BIGHAND VENTURES LTD v. REGENT NATIONAL ENTERPRISES LTD

HCMP 886/2017

[2019] HKCFI 2066

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 886 OF 2017

________________________

________________________

_________________

D E C I S I O N

_________________

INTRODUCTION

1.  By an Originating Summons filed on 18 April 2017, the plaintiff applies under Order 88 of the Rules of the High Court (“RHC”) for inter alia:

(1)  An order for payment of all monies due and owing from the defendant to the plaintiff under the respective covenants contained in a fourth legal charge dated 29 October 2015 (the “Fourth Legal Charge”) and made between the plaintiff as mortgagee and the defendant as mortgagor (paragraph 1); and

(2)  In default of payment of such sum as may be adjudged to be due under the Fourth Legal Charge, delivery to the plaintiff by the defendant of vacant possession of the Property (paragraph 2). 

2.  The subject of the Fourth Legal Charge, which was registered in the Land Registry on 10 November 2016, is a parcel of land known as 28 Kimberley Road in Kowloon, together with the whole of the building erected thereon (excluding Levels 1 to 4 and certain other parts of the building), presently known as The Kimberley Hotel (collectively, the “Property”).  The obligations secured by the Fourth Legal Charge were those under a written facility agreement dated 25 September 2015 (the “Facility Agreement”) between the plaintiff as lender and the defendant as borrower for the sum of HK$764,000,000 (the “Loan”).

3.  On 12 September 2018, the defendant applied by Summons for the Originating Summons to be continued as if the proceedings were begun by writ and for consequential directions for the filing of pleadings (the “Defendant’s Summons”).  The plaintiff opposes the Defendant’s Summons and seeks a summary determination on its claims.

4.  The matter first came before me on 7 November 2018.  For reasons I shall explain further below, I granted an adjournment to allow the plaintiff an opportunity to file further evidence in support of the Originating Summons and for the defendant to file any evidence in response, and directed the matter to come back before me on 14 December 2018.  At the end of the hearing on 14 December 2018, I reserved my decision and reasons. 

5.  On 12 February 2019, receivers were appointed by the Industrial and Commercial Bank of China (Asia) Limited (“ICBC Asia”), being the first mortgagee of the Property, over the Property.  The court was informed of the appointment by correspondence between the receivers and the parties’ solicitors in early March 2019, which was copied to the Court, whereby the receivers requested the parties to consent to a stay of the Originating Summons, or at least paragraph 2 of the same, pending the receivers’ disposal of the Property.

6.  On 2 April 2019, the plaintiff and the defendant filed a Consent Summons for paragraph 2 of the Originating Summons to be adjourned sine die with liberty to restore pending the disposal of the Property by the receivers.  On 8 April 2019, Deputy High Court Judge Leung made an order in terms of the Consent Summons. 

BACKGROUND

The plaintiff’s case

7.  The plaintiff has sought to present, both in the affirmations of its director, Mr Tang Yong (“Mr Tang), and in the submissions of Mr Clifford Smith SC (leading Mr Richard Leung and Mr Ronald Pang) [1], a simple and straightforward case, which may be summarised as follows.

8.  On 25 September 2015, the plaintiff, a company incorporatedin the British Virgin Islands, and the defendant, a Hong Kong incorporated company, entered into the Facility Agreement for the Loan.  The Facility Agreement included the following clauses:

(1)  Clause 1.01 defined inter alia the Fourth Legal Charge as the executed mortgage over the Property as security for payment of the sums borrowed by the defendant under the agreement;

(2)  Clause 1.01 further defined the Outstanding Indebtedness to be all outstanding indebtedness due from the defendant to the plaintiff under the Facility Agreement or otherwise;

(3)  Clause 6.01 allowed the plaintiff to enter and take possession of the Property and to sell the same upon the defendant’s default;

(4)  Clause 13.01 provided that any failure by the defendant to repay any principal and/or interest or any other sum payable within seven business days when the same falls due and/or upon demand will constitute a default by the defendant; and

(5)  Clause 13.02 provides that all sums will be due and payable upon any default by the defendant and the Fourth Legal Charge will become immediately enforceable.

9.  Prior to the Facility Agreement, the defendant had obtained from a company known as Best Deed Global Limited (“Best Deed”) loanstotalling some HK$1.44 billion through a series of facility agreements dated 30 March 2015 (for HK$800 million), 30 April 2015 (for HK$500 million) and 19 June 2015 (for HK$140 million) (collectively, the “Best Deed Loans”).

