NEW TIMES ENERGY CORPORATION LTD (formerly known as NEW TIMES GROUP HOLDINGS LTD) v. CHAN KOON WA AND OTHERS

HCMP1492 / 2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1492 OF 2009

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REASONS FOR DECISION

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A.      Introduction

1.  This is the application by New Times Energy Corporation Ltd (“New Times”) for interpleader relief under O. 17 of the Rules of High Court (Cap 4A). 

2.  The subject matter of the application is certain shares to be issued by New Times to meet part of its payment obligations under an agreement for sale and purchase[1] (“the S&P Agreement”), whereby New Times agreed to buy from the 1^stand 2^nd Respondents (“the Vendors”) the share capital of a company known as Jade Honest Ltd.  For convenience, all parties in this application refer these subject matter shares as the “T2 Shares”.

3.  To put it simply, when New Times was prepared to issue the T2 Shares under the S&P Agreement to Dragon Day (the 3^rd Respondent) as one of the nominees nominated by the Vendors to receive the shares, the Vendors came forward and put New Times on notice that (for reasons to be elaborated later) they instead of Dragon Day should be the ones entitled to be issued the T2 Shares.    Dragon Day however insists that it is entitled to be given the T2 Shares.

4.  New Times is thus faced with the situation as to to whom it should issue the T2 Shares.  It takes out these proceedings to interplead the T2 Shares.

5.  The substantive relief sought by New Times under the interpleader application is for an Order that:

(1)  New Times do issue and allot the T2 Shares to a party to be directed by the Court and deposit the same with the Court pending the final determination of these interpleader proceedings and/or the final resolution of the disputes between the Vendors on the one hand and Dragon Day on the other hand,

(2)  Alternatively, New Times is entitled to withhold the issue and allotment of the T2 Shares until the final resolution of these interpleader proceedings and/or the disputes between the Vendors on the one hand and Dragon Day on the other hand.

6.  The Vendors opposed the application and insisted that New Times should be made a party to the litigation of the dispute between Dragon Day and the Vendors as to the entitlement of the T2 Shares.     Dragon Day initially also opposed the application.  But when it came to the hearing before me, its leading counsel, Mr Johnny Mok, no longer pursued the opposition.

7.  At the end of the hearing, I granted the application and gave the following directions:

(1)  The Vendors and Dragon Day do appear before the Court and state the nature and particulars of their respective claims to the T2 Shares that New Times is willing, ready and able to issue and allot under the S&P Agreement, and maintain and relinquish the same, and abide such Order as may be made thereon.

(2)  The following issues (“issues”) be stated and tried between the Vendors and the Dragon Day, namely what the terms of the oral agreement between the Vendors on the one hand and Dragon Day on the other hand, in particular:-

(a)  whether the T2 Shares form part of the remuneration for services procured by Mr. Hui Siu Lun in respect of the sale of Jade Honest Limited by the Vendors to New Times pursuant to an oral agreement as alleged by Dragon Day; or

(b) whether the T2 Shares should be held by Dragon Day on trust for the Vendors pursuant to an oral agreement as alleged and, if so, what the terms of such alleged trust are; 

(3)  The Vendors be made the 1^st and 2^nd claimants and Dragon Day be made the 3^rd claimant for the purposes of the determination of the Issues;

(4)  The Vendors do file Points of Claim on the Issues within 21 days;

(5)  Dragon Day do file Points of Defence on the Issues within 21 days thereafter;

(6)  New Times to abide and be bound by the Court’s determination of the Issues and do allot and issue the T2 Shares to either the Vendors or Dragon Day as the Court may direct after the final determination of the Issues.

(7)  Costs be to New Times, to be satisfied by the sale of the T2 Shares in the following manner: upon the determination of the quantum of costs either by agreement or taxation, New Times is at liberty to issue and dispose of such number of shares within 7 working days in the open market to satisfy the costs as determined, and pay the balance, if any, into Court.

