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Urumqi Intermediate People's Court Adopts the Foreign Law Ascertainment Report Issued by BCI & BIMC

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BCI & BIMC was entrusted by the Plaintiff on law ascertainment and had a Hong Kong barrister to issue the report on foreign law ascertainment in accordance with the relevant requirement. The report reads as follows:

Under the Loan Contract, assume that the Plaintiff can provide firm evidence to prove that the Defendant and others have breached the contract and the Plaintiff has suffered losses, the Plaintiff can rely on the Loan Contract, Supplementary Commitment Letter and Supplementary Commitment Agreement to require the Defendant to repay the loan principal ;

By agreeing on the 20% annual rate in the Supplementary Commitment Letter and the Supplementary Commitment Agreement, the Plaintiff and the Defendant did not violate the prohibition on excessively high interest rate in Article 24 of Money Lenders Ordinance;

As far as the current evidence is concerned, the equity pledge agreement is legal in its form and the guarantee liability is valid. However, it is not clear at this stage whether the Defendant has alleged the ground on improper influence by another defendant as defense;

The Defendant raises as a defense that the Plaintiff carries on businesses as a money lender within the scope of Money Lenders Ordinance (Chapter 163) and bears the relevant burden to prove that. Only when the court does hold that the Plaintiff carries on businesses as a money lender under the Money Lenders Ordinance (Chapter 163), the requirement on the license of the money lender will become relevant restrictions in law.


Case Facts:

Plaintiff and Defendants:

Plaintiff: Event International Limited.

Defendant: Elegant Top Investment Limited.

Defendant: Liu X.

Defendant: Zhao.

Defendant: Liu YY.

Defendant: Xinjiang Dingqi Mining Co., Ltd.              

Legal representative: Liu X, chairman of the board of directors.

Defendant: Xinjiang Dingwangjin Mining Co., Ltd.            

Legal representative: Liu Y, chairman of the board of directors.

Defendant: Xinjiang Tianhui Tongli Industrial Technology Co., Ltd.  

Legal representative: Chen Dinghao, chairman of the board of directors.


Claims of the Plaintiff


1. The Defendants Elegant Top Investment Limited, Dingqi Company, Dingwangjin Company, and Tianhui Tongli Company shall jointly repay the loan principal of RMB 30 million and the interest of RMB 12,657,500 to the Plaintiff, totaling RMB 42,657,500;

2. The Defendants Liu X, Zhao, and Liu Y bear joint and several liability for the debt.


Evidence Submitted by the Plaintiff


Evidence 1: The Loan Contract signed on April 10, 2010 between the Plaintiff and the Defendants Elegant Top Investment Limited, Liu X and Yang Cheng, a third party to the case, was to prove that the Plaintiff lent HK$33 million to the Defendant Elegant Top Investment Limited. Defendant Liu X bears the joint and several guarantee liability for the abovementioned debt.

Evidence 2: Equity Pledge Agreement (there are five of this) signed on April 10, 2010 between the Plaintiff and the Defendants Elegant Top Investment Limited, Liu X and Zhao, was to prove respectively that the Defendant Elegant Top Investment Limited pledged 70% of its shares in Dingqi Company, Liu X pledged 14.28% of its shares in Dingqi Company and 70% of its shares in Dingwangjin Company, Zhao pledged 7.86% of its shares in Dingqi Company and 30% of the shares of Dingwangjin Company to the Plaintiff as the guarantee for repayment of the loan.

Evidence 3: The Supplementary Commitment Letter signed on September 19, 2011 between the Plaintiff and the Defendants Elegant Top Investment Limited, Liu X, Dingqi Company, Tianhui Tongli Company, and Bao Qiang and Chen Zhigang, third parties to the case was to prove that the Defendants Elegant Top Investment Limited, Liu X, Dingqi Company, Dingwangjin Company and Tianhui Tongli Company agreed to convert the loan provided by the Plaintiff into RMB 30,000,000, with the exchange rate in April 2010, at an annual interest rate of 20% starting from June 1, 2011, i.e. the monthly interest being RMB 50,000 . Both parties agreed that the payment of the interest will be followed by that of the principal.

