ZEE MARGARET v. WONG TSENG HON

CACV 55/2021

[2022] HKCA 242

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 55 OF 2021

(ON APPEAL FROM HCA NO 2190 OF 2016)

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J U D G M E N T

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Hon Kwan VP:

1.  This is the plaintiff’s appeal against the judgment of Deputy High Court Judge Richard Khaw, SC on 14 January 2021 (“the Judgment”), in which he dismissed her claim for RMB 65 million being the guaranteed return or 50% of the profit arising from the sale of a property development project in Shenzhen (whichever is higher) and an order for all necessary accounts and inquiries for the purpose of determining the amount of the profit. The key issue in this action and on appeal is whether the plaintiff is still entitled to seek performance of the Co-operation Agreement dated 17 April 2008 (“Co-operation Agreement” or “CA”), notwithstanding the Supplemental Agreement dated 8 October 2008 (“Supplemental Agreement” or “SA”) and the subsequent loan agreements. This boils down to the interpretation of the relevant documents.

Background

2.  The relevant background matters are set out in detail in §§1 to 49 of the Judgment.  For present purpose, they may be stated as follows.  Unless otherwise stated, the quotations set out below are taken from the Judgment and the terms deployed in the Judgment are adopted.

(a) The parties

“10. Dingfeng Mansion (鼎豐大厦) (“the Building”) is located in Shenzhen. The Building was under construction in early 2008 when its beneficial owner, Shenzhen Yusheng Investment Development Company Limited (深圳豫盛投資發展有限公司) (“Yusheng”), ran into financial difficulties. Due to lack of funds, Yusheng was unable to bring the construction work to completion.

11. The Defendant is a businessman with investments in Hong Kong and Mainland China. In early 2008, the Defendant decided to purchase the Building with an intention to complete the project and resell the Building for a profit. Whilst he had around RMB 200 million in cash on hand, the Building’s asking price was more than twice that amount. Accordingly, he needed someone who was prepared to join him as a co-investor to make up for the shortfall. By his own admission, it was difficult to find a suitable investor.

12.  It is not entirely clear how the Plaintiff came to know the Defendant.  The Plaintiff’s late husband, an investor in the real estate market in Mainland China, was apparently acquainted with the Defendant.  However, it appears that the Plaintiff and the Defendant jointly explored various business plans from 2007 to 2015 and had also travelled to Mainland China together to inspect various properties, including the Building.  Sometime between March and April 2008, the Defendant informed the Plaintiff of his intention to acquire the Building and invited her to contribute to the investment.  The Plaintiff accepted the offer.  It is common ground that the Plaintiff was a mere financier to the acquisition and did not partake in any active steps towards the purchase, completion, or resale of the Building.”

(b) The CA

“13. On 17 April 2008, the Plaintiff and the Defendant signed the co-operation agreement (“the Co-operation Agreement”). In essence, the Plaintiff and the Defendant agreed to indirectly acquire the Building by purchasing the entire shareholding of Yusheng through Shenzhen Jindingfeng Investment Company Limited (深圳市金鼎峰投資有限公司) (“JDF”), a corporate entity controlled by the Defendant. The Plaintiff would contribute a total sum of RMB 210 million as capital contribution (“the Capital Contribution”) to JDF^[1]. In return, the Plaintiff would become a 50% beneficial owner of JDF. The Capital Contribution would then be applied by JDF towards the acquisition of Yusheng.”

3.  The CA was in Chinese and was drawn up by a solicitor engaged by the plaintiff^[2]. A certified translation in English was provided to the court.  The judge gave a summary of its salient terms as follows:

“15.  First, it is expressly stated in the preamble of the Co-operation Agreement that the parties intended to dispose of Yusheng’s shares within a short period of time, which, according to the terms of the Co-operation Agreement set out below, was 6 months.  The preamble also provides that the Co-operation Agreement was based on the principle of equality and mutual benefit (“平等互利的原則”).

16.  Under Clause 1, the Defendant shall procure 深圳貴明創業投資有限公司(an entity under his control) (“Shenzhen Gui Ming”) and 陳建創 (“Chen”) to transfer the beneficial interest of 50% of the shares of JDF to the Plaintiff’s nominee, Lou Ru Yu (樓汝于) (“Lou”). The transfer would take place by way of nominee shareholding declarations made by Shenzhen Gui Ming, Shenzhen Gui Ming’s nominee (周小峰) (“Zhou”), and Chen to Lou, who would declare that Lou held beneficial ownership of the said 50% of JDF’s shares.

17.  Clause 2 provides that in order for JDF to acquire 100% of Yusheng, the Plaintiff shall remit RMB 210 million under the name of JDF into a transaction deposit account specified by the Zhengzhou Property Rights Exchange Market.  It further records that this sum would strictly be treated as transaction deposit (“交易保証金”).

18.  According to Clause 3, other than the abovementioned RMB 210 million, all other amounts required for the purchase of Yusheng would be paid by the Defendant.

19.  Clause 4 deals with how Yusheng should be sold.  It provides that JDF shall use its best endeavours to sell Yusheng at the highest price.  If JDF is able to sell Yusheng within six months of the date of the Co-operation Agreement (i.e. “the 6-Month Period”), the Defendant shall re-purchase the Plaintiff’s beneficial interest in 50% shares in JDF at the re-purchase price of RMB 210 million plus 50% of the profit arising from the sale of Yusheng [if any] (“the 50% Profit”).  As mentioned above, it is expressly stated that even if Yusheng was sold at a price less than what it had taken JDF to purchase Yusheng and complete the Building, this would not affect the Plaintiff’s right to recover the Capital Contribution of RMB 210 million in full.”

4.  The judge noted that in accordance with Clause 4, the 6-Month Period began to run from 17 April 2008 and hence the defendant had until 17 October 2008 to dispose of all the shares of Yusheng.

5.  Clauses 5 and 6 warrant particular attention as the plaintiff’s claim in this action is based only on her alleged right under Clause 6 and it is her contention that her entitlement under Clause 6 has remained intact notwithstanding the terms of the SA.  Clauses 5 and 6 deal with the situation whereby Yusheng could not be sold within the 6-Month Period. The translation of these provisions read as follows:

“5. Party A [i.e. the defendant] further undertakes and guarantees that in the event that Shenzhen Jin Ding Feng fails to sell 100% shares of Shenzhen Yusheng within the above time limit of six (6) months (not due to reasons that Party A or Shenzhen Jin Ding Feng may be held liable for), Party B [i.e. the plaintiff] shall have the right to issue a written notice to Party A requesting Party A to, within three (3) working days upon the service of the notice, acquire the 50% shares of Shenzhen Jin Ding Feng held by Party B or her designated nominee through Shenzhen Gui Ming, other companies within the Chinese territory controlled by Party A or his nominee, and to pay Party B the price of acquisition. The price of acquisition shall be the acquisition cost of Party B (excluding any tax expenses), i.e. Renminbi Two Hundred Ten Million (RMB 210,000,000) … and a fixed return of Renminbi Sixty-five Million (RMB 65,000,000)^[3] or an equivalent amount in Hong Kong dollars. Based on the principle of sharing the tax expenses stated in paragraph 4 hereinabove, Party A can deduct eight percent (8%) from the fixed return as a reserve for future payment of tax expenses.

