OCI CAPITAL LTD v. LANHAI INTERNATIONAL TRADING LTD AND ANOTHER

HCA 1499/2019

[2023] HKCFI 2892

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1499 OF 2019

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J U D G M E N T

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A. INTRODUCTION

1.  The Plaintiff’s claim is for specific performance (alternatively, damages for breach) of an oral agreement, said to have been made with the 1st Defendant (“Lanhai D1”) and the 2nd Defendant (“Ms Ding D2”), for the Plaintiff to sell, and each of the Defendants to buy, certain shares in a listed company.

B.  THE FACTS

2.  Unless otherwise indicated, the following matters are taken from the parties’ agreement on the pleadings, agreed documents,[1] agreement at trial, the contemporaneous documents, or are not seriously disputed, and I find them as facts.

B1.  Dramatis personae

3.  The Plaintiff is engaged in the financial services industry.  It is an indirectly owned subsidiary of OCI International Holdings Limited (“OCI International”), a company listed on the Hong Kong Stock Exchange.  At the material time, the Plaintiff’s officers included:[2]

3.1  Guo Qiang (“Mr Guo”), the senior vice-president of the Plaintiff’s investment management department.  By the time of the trial, he no longer worked for the Plaintiff;

3.2  Li Yi (“Mr Li”), the chief executive officer and an executive director.  By the time of the trial, he no longer worked for the Plaintiff;

3.3  Xiao Qing (“Madam Xiao”), the chief operating officer and an executive director;

3.4  Feng Hai (“Mr Feng”), the chairman and an executive director;

3.5  Lam Suk Ping (“Mr Jacky Lam”), the chief financial officer.  By the time of the trial, he no longer worked for the Plaintiff, although he attended the trial to give evidence on its behalf;

3.6  Eric Siu (“Mr Siu”), the in-house legal counsel.  By the time of the trial, he no longer worked for the Plaintiff; and

3.7  Peggy Lai (“Ms Lai”), the company secretary.  By the time of the trial, she no longer worked for the Plaintiff.

4.  Lanhai D1 is engaged in trading and investments.  It is a wholly owned subsidiary of LanHai Holdings Group Co Ltd, a mainland entity (“Lanhai Holdings”).  At the material time, Lanhai Holdings was controlled and beneficially owned by Mi Chunlei (“Mr Mi”).  Mr Mi was also Lanhai Holdings’ legal representative and executive director, and Lanhai D1’s sole director.

5.  At the material time, Lanhai Holdings’ officers also included Lu Xiaoying (“Ms Lu”), the investment director of Lanhai Holdings.  By the time of the trial, she no longer worked for Lanhai Holdings, although she attended the trial to give evidence on behalf of the Defendants.

6.  The other corporate entities that feature in this case are Rundong Fortune Investment Company Limited (“Rundong Fortune”), a company incorporated in the BVI, and China Rundong Auto Group Limited (“Rundong Listco”), a company listed on the Hong Kong Stock Exchange.  Rundong Fortune held shares in, and was the controlling shareholder of, Rungdong Listco.  Yang Peng (“Mr Yang”) was the controller of Rundong Fortune.

7.  Ms Ding D2 is a PRC citizen, who was acquainted with Mr Mi and Mr Yang, and was invited by them to provide temporary consulting services for Rundong Listco.

B2.  The Notes

8.  In around April 2014, Rundong Fortune issued senior secured guaranteed notes in the amount of US$60m to three investors which were secured by charges on Rundong Fortune’s shares in Rundong Listco, and personal guarantees by Mr Yang.  According to Mr Jacky Lam, who gave evidence for the Plaintiff, the ownership of the notes underwent changes between 2014 and 2017, with the addition of new investors and changes in the amounts held by each investor, and the investors were required to execute a Deed of Adherence and Novation to transfer all rights and obligations under the notes to the new investors.

9.  In around April 2017, the Plaintiff acquired US$15m of the notes (“the Notes”).  According to the terms and conditions attached to the Senior Secured Guaranteed Notes Certificate no.26, the Notes had a maturity date of 15th April 2019.  On 16th August 2017, Rundong Fortune executed a Deed of Charge in favour of the Plaintiff, charging 78,000,000 of its shares in Rundong Listco (amounting to about 4.84% of the issued shares) (“the Shares”) as security for performance of Rundong Fortune’s obligations under the Notes.

10.  As set out in the Deed of Charge, the Shares were deposited by Rundong Fortune in a securities account maintained with Orient Securities (Hong Kong) Limited (“Orient Securities”).

11.  On 16th April 2019, the Plaintiff gave notice to Rundong Fortune that an event of default had occurred, exercised its option to redeem the Notes pursuant to the Terms and Conditions attached to the Notes, and required Rundong Fortune to repay the EOD Redemption Amount (as defined under the Terms and Conditions to consist of the US$15m principal plus interest and other amounts) of US$19,938,954.36 on 16th April 2019.

12.  Pursuant to cll.8.1 and 8.2 of the Deed of Charge, upon the occurrence of an event of default, the security under the Deed of Charge became immediately enforceable, and the Plaintiff as chargee became entitled to exercise all rights and enjoy all benefits attaching to the Shares as if it were the sole beneficial owner thereof, and to sell or otherwise dispose of the Shares.

B3.  Lanhai D1’s involvement with debts of Rundong Fortune

13.  At the material time, Lanhai D1 held a substantial security interest in 848,270,747 shares of Rundong Listco.

14.  Ms Lu, who held the position of Investment Director in Lanhai Holdings, was assigned by Mr Mi to join Rundong Listco as a consultant to deal with a number of matters relating to Rundong Listco.

15.  It was Ms Lu’s undisputed evidence that Rundong Fortune owed debts to creditors outside mainland PRC, and that Rundong Listco’s mainland subsidiary owed debts to creditors on the mainland.  The creditors of Rundong Fortune outside mainland PRC included the Plaintiff, Lanhai D1, and an overseas subsidiary of China Construction Bank Corporation (“CCBI”).  In around March 2019, Ms Lu began representing Rundong Fortune in discussions with the Plaintiff and CCBI regarding the repayment of Rundong Fortune’s debts.

16.  According to Ms Lu, Mr Yang told her in around March 2019 that Rundong Fortune would not be able to pay its maturing debts, and she reported this to Mr Mi.

17.  Ms Lu’s understanding of the Plaintiff’s stance was that as OCI International was a Hong Kong listed company, it had obligations of disclosure, and if Rundong Fortune and Mr Yang could not resolve the debts of Rundong Fortune, then the Plaintiff would have to dispose of the Shares.

18.  At the time of Rundong Fortune’s default under the Notes, the price of Rundong Listco’s shares was about HK$2 per share.  If the Plaintiff were to sell the Shares, this would adversely affect the share price, which in turn would bring down the value of the shares of Rundong Listco pledged to Lanhai D1.  According to Ms Lu, Mr Mi wanted to avoid this result, and this is why Lanhai Holdings stepped in.

19.  The parties’ account of events start to diverge at this point.  The Plaintiff’s case, broadly, is that that there was an agreement with Lanhai D1 and Ms Ding D2 to purchase the Shares so as to stop the Plaintiff from selling them and depressing the price of Rundong Listco’s shares further.  The Defendants’ case is that there were discussions regarding the purchase of Rundong Fortune’s indebtedness to the Plaintiff of US$15m and interest (“the Debt”), and that whilst there was an agreement in principle, there was no concluded agreement reached.

B4.  The events leading up to the Alleged Oral Agreement

20.  On 15th April 2019, Mr Guo sent an email to Mr Feng, Madam Xiao and Mr Li, addressing them as “leaders”, stating that “the USD 15 million notes program of Rundong is likely exposed to risks”,[3] noting that there was a possibility of default by the end of the day (15th April 2019 being the last day for redemption of the Notes), and setting out plans and suggesting issues for discussion.

21.  As mentioned above, on 16th April 2019, the Plaintiff gave notice to Rundong Fortune that an event of default had occurred, and demanding repayment.

22.  On 17th April 2019, a WeChat group was created (“the OCI- Lanhai WeChat Group”),with members from the Plaintiff, Lanhai Holdings and/or Lanhai D1, to discuss the issue of the Debt.[4]  The members included Mr Mi, Ms Lu, Helen Tian Yuan, a subordinate of Mr Mi, Mr Guo, Mr Li, Madam Xiao.

23.  On or around 17th April 2019, the Plaintiff’s representatives met with Mr Mi.

24.  On or around 18th April 2019, there was a further meeting between Mr Guo and Ms Lu.

25.  On the same day, Madam Xiao told Mr Mi that she had given his WeChat details to Mr Li.  As the Plaintiff pleaded in its Reply, the two men became acquainted only after Lanhai Holdings indicated its intention to purchase the Shares.  There was apparently a telephone discussion between Mr Li and Mr Mi on 18th April 2019.

26.  On 19th April 2019, in the OCI-Lanhai WeChat Group, Mr Guo referred to the discussion between Mr Li and Mr Mi, and asked whether there was any definitive response.  “As a listed company, if a large loss is expected to occur, OCI needs to make an announcement within two days, and with the many difficulties explained previously, the pressure is very high.”  Madam Xiao[5] followed up with the message “Please reply at your earliest convenience…very stressful…Thanks!”

