CHARM MASTER ENTERPRISES LTD v. GRAND T G GOLD HOLDINGS LTD AND ANOTHER

HCA 397/2011

[2020] HKCFI 2820

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 397 OF 2011

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D E C I S I O N

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INTRODUCTION

1.  By a summons dated 17 October 2019 (the “Summons”), the 2^nd Defendant seeks (1) summary judgment against the 1^st Defendant under RHC Order 14 Rule 5; or (2) in the alternative interim payment in the sum of HK$12,000,000 under RHC Order 29, Rule 11(1)(a) and (c).

2.  The action herein was first taken out on 9 March 2011 by the Plaintiff only against the 1^st Defendant on the basis of two promissory notes (the “Two Promissory Notes”) issued by the 1^st Defendant in the respective sums of HK$7,500,000 and HK$5,000,000.  The Plaintiff claims to be the noteholder entitled to payment thereunder.

3.  By a previous summons dated 3 October 2017, J Thomson Asset Investment Limited (the 2^nd Defendant) initially applied to join as a co-plaintiff claiming that it was one of the beneficiaries under a trust wherein the Plaintiff, as trustee, held the Two Promissory Notes for its benefit to the extent of HK$12,000,000 (ie 96% of the total face value of $12,500,000).  This was however disputed by the Plaintiff.

4.  Due to the disputes raised by the Plaintiff, leave was granted by Master Johnny Ma on 6 February 2018 for J Thomson Asset Investment Limited to join as the 2^nd Defendant.  In due course, an Amended Defence and Counterclaim of the 2^nd Defendant was filed on 27 March 2018 (the “AMDEF&CC”), wherein a case of breach of trust, constructive trust and unjust enrichment was pleaded against the Plaintiff.

5.  In addition, the 2^nd Defendant, claiming as beneficial owner of the two Promissory Notes, pleaded a counterclaim against the 1^st Defendant (1) on the strength of the Two Promissory Notes; and (2) on the basis of the terms of an acknowledgment made by the 1^st Defendant of the debts under the Two Promissory Notes as evidenced in two letters respectively dated 30 March 2016 (which is confirmed to be a typographical error and should read 31 March 2016) and 6 March 2017 (collectively, the “Acknowledgement of Debt”).

6.  Remarkably, there is no claim pleaded by the Plaintiff against the 2^nd Defendant.  For the sake of good order, the titular page of the action herein shall henceforth be adjusted clearly stating the original claim and the counterclaim as suggested in Hong Kong Civil Procedure (2020) n 15/3/2.

7.  Mr Raymond Ho appeared for the 2^nd Defendant and Mr John Hui (together with Miss Sharon Yuen) appeared on behalf of the 1^st Defendant.  Mr Richard Sousa of Messrs C T Chan & Co was present on a watching brief for the Plaintiff, which took a neutral stance as long as its rights were not affected by any decision of the Court and any payment ordered to be made by the 1^st Defendant would be paid into Court.

BACKGROUND

8.  The 1^st Defendant, formerly known as ESPCO Technology Holdings Limited, was a company incorporated in the Cayman Islands and listed on the Growth Enterprise Market of the Hong Kong Stock Exchange.

9.  The 2^nd Defendant was a company incorporated in the British Virgin Islands (BVI) and was the holder of 20% shares in a company known as SSC Mandarin Holdings Limited (“SSC Holdings”).  In turn, SSC Holdings was 100% shareholder of SSC Mandarin Mining Investment Ltd (“SSC Mining”).

10.  By a series of agreements (dated 1 November 2007 and 20 March 2008), the 1^st Defendant contracted with SSC Holdings for the purchase of all its shares in SSC Mining at a total consideration of HK$1,212,000,000 of which HK$60,000,000 was to be paid by way of a promissory note to be issued by the 1^st Defendant (the “Transaction”).