6.  Without prejudice to any rights of Party B [i.e. the plaintiff] under this Agreement, in the event that Shenzhen Jin Ding Feng fails to sell Shenzhen Yusheng within the time limit of six (6) months stated in paragraph 5 hereinabove, Party B may choose to continue to hold the 50% shares of Shenzhen Jin Ding Feng until Shenzhen Jin Ding Feng successfully sells all shares of Shenzhen Yusheng, and at that time request Party A to immediately procure the re-purchase of the 50% shares of Shenzhen Jin Ding Feng held by Party B.  Other than the partial re-purchase price of Renminbi Two Hundred Ten Million (RMB 210,000,000) …, Party B shall have the right to receive the after-tax fixed return stated in paragraph 5 hereinabove, or to receive fifty percent (50%) of the profit from the sale of 100% shares of Shenzhen Yusheng after deducting the tax expenses in accordance with paragraph 4 hereinabove (whichever is higher).”

6.  The judge explained the effect of Clauses 5 and 6 in this way:

“23. In other words, upon the expiry of the 6-Month Period (i.e. in October 2008), the Plaintiff had a choice between issuing a written notice prior to the realisation of Yusheng under Clause 5 or exercising her right to hold on to the 50% shares of JDF until the completion of sale of Yusheng pursuant to Clause 6. In the case of the former (i.e. under Clause 5), the Defendant, upon receiving the written notice, must then acquire her shareholding in JDF by paying her the Capital Contribution, plus the Guaranteed Return. In the case of the latter (i.e. under Clause 6), the Plaintiff may request the Defendant to procure (促使) the re-purchase of her shares in JDF at the price equal to the amount of the Capital Contribution and obtain either (a) the 50% Profit, or (b) the Guaranteed Return, whichever is higher. In the event that the Plaintiff decides to opt for Clause 6 by holding on to her 50% shares in JDF until the sale of Yusheng was completed, the Co-operation Agreement nonetheless does not contain any provision which deals with how long the Plaintiff should wait and what remedies she would be entitled to seek if Yusheng continued to remain unsold.”

7.  The Judgment mentioned three other provisions in the CA and they are summarised as follows:

“25. Clause 10 provides that the Defendant understood that the Plaintiff’s participation in the acquisition of Yusheng was completely based on her trust and reliance on the Defendant’s experience and judgment.

26. Further, according to Clause 11, if any of the terms in the Co-operation Agreement are incomplete^[4] or that any other documents under the terms of this agreement lack sufficient formalities or procedures, the Defendant shall accept and regard any such deficiencies as perfected or rectified and allow the Plaintiff to obtain the maximum benefit “最大利益” under this agreement and other relevant documents.

27. Finally, Clause 14 provides that in relation to matters not covered by this agreement, the Defendant and the Plaintiff may, after reaching a consensus by way of negotiation, sign a supplemental agreement bearing the same legal effect “具有同等法律效力” as the Co-operation Agreement.”

(c) Events following the CA

“28. The following matters took place pursuant to the Co-operation Agreement:

(1) On 17 April 2008, the Plaintiff transferred by way of 3 separate remittances a total sum equivalent to RMB 210 million in the name of JDF into a transaction deposit account designated by the Zhengzhou Property Rights Exchange Market. It would appear that the Plaintiff was unable to properly deposit the final tranche (equal to RMB 75 million) until 4 June 2008, but no complaint was raised by the Defendant on this issue at the material time.

(2) On 18 April 2008, the Defendant procured the transfer of the beneficial interest in 50% of the total shares in JDF to Lou (the Plaintiff’s nominee) by instructing Zhou and Chen to issue declarations proclaiming that each of them held 25% of the shares of JDF on behalf of Lou.

(3)  On 4 July 2008, JDF purchased the entirety of Yusheng’s shares.”

(d) The SA

8.  The events leading to the signing of the SA are as follows.

9.  In or about early October 2008, the defendant informed the plaintiff that the shares in Yusheng could not be sold before 17 October 2008 (i.e. the expiry of the 6-Month Period) and requested for additional time to look for a willing buyer^[5]. The request for extension of time was mainly due to two factors: (1) an interested party, Hon Kwok Land Investment Co Ltd, a listed company in Hong Kong, decided not to proceed with the purchase; and (2) the poor investment atmosphere caused by the global financial crisis in September 2008^[6].

10.  The judge also noted these matters as part of the background of the SA:

“31. The Plaintiff did not exercise her entitlement under Clause 5 of the Co-operation Agreement to issue a written notice demanding the Defendant to re-purchase her shares in JDF. While she was allowed to rely on Clause 6, she was not entitled to either the Guaranteed Return or the 50% Profit until completion of the sale of Yusheng.”

“33. According to the Plaintiff’s evidence, prior to the making of the Supplemental Agreement, the Defendant wanted to stop the Plaintiff from exercising her right under Clause 5 of the Co-operation Agreement. Hence, the Plaintiff did not issue any written notice as required under Clause 5. She chose to wait and one of the purposes of the Supplemental Agreement, in particular, Clauses 2 and 4 therein, was to allow the parties to have an extension of time (from October 2008 to July 2009) to sell Yusheng.”

“66. At the time when the Supplemental Agreement was drafted and signed (i.e. on 8 October 2008), it was still unclear when Yusheng would be sold. At that time (i.e. just more than one week before the expiry of the 6-month period as stipulated in the Co-operation Agreement), it is most likely (and it is the Plaintiff’s own evidence) that the parties did consider whether the Plaintiff should continue to exercise her rights under the Co-operation Agreement (including her right under Clause 5 of the Co-operation Agreement). Otherwise, the Plaintiff could have simply insisted on her entitlements under Clause 5 and it would have been unnecessary for the parties to enter into the Supplemental Agreement. …”

11.  The judge did not find it necessary to resolve the factual conflict whether it was the plaintiff or the defendant who proposed the terms of the SA.  There is no dispute that the SA was drafted within a short period of time by the same solicitor who was instructed to draw up the CA earlier.  The parties signed on the SA written out in the solicitor’s hand in her office.

