TREASURE ASCEND INVESTMENTS LTD v. LAI KUI SHING

HCA 2126/2019

[2021] HKCFI 1446

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2126 OF 2019

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DECISION

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1.  This is an appeal by Treasure Ascend Investments Limited (“the plaintiff”) from the order dated 10 September 2020 of Master Connie Lee staying further proceedings in this action brought by the plaintiff against Lai Kui Shing (“the defendant”) by reason of an exclusive jurisdiction clause in favour of the BVI courts.

Background facts

2.  The plaintiff claims against the defendant the sum of US$1,229,250 or alternatively a sum of US$975,000 based on a guarantee contained in a subscription agreement (described below) given by defendant and Glenn John Stuart Laing (“Mr Laing”).

3.  On 28 January 2015, the plaintiff (whose beneficial owner is Duan Yang (“Mr Duan”)) subscribed for 33 shares (“the shares”) in a BVI company called Golden Oil International Limited (“Golden Oil”) (whose founder is Mr Laing) under a private placement for €1.5 million. Attached to the subscription agreement and forming an integral part of the same are “terms and conditions” (“the subscription agreement”).

4.  Between clauses 8 and 9 but unnumbered is the following provision:

“Personal Guarantee

[Mr Laing] and [the defendant] will personally guarantee the Subscribers that they will repurchase the Shares from the Subscribers for the full Aggregate Subscription Amount of 1,500,000 Euros on the following basis

(i) …

(ii) …

(iii) Repurchase of the Shares will take place within 15 days of the Subscribers serving written notices in the event that either (i) or (ii) does not occur.”

5.  The signatories to the subscription agreement were the plaintiff, Golden Oil, Mr Laing and the defendant while the plaintiff and Golden Oil also signed all of the other pages constituting the subscription agreement.

6.  Clause 13 of the subscription agreement provides as follows:

“The contract arising out of this Subscription Agreement and all documents relating thereto shall be governed by and construed in accordance with the laws of the British Virgin Islands. The parties irrevocably attorn to the exclusive jurisdiction of the courts of the British Virgin Islands.”

7.  On 25 April 2016, the plaintiff gave notice to the defendant and Mr Laing to repurchase of the shares, the condition for its exercise under the personal guarantee having been satisfied. But no repurchase took place.

8.  Golden Oil and the plaintiff, designated “Individually a Party and collectively the Parties”, then entered into a Termination and Settlement Agreement on 27 May 2016 (“the TSA”). Golden Oil agreed to repurchase the shares from the plaintiff at an agreed price of €1.725 million (“repurchase amount”) on or before 30 June 2016 and upon its payment, the subscription agreement would be terminated.

9.  Section C of the TSA provided for the personal guarantees given by Mr Laing and the defendant under the subscription agreement to remain in effect until the repurchase amount is repaid in full. Mr Laing (for Golden Oil), the plaintiff and the defendant were the signatories to the TSA.

10.  The statement of claim was served on 17 December 2019.

11.  The defendant issued his summons dated 13 January 2020 for a stay of the action by reason of the exclusive jurisdiction clause in the subscription agreement, culminating in the order granting a stay that is the subject of the present appeal.

This appeal

12.  The plaintiff’s written submissions set out a number of grounds why this appeal should be allowed and the stay order set aside.  At the hearing, the focus was on the first two of the grounds considered below.

(1)  Defence inconsistent with reliance on clause 13

13.  Mr Jonathan Chang SC, leading counsel for the plaintiff, submitted that the defendant is precluded from relying on the exclusive jurisdiction clause when, by his defences, he was plainly disavowing the very agreement which contained that clause.

14.  Mr Chang referred to various passages from the defendant’s affirmation dated 10 January 2020 (“Lai 1^st”) in support:

“(i) I did not draft the Subscription Agreement, and I have derived no personal benefit at all … I did not mind the inclusion of such a “personal guarantee” clause in the Subscription Agreement. I also signed on the Subscription Agreement. Nevertheless, it has always been the understanding among the parties that only Mr Laing would be responsible for the repurchase of the shares if the conditions arose.: §11

(ii)… it was understood among the parties that Mr Laing/Golden Oil, not me, would be responsible for repurchasing [the plaintiff’s] shareholdings in Golden Oil …: §15

(iii) … without accepting that I owe [the plaintiff] any legal obligation …: §17”

15.  It was submitted that those passages make it plain that the defendant’s position is that he is not legally bound to perform anything under the subscription agreement and has no legal obligation under it.  That, it was said, was tantamount to a clear denial that the defendant ever intended to establish legal relations with the plaintiff.  The plaintiff submitted that it is not open to the defendant to invoke and rely on clause 13 (the exclusive jurisdiction clause) when that clause is part of the very same subscription agreement. In other words, the defendant should not be allowed to cherry pick among the provisions contained in the subscription agreement.

