BEAUTY SEA INTERNATIONAL LTD AND ANOTHER v. SEAZEN RESOURCES INVESTMENT LTD

HCA 988/2022

[2023] HKCFI 1813

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 988 OF 2022

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________________________

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DECISION

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1.  This action concerns a sale of shares in a listed company by the Defendant (“Seazen”) to the 1^st Plaintiff (“Beauty Sea”) and the guarantee given by the 2^nd Plaintiff (“Sharp Bright”) to Seazen in respect of the liabilities of Beauty Sea.

2.  Before me for determination is the summons of Seazen taken out on 7 February 2023 (“the Summons”) seeking:

a.  An order to strike out the Writ of Summons and the Statement of Claim on the ground that they disclose no reasonable cause of action, and consequentially an order to dismiss the Plaintiffs’ action;

b.  Summary judgment on the Seazen’s Counterclaim for

i.  An order for specific performance of the Main Agreement, the SPA and the Guarantee (all defined below), pursuant to Order 86, in terms of the minutes annexed to the summons; alternatively, damages to be assessed;

ii.  Pursuant to Order 14, judgment against Beauty Sea and Sharp Bright for the following 5 sums, namely,

1.  HK$11,810.29 being the Late Payment Interest (defined below) on HK$307,911.01 (the 1^st Fixed Payment (defined below) of HK$649,971.01 less dividends of HK$342,060) at 20% per annum accruing from 28 December 2021 to 7 March 2022 (the day after the date of default until actual payment made);

2.  HK$649,971.01 being the 2^nd Fixed Income Payment (defined below);

3.  HK$80,133.41 being the Late Payment Interest on HK$649,971.01 (the 2^nd Fixed Payment) at 20% per annum accruing from 28 June 2022 to 7 February 2023;

4.  HK$137,311.32 being the Late Payment Interest on HK$1,128,798 (the closing price of the Target Shares (defined below) on 30 June 2022) at 20% per annum accruing from 1 July 2022 to 7 February 2023; and

5.  HK$1,040,187.28 being the Late Payment Interest on HK$8,870,756.00 (the balance of the price of Target Shares) at 20% per annum accruing from 8 July 2022 to 7 February 2023;

iii.  Interest on all the above sums at the contractual rate of 20% from 8 February 2023 until their full payment;

c.  As a fallback in case summary judgment for specific performance is not granted and pursuant to Order 29, an order for interim payment of the damages in the sum of HK$8,870,756.00 as damages likely to be awarded; and

d.  An order that the Seazen’s costs of this action be paid by Beauty Sea and Sharp Bright to be taxed on indemnity basis.

3.  At the beginning of the hearing, this court enquired with Mr Yu, counsel for Seazen, that as Seazen was applying for judgment to be entered, Seazen would need to elect between the reliefs of specific performance and damages rather than pursuing them in the alternative. Mr Yu agreed and after seeking instructions formally elected on behalf of Seazen to pursue the remedy of damages. Having sought comments from Mr Fung, counsel for Beauty Sea and Sharp Bright, who indicated no objection, this application proceeded on the basis that Seazen was seeking summary judgment on liability for breach of contract with damages to be assessed and summary judgment on the said 5 sums.

Background and facts not in dispute

4.  The background facts can be stated as follows. They are not disputed save some specific aspects, which I will make clear.

5.  Pursuant to a placement agreement entered on 18 June 2021 between an associated company of Seazen (among others) and Skyfame Realty (Holdings) Ltd, a company listed in the Main Board of the SEHK with stock code 00059 (“the ListCo”), Seazen agreed to subscribe for 11,402,000 new shares in the ListCo (“the Target Shares”) at HK$0.877 per share (“the Subscription Price”) at the total Subscription Price of HK$9,999,554.

6.  On the same day, ie. 18 June 2021,

a.  Seazen, Beauty Sea and Sharp Bright signed a tri-party agreement in Chinese dated 18 June 2021 (“the Main Agreement”) by which, in a nutshell, Seazen undertook to sell and Beauty Sea undertook to purchase the Target Shares, and Sharp Bright undertook to provide irrevocable assurance and guarantee of Beauty Sea’s liabilities; and

b.  Seazen and Sharp Bright signed a written guarantee in Chinese dated 18 June 2021 (“the Guarantee”).