12.  On 8 October 2008, the plaintiff and the defendant entered into the SA.  This agreement, which was written mainly in English, contains the following provisions^[7]:

“Party A 黃振漢 [i.e. the Defendant], Party B Margaret Zee [i.e. the Plaintiff] agree to supplement their original agreement re 深圳豫盛股權[i.e. Yusheng] dated 17 April 2008 [i.e. the CA] as follows:

1. Party A [i.e. the Defendant] is not to sell the ownership of the 100% 深圳豫盛股權[i.e. Yusheng] before 17 October 2008 as anticipated in the abovementioned agreement (“the Contract”).

2. Party A [i.e. the Defendant] guarantees that by 15 July 2009, Party A will continue to endeavour to sell the said 100% shares for the best price obtainable and share 50% of the proceeds after deduction of expenses (including tax) with Party B [i.e. the Plaintiff].

3. Party A [i.e. the Defendant] will return RMB 50 million before the end of October 2008 to Party B [i.e. the Plaintiff] but this will not alter Party B’s entitlement to share in 50% of the proceeds as abovementioned.

4. Party A [i.e. the Defendant] also guarantees that on or before 15 July 2009, Party A will ensure that Party B [i.e. the Plaintiff] will be able to have the entire capital contribution she has made repaid to her together with interest thereon from the date of payment to the date of repayment (for the avoidance of doubt, interest ceases to accrue on the RMB 50 million upon repayment to Party B by end of October 2008).

5. Interest being guaranteed would only be payable by July 2009 when Party A [i.e. the Defendant] is unable to dispose of the said 100% shares for a profit more than interest at 5.25% p.a. on the capital contribution as abovementioned.

6. This is a friendly agreement. Party A [i.e. the Defendant] and Party B [i.e. the Plaintiff] agree to enter into discussions to resolve any issues not expressly covered in the written Contract as supplemented.” ”

13.  The judge noted these new entitlements given to the plaintiff in the SA which did not exist in the CA:

“34.  Apparently, Clause 3 of the Supplemental Agreement allowed the Plaintiff to have the right to early repayment of part of the Capital Contribution (i.e. RMB 50 million) which did not exist in the Co-operation Agreement.  Further, Clauses 4 and 5 of the Supplemental Agreement were intended to provide the Plaintiff with the right to the return of the entire Capital Contribution with guaranteed interest (from the date of payment to the date of repayment) which would become payable “by July 2009” if, at that time, the Defendant was still unable to dispose of Yusheng for a profit more than 5.25% p.a.  It should be noted that the concept of interest never appeared in the Co-operation Agreement.”

(e) Events following the Supplemental Agreement

“36. Despite Clause 3 of the Supplemental Agreement, the Defendant failed to return any of the RMB 50 million to the Plaintiff before the end of October 2008. By 15 July 2009, JDF continued to hold all of its shares in Yusheng and only part of the Capital Contribution had been returned to the Plaintiff^[8]. Whilst the Plaintiff asserts that the Defendant has contravened Clause 4 of the Supplemental Agreement, her case, as explained above, is entirely premised upon the alleged breach of Clause 6 of the Co-operation Agreement.

37. It should be noted that the following events took place after the Supplemental Agreement was signed by the parties:

(1) On 27 February 2009, the Defendant paid to Join Pacific Worldwide Limited (“Join Pacific”), the Plaintiff’s Hong Kong company, a sum of HKD 9 million (equivalent to RMB 7,936,380).

(2) On or around 20 May 2009, the Plaintiff issued a demand letter entitled “有關：RMB210,000,000 貸款” (“Re: RMB 210 million Loan”) for the sum of RMB 30 million to be transferred by the Defendant to one of the Plaintiff’s accounts by 27 May 2009.

(3) On 26 May 2009, the Defendant, through Shenzhen Gui Ming, remitted to the Plaintiff’s PRC company 廣州國金企業管理諮詢有限公司 (“Guangzhou Guo Jin”) a sum of RMB 10,000,000.

(4) On 27 May 2009, the Defendant arranged a sum of RMB 6,000,000 to be remitted to the Plaintiff’s personal account in PRC in a sum of RMB 6,000,000.

(5) On 2 June 2009 and 3 June 2009, the Defendant, through Shenzhen Gui Ming, transferred to Guangzhou Guo Jin a sum of RMB 10 million and another sum of RMB 4 million.

(6) On 2 December 2009, the Defendant, through his Hong Kong company Nan Ya (H.W.) Company Limited (南亞漢威有限公司) (“Nan Ya”) transferred to Join Pacific a sum of HKD 5 million (equivalent to RMB 4,437,500).

(7) On 16 December 2009, the Defendant remitted a sum of HKD 90 million (equivalent to RMB 79,875,000) to Tang Kwok Cheung (“Tang”), an accountant employed by the Plaintiff, in the following manner: -

(a) A remittance in the sum of HKD 2,200,000 through the Defendant’s Hong Kong company, King Joy Holdings Limited (“King Joy”);

(b) A cheque of HSBC in the sum of HKD 58,550,000 in favour of Tang; and

(c) A cheque of Bank of East Asia in the sum of HKD 29,250,000 in favour of Tang.

(8) On 24 December 2009, another letter was sent from the Plaintiff to the Defendant requesting the sum of RMB 4,985,570.91.

(9) On 28 December 2009, the Defendant, through his PRC company Shenzhen Gui Ming, remitted to the Plaintiff’s PRC company 廣州市嘉豐置業有限公司 (“Guangzhou Jia Feng”) a sum of RMB 4,985,570.51 (rounded off to RMB 4,985,571).

38.  By 28 December 2009, the Defendant had paid the Plaintiff a total of RMB 127,234,451.  Of this amount, the parties agree that RMB 110 million was for the return of the Capital Contribution, whilst the remaining RMB 17,234,451 constituted interest.”

(f) The 1^st Loan Agreement

“39. On 29 December 2009, the parties signed a Memorandum of Loan Agreement (“the 1^st Loan Agreement”) in respect of the remaining balance of the Capital Contribution in the sum of RMB 100 million. According to the 1^st Loan Agreement, the Defendant agreed to repay the Plaintiff the said balance on or before 28 December 2010, together with interest at HKD 500,000 per month, payable monthly (the “1^st Loan Agreement”).

40.  Pursuant to the 1^st Loan Agreement, the Defendant made a total of 12 interest repayments totalling HKD 6 million.  On 8 December 2010, the Defendant made a repayment for the amount of HKD 19,852,685 (equivalent to RMB 17 million).  No other payments regarding the principal sum were made in relation to the 1^st Loan Agreement.”