27.  After the meeting on 18th April 2019, and before the morning of 22nd April 2019, the Plaintiff proposed to Rundong Fortune and Lanhai Holdings that Lanhai Holdings purchase the Debt at a discount, being 75% of the principal (of US$15m), which would have been US$11.25m.

28.  On 22nd April 2019, Mr Guo asked Ms Lu whether she had any instructions “from the leadership”, to which Ms Lu responded “It will be bought back at 55%”[6] (that is, a 45% discount).  The Plaintiff’s Reply to the Defence of the 1st Defendant admits that this was a proposal by Rundong Fortune that the Plaintiff purchase the Debt at a discount.  Mr Guo’s reference to the “leadership” would have been a reference to Mr Mi, who controlled and beneficially owned Lanhai Holdings.

29.  On 25th April 2019, Mr Guo on behalf of the Plaintiff sent a copy of its internal memorandum (“P’s First Memorandum”) to Mr Mi and Ms Lu in the OCI-Lanhai WeChat Group, saying that it was “the solution we have decided on for now to deal with the debt issue, we are under a lot of pressure and hope that you will cooperate to solve the current issue, thank you!”.  The memorandum was prepared by the “OCI Rundong Project Emergency Response Team” (“P’s Emergency Response Team”), which according to Mr Jacky Lam’s evidence was headed by Mr Li and Mr Guo.  The memorandum set out the Plaintiff’s plan to recover the loss in respect of the Notes.  It noted, inter alia, that “[Lanhai Holdings] has expressed an interest in acquiring 78,000,000 shares at a discount of up to USD 9 million (ie. based on USD 15 million x 60%), but has refused to increase the price at our request”.  Points 1 and 2 of the “Action Plan” stated “Conducted final negotiations with the issuer and guarantors, repayment of the entire debt, or options such as the acquisition of the entire collateral by [Lanhai Holdings]”, and “Final negotiations with [Lanhai Holdings] regarding the purchase price and, if ultimately the other party is unable to agree to acquire 78,000,000 shares at a price of not less than USD 11.25 million (based on USD 15 million x 75%) on or before Sunday, April 28,  2019, then the unilateral disposal of the pledged shares shall commence”.

30.  On 29th April 2019, the Plaintiff started selling part of the Shares in the secondary market. On 29th April 2019, 1,148,000 shares were sold, and on 30th April 2019, 871,000 shares were sold.  By 30th April 2019, the Plaintiff was left with 75,981,000 of the Shares (“the Remaining Shares”).

B5.  30th April 2019

31.  In the morning of 30th April 2019, Mr Guo informed Ms Lu that if the Plaintiff continued to dispose of the Shares, the share price would drop below cost price, which would render the value of the security insufficient to cover the Debt, thereby triggering the obligation of the Plaintiff’s parent company OCI International to make a public announcement after the close of trading.  Mr Guo also said that his leaders had told him that the price could not be negotiated any more, and that there was only room for negotiation of the handling process, as nobody at a state- owned enterprise dared to sign off on a sale of shares below cost.

32.  At 12:57pm on 30th April 2019, Mr Guo on behalf of the Plaintiff sent another internal memorandum (“P’s Second Memorandum”) prepared by P’s Emergency Response Team to Mr Mi and Ms Lu in the OCI-Lanhai WeChat Group for their information.  The memo noted that some of the Shares had been sold and that as at 12pm on 30th April 2019, the number of Shares which the Plaintiff still held was 76,242,000, and stated that the “latest plan” was:

“1. Sale of all remaining 76,242,000 [Shares] in one lump sum for a total consideration of not less than USD 10.85 million (based on the actual number of shares held prior to the transaction).

2. The recipient of the shares shall confirm the acquisition of all the remaining shares held by the company at the above amount by an official email sent to the head of the OCI Rundong Project Emergency Response Team at [email addresses of Mr Li and Mr Guo] on the afternoon of April 30.

3. Upon receipt of the email, the company instructs the broker to stop selling the shares on the secondary market (and to act on the previous instructions until the email is received).

4. Delivery of shares between the parties in the Hong Kong market on May 2, 2019.

5. If the delivery of the shares is not completed on time, the company will resume the disposal of the pledged shares and make an announcement at a later date in accordance with the early stage plan.”

33.  There was a 15-minute telephone conversation between Mr Li and Mr Mi on 30th April 2019, which ended at 1:32pm (“the Telephone Conversation”).[7]

34.  It is the Plaintiff’s case that an oral agreement was reached on 30th April 2019 that the Defendants would acquire the Remaining Shares (“the Alleged Oral Agreement”). The events said to comprise the agreement and the terms of the agreement differ somewhat between the Plaintiff’s pleaded case and the case as advanced by the Plaintiff at trial.  I return to this below.

35.  The Defendants say that at most, an agreement in principle was reached, and it was for the purchase of the Debt at HK$80m, with the parties to continue to negotiate to agree on the exact terms.

36.  After the Telephone Conversation, at 1:32pm and 1:41pm, Mr Li sent the following messages to Mr Mi:

“Mr Mi, HKD 80 million converted to USD (7.845) = USD 10.19 million

I have personally asked the trader to suspend

But there is a need to email me as soon as possible

We will prepare the bought and sold note as soon as possible and sign it as soon as possible, and payment can be made after the May 1st holiday.

Otherwise my personal responsibility would be too overwhelming.”

37.  Mr Mi responded “Received”.

38.  At 2:08pm, Mr Guo sent a message to Orient Securities, in a WeChat group which included Mr Li (“the OCI-Orient WeChat Group”):  

“… Just sent you an email, we may enter into an arrangement with a buyer to transfer all of our current Rundong shares in one go, the delivery of which should be completed on May 5 (next Monday). In view of the time constraints, we would be grateful if you could inform us as soon as possible of:

1. Actual number of shares currently held by us (as at the latest)…”

39.  At 2:26pm, Mr Guo sent a similar message to Orient Securities by email, copied to (inter alia) Mr Li:

“… We may enter into an arrangement with a buyer to transfer all of our current Rundong shares in one go, the delivery of which should be completed on May 5 (next Monday). In view of the time constraints, we would be grateful if you could inform us as soon as possible of:

1. Actual number of shares currently held by us (as at the latest)…”

40.  At 2:28pm, Mr Guo privately messaged Ms Lu in WeChat, saying that Mr Li mentioned that Ms Lu would send out an email within the day to confirm the proposal as soon as possible, and expressing the hope that it would be sent as soon as possible.  At 2:53pm he also sent her a screen capture of the WeChat exchanges between Mr Li and Mr Mi, where Mr Li said that he had personally instructed traders to suspend sale of the Shares, but that there was a need to email him as soon as possible.  Mr Guo subsequently stated that the number of remaining shares was 75,981,000.

41.  At 3:02pm, Ms Lu responded to Mr Guo’s private WeChat messages:

“Received.

Chairman Mi said an agreement would be negotiated directly on 5 May”

42.  Mr Guo then sent a screen capture to Ms Lu, showing that somebody at 2:55pm had sent a message to a “Patrick”, saying “@Patrick, ready to resume the sale, so prepare yourself first”.

43.  At 3:04pm, Mr Guo messaged Ms Lu:

“I have received instructions to trade on 5 May, only one transfer operation is required on the broker’s side, I am communicating about the required documents, it should be simple”

44.  At 3:06pm, Mr Guo again privately messaged Ms Lu in WeChat:

“Mr Mi supposedly has promised Mr Li an email reply by 3:00, it’s a bit after that, we can wait until 3:30 at the most.”

45.  At 3:21pm, Mr Guo sent a further message:

“[Ms] Lu, hurry up, we can’t hold it any longer!”

This was no doubt a reference to the Plaintiff’s holding off on selling the Shares on the market.

46.  Ms Lu replied that she would “send the email right away”, and asked for the email addresses to which to send it.

47.  At 3:27pm, Ms Lu sent an email to the requested addresses (those of Mr Li and Mr Guo):

“Dear Leaders of OCI,

According to the communication between the leaders of both sides, we intend to purchase 75,981,000 shares of Rundong from you for a consideration of HKD 80 million (USD 10.19 million), and the specific agreement[8] and transaction is scheduled to take place on May 5.

Please note the above.

Lu Xiaoying

Director of Investment, [Lanhai Holdings]”

48.  At 4:22pm, Mr Guo sent an email to Orient Securities, attaching a draft bought and sold note, which (1) stated 75,981,000 Rundong Listco shares as being the subject of the transaction (in other words, envisaging that the Remaining Shares would be bought and sold in one lot), and (2) left the purchaser’s name blank.

49.  At 5:00pm, Mr Guo sent a further message to Orient Securities, in the OCI-Orient WeChat group, stating that the price would be between HK$1.00 and HK$1.10.

50.  At 6:17pm and 6:19pm, Mr Li sent a query in the same OCI- Orient WeChat Group, presumably addressed to Orient Securities:

“Is it possible to go through your approval procedures now so that the price is set. This price will apply regardless if I sign on May 2, May 3 or May 6.