7.  The Main Agreement provided, among others :

a.  Under Clause 1, the completion of the sale of the Target Shares was subject to the condition precedent that Seazen would continue to hold the Target Shares for a year from 28 June 2021 until and including 27 June 2022 (“the Duration”), and would not without Beauty Sea’s written consent participate in the lending, transferring, short selling, pledging or re-pledging of the Target Shares or entering into other arrangement with similar effect (“the Non-Alienation and Encumbrance Condition”); and that if the Non-Alienation and Encumbrance Condition was not met, the Main Agreement would be automatically terminated.

b.  Under Clause 2(a), Beauty Sea irrevocably undertook that it would purchase the Target Shares from Seazen within 3 working days from the day the Duration was to end (“the Completion Date”);

c.  Under Clause 2(b), the total consideration of the Target Shares was to equal to the total Subscription Price. If the difference between the closing price of the ListCo shares on the Completion Date and the Subscription Price was to exceed 5%, Seazen and Beauty Sea was to take the closing price on the Completion Date as the total sale price for completion, and the difference was then to be calculated in accordance with Clause 2(g). If the difference was greater than what Seazen should receive, Seazen was to complete the calculation and payment of the difference to Beauty Sea within 5 working days. Conversely, Beauty Sea was to complete the calculation and payment of the difference to Seazen within 5 working days;

d.  Under Clause 2(d), during the Duration Beauty Sea was to pay Seazen a fixed income payment at an annual rate of return of 13% every 6 months (“the Fixed Income Payment”) and every semi-annual Fixed Income Payment was provided to be calculated thus : the total Subscription Price x 13% x ½ = HK$649,971.01, but credit would be given to any dividends distributed in the meantime by the ListCo in respect of the Target Shares;

e.  Under Clause 2(g), the difference was to be calculated according to this formula and both parties were to complete the calculation and payment within 5 working days from the Completion Date : Difference = Total Sale Price – Total Subscription Price;

f.  Under Clause 5(b), Sharp Bright was to irrevocably provide a joint and several liability guarantee for Beauty Sea’s obligations and liabilities of purchasing the Target Shares and payment of the Fixed Income Payment under the Main Agreement, the SPA and the Guarantee;

g.  Under Clause 6(b), Beauty Sea was to pay to Seazen liquidated damages at the annual interest rate of 20% for each day of overdue subscription and overdue payment of the Fixed Income Payment (“the Late Payment Interest”);

h.  Under Clause 8(f), if there was any conflict or inconsistencies between the Main Agreement and other transaction documents, the Main Agreement was to prevail to the extent permitted by law.

8.  Seazen and Beauty Sea also signed a sale and purchase agreement in Chinese dated 27 June 2022 (“the SPA”). Relevantly, by Clauses 1.3 and 1.4 of the SPA, the completion date was agreed to be 27 June 2022 and the price of each share of the Target Shares was agreed to be the closing price of the ListCo’s shares as on 27 June 2022.

9.  It is the case of Seazen that the SPA was also signed on 18 June 2021 but post-dated to 27 June 2022. The Plaintiffs dispute this but their case concerning why and when the SPA was signed is rather unclear, to which I will return in due course.

10.  According to Seazen and not disputed by the Plaintiffs, there were connections between the ListCo, Beauty Sea and Sharp Bright in that (a) Mr Yu Pan, who owned all the shares in Sharp Bright, was a majority shareholder of the ListCo - through companies wholly owned by him held 68.33% issued shares of the ListCo as on 28 June 2021[1] and 51.03% as on 29 May 2023 and (b) one Mr Mak Chi Fai was the authorized representative in Hong Kong of both Beauty Sea and Sharp Bright in 2022.

11.  On 28 June 2021, the share certificate of the Target Shares (“the Share Certificate”) was issued by the ListCo to Seazen.

12.  On 25 August 2021, the ListCo distributed dividends of HK$0.03 per share. The total dividends so distributed in respect of the Target Shares was HK$342,060.00.

13.  On 27 December 2021, Beauty Sea failed to pay the 1^st Fixed Income Payment on its due date.

14.  In around February 2022, Seazen enquired with one Tricor Abacus Limited, the ListCo’s Hong Kong share registrar, concerning obtaining a replacement of the Share Certificate. In her affirmation filed on behalf of Seazen, Wu Wing Fong (“Wu”) effectively said that Seazen at some point could not locate the Share Certificate but the same was later in or around late February 2022 located at Seazen’s registered office, and that therefore Seazen has never parted with possession of the Share Certificate. The Plaintiffs do not accept this. The relevance of this matter concerning the possession of the Share Certificate will become apparent in due course.

15.  The price of the ListCo’s shares started to drop significantly since about late February 2022.

16.  On 7 March 2022, Cosmos Tianyu Holdings Limited, a wholly owned subsidiary of Sharp Bright, paid to Seazen the sum of HK$649,971.01 as the 1^st Fixed Income Payment.