Evidence 4:The Supplementary Commitment Agreement signed on December 6, 2012 between the Plaintiff and the Defendants Elegant Top Investment Limited, Liu X, Dingqi Company and Tianhui Tongli Company, was to prove that the Defendant Elegant Top Investment Limited failed to repay in accordance with the Supplementary Commitment Letter signed on September 19, 2011, and the repayment time and interest of the loan were readjusted.

Evidence 5: The Legal Opinion issued by the Hong Kong Barrister, was to prove that:1. The Plaintiff claims that the Defendant Elegant Top Investment Limited should repay the loan of RMB 30,000,000 yuan with an annual interest rate of 20%, and that the Plaintiff's request  that Liu X and Zhao assume the guarantee liability is in accordance with Hong Kong law; 2. The Plaintiff is not a money lender whose business is that of making loans as stipulated in the Money lenders Ordinance, as the plaintiff's ordinary business is basically or principally not related to loans, and the loan it provided to the Defendant was a lean made in its ordinary business, which is not subject to the restrictions on the license of money lender in the Money lenders Ordinance.

The Defendants Elegant Top Investment Limited, Liu X, Zhao, Liu Y, Dingqi Company, Dingwangjin Company, and Tianhui Tongli Company recognize the authenticity of the evidence submitted by the Plaintiff, but challenge the legitimacy and relevance of the evidence:

Evidence 1 clearly stipulates that the laws of the Hong Kong Special Administrative Region shall be applied. The Plaintiff does not have the business license as the money lender, and its act of granting a loan shall not be protected by the laws of the Hong Kong Special Administrative Region.

Evidence 2 only has the Plaintiff's signature on it but with no date and seal. The Equity Pledge Contract, as a foreign-related pledge agreement, has no legal effect because it has not been registered as required by law;

Same challenge on Evidence 3 and 4 was expressed as that on Evidence 1, in the evidence cross-examination.

As for Evidence 5, because the Equity Sale Agreement regarding the shares of Wei Bang Co., Ltd. signed on April 10, 2010 by the Plaintiff and the Defendants Liu X, Zhao, Yang Cheng and Chen Zhigang, third parties to the case, is invalid, the Loan Contract, Supplementary Commitment Letter, Supplementary Commitment Agreement and Equity Pledge Contract signed on the basis of that Equity Sale Agreement are all invalid. The Legal Opinion can only represent personal opinion of Barrister Andrew Y. S. Mak's, instead of Hong Kong law.


Factual Basis for the Plaintiff's Claims


On April 10, 2010, the Plaintiff signed the Loan Contract with the Defendants Elegant Top Investment Limited and its shareholders Liu X and Yang Cheng. It was agreed that the Plaintiff would grant the loan of HK $33,000,000 to the Elegant Top Investment Limited through one single transfer, and that Liu X and Yang Cheng, as the guarantors, would bear the irrevocable guarantee liability for the loan. On the same day, the Defendants Elegant Top Investment Limited, Liu X and Zhao respectively signed the Equity Pledge Agreement with the Plaintiff to pledge their shares in Dingqi Company and Dingwangjin Company to the Plaintiff. Upon the signing of the Loan Contract and the Equity Pledge Agreement, the Plaintiff grant the loan of HK $33,000,000 to the Defendant Elegant Top Investment Limited on the same day (April 10, 2010). As the Defendants Elegant Top Investment Limited, Liu X and Yang Cheng, third party to the case, failed to perform their contractual obligations in accordance with the Loan Contract, the Plaintiff and the Defendants Elegant Top Investment Limited, Liu X, Dingqi Company and Tianhui Tongli Company signed the Supplementary Commitment Letter on September 19, 2011, according to which, the above loan was converted into RMB 30,000,000 at the exchange rate in April 2010. And, according to the letter of commitment provided by the Defendant Elegant Top Investment Limited on June 4, 2011, the interest of the loan started to calculate from June 1, 2011, at an annual rate of 20%, that is, the monthly interest being RMB 500,000. The Defendants Elegant Top Investment Limited, Liu X, Dingqi Company and Tianhui Tongli Company jointly promise to repay the principal of RMB 30,000,000 and the interest before December 31, 2011. Because the Defendants failed to fulfill their commitments to repaying the principal and interest of the loan on schedule, on December 6, 2012, the Plaintiff again signed the Supplementary Commitment Agreement with the Defendants Elegant Top Investment Limited, Liu X, Dingqi Company and Tianhui Tongli Company. The Defendant Elegant Top Investment Limited, Liu X, Dingqi Company and Dingwangjin Company promised as follows: to pay to the Plaintiff before March 1, 2013, the principal and interest RMB 10,000,000 (including RMB 4,100,000 already paid); to pay to the Plaintiff before December 30, 2013 RMB 10,000,000; to pay to the Plaintiff RMB 10000000 before March 31, 2014; to carry out the overall settlement of the loan before June 30, 2014, and to pay the rest of the principal and interest. Up to now, the Defendants have not fulfilled their promises of repayment, which has caused huge economic losses to the Plaintiff. In order to safeguard the legitimate interests of the Plaintiff, in accordance with relevant laws, the Plaintiff resorted to the court and requested the court to support the above claims.