10.  The facility agreements with Best Deed were secured by a series of legal charges, respectively, a third legal charge dated 30 March 2015, a supplemental third legal charge dated 30 April 2015 and a 2^nd supplemental third legal charge dated 19 June 2015 (collectively, the “Best Deed Charges”).

11.  In addition to the Best Deed Loans, the defendant was indebted to a number of other third parties as shown by various encumbrances over the Property at the time.

12.  The intention of the Facility Agreement and the Fourth Legal Charge was to assist the defendant to restructure its debts and facilitate further refinancing.  The plaintiff agreed to lend to the defendant the sum of HK$764 million to repay a portion of the Best Deed Loans.  The defendant indicated that it could obtain funds to repay the remainder of the Best Deed Loans from other institutions.

13.  As mentioned above, the parties entered into the Facility Agreement on 25 September 2015 and the Fourth Legal Charge on 29 October 2015.  The documents were executed by one Lau Hei Wing (“Mr Lau”), the sole director of the defendant at the time.  Mr Lau also signed on 29 October 2015 a written memorandum as sole director of the defendant approving the terms of the Facility Letter and the Fourth Legal Charge and authorising himself to execute the two documents and any related documents.

14.  Exhibit 1 of the Facility Agreement provided the specimen form of the notice of drawing to be issued by the defendant to the plaintiff to draw down the loan.  The form provided that, inter alia:

“ We hereby irrevocably authorise and direct your company to pay or credit the Drawing (1) as to HK$302,000.00 by way of a cashier order made payable to Eddie Lee & Co by way of legal fees and expenses and (2) as to the balance of HK$ [763,698,000.00] [2] to [the defendant] in accordance with the payment instruction provided by it.”

15.  On 20 October 2015, the defendant issued a drawdown notice to the plaintiff (the “Drawdown Notice”) in a slightly different form, as follows:

“ We hereby irrevocably authorise and direct your company to payor credit the Drawing (1) as to HK$302,000.00 by way of a cashierorder made payable to Eddie Lee & Co. by way of legal fees and expenses and (2) as to the balance of HK$763,698,000.00 to [Best Deed] in accordance with the payment instruction provided by it.” (emphasis added)

16.  In addition to the Facility Agreement and the Fourth Legal Charge, the plaintiff entered into a deed of assignment with Best Deed dated 29 October 2015 (the “Debt Assignment”).  The recitals of the Debt Assignment provided that inter alia:

“ (B) [Best Deed] wishes to assign and transfer, and [the plaintiff]wishes to take an assignment and transfer of, the benefit of a debt in the amount of HK$763,698,000 (the ‘Debt’) on the subject to the terms and conditions of this Deed.

(C) [The plaintiff] shall issue a promissory note to [Best Deed]where [the plaintiff] agrees and promises to pay to [Best Deed] the principal amount of HK$763,698,000 and the interests to be accrued thereto (the ‘Promissory Note’) as consideration for this Deed.”

Clause 1 of the Debt Assignment provided that:

“ In consideration of the Promissory Note issued by [the plaintiff](receipt of which is hereby acknowledged by [Best Deed]), [BestDeed], as legal and beneficial owner, hereby assigns and transfersto [the plaintiff] absolutely all its right, title, interest and benefits of and in the Debt to the intent that [the plaintiff] shall become the legal and beneficial owner of the Debt from the date hereof.”

17.  The plaintiff provided Best Deed with a promissory note dated 29 October 2015 (although the precise date on which it was provided is not entirely clear) (the “October 29 Promissory Note”).

18.  At the first hearing, Mr Richard Leung submitted that, “In consideration of [the plaintiff’s repayment to Best Deed on behalf of the defendant], the plaintiff entered into the Facility Agreement and the 4^th Legal Charge”, and that, “As a result … the plaintiff further entered into [the Debt Assignment] and provided Best Deed with [the October 29 Promissory Note]”.

19.  Further, it is said that the “overall effect” of the Debt Assignment and October 29 Promissory Note was that a total sum of HK$764 million was repaid to Best Deed.  This sum, together with other refinancing arrangements obtained by the defendant, resulted in the repayment of the Best Deed Loans in full and the discharge of the Best Deed Charges as evidenced by a Deed of Release and Discharge from Best Deed dated 4 November 2015.