(g) The 2^nd Loan Agreement

“41.  On 24 December 2010, the parties entered into another Memorandum of Loan Agreement (“the 2^nd Loan Agreement”) in respect of the remaining balance of RMB 83,000,000.00.  From 4 March 2011 to 7 July 2011, this sum, together with interest at HKD 305,000 per month, was repaid by the Defendant to the Plaintiff by way of the following transfers: -

(1)  On 4 March 2011, the Defendant remitted to the Plaintiff a sum of HKD 38,823,360 (equivalent to RMB 33,000,000);

(2)  On 26 April 2011, the Defendant paid to Join Pacific a total of HKD 14 million (equivalent to RMB 11,851,000) by way of (a) a remittance of HKD 10 million through the Bank of East Asia, and (b) a cheque of HKD 4 million.

(3)  On 27 April 2011, the Defendant remitted to the Plaintiff HKD 10 million (equivalent to RMB 8,465,000).

(4)  On 6 and 7 July 2011, the Defendant paid the Plaintiff a sum of HKD 35,010,386 (equivalent to RMB 29,684,000), comprising of (a) a remittance of HKD 14,200,000 from Nan Ya to the Plaintiff via Deutsche Bank on 6 July 2011, and (b) a remittance from the Defendant to the Plaintiff of HKD 20,810,386 via Deutsche Bank on 7 July 2011.

42.  It is accepted by both parties that a total of HKD 1,839,822.00 of interest was repaid by the Defendant in relation to the 2^nd Loan Agreement.”

(h) The Ledger Confirmations

“43. On 12 August 2011, the Plaintiff signed a Ledger Confirmation (確認函) (the “2011 Ledger Confirmation”)^[9] confirming her receipt of the repayments by the Defendant in the sum of RMB 227,234,451, being the Plaintiff’s Capital Contribution of RMB 210 million plus RMB 17,234,451 in interest accruing from 17 April 2008 to 28 December 2009.

44.  On 5 March 2012, the Plaintiff and the Defendant signed another Ledger Confirmation (the “2012Ledger Confirmation”) together with a Confirmation Letter [確認書] (the “Confirmation Letter”) confirming the Plaintiff’s receipt of the Defendant’s repayment of RMB 227,234,451.  The 2012 Ledger Confirmation is almost identical in every respect to the 2011 Ledger Confirmation save and except for the addition of the following sentence:

“双方确认双方以及受任何一方委托的单位或公司之间在签订此确认函之日或以后不存在任何债权债务或任何义务。” (Translation: “The parties confirm that the parties and all units or companies entrusted by either party shall not be liable to any debts or any obligations upon the date on which this letter of confirmation is signed or thereafter.”)

45.  A similar provision appears in paragraph 1 of the Confirmation Letter^[10]:

“截至2012年3月5日，甲方[i.e. the Defendant]各参与方与乙方[i.e. the Plaintiff] 各参与方之间的债权债务已结清，双方互不负有任何权利义务。” (Translation: “As of 5 March 2012, the claims and debts between the Participating Parties of Party A [i.e. the Defendant] and the Participating Parties of Party B [i.e. the Plaintiff] have been settled, and Both Parties owe neither rights nor obligations to each other.”)

46.  The abovementioned figure of RMB 227,234,451 does not include interest payments made pursuant to the 1^st and 2^nd Loan Agreements.  In light of Tang’s evidence, both parties accept that RMB 23,814,178.41 of interest was paid by the Defendant to the Plaintiff.

47.  According to the Defendant, an agreement was eventually reached in or around December 2009 for the sale of Yusheng by JDF.  The actual completion of the sale took place on or about 25 August 2010. 

48.  The Plaintiff’s case is that she first became aware that JDF had disposed of all the shares of Yusheng in or around March 2012^[11]. Between March 2012 and September 2015, she allegedly met the Defendant on a regular basis and enquired about the status of the re-sale of the Building. The Defendant asked her to await further news.

49.  Nearly 4 years later, on or about 14 September 2015, the Plaintiff confronted the Defendant about the matter and sought to exercise her rights pursuant to Clause 6 of the Co-operation Agreement.  On 23 September 2015, the Defendant handed over to the Plaintiff a statement of account (the accuracy of which is not admitted by the Plaintiff) setting out the revenue and expenses of the sale of all the shares of Yusheng by JDF.  The Defendant nevertheless refused to pay up the higher of the Guaranteed Return (less tax) or the 50% Profit.”

(i) The letters before action

14.  On 12 November 2015, the plaintiff by her former solicitors sent a letter of demand to the defendant claiming that under the CA, at least RMB 59.8 million is due and payable (the Guaranteed Return of RMB 65 million minus 8% as deduction for tax payment) and demanded the defendant to (1) render a full account with supporting documents of the sale of Yusheng and the proceeds arising therefrom; (2) make immediate payment to her of RMB 59.8 million; and (3) pending full account and upon verification or agreement on the net sale proceeds, pay the amount by which 50% of the net sale proceeds exceeds the Guaranteed Return of RMB 65 million.

15.  The defendant replied by two letters of his solicitors dated 27 November 2015.  They pointed out that the SA provided inter alia that if the sale of Yusheng was not achieved by 15 July 2009, the defendant shall assure that the plaintiff would be able to have the entire Capital Contribution she had made repaid to her with interest thereon at 5.25% p.a.  They stated that “since the signing of the [SA]”, the plaintiff had “from time to time” regarded the RMB 210 million as a loan rather than her capital contribution and demanded several repayments from the defendant, and two Loan Agreements were made in December 2009 and December 2010.  With the full repayment of the loan of RMB 210 million and fulfilment of the defendant’s obligation regarding the loan, two Ledger Confirmations were signed confirming that by 5 March 2012 both parties have settled all the debts between them with all the liabilities and obligations discharged.  The defendant therefore rejected the claim of RMB 59.8 million under the CA and refused to provide any documents regarding the account of the sale of Yusheng.

16.  The plaintiff issued the writ in this action on 24 August 2016.

17.  After the writ was issued, the plaintiff’s present solicitors wrote two further letters on 29 August 2016 and 19 October 2016 in reply to the letters of the defendant’s solicitors dated 27 November 2015, asserting the plaintiff’s entitlement under Clause 6 of the CA.  In gist, it was alleged that the plaintiff is entitled to payment of two separate and distinct sums, being RMB 210 million and the Guaranteed Return or the 50% Profit, whichever is higher; that the SA did not in any way alter the defendant’s obligation to pay the higher of the Guaranteed Return or the 50% Profit; that it is incorrect to say the RMB 210 million had been converted into a loan since the signing of the SA, rather, the plaintiff had since the CA regarded this sum as her capital contribution by way of shareholder loan; and that the Ledger Confirmations and the Confirmation Letter in no way altered the plaintiff’s entitlement to the higher of the Guaranteed Return or the 50% Profit.