Claims by the Defendants


The Defendant Elegant Top Investment Limited claims that:

1.The Plaintiff has no right to claim the loan and interest. The Loan Contract signed by the Plaintiff and the Defendant Elegant Top Investment Limited stipulates that in case of any dispute between the two parties, the laws of Hong Kong Special Administrative Region shall be applied. According to the provisions of the Money Lenders Ordinance of Hong Kong Special Administrative Region, if the Plaintiff does not have a business license for the money lenders, the act of granting loan described by the Plaintiff is not protected by the laws of Hong Kong Special Administrative Region, so the Plaintiff has no right to request the Defendant Elegant Top Investment Limited to pay the loan and interest. At the same time, the Defendant Elegant Top Investment Limited has repaid RMB 8,600,000, and the Plaintiff's claim that the loan principal is RMB 30,000,000 has no factual basis.

2.The equity purchase and sale contract and equity pledge contract signed by the Plaintiff and the Defendant Elegant Top Investment Limited on April 10, 2010 should be revoked. The loan concerned in the case is actually the payment for equity transfer of Weibang Company Limited. The loan contract is actually a subsidiary contract of the equity purchase and sale contract regarding the shares of Weibang Company Limited. Both parties have fulfilled their obligations under the principal contract, and the Plaintiff cannot rely on the subsidiary contract to bring up a litigation. Therefore, the Plaintiff's claims have no factual and legal basis. In conclusion, the court should dismiss the Plaintiff's claims.

Defendant Liu X's claim:

I agree with the defense opinion of Defendant Elegant Top Investment Limited. At the same time, Defendant Liu X, as a Chinese citizen, does not bear the guarantee liability because the approval of China's foreign exchange administration for the guarantee has not been obtained., The Defendant requests the court to dismiss the Plaintiff's claim on Liu X's undertaking of the joint and several guarantee liability.

Defendant Zhao's claim:

I did not sign any equity sales contract, loan contract and guarantee contract concerned in this case, nor made any debt commitment, or pledged my equity to the Plaintiff, and therefore should not bear joint and several guarantee liability. I request the court to dismiss the Plaintiff's claim on my undertaking of the joint and several guarantee liability.

Defendant Liu Y's claim:

I have not signed any equity sales contract, loan contract and guarantee contract concerned in this case, nor made any debt commitment, nor pledged my equity to the Plaintiff, and therefore should not bear joint and several guarantee liability. I request the court to dismiss the Plaintiff's claim on my undertaking of the joint and several guarantee liability.

Defendants Dingqi Company, Dingwangjin Company and Tianhui Tongli Company's claims:

We agree with the defense opinion of the Defendant Elegant Top Investment Limited. Although the supplementary agreement of the loan contract stipulates that the Defendant Dingqi Company, Dingwangjin Company and Tianhui Tongli Company pledged their equity to the Plaintiff, according to the regulations on foreign exchange control, external guarantee shall be approved. Therefore, the guarantee of the Defendants Dingqi Company, Dingwangjin Company and Tianhui Tongli Company are invalid, and they have not promised to repay the debt and interest as joint debtors. We request the court to dismiss the Plaintiff's claim that the Defendant Dingqi Company, Dingwangjin Company and Tianhui Tongli Company jointly repay the loan principal and interest.