17.  Regarding the 1^st Fixed Income Payment,

a.  By §43 of its Defence to Counterclaim Seazen admitted §§45 and 46 of the Statement of Claim in that under Clause 2(d) of the Main Agreement, the said dividends of HK$342,060.00 should have been, but have not been, deducted from the 1^st Fixed Payment. Therefore, as rightly confirmed by Mr Yu at the hearing, the 1^st Fixed Income Payment so paid has been over-paid by the amount of the said dividends and credit thereof should be given to the Plaintiffs, as they claimed in their Statement of Claim.

b.  It is common ground that no Late Payment Interest for the period between 28 December 2021 to 7 March 2022 has been paid by the Plaintiffs in respect of this late payment of the 1^st Fixed Income Payment.

18.  On about 21 April 2022, the price of the ListCo’s shares plummeted to less than HK$0.1 per share and remained at about that level since.

19.  On 9 June 2022, Seazen issued an invoice to Beauty Sea for the payment of the price of HK$9,999,554.00, the 2^nd Fixed Income Payment of HK$649,971.01, transaction fees of HK$769.97 and stamp duty in the sum of HK$12,999.42 to be payable on or before 27 June 2022 pursuant to the agreements (“the 1^st Invoice”). The invoice also contained the detail information of Seazen’s bank account with the request that the total sum be deposited into that bank account.

20.  However, no payment was made by Beauty Sea, nor was there any communication whatsoever made by Beauty Sea in respond to the 1^st Invoice or in respect of the sale of the Target Shares.

21.  On 6 July 2022, Seazen issued another similar invoice for the same sums with the same descriptions and containing the same banking information to Beauty Sea, and this time also addressed to Sharp Bright, with a statement that these sums were due on 27 June 2022 and were overdue for 9 days (“the 2^nd Invoice”).

22.  On 25 July 2022, Seazen through its BVI lawyers issued a statutory demand to Sharp Bright, which is a BVI company, demanding payment under the Guarantee of the said price, the 2^nd Fixed Income Payment, interest and costs.

23.  On 5 August 2022, the Writ herein was issued by Beauty Sea and Sharp Bright seeking various declarations essentially to declare that the Main Agreement, the SPA and the Guarantee were discharged, terminated or unenforceable.

24.  On 8 August 2022, Sharp Bright filed an application in the BVI court to set aside the statutory demand (“the BVI Proceedings”). By a consent order dated 26 August 2022, the statutory demand was withdrawn and the BVI Proceedings were discontinued with no order as to costs.

25.  On 29 November 2022, the Statement of Claim herein was filed. On 26 January 2023, Seazen filed its Defence and Counterclaim. No Defence to Counterclaim has yet been filed by Beauty Sea and Sharp Bright.

The Plaintiffs’ claim, the Counterclaim, the defence or issues to be tried raised by the Plaintiffs

26.  As the Plaintiffs have not clearly pleaded the relationship between the Main Agreement and the SPA in the Statement of Claim, a number of declarations were prayed for there. I would para-phrase and re-group them out as follows :

a.  A declaration that the Main Agreement and the Guarantee have been discharged and/or terminated by February 2022;

b.  A declaration that The Main Agreement and the Guarantee were/are unenforceable as against Sharp Bright for want of consideration;

c.  A declaration that Beauty Sea was/is not liable for specific performance or damages under the Main Agreement and the SPA, and Sharp Bright was/is not liable for the same under the Guarantee; and

d.  A declaration that the Late Payment Interest provisions in the Main Agreement were/are unenforceable as penalty.

27.  The Counterclaim, on the other hand, sought to enforce the Main Agreement, the SPA and the Guarantee.

28.  As the Plaintiffs have not filed their Defence to Counterclaim, the matters raised in defence to the Counterclaim are gauged from what was pleaded in the Statement of Claim and from the affirmation of Zhu Yunxia (“Zhu”) filed on behalf of the Plaintiffs on 14 April 2023.

29.  At the hearing, Mr Fung confirmed that the Plaintiffs contended that the following matters were bona fide defence or triable issues to contest the Counterclaim, namely:

a.  the existence of the “Certificate Possession Condition” in the Main Agreement and its breach by Seazen which therefore terminated or discharged the Main Agreement and the Guarantee by February 2022 (“the Certificate Possession Issue”);

b.  whether the SPA was executed/signed on the same occasion together with the Main Agreement and the Guarantee, or signed on 27 June 2022; and whether the Main Agreement was contradicted or superseded by the SPA and/or the price and completion date provided in the Main Agreement conflicted with those provided in the SPA ? (“the Contradictory Agreements Issue”)

c.  Seazen’s failure or inability to complete the sale of the Target Shares, and therefore it was Seazen’s breach of the Main Agreement and/or the SPA rather than the Plaintiffs’ (“The Completion Issue”); and

d.  the Late Payment Interest provisions in the Main Agreement were unenforceable as penalties (“the Penalty Issue”).