8.  I indicated that I would give my reasons for the decision later.  This is what I do now.

B.      Background

9.  The background relevant and leading to this application can be briefly summarized as follows.

10.  Honest Jade indirectly owned 2 oil fields in Argentina.  New Times’ shares are listed on the Hong Kong Stock Exchange.

11.  As mentioned above, under the S&P Agreement, New Times agreed to purchase the share capital of Jade Honest Ltd for a consideration of HK$2,100 million. 

12.  The completion date was 4 May 2009, and the consideration was to be paid by the following manner:

(1)  Payment of $54,600,000 in cash.

(2)  $90,000,000 in 281,250,000 shares (collectively, “the Consideration Shares”) to be allotted and issued by New Times in 3 tranches.  They are to be due respectively (a) at completion (I call this tranche of shares  “the T1 Shares”), (b) 3 months after completion (this tranche of shares is the T2 Shares), and (c) 6 months after completion (I call this tranche of shares “the T3 Shares”).

(3)  $123,000,000 in the form of promissory notes to be issued by New Times.

(4)  $1,832,400,000 in the form of convertible notes to be issued by New Times.

13.  Under the S&P Agreement, the Vendors were entitled to give payment instructions to New Times to nominate nominees to receive, inter alia, the Consideration Shares including the T2 Shares.   It was also provided in the S&P Agreement that these nominees had to be independent third parties and not parties acting in concert with the Vendors or their nominees.

14.  The Vendors gave an irrevocable payment instructions dated 27 March 2009 and First Supplemental to Irrevocable Payment Instructions dated 4 May 2009 (each in the form of a deed) (collectively, “the First Payment Instructions”) to New Times, nominating 6 nominees to receive, inter alia, the Consideration Shares as and when they were payable.  In particular, Dragon Day (as one of the 6 nominees) was nominated to receive the T2 Shares.  Confirmations of independence (as required under the S&P Agreement) were also given by the 6 nominees. 

15.  When completion took place on 4 May 2009, the T1 Shares together with the other consideration payable were issued to the 6 nominees pursuant to the Initial Payment Instructions.  The Vendors also signed an acknowledgment acknowledging the receipt of the same. 

16.  However, before the due date for issuing the T2 Shares to Dragon Day in accordance with the Initial Payment Instructions, New Times were sent notices and a draft statement of claim by the Vendors through their solicitors asserting that they (the Vendors) were entitled to be issued the T2 Shares notwithstanding the Initial Payment Instructions.  The Vendors asserted that, notwithstanding the confirmations of independence, all the 6 nominees were only holding on trust of all the Consideration Shares for the Vendors’ benefit.

17.  The Vendors also sought to revoke the Initial Payment Instructions (notwithstanding that they were stated to be irrevocable) and issue a renewed payment instruction (“the Renewed Payment Instruction”) asking New Times to issue the T2 Shares to them

18.  It is now the Vendors’ case that the said arrangement to have the Consideration Shares issued to nominees was a result of a verbal agreement (“the Alleged Verbal Agreement”) between one Mr Stewart Cheng (once a director and now the Chairman of the Board of New Times), one Mr Kenneth Cheung (an intermediary in the financial markets) and Mr Cheung’s son Mr Cheung Hoo Win on the one hand, and the Vendors on the other hand.   This arrangement was suggested by Mr Cheng and the Cheungs and under the Alleged Verbal Agreement, the 6 nominees (which were to be identified and arranged by Mr Cheng and the Cheungs) would then hold on trust the Consideration Shares for the benefit of the Vendors.  When the 6 nominees were subsequently arranged and identified by Mr Cheng and the Cheungs, the Vendors just issued the payment instructions prepared by the solicitors acting for Mr Cheng and the Cheungs.    The Vendors thus say they are the true beneficial owners of all the Consideration Shares, including the T2 Shares, and that New Times is fully aware of that and a party to the Alleged Verbal Agreement.

