waybill was addressed to Mr Tsoi, his brother Mr Choi and his sister-in-law Madam Cheuk and only the Borrower purportedly acknowledged its receipt of the same by its chop stamped thereon. The Waybill did not appear to relate to the Company.

60.  The Guarantors’ Demand Letter was addressed to a number of the Defendants including the Company. Mr Tsoi was one of the addressees of the Waybill. He was the shareholder (by himself and/or through his corporate vehicles) and director of the Borrower. There is no reason to doubt the genuineness of the chop of the Borrower stamped on the Waybill.

61.  Further, Ms Eu submits that it is highly doubtful whether the One Midtown Address was the last known address of the Company at the time when the Guarantors’ Demand Letter was delivered.

62.  I do not share this doubt. As indicated, I accept the uncontradicted evidence of Mr Ng. He confirmed the One Midtown Address was the address last known to the Bank and it was actually the registered office of the Company as at 9 August 2022 evidenced by its 2022 Annual Return. The Company only filed a Notice of Change of Address of Registered Office on 14 December 2022.

63.  I also accept the submission of Mr Lok on this issue. First, he draws my attention to Clause 20 of the Guarantee. Clause 20.1 provides that all notices or other communications under or in connection with the Guarantee are to be sent at the Guarantor’s risk and the Bank does not assume any responsibility for any inaccuracy, interruption, error or delay, or total failure in transmission or delivery by post, facsimile or other written form of electronic communication.

64.  Clause 20.2 provides that any notices will be effective if by letter, when delivered personally or, when sent by prepaid post, two or seven business days following that on which it was so posted to an address in Hong Kong or overseas respectively. In Clause 20.3, the address of the Guarantor for all notices includes those last known to the Bank.

65.  In the circumstances, I am of the view that notice by way of the Guarantors’ Demand Letter was effectively given to the Company at the One Midtown Address. Whether the Company has actually received or had notice of the Guarantors’ Demand Letter is immaterial so long as the Bank has already delivered the same to the last known address of the Company in accordance with Clause 20: Ener-G Holdings plc v Philip Hormell [2012] EWCA Civ 1059.

66.  The last alleged defect of the claim of the Bank is that P does not properly quantify the sum that it is entitled to demand from the Company. Ms Eu makes two points. First, she complains that the Bank has provided no evidence as to the amount it has recovered from other Defendants including the Borrower, Mr Tsoi and other guarantors and from the various mortgages in favour of the Bank. The Purchasers are totally in the dark about the recovery progress. Absent any such disclosure, the Bank simply sues the Company for the full amount allegedly due under the Facility Letters. Ms Eu submits it would be extremely surprising for the Bank not to have recovered anything from other guarantors and securities.

67.  Second, Ms Eu refers to the evidence of Mr Ng concerning the amounts of overdue sums at diver dates. She points out that none of those amounts matches any of the sums demanded in the Guarantors’ Demand Letter. She submits that such a discrepancy is fatal to the present application.

68.  I find no merit in this allegation of erroneous computation of the amount due and I accept Mr Lok’s submission in response to this allegation.

69.  To start with, the Company agreed with the Bank under Clause 7 of the Guarantee that its liability under the Guarantee should not be reduced, discharged or mitigated by any act or omission of the Bank or any other person in taking up, perfecting or enforcing any security or guarantee from or against the Borrower or any Security Provider or any other person. I am satisfied that the Bank is entitled to sue the Company for the entire overdue amount under the Facility Letters in reliance of this provision.

70.  On the other hand, Mr Lok submits that the alleged discrepancy in the overdue amounts is due to a misunderstanding of the evidence of Mr Ng. Mr Ng merely set out the figures relating to different components of the loans at different points in time. I agree with his submission.

71.  Further, Clause 14 of the Guarantee provides that any certificate or determination by the Bank of a rate or amount under the Guarantee is, in the absence of manifest error, conclusive evidence of the matters to which it relates.

72.  A similar provision, which is commonly known as conclusive evidence clause, was held to be applicable by DHCJ Le Pichon in DBS Bank (Hong Kong) Ltd v Chan Chesta [2018] HKCFI 978 even after the lending bank had made a correction of the arithmetical error in the overdue amount.

73.  In the present case, the Company does not begin to adduce evidence to show any manifest error.

74.  To sum up, I cannot accept the contention of the Company that the claim of the Bank is in any way defective. Quite on the contrary, I find that it is well-formulated and properly constituted.

Purported defence

75.  The lynchpin of the purported defence is a common intention constructive trust (“CICT”) allegedly arising in favour of the Purchasers in respect of the shares of the Company and the Property immediately upon the signing of the Provisional Agreement.

76.  The argument is developed this way. The Company is a property holding vehicle of Mr Tsoi. Due to the fact that Mr Tsoi funded the purchase of the Property, there was a CICT between Mr Tsoi and the Company that the Company should hold the Property on trust for Mr Tsoi. Mr Tsoi remained to be the beneficial owner of the Property while the Company held the legal title.