Evidence Submitted by the Defendants


Evidence 1: Money Lenders Ordinance of Hong Kong Special Administrative Region, was to prove that if the Plaintiff has no money lender's license, the Plaintiff has no right to recover the loan in accordance with Article 7 and 23 of the Ordinance (Cap. 163).

Evidence 2: The Agreement on the Purchase and Sale of All the Issued Shares of Wei Bang Co., Ltd. (hereinafter referred to as the agreement on the sale and purchase of shares) signed on April 10, 2010 between the Plaintiff and the Defendants Liu X, Zhao, Zhao, Yang Cheng and Chen Zhigang, the third parties to the case, was to prove that because the mining property is involved, the approvals of Hong Kong Special Administrative Region and relevant administrative departments in mainland China should be obtained. Without such approvals, the agreement is invalid due to violation of the laws of Hong Kong Special Administrative Region and the laws of the mainland China. The loan contract involved in this case is a part of the agreement on the sale and purchase of shares, and the supplementary commitment letter and the supplementary commitment agreement, signed based on the loan contract, should all be invalid contracts.

Evidence 3: Bank voucher, was to prove that the Defendant Elegant Top Investment Limited has repaid the loan principal of RMB 8,600,000.

The Plaintiff recognizes the authenticity of the above evidence, but challenges the legitimacy and relevance of the evidence. The Plaintiff believes that Evidence 1 is the basis concerning the law applicable to the case, and is not the evidence to prove the facts of the case. In addition, item 5 of Part 2, Schedule 1, of the Ordinance (Chapter 163) stipulates that any company, firm, or individual whose daily business basically or mainly does not involve lending of money, the loan made in its ordinary business operations is an "exempted loan". So, the loan provided by the Plaintiff to the Defendant Elegant Top Investment Limited is not subject to the restriction under the provisions on the money lender's license. Evidence 2 is signed by both parties as an agreement to transfer the equity of Weibang Co., Ltd., which is legal and valid. The agreement on the sale and purchase of shares and the Loan Contract are independent contracts, and do not have the relationship of the principal and subsidiary contract. The Supplementary Commitment Letter and the Supplementary Agreement Commitment, signed by the Plaintiff and the Defendant through negotiation on the loan repayment under the Loan Contract, are supplements to the Loan Contract and are all valid. Evidence 3 is the voucher of the Defendant Dingqi Company's payment of loan interest, which proves the fact that RMB 8,600,000 has been paid.