18.  Thus, the battle lines were drawn.  The plaintiff’s position is that notwithstanding the full recovery of the Capital Contribution of RMB 210 million with interests, she is entitled to invoke Clause 6 of the CA and be paid an additional sum being the higher of the Guaranteed Return of RMB 65 million or the 50% Profit.  The defendant’s stance is that he is under no further obligation to the plaintiff with the repayment in full of RMB 210 million with interests, in that the CA was varied by the SA and the two subsequent Loan Agreements, and all the debts between them have been settled as confirmed by the two Ledger Confirmations and the Confirmation Letter.

The rival contentions of interpretation

19.  As mentioned at the outset of this judgment, the crucial question is one of interpretation of the relevant documents, and the ultimate question is whether Clause 6 of the CA can still be enforced or has been varied by subsequent documents.  The judge held that on the proper construction of the CA and the SA, Clause 6 of the CA has been varied and superseded by the SA^[12].

(a) The plaintiff’s contentions

20.  As noted by the judge, the statement of claim merely recited or summarised the terms of the CA, the SA, the two Loan Agreements but did not plead what should be the proper interpretation of the relevant provisions of the CA and the SA or the relationship between material provisions in the various documents.  The reply repeated the plaintiff’s assertion that the RMB 210 million was all along regarded by her as capital contribution by way of shareholder loan and her entitlement to the higher of the Guaranteed Return or the 50% Profit is separate and distinct from her entitlement to RMB 210 million.

21.  I take the plaintiff’s contentions on the proper construction of the relevant contractual provisions from the oral and written submissions of Mr Hectar Pun, SC, who appeared for the plaintiff on appeal and below^[13]. His contentions may be stated as follows:

(1)  It is common ground that the plaintiff was a mere financier to the acquisition of the Building and did not partake in any active steps towards the purchase, completion or resale of the Building^[14]. Clause 10 of the CA expressly stated that the plaintiff’s participation in the joint investment was “completely based on her trust upon [the defendant’s] experience and judgment”^[15]. So from the start, as a mere financier the plaintiff does not need to wait until the sale of the Building to get back the Capital Contribution and the Guaranteed Return and that is apparent from Clause 5 of the CA^[16].

(2)  Under the CA, in the event that Yusheng could not be sold within the 6-Month Period, the plaintiff may issue a three working-day notice to the defendant under Clause 5 requiring the defendant to re-purchase her 50% shares in JDF at the price of RMB 210 million plus the Guaranteed Return of RMB 65 million minus tax. Alternatively, pursuant to Clause 6, she can choose to wait until all the shares in Yusheng were sold and then require the defendant to “immediately procure” (立即促使)^[17] the purchase of her 50% shares in JDF at the price of RMB 210 million plus the Guaranteed Return of RMB 65 million minus tax or the 50% Profit (whichever is higher).  Mr Pun submitted there is no time limit as to the exercise of the rights under Clauses 5 and 6, and the rights under either provision may be exercised at any time after the 6-Month Period.  Hence, if all the shares of Yusheng could not be sold within a suitable period, the plaintiff could decide not to wait any longer and serve a Clause 5 notice and claim her entitlement thereunder.  The inherent risks and uncertainties as to when the entitlement under Clause 6 would materialise in that there is no cut-off date as to how long the plaintiff might have to wait for the eventual sale of Yusheng would be much reduced.  Mr Pun submitted that such risks and uncertainties as found in §§63 and 64 of the Judgment are “perceived rather than real”.  It was therefore not necessary to address such risks or uncertainties inherent in Clause 6 of the CA by providing for a cut-off date in the SA, as wrongly postulated in §§75 and 77 of the Judgment^[18].

(3)  Under Clause 14 of the CA, the parties may enter into a supplemental agreement as to matters not covered by the CA and both the CA and the SA shall have the same legal effect. Hence, after the signing of the SA, the CA remains a valid contract between the parties and the plaintiff’s interpretation of the SA, which would preserve her entitlement under the CA, should be preferred^[19].

(4)  By Clause 2 of the SA, the 6-Month Period under Clause 4 of the CA was extended for nine months from 17 October 2008 to 15 July 2009.  In other words, the plaintiff was not allowed to give a Clause 5 notice under the CA during the extended period.  In return, under Clause 3 of the SA, she would be repaid RMB 50 million being part of the Capital Contribution before the end of October 2008, with interest from the date of payment in April 2008 to the date of repayment at the end of October 2008^[20].

(5)  In the event that Yusheng was sold during the extended period, by Clauses 4 and 5 of the SA, the plaintiff would receive the entire Capital Contribution plus the 50% Profit (pursuant to Clause 2 of the SA) or interest at 5.25% p.a. on the Capital Contribution if the 50% Profit is less than the said interest. The plaintiff would not be entitled to receive the Guaranteed Return of RMB 65 million minus tax in Clause 6 of the CA in this situation^[21].

(6)  In the event that no sale of Yusheng was achieved by 15 July 2009, the effect of the provisions in the SA would be spent. The rights and obligations of the parties under the CA would be fully restored, including the plaintiff’s entitlements under Clause 5^[22] (which the plaintiff did not exercise) and Clause 6 of the CA.  The plaintiff would not be entitled to receive the interest guaranteed in the SA in this situation.  Thus, the SA only has the effect of varying the CA to the limited extent as mentioned above, without extinguishing the plaintiff’s entitlements under Clauses 5 and 6 of the CA^[23].

(7)  The above interpretation of the plaintiff of the effect of the SA is commercially sensible.  It was the defendant who requested for an extension of time for selling Yusheng.  There would be no commercially sensible reason for the plaintiff to give up her right to receive the Guaranteed Return of RMB 65 million minus tax whether under Clause 5 or Clause 6 of the CA.  The maximum interest that could be generated under the SA would only amount to about RMB 11,860,625^[24], which pales in comparison to the Guaranteed Return.  This modest amount of interest receivable under the SA, coupled with the early repayment of RMB 50 million, merely constituted the consideration in exchange for the extension of time requested by the defendant.  Properly construed and understood, there is no mutual exclusivity between the entitlement to 50% Profit or the Guaranteed Return (whichever is higher) under Clause 6 of the CA and the interest guaranteed under Clauses 4 and 5 of the SA, as wrongly held in §§74 and 75 of the Judgment^[25].