77.  It is pleaded that it was the common intention of the Purchasers and Mr Tsoi whose intention is attributable to the Company that the Purchasers would become the beneficial owners of the Property. In reliance of such common intention, the Purchasers paid to Mr Tsoi the deposits and remaining balance of the purchase price for the purchase of the Company pursuant to the Provisional Agreement. Hence, the Property became held on CICT by the Company for the Purchasers upon the execution of the Provisional Agreement.

78.  Ms Eu submits that the common intention of the Purchasers, Mr Tsoi and the Company must be for the shares as well as the Property to be beneficially held by Mr Tsoi and the Company respectively for the Purchasers for the following reasons.

79.  First of all, the only asset of the Company is the Property and it is merely a property holding vehicle.

80.  Second, the Purchasers were informed by the estate agent that the purchase of the shares of the Company would be for all practical purposes the same as the purchase of the Property.

81.  Third, the Purchasers funded the purchase of the shares of the Company entirely.

82.  Lastly, the previous mortgages over the Property were discharged by the purchase price.

83.  By reason of the CICT, any authority vested in Mr Tsoi by the Resolution to give the Guarantee on behalf of the Company must have been revoked. The present position of the Company is that the Bank could not rely on the doctrine of apparent/ostensible authority. It should be put on inquiry owing to the suspicious nature of the Guarantee.

84.  It is submitted that the Guarantee was valueless and no security was intended. The Guarantee only became valuable after the Purchasers were deceived into signing and completing the Provisional Agreement.

85.  It is further submitted that the entire scheme including the Guarantee and the transaction for the sale of the Company to the Purchasers is a fraud perpetrated by Mr Tsoi. It is a triable issue as to whether the Bank was recklessly indifferent to the fact that the transaction was a sham when executing the Guarantee with Mr Tsoi.

86.  Ms Eu highlights that the Bank inexplicably waited until the signing of the Provisional Agreement and clearance of the previous mortgages by the purchase price paid by the Purchasers to ask for the Guarantee to be given by the Company. She submits that this is suspicious and a prima facie case of sham is shown. All the circumstances of how the Bank and Mr Tsoi entered into the transaction and their intention should be investigated and subject to scrutiny at trial.

87.  On the issue of sham, DHCJ Eugene Fung SC in Hui Cheung Fai and Anor. v Daiwa Development Limited and Ors. (unreported, HCA 1734/2009, 8.4.2014) said this about the definition of “sham” at §71:

“The classic definition of “sham” is Diplock LJ’s formulation in Snook v London and West Riding Investments Ltd [1967] 2 QB 786. A sham exists where (1) the parties intended that the documents or acts they have done would not create the legal rights or obligations they appear to create and (2) it was intended that the documents or acts would mislead a third party into believing the parties had created those rights and obligations. At p 802C-F, Diplock LJ said:

“As regards the contention of the plaintiff that the transactions between himself, Auto Finance and the defendants were a “sham”, it is, I think, necessary to consider what, if any, legal concept is involved in the use of this popular and pejorative word. I apprehend that, if it has any meaning in law, it means acts done or documents executed by the parties to the “sham” which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create. But one thing, I think, is clear in legal principle, morality and the authorities ... that for acts or documents to be a “sham”, with whatever legal consequences follow from this, all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating. No unexpressed intentions of a “shammer” affect the rights of a party whom he decided.””

88.  The undisputed evidence cannot really support the arguments now advanced on behalf of the Company despite the skilful presentation of Ms Eu. I am far from convinced that there is a triable issue or a reasonable defence based on the allegation of sham.

89.  First and foremost, there is no allegation, let alone evidence, that the Bank had any knowledge of any kind about the alleged CICT. Though the CICT issue does not involve the Bank, I am not convinced that there is credible evidence to suggest that the alleged CICT might come into being immediately upon the signing of the Provisional Agreement.

90.  Independent evidence of such an intention on the part of Mr Tsoi is conspicuously lacking. There is nothing from which I could infer such an intention on his part.

91.  The alleged CICT cannot be discerned from the Provisional Agreement. On the contrary, the express provisions of the Provisional Agreement negate such a common intention. Clause 4 provides that completion shall be subject to and conditional upon the completion of the Purchasers’ due diligence review and Mr Tsoi’s procurement of the Company to give and prove a good title to the Property. Parties were entitled to cancel the transaction if any of the conditions is not fulfilled. This should be the common intention of the parties. The Purchasers could have refused to complete the transaction if they had any concern or doubt about the beneficial interest in the Property in the course of their due diligence exercise.