11.  At all material times, Mr Lee Sing Leung Robin (“Mr Lee”) was the sole director of SSC Holdings.  Mr Lee played an instrumental role in procuring the Transaction and was appointed the Executive Director, Vice Chairman and Chief Executive Officer of the 1^st Defendant on 5 June 2008.

12.  It is the 2^nd Defendant’s case that at the instigation of Mr Lee, a promissory note in the sum of HK$60,000,000 was put in the name of the Plaintiff, another BVI company incorporated solely as a special purpose entity for the holding of assets. 

13.  In essence, the Plaintiff was merely a nominee holding the promissory note, including the property thereunder or deriving therefrom on trust (the “Trust”) for the benefit of all shareholders of SSC Holdings (including the 2^nd Defendant to the extent of 20%).

14.  The Trust was evidenced, inter alia, by (1) the minutes of two general meetings of SSG Holdings held on 29 April 2008 and 30 April 2008 respectively; (2) payment instructions (signed by Mr Lee on or about 30 April 2008) from SSG Holdings to the 1^st Defendant directing the issuing of a promissory note in the sum of HK$60,000,000 to the Plaintiff; (3) a written confirmation of the Trust (dated 2 May 2008) executed by the Plaintiff and copied to the 2^nd Defendant. 

15.  Accordingly, a promissory note (“Promissory Note A”) in the sum of HK$60,000,000 was issued by the 1^st Defendant to the Plaintiff.  Eventually, Promissory Note A was partially redeemed and was superseded by Two Promissory Notes, namely:

(1)  Promissory Note D in the sum of HK$7,500,000, which was due for payment on 30 April 2010 but extended to 2 July 2010 upon the agreement of the Plaintiff;

(2)  Promissory Note E in the sum of HK$5,000,000, which was due for payment on 10 June 2010.

16.  Despite repeated demands made by Plaintiff, the 1^st Defendant failed or refused to honour the payments under Two Promissory Notes (ie Promissory Notes D and E). Hence, the Plaintiff took out the original action herein on 9 March 2011.

THE LAW

17.  The approach of the Court upon an application for summary judgment is well established.  A succinct summary can be found in the judgment of DHCJ Lisa Wong SC (as she then was) in Lau Chun Kam v Lai Tak Shing, HCA 2126/2007, unrep, 9 December 2008, which I would respectfully adopt.  The learned judge said (at paragraph 12):

“(1)  The Order 14 machinery works on the basis that if the plaintiff’s application is properly constituted, it is prima facie entitled to judgment unless the defendant shows cause to the contrary.

(2)  The mere assertion in an affidavit of a given situation by the defendant responding to an application for summary judgment does not, ipso facto, ground leave to defend.

(3)  The burden is on the defendant to show a real or bona fide defence or some other reason for a trial. 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.

(4)  In deciding whether there is a fair or reasonable probability of the defendant having a real or bona fide defence, 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.

(5)  In assessing the credibility of the defendant’s factual case, while the Court will not embark upon 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.

(6)  If having regard to inherent plausibility, inconsistency with contemporaneous documents and other compelling evidence, the defence is not credible, the Court must say so.

(7)  If the defendant’s evidence 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.

See Hong Kong Civil Procedure 2009, Volume 1, §14/4/1; National Westminster Bank plc v Daniel [1993] 1 WLR 1453, per Glidewell J at 1457; Re Safe Rich Industries Ltd, Civ App 81/1994, unrep., 3 November 1994, per Bokhary JA at p.5; Manciple Ltd v Chan On Man [1995] 2 HKC 459, per Mortimer JA at 466 and Microsoft Corporation v Electro-Wide Ltd [1997] FSR 580, per Laddie J at 593.”

18.  It is also trite that conditional leave may be granted where there is something suspicious in the defendant’s mode of presenting his case, or the court is left with a real doubt about the defendant’s good faith (see Hong Kong Civil Procedure (2020) n 14/4/16 citing Devlin LJ (as he then was) in Fieldrank Ltd v E Stein [1961] 1 WLR 1287).