Because it is not up to us to decide when to sign, and the ease of doing so will affect whether or not we can successfully recover the maximum amount of funds.”

51.  Back in the OCI-Lanhai WeChat Group, at 6:48pm, Mr Guo messaged:

“Hello Mr Lu and Helen, Let me inform on the documents and arrangements required for the transfer of shares: … 1) Bought Sold Notes, be signed by both parties on the same page, the original is taken to Hong Kong for stamping and then submitted to the brokerage firm (Orient Financial Holdings) for transfer. Therefore, I will arrange for this document to be signed on our side tonight and couriered to Hong Kong tomorrow, Helen, please arrange for the buyers’ information to be filled in and for execution. By then, once executed, we both send someone with a cheque to the Hong Kong Inland Revenue Department to pay the tax. 2) Shareholding structure chart of the buyer: if the buyer is a corporation, can provide a group structure chart indicating the percentage shareholding of each shareholder up to the ultimate individual beneficiary, signed by the directors and confirmed with the company seal; all the most recent annual return (for Hong Kong registered companies); or a certificate of incumbency (for companies incorporated overseas such as in BVI, Cayman etc). It will be appreciated if you could prepare this altogether. Finally, as for the payment arrangement, it is a separate operation that does not go through the brokerage firm (Orient Financial Holdings) and payment can be made after signing the Bought Sold Note. I will send you the Bought Sold Note later. Thank you”

52.  Mr Guo then sent out a blank bought and sold note (with just Rundong Fortune’s details filled in) and settlement instruction in the chat group, and added a note of explanation as to what information was required.  Ms Lu replied “Got it.”

53.  At 7:29pm, in a WeChat group consisting of various officers of the Plaintiff, including Mr Li, Madam Xiao, Mr Jacky Lam, Ms Lai and Mr Siu (“the OCI Internal WeChat Group”), Mr Guo stated that:

“@Peggy @Patrick, regarding Rundong, we have reached a verbal intent [口頭意向] with a buyer to sell 75,981,000 shares for HKD 80 million. … Payment is handled separately and does not go through the broker. We plan to ask for payment before we pay the tax. …”

54.  At 7:34pm, Mr Guo forwarded Ms Lu’s email of 3:27pm (“…we intend to purchase…”) to Mr Jacky Lam.

55.  At 7:45pm, Mr Guo wrote in the OCI-Orient WeChat Group:

“The other side has just informed us that the buyer of the deal will probably not be a company but two individuals or so.”

56.  At 7:55pm, Mr Guo followed up with questions as to whether it was possible for one company to act as a buyer, or for two individual buyers to buy instead.  Mr Lee also raised questions as to what documents would be needed if the buyers were individuals.

57.  At 8:10pm, in the OCI-Lanhai WeChat Group, Mr Guo sent a message to Ms Lu and Ms Helen Tian, saying that if the buyer was an individual then it was only necessary to sign a bought and sold note and to provide account information.

58.  At 9:06pm, in reply to Mr Guo, Ms Lu gave Ms Ding D2’s name and address and indicated that she would be the “natural person shareholder”.  At 9:18pm, Mr Lu gave the address of Lanhai D1 in Hong Kong as the address of the other signatory.

B6.  After 30th April 2019

59.  1st to 4th May 2019 were holidays in mainland PRC.  1st May 2019 was a holiday in Hong Kong.  4th and 5th May 2019 were Saturday and Sunday.

60.  On 4th May 2019 at 4:32pm, Ms Lu messaged Mr Guo in a WeChat group[9] that the allocation of shares was to be 32m for the individual account and 43,981,000 for the company account (in other words, different from the allocation pleaded in paragraph 17 of the Statement of Claim).

61.  At 6:33pm, Ms Lu messaged Mr Guo privately via WeChat:

“Manager Guo, I have communicated with Chairman Mi about the HKD 80 million for the purchase of shares, and it will take another 2-3 weeks for our side to use the legal channel. I would like to speak to you about stock transfer and payment arrangements”

62.  On 5th May 2019 at 11:59am, Mr Guo asked in the OCI-Orient WeChat Group:

“…If we pay the tax tomorrow, but the actual transfer happens two or three weeks later (depending on when the payment is made), this would be okay, right?”

63.  At 10:01am, Ms Lu messaged Mr Guo privately via WeChat to ask for confirmation that the price per share was HK$1.05.  Mr Guo replied:

“To be on the safe side, write HKD 1.0529 per share?”

64.  On the same day, Mr Li (on behalf of Rundong Fortune as transferor and registered owner of the Shares) signed two bought and sold notes.  Mr Mi signed the one naming Lanhai D1 as transferee of 45,000,000 of the Shares, and Ms Ding D2 signed the other naming her as transferee of 30,981,000 of the Shares.  Both notes stated the share price at HK$1.0529.  The notes will be referred “the Bought and Sold Notes”.

65.  On 6th May 2019, the Bought and Sold Notes were submitted for stamping at the Inland Revenue Department, and stamp duty was paid.

66.  At 4:29pm, Mr Guo asked Ms Lu in a private message on WeChat:

“Ms Lu, after signing today, we have been working with the internal team until now, and the internal team has agreed to a grace period for the payment. But two or three weeks is too long, the Risk Control [Department] asked for payment on Friday. I know the company is busy with this, can you speed it up?”

67.  Ms Lu replied that she would talk to Mr Mi about it.  Mr Guo replied:

“Okay, thanks. We were pushed to the point where we just couldn’t take it any more”

68.  The next day (7th May 2019), at 10:21am, Ms Lu messaged Mr Guo:

“Mr Guo, before the shares are delivered, we also need to prepare an agreement for the debt; when all the shares are delivered, Rundong Fortune’s debt with OCI is also discharged.”

69.  At 5:25pm that day, Mr Guo sent a note to Ms Lu:

“Been worked on this for a long time. The main idea: the key is that we definitely don’t want an announcement. The issue of impairment treatment is now of primary concern to the directors. This is because under the current proposal there would be a combined impairment of over HKD 40 million (our listed company’s net assets are only HKD 300 million) which would be a significant event if it happened all at once this year, and the directors could not afford it and had to make an announcement. An alternative method is to find reasons to spread the impairment over several years. For example, this method: we can sign a three-year extension for the outstanding amounts (the principal and interest due this year of USD 16 million minus the proceeds from the sale of over USD 10 million). The interest and terms are very flexible. After three years we can deal with it flexibly. The design of the terms will not have an impact on the company. I wonder if you could consider it?”

70.  As the Plaintiff explains, Mr Guo was proposing that repayment of the outstanding amount of the Debt be extended or three years with flexible terms, including as to interest.

71.  No payment was made by 10th May 2019 (or since then).

B7.  Exchanges of draft agreements between 10th May 2019 and 18th June 2019

72.  Paragraph 22(2) of the Statement of Claim (“the SOC”) pleads that on various occasions between 10th May and 18th June 2019, the Plaintiff, Rundong Fortune, Mr Yang and the Defendants discussed a potential settlement agreement which would govern the extension and settlement of all remaining liabilities of Rundong Fortune.  However, no agreement was eventually concluded.

73.  In response, the Defence of the 1st Defendant pleads a number of draft agreements drawn up by the Plaintiff’s solicitors, and discussions relating thereto.  The Defendants say that these were part of the continuing negotiations between the parties as to the sale of the Shares and the discharge of the Debt, following on from the exchanges of 7th May 2019, and are consistent with their position that no final agreement had been concluded on 30th April 2019 as no agreement had yet been reached as to how to deal with the Debt.

74.  The Plaintiff pleaded in its Reply to the Defence of the 1st Defendant that the drafts did indeed relate to the release of the Debt, and aimed to settle the outstanding amount owed by Rundong Fortune to the Plaintiff upon the Defendants’ payment for the Remaining Shares.  The Plaintiff claimed that the drafts were consistent with its position that the Alleged Oral Agreement was enforceable.

75.  However, the Plaintiff also took the position that the settlement negotiations and drafts should not be referred to in these proceedings, despite the fact that it was the Plaintiff who had first pleaded the negotiations in the SOC.  The Defendants say that the drafts are not privileged, as there was no dispute between the parties; the drafts were simply part of the continuing negotiations. The Plaintiff says that there was a dispute as the Plaintiff and the Defendants had different ideas as to the timing of the discharge of the Debt; alternatively, there was at least a dispute as between the Plaintiff, Rundong Fortune and Yang.  I return to this dispute below.

B8.  Demand letters

76.  On 18th June 2019, the Plaintiff’s solicitors sent a letter to each of Lanhai D1 and Ms Ding D2, headed “Bought and Sold Note dated 6th May 2019”.  The letter referred to the Bought and Sold Notes, and then stated:

“Pursuant to the Bought and Sold Notes, the transfer of the Shares and payment of consideration were to take place on or shortly after the signing date of the Bought and Sold Notes. We remind you that pursuant to email conversations between our client and yourselves, payment for the Shares was due to have been received by 10 May 2019. However, as of this date, our client has still not received any notice from yourselves to finalize the contemplated transfer.

