XCHRX PERENNIAL INVESTMENTS (H.K.) LTD. v. UNION BRIDGE INVESTMENT LTD.

HCA 1528/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1528 OF 2000

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J U D G M E N T

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1. This is the Plaintiff's O.14 application against D1 to D4 for interlocutory judgment with damages to be assessed. On 9 August 2000, this action was consolidated with HCA 10119 of 1999 and HCA 8561 of 1999. The parties involved in these 3 proceedings can be described respectively as the Plaintiff's camp and the Defendants' camp.

2. The dispute between the parties herein (and the parties in the other 2 actions) is related to the following agreements:

(1) a "Subscription Agreement" dated 18 January 1999;

(2) a "Shareholders Agreement" dated 18 January 1999.

3. Cross-allegations are made by one camp against the other that these agreements were breached. According to the Plaintiff's camp, the alleged breach by the Defendants include:

(1) in relation to the Subscription Agreement:-

(a) failure/refusal to procure or deliver the audited accounts of a Popbridge Industrial Limited ("the Company");

(b) the actual capital deficit of the Company was more than $10.345 million;

(c) the group of companies to which the Company forms part ("the Group") did not turn to profit situation;

(d) the registered capital of a related company in the mainland has not been fully paid up;

(e) the mainland related company did not pay salary tax for its employees;

(f) the mainland related company evaded foreign currency exchange controls of the mainland;

(g) the accounts of the Company and 2 of its related companies were not prepared in accordance with accepted accounting practice;

(2) in relation to the Shareholders Agreement:-

(a) failure/refusal to procure the appointment of 2 replacement directors of the Company;

(b) failure/refusal to appoint a Mr Johnny Hui to replace a Mr Ko as the financial controller of the Company;

(c) failure/refusal to procure the business of the mainland related company to be in accordance with the laws of the mainland.

4. According to the Defendants' camp, they deny that they were in breach of these agreements. Further, they allege the Plaintiff has breached the agreements:-

(1) failure/refusal to procure a New Technology Cable Ltd to deal with the Company on a fair/equitable and arms-length basis but instead allowed excessive interest to be charged by it from the Company on a loan of the Company;

(2) failure/refusal to procure banking facilities in the sum of $9 million for the Company.

5. In the light of these cross-allegations, which were raised by the Defendants' camp before the O.14 Summons was taken out (see the pleadings in the other 2 actions), the Plaintiff filed what can be called a pro forma affirmation in support. Despite the "economical" evidence filed by the Plaintiff, Mr Yuen for the Plaintiff criticises the evidence filed by the Defendants in opposition to be concise and should not be taken to have established a defence to this O.14 application. I do not agree. There is no need to go into the details as to why this dispute is not suitable for an O.14 application save to say this. In order to resolve this dispute, the court needs to examine matters including the following:-

(1) the ambit of the Guarantor's (D2 to D4's) liability by ascertaining the true meaning of the provisions in the agreements, especially Clauses 6.1 and 6.13 of the Subscription Agreement;

(2) expert evidence relating to the accounts of the Company and/or the Group;

(3) expert evidence relating to the laws and regulations of the mainland.

6. In these circumstances, I rather agree with Mr Smith for the Defendants that, looked at in the context of the history of all the related proceedings, this application is an attempt to elicit information from the Defendants. The Plaintiff knew that the Defendants relied on contentions which would entitle them to unconditional leave to defend at the time when the Plaintiff made this application.

7. For the above reasons, this application should be and is dismissed.