20.  The defendant is said, therefore, to have benefited from the restructuring, and subsequently, was able to obtain additional financing from, amongst others, ICBC Asia.  The Land Registry records indicate that financing from ICBC Asia was secured by a debenture and mortgage dated 14 September 2016, which was registered on 19 September 2016.

21.  Pursuant to the repayment schedule, the defendant was due to pay the first instalment of interest under the Facility Agreement in the sum of HK$15,280,000 on 30 November 2015, and further instalments of the same amount were due on each subsequent month up to and including 29 April 2016, where the principal of HK$764,000,000 was also due to be repaid.  The total amount of principal and interest payable to the plaintiff was HK$855,680,00.00. 

22.  However, the plaintiff contends that despite repeated requests and demands, the defendant failed to make any payment at all.  The plaintiff therefore claims for the outstanding amount together with interest. 

23.  The Fourth Legal Charge, however, was not registered with the Land Registry until a year later on 10 November 2016.  Mr Tang’s explanation for the delay was as follows:

“ The defendant informed the plaintiff that he would enter the Debenture and Mortgage with [ICBC Asia] to make loan facilities of up to an aggregate principal amount of HK$3,000,000,000 (‘Debenture and Mortgage’) to repay the Loan to the plaintiff. Therefore, the defendant requested the plaintiff not to register the Fourth Legal Charge at the Land Registry and Companies Registry as [ICBC Asia] would not grant the said loan facilities to the defendant if the Fourth Legal Charge was duly registered at the Land Registry and the Companies Registry.

Whereby [sic] the plaintiff performed a land search of the Property that it was discovered that the Debenture and Mortgagedated 14^thSeptember 2016 was duly registered at the Land Registry on 19^thSeptember 2016 …”

24.  Significantly, both Mr Richard Leung at the first hearing and Mr Smith SC at the adjourned hearing made it clear that the plaintiff relies for its claim in these proceedings solely on the Facility Agreement and the Fourth Legal Charge, and not the Debt Assignment.  As Mr Smith SC candidly accepted, the plaintiff would be placed at a substantial disadvantage if it relied upon the Debt Assignment as its cause of action, as it would not have the benefit of the security of the Fourth Legal Charge and would merely be an unsecured creditor.

25.  Indeed, as explained below, it seems to me that this is the crux of the dispute.

The defendant’s case

26.  It is significant to note at the outset that whilst the defendant opposes the Originating Summons, it does not advance a positive defence to the plaintiff’s claim.  According to affirmation of Mr Li Kei (“Mr Li”), one of the defendant’s present directors, the defendant was indirectly wholly-owned by Mr Lau, who was also the sole director of the defendant, from 29 April 2015 to 8 September 2016.  On 8 September 2016, Mr Lau sold his interest in the defendant to a company known as Timespeed Investment Limited (“Timespeed”), the present owner, and resigned as a director.  Mr Li also stated that since November 2016, Mr Lau could not be found and there was a rumour that he had been arrested in Mainland China.  Local media later reported that Mr Lau died in Mainland China in March 2017.  The defendant also understands that, on 1 June 2017, Master S Lo appointed Lam Sek Kong, a solicitor, as administrator ad colligenda bona over Mr Lau’s estate in HCEA 32/2017.

27.  On Mr Li’s evidence, the defendant’s new management only became aware of the Fourth Legal Charge when it was delivered to the Land Registry on 26 October 2016 and only became of the aware of the Facility Agreement in 19 April 2017 when it received a letter from the plaintiff enclosing the Originating Summons.  Mr Li further said that Mr Lau never disclosed the Loan, the Facility Agreement and the Fourth Legal Charge to Timespeed prior to the acquisition of the defendant by Timespeed, nor were such matters discovered by Timespeed’s own due diligence.

28.  Hence, neither Mr Li nor anyone else in the defendant’s present management has any personal knowledge of the circumstances surrounding the Facility Agreement and the Fourth Legal Charge, or indeed, the Debt Assignment.  According to Mr Li, inquiries made by the present management with the accounting staff and investigations into the defendant’s financial accounts also did not reveal the existence of the Loan, whether and when the loan proceeds were received, or how it was used (if at all) by the defendant.