…

On behalf of our client, we urge you to take immediate action to finalize the Transfer as agreed by the Bought and Sold Notes on or before 4pm June 24th, 2019. In the event that the Transfer is not concluded by that time, it will be considered by our client is a clear and blatant breach of your obligations under the Bought and Sold Notes, and our client will take all necessary legal measures…”

77.  The demand letters did not make any reference to the Alleged Oral Agreement.

B9.  The Plaintiff’s pleaded claim

78.  The Plaintiff issued the writ in these proceedings on 16th August 2019.

79.  Some of the disputes between the parties concern the Plaintiff’s plea of the Alleged Oral Agreement, so I set out the relevant paragraphs of the SOC in full, as follows.

“15. On the morning of 30 April 2019, while [the] Plaintiff was in the process of disposing the Shares, the Plaintiff was approached by [Ms Lu] on behalf of [Lanhai Holdings], who informed the Plaintiff that [Mr Mi] would like to agree on a deal as soon as possible and requesting [the] Plaintiff to stop selling shares of [Rundong Listco] on the market. On or around the afternoon of 30 April 2019, [Mr Li], CEO of the Plaintiff, and [Mr Mi] of [Lanhai Holdings] agreed to the acquisition by [Lanhai Holdings] of the Remaining Shares from the Plaintiff for the consideration of HK$80,000,000. [Ms Lu] of [Lanhai Holdings] also confirmed this agreement in an email to the Plaintiff on 30 April 2019, noting that the execution of the proposed agreement would take place on 5 May 2019.

16. On or around the evening of 30 April 2019, the Plaintiff was further informed by [Lanhai Holdings] that the acquisition of the Remaining Shares would be by two designated parties nominated by [Lanhai Holdings]; a corporate entity [Lanhai D1] and an individual [Ms Ding D2].

17. Accordingly, on or around 30 April 2019 the Plaintiff and the Defendants came to an oral agreement whereby the Plaintiff would sell 75,981,000 shares in [Rundong Listco] to the Defendants for a total consideration of HK$80,000,000 (the “Agreement”).

PARTICULARS

(1) The Plaintiff would sell and [Lanhai D1] would purchase 45,000,000 of the Remaining Shares at the price, estimated to be approximately HK$1.0529 per share;

(2) The Plaintiff would sell and [Ms Ding D2] would purchase 30,981,000 of the Remaining Shares at the price, estimated to be approximately HK$1.0529 per share;

(3) The Plaintiff would execute Bought and Sold Notes in respect of each transaction for [Lanhai D1] and [Ms Ding D2] respectively, to be countersigned by the Defendants and which would act as the method of transferring the Remaining Shares;

(4) That the respective Bought and Sold Notes would be executed with [Rundong Fortune] listed as the Seller, notwithstanding that the Plaintiff was the true beneficial owner of the Shares, and is contemplated by Clauses 8.2, 8.4(b) and/or 19 of the [Deed of Charge]. The Plaintiff would also sign the Bought and Sold Notes on behalf of the seller;

(5) That the Plaintiff [would] take all necessary steps to finalize the transfer, including, inter alia, completing the public filing with the Hong Kong Stock Exchange;

(6) That the completion of the Agreement, ie. the transfer of consideration in exchange for possession of the Remaining Shares, [would] take place shortly after the Agreement had been reached.”

C.  THE ISSUES

80.  The main issue for my determination is therefore whether the Plaintiff and the Defendants concluded a binding and enforceable agreement on or around 30th April 2019 as pleaded in SOC paragraph 17.[10]

81.  If yes, the issue of whether the Plaintiff is entitled to relief, and if so what relief (specific performance or damages) will then arise.

D.  WHETHER TELEPHONE CONVERSATION SUFFICIENTLY PLEADED

82.  I first deal with a preliminary point taken on the pleadings.

83.  Counsel for the Defendant, Mr Lau Ka Kin, pointed out that it was only in the Plaintiff’s opening submissions that it was said for the first time that the Alleged Oral Agreement, as pleaded in SOC paragraph 17, was reached during the Telephone Conversation.  This conversation was not referred to in the pleadings; it follows that there was no plea that the Alleged Oral Agreement was arrived at during such a conversation.

84.  However, SOC paragraph 15 did plead that it was Mr Li and Mr Mi who orally made an agreement in the afternoon of 30th April 2019 that Lanhai Holdings would acquire the Remaining Shares, and the Defendants did not seek further particulars of this plea.  I accept the submission of counsel for the Plaintiff, Mr James Man,[11] that whilst the pleading could have been better drafted, it was sufficient to enable the Plaintiff to argue that the Alleged Oral Agreement was reached during the Telephone Conversation, particularly as it had all along been common ground between the parties that a telephone conversation had indeed taken place between Mr Li and Mr Mi in the afternoon of 30th April 2019.

85.  Mr Lau points out that if one reads SOC paragraphs 15 to 17 in this way, there is an inherent inconsistency in the Plaintiff’s case, in that whilst paragraph 15 pleads that Mr Mi of Lanhai Holdings making an agreement that Lanhai Holdings would purchase the Remaining Shares, paragraph 17 says that it is the Lanhai D1 and Ms Ding D2 who agreed to purchase (separate tranches of) the Remaining Shares.  This appears to me to go to the issue of the credibility of the Plaintiff’s case, which I deal with further below.  For present purposes, I accept that the pleadings are sufficient to enable the Plaintiff to argue that the Alleged Oral Agreement was reached during the Telephone Conversation.

E.  WHETHER ALLEGED ORAL AGREEMENT MADE

E1.  Absence of evidence from Mr Li

86.  It is notable that whilst the Plaintiff’s case is that the Alleged Oral Agreement was concluded, on its side, by Mr Li (and that nobody else from the Plaintiff’s side was a witness to the making of this agreement), the Plaintiff has not called Mr Li to give evidence at trial.  There is therefore a significant absence of evidence from the outset.

87.  It was said that Mr Li left the Plaintiff’s employment on 22nd May 2020 and that he could therefore not be expected to give evidence for the Plaintiff.[12]  Mr Lau pointed out that Mr Li in fact remained in the Plaintiff’s employment for over a year after the making of the Alleged Oral Agreement.  Indeed, Mr Li was still in the Plaintiff’s employment when the proceedings were issued in August 2019 and when the Defendants’ Defences were filed.  Furthermore, according to the Plaintiff’s witness Mr Jacky Lam, the Plaintiff continued to maintain “limited communication with Mr Li in relation to administrative procedures” thereafter, so it is not as if Mr Li was not contactable (unlike the situation with Mr Guo, with whom the Plaintiff lost contact in October 2020).  Mr Jacky Lam also could not say whether Mr Li had been invited to provide a statement or whether he had refused to assist in the proceedings.  I have not, however, been asked to draw any adverse inferences from Mr Li’s absence, but simply to note the glaring absence of evidence from Mr Li.

88.  Apart from the lack of evidence from Mr Li at trial, Mr Lau further pointed out that Mr Li did not in fact send any contemporaneous message or note about the Alleged Oral Agreement to any of the key persons, including (a) the board of directors of OCI International, to whom Mr Li had a duty to report (as Mr Jacky Lam testified), (b) Madam Xiao, the Plaintiff’s chief operating officer, (c) Mr Guo, who (together with Mr Li) headed P’s Emergency Response Team, or (d) Mr Jacky Lam, the Plaintiff’s chief financial officer.  Yet at the time, Mr Li (as part of the Plaintiff’s Emergency Response Team) had kept the “company leadership” updated as to how the situation with the Notes and Rundong Fortune’s default was being addressed through sale of the Shares and discussions with Lanhai Holdings, via P’s First Memorandum of 25th April 2019 and P’s Second Memorandum of 30th April 2019.  Indeed, in P’s Second Memorandum, colleagues were asked to cooperate with the transfer and acquisition of the Shares “and to update progress in a timely manner”.

89.  In his witness statement, Mr Jacky Lam said that he learnt of the Alleged Oral Agreement through reading Ms Lu’s email of 7:34pm on 30th April 2019 which referred to an intention to purchase 75,981,000 Rundong Listco shares.  He was also in the WeChat chat group with various officers of the Plaintiff in which Mr Guo stated on 30th April 2019 that “we have reached a verbal intent with a buyer to sell 75,981,000 shares for HKD 80 million”.  However, Mr Jacky Lam does not say that Mr Li ever told him that the Alleged Oral Agreement was made, despite the fact that they remained colleagues (chief financial officer and chief executive officer) for over a year after the Alleged Oral Agreement was made.

90.  Nor did Mr Li send any message to Mr Mi to record or allege any oral agreement, although the two men had some direct exchanges on WeChat.

E2.  Mr Mi

91.  Mr Mi made a witness statement in which he denied the Alleged Oral Agreement.  He said that he had a telephone conversation with Mr Li on 30th April 2019, telling him that Lanhai (meaning Lanhai D1 and/or Lanhai Holdings) intended to purchase the Debt from the Plaintiff and continue with the negotiation on the basis of the figure of HK$80m provided that the Plaintiff stopped selling the Shares.

92.  However, Mr Mi did not give evidence at trial.  At an earlier hearing in July 2023, the Defendants had adduced evidence that Mr Mi was under investigation by the authorities in mainland China and had not been contactable during various periods, including the period since 9th June 2023, his personal freedom being under the control of the mainland authorities.