30.  For completeness, I record that at the hearing, Mr Fung expressly stated that the Plaintiffs would not argue as triable issues that (a) the Main Agreement and the Guarantee were unenforceable for want of consideration, and (b) the Guarantee was discharged as Beauty Sea’s obligations under the Main Agreement have been materially varied by the SPA.

The applicable principles

31.  The principles applicable to an O.14 application are trite and not disputed:

“(a) The burden is on the defendant to show a bona fide defence or some other reason for a trial. This is normally done by affidavit and it is incumbent upon the defendant to “condescend upon particulars” in such affidavit;

(b) The mere assertion in an affidavit of a given situation by the defendant does not, ipso facto, ground leave to defend;

(c) Order 14 is only for clear cases, and ought not to be applied in cases where there are serious material factual disputes, or a difficult point of law not fit for summary determination, unless it is obvious that the defence put forward is “frivolous and practically moonshine”; and

(d) The Court should not embark on a mini trial on affidavits. Where there are factual disputes, the issue is not whether the defendant’s assertions are to be believed; it is whether those assertions are believable.”

(per Au-Yeung J at §16 in Venetian Cotai Limited v Bright & Bright Limited [2021] HKCFI 390)

The Certificate Possession Issue

32.  The Plaintiffs contend that there exists in the Main Agreement “the Certificate Possession Condition” in the following terms:

“At all material times throughout the Lock-up Period [the Duration], Seazen Resources Investment was obliged :

(1) To be in constant possession of the Target Shares Certificate; and

(2) To Maintain constant ability and readiness to demonstrate possession of the Target Shares Certificate.”[2]

33.  It is common ground that there was no such express provision in the Main Agreement.

34.  The Plaintiffs contend that the Certificate Possession Condition existed upon the “true and proper construction” of Clause 1 and Clause 4(g) together and against “the factual matrix” that there is a “customary arrangement” for pledging share certificates as security.

35.  Clause 1 and Clause 4(g) read :

“第一條、先決條件

本協議下第2條預期進行的標的股份出讓的交割須以滿足此先決條件 : 甲方自2021年6月28日起，一年內 (以下簡稱 “持續期”)，持續持有標的股份。除非經乙方以書面同意，甲方不得參與標的股份 (包含因標的股份所派發的非現金分派) 的借券、轉讓、賣空、質押、再質押或達成任何其他具有類似效力的安排。如果先決條件未能滿足，本協議則自動終止。”

第四條、甲方陳述及保證

(g) 甲方確認及同意 : 未經乙方書面同意，不參與對標的股份的借券、轉讓、賣空、質押、再質押或達成任何其他具有類似效力的安排，並在乙方的通知下，甲方須向乙方展示其所持標的股份，否則本協議內乙方的陳述及保證將不再有效。”

36.  I take the clear view that the Plaintiffs’ contention that this “Certificate Possession Condition” could come into existence as a new condition by “construing together” Clause 1 and Clause 4(g) is utterly unarguable and not triable:

a.  Interpretation of a written contract by the nature of the exercise is to ascertain the meaning of the actual words used by the parties, giving effect to what a reasonable person would have understood the parties to mean, and in so doing, and where appropriate, giving regard to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve. Therefore, unless very well justified, it is very rare, if at all permissible, to add words to the written contract by way of interpretation.

b.  There are simply no words in Clause 1 or Clause 4(g) or in any provision in the Main Agreement that can remotely carry the meaning that Seazen was obligated to be in constant possession of the Share Certificate.

c.  The Share Certificate was not even mentioned anywhere in the Main Agreement (or the SPA and the Guarantee). Had the possession of the Share Certificate, as opposed to Seazen’s non-alienation with all the rights embodied in the Target Shares within the Duration, been any part (not to say an important part) of the parties’ bargain, parties would have mentioned it somewhere. After all, pledging by the deposit of share certificates, according to the Plaintiffs’ pleading, must have been a means of obtaining security that the parties well knew about.

d.  In this regard, it is undisputed that the Share Certificate is merely a piece of evidence of the entitlement to the Target Shares in that the Bye-Laws of ListCo clearly provides that a “member” is “a duly registered holder from time to time of the shares in the capital of the Company”[3] and the Company recognizes no other interest in its shares outside of those of the registered holder’s[4].

e.  Read individually, the meaning of Clause 1 is very clear – it clearly prohibited the creation of any alienation of the any rights of/in the Target Shares or the creation of any encumbrance that burdens the Target Shares in favour of a third party.

