Hangzhou Jiudang Asset Management Company Ltd v Kei Kin Hung (a Protected Party by Zhu Lei his litigation friend)

Hearing dates: 05 December 2022

This judgment was handed down by the Judge remotely by circulation to the parties' representatives by email and release to The National Archives. The date and time for hand-down is deemed to be 14:00 on Monday 19 ^th December 2022.

Christopher HancockKC:

Introduction and factual background.

This is the hearing of the Claimants' application for summary judgment, made before Mr Kei filed a defence. Mr Kei resists that application on the bases set out below. The Defendant, Mr Kei, is a Protected Party within the meaning of the Mental Capacity Act 2005, and appears by his litigation friend, Mr Zhu Lei.

The claim is for enforcement at common law of final judgments made in the Claimants' favour against Mr Kei by the courts of the People's Republic of China (“ PRC”). Pursuant to those judgments (the “ Judgments”), which I understand remain unsatisfied, it is now said that Mr Kei is indebted to:

i) The First Claimant, Hangzhou Jiudang Asset Management Co Ltd (“ HJAM”), in the sum of RMB 21,412,450 together with interest at 24% pa of RMB 17,889,743.81 to 22 March 2022, a service fee liability of RMB 24,150 and further default interest of RMB 2,705,463.06 to 22 March 2022. These sums amounted to £5,009,560.90 at the date of issue of the claim.

ii) The Second Claimant, Hangzhou Biaoba Trading Co Ltd (“ HBT”), in the sum of RMB 39,000,000 together with interest at 24% pa of RMB 35,574,301.37 to 22 March 2022, legal costs of RMB 200,000, and further default interest at RMB 3,344,250 to 22 March 2022. These sums amounted to £9,310,559.55 at the date of issue of the claim.

HJAM's claim arose out of a written loan agreement dated 10.09.18 by which Yaolai Culture Industry Co. Ltd (“ Yaolai”), a company of which Mr Kei is or was ultimately the beneficial owner, borrowed RMB 21.5m from HJAM. The principal was repayable with interest at 24% p.a. and the loan term was 180 days. Mr Kei guaranteed Yaolai's obligations to HJAM.

i) Yaolai failed to repay the principal or interest due, and Mr Kei failed to make payment as guarantor. HJAM commenced proceedings in the People's Court of Gongshu District of Hangzhou City on 09.05.19 against Yaolai, Mr Kei and a second guarantor, Beijing Sparkle Roll Investment Co Ltd (“ Beijing Sparkle”). Mr Kei and the other defendants were represented at the hearing and defended the claim.

ii) On 26.09.19, the People's Court gave judgment in favour of HJAM for: (i) RMB 21,412,450 together with interest to 10 April 2019 of RMB 2,740,288.77, payable within 10 days of the judgment; (ii) Further interest on the principal sum from 11 April 2019 at 24% p.a. until the date of payment; (iii) A guarantee service fee (a litigation preservation insurance fee) of RMB 24,150 payable within 10 days of judgment.

iii) The Judgment also provided that if the defendants failed to perform the payment obligations within the period specified in the judgment, “ they shall pay double 1 interest of the debt during the delayed performance period as per the stipulation of Article 253 of the Civil Procedure Law of the People's Republic of China” (the “ Default Interest”).

iv) Yaolai's appeal against the quantum of the principal sum, and against liability for the guarantee service fee, was dismissed on 06.03.22.

HBT's claim arose out of two written loan agreements dated 29.05.28 and 20.06.18 by which Mr Kei borrowed RMB 25m and RMB 14m from Yu Hongguang. The principal was repayable with interest at 36% p.a. (although in the event only the statutory limit of 24% was claimed) and the term of the loan was 90 days. On 07.01.19 Yu Hongguang assigned his creditor's rights to HBT.

i) Mr Kei failed to repay the loans or any interest thereon. On 03.04.19 HBT commenced proceedings in the People's Court of Jianggan District of Hangzhou City against Mr Kei (as well as Yaolai and Beijing Sparkle as guarantors). The claims were contested by the defendants, who were represented at the hearing.

ii) On 11.06.20 the People's Court awarded judgment in favour of HBT for: (i) RMB 25,000,000 together with interest to 6 March 2019 of RMB 4,666,667, payable within 10 days of the judgment; (ii) RMB 14,000,000 together with interest to 6 March 2019 of 2,417,333, payable within 10 days of the judgment; (iii) Further interest on the principal sums from 7 March 2019 at 24% p.a. until the date of payment; (iv) Legal fees of RMB 200,000, payable within 10 days of the judgment.

iii) The HBT judgment also provided for Default Interest, stating that in the event of non-payment of the sums due “ the interest on the debt during the delayed period shall be doubled 2 in accordance with the provisions of Article 253 of the Civil Procedure Law of the People's Republic of China”.

iv) An appeal by Beijing Sparkle was treated as withdrawn after it failed to appear before the Intermediate People's Court, and the first instance judgment was

declared of legal effect from service of the Intermediate People's Court's ruling on 20.10.20 (which occurred on 07.11.20).