93.  Mr Man originally objected to Mr Mi’s witness statement being admitted, but subsequently withdrew the objection as he sought to rely on Mr Mi’s statement as confirmation that the Telephone Conversation took place (and later on for other matters).  Mr Lau sought to rely on Mr Mi’s statement as an admissible hearsay statement under s.47 Evidence Ordinance (Cap.8).

94.  In my view, little weight can be placed on Mr Mi’s statement as his evidence as to what was discussed with Mr Li during the crucial Telephone Conversation has not been tested in cross-examination.  The statement was made for the purposes of these proceedings and Mr Mi would obviously have had an interest in defending the Defendants’ position.  In such circumstances, the statement cannot safely be relied on without the maker having been cross-examined on it.

E3.  The available evidence

95.  Since neither Mr Li nor Mr Mi gave evidence at trial, the parties had to rely on the contemporaneous records, such as the WeChat messages referred to above, together with the evidence of Mr Jacky Lam (for the Plaintiff), Ms Lu and Ms Ding D2 (for the Defendants).

96.  It was common ground that in assessing the witnesses’ evidence:

96.1  contemporaneous written documents, and documents which came into existence before the problems in question emerged, are of the greatest importance in assessing credibility;

96.2  in deciding whether to accept a witness’ account, importance should be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

96.3  regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence.  The latter type of consistency is often tested by comparing the witness’ oral testimony and his witness statement;

96.4  care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character; and

96.5  a witness’ credibility should be tested by reference to the objective facts proved independently of his testimony, and regard should be had to his motives and to the overall probabilities.

See Hui Cheung Fai v Daiwa Development Ltd, unreported, HCA 1734/2009, 8th April 2014 at [77] to [83] (DHCJ Eugene Fung SC).

97.  Mr Jacky Lam’s evidence was of limited assistance, as Mr Man himself submitted.  He was not in the OCI-Lanhai WeChat Group.  He was not involved in the negotiations for the Alleged Oral Agreement.  He did not have any direct communication with Lanhai Holdings or Lanhai D1.  It transpired that when preparing his witness statement, Mr Jacky Lam had not reviewed all the relevant documents, so that a number of the matters in the statement needed to be corrected.

98.  Ms Lu and Ms Ding D2 were not shaken in cross-examination, and I accept their evidence.  I will address below the specific points made in support of the submission that they were not credible.

E4.  The Bought and Sold Notes – specific legal significance?

99.  The Plaintiff relies most heavily on the fact that the Defendants signed the Bought and Sold Notes on 5th May 2019, and that on the following day, representatives of the parties went to the Inland Revenue Department and paid stamp duty on the notes.

100.  Mr James Man, counsel for the Plaintiff, submitted that it is the statutory duty of any person who effects any sale and purchase of Hong Kong stock to make and execute a contract note, as under s.2 of the Stamp Duty Ordinance (Cap.117), “contract note” is a note required to be made and executed under s.19(1); s.19(1) provides that any person who effects a sale or purchase of Hong Kong stock is required to forthwith make and execute a contract note and cause it to be stamped.

101.  However:

101.1  as Mr Man also submitted, a sale or purchase is “effected” under s.19 only when it is completed, not when the contract for the sale or purchase is effected: Lau Suk Ching v Ma Hing Lam [2006] 4 HKLRD 432[13] at [24] (Recorder A Chan SC, as he then was).  There is no dispute that the sale of the Remaining Shares had not been completed by the time of the Bought and Sold Notes.  Thus even if the signatories had been aware of the provisions of ss.2 and 19 of the Stamp Duty Ordinance, it cannot be said that they must have signed the Bought and Sold Notes because they considered that they were under a statutory duty to do so.  Even if the Alleged Oral Agreement had been made, no duty would have yet arisen to draw up the Bought and Sold Notes and to stamp them;

101.2  leaving this aside, and more importantly, the submission presupposes that Mr Mi and Ms Ding D2 signed the Bought and Sold Notes because they considered that they were under statutory obligations to do so, but there is no evidence that Mr Mi or Ms Ding D2[14] considered that they had to act, or were in fact acting, pursuant to such obligations.  Indeed, there is no evidence that Mr Li had such a state of mind either.

102.  I therefore do not consider that the provisions of the Stamp Duty Ordinance confer any “specific legal significance” on the Bought and Sold Notes.  The signing of these documents should be considered together with the rest of the evidence regarding the events of April and May 2019.

103.  Furthermore, the Bought and Sold Notes state that the consideration had been paid.  This is inconsistent with the Plaintiff’s case (SOC paragraph 17(6)) that there was an agreement that the consideration was to be paid shortly after the Alleged Oral Agreement had been reached, and with the fact that no consideration has been paid.  The Plaintiff seeks to rely on the Bought and Sold Notes to support the existence of the Alleged Oral Agreement, when in fact what is stated on the face of the Bought and Sold Notes contradicts one of the terms of the Alleged Oral Agreement.  To this extent, the Bought and Sold Notes do not in fact support the Plaintiff’s case.  Cf. Wang Fang Fang v China Asia Group HK Limited [2022] HKCFI 2109 at [45] to [46], where Au-Yeung J observed that the plaintiff could not derive assistance from the bought and sold notes in that case, which incorrectly stated that consideration had been paid, to support the existence of an alleged agreement for the sale and purchase of shares.  Mr Man sought to distinguish this case on the basis that the bought and sold notes directly contradicted the claim that the parties had agreed that the consideration would be paid on the date of completion.  The point, however, is that there is little evidential value in a document which is said on the one hand to show that an agreement has been made, when on the other hand, the face of the document contradicts one of the terms of the agreement contended for. 

104.  The more pertinent submission for the Plaintiff was that the parties must have executed the Bought and Sold Notes because they considered that a binding agreement had been made in respect of the sale and purchase of the Shares.  On this point, the Defendants’ explanation was that they signed the notes as the Plaintiff had requested this for its internal procedures, to help persuade its internal risk control department not to insist on a further sale of the Shares and avoid OCI International having to make a public announcement.  Whilst the Plaintiff had agreed in principle on a purchase price of HK$80m, the terms had not yet been worked out, including how to deal with the Debt.  Mr Man submitted that this explanation was absurd and made no commercial sense.  I now turn to consider these matters.

E5.  Negotiations were not just about Shares, but also the Debt

105.  The Plaintiff says that a complete agreement for the sale and purchase of the Remaining Shares was concluded in the Telephone Conversation (leaving aside for present purposes the question of whether terms as to identity of the purchasers and the number of shares, and so on, had been agreed), and it was not the case that there was merely an agreement in principle, with the question of what to do about the Debt needing further discussion and agreement.

106.  However, it can be seen that the genesis of the discussions between the Plaintiff’s representatives, Rundong Fortune and Lanhai Holdings and/or Lanhai D1, starting from about 18th April 2019, were proposals that Lanhai Holdings purchase the Debt at a discount from the principal of US$15m.  In fact, the Plaintiff itself had made such a proposal, as admitted in its Reply (paragraph 12).

107.  Indeed, when Mr Guo circulated P’s First Memorandum, this was on the basis that it was a solution to the “debt issue”.

108.  Ms Lu’s evidence[15] was that there were multiple rounds of communication with Mr Guo via telephone and WeChat, discussing the price at which Lanhai Holdings would purchase the Debt.  The Plaintiff indicated that it could waive the interest, but took the stance that the Debt be purchased at a price no less than 75% of the principal of US$15m.  The counter-offer to purchase the Debt at 55% of the principal which Ms Lu communicated to Mr Guo on 22nd April 2019 was apparently made on Mr Mi’s instructions.

109.  In her oral evidence, Ms Lu explained that Mr Mi had instructed her to handle the debt issue with Mr Guo, and to this end the OCI-Lanhai WeChat Group had been set up. The Debt and the Shares were treated as one overall matter to be dealt with, and part of the exercise was to acquire the Shares which had been pledged as collateral for the Debt.  Her understanding of the US$80m price was that it was the price for acquiring the Debt.

110.  It was put to Ms Lu that the messages in the OCI-Lanhai WeChat Group did not refer to any interest on the part of Lanhai Holdings to purchase the Debt rather than the Shares (as opposed to the suggestion emanating from the Plaintiff that this be done).  This is a rather artificial point, given the agreed position that there were indeed proposals and counterproposals amongst the Plaintiff, Rundong Fortune and Lanhai Holdings that the latter purchase the Debt at a discount.  It does not undermine Ms Lu’s evidence, which was not really challenged, that Mr Mi instructed her to handle the debt issue with Mr Guo, and that Ms Lu and Mr Guo exchanged telephone and WeChat communications about the price at which Lanhai Holdings would purchase the Debt.

111.  The proposals and counterproposals as to the discount from the principal at which the Debt was to be purchased are consistent with Mr Li and Mr Mi eventually settling on HK$80m in principle in the Telephone Conversation.