f.  Read individually, the meaning of Clause 4(g) is equally clear – it provides for the same prohibition of alienation and encumbrance as in Clause 1 but provided therein the consequence of breach, which is rendering Beauty Sea’s warranties and representations in the Main Agreement no longer valid, and then giving Beauty Sea a means of monitoring it by, upon giving notice to Seazen, requiring Seazen to “show” that it still “holds” the Target Shares and have not alienated or encumbered against it. There was no specific requirement that Seazen was to produce the Share Certificate for inspection. Indeed, in view of the said Bye-laws, nothing short of showing that Seazen is still registered as the holder of the Target Shares could satisfied the required showing.

g.  It is therefore more than clear that the Plaintiffs are now, under the excuse of “construction” and so-called reading two terms (each of which having its own clear meaning) together to form a new term, trying to re-write the Main Agreement by adding not just a word, not just a phrase or sentence, but an entire term, and a term said to be a “condition” the breach of which carries the most severe consequence of completely terminating or discharging the Main Agreement.

37.  The contention that the “Certificate Possession Condition” is an implied term is equally hopeless. Save a mere assertion in one paragraph in the affirmation of Zhu[5] , there was no evidence proffered by the Plaintiffs as to the factual basis in support of implying such a term as being obvious or necessary or for giving business efficacy. There was no submission made by the Plaintiffs, whether in its written submissions or orally at the hearing as to how that could be implied as a matter of law. I find there is no triable issue that the alleged condition would be implied.

38.  Further still, Seazen has produced a letter dated 24 May 2023 by KPMG[6], its auditor, in which KPMG in no unclear terms confirmed that the audit team has on or around 15 February 2022 check the physical Share Certificate at Seazen’s office. And it is common ground that the Plaintiffs’ solicitors have inspected the Share Certificate in mid April 2023. All these clearly show that Seazen has had the possession of the Share Certificate, but only misplaced it sometime in early February 2022.

39.  At the hearing, Mr Fung also tried to contend that a loss of the possession of the Target Shares fall within “其他具有類似效力的安排” within Clause 1. I do not accept such contention as arguable. That phrase clearly stipulates that the unspecified arrangement has to have the same or similar effect (類似效力). A mere loss or non-possession of the Share Certificate would not have created any alienation of rights in the Target Shares or any encumbrance in favour of a third party.

40.  In all, this alleged defence is not a bona fide defence and is completely unarguable.

The Contradictory Agreements Issue

41.  This alleged issue clearly does not raise any bona fide defence or triable issue, for the following reasons.

42.  Firstly, it was Sharp Bright’s own case and evidence in the BVI Proceedings that the SPA was in fact signed on or about 18 June 2021 but was post-dated to 27 June 2022:

“2. Seazen Resources Limited (the “Vendor”) alleges that Sharp Bright International Limited (the “Guarantor”) is liable to it pursuant to a guarantee agreement between the Vendor and the Guarantor dated 18 June 2021 (the “Guarantee”), by which the Guarantor agreed to guarantee certain obligations of Beauty Sea International Limited (the “Purchaser”) pursuant to an agreement between the Vendor, the Purchaser and the Guarantor dated 18 June 2021 (“the “Main Agreement”) and a sale and purchase agreement between the Vendor and the Purchaser signed on or about 18 June 2021 but dated 27 June 2022 (the “SPA”). The subject matter of these agreements was the sale and purchase of 11,402,000 shares in Skyfame Realty (Holdings) Limited (HKEX Stock Code 00059) (the “Shares”).” (my emphasis)

(§2 of Sharp Bright’s Originating Application in the BVI Proceedings filed on 8 August 2022)[7]

…

“B. Facts on which the set-aside grounds are based

10. The disputes arise from the terms of three agreements …. The Main Agreement and the Guarantee are dated 18 June 2021 and were signed on or about that date. The SPA was signed at the same time, but postdated 27 June 2022. They were not executed as deeds.” (my emphasis)

(§10 of the Affidavit of Yu Feng filed on 8 August 2022 on behalf of Sharp Bright in the BVI Proceedings[8])

Sharp Bright’s such evidence given in the BVI Proceedings agreed with what Wu deposed to in §12 of her affirmation.