(8)  The above interpretation was consistent with the background in that on the defendant’s evidence, the SA was intended to provide the plaintiff with “a better return” (更好嘅回報).  The plaintiff’s interpretation, which would preserve her entitlement to receive the 50% Profit or the Guaranteed Return (whichever is higher), should be preferred.  The judge had misunderstood the meaning of “a better return” in §77 of the Judgment and had disregarded the commercial realities^[26].

(9)  The CA anticipated the re-purchase of the plaintiff’s 50% shares in JDF as the final step.  Given that the SA did not alter the plaintiff’s status as the beneficial owner of those shares, it must have been the parties’ intention to continue their business venture and eventually to share in the profits upon sale of Yusheng, rather than terminate their business venture upon an earlier “cut-off date” of 15 July 2009 as wrongly postulated in §§73 and 75 of the Judgment.  Further, Clause 3 of the SA shows that it was not the intention of the SA to extinguish the plaintiff’s entitlement to share in the 50% Profit^[27].

(10)  The court should take into account that the SA was drafted by a solicitor within a short period of time and give weight to this in considering any perceived inadequacy in the SA, citing Eminent Investments (Asia Pacific) Ltd v DIO Corp (2020) 23 HKCFAR 487 at §45(c) to (d).

(b) The defendant’s contentions

22.  Before I set out the contentions of Ms Audrey Eu, SC, who appeared for the defendant here and below^[28], it is convenient to deal with a pleading objection raised by Mr Pun^[29].  As mentioned earlier, the judge held as a matter of construction that Clause 6 of the CA has been varied and superseded by the SA.  Mr Pun submitted that was not the defendant’s case as pleaded in §14 of the defence^[30].  I propose to deal with this shortly.

23.  The proper construction of contractual provisions is a point of law.  So long as the material provisions are identified in the pleading, it is not obligatory to plead the proper construction, as a party may by his pleading raise a point of law but is not obliged to plead it^[31]. The judge did not hold against the plaintiff for not pleading the proper construction of the CA and the SA and the relationship between them in the statement of claim or the reply although he had remarked on this^[32], and the plaintiff was at liberty to advance and develop her case on construction.  Further, it is clear from the oral closing submissions of Mr Pun and the judge’s exchanges with him that no one was in any doubt that a key issue to be resolved is whether Clause 6 of the CA has been varied by the SA^[33]. No prejudice has been occasioned to the plaintiff from the alleged deficiency in the pleading.

24.  In essence, Ms Eu agreed with the judge’s construction of the CA and SA that the SA has the effect of varying Clause 6 of the CA.  The defendant’s contentions and the judge’s reasoning may be summarised as follows:

(1) Clause 5 and Clause 6 of the CA are alternatives.  If Clause 6 is invoked, the re-purchase of the plaintiff’s 50% shares in JDF (which in turn would entail repayment of the Capital Contribution) would only be upon or after JDF successfully selling all the shares of Yusheng.  The plaintiff’s receipt as to the higher of the 50% Profit or the after-tax Guaranteed Return is also predicated upon the same timing, i.e. upon or after JDF successfully selling all the shares of Yusheng.

(2) There is no provision for interest in the CA.  The plaintiff was guaranteed to receive back the Capital Contribution under Clauses 4, 5 and 6.  Apart from that, the only return was either the sharing of the profit or the after-tax Guaranteed Return.

(3) As the sharing of profit under the CA could only take place on the sale of Yusheng, for the plaintiff to get back RMB 50 million of the Capital Contribution prior to such sale, the CA would need to be varied by Clause 3 of the SA.

(4) Clauses 4 and 5 of the SA should be read together.  Two scenarios were envisaged in these provisions: if Yusheng was sold before 15 July 2009 and if Yusheng was not sold by that date.

(5) If there was a sale before 15 July 2009, and if the profit was not more than the amount of interest on the Capital Contribution at 5.25% p.a. from the date of payment to the date of repayment, the plaintiff would get back the Capital Contribution with interest at 5.25% p.a. on the Capital Contribution, save that interest would cease to accrue on the RMB 50 million upon repayment to the plaintiff by the end of October 2008.  Although Clauses 4 and 5 did not expressly state whether interest was payable if Yusheng was sold at a profit more than the amount of interest at 5.25% p.a. on the Capital Contribution, reading Clause 5 with Clause 2, it is implicit that the plaintiff would not receive interest but would receive only 50% share of the profit.  See §§73 and 74 of the Judgment: “it is clear from Clause 5 of the Supplemental Agreement that subject to what would happen by 15 July 2009, either interest or profit would be payable but the two would not co-exist”.

(6) If there was no sale of Yusheng by 15 July 2009, the SA did not expressly state what was to happen in that situation.  The judge reasoned and inferred from Clause 5 that as interest would be payable by July 2009 where the defendant was unable to dispose of all the shares in Yusheng for a profit of more than 5.25% p.a. on the Capital Contribution, it is implicit that 15 July 2009 was agreed on as the cut-off date.  The judge reasoned in this manner in the Judgment:

“73. … However, it is quite obvious that by Clause 5 of the Supplemental Agreement, the parties decided to take July 2009 as a cut-off date (which, according to the extended period as stipulated under Clause 2, should presumably be 15 July 2009). What Clause 5 means is that if Yusheng could not be sold by 15 July 2009 at a profit which would exceed the interest on the Capital Contribution which would accrue in accordance with Clause 4 of the Supplemental Agreement, interest would then be payable.”

“75. As discussed above, Clause 6 of the Co-operation Agreement failed to address what the parties should do if the Defendant continued to be unable to have Yusheng sold and also how long the Plaintiff should wait. By agreeing on the cut-off date and also the element of interest in the Supplemental Agreement, the parties managed to address the risks and uncertainties that Clause 6 of the Co-operation Agreement failed to deal with. In these circumstances, it is clear that the Supplemental Agreement had the effect of varying the Co-operation Agreement, at least in respect of Clauses 5 and 6 of the Co-operation Agreement.”

“77.  As discussed above, by way of the Supplemental Agreement, the Plaintiff was entitled to an early part-repayment of the Capital Contribution in the sum of RMB 50 million by the end of October 2008 and also interest which would be payable if Yusheng was not sold at a certain price by 15 July 2009.  Obviously, these benefits, which the Plaintiff was not entitled to under Clause 6 of the Co-operation Agreement, provided her with the incentives to enter into the Supplemental Agreement.  Further, as mentioned above, the Supplemental Agreement addressed the risks and uncertainties which were inherent in Clause 6 of the Co-operation Agreement. In the absence of the Supplemental Agreement, the Plaintiff would be put in a deadlock if she simply insisted upon exercising her rights under Clause 6 (when Yusheng remained unsold) without trying to find alternative solutions.  The meaning of “a better return” should therefore be assessed with reference to the commercial realities regarding the parties’ positions under both the Co-operation Agreement and the Supplemental Agreement.”