Facts Ascertained by this Court


The Plaintiff and Liu X, Zhao, Yang Cheng and Chen Zhigang, third parties to the case, signed the Agreement on the Purchase and Sale of All the Issued Shares of Bond Great Limited (Wei Bang Co., Ltd.) on April 10, 2010. Article 3.2 of the aforesaid agreement stipulates: "payment method: the buyer and the seller agree to pay in the following ways and forms: (A) On the date of signing this agreement, the buyer (the Plaintiff) will, upon the request by the seller (Liu X, Yang Cheng), grant a loan with total amount of HK $33,000,000 to Elegant Top Investment Limited. Upon completion of the pre-inspection report, the restructuring of the group and the renewal of the exploration license for Wuzuntage gold mine, the buyer can transfer the loan to the seller on the basis of one yuan to one yuan as part of the consideration of the refundable deposit, and procure Elegant Top Investment Limited to repay the loan to the seller on the completion date to offset part of the price." Article 6.3 stipulates: "no preconditions for performance or exemption: if the preconditions are not reached before 12:00 on the forward closing date (or a later date agreed by the buyer and the seller), or are exempted by the buyer, this agreement will become invalid, and the Seller shall, within three (3) days, urge Elegant Top Investment Limited to repay all loans referred to in Article 3.2 to the buyer...". On the same day, the Plaintiff signed the Loan Contract with the Defendants Elegant Top Investment Limited, Liu Xjia and Yang Cheng. Article 1.1 of the Loan Contract stipulates: "when signing this contract, the lender (Plaintiff) agrees to grant the whole loan of HK $33,000,000 to the borrower (Elegant Top Investment Limited) at one-time." Article 3.2 stipulates: "if the transaction under the sale and purchase agreement fails to be completed on or before the forward closing date (as defined in the sale and purchase agreement), the borrower must repay all loans to the lender on or before the forward closing date..." Article 5.1 stipulates: "the loan does not carry any interest." Article 7.1 stipulates: "as the owner of the borrower's actual interest, the guarantors (Liu X, Yang Cheng) hereby jointly and severally makes an irrevocable statement and guarantees the performance of the borrower's obligations in this agreement. This guarantee and obligation is a continuing guarantee until the borrower fulfills all the responsibilities and pays all the payments under this agreement. "Article 12.1 stipulates: "this contract and the rights and obligations of the parties under this contract shall be governed by the laws of Hong Kong and construed in accordance with the laws of Hong Kong Special Administrative Region of the people's Republic of China." Article 12.2 states: "each party agrees that any litigation proceeding or judicial proceeding arising out of or in connection with this contract shall be accepted by the courts of Hong Kong. Each party irrevocably agrees on and accepts the non-exclusive jurisdiction by the courts of Hong Kong over any legal action or proceeding against itself and its property." Article 12.3 stipulates: "this contract does not restrict the parties from initiating any litigation proceeding or judicial procedure against the parties and its property in domestic courts with jurisdiction in other countries or regions, nor restrict any service of process permitted by the applicable law." Liu X, on behalf of Elegant Top Investment Limited, and Yang Cheng, third party, signed the contract. On the date of signing the Loan Contract, the Plaintiff transferred HK $33,000,000 to the Defendant Elegant Top Investment Limited.

On April 10, 2010, the Plaintiff signed one Equity Pledge Agreement with the Defendant Elegant Top Investment Limited, and two Equity Pledge Agreements with the Defendants Liu X and Zhao respectively. According to the above five Equity Pledge Agreements, Elegant Top Investment Limited pledged 70% of its shares in Dingqi Company, Lisu Xjia pledged 14.28% of its shares in Dingqi Company and 70% of its shares in Dingwangjin Company, Zhao pledged 7.86% of the shares of Dingqi Company and 30% of the shares of Dingwangjin Company to the Plaintiff respectively as the guarantee for the repayment of the loan of Elegant Top Investment Limited. The Equity Pledge Agreements stipulate that they are governed by Chinese laws and regulations. Neither the Plaintiff nor the Defendant Elegant Top Investment Limited, Liu X and Zhao had registered the pledged equities under these Agreements with the administration for industry and commerce.

On September 19, 2011, the Plaintiff signed the Supplementary Commitment Letter with the Defendants Elegant Top Investment Limited, Liu Xjia, Dingqi Company, Tianhui Tongli Company and Bao Qiang, Yang Cheng and Chen Zhigang, third parties to the case. The letter of commitment stipulates that each party agreed to modify the terms of the sales agreement and loan contract in accordance with the terms of this supplementary agreement, and stipulates: "according to Article 1.1 of the loan contract, Event International Limited (the Plaintiff) has granted a loan of HK $33,000,000 to Elegant Top Investment Limited. Mr. Liu X and Bao Qiang, Yang Cheng, Chen Zhigang, etc. failed to complete the transaction under the sales and purchase agreement on December 31, 2010, among which they failed to provide the recoverable coal resources of 200 million tons in Xinjiang. Therefore, the loan (HK $33,000,000) must be unconditionally repaid to Event International Limited. Based on the exchange rate in April 2010, the loan is converted into RMB 30,000,000, and according to the letter of commitment provided by Elegant Top Investment Limited on June 4, 2011, the interest of the loan has been calculated starting from June 1, 2011 standard an annual interest rate at 20%, i.e. the monthly interest is RMB 500,000." The Plaintiff did not sign or seal the Supplementary Commitment Letter. Event International Limited agreed on the method of prepayment of interest proposed by Elegant Top Investment Limited, Liu Xxjia, Bao Qiang, Yang Cheng, Chen Zhigang and their related companies, which are: to pay RMB 500,000 of interest in June before September 20, 2011; to pay RMB 1,000,000 of interest in July and August before September 30, 2011; to pay RMB 1,500,000 of interest in September, October and November before November 30, 2011; and if the principal has been fully repaid during the period, the interest will only be calculated to the date of repayment; to fully pay the principal RMB 30,000,000 and interest of RMB 5,000,000 before December 31, 2011.