43.  Secondly, and importantly, Sharp Bright in the BVI Proceedings explained the structure of the agreements and why the SPA was signed post-dated, and I quote the part relevant:

“11. The basic structure of the agreements was as follows :

…

d. The consideration payable by Beauty Sea to Seazen was addressed in Clause 1 of the SPA and Articles 2(b) and (g) of the Main Agreement. Under the SPA, the purchase price for the Shares would be the listed closing price on 27 June 2022. However, the Main Agreement provided that, if that price differed from the subscription price that Seazen had paid on 18 June 2021 by more than 5%, then the total consideration payable by Beauty Sea would be Seazen’s subscription price. That way, it would appear to outsiders that Beauty Sea was buying the Shares at market price on 27 June 2022, when in fact it had agreed a year earlier to buy them at the market price on 18 June 2021;” (my emphasis)

(same Affidavit of Yu Feng[9])

44.  Thirdly, the Guarantee itself mentioned and made reference to the SPA extensively in the pre-emble (“… 及2022年6月27日之買賣合同（以下稱「買賣合同」）”), Clause 1, Clause 4(4), Clause 5(2), Clause 6(1), Clause 7(3); and Clause 7(4). Had the SPA been signed a year later on 27 June 2022, it could not have been possible for it to be so extensively mentioned and referred to in the Guarantee. Moreover, the SPA was also mentioned in Clause 5(b) of the Main Agreement.

45.  Fourthly, to oppose Seazen’s application for summary judgment, Beauty Sea and Sharp Bright are required to depose to the factual matters in support of their defence by condescending into particulars. Of note is that Zhu was the person signing the Main Agreement and the SPA on behalf of Beauty Sea[10]. Yet, what she deposed to in this regard was only:

“30. In addition to the 2021 SPA, at the request of Seazen, Beauty Sea entered into another agreement with it in writing dated 27 June 2022 again for sale and purchase of the very same Target Shares (“2022 SPA”) but with different essential terms in particular as respect the consideration and completion date. … “[11]

46.  It is worthy to note that:

a.  This affirmation was filed on behalf of both Plaintiffs, ie. also on behalf of Sharp Bright. Yet, there was no explanation as to why what was said here was so different from what Sharp Bright said in the BVI Proceedings.

b.  Zhu did not even say directly and clearly when the SPA was signed, or that it was indeed signed subsequent to the Main Agreement, and merely referred to the fact that it was so dated.

c.  There was no explanation proffered by Zhu that if the SPA was signed on 27 June 2022, how was it that the SPA was extensively referred to in the Guarantee, which as was common ground, was signed on 18 June 2021.

d.  Importantly, if Seazen signed the SPA on 27 June 2022 for the sale of the Target Shares at the closing market price on 27 June 2022 to supersede the Main Agreement, it would mean that Seazen knowingly and intentionally took a huge loss of some HK$8 million, being the difference between the total Subscription Price and this new price, which loss under the Main Agreement was Beauty Sea’s and Sharp Bright’s to bear. It totally defied any commercial sense and was most highly improbable that Seazen would agree to do so, not to mention would “request” to do so as Zhu deposed.

e.  Such being the clear financial disadvantage for Seazen and advantage to Beauty Sea and Sharp Bright. One would expect there were some negotiations between the parties, or there existed some special circumstances or reasons. One would also expect the Plaintiffs would be keen to and able to recount the details to support the position that the SPA was signed to supersede the Main Agreement. Yet, Zhu said nothing about (if indeed the SPA was signed on 27 June 2022) the circumstances, reasons for, and the negotiations leading to the signing another agreement with “different essential terms”.

f.  Rather, Zhu deposed to the matter in but one sentence, as above quoted.

g.  In my view, clearly Zhu not only had not condescended into particulars, but had been much less than forthright in deposing to the true facts.

47.  Fifthly, it has not been explained why, if Beauty Sea regarded the Main Agreement as having been terminated by the breach of the “Certificate Possession Condition” in February 2022, it nevertheless still signed the SPA with Seazen on 27 June 2022 (if its case that it was signed then were true).

48.  Sixthly, looking at the 3 agreements and considering the above, it is clear beyond argument that (a) the total consideration to be paid by Beauty Sea was the total Subscription Price as deposed to by Yu Feng in the BVI Proceedings, and (b) the difference between the total Subscription Price and the closing price as on 27 June 2022 was to be paid by Beauty Sea according to Clause 2 (g) of the Main Agreement.

49.  Lastly and with respect, I do not accept Mr Fung’s submission that the doctrine of contractual estoppel in respect of the date clause in the SPA was engaged, leading to a triable issue. There was not even a shred of evidence from Beauty Sea or Sharp Bright as to what they have agreed in respect of the post-dating of the SPA except what Sharp Bright said in the BVI Proceedings, as mentioned above, which indeed supported the stance that the consideration payable by Beauty Sea for the Target Shares was the total Subscription Price.

The Completion Issue

50.  Beauty Sea and Sharp Bright have been changing their points as to how they said Seazen was not ready willing and able to complete the sale of the Target Shares. I find none of them is of merits.

51.  The Plaintiffs suggested that Seazen did not take steps to complete because it could not as it had lost the Share Certificate. I have mentioned in §38 above that it is shown that Seazen had possession of the Share Certificate.