29.  Mr Li also complained in his 1^st affirmation that Mr Tang did not explain how, or exhibit any record in his 1^st affirmation to show that, the proceeds of the Loan were actually paid or credited to the defendant.  In fact, the defendant’s solicitors had since May 2017 issued a number of letters to the plaintiff’s solicitors requesting information and documents relating to the Loan, but to no avail.

30.  In his 2^nd affirmation, Mr Tang responded to Mr Li’s complaint as follows:

“ In order to repay Best Deed [on behalf of the defendant pursuant to the Facility Agreement], the plaintiff and Best Deed entered into [the Debt Assignment] and [the Drawdown Notice] was also prepared to facilitate this arrangement …

As stated in the [Debt Assignment], the consideration was [the October 29 Promissory Note] prepared by the plaintiff in favour of Best Deed.

As it can be seen, the sum of HK$763,698,000 owed by the defendant and Lau was transferred to the plaintiff and the plaintiff became indebted to Best Deed in this sum together with interest …”

31.  In Mr Li’s 2^nd affirmation made in reply to Mr Tang’s 2^nd affirmation, he pointed out that, notwithstanding the previous requests by the defendant’s solicitors, it was in Mr Tang’s 2^nd affirmation that the plaintiff revealed for the first time the Drawdown Notice and, more importantly, the Debt Assignment and the October 29 Promissory Note.  Further, according to Mr Li, there was no record of such documents in the defendant’s files, and the defendant therefore challenged the authenticity of the documents.

32.  Mr Li also exhibited a Letter of Confirmation dated 4 November 2015 issued by Best Deed, the defendant and Mr Lau he had found in the defendant’s records (the “Confirmation Letter”).  The Confirmation Letter confirmed that the total principal amount outstanding from the defendant to Best Deed as at the date of the letter to be HK$800 million.  Mr Li made the point that the Confirmation Letter made no mention of the plaintiff, the Facility Agreement or the Debt Assignment.

33.  In addition, in his affirmations, Mr Li raised a number of sundry issues concerning Mr Tang’s evidence, which for present purposes are perhaps less important and to which I shall come back later.

MORTGAGE ACTIONS UNDER RHC ORDER 88

34.  The use of the RHC Order 88 procedure in mortgage actions was summarised by Yuen J (as she then was) in International Bank of Asia Ltd v High Gay Co Ltd & Ors HCMP 1422/1998 (unreported, 4 March 1999) at pp 5 – 6:

“ … a mortgage action may, under O.88, be commenced either by writ or by originating summons. If a mortgage action is commenced by originating summons (as in this case), it goes, in the first instance, for a first hearing before a master.

     A first hearing of an originating summons (whether before a judge or a master) is conducted in chambers. In accordance with O.28 r.3 and 4, if the judge/master decides that the matter can be dealt with summarily, then an order disposing of the entire proceeding can be made. This is akin to an application for summary judgment under O.14, but with the difference that the burden is not cast upon the defendant, as in O.14.

…

   If it is shown at the first hearing that there are material factual issues which need to be resolved, the judge/master would order that the proceeding continue as if begun by writ, and give directions for the filing of pleadings.  Alternatively, even if the affirmations show that there are factual issues, but they are insubstantial or are restricted in scope, the judge/master may order that there be cross-examination at the full hearing on those issues only.”

35.  RHC Order 88, rule 5 sets out the evidential requirements of proceedings under the Order.  In particular, the following sub-rules are relevant for present purposes:

“ (3) Where the plaintiff claims delivery of possession the affidavit must show the circumstances under which the right to possession arises and except where the Court in any case or class of case otherwise directs, the state of the account between the mortgagor and mortgagee with particulars of—

(a) the amount of the advance,

(b) the amount of the periodic payments required to be made,

(c) the amount of any interest or instalments in arrear at the date of the originating summons and at the date of the affidavit, and

(d) the amount remaining due under the mortgage.

…

(6) Where the plaintiff claims payment of money secured by the mortgage, the affidavit must prove that the money is due and payable and give the particulars mentioned in paragraph (3).

(7) Where the plaintiff’s claim includes a claim for interest to judgment, the affidavit must state the amount of a day’s interest.”

36.  As to the burden of proof, the following observations by Ma J (as he then was) in Wing Hang Bank Limited v Liu Kam Ying & Ors [2002] 2 HKC 57 at paragraph 10 are instructive:

“ Unlike O 14 applications where the defendant is obliged to provide sufficient grounds to justify the action continuing to trial, the burden in summary judgment applications under the originating summons procedure is on the plaintiff to justify its entitlement to summary judgment. However, once this is prima facie demonstrated on the evidence, it is then up to the defendant to show that he does have a defence or defences to the claim. In this way, there may in practice be little difference between an application for summary judgment in originating summonses and an application for summary judgment under RHC, O 14.”