19.  Leave to defend conditional on the full amount claimed being paid into court may be order where the defence is shadowy (see Van Lynn Development Ltd v Pelias Construction Co [1969] 1 QB and Suen Ho Sun v Kamenar International Ltd [1989] 1 HKC 135) or there is little or no substance in it or the case is almost one in which summary judgment should be ordered (Ionian Bank Ltd V Couvreur [1969] 1 WLR 781 cited in HKCP (2020) n 14/4/16).

20.  As to the alternative application for interim payment, the 2^nd Defendant’s pleaded case against the 1^st Defendant was for (1) the sums under the Two Promissory Notes buttressed by the Acknowledgment of Debt; (2) damages for breach of the terms of the Acknowledgement of Debt (see Paragraphs 29 to 36 of AMDEF&CC). Hence, the application in fact turns on Order 29, Rule 11(a) and (c) as well as Rule 12(c).

21.  In so far as both the Plaintiff and the 1^st Defendant are co-defendants to the 2^nd Defendant’s counterclaim, it is imperative for the  2^nd Defendant to show that he is highly likely to recover substantial “damages” or “sum of money” against the particular defendant against whom interim payment is sought (see Ricci Burns Ltd v Toole [1989] 1 WLR 993 (at 1002D-F).

22.  In British and Commonwealth Holdings plc v Quandrex Holdings Inc [1989] 1 QB 842 (cited in HKCP (2020 n 29/11/14), Sir Nicholas Browne-Wilkinson VC held (at 866C) that :

“. . .In my judgment, in cases where on the evidence then before it, the court entertains sufficient doubts as to the genuineness of the defence to give only conditional leave to defend, it is possible for a court to be satisfied that the plaintiff will succeed at trial. Although in such a case it does not automatically follow that it is appropriate to make an order for interim payment, if in all the circumstances such payment appears sensible and desirable, in my judgment it can be ordered.”

23.  Just to get rid of a short point, the Summons asks for the sum of HK$12,000,000 to be paid into court (1) under a summary judgment; or (2) by way of interim payment.  Mr Ho emphasized that the 1^st Defendant had to pay either the Plaintiff or the 2^nd Defendant.  Hence, said Mr Ho, there was no reason why the 1^st Defendant should not pay into court, in particular, where the obligation to pay under the two Promissory Notes had been alluded to in the 1^st Defendant’s published annual report.

24.  With respect, those acting for the 2^nd Defendant might have lured themselves into a false sense of security.  This is borne out by the rather scanty evidence on affirmation adduced by the 2^nd Defendant pertinent to enforcement of the terms under the Acknowledgment of Debt (see below).  The thresholds, which the 2^nd Defendant had to overcome, in respect of the two alternative applications are not lowered by the mere fact that the sum asked for was to be paid into court.  At best, the payment of the whole sum into court may be ordered as a term if the Court is minded only to grant conditional leave to defend in the face of the application for summary judgment.

25.  Likewise, whilst an interim payment ordered to be paid into court may address any concern of overpayment, it does not detract from the burden on the 2^nd Defendant to prove a strong case against the 1^st Defendant on ordinary principles governing interim payment.

NON-PAYMENT UNDER TWO PROMISSORY NOTES

26.  The 1^st Defendant did not dispute its liability under the Two Promissory Notes.  However, it was argued that Condition 3.3 of the terms thereunder stipulated that the obligation to pay would only arise upon presentment of the original of the certificate, which the Plaintiff had not done. 

27.  Hence, as between the Plaintiff and the 1^st Defendant, there was a factual dispute as to whether the original certificates had in fact been presented to the 1^st Defendant by an (unidentified) representative of Messrs Johnny K K Leung & Co, who had admittedly attended the 1^st Defendant’s office on 27 January 2011.

28.  Importantly, by a letter from the Plaintiff to the 2^nd Defendant (dated 8 October 2019), the Plaintiff acknowledged this factual dispute as a triable issue and took the view that a joint application for summary judgment against the 1^st Defendant would be inappropriate.  