112.  Whilst it is the case that the Bought and Sold Notes went on to be signed without arrangements yet having been finalised as to the Debt, the Defendants say that there is a reason for this (addressed below).  Furthermore, after the signing of the Bought and Sold Notes, when Mr Guo asked on 6th May 2019 whether payment could be speeded up from Ms Lu’s suggested time frame of two to three weeks, Ms Lu replied on 7th May 2019: “Mr Guo, before the shares are delivered, we also need to prepare an agreement for the debt; when all the shares are delivered, Rundong Fortune’s debt with OCI is also discharged”.  Mr Guo’s response was not to complain as to why the Debt was being raised when it had no relationship to the sale and purchase of the Shares; rather, he replied, saying that (a) he had been working on this, (b) the key was to avoid the listed company (OCI International) making an announcement as to the impairment arising from the Debt, (c) one suggestion was to extend the deadline for repayment of the Debt so that the impairment would be spread out over several years.  Ms Lu was asked to consider the proposal.

113.  At this point, it is convenient to refer to the question put to Ms Lu in cross-examination that the real reason why the Defendants did not complete the sale and purchase of the Remaining Shares was the fall in the share price of Rundong Listco.  Whilst Ms Lu acknowledged that the fall in price was one of the matters taken into account, she said that the principal reason was that the parties ultimately were unable to arrive at terms on which they could agree; there was a “huge difference” between the Plaintiff’s proposals, and Lanhai Holdings’ understanding, as to how the Debt was to be dealt with.  As can be seen from Ms Lu and Mr Guo’s exchanges on 7th May 2019, Mr Guo accepted that Ms Lu’s raising of the Debt issue was a legitimate topic of discussion, rather than an excuse to renege on a concluded agreement because of a fall in share price.

114.  In cross-examination, after Mr Jacky Lam was shown the records of the exchanges between Mr Guo and Ms Lu, he acknowledged that commercial negotiations between the parties in relation to the Debt continued in May and June 2019.

115.  In cross-examination, it was put to Ms Lu that her email of 3:27pm on 30th April 2019 referred only to the intention to purchase the Shares rather than the Debt.  However, Ms Lu explained that the email was sent at the request of the Plaintiff’s side and that the reference to the Shares was to satisfy the directors (of the Plaintiff and/or OCI International).  As I explain below, Ms Lu’s explanation was credible.

116.  It was also put to Ms Lu that in the chat group with Mr Guo, she never mentioned that it was the Debt being purchased, rather than the Shares.  However, as Ms Lu pointed out, there was no need for Lanhai Holdings to purchase shares alone from the Plaintiff; they could have been purchased on the market.

117.  Mr Man submitted that it was against commercial reality for the parties to have been discussing HK$80m as the price for the Debt: Lanhai D1’s concern was the fall in the price of the Shares which would result if the Plaintiff dumped the Shares, so that the acquisition of the Shares was to prevent this from happening; concerns regarding the Debt were not involved.  However, as Mr Lau has pointed out, dealing with the Shares without dealing with the Debt would not have been sufficient to prevent a fall in the price of the Shares or to prevent OCI International from having to disclose the default on the Notes.  The price of HK$80m was substantially less than the outstanding principal of US$15m (let alone the interest), so that OCI International might still have to make a public announcement regarding Rundong Fortune’s default on the Notes, if provision was not made regarding the Debt.[16]  This in turn would have affected the price of the Shares.  The various WeChat exchanges show that a key concern of the Plaintiff was to be able to avoid making such an announcement.  Thus the commercial reality at the time in fact undermines the Plaintiff’s case that the parties were only concerned with the Shares and not the Debt.

118.  I therefore find that the Plaintiff (and its side) and Lanhai Holdings (and its side) were in negotiations not just about the Shares, but also about the Debt.  They were a package.  It is not suggested that any agreement was reached during the Telephone Conversation as to how the Debt was to be dealt with.  This is one reason why it is inherently unlikely that Mr Mi and Mr Li arrived at a binding agreement in the course of the conversation.

E6.  No contemporaneous record of Alleged Oral Agreement

119.  The Plaintiff points to various messages or documents (principally, the Bought and Sold Notes) and says that had the Alleged Oral Agreement not been made, then the message or document would not have been written in the terms that it was.  In other words, there is no direct contemporaneous record of the Alleged Oral Agreement; the Plaintiff can at best seek to draw inferences as to what was said during the Telephone Conversation by reference to other materials.

120.  This, at best, is equivocal.  There are also messages and documents that would not have been written in the way that they were, or that would not have been left unrebutted, had the Alleged Oral Agreement been made, as follows.

121.  First, there is Mr Guo’s message of 2.08pm on 30th April 2019 in the OCI-Orient WeChat Group, telling Orient Securities that “we may enter into an agreement with a buyer to transfer all of our current Rundong shares in one go, the delivery of which should be completed on May 5…” (emphasis added).  It went on to ask how many shares the Plaintiff held (so that there was presumably no agreement as to the number of shares at least).  The message was also sent by email, copied to Mr Li.  Mr Li did not correct Mr Guo to say that the Plaintiff had entered into a binding agreement.  Mr Guo has not been called and has not provided any statement or explanation of what was meant in this message.

122.  Second, there is Mr Lu’s message of 3:02pm to Mr Guo on 30th April 2019, saying that Mr Mi had said that “an agreement would be negotiated directly on 5 May”.  That would suggest that no concluded agreement had yet been reached.

123.  Third, there is Ms Lu’s email of 3:27pm to Mr Li and Mr Guo as requested, saying that “According to the communication between the leaders of both sides, we intend to purchase 75,981,000 shares of Rundong from you for a consideration of HKD 80 million (USD 10.19 million), and the specific agreement and transaction is scheduled to take place on May 5” (emphasis added).

123.1  Neither Mr Li nor Mr Guo corrected Ms Lu to say that the communication was an agreement rather than a mere intention.

123.2  The message does say that the transaction is scheduled to take place on 5th May, but then it says at the same time that the agreement was to be made then.

124.  Fourth, there are Mr Li’s queries of 6:17pm and 6:19pm on 30th April 2019 in the OCI-Orient WeChat Group asking to go through approval procedures earlier, “Because it is not up to us to decide when to sign, and the ease the ease of doing so will affect whether or not we can successfully recover the maximum amount of funds.” Mr Li apparently took the view that the Plaintiff could not be compelled to execute the transaction, at least not on any particular day.

125.  Fifth, there is Mr Guo’s internal message to fellow officers of the Plaintiff at 7:29pm on 30th April 2019 in the OCI Internal WeChat Group “@Peggy @Patrick, regarding Rundong, we have reached a verbal intent [口頭意向] with a buyer to sell 75,981,000 shares for HKD 80 million.  … Payment is handled separately and does not go through the broker.  We plan to ask for payment before we pay the tax.  …”

125.1  Consistent with Mr Guo’s earlier message to Orient Securities (“we may enter into an agreement”, he described the arrangement as a matter of “intent” rather than agreement.

125.2  Mr Li was in the chat group but did not say that there was an agreement rather than a mere verbal “intent”.

125.3  Mr Guo’s “plan” was to ask for payment before paying tax, which suggests that there was no agreement at least as to the timing of payment.

126.  Mr Jacky Lam was in this chat group.  In his witness statement, he had sought to translate “口頭意向” as “oral agreement”.  In cross- examination, he sought to explain that this was because the Bought and Sold Notes were part of the Alleged Oral Agreement, and that once the Bought and Sold Notes were signed that meant that the agreement was a concrete agreement to be executed, but not before then.  This evidence suggests that no binding agreement was reached on 30th April 2019.

127.  Sixth, there are the demand letters written by the Plaintiff’s solicitors of 18th June 2019 to each of the Defendants, which made no reference to the Alleged Oral Agreement.  Rather, it was said that there was to be a transfer “as agreed by the Bought and Sold Notes” and that the Defendants were in breach “of [their] obligations under the Bought and Sold Notes”.  Mr Jacky Lam testified that instructions to the Plaintiff’s solicitors would have been given by Mr Li and Madam Xiao.  No explanation has been given as to why, when solicitors had already been instructed, presumably with a view to taking legal action, the claim of an oral agreement was still not made.

128.  Seventh, as already referred to above, Mr Li did not send any message about the Alleged Oral Agreement to any of the key persons within the Plaintiff and OCI International to whom he reported or who would otherwise have a keen interest in knowing how Rundong Fortune’s default was being handled.  Mr Jacky Lam does not say that Mr Li ever told him that the Alleged Oral Agreement was made despite their working together for over a year after the event.

129.  In this regard, it is notable that Mr Li was not the owner of OCI International.  He would presumably have had to seek approval for the Alleged Oral Agreement, or at least report to the board of directors of OCI International about it.  This is particularly so if, as Mr Guo stated in his message to Ms Lu on 30th April 2019, nobody at a state-owned enterprise dared to sign off on a sale of shares below cost.

130.  Eighth, Mr Li did not send any message to Mr Mi, the counterparty with whom the Alleged Oral Agreement had been concluded, whether at the time it was supposedly concluded (particularly given the importance of the matter, and that the two men had only known each other a short time and had no previous dealings), or after the proceedings were commenced and the Alleged Oral Agreement alleged for the first time.

131.  Ninth, on 3rd July 2019, Mr Guo sent a memorandum to Ms Lai for submission to the board of directors of OCI International to seek the board’s approval for the taking of legal action against the Defendants and others.  It referred to the Bought and Sold Notes, but did not say that any oral agreement had been made.