37.  Further, it is noted that RHC Order 41, rule 5(1) applies with full force, that is, affidavits may only contain facts as the deponent is able of his own knowledge to prove.  In other words, unlike in, say, Order 14 applications, they cannot contain statements of information or belief, even if the source is identified.

FURTHER EVIDENCE AND ADJOURNMENT

38.  At the first hearing before me on 7 November 2018, Mr Paul Leung, Counsel for the defendant (appearing by himself at the first hearing), accepted that the defendant is not advancing a positive case.  Rather, the defendant put the plaintiff to strict proof and contended that the plaintiff has failed to meet the threshold of showing even a prima facie case. 

39.  In particular, he made a broad attack on the quality of Mr Tang’s evidence including whether he had personal knowledge of the matters in his affirmation, as required by RHC Order 41, rule 5(1).  Further, he emphasised the requirements in RHC Order 88, rule 5(3), and submittedthat there was no evidence that the October 29 Promissory Note had in fact been delivered to Best Deed pursuant to the Drawdown Notice.  This was relevant to the issue of whether any actual advance under the Facility Letter, being the sole basis of the present application, had been made by the plaintiff to the defendant. 

40.  Mr Tang’s evidence before the court at the first hearing was that, as I have already cited above, “In order to repay Best Deed, the plaintiff and Best Deed entered into [the Debt Assignment] and [the Drawdown Notice] was also prepared to facilitate this arrangement … As stated in [the Debt Assignment], the consideration was a promissory notedated 29 October 2015 prepared by the plaintiff in favour of Best Deed”.

41.  I agreed with Mr Paul Leung that the plaintiff’s evidence was not entirely satisfactory, having regard to inter alia the requirements of RHC Order 88 cited above.  Moreover, there was some confusion as to whether the copy of the October 29 Promissory Note exhibited to Mr Tang’s 2^nd affirmation, the original of which was produced by the plaintiff’s solicitors in court, was a copy of the note delivered (if the same had in fact been delivered) to Best Deed or another version of the promissory note bearing the original signature of Mr Tang.

42.  In the light of the Court’s queries, Mr Richard Leung sought a short adjournment to enable the plaintiff to file a further affirmation by Mr Tang to clarify matters.  After hearing the parties, I acceded to the plaintiff’s application and adjourned the hearing to 14 December 2018, and gave directions for the filing of the additional evidence by the parties.

43.  Pursuant to my directions, the plaintiff filed Mr Tang’s 4^th affirmation, where he deposed inter alia that:

1)  He, on behalf of the plaintiff, signed the October 29 Promissory Note in duplicate.  However, only one was affixed with the plaintiff’s common seal, being the document delivered to and retained by Best Deed.  The document retained by the plaintiff was not affixed with the plaintiff’s common seal, as it was merely for the plaintiff’s record keeping purposes.  The document exhibited to his 2^nd affirmation was not a copy of the document delivered to Best Deed, but rather the document retained by the plaintiff.

(2)  He did not believe that there was any issue arising out of the October 29 Promissory Note as the plaintiff had the Debt Assignment.  He believed that the plaintiff was indebted to Best Deed in the amount stated in the October 29 Promissory Note and the defendant was indebted to the plaintiff pursuant to the Facility Agreement and the Fourth Legal Charge.

(3)  He was the person who signed the Debt Assignment on behalf of the plaintiff.  The figures on the Debt Assignment and the October 29 Promissory Note were provided by Best Deed before the plaintiff entered into the Facility Agreement with the defendant.

(4)  He also sought to identify the sources of his knowledge in respect of the matters in his previous affirmations.

