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CACV 26/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 26 OF 2006
(ON APPEAL FROM HCA NO. 3156 OF 2002)
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BETWEEN
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BANK OF CHINA (HONG KONG) LIMITED |
Plaintiff |
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and |
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CHAN YEUK WAI |
1st Defendant |
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CHAN YEUK PUN |
2nd Defendant |
AND BETWEEN
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UMBRELLA FINANCE COMPANY LIMITED |
Plaintiff |
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and |
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CHAN YEUK WAI |
1st Defendant |
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CHAN YEUK PUN |
2nd Defendant |
______________________
(By original writ and order to carry on)
Before : Hon Cheung JA, Hon Yuen JA and Hon Stone J in Court
Date of Hearing : 26 September 2006
Date of Judgment : 16 October 2006
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J U D G M E N T
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Hon Cheung JA :
The appeal
1. The plaintiff, Umbrella Finance Company Limited (‘UFC’), sued the defendants under five personal guarantees and sought summary judgment against them. Deputy High Court Judge Jeremy Poon granted the defendants unconditional leave to defend. The plaintiff now appeals.
2. Originally, the plaintiff in this action was Bank of China (Hong Kong) Limited (‘BOCHK’). The action was first commenced on 16 August 2002. By an order dated 3 January 2005, UFC was made a party to these proceedings and these proceedings were ordered to be carried on as if UFC had been substituted for BOCHK as a plaintiff.
Background
3. By a loan agreement dated 15 October 1996 (‘the loan agreement’) Kwangtung Provincial Bank (‘KPB’) agreed to lend funds to Ananda Holdings Limited and Ananda Enterprises Limited (‘the borrowers’). There were subsequent variations to this agreement which are not relevant to this appeal. The loan granted by KPB was secured by a mortgage and five personal guarantees executed by the defendants in favour of KPB. The defendants were the shareholders and directors of the borrowers. The particulars of the guarantees are as follows :
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Guarantee
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Date
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Liability guaranteed
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The 1st Guarantee
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2/10/1996
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HK$236,000,000
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The 2nd Guarantee
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15/10/1996
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HK$630,000,000
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The 3rd Guarantee
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15/10/1996
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US$200,000
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The 4th Guarantee
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15/10/1996
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SG$4,000,000
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The 5th Guarantee
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15/10/1996
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Unlimited
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4. On 14 June 1999 KPB sold its interest in all the loans and related securities in the loan agreement to Zhong Gang (Cayman) Company Limited (‘ZG’). This was part of the arrangement whereby KPB, a bank in Hong Kong with Mainland interests, was merged together with other banks of similar status with BOCHK. BOCHK was appointed by ZG to service and administer the loans and related securities under the loan agreement.
5. On 16 August 2002 BOCHK commenced High Court proceedings, namely, HCMP 3254 of 2002 in which it sought to enforce the loan agreement against the borrowers and the two mortgagors under the mortgage. Deputy Judge Poon also handled that action. He entered judgment in favour of BOCHK against the borrowers for, among other things, HK$980,112,001.60. The appeal against the judgment was by consent dismissed. There was a further order that ZG be added as a co-plaintiff to HCMP 3254 of 2002 and UFC was made a party to that proceeding in substitution for BOCHK and ZG as the plaintiffs.
Title to sue
6. The entitlement of UFC to sue on the guarantees is based on an assignment dated 23 December 2003 (‘the Assignment’) from ZG to UFC. UFC claims that it acquired its interests in the following manner :
(1) By a sale and purchase agreement dated 14 June 1999 (‘1st SPA’) KPB agreed to sell to ZG its interests in respect of the loans and guarantees.
(2) By another sale and purchase agreement dated 10 November 2003 (‘2nd SPA’) ZG agreed to sell to Citigroup Financial Products Inc (‘CFPI’) its interests in the loans and guarantees.
(3) Before the completion of the sale under the 2nd SPA CFPI sold its interests in the loans and guarantees to UFC.
(4) ZG then assigned those interests to UFC by the Assignment dated 23 December 2003.
Guarantees not included?
7. The first issue raised by the defendants is that the guarantees had not been sold or assigned to UFC. The argument is that under clause 2.1(d) of the 2nd SPA the guarantees needed to be identified in a schedule, however the schedule did not identify the guarantees. Likewise under the Assignment the guarantees needed to be set out in the schedule to the Assignment. Again the schedule attached to the Assignment did not refer to the guarantees.