29.  Not surprisingly, the 1^st Defendant argued that in so far as there was a dispute between the Plaintiff and the 2^nd Defendant as to (1) the existence of the Trust; and (2) the 2^nd Defendant’s entitlement to any money payable by the 1^st Defendant under Two Promissory Notes, it was not appropriate to enter summary judgment against the 1^st Defendant.

30.  Against the foregoing background, in so far as the 2^nd Defendant’s two applications herein hinge upon the obligation of the 1^st Defendant to make payment under two Promissory Notes, per se, as well as the 2^nd Defendant’s entitlement under the Trust, I agree with Mr Hui that the 2^nd Defendant would fail in limine.

31.  In short, the 2^nd Defendant would not have a better case than the Plaintiff against the 1^st Defendant pursuant to the Two Promissory Notes. Mr Ho made a valiant attempt to argue that the defence raised by the 1^st Defendant was unbelievable since (1) the presentment was made by the Plaintiff’s solicitor on 27 January 2011 whose evidence was reliable; (2) the Trust had been confirmed by a Statutory Declaration of Mr Lee (dated 13 March 2019) which had been provided to the 1^st Defendant.

32.  Suffice it to say that the existence of the Trust is disputed by the Plaintiff, who is undeniably the holder of the Two Promissory Notes.  This has to be resolved at trial. More importantly, the application for summary judgment herein is not founded upon the Plaintiff’s cause of action against the 1^st Defendant.

33.  Mr Ho argued that no positive case was capable of being advanced by the 1^st Defendant since its sole witness, Madam Ma Xiaona, was only appointed as a Non-Executive Director of the 1^st Defendant on 24 March 2016 and she had no direct knowledge of the Transaction and the presentment on 27 January 2011.

34.  Ironically, the same can be said about the unsatisfactory affirmation evidence from Mr Leung Heung Ying (“Mr Leung”), a director of the 2^nd Defendant.  Mr Leung did not claim to have any personal knowledge of what transpired during the alleged presentment on 27 January 2011 either.  

35.  At the hearing, Mr Ho sought to rely on the witness statements (1 lever arch files) filed by the parties herein which was lodged with the Court under cover of a letter dated 24 July 2020 (ie 3 days prior to the hearing).  This rather unorthodox way in which Mr Ho sought to introduce the materials is not to be encouraged.

36.  In particular, Mr Ho attempted to draw attention to the witness statement of Mr Leung Hing Ho Simeon, an assistant solicitor of Messrs Johnny K K Leung, who allegedly attended the 1^st Defendant’s office on 27 January 2011 to present the original certificates of the Two Promissory Notes to demand payment.  Since the witness statements were not properly introduced, I declined to refer to it. 

37.  On the foregoing analysis, the same conclusion is drawn in respect of the application for interim payment on the strength of the Two Promissory Notes.  It is doomed to fail.  However, that is not the end of the matter.

ACKNOWLEDGMENT OF DEBT – AS A SEPARATE AGREEMENT TO PAY

38.  In Paragraph 32 to 36 of the AMDEDC&C, an alternative claim has been pleaded by the 2^nd Defendant against the 1^st Defendant in reliance on the terms of the Acknowledgments of Debt as evidenced in two letters issued by the 1^st Defendant dated 31 March 2016 (mistakenly pleaded as 30 March 2016) and 7 March 2017.

39.  The first letter of 31 March 2016 was signed by Mr Li Dahong, the Chairman of the 1^st Defendant. It reads:

“Re:      Grand T G Gold Holdings Limited (“Company”) and its subsidiaries

Promissory Notes D and E in the aggregated principal amount of HK$12,500,000 (“Debt”) under HCA 397 of 2011 Acknowledgement of Debt 

We refer to our discussion in response to the captioned subject.