52.  It was then said at the hearing that Seazen did not take steps to complete by tendering the executed instrument of transfer. When asked, Mr Fung was unable to point to any contractual clause or provision that required Seazen to execute the instrument and then “tendered” it to Beauty Sea before payment. The position that the instrument of transfer should have been tendered first before payment was never expressly asserted or even mentioned by Beauty Sea, whether in the Statement of Claim or in the affirmation of Zhu. On the contrary, by the 1^st Invoice and then the 2^nd Invoice, Seazen has asked for payment to be made, and to which no response whatsoever was made by Beauty Sea.

53.  It was then submitted by Mr Fung to the effect that under Clause 2 in the SPA, the parties were contractually bound to come to an agreement on the mode of completion before the actual completion could take place. Mr Fung even submitted that by Clause 2 parties were bound to meet and discuss before completion which he complained Seazen failed to do. Clause 2 in the SPA read:

“第二條， 雙方交易訊息

2.1 甲方交易信息: 屆時以指定帳戶為準 (必須于支付前三個工作日通知乙方)

2.2 乙方交易信息: 屆時以指定帳戶為準 (必須于支付前三個工作日通知甲方)

如上述信息變更、變更方應在變更後三個工作日內向相對方送達書面更改通知，否則一方仍按原有送達方式送達的，視為有效送達。書面送達日為郵寄日後第三個工作日。”

54.  The clause merely placed an obligation on the respective parties to communicate the required information for the transaction at least 3 working days prior to the completion and that any change on such information would need to be communicated in writing in time, failing which any delivery according to the existing information would be regarded as good delivery. In my view, it is not arguable that the clause could be construed to impose those obligations that the Plaintiffs are now asserting.

55.  Mr Fung then submitted that Seazen need to provide to Beauty Sea the name of its broker, based on what Zhu said in §73 of her affirmation, that “for completing through brokage via HKEX’s Platform, … to name their respective brokerages”. I have no hesitation in accepting what Wu deposed: that this is clearly an off-the-market transaction rather than one conducted on the SEHK’s platform. In fact, Zhu herself said in §71 of her affirmation that “for completing off-market, decision would have to made as regards how payment settlement was to be effected, that is whether by cheque, cashier order, or bank transfer”. What Zhu said concerning the need to have the name of Seazen’s broker was therefore clearly neither here nor there. Rather and as said, Clause 2 in the SPA did not impose any obligation for parties to come to any further agreement as to “payment settlement”.

56.  In my view, Seazen clearly was able willing and ready to complete and has performed its part of the obligation under Clause 2 in the SPA by issuing the 1^st Invoice and then the 2^nd Invoice containing the banking information and a request for money to be transferred into the named bank account.

57.  In all, I find no bona fide defence or triable issue over the Completion Issue.

The Penalty Issue

58.  This issue was pleaded in §§20 to 23 of the Statement of Claim. There, the Plaintiffs averred in gist that the Late Payment Interest was interest payable by Beauty Sea additional to what Seazen would be compensated under the law and therefore it was a penalty.

59.  However, nothing was said in support of this issue in the Plaintiffs’ written submissions.

60.  In this regard, I accept the submission of Mr Yu, and it was not disputed, that the relevant principles were summarized by Chu JA in Law Ting Pong Secondary School v Chen Wai Wah [2021] 3 HKLRD 185, at §§69 -70:

“69. The law in relation to penalties was reviewed by the UK Supreme Court in the conjoined appeal of Cavendish Square Holdings v Makdessi and ParkingEye Ltd v Beavis, supra, in which it undertook a comprehensive review of the authorities on liquidated damages and penalties. It considered that while the traditional test (see §66 above) was a useful tool in a simple case, it was not easily applied to more complex cases (at §22). The true test was held to be whether the clause is out of all proportion to the innocent party’s legitimate interest in enforcing the contract. It further recognized that an innocent party could have a legitimate interest in the performance of the contract or some appropriate alternative to performance that goes beyond compensation. It was said by Lord Neuberger and Lord Sumption (with whom Lord Carnwath and Lord Clarke agreed) that (at §32)[22]:

“The true test is whether the impugned provision is a secondary obligation that imposes a detriment on the contract-breaker out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation. The innocent party can have no proper interest in simply punishing the defaulter. His interest is in performance or in some appropriate alternative to performance. In the case of a straightforward damages clause, that interest will rarely extend beyond compensation for the breach, and we therefore expect Lord Dunedin’s four tests would usually be perfectly adequate to determine its validity. But compensation is not necessarily the only legitimate interest that the innocent party may have in the performance of the defaulter’s primary obligations.”