On December 8, 2012, the Plaintiff signed the Supplementary Commitment Agreement with the Defendants Elegcant Top Investment Limited, Liu X, Dingqi Company, and Tianhui Tongli Company, and the article 2 of the agreement stipulated: "The Plaintiff again agreed on the method and period of principal and interest repayment with the Defendant Liu X and Elegant Top Investment Limited and its connected companies are as follows: The principal and interest paid to the Plaintiff before March 1, 2013 should reach RMB 1,000,000 (including the previously paid RMB 4,100,000); and then before December 30, 2013 payment of RMB 10 million yuan; payment of  another RMB 10 million before March 31, 2014; settlement of the principal and interest of the loan before June 30, 2014, and fully repayment of the principal and interest balance." Both parties recognized the fact that the Defendant Elegant Top Investment Limited paid RMB 8,600,000 to the Plaintiff from September 2011 to May 2013.


Opinions of this Court


This case is a dispute over loan contract. Since the Plaintiff Event International Limited is a company incorporated in the British Virgin Islands and the Defendant Elegant Top Investment Limited is a company incorporated in the Hong Kong Special Administrative Region, the applicable law in this case to settle the dispute shall be determined according to provisions relating to the trial of foreign-related civil cases. The Loan Contract was signed before the entry into force of the Law?of?the?Application?of?Law?for?Foreign-related?Civil?Relations?of?the People's?Republic?of?China. According to the provisions of Article 2 of Interpretation of the Supreme People's Court on Several Issues of the Law?of?the?Application?of?Law?for?Foreign-related?Civil?Relations?of?the People's?Republic?of?China, the law applicable to the trial of this case shall be determined according to the law at the time of the occurrence of the foreign-related civil relations. According to the first paragraph of Article 145 of the General?Principles?of?The?Civil?Law?of?The?People's?Republic?of?China, "the?parties?to?a?contract involving?foreign?elements?may?choose?the?law?applicable?to?the settlement?of?the contractual?disputes between themselves, except?as otherwise?stipulated?by?law." It can be drawn from the above provisions that whether before or after the entry into force of the Law?of?the?Application?of?Law?for?Foreign-related?Civil?Relations?of?the People's?Republic?of?China, the parties are entitled to choose the applicable law in case the dispute occurs. This case involves the determination on the applicable law to the two legal relations. The first is the loan contractual relationship. In the Loan Contract signed by both parties, they agreed that the laws of Hong Kong Special Administrative Region of the People's Republic of China shall be applied to the settlement of contract disputes, and both parties insist on the application of the laws of Hong Kong Special Administrative Region during the lawsuit. After examination, the contract does not violate the prohibitive provisions of the laws of PR China, so the laws of Hong Kong Special Administrative Region are determined to be the applicable law of the loan contract relationship in this case. Although the Supplementary Commitment Letter and the Supplementary Commitment Agreement signed by both parties subsequently do not stipulate the applicable law, since the Supplementary Commitment Letter and the Supplementary Agreement are both supplements and amendments to the Loan Contract, the same applicable law as the loan contract should be applied to facilitate the settlement of disputes. Secondly, as for the equity pledge guarantee contract relationship involved, both parties have reached an agreement in five Equity Pledge Agreements that it is governed by Chinese laws and regulations, so it can be determined that the laws of PR China are applicable to the above equity pledge guarantee contract relationship.