132.  Tenth, on 11th July 2019, there was a meeting of the board of directors of OCI International.  The meeting was chaired by Mr Li.  Mr Guo, who was not a director, was in attendance.  According to the minutes of the meeting, Mr Guo reported that:

“In seeking to sell the pledged shares, the company [OCI International] has been in discussion with [Lanhai Holdings] … the company spent a lot of effort to communicate with Lanhai and related persons in the hope that Lanhai could take over the 78 million pledged shares of Rundong Auto… After a series of twists and turns in the communication, a commercial arrangement (equivalent to a commercial agreement) was reached with Lanhai in early May to sell the remaining 75.98 million shares …to Lanhai for about HKD 80 million, and Lanhai signed a Bought and Sold Note with [Lanhai D1] and [Ms Ding D2] for the transaction on May 6, and completed the stamp duty payment on the same day. [Lanhai Holdings] requires a minimum of two weeks for payment, as [Lanhai Holdings] has to arrange cash from China to Hong Kong for payment…” (emphasis added).

133.  The report went on to refer to legal action being contemplated, including proceedings against the transferees under the Bought and Sold Notes, but not in respect of the Alleged Oral Agreement.

134.  It can be noted that:

134.1  Mr Guo referred to an “arrangement” rather than an agreement (although he then also tried to equate them);

134.2  he goes on to say that the arrangement (or agreement) was reached in early May – which would not have been the Alleged Oral Agreement of 30th April;

134.3  he did not refer to any oral agreement;

134.4  the minutes do not show Mr Li as having corrected Mr Guo, to say that there was, in fact, an oral agreement for the sale and purchase of the Shares.

135.  Against these matters, the Plaintiff relies on[17] (1) Ms Lu’s email of 3:27pm on 30th April 2019, (2) Ms Lu’s message of 6:33pm on 4th May 2019, (3) the signing of the Bought and Sold Notes and discussions relating thereto, and (4) Ms Lu’s response to Mr Guo’s request on 6th May 2019 for earlier payment.

136.  As to (1), in the cross-examination of Ms Lu, it was put to her that her email of 3:27pm to Mr Li and Mr Guo (“… we intend to purchase 75,981,000 shares…”) constituted a confirmation that Lanhai Holdings would purchase the Shares.  Ms Lu explained the background as to why it had been sent.  She said that prior to 30th April 2019, Mr Guo had been pushing them (Lanhai Holdings), saying that he and his colleagues were experiencing pressure, because after Rundong Fortune’s default on 15th April 2019 (in repayment of the Debt), OCI International had an obligation to make an announcement, and if there was no way to resolve the problem then the Shares would have to be sold on the open market.  A fall in the share price would have caused an indirect loss to Lanhai Holdings.  Mr Mi wanted to stop OCI International and the Plaintiff selling the Shares on the open market, and to reach an agreeable price at which to buy the Debt.  Ms Lu says that against that background, she sent the email in question to satisfy the requirement of the internal departments of OCI International and the Plaintiff, because they were pushing for a written document; however, she only mentioned “intention” rather than “confirmation”.  There was nothing put to Ms Lu which cast doubt on her explanation as to why she sent the email, or as to why she chose to use the word “intend” rather than something more concrete.

137.  Ms Lu had also dealt with this in her witness statement, where[18] she said that after she received Mr Guo’s message of 2:53pm with the screen capture showing that Mr Li had told Mr Mi that he had personally halted the sale of the Shares, but on the basis that an email be sent as soon as possible, Ms Lu had consulted Mr Mi, who said that the price of HK$80m discussed orally with Mr Li was feasible but since the Labour Day holiday was coming up, the specific agreement would be discussed later, and the current task was to seek to cooperate with the Plaintiff in reassuring and convincing it to stop selling the Shares, so as to stabilise their price.

138.  After Ms Lu received Mr Guo’s message that the number of Remaining Shares was 75,981,000, she messaged him back to say “Received” and that “Chairman Mi said an agreement would be negotiated directly on 5 May”.  Mr Guo then said that he had received an instruction that the transaction would take place on 5th May, which was not in line with Ms Lu’s understanding.  Ms Lu says that Mr Guo then kept urging her to send an email to ease their internal pressure.  (See messages of 3:06pm “Mr Mi supposedly has promised Mr Li an email reply by 3:00, it’s a bit after that, we can wait until 3:30 at the most”; and 3:21pm “[Ms] Lu, hurry up, we can’t hold it any longer!”)

139.  Ms Lu therefore sent her email of 3:27pm.  It referred only to an intention of Lanhai Holdings, and not an actual agreement.  Her instructions from Mr Li were that the specific agreement would be negotiated after the Labour Day holiday.  That is why she sent a WeChat message to Mr Guo at 3:02pm saying that “Chairman Mi said an agreement would be negotiated directly on 5 May”.

140.  I accept Ms Lu’s explanation that the reason why she wrote the email of 3:27pm on 30th April 2019 was because of the request from the Plaintiff’s side to provide an email to ease the internal pressure within the Plaintiff’s side, and to provide sufficient reassurance so that the sale of the Plaintiff’s Shares would be halted, and not because there was a concluded oral agreement between Mr Li and Mr Mi in the Telephone Conversation.

141.  As to (2), Ms Lu had messaged Mr Guo “Manager Guo, I have communicated with Chairman Mi about the HKD 80 million for the purchase of shares, and it will take another 2-3 weeks for our side to use the legal channel.  I would like to speak to you about stock transfer and payment arrangements”.  Mr Man submitted that this was a clear acknowledgement of a binding agreement between the Plaintiff and the Defendants, hence transfer and payment arrangements needed to be discussed.[19]  However, the message is equally consistent with an agreement in principle that (for example) that Lanhai Holdings was to pay HK$80m and that the Plaintiff was to transfer its shares, but that other terms were yet to be agreed (whether as to the Debt, and/or transfer and payment arrangements for the Shares, and/or other matters).

142.  As to (4), Mr Man submitted that faced with Mr Guo’s comment that “two or three weeks is too long” request to see whether payment could be speeded up, Ms Lu did not deny the obligation to pay, or that there was a binding agreement between the parties.[20]  However, Ms Lu replied the next day to say that before shares were to be delivered, an agreement for the Debt had to be prepared first.  She further pegged the time of delivery of shares to the discharge of the Debt.

143.  The lack of contemporaneous records of the Alleged Oral Agreement, coupled with the various contemporaneous messages and documents that are inconsistent with there having been a concluded agreement, undermines the claim that the Alleged Oral Agreement was made.

144.  I turn to (3) in the following section.

E7.  The signing of the Bought and Sold Notes

145.  Mr Man submitted[21] that Ms Lu fabricated her evidence as to why the Defendants were willing to execute the Bought and Sold Notes.  It is said that:[22]

145.1  there was no need to accommodate the Plaintiff’s internal procedures or relieve its pressure if there was only an agreement in principle;

145.2  the Plaintiff would not have stopped selling the Shares if there was only an agreement in principle;

145.3  Ms Lu’s evidence that she was concerned about the legal consequences of executing the Bought and Sold Notes on the one hand, but only consulted Mr Guo and Mr Du Peng (an independent director of the Plaintiff) on the other hand, rather than in-house or independent lawyers, is incredible;

145.4  in the course of discussions regarding the signing of the Bought and Sold Notes, there was no protest against signing, and it was not suggested by either side that the notes would not have any legal effect or were for the Plaintiff’s internal procedures and comfort only, or that there was to be a further agreement.

146.  As to the first point, it can readily be seen why Lanhai Holdings would have wished to accommodate the Plaintiff’s internal procedures or relieve its pressure: Lanhai Holdings wished to halt the sale of the Shares.

147.  Similarly, in relation to the second point, the Plaintiff may well have found sufficient comfort in an agreement in principle, such that it was willing to halt the sale of the Shares.  Furthermore, the Plaintiff’s sale of some of the Shares on 29th April 2019 (totaling less than 2m shares out of the Plaintiff’s total of 78m) had already led the price of the Shares to fall significantly.  Continued sale would have led the price to fall further, reducing the amount of recovery which the Plaintiff could achieve.  The prospect of receiving HK$80m for the sale of all of the Remaining Shares in one go may well have been attractive, and more attractive than a gradual disposal which may or may not have ultimately yielded HK$80m.  In any event, the only person who can give a definitive answer as to whether the Plaintiff would have sold the shares had there only been an agreement in principle is Mr Li, as he was the person who halted the sale of the Shares, but he has not come to give evidence.

148.  On the third point, Ms Lu’s evidence[23] is that Mr Guo kept asking for the identity information of the transferee, and requesting the signing of a bought and sold note, payment of stamp duty, and transfer of the Remaining Shares.  Ms Lu was unwilling to arrange for such signing, out of the concern that this might have unexpected legal consequences as the parties had not yet reached an agreement.  Around 4th May 2019, Ms Lu asked Mr Guo, who told her that the note was just a document provided to the broker for subsequent transfer of the Shares; it was not a specific agreement and had no legal force; given the time constraints as the Debt had fallen due whilst the agreements between the parties would take time to draft, signing the note could be used for the Plaintiff’s side to comply with internal procedures and as an explanation to convince the risk control department not to insist on further disposal of the Remaining Shares; signing the bought and sold note was a minimum requirement from Plaintiff.

