Jiangsu Golden Civil Building Group (Hong Kong) Co Ltd v Chau Wa Kin

CourtHigh Court (Hong Kong)
Judgment Date12 October 2006
Citation[2007] 1 HKLRD 1
Subject MatterCivil Action
Judgement NumberHCA3121/2002
HCA003121/2002 JIANGSU GOLDEN CIVIL BUILDING GROUP (HONG KONG) CO LTD v. CHAU WA KIN

HCA 3121/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 3121 OF 2002

____________

BETWEEN

  JIANGSU GOLDEN CIVIL BUILDING GROUP (HONG KONG) COMPANY LIMITED Plaintiff
   and  
  CHAU WA KIN Defendant

____________

Before: Deputy High Court Judge Gill in Court

Dates of Hearing: 9-12, 15-16 May, 23-25 and 31 August and 26 September 2006

Date of Judgment: 12 October 2006

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J U D G M E N T

______________

1. This is a claim under a guarantee for moneys advanced to and otherwise due by the principal debtor called W. Ho Civil Engineering and Construction Company Limited (W. Ho). W. Ho became insolvent and has been wound up on a creditor’s petition. A director and the majority shareholder called Chow Ho Kin also guaranteed the debt. But he, too, had no money and has been made bankrupt. The plaintiff thus turns to Mr Chow’s co-guarantor, his younger brother, for recovery of moneys now due.

2. A feature of this case is that the younger brother, called Chau Wa Kin, is a highly successful and popular pop star in Hong Kong and Taiwan. A further feature is that the guarantee he is said to have given is the third of three he entered into between the end of 1998 and mid-2000 concerning debts of W. Ho. He was called upon to make good in respect of the other two guarantees upon W. Ho’s default, and settled both. The first of these demands was made and responded to a short while before he signed this guarantee. Of the three guarantees this one alone is challenged.

3. The plaintiff produced a document which purports to be the guarantee. The defendant pleaded a number of defences which raise issues of fact and law. Not all of these defences have been pursued; those that remain require a detailed account of how it all came about.

History

GE 97/21

4. In early 1999 W. Ho won the right to contract with the Hong Kong Government to undertake repairs and maintenance on slopes described as dangerous slopes in Hong Kong. The resultant contract became known as GE 97/21. The total contract price was about $97 million; it was a substantial project.

The Need for Funds

5. Work having got underway, by mid-1999 W. Ho was experiencing cash flow problems that threatened to derail its ability to perform contract GE 97/21. As a result of this Mr Chow cast around for investment capital. A business associate called Li Sai Ki offered his services. Mr Li had connections in the PRC and in particular knew of construction companies that might be interested in a joint venture in Hong Kong.

The Connection with CCCC

6. Representing W. Ho’s interests Mr Li was introduced to the senior management of Changsu Civil Construction Company Limited (CCCC), a state-owned company carrying on business in the construction industry in Jiangsu, PRC, in particular its Managing Director Hu Liang Gan and his assistant manager called Jiang Wen Hui (Mr Jiang). CCCC had accumulated capital from projects completed locally, and its management were looking to expand into Hong Kong and elsewhere offshore.

The Co-operation Agreement

7. The upshot was a deal brokered by Mr Li representing W. Ho, which was set out in a document called the Co-operation Agreement, signed in December 1999. The parties had established that work contracted for under GE 97/21 was about 70% done. If adequately funded, W. Ho could complete in about 7 months. It was agreed that CCCC would advance a total of RMB4 million, in return for a 3% share of the profit to be earned on GE 97/21, and training of representatives of CCCC who would come to Hong Kong and be based here. In this respect it was envisaged that the relationship would move on past the one-off advance recorded.

8. CCCC designated Mr Jiang to handle its affairs here and he was posted to Hong Kong with another executive.

9. As to the terms of the advance:

It was recorded that payment of the first instalment of RMB1 million would be made forthwith, the balance by instalments thereafter, which were to begin once CCCC’s officers had clearance to settle in Hong Kong. Repayment was timed to coincide with the anticipated completion date 7 months’ hence. It was subsequently agreed that CCCC’s share of the profit translated to HK$900,000.

10. The money was paid over in four tranches of RMB1 million each between December and April 2000. The arrangement provided for and implemented was that the money was paid by CCCC to Mr Li who transferred it to W. Ho. But whether he did so in full is a point of conjecture.