16.  In Lai 1^st, after describing the personal guarantee clause in the subscription agreement, the defendant did not deny its existence. Rather, he stated (in §11) that he did not mind the inclusion of such a “personal guarantee” clause and that he signed the subscription agreement.

17.  The contours of the defendant’s defence appear in §§11 and 15[1] of Lai 1^st: namely, that there was a mutual understanding among the parties that only Mr Laing would be responsible for the repurchase of the shares if the conditions arose.  

18.  The defence is to be viewed against the backdrop of how the subscription agreement came about.  Unlike Mr Laing, the defendant had no stake or interest in Golden Oil.  He introduced the plaintiff or rather its beneficial owner (“Mr Duan”) to Mr Laing but did not stand to gain financially from the transaction.  

19.  Mr Patrick Siu, counsel for the defendant, submitted that it is clear that the defendant never disputed the existence and validity of the subscription agreement or that he was a party to it.  Because of the “mutual understanding” described above, the defendant did not consider that he owed any legal obligation to make payment to the plaintiff.

20.  In my view, such a defence may or may not succeed at trial as there are obvious difficulties arising from the entire agreement clause[2]. Nevertheless, the defence viewed in context is not incompatible with the subscription agreement.  Put another way, they can co-exist.

21.  The defence is to be distinguished from the case of a defendant raising a non est factum defence, denying that the signature was his or asserting that he never entered into such an agreement but at the same time invoking clause 13.  

22.  ‘Disavowal’ of the subscription agreement is nothing more than the defendant saying it should not be enforced against him because of the mutual understanding.  That this defence may not succeed is another matter but it cannot deprive the defendant of his right to defend the claim and invoke clause 13, absent authority to the contrary and none has been cited.

 (2)  Whether the defendant is a “party” within clause 13

23.  The plaintiff’s case is that reading the subscription agreement as a whole, only the plaintiff and Golden Oil are intended to be “parties” within clause 13.

24.  The subscription agreement encapsulates a private placement between the plaintiff (the subscriber) and Golden Oil for 33 shares in the latter that expressly incorporated “terms and conditions” and into which the personal guarantee is embedded.

25.  It is noteworthy that when the subscription agreement refers to rights and obligations only of the plaintiff and Golden Oil in clauses 1 to 12, the terms “Subscriber” and “Company” are used and not “party” or “parties”.

26.  The term “parties” first appears in clause 13 which governs the contract arising out of the subscription agreement “and all documents relating thereto”. The term is also used in clauses 15, 16 and 18.

27.  The plaintiff attached significance to the phrases “neither party” and “the other party” in clause 15 which it was said indicate unequivocally that the “parties” referred to in clause 13 are confined to the plaintiff and Golden Oil.

28.  In my view, that has no particular significance since the subject matter of clause 15 is about the assignment of an interest in the subscription agreement which requires the consent of the other party.  It could only concern the subscriber and the company and no one else.

29.  The plaintiff considered the definition of “Party” and “Parties”[3] in the TSA referring only to Golden Oil and the plaintiff significant.  It reinforced the construction that there were only 2 parties to the subscription agreement.

30.  As between the plaintiff and Golden Oil, their respective rights and obligations under the TSA differed significantly from that pertaining in the subscription agreement in that Golden Oil undertook an obligation to make payment of €1.725 million (the repurchase amount) for the repurchase of the shares by a certain date.

31.  In the subscription agreement, it was the guarantors who undertook to guarantee that they (rather than Golden Oil) would repurchase the shares on certain conditions being fulfilled.  In so far as the guarantors are concerned, all the TSA did was to preserve the personal guarantees which would remain in effect until the repurchase amount was paid. The guarantors did not undertake additional or different obligations thereunder.

32.  Therefore, I do not consider the TSA definition of “parties” assists in the construction of clause 13 of the subscription agreement. In actual fact, the plaintiff’s submission is diametrically opposed to its own pleaded case[4] which is based squarely on the defendant being a party to the subscription agreement.