44.  At the adjourned hearing, Mr Ambrose Ho SC (leading Mr Paul Leung) appeared for the defendant.  His primary argument was, in short, as follows:

(1)  Even if the court were to accept the Loan and the Drawdown Notice at face value, there was a conflation of the Debt Assignment and the Loan.  As the plaintiff expressly disavowed any reliance on the former, the plaintiff must be able to establish its claim on the latter, an essential element of which is that the Loan had in fact been drawn down pursuant to the Drawdown Notice;

(2)  The only evidence of drawdown, however, was the October 29 Promissory Note.  The plaintiff’s reliance on the note, however, was problematic, as it was expressly stated in the Debt Assignment and in Mr Tang’s own evidence that the note was in consideration of the Debt Assignment; and

(3)  As the Debt Assignment and the Loan were two independent transactions, the Promissory Note could not have been the consideration for the Debt Assignment and the drawdown of the Loan. Otherwise, there was a risk that the defendant would be indebted to the plaintiff twice over — for both the Loan and the portion of the Best Deed Loans assigned by Best Deed to the plaintiff.

DISCUSSION

45.  I begin by accepting that, as a matter of commercial sense, given the reduction of liability to Best Deedfrom a total of HK$1.44 billion with interest to HK$800 million as at 4 November 2015 as evidenced by the Confirmation Letter, it is likely that the reduction was the result of HK$763,698,000 being paid or credited to Best Deed by the plaintiff (although the precise calculations are not before the court).  As Mr Smith SC pointed out, there was no evidence of any complaint having been made by the defendant (then under the control of Mr Lau) that the plaintiff had not performed its obligations under the Facility Agreement orthe Drawdown Notice.  Indeed, the defendant has not been able to provide an alternative explanation for the reduction of its liability to Best Deed.

46.  That said, the issue before me at this stage is not solely whether the plaintiff paid or credited Best Deed the sum of HK$763,698,000, or whether the defendant is indebted, one way or another, to the plaintiff for that sum.  Rather, given the plaintiff’s express disownment of the Debt Assignment, I agree with Mr Ho SC that the plaintiff will need to demonstrate that the defendant’s liability arose under the Facility Agreement and the Loan.  There is no dispute that there was at all times only one promissory note, namely, the October 29 Promissory Note.  Hence, the plaintiff will (at the least) have to show that that note was delivered to Best Deed pursuant to the Drawdown Notice and the Facility Agreement and not the Debt Assignment, the latter being a transaction that did not directly concern the defendant.

47.  In my judgment, the position is far from clear that that was the case.

48.  As mentioned above, at the first hearing, Mr Richard Leung invited the court to look at the “overall effect” of the documents.  However, the Debt Assignment and the Facility Agreement, by their nature, created distinct rights and obligations: the former transferred an existing chose in action from Best Deed to the plaintiff, whereas the latter created new and mutual obligations between the plaintiff and the defendant.  Each of them would, if valid, independently result in the defendant becoming indebted to the plaintiff for the sum of HK$763,698,000, the principal difference being that the indebtedness would be secured by the Fourth Legal Charge in the case of the Facility Agreement, whereas the plaintiff would be an unsecured creditor under the Debt Assignment.

49.  In this regard, Mr Smith SC submitted that:

“ There is no rational basis for suggesting that the plaintiff would adopt a course whereby it acted not in accordance with the Facility Agreement or Notice of Drawdown and thus became merely as an assignee of part of the debt owed by the defendant to Best Deed and without the security of the mortgage over the land. In so far as the assignment is relevant at all, it merely reflects the fact that Best Deed no longer looks to the Defendant for repayment of HK$763,698,000 and thus cleared the way for the Confirmation [Letter] … that the outstanding debt was reduced to HK$800 million …”

50.  Proceeding by way of the Debt Assignment rather than the Facility Agreement may well have been commercially disadvantageous to the plaintiff.  Viewing the matter in the best light for the plaintiff, it is possible that the Debt Assignment may have been drafted in error and should not have been entered into at all.  Perhaps, as Mr Smith SC submitted above, it was intended (misguidedly) to reflect that Best Deed should no longer “look to the defendant” for repayment.  That said, it is not for me at this stage to speculate on the beliefs and intentions of the plaintiff and Best Deed.  Mr Smith SC also invited me to ignore the Debt Assignment altogether.  Again, it would not be right for me to do so at this stage.  These are plainly matters for trial.

51.  The plaintiff also contended that the defendant should have sought directions for cross-examination on affidavit if it wished to challenge the plaintiff’s evidence.  I do not accept, however, that the issue can be resolved merely by directing cross-examination.  In my view, this is a case where pleadings should be filed, and importantly, there should be proper discovery based on the pleaded issues (see egIncorporated Owners of Foo Hoo Centre v Hong Kong Alliance in Support of Patriotic Democratic Movements of China [2016] 1 HKC 517 at §§9 – 11).  For instance, there is likely to be contemporaneous documents including written communications between, amongst others, the plaintiff, the defendant and Best Deed relating to the transactions in question which will shed much needed light on the rationale of the parties at the time.