11. Mr Chow has come to say that, converted to Hong Kong dollars, the advance was the equivalent of $3.5 million. But W. Ho was paid only $2.45 million, so there was a shortfall of $1.05 million; that he repeatedly complained of this to Mr Jiang. It is Mr Chow’s account that Mr Jiang assured him repeatedly that the shortfall would be forthcoming. Mr Jiang’s version is at odds with that. There was no such complaint, because there was no shortfall; moreover, he produced four receipts, branded “Official Receipts” of W. Ho, signed by Mr Chow, each for RMB1 million. Mr Chow’s reposte was that Jiang told him to hand over receipts for the full amount first before the next instalment would be paid. He did so; the accumulated shortfall came to $1.05 million.

12. This is the first disputed issue of fact.

The Plaintiff Comes into Being

13. Meanwhile in April 2000 Jiangsu Golden Civil Building Group (Hong Kong) Company Limited (the plaintiff) was incorporated in Hong Kong. As a wholly-owned subsidiary of CCCC its function was to foster CCCC’s interests in Hong Kong, in particular under the Co-operation Agreement and such further business that might be developed. Mr Jiang was made a director and put in charge. It was funded by its parent. CCCC authorised it to be responsible for collection of moneys due under the Co-operation Agreement.

The Subcontract Agreement

14. By June 2000, with repayment under the Co-operation Agreement pending, it became evident that W. Ho had fallen back into insolvency and would not be able to repay; moreover, that GE 97/21 could not be completed without more financial input.

15. This led to an agreement, called the Subcontract Agreement, entered into between the plaintiff and W. Ho. Mr Chow signed for W. Ho. Mr Jiang signed for the plaintiff. This took place on 3 July 2000 at the office of a firm of solicitors called George Tung, Jimmy Ng and Valent Tse. The 3rd named partner (Mr Tse) had acted for W. Ho and Mr Chow in the past. He was asked to witness their signatures and he did so.

16. By the terms of the Subcontract Agreement W. Ho subcontracted the remaining work to be undertaken under GE 97/21 (estimated to be 20% of the total) to the plaintiff, the profit to be shared between the parties.

17. The agreement further provided that W. Ho was required to submit a proposal as to how it would repay the original advance of RMB4 million and agreed profit share of $900,000, repayment of which had to be secured by personal guarantees given by Mr Chow and his brother Chau Wa Kin.

18. What the Subcontract Agreement did not record was that there was still outstanding a shortfall of $1.05 million or any other amount in respect of that original advance.

The Defendant

19. I digress now to give a profile of Chau Wa Kin. He is a celebrity in Hong Kong where he was born and Taiwan where he now lives in the music industry. He was born on 22 December 1960. He was the youngest of four brothers; Chow is the next youngest; 7 years his senior. His early years were spent with his family in Hong Kong before he moved to Taiwan where he read maths at NTU in Taipei. There his interest in music developed, then flourished.

20. By 1987 he had released his first album. Since then there have been 30 more. Many have become platinum. It is said he has won numerous awards, is popular internationally and supports a number of charities in Asia and elsewhere. He is married, to an American, whom he met during his studies. They have children. The family lives in Taipei, where he has business interests. Cantonese is his first language, but he is also fluent in Putonghua and can read, write and speak in English.

21. The defendant was not involved in W. Ho. However, he provided financial assistance, formally and informally. He owned a recording company in Hong Kong called Stars Ferry Music Production Company Limited. Mr Chow was made a director, and had signing rights on its bank account. Chau Wa Kin allowed him to channel funds to W. Ho for its use from time to time. He did not expect repayment and there was none. However there came a point in time when he decided to put a stop to this, compelling his brother to fund his company’s financial needs through commercial means. But to enable him to do so he lent his support by guaranteeing a loan of $2 million raised from Sin Hua Bank Limited at the end of 1998, and again in early 1999 he guaranteed repayment of a further advance made by a finance company called Silver Bound Capital Limited.

22. W. Ho’s advancing indebtedness caused it to default in repayment of both advances. The defendant was called upon to pay off these advances and he did so, first in March 2000 and then again in March 2001. This cost him about $3.5 million.

The July Repayment Agreement

23. Mr Jiang had meanwhile taken upon himself the task of drafting the repayment agreement and personal guarantees required under the Subcontract Agreement. Mr Chow gave him a precedent guarantee to copy, which happened to be the guarantee from the defendant to Silver Bound. These three documents in draft form were brought by the parties to Mr Tse’s office on 3 July, the date upon which he witnessed the signing of the Subcontract Agreement. He was asked to engross them in proper form and agreed to...

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