Issues in Dispute


Issue I: Whether the Loan Contract signed on April 19, 2014 between the Plaintiff and the Defendants Elegant Top Investment Limited, Liu X and Yang Cheng, third party to the case, is legal and valid;

Issue II: The factual and legal basis for the Plaintiff's claim that the Defendants Elegant Top Investment Limited, Dingqi Company, Dingwangjin Company and Tianhui Tongli Company should jointly repay the loan principal of RMB 30,000,000 and the interest of 12,657,500 yuan;

Issue III: The factual and legal basis for the Plaintiff's claim that Liu X, Zhao and Liu Y should bear joint and several liability.

On Issue I: Whether the Loan Contract is legal and valid.

According to Article 10 of the Law?for Foreign-related?Civil?Relations?of?the People's?Republic?of?China, "foreign?laws?applicable?to?foreign-related?civil?relations?shall?be ascertained?by?the?people's?court,?arbitral?authority?or?administrative?organ. If?any?party?chooses?the?applicable?foreign?laws,?he?shall?provide?the?laws?of this?country." The Plaintiff entrusted BCI & BIMC, which is set up by the Supreme People's Court as "the Base of Hong Kong, Macao, Taiwan and Foreign Law Ascertainment", to carry out Hong Kong law ascertainment. Upon acceptance of the commission, the BCI & BIMC entrusted Andrew Y. S. Mak, a Hong Kong barrister, to carry out Hong Kong law ascertainment and issue the Legal Opinion. In respect of the Defendant's opinion that the Plaintiff does not have a money lender's license and that the act of lending is not protected by the [laws of] Hong Kong Special Administrative Region, the Legal Opinion says, "because the Defendant alleged the defense that the Plaintiff carries out business as a money lender under the Money Lenders Ordinance (Chapter 163), the Defendant should bear the relevant burden of proof. Only when the court considers that the Plaintiff is actually engaged in the ‘business as a money lender' within the scope of the Money Lender Ordinance, can the requirement on a money lender license become a relevant legal restriction." The Defendant Elegant Top Investment Limited did not provide relevant evidence to prove that the ordinary business the Plaintiff carries out is basically or mainly loan business. The Plaintiff granted a loan to the Defendant Elegant Top Investment Limited according to the Agreement on Sale and Purchase of Shares, which was in accordance with the provisions of the Money Lenders Ordinance on "Exempted Loans". Therefore, the act of the Plaintiff to lend money to the Defendant Elegant Top Investment Limited is legal and valid. The Loan Contract, Supplementary Commitment Letter and Supplementary Commitment Agreement are expression of the parties' true intentions, which are legal and valid.

On Issue II. The factual and legal basis for the Plaintiff to require the Defendant Elegant Top Investment Limited, Dingqi Company, Dingwangjin Company and Tianhui Tongli Company to jointly repay the loan principal of RMB 30,000,000 and the interest of RMB 12,657,500.