Neither of the Judgments has been able to be enforced in the PRC, and each remains outstanding in full.

In this action, the Claimants initially sought (before an amendment to their Claim Form and Particulars of Claim referred to below):

i) Under the Huangzhou Jiudang Asset Management Judgment (the “ HJAM judgment”), HJAM claimed:-

a) RMB 21,412,450 (£2,552,042.85) by way of principal under the HJAM loan;

b) RMB 17,889,743.81 (£2,132,189.12) contractual interest at 24% per annum to 22 March 2022;

c) RMB 24,150 (£2,878.32) service fee liability; and

d) RMB 27,616,707.39 (£3,291,497.27) default interest to 22 March 2022.

ii) Under the Huanzhou Bioaba Trading Judgment (“the HBT judgment”), HBT claimed:-

a) RMB 39,000,000 (£,4,648,215.00) by way of principal;

b) RMB 35,574,301.37 (£4,239,977.11) contractual interest at 24% per annum to 22 March 2022;

c) RMB 200,000 (£23,837.00) legal costs; and

d) RMB 33,510,750 (£3,993,978.74) default interest to 22 March 2022.

Since issuing these proceedings and since obtaining a freezing injunction (made on 8 April 2022 by Fraser J), the Claimants have (by the first witness statement of Mr Ractliff dated 31 May 2022), accepted that their claims in respect of Default Interest were overstated and now claim default interest at the rate of 0.0175% per day rather then 0.175%. Formal amendments to the Claim Form and Particulars of Claim to reflect this concession have been proposed shortly before this hearing, and these amendments were not opposed. This reduces the Default Interest sum from £7,285,476.01 to £721,035.05 overall.

The test for summary judgment.

There was no real dispute as to the law relating to summary judgment. The principles were summarised by Lewison J (as he then was) in Easyair v Opal[2009] EWHC 339 (Ch) at [15] and continue to be relied on in the most recent authorities: Caledonian Maritime Assets Ltd v HCC International Insurance Co Plc[2022] EWHC 164 (Ch) at [28]. I accept and adopt that summary with gratitude.

In addition the Defendant put forward a number of further propositions, as follows:

i) The overall burden of proof is on the Claimants to establish that the Defendant has no real prospect of success: ED&F Mann v. Patel[2003] EWCA Civ 742.

ii) The Court must consider whether the Defendant has a ‘realistic’ (as opposed to a fanciful) prospect of success: Swain v. Hillman [2001] 1 All ER 91.

iii) A ‘realistic’ defence is one that carries some degree of conviction; i.e. more than merely arguable: ED&F Manat [8].

iv) If an application gives rise to a point of law, and that the Court has before it all the evidence necessary for the proper determination of the question the Court can and should determine the matter: ICI Chemicals v. TTE Training[2007] EWCA Civ 725,.

I accept these propositions.

In this case, the Defendant submitted that, not only did Mr Kei have a real prospect of successfully defending the claims, such that summary judgment should not be entered, but that the claim against him was hopeless with the result that I should exercise my inherent jurisdiction to strike out the claim, on the basis that the Claimants have no real prospect of succeeding, and there is no other reason for this matter to go to trial.

The defences raised were as follows:

i) First, that the Default Interest had been miscalculated. This was in fact common ground. It was accepted by the Claimants that the correct calculations were those set out by Mr Lei Yang, the expert whose report was filed on behalf of the Defendant. Accordingly, there was no issue but that any judgment given should be for the lesser amounts now claimed.

ii) Secondly, the Defendant submitted that the Judgments were rendered unenforceable in their entirety by virtue of the application of section 5 of the Protection of Trading Interests Act 1980 (“ the PTIA”).

iii) Thirdly, the Defendant submitted that the Default Interest portions of the Judgments were rendered unenforceable by virtue of the application of section 5 of the PTIA.

iv) Fourthly, the Defendant submitted that the Default Interest portions of the Judgments were rendered unenforceable as a penalty.

Before I turn to these specific points, however, I should outline the basic requirements...