25.  In the court below, the defendant also relied on variation of Clause 6 of the CA by subsequent conduct in that since the signing of the SA, the parties had by conduct and further agreements converted the original investment of the plaintiff in the CA into a loan with interest and the accounts between them have been settled^[34]. Having held that Clause 6 of the CA has been varied and superseded by the SA, the judge did not deal with this aspect of the defendant’s case.  A respondent’s notice was served to contend that the Judgment should be affirmed on these additional or alternative grounds that:

(1)  Clause 6 of the CA did not provide the plaintiff with any entitlement to interest whereas the plaintiff has been paid interest.

(2)  In considering whether the original investment has been varied or superseded and converted into a loan and fully repaid, the judge should take into account: (i) the plaintiff’s claim under Clause 6 of the CA is fundamentally flawed in that she could not be entitled to both the repayment of contribution with interest and profit, save for the express provision in relation to the earlier part payment of RMB 50 million in Clause 3 of the SA; (ii) the two Loan Agreements; and (iii) the settling of accounts as contained in or evidenced by the two Ledger Confirmations and the Confirmation Letter.

26.  Ms Eu submitted that irrespective of the CA and the SA, these agreements have been overtaken by the later dealings between the parties.  After the signing of the SA and when Yusheng was not sold, between February 2009 and December 2009, the plaintiff sought repayment of various sums from time to time and her requests or demands were complied with by the defendant.  Of the total sum of RMB 127,234,451 paid to the plaintiff during this period, it was agreed between the parties that RMB 110 million was for partial return of the Capital Contribution and RMB 17,234,451 constituted interest.  Subsequent to December 2009, the parties entered into the 1^st Loan Agreement and the 2^nd Loan Agreement, in which they made provision for the repayment of the loan (being the outstanding balance of the Capital Contribution at different times) with new repayment dates and new rates of interest.  By the subsequent conduct and further agreements of the parties, the original investment of the plaintiff had been converted into a loan with interest.  And there can be no doubt that at least by 5 March 2012 (the date of the 2012 Ledger Confirmation and the Confirmation Letter), the plaintiff was aware of the sale of all the shares of Yusheng^[35].  Any claim of beneficial interest or shareholding or entitlement to profit or further return is wholly inconsistent with the very clear confirmations signed by the parties that all the claims and debts between them have been settled.

Discussion

(a) Variation by the SA

27.  The parties have referred us to well-known authorities on the established principles in contractual interpretation^[36]. I do not propose to recite the well-established principles in the authorities mentioned. 

28.  It does not matter whether I start with the factual background and the implications of the rival contentions or a close examination of the language of the relevant contractual provisions, so long as I balance the indications given by each and check each suggested interpretation against the provisions of the contract and its commercial consequences are investigated.  “[Where] there are rival meanings, the court can give weight to the implications of rival constructions by reaching a view as to which construction is more consistent with business common sense.  But, in striking a balance between the indications given by the language and the implications of the competing constructions the court must consider the quality of drafting of the clause; and it must also be alive to the possibility that one side may have agreed to something which with hindsight did not serve his interest … Similarly, the court must not lose sight of the possibility that a provision may be a negotiated compromise or that the negotiators were not able to agree more precise terms.” (Wood v Capita Insurance Services Ltd at §11, per Lord Hodge JSC)

29.  I begin with Clauses 5 and 6 of the CA.  They are alternative rights conferred on the plaintiff in the event that Yusheng could not be sold in the 6-Month Period.  Being alternative rights, the plaintiff must choose between exercising the rights under one provision or the other.  I can find no basis in the words used permitting the plaintiff to wait (that can only be under Clause 6), and, after having waited, opting to serve a notice under Clause 5 instead.  Where no notice under Clause 5 has been served on the expiry of the 6-Month Period, it must be taken that the right thereunder has been foregone; thereafter the plaintiff is only entitled to exercise her right under Clause 6 by waiting indefinitely for the eventual sale of Yusheng.

30.  I do not accept the plaintiff’s contention that as the mere financier, she would not need to wait until the sale of the Building or Yusheng to get back the Capital Contribution.  That would only be the case where she is entitled to invoke Clause 5 of the CA and has exercised her right under this provision.  Where the right under Clause 5 has been foregone or was envisaged to be foregone, as at the time when the SA was entered into, the plaintiff would need to wait until the sale of Yusheng to get back the Capital Contribution.

31.  I turn to the facts and circumstances known or assumed by the parties at the time the SA was made.

32.  The SA was drawn up in an informal manner.  The author of this hand-written document was involved earlier in drawing up the CA and would seem to be familiar with the background.  The infelicities in the drafting of the SA and the implicit inferences required to be drawn (as mentioned earlier under the heading of the defendant’s contentions) may be due to the informal manner it was drawn up, the fact that it was done in haste according to the evidence of both parties, and the familiarity of the author with the CA and the background.

33.  Under the CA, it was expressly stated in the preamble that Yusheng was to be sold within a short period and provision was made that the Capital Contribution would be returned irrespective of the sale price. To give greater incentive to the defendant to achieve a sale within the 6-Month Period, the plaintiff would only be entitled to the 50% Profit (if any) with the Capital Contribution in this situation.  In early October 2008, the sale envisaged did not materialise when the listed company that had expressed interest decided not to proceed.  This was against the background of poor investment atmosphere due to the global financial tsunami at the time.

34.  The plaintiff contended that the practical purpose of the SA was merely to give an extension of time to the defendant to sell Yusheng, and that the early repayment in part of the Capital Contribution of RMB 50 million and the interest guaranteed – being new features that did not exist in the CA – only constituted the consideration for the extension of time granted to the defendant.  So when the extended period expired on 15 July 2009, the purpose of the SA would be spent and the parties would be restored to all their rights and obligations in the CA.