33.  That is put beyond doubt by Mr Duan’s own evidence. He explained in §14 of his affirmation that:

“[t]he personal guarantees were included as part of the Subscription Agreement and the [TSA] because I insisted.”

34.  For those reasons, I reject the submission that the defendant is not a “party” within clause 13 of the subscription agreement.

35.  A related aspect of the plaintiff’s reading of clause 13 is that the personal guarantee was intended to be and takes effect as an entirely separate and freestanding agreement.

36.  The plaintiff and Golden Oil appended their signatures to every single page of the subscription agreement. If there was any merit in the freestanding submission, one would expect the guarantors to have also appended their signatures immediately adjacent to the personal guarantee clause which is in the middle of the terms and conditions and not, as is the present case, only at the end of the subscription agreement.

37.  The defendant submitted that if and in so far as the personal guarantee is separate and freestanding, the doctrine of separability applies.

38.  That doctrine was considered by Bryan J in Terre Neuve Sarl & Ors v Yewdale Limited & Ors [2020] EWHC 772 (Comm) where it was referred to as “the extended Fiona Trust principle”: §§30-31. It applies where both contracts are part of an “overall package” of agreements: see Etihad Airways v Flother [2019] EWHC 3107 (Comm) at §§69, 72-74 and 102.

39.  In the present case, given my conclusion on the proper construction of clause 13, it is unnecessary to consider the applicability of the extended Fiona Trust principle. On the facts of the present case, the strength of “overall package” argument is evident.

(3) Exclusive jurisdiction clauses and stay applications

40.  The defendant cited Deltatre SPA v Hong Kong Sports Industrial Development Limited [2018] 4 HKLRD 478 for, inter alia, the following propositions that apply where a stay application is made in proceedings brought in breach of an exclusive jurisdiction clause:

(i)  the court should not undertake the same balancing exercise as one performed in a pure case of forum non conveniens; at §36

(ii)  the discretion should be exercised by granting a stay unless strong cause for not doing so is shown and the burden of proving such strong cause is on the plaintiff; at §39

(iii)  in the context of an exclusive jurisdiction clause, what is pertinent is not whether the connecting factors point to Hong Kong as distinctly the more convenient forum but whether they are so strong and go to a matter of justice that the parties’ own jurisdiction agreement should not be enforced; at §43

(iv)  that “strong cause” must encompass either something unforeseeable at the time of the contract or something so exceptional that goes to the interests of justice; at §46

(v)  there is a strong policy in favour of upholding contractual bargains, including jurisdictional agreements.  For the court to uphold that the plaintiff may breach an exclusive jurisdiction agreement voluntarily concluded simply because it has a defenceless claim would require a very strong justification; at §86.

41.  The Singapore Court of Appeal in Vinmar Overseas (Singapore) Pte v PTT International Trading Pte Ltd [2018] 2 SLR 1271 at §§97-113 endorsed the Deltatre approach and held that in determining whether to grant a stay premised on an exclusive jurisdiction clause, the lack of a credible defence per se did not amount to a “strong cause”.

42.  On the issue of the exercise of the court’s discretion, the plaintiff made no oral submissions. In its written submissions, the plaintiff relied on the decision of the Court of Appeal in Royal Skandia Life Assurance Limited v Sparkle Consultants (Hong Kong) Ltd & Ors, HCMP 1453/2006, unrep., 25 September 2006 where at §9, is set out a number of non-exhaustive relevant factors.

43.  However, that decision preceded both Deltatre and Vinmar and the Royal Skandia case has to be seen in that light. It should be noted that the plaintiff did not seek to challenge the reasoning adopted in those cases.

Conclusion

44.  It is unnecessary to consider the defences to the plaintiff’s claim outlined by the defendant in its written submissions since there was no challenge to the submission that at the very least the defendant has an arguable defence.

45.  In the circumstances, given the absence of any showing by the plaintiff of a strong cause, it is clear that the court’s discretion should be exercised in the defendant’s favour.

46.  It becomes unnecessary to consider the alternative ground of forum non conveniens on which the defendant also relies and I do not propose to do so.

Order

47.  Accordingly, the plaintiff’s appeal is dismissed. There is to be an order nisi of costs in favour of the defendant with certificate for counsel, such costs to be summarily assessed and payable forthwith.  Directions will be given separately for the summary assessment.