Please be advised that the Company Board of Directors considers that J Thomson Asset Investment Limited (“J Thomson”) [the 2^nd Defendant] is the beneficiary owner of the Debt and thus the Company intends to settle the Debt in favour of J Thomson subject to a deed of indemnity to be given by J Thomson in favour of the Company in respect of HCA 397 of 2011, to be drafted by the Company legal advisor.

Regarding your repeated request for immediate settlement of the Debt to J Thomson, in view of the financial difficulties faced by our Company currently and to facilitate the resumption in trading of the shares of our Company on the Stock Exchange of Hong Kong, we would request J Thomson not to institute any proceedings against our Company for the time being.

Your indulgence and acceptance of our Company’s request will be very much appreciated.” (emphasis added)

40.  The second letter of 7 March 2017, which bore the same heading, was also signed by Mr Li Dahong on behalf of the 1^st Defendant.  It reads:

“. . .

We refer to our discussion in response to the captioned subject.

This is to advise you that the board of the directors of our Company considers that [the 2^nd Defendant] is the beneficial owner of the Debt and thus the Company will settle the Debt in favour of the [2^nd Defendant] rather than Charm Master Enterprises Limited [the Plaintiff].

Regarding the indemnity to be given by [the 2^nd Defendant] in favour of our Company in respect of HCA 397 of 2011, we have instructed our legal advisor to prepare a deed of indemnity which will be sent to our legal advisor once available.” (emphasis added)

41.  It is extraordinary that despite filing two affirmations of Mr Leung Heung Ying, the 2^nd Defendant did not condescend upon particulars as to what transpired between the parties (1) which culminated in the 1^st Defendant issuing the two letters on 31 March 2016 and 7 March 2017 respectively; and (2) between 7 March 2017 and 3 October 2017, when the 2^nd Defendant issued a summons to join as a party.

42.  Notably, upon the order for joinder being granted by Master Johnny Ma on 6 February 2018, the 2^nd Defendant first filed a “Defence and Counterclaim of the 2^nd Defendant” on 6 March 2018, which was pleaded by Mr Ho, and was dated 6 March 2016 (ie about 3 weeks before the first letter). Upon enquiry, Mr Ho would put in down to a typographical error. However, it is unclear when the pleading was first prepared prior to filing.

43.  Importantly, the Court is not assisted by any evidence as to what follow-up action, if any, was taken to finalise the proposed indemnity referred to the in two letters evidencing the Acknowledgment of Debt, which was supposed to be drafted by the 1^st Defendant and provided to the 2^nd Defendant for consideration.

44.  In due course, after the exchange of witness statements, Messrs C T Chan (for the 2^nd Defendant) sent a letter to the Messrs D S Cheung & Co (for the 1^st Defendant) on 10 October 2019 offering to execute a deed of indemnity to the extent of HK$12,500,000 (ie the sum under the competing claim made by the Plaintiff herein).  In a reply letter dated 14 October 2019, the 1^st Defendant said:

“However, our client considered the option of a deed of indemnity in 2016 and 2017 out of good will, and in view of the relationship of trust between our client and your client’s shareholder, Mr Leung . . . at the time. The option was eventually not agreed nor pursued by your client, and as mentioned above, no agreement was ever reached. As a result, the option or proposal lapsed. The basis of the same trust as was in 2017 has been eroded given a series of spurious acts of your client’s shareholder against our client since 2018. As well, the company is facing an active litigation from the Plaintiff whereas it was on hold in early 2017. Since the re-activation of the proceedings since end of 2017, there has been a strong pursuit from the Plaintiff and in contrast there has not been a convincing support to your client’s claim promised.” (emphasis added).

45.  At the hearing, Mr Ho advanced an argument that there was a separate agreement under Acknowledgment of Debt as evidenced in the two letters, which was supported by consideration flowing from the 2^nd Defendant to the 1^st Defendant by way of forbearance to sue under the Two Promissory Notes.