35.  I do not agree with this interpretation.  The object of the SA is far more than just giving an extension of time for the defendant to sell Yusheng.  It is clear that the plaintiff had chosen not to exercise her right under Clause 5 of the CA when the 6-Month Period was about to come to an end on 17 October 2008.  As the judge had reasoned, had she insisted on exercising her Clause 5 right, it would not have been necessary to enter into the SA.  The effect of not serving a notice under Clause 5 is that the right thereunder would be foregone and the plaintiff was left with the right under Clause 6 of the CA before the parties reached a compromise on 8 October 2008.  At the time the SA was drafted and signed on that day, it was unclear when Yusheng would be sold.  As the judge had observed, the defendant only agreed in Clause 2 of the SA that “by 15 July 2009, [he] will continue to endeavour to sell the said 100% shares [of JDF] for the best price obtainable”.

36.  The inherent risks and uncertainties in Clause 6 of the CA were real at the time the SA was made.  The plaintiff’s right to the return of the Capital Contribution would not arise under this provision unless and until Yusheng was sold.  No time limit was provided within which the defendant must sell.  Quite apart from the difficulty of finding another purchaser in the poor investment atmosphere, if the defendant should insist on not selling until he obtained the right price, there could easily be a deadlock. It made commercial sense for both parties to address the inherent risks and uncertainties in Clause 6 by agreeing on a cut-off date. Hence, if there was no sale by 15 July 2009, the plaintiff would be entitled to the return of the Capital Contribution plus the interest guaranteed.  That is the effect of Clause 4 of the SA which provides: “Party A [i.e. the defendant] also guarantees that on or before 15 July 2009, Party A will ensure that Party B [i.e. the plaintiff] will be able to have the entire capital contribution she has made repaid to her together with interest thereon from the date of payment to the date of repayment …”.  It follows from the agreement of there being a cut-off date that the rights and obligations under the CA have been varied and superseded. 

37.  The promise held out to the plaintiff of getting “a better return” in entering into the SA should be viewed in this context.  It was “a better return” in that it brought about a degree of certainty and some guarantee when the Capital Contribution could be recovered, with an appropriate rate of interest even if no sale should come about at the end of the nine-month extension, as opposed to the situation where the plaintiff would have to wait indeterminately for a sale to materialise before she could see the return of her investment, not to mention the loss of interest on this very substantial sum over an indefinite period.

38.  With hindsight, it may appear to the plaintiff that the maximum amount of interest she would obtain during the extended period of nine months (RMB 11,860,625) pales in comparison to the Guaranteed Return of RMB 65 million that she could possibly obtain under Clause 6 of the CA if such right were preserved.  But there must be a basis in the words used and the factual matrix for identifying the rival meaning advanced by the plaintiff.  In my view, such basis is lacking in this instance.  As stated by Lord Hodge JSC in Arnold v Britton at §77: “The role of the construct, the reasonable person, is to ascertain objectively, and with the benefit of the relevant background knowledge, the meaning of the words which the parties used.” And Lord Neuberger of Abbotsbury PSC said in Arnold v Britton at §19: “… commercial common sense is not to be invoked retrospectively … Commercial common sense is only relevant to the extent of how matters would or could have been perceived by the parties, or by reasonable people in the position of the parties, as at the date that the contract was made.”

39.  I agree also with the judge that Clause 14 of the CA (that the CA and SA shall have the same legal effect) does not assist the plaintiff, as it does not mean the CA cannot be varied by the SA.  Nor do I think the fact that no provision was made in the SA regarding the re-purchase of the plaintiff’s 50% shares in JDF so she can continue to hold her 50% shares must entail that she would be entitled to share in the profits of JDF if and when JDF disposed of its shares in Yusheng on a date after the extended period. The shareholders of a company do not own the assets held by the company.

40.  For the above reasons, I agree with the judge the correct interpretation of the SA is that it has varied and superseded Clause 6 of the CA.

(b) Variation by subsequent conduct

41.  The defendant regarded this as a more straightforward route and has advanced this as his primary contention even in the letters before action, and before the judge as well as on appeal.

42.  Subsequent conduct is admissible evidence to establish variation of a contract, as distinguished from the position where such evidence is prayed in aid in construing a contract.  (James Miller & Partners Ltd v Whitworth Street Estates (Manchester) Ltd [1970] AC 583 at 603E and 615A)

43.  In his submissions in reply, Mr Pun again took a pleading point that there is no pleading in the defence that the plaintiff’s entitlement under Clause 6 of the CA was varied by any agreement between the parties after the SA was entered into, let alone any consideration in support of such alleged variation.  The facts relating to the subsequent conduct have been pleaded in the defence.  Similar contentions have been raised before the judge and were adequately addressed in the Judgment at §§54 to 56.  As noted in §78 of the Judgment, it was not disputed by the plaintiff that the SA was supported by consideration.  It is not apparent that the plaintiff has raised in the court below that the variation by subsequent conduct was not supported by consideration.  There is no substance in the pleading objections of the plaintiff.

44.  Mr Pun contended that the 2012 Ledger Confirmation and the Confirmation Letter both dated 5 March 2012 only concerned the repayment of the Capital Contribution and were not intended to affect the plaintiff’s entitlement under Clause 6 of the CA.  In short, he repeated the arguments advanced by the plaintiff’s solicitors in the letters before action that the entitlement under Clause 6 is separate and distinct from the repayment of the Capital Contribution and there was no conversion of the Capital Contribution into a loan by the subsequent dealings between the parties after the signing of the SA in that the plaintiff had from the start regarded the Capital Contribution as her capital contribution by way of shareholder loan.

45.  I reject these contentions as well.  The conduct and subsequent agreements of the parties are clear and can admit of no such interpretation on an objective view.  By their conduct, the parties had converted the plaintiff’s original investment into a loan.  New repayment periods were agreed with new rates of interest in the two Loan Agreements.  They signed two Ledger Confirmations clearly stating that they have settled the accounts between them.  Whether the plaintiff had all along regarded the Capital Contribution as her capital contribution by way of shareholder loan is wholly immaterial, as there is no provision in the CA or SA to that effect and no contemporaneous evidence that was the common intention of the parties.

46.  On this basis as well, I find in favour of the defendant that the plaintiff is not entitled to exercise her rights under Clause 6 of the CA as this provision has been varied and superseded by subsequent conduct and agreement.

47.  It is not necessary to deal with other points raised by Mr Pun on the judge’s comments of the credibility of the witnesses and his complaint of the judge’s delay in handing down the Judgment (which is of no substance as the cogency of the reasons set out in the Judgment regarding the proper interpretation of the contractual provisions can hardly be affected by any delay).

Conclusion and costs

48.  For the above reasons, I would dismiss the plaintiff’s appeal with costs.  There being no dispute that costs should follow the event, there will be an order that the plaintiff is to pay the defendant’s costs of this appeal, with a certificate for two counsel.

Hon Yuen JA:

49.  I agree.

Hon Chow JA:

50.  I agree.