19.  New Times denies that it is aware of such an arrangement, if any, or a party to the Alleged Verbal Agreement.

20.  On the other hand, it is Dragon Day’s case that it is entitled to be paid the T2 Shares.  Its claim is based on an alleged cooperation agreement (“the Alleged Cooperation Agreement”) said to be made between one Mr Hui Siu Lun on the one hand, and Mr Lam Chin Chun on behalf of the Vendors on the other hand.  Under the Alleged Cooperation Agreement, Dragon Day says it is entitled to be allotted and issued the T2 Shares as service fee for services rendered to the Vendors.

21.  New Times maintains that it is ready, willing and able to issue the T2 Shares.  The only problem it now faces is the rival claims for these shares made by the Vendors and Dragon Day.   New Times’ case that it is put into a dilemma where:

(1)  If the allegations made by the Vendors turn out to be true, an issue and allotment of the T2 Shares to Dragon Day may render New Times be sued and liable for dishonestly assisting Dragon Day’s alleged breach of trust.

(2)  On the other hand, if the allegations made by Dragon Day turn out to be true and New Times issued the T2 Shares to the Vendors, New Times may be sued for assisting or procuring wrongful breach of the Alleged Cooperation Agreement.

22.  New Times says it is not in a position to resolve these rival claims and to decide whether to allot and issue the T2 Shares or to the Vendors.  New Times therefore asks to interplead the T2 Shares.

C.      Applicable principles

23.  The law relating to interpleader has been helpfully summarized by Fung J in China Dragon International v Pang Hong [2007] 2 HKLRD 655, at para 29 (p 663B-F) as follows:

“In Tsun Fat Finance Co Ltd v Commissioner of Police (unrep., HCA No. 7017 of 2000, [2002] HKEC 879), I referred to Belcher & Others v Smith (1832) 9 Bing 82; De la Rue v Hernu, Peron & Stockwell [1936] 2 KB164; NYK (Hong Kong) Ltd v Wilford Ltd [1997] HKLRD 901 and Unionix Development Ltd v Roe Investment Ltd & Another [1999] 1 HKC 593 on the law relating to interpleader. The principles can be briefly stated as follows:

(1) Where two or more persons claim the same thing or fund, the holder of the thing or fund does not claim any interest in the property, and not knowing to which of the claimants he ought to deliver the property, and he is sued or fears that he may be sued by some of them, he may apply for interpleader relief against the claimants.

(2) The relief is discretionary and it will not be granted unless there appears to be some real foundation that the applicant may be sued.

(3) The applicant does not in any manner collude with any claimant, or has not voluntarily put himself into the situation from which he calls on the court to extricate him.

(4) He is ready to bring into court, or to pay or dispose of the subject matter of the action in such manner as the court may direct.”

24.  Further, the principle against collusion is that the stakeholder must remain truly impartial and should not be seen as siding with one of the competing claimants.  In Murietta v South American Etc Co Ltd (1893) 62 LJQB 396, 397, Wills J said as follows on what amounted to collusion:

“…Colluding may be said to be an equivalent for playing the same game.  That is the literal meaning of the word.  Here the applicant has identified himself in interest – he has a strong interest that one side should succeed rather than the other.  In my opinion one of the things intended when these rules were drawn was that the stakeholder who claimed the benefit of the Act should be in a real position of impartiality between the parties.”

25.  Bearing these principles in mind, I now turn to the present application.

D.      The present application

26.  Mr Laurence Li, Counsel for the Vendors, raised 4 grounds to oppose New Times’ interpleader application.  I will deal with each of them as follows.

27.  First, Mr Li says New Times has colluded with Dragon Day.  It is therefore not entitled to interplead.  Mr Li’s case on collusion runs as follows:  If the Vendors are successful at the end of the trial of the dispute expected between the Vendors and Dragon Day, it would show that New Times in now refusing to issue the T2 Shares to the Vendors is in fact colluding with Dragon Day.  In the premises (Mr Li further says) the Court cannot now say there is no collusion on the part of New Times, and therefore should not allow it to interplead.