46.  Although a “separate agreement” as such was not specifically pleaded, I entertained the argument since it was pleaded in the AMDEFC&C in the following terms:

“Claims against the 1^st Defendant

31. At all material times, the 1^st Defendant is affixed with constructive knowledge that the 2^nd Defendant is and was the beneficial owner of the Debts. . .

32. By the Acknowledgment of Debts, the 1^st Defendant on 30 (sic) March 2016 and 6 March 2017 acknowledged the debts under the Promissory Notes and confirmed that the board of directors of the 1^st Defendant considered the 2^nd Defendant is the beneficial owner of the Debts.

33. The 1^st Defendant further confirmed that it would settle the debts under the Promissory Notes in favour of the 2^nd Defendant.

34. Despite repeated demands, and in breach of the terms of the Acknowledgement of Debts, the 1^st Defendant has failed and/or refused to pay the HK$12,500,000 (or any part thereof) under the Promissory Notes to the 2^nd Defendant.

35.   As a result, the 2^nd Defendant has suffered loss and damage.”

(emphasis added)

47.  In response, the 1^st Defendant pleaded in the Defence to AMDEFC&C (dated 26 June 2018) in the following terms:

“2. For Paragraph 2:-

(a) It is denied that the 2^nd Defendant is entitled in equity to Promissory Note A, or any subsequent promissory notes thereof, whether to the extent of $12,000,000 or at all; and

(b) It is denied that Promissory Note A, or any replacement promissory note thereof, was or is subject to the Trust Arrangement as alleged.

. . .

15. . . .The 1^st Defendant avers that by these 2 letters, it has considered the 2^nd Defendant the beneficial owner of Promissory Notes A, which had been subsequently replaced with Promissory Notes D and E. By these 2 letters, the 1^st Defendant indicated its intention to settle the debt subject to a deed of indemnity to be given by the 2^nd Defendant in favour of the 1^st Defendant in respect of the claim by the Plaintiff in the present action. The 2^nd Defendant has not executed the requested indemnity. . .

17. Paragraphs 31 to 35 are not admitted and the 2^nd Defendant is put to strict proof thereof.  The 1^st Defendant repeats paragraphs 2 and 15 hereinabove.”

48.  By a letter dated 3 September 2020, the parties were invited by the Court to serve supplemental submissions on the issue of a “separate agreement”.  The Plaintiff lodged its further submission on 17 September 2020, which was followed by the 1^st Defendant’s dated 5 October 2020 and the Plaintiff’s reply dated 17 October 2020.

49.  In short, the Plaintiff relied on the full terms of the Acknowledgement of Debt, which was referred to in Paragraph 34 of the AMDEDC&C (see Paragraph 46 above) and the fact that the forbearance to sue from 31 March 2016 (date of first letter) to 3 October 2017 (date of summons for joinder) was self-evident.

50.  In the main, the only point taken by the 1^st Defendant was that a “separate agreement” and the consideration therefor had not been pleaded and hence there was no issue of any “separate agreement” before the Court.  Further, it was argued that the terms of the intended deed of indemnity contemplated in the two letters had never been agreed.

51.  Whilst a “separate agreement” was not specifically referred to in the pleadings, it is tolerably clear that the 2^nd Defendant was seeking to rely on the terms of the Acknowledgement of Debt wherefrom the forbearance to sue upon the specific request of the 1^st Defendant was patently clear. 

52.  Importantly, the 1^st Defendant was not taken by surprise since it was alive to the issue as to the existence of a separate agreement (see Paragraph 15 of the 1^st Defendant’s Defence to AMDEFC&C at Paragraph 47 above and the 1^st Defendant’s letter at Paragraph 44 above).

53.  Further, in Paragraph 5 of the 2^nd Affirmation of Ma Xiaona, the existence (or otherwise) of a binding agreement afforded by the two letters evidencing the Acknowledgment of Debt was specifically addressed by the 1^st Defendant.