Construction of documents
8. This point involves a construction of the terms of the 2nd SPA and the Assignment. Although it has been submitted that the matter can only be resolved after discovery of documents it has not been shown how additional documents would assist this construction exercise.
9. The judge held that the argument raised by the defendants was arguable and the matter should proceed to trial. I disagree. As a matter of construction, my view is that the guarantees do not need to be specified in the schedule.
The 2nd SPA
10. Under Clause 2.1(d) of the 2nd SPA, ZG agreed to sell to CFPI,
‘ all ZG’s legal (unperfected) and beneficial right, title and interest in the Unrestricted Loans referred to as IIIA, IIIB, IIIC and IIID in Schedule 1 and the Loan Security of the Unrestricted Loans referred to as IIIA, IIIC and IIID in Schedule 1.’ (emphasis added)
11. The definition of ‘Unrestricted Loans’ is
‘ in respect of ZG, all those loans which are described as IIIA, IIIB, IIIC and IIID in Schedule 1 and the related Loan Agreements and Collections received on or after the Cutoff Date (subject to Clause 2.4.6).’
12. ‘Loan Security’ means
‘ any Security securing the payment of any Liability under any Specified Loans and shall where the context permits, include any Guarantee and the related Loan Security Documents and Collections received on and from the Cutoff Date in respect of any such Liability under a Specified Loan, but for the purpose of the representations and warranties includes only that Loan Security more particularly described in Schedule 1.’
13. In my view the words of Clause 2.1(d) are clear. Sale by ZG to CFPI are in respect of the loans referred to as IIIA, IIIB, IIIC and IIID in Schedule 1 together with the Loan Security of those loans that had been identified as IIIA, IIIC and IIID in the schedule. The words are not capable of meaning that the loan securities of the unrestricted loans must be identified in the schedule as well. This is made clear by the meaning of ‘Loan Schedule’ as defined in Clause 2.3.1 which stated that
‘ Schedule 1 contains a list of, amongst other things, all of the Specified Loans and certain related Loan Security Mortgages and certain other related Loan Security for each Borrower that are to be sold to the Purchaser pursuant to the terms and conditions hereof and certain other information relating thereto (the “Loan Schedule”).’
14. Schedule 1 therefore consists of, amongst other things, the following three types of assets that were sold :
(1) all of the specified loans;
(2) certain related loan security mortgages; and
(3) certain other related loan security for each borrower.
This means the list of assets in the schedule is not exhaustive. The definition of ‘Loan Security’ makes it clear that those loan securities particularly described in the schedule are for the purpose of the representations and warranties only. This does mean that all the loan securities must be specified in the schedule.
The Assignment
15. Clause 1(d) of the Assignment stated that:
‘ ZG hereby, as absolute legal (unperfected) and beneficial owner assigns unto the Purchaser all of ZG’s rights, interests, titles and benefits (present and future, actual and contingent) in, to, under and in respect of each of the Specified Loans referred to as IIIA and IIIB and the Loan Security of the Specified Loans referred to as IIIA in the Loan Schedule.’
16. In my view the same construction is to be applied in respect of the Assignment.
Other defences
17. The judge held that since he had granted leave to the defendants to defend on the construction point it was not necessary for him to consider the other defences raised by the defendants. In this appeal the defendants relied on other defences. I now proceed to consider these defences.
Subject matter of the assignment
18. Mr Jeremy Cheung, counsel for the 1st defendant, associated himself with two defences raised by the 2nd defendant. First he argued that the guarantees were not capable of being assigned to UFC in the first place. He argued that prior to the assignment BOCHK had already terminated the loan agreement, obtained judgment against the borrowers and commenced proceedings against the defendants. He argued that therefore the assignment is an assignment of a mere right of action. He relied on an Australian case, Hughes v Fresh Pack Fruit & Vegetable Market Pty Ltd [1965] W.A.R. 199.
19. Very briefly the facts of the case showed that the lessor of a property granted a lease to the 1st defendant (‘the lessee’) for a term of five years with an option to renew. The lease contained a guarantee by the 2nd defendant (‘the guarantor’) who was a director of the lessee guaranteeing to the lessor the performance of lessee’s covenants. In March 1963 the plaintiff acquired the interest of the lessor in the lease. After the plaintiff acquired the interest of the lease the lessee rescinded the lease and vacated the premises in July 1963. The plaintiff was only able to let out the premises again in November 1963. On 27 February 1964 the lessor assigned the guarantee to the plaintiff. The plaintiff claimed against the...
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