92.  Without the alleged CICT, I fail to see any basis of the alleged revocation of the Resolution.

93.  Mr Lok refers to Clause 8 of the Provisional Agreement in which Mr Tsoi gives an undertaking that on and after the date of the Provisional Agreement up to the completion date he shall procure the Company and the directors of the Company not to do certain acts save with the prior written consent of the Purchasers. He submits that if there was the alleged immediate revocation of the Resolution and the actual authority of Mr Tsoi as the sole director of the Company, the undertaking would be wholly necessary. I agree with his submission.

94.  In the premises, I cannot accept that Mr Tsoi did not have the actual authority to execute the Guarantee.

95.  As the sole shareholder and director of the Company at the material time, Mr Tsoi undoubtedly had the apparent or ostensible authority to do so as well. I do not accept that the Bank should have made further inquiry in the absence of any usual circumstances. There could be no issue of validity of the Resolution despite the fair description of Ms Eu as a sloppy document. The substantial indebtedness of the Borrower under the Facility Letters was secured by its shareholder Mr Tsoi and his family members including their properties held by them or their companies. The Company was just one of them. It is very reasonable for the Bank to believe Mr Tsoi had the authority and rely on the Resolution as the solid documentary proof.

96.  Ms Eu relies on the dicta of Lord Sumption NPJ in PT Asuransi Tugu Pratama Indonesia TBK v Citibank NA (2023) 26 HKCFAR 1 at §§16-17 to support her submission that the Bank should be put on inquiry and disentitled to rely on the doctrine of apparent authority.

97.  The evidence here and the matters highlighted by Ms Eu simply do not suffice to put the Bank on notice. There is no remarkable facts actually known to the Bank which pointed to any impropriety on the part of Mr Tsoi. The Bank cannot be said to be irrational in not making inquiry.

98.  There is no allegation, let alone evidence, that the Bank actually knew or ought to know if it had appreciated the information at hand some facts calling for inquiry. To begin with, there is no suggestion that the Bank should and could have found out the Provisional Agreement in the public domain.

99.  Ms Eu points out that the Property was already subject to two mortgages at the time of the execution of the Guarantee when the property market was already going downhill. The Guarantee could not be of any value. At most, she suggests, the Bank should have asked for a further charge on the Property instead of the Guarantee.

100.  I am unable to accept her submission. If the Property was really not of any value, Mr Tsoi could not be faulted to have offered it to be a security of the indebtedness of the Borrower on behalf of the Company. The Bank could have rejected this allegedly worthless security but there is no reason why the Bank should cast doubt on the authority of Mr Tsoi.

101.  Moreover, I accept the evidence of Mr Ng and there is nothing untoward for the Bank to accept an additional security despite the existing mortgages. It caused no apparent harm to the Bank and more importantly it was a sheer commercial decision of the Bank to accept the Guarantee.

102.  Mr Lok raises objection to the allegation of sham on the ground that it is not pleaded and was only raised in a supplemental affirmation without leave. Despite his apparently valid objections, I have considered the submissions of Ms Eu and the relevant evidence in light of the definition of sham explained in the Hui Cheung Fai case. I am firmly of the view that the sham allegation is groundless and devoid of evidential basis.

103.  The Bank has consistently tried to enforce the Guarantee and has never acted in contravention of the same. I am unable to understand how the Bank could be said not to intend that the Guarantee would not create the legal rights or obligations between the parties by its provisions.

104.  There is no allegation that it was intended by the Bank that the Guarantee would mislead anyone. There is no reason why the Bank being a well-established financial institution would enter into the alleged bogus transaction with the Company, which only had the Property subject to two existing mortgages as its sole asset.

105.  Lastly, as rightly submitted by Mr Lok, there is no positive case advanced by the Company as to what the actual deal under the cloak of the Guarantee struck by the Bank and Mr Tsoi was.

106.  All in all, the allegation of sham is not supported by an iota of evidence, let alone cogent evidence. The Company cannot expect the grant of unconditional leave to defend in the hope that further investigation may help to build such a case which has a high evidential threshold to meet.

Conclusion and order

107.  For the reasons given, I conclude that the Company is unable to show any triable issue or a fair or reasonable probability that it has a bona fide defence to the claim of the Bank. I can find no suspicious circumstances surrounding the execution of the Guarantee and Order 14 r.3(1) cannot be invoked to assist the Company.

108.  In my view, all the assertions of the Company only suggest that the Purchasers or the Company may have a claim against Mr Tsoi but it has nothing to do with the Bank and the enforceability of the Guarantee.

109.  The Bank is clearly entitled to judgment and I so order.

110.  Costs should follow the event. I have considered Clause 16 and Schedule 1(1) of the Guarantee which provide for indemnity costs recoverable by the Bank. There is no reason why the Company should enjoy any relief from its contractual obligation. I would exercise my discretion to make a costs order nisi that costs of this action including the Amended Summons and all costs reserved be to the Bank, to be taxed if not agreed, on an indemnity basis.

111.  It remains for me to thank Ms Eu, Mr Wong, Mr Au-Yeung and Mr Lok for their helpful submissions.