54.  It is also patently clear from the 2 letters that the “Debt” owed by the 1^st Defendant was a reference to the liabilities to pay under Two Promissory Notes (HK$12,500,000) since specific reference was made to HCA 397 of 2011, the main action herein.

55.  More importantly, in the 2 letters, the 1^st Defendant unequivocally acknowledged that the 2^nd Defendant was “the beneficiary owner of the Debt” and requested for “indulgence” due to its own “financial difficulties” at that material time.

56.  The change from “intends to settle” in the first letter to “will settle” in the second letter is also significant. It is clear that the 1^st Defendant undertook to pay the money under the Debt over to the 2^nd Defendant on the strength of an indemnity against the Plaintiff’s competing claim herein.

57.  In this context, the obligation for the 1^st Defendant to pay the 2^nd Defendant under the Acknowledgement of Debt does not depend on the outcome of the dispute between the Plaintiff and the 2^nd Defendant as to the existence or otherwise of the Trust. 

58.  In short, the 1^st and 2^nd Defendant agreed to settle the Debt by the 1^st Defendant paying the 2^nd Defendant on the basis that the 2^nd Defendant was the beneficial owner in exchange for an indemnity.  The only question is whether the agreement was supported by consideration and binding on the 1^st Defendant.

59.  Even in the absence of any confirmatory evidence by way of affirmation, it is clear that between 31 March 2016 and 3 October 2017, the 2^nd Defendant did accede to the express request of the 1^st Defendant to forbear (or continue to forbear) to sue and/or refrain from joining as a party in the action herein.  This constitutes good consideration as a matter of law (Chitty on Contract (13^th Ed) Vol 1, at Para 3-060).

60.  Further, it matters not whether the 2^nd Defendant’s claim against the 1^st Defendant pursuant to the terms of the Acknowledgment of Debt (referrable to the Two Promissory Notes) would be successful as long as it was made in good faith (Chitty on Contract (supra) at 3-052).

61.  Significantly, under the terms of the Acknowledgment of Debt, the 1^st Defendant undertook to prepare the terms of the indemnity, which they failed to do.  This constitutes a breach of the terms of the Acknowledgment of Debt. In the circumstances, to allow the 1^st Defendant to renege from the terms of the Acknowledgement of Debt on the ground that the terms of the indemnity had not yet been agreed would be to allow the 1^st Defendant to benefit from its own wrong.

62.  Further, since the indemnity as contemplated in the 2 letters falls within the narrow and distinctive scope of the Plaintiff’s competing claim herein (ie an indemnity with specific reference to 1^st Defendant’s liability towards the Plaintiff in HCA 397 of 2011), it needs not be anything elaborated.  Hence, the terms of the intended indemnity were reasonably certain and it was capable of being enforced even in the absence of a deed being executed.

63.  Although the application for summary judgment was made after exchange of witness statements, it does not affect the jurisdiction of the court.  On the foregoing analysis, I am of the view that the defence of the 1^st Defendant in respect of the “separate agreement” is, at best, shadowy.

64.  Accordingly, I order that leave be granted to the 1^st Defendant to defend the counterclaim of the 2^nd Defendant on the condition that a sum of HK$12,000,000 (as set out in the Summons) be paid into court within 28 days by way of security to answer the 2^nd Defendant’s counterclaim against the 1^st Defendant.

65.  On the foregoing finding, there is no need for me to deal with the alternative application for interim payment under the “separate agreement”.  For the avoidance of doubt, nothing herein shall be construed to hinder any finding of facts to be made by the trial judge as between the Plaintiff and any of the Defendants and as between the Defendants, inter se.

66.  As to cost, in light of the fact that the 2^nd Defendant only properly enunciated its claim under the “separate agreement” in the course of the argument, I make an order nisi that costs of the application herein be the 2^nd Defendant’s costs in the cause of its counterclaim against the 1^st Defendant.

67.  There be no order as to costs as between the Plaintiff and each of the Defendants.