52.  Moreover, there are a number of further matters which may warrant further investigation at a trial.  The more prominent ones include:

(1)  The reason for the very significant delay in registering the Fourth Legal Charge.  I have already cited Mr Tong’s explanation above.  I have some difficulty accepting that explanation at face value.  On the plaintiff’s own case, the defendant never made any repayments under the Facility Agreement, and was therefore in default as early as the due date of the first interest instalment on 30 November 2015.  Yet, notwithstanding the defendant’s obvious default, the plaintiff took no steps to protect its interests by registering the Fourth Legal Charge for nearly a year afterwards.  This would appear, on its face, to be contrary to commercial sense, even if the plaintiff may have been willing initially to allow its security to be postponed to enable priority to be given to the ICBC Asia legal charge;

(2)  Further, as mentioned above, the defendant’s solicitors had requested from the plaintiff’s solicitors for many months supporting documents for the Loan and evidence that the loan proceeds had been drawn down, but to no avail.  It was not until Mr Tang’s reply affirmation that the plaintiff disclosed for the first time the Drawdown Notice and the Debt Assignment.  Whilst such delay may not by itself cast doubt on the plaintiff’s case, when viewed together with the matters above, it is an issue that the defendant should be allowed to explore at the trial; and

(3)  Further, as Mr Ho SC pointed out, the transactions also appearcommercially disadvantageous to Best Deed, which enjoyed asignificantly higher rate of interest under the Best Deed Loans than under the October 29 Promissory Note. Yet, the Best Deed Loans had the benefit of security from the Best Deed Charges whilst the October 29 Promissory Note appears to be unsecured.  Given the amounts involved, there is likely to have been some commercial or other rationale for Best Deed and the plaintiff to enter into such an arrangement.  Again, this is an issue which may have to be explored at the trial.

53.  Mr Ho SC also raised a number of other complaints to Mr Tang’s evidence, including in particular, that he does not appear to havepersonal knowledge of certain matters in his affirmation.  Rather, Mr Tang was informed of such matters by a former employee of the plaintiff, one Amado Medoza, who oversaw the transaction between the plaintiff and the defendant.  As the former had left the plaintiff’s employment in 2016, the plaintiff has been unable to procure an affirmation from him.  In the light of my views above, these are matters which no doubt can be dealt with at the trial of the action.

CONCLUSION

54.  For the reasons above, I decline to make a summary determination of the Originating Summons.  I would also accede to the Defendant’s Summons and make the following directions:

(1)  The Originating Summons filed on 18 April 2017 be continued as if the proceedings have been begun by writ;

(2)  Leave be granted to the plaintiff to file and serve a statement of claim within 21 days from the date of the Order hereof;

(3)  Leave be granted to the defendant to file and serve a defence and counterclaim (if any) within 28 days thereafter;

(4)  Leave be granted to the plaintiff to file and serve a reply and defence to counterclaim (if any), within 14 days thereafter.

55.  As mentioned above, paragraph 2 of the Originating Summonshas now been adjourned sine die with liberty to restore pending the disposal of the Property by the receivers.  As I have now directed the matter to proceed as if begun by writ, there is no immediate prospect of any order inparagraph 2 being made.  If and when the Property is sold by the receivers, paragraph 2 will in any event require amendment to seek, rather, a share in the proceeds of sale.

56.  It seems to me to be desirable for the issue of the plaintiff’s entitlement to repayment to be tried together with its entitlement to a security interest in the Property.  In the circumstances, the directions above relate to the entirety of the action.  That said, I give the parties liberty to apply to seek separate directions for paragraph 2 of the Originating Summons (or similar relief) if they think fit.

57.  As to costs, taking into account all of the circumstances, I would make the following costs order nisi:     

(1)  The defendant do have the costs of and occasioned by the adjournment of the hearing on 7 November 2018;

(2)  The defendant do have the costs of the hearings on 7 November and 14 December 2018, with certificate for two counsel for the latter hearing; 

(3)  The costs of the Originating Summons and the Defendant’s Summons be in the cause. 

58.  Last but not least, I thank both teams of counsel for their assistance.