70. In applying the test, the court should first identify the legitimate interest of the innocent party that is being protected by the clause, and then assess whether the clause is out of all proportion to the legitimate interest by considering the circumstances in which the contract was made. Notions of whether the clause has a deterrent purpose or whether it is a genuine pre-estimate of loss would be subsumed by the broader enquiry into the legitimacy of the interest that supports the provision.”

61.  Thus, the test is whether the Late Payment Interest was out of all proportion to Seazen’s legitimate interest in enforcing the Main Agreement.

62.  In my view and quite clearly, the Late Payment Interest was far from being out of all proportion to Seazen’s legitimate interest in enforcing the Main Agreement. Firstly, the parties agreed essentially that the compensation for Seazen locking its fund during the Duration was 13% (ie. the Fixed Income Payment). As Mr Yu submitted which I agree, a 7% increase from 13% to 20% was but a small raise for the purpose of protecting Seazen’s interest against breach by Beauty Sea. Secondly, as provided by Clause 6(a) of the Main Agreement, the same Late Payment Interest was agreed to be imposed against whichever party that failed to pay in time per the terms of the Main Agreement, whether the party in breach was Seazen, Beauty Sea or Sharp Bright. The equality in treatment showed that it was not out of all proportion but was a means agreed by, and applicable to, all parties to further their legitimate interest in ensuring that the payment obligations under the terms of the Main Agreement were performed by the paying party.

63.  In my view, there is no triable issue on the Penalty Issue.

No defence or triable issue against the Counterclaim; Striking out the Statement of Claim and dismissing the Plaintiff’s claim

64.  In the premises, I conclude that there is no defence to, or triable issue in respect of, the Counterclaim. Seazen is therefore entitled to summary judgment on the Counterclaim.

65.  As has become apparent by now, Seazen is applying for summary judgment on the Counterclaim to enforce the 3 agreements while the Plaintiffs are claiming by their claim to have the same 3 agreements declared as having been terminated, or discharged or are otherwise unenforceable. The matters raised by the Plaintiffs as defence or triable issues to the Counterclaim are essentially the same matters they raised in their claim.

66.  Therefore and at the beginning of the hearing, this court discussed with both counsel concerning the striking out in that if the court should hold that Seazen were successful in its present application for summary judgment on the Counterclaim, it would necessarily mean that the court took the view that the Plaintiff’s claim was obviously unarguable and unsustainable. Therefore, though strictly speaking such situation did not fall within the ground of no reasonable cause of action (under which the court is to assume as true the factual matters pleaded in the Statement of Claim), there was no purpose to be served in retaining the Plaintiffs’ unsustainable claim which should and could therefore be struck out and the Plaintiffs’ action dismissed under the court’s inherent jurisdiction. After consideration, both counsel agreed and this court allowed an amendment of the Summons for Seazen to apply for striking out based on the court’s inherent jurisdiction. The hearing then proceeded on that basis.

67.  That being the case and in view of my conclusion that Seazen is entitled to summary judgment on the Counterclaim, I will strike out the Statement of Claim and consequentially dismiss the Plaintiffs’ action.

Interim payment

68.  At the hearing, the Plaintiffs indicated that they would not (and indeed they could not) dispute that if summary judgment on the Counterclaim is granted with damages to be assessed, Seazen would be entitled to an interim payment. The Plaintiffs also did not dispute the amount sought (HK$8,870,756.00) as the amount likely to be awarded to Seazen upon the assessment of damages.

Disposal

69.  In the premises, I order:

(1)  Final judgment be entered in favour of the Defendant against the Plaintiffs, jointly and severally, in the sum of HK$399,854.71 (being HK$11,810.29 + HK$649,971.01 + HK$80,133.41 - HK$342,060) with interest thereon at 20% per annum from 8 February 2023 until full payment;

(2)  Judgment on liability be entered in favour of the Defendant against the Plaintiffs, jointly and severally, on the remainder of the Counterclaim, with damages (which, for the avoidance of doubt, shall include the Late Payment Interest as provided in the Main Agreement) to be assessed;

(3)  The Plaintiffs, jointly and severally, do pay the Defendant forthwith the sum of HK$8,870,756.00 by way of interim payment on account of damages the Plaintiffs may be found to be liable to pay the Defendant upon the assessment of damages;

(4)  The Plaintiffs’ Statement of Claim be struck out and their action against the Defendant be dismissed; and

(5)  On nisi basis, the Defendant’s costs of this action in respect of the Plaintiffs’ claim and the Counterclaim, including the costs of this application with certificate for counsel, be paid by the Plaintiffs to the Defendant to be taxed if not agreed.

70.  The above costs order nisi will become absolute within 14 days unless during that time any party applies by summons to vary.

71.  I thank both counsel for their assistance.