28.  I reject Mr Li’s submissions.

29.  Applying the principle on collusion as set out above, in order to succeed, the opposing party in my view must have to be able to show with sufficient evidence or materials that at the time of the interpleader application, there is on balance of probability collusion on the part of the applicant to siding with, or playing with the same game as with, one of the rival claimants.   It is not sufficient to say that collusion would have been established if the opposing party’s claim is eventually proved to be correct at the end of the day.  If otherwise, then almost every interpleader application would have fallen within Mr Li’s formulation and be caught by the contention of collusion. 

30.  Further, I cannot see how it can be said that New Times is playing the same game with Dragon Day when it is also not allotting the T2 Shares to Dragon.  To that extent, New Times is not acceding to Dragon Day’s claim as well.

31.  Secondly, Mr Li says the Vendors may have potential claims against New Times for damages on at least two other limbs.  They are (a) in relation to the breach of the S&P Agreement for New Times’ failure to follow the Renewed Payment Instruction, and (b) a decrease, if any, in the value of the T2 Shares as at the time of their allotment under the S&P Agreement and the time when the Vendors eventually are allotted the same when and if they are successful in the claim for entitlement.    Mr Li therefore submits that the disputes between the Vendors and New Times are “larger” than just the entitlement to the T2 Shares.  As such, these all should be litigated together with the involvement of New Times.

32.  I am not persuaded by these submissions as well:

(1)  These potential claims at present are purely hypothetical if not speculative, and are likely to be dependent primarily upon the resolution of the disputes between Dragon Day and the Vendors on the entitlement to the T2 Shares.  Applying the above governing legal principles, I do not see how they should and could impact on the determination as to whether, insofar as the entitlement to the T2 Shares is concerned, New Times should be allowed to interplead. 

(2)  In any event, in my judgment, it is likely to be more desirable to allow the determination of the disputes on the entitlement to the T2 Shares to be resolved between the Vendors and Dragon Day first.   This is so because once that is resolved, the Vendors’ suggested potential claims for damages against New Times may fall away or can at least be better and more properly formulated.

33.  Thirdly, Mr Li argues the Vendors may claim against New Times for the promissory notes, convertible notes, the T3 Shares and damages for New Times’ breach of the S&P Agreement or the Alleged Verbal Agreement.  In that case, Mr Li says it would be undesirable to have the T2 Shares dealt with just between the Vendors and Dragon Day, with the rest of these claims to be litigated separately, as they all arise from and are in relation to the S&P Agreement.  This is in fact a similar point to the second ground of objection.

34.  I too reject these submissions:

(1)  Other than the T3 Shares, these alleged potential claims are not before the Court and not even formulated.  They are only advanced vaguely by Mr Li when he is on his feet.   Insofar as the T3 Shares are concerned, I understand that this forms the subject matter of a separate interpleader application that has already been taken out by New Times, which would be dealt with by the Court on another occasion.  In the premises, I do not think the Court is in a position to and should take these into consideration when determining whether, insofar as the T2 Shares are concerned (which are the only subject matter of this application), New Times is entitled to interplead.

(2)  In any event, in applying the above principles governing interpleader application, these matters raised by Mr Li do not in my view remotely justify the Court’s exercise of discretion not to grant the interpleader application.

35.  Finally, Mr Li says if the reliefs under this application are granted, the Vendors would be forced to commence a parallel action to claim for the various reliefs and damages, which would be a duplication of proceedings and a waste of time and costs.   This is also undesirable Mr Li submits.

36.  With respect to Mr Li, I have difficulty to understand this contention. The reliefs granted (as shown above) would not “force” the Vendors to commence a parallel action.  It is for the Vendors to decide whether they want to claim against New Times for other reliefs.  For the reasons I have explained above, even if the Vendors decide to do so, there is nothing undesirable as submitted by Mr Li. 

E.      Conclusion

37.  The Vendors have failed in all their grounds of objection.  By reason of the matters I have referred to under the Background Section, I am also satisfied that the requirements set out at paragraph 23 above are satisfied in the present case.  I therefore allow the interpleader application.