According to the conclusion in the Legal Opinion: "1. under the Loan Contract, assuming that the Plaintiff can provide firm evidence to prove that Elegant Top Investment Limited and Liu X, etc. were in breach of contract on December 31, 2010 and the Plaintiff has therefore suffered losses, the Plaintiff can rely on the Loan Contract, the Supplementary Commitment Letter and the Supplementary Commitment Agreement to require Elegant Top Investment Limited to repay the loan principal of RMB 30,000,000; 2.  the interest rate agreed in the Supplementary Commitment Letter and the Supplementary Commitment Agreement does not violate the prohibition of excessively high interest rate in Article 24 of the Money Lenders Ordinance. Therefore, the agreement on the annual interest rate of the loan is allowed." In accordance with the Loan Contract, the Plaintiff granted the Defendant Elegant Top Investment Limited a loan of HK $33,000,000. The Defendant Elegant Top Investment Limited accepted the loan in the Supplementary Commitment Letter and the Supplementary Commitment Agreement, converted the loan into RMB 30,000,000 on the basis of the exchange rate in April 2010, and promised to repay the principal and interest of the loan by paying interest in accordance with the amount and term agreed in the Supplementary Commitment Letter and Supplementary Commitment Agreement. In the trial, the Defendant Elegant Top Investment Limited acknowledges the receipt of HK $33,000,000 from the Plaintiff. From the Supplementary Commitment Letter and the Supplementary Commitment Agreement it can be presumed that the Defendant Liu X failed to complete the transaction under the Equity Sale Agreement on October 31, 2010. The Plaintiff claims that the repayment of the loan by the Defendant Elegant Top Investment Limited is in accordance with the laws and regulations of Hong Kong Special Administrative Region, and this court supports it. Both parties agree on the annual loan interest at 20% starting from June 1, 2011, which does not violate the prohibition of excessively high interest rate under Hong Kong law. The Defendant Elegant Top Investment Limited has repaid the Plaintiff RMB 8,600,000, so the Defendant Elegant Top Investment Limited shall repay the Plaintiff RMB 12,650,000 {[30000000 yuan × 20% annual interest ÷ 12 × 42.5 (June 1, 2011 - November 15, 2014)] – RMB8,600,000 }. The Defendants Dingqi Company, Dingwangjin Company and Tianhui Tongli Company said that they are not the parties to the Loan Contract, nor explicitly stated in the Supplementary Commitment Letter and the Supplementary Commitment Agreement that they and the Defendant Elegant Top Investment Limited would jointly repay the loan or bear joint and several guarantee liability. According to the Legal Opinion, "if the Plaintiff has evidence that the Supplementary Commitment Agreement will replace the Loan contract and the Supplementary Commitment, the two documents can be regarded as cancellation rather than modification". In this case, the Plaintiff thought that the Supplementary Commitment Letter and the Supplementary Commitment Agreement were supplementary changes to the Loan Contract. This court adopted the Plaintiff's opinion. The Legal Opinion does not give an opinion on whether the Defendants Dingqi Company, Dingwangjin Company and Tianhui Tongli Company should bear the joint responsibility of repayment. It can be presumed that according to the law of Hong Kong Special Administrative Region, the Defendants Dingqi Company, Dingwangjin Company and Tianhui Tongli Company will not bear the joint responsibility of repayment. Therefore, the Plaintiff's claim that the Defendants Dingqi Company, Dingwangjin Company, Tianhui Tongli Company and the Elegant Top Investment Limited jointly undertake the responsibility of repayment of the loan principal and interest lacks factual and legal basis, and this court does not support it.

On Issue III. Factual and legal basis for the Plaintiff's claim that Liu X, Zhao, and Liu Y bear joint and several liability.

In the Loan Contract, it is explicitly agreed that Liu X shall assume the irrevocable guarantee responsibility as the guarantor, and Liu X have signed the guarantee contract as confirmation. According to Legal Opinion, Defendant Liu X should bear joint and several guarantee liability for the loan principal and interest of Elegant Top Investment Limited. Defendant Liu X argued that the guarantee violated the Regulations on Foreign Exchange Control of the People's Republic of China and should be invalid. Since there was no provision in the said regulations on the invalidity of foreign exchange guarantee without approval, Defendant Liu X's claim had no legal basis and is not supported by this court. The five Equity Pledge Agreements involved in this case clearly stipulate that the laws of the People's Republic of China shall be applied. According to the first paragraph of Article 226 of the Property Law of the People's Republic of China, "the parties concerned shall enter into a written contract for the pledge of fund units or stock rights. As regards the pledge of fund units or the stock rights that are registered in the securities depository and clearing institution, the pledge right shall be established after the securities depository and clearing institution has handled the registration of the pledge. As regards the pledge of other stock rights, the pledge right shall be established after the administrations for industry and commerce has handled the registration of the pledge." The five Equity Pledge Agreements have not been registered in the administrations for industry and commerce, and so the equity pledge has not taken effect according to law. Defendant Liu Y did not sign any agreement related to this case, nor make any commitment to assume the debt. Therefore, the Plaintiff's claim that Defendant Liu X, Zhao, Liu Y bear joint and several liability has no legal basis and is not supported by this court.


Read the original: 烏魯木齊中院采納藍海中心域外法律查明報告

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