149.  Ms Lu says that she then consulted Mr Du Peng on 4th May 2019, a non-executive director of OCI International, to double check whether the bought and sold note was a document required by the Plaintiff.  Mr Du Peng messaged back:

“It is possible. The main thing you need to ask is whether your broker accepts the form of bought and sold note. If the delivery is not completed, your loss will be the tax.”

150.  In cross-examination, it was put to Ms Lu that if she had concerns about the legal consequences of the bought and sold note, she should have consulted lawyers, rather than Mr Guo, who represented the counterparty.  Ms Lu’s explanation was that it was a public holiday, time was pressing, the Plaintiff was applying pressure to her side, and Mr Mi had directed her to cooperate with the Plaintiff and to pacify it, and to alleviate the pressure which its risk control department was applying.  It does not seem to me that this explanation, or Ms Lu’s account of her conversation with Mr Guo, is implausible. 

151.  It was then put to Ms Lu that Mr Du Peng had no authority to represent the Plaintiff or OCI International, and was not involved in the transaction between the Plaintiff and Lanhai Holdings.  Ms Lu did not disagree; she explained that she contacted Mr Du Peng in the hope of getting more information, because he would have had some knowledge of the Plaintiff’s or OCI International’s internal processes, but was relatively independent because he would not have been subject to the internal pressure which Mr Guo was under.  Again, it does not seem to me that this explanation is implausible.

152.  Incidentally, Mr Lau pointed out that by 4th May 2019, Mr Du Peng, as a director of OCI International, would surely have been aware of the Alleged Oral Agreement had it been made on 30th March 2019, since Mr Li had a duty to report to the board of directors of OCI International.  Yet Mr Li did not disagree with Ms Lu’s proposition that the bought and sold note was to satisfy internal processes, and he even said that if the transaction was not completed, the only loss would be the stamp duty – in other words, his view was that the bought and sold note did not compel a sale and purchase.  This is consistent with Ms Lu’s account of what she was told by Mr Guo as to the effect of a bought and sold note.

153.  On the fourth point, the Plaintiff first refers to Mr Li’s messages of 1:32pm and 1:41pm saying that he had personally asked to suspend trading in the Shares but there was a need to email him as soon as possible, and that he would prepare the bought and sold note for signing as soon as possible and payment after 1st May, otherwise his personal responsibility would be too overwhelming, and Mr Mi’s response of “Received” rather than a protest against the suggested need to sign the note and make payment after 1st May.

154.  However, these messages are equally consistent with there only being an agreement in principle, and a bought and sold note (just like the email mentioned by Mr Li in the same message) as being necessary for the Plaintiff’s internal procedures and to provide the necessary assurance to its risk control personnel.  Furthermore, Mr Guo shortly thereafter described to Orient Securities the situation as being one where the Plaintiff “may” enter into an arrangement for transfer of the Shares; Mr Li did not correct this description.

155.  The Plaintiff then refers to a number of messages from Mr Guo on 30th April 2019, and between 2nd and 4th May 2019, regarding the various logistical arrangements to be made for the bought and sold note (which eventually became two notes).  It is said that there was no suggestion that the notes would not have any legal effect or that there was to be a further agreement between the parties.

156.  Ms Lu said that this was what Mr Guo had told her over a WeChat call on around 4th May 2019 when she asked him about her concern, so she had no record of this to produce.  The record of the messages with Mr Du Peng was however available as it was done by WeChat messaging.  As explained above, it does not seem to me that her account is implausible.  Furthermore, as Mr Lau points out, it is in fact correct to say that the Bought and Sold Notes in themselves did not constitute any binding contract between the parties, so it is not surprising that Mr Guo would have said that they had no effect, or that Ms Lu would have been agreeable to them being signed.

157.  As to Ms Ding D2, her evidence is that she signed a bought and sold note as Ms Lu had told her that although no agreement had yet been reached, OCI International, as a listed company, needed to make announcement regarding issues involving its own funds; signing the bought and sold note would help persuade its internal risk control department not to insist on a further sale of the Shares and avoid the need to make such an announcement, so that the Plaintiff hoped to sign the bought and sold note before finalising the parties’ agreement; according to the Plaintiff, the note had no legal force.  In submissions, it was said that it was incredible that Ms Ding D2, as an experienced businessperson, would have signed the note, when it could have brought serious legal consequences upon her as it stated that the consideration had been paid.  This topic was not explored with Ms Ding D2 in cross-examination, but in any event, it does not seem to me inconceivable that Ms Ding D2 would be willing to sign, as she was merely acting as a nominee.  Furthermore, the note did not in itself constitute a binding contract.

158.  In cross-examination, it was put to Ms Ding D2 that Ms Lu had told her that Mr Mi and Mr Li had entered into a binding agreement and that this was why she (Ms Ding D2) signed a bought and sold note.  Ms Ding D2 disagreed (the evidence in her witness statement being that Ms Lu had told her that although the parties had not yet reached an agreement, the Plaintiff requested that a bought and sold note be signed first).  I accept Ms Ding D2’s evidence.  There is nothing to suggest that Ms Lu had told her that Mr Mi and Mr Li had entered into a binding agreement.

159.  I therefore do not consider that the signing of the Bought and Sold Notes can only be explained on the basis that the Plaintiff and the Defendants were proceeding on the basis that a binding agreement for the sale and purchase of the Shares had been reached.  On the contrary, I accept Ms Lu’s evidence as to how and why they came to be signed.

E8.  No agreement on key terms

160.  Mr Lau placed emphasis on the fact that key terms between the parties were not agreed in the Alleged Oral Agreement: the counterparties, the number of shares, the price per share, and the completion date.  It is said that therefore, there could not have been the agreement pleaded in SOC paragraph 17.

161.  Mr Man submitted that as a matter of law, an agreement may be complete even if it has not been worked out in full detail, and even if it calls for further agreement between the parties.  The parties’ later failure to agree on the outstanding matters will avoid the contract only if it makes it unworkable or void for uncertainty. See Chitty on Contracts, 34th ed, paragraphs 4-146, 4-178.  Where the parties have not stipulated the time for execution of a transaction, the court can imply a term that the parties would execute it within a reasonable time.

162.  It seems to me that the issue is not so much one of whether what is said to have been agreed can constitute an agreement as a matter of law, but one of whether, as a matter of basic fact, there can said to have been a concluded agreement.

163.  Mr Lau cited Kwan Siu Man v Yaacov Ozer (1997-98) 1 HKCFAR 343 at 354I, where the Court of Final Appeal held that just because the parties had agreed as to the three essential matters of the property, the parties and the price, this was sufficient for the court to find that a binding “open contract” had been made.  The context of this case was very different from the present as it concerned the sale and purchase of real property.  But this does not detract from the point – one of common sense really – that if the parties have not agreed on key matters, this tends to undermine the suggestion that a binding contract has been concluded.

164.  In the present case, it may be that the exact number of shares and the price per share were not critical, in that the price was negotiated by reference to the percentage of the Debt being recovered rather than by reference to the number of the Shares remaining with the Plaintiff, and that the idea was for all of the Plaintiff’s remaining Shares to be taken up, however many those might be.  As to the counterparties, it would seem from the contemporaneous documents that the intention was for Lanhai Holdings to be the purchaser; the idea of using nominees emerged after the Telephone Conversation.

165.  The lack of a completion date is, however, telling.  Even on the Plaintiff’s pleaded case, the completion was merely to “take place shortly after the Alleged Oral Agreement had been reached”.  The evidence is that Mr Guo pressed for early payment and completion, but was told by Ms Lu that it would take about two to three weeks; he sought to find out whether this would be alright from Orient Securities, but the internal risk control department pressed for earlier payment.  Mr Li himself said that “it is not up to us to unilaterally decide when to sign” (messages of 6:17pm and 6:19pm on 30th April 2019 in the OCI-Orient WeChat Group).  Timing was an important consideration from the point of view of the Plaintiff; the aim was to achieve a speedy sale of the Remaining Shares so that no public announcement would need to be made.  If this could not be achieved, the Plaintiff would presumably have to consider other courses of action.  In the absence of any agreement as to the date of completion, it seems to me unlikely that Mr Mi and Mr Li, in particular the latter as timing was critical for the Plaintiff, reached any concluded agreement.

166.  There is of course also the matter of the Debt.  As I have found above, the parties were negotiating not just over the Shares, but also over the Debt.  No agreement was reached as to how to deal with it, so that there was no agreement as to key terms for this reason also.

E9.  No Alleged Oral Agreement made

167.  By reason of the matters set out in this section E, I find that no binding or concluded agreement was reached in the course of the Telephone Conversation and that the Alleged Oral Agreement was not made.

F.  NEGOTIATIONS CONTINUING INTO MAY AND JUNE 2019

168.  As mentioned above, the Defendants sought to rely on the negotiations and drafts exchanged between the parties in May and June 2019 to show that there continued to be negotiations regarding the sale of the Shares and the discharge of the Debt, thus showing that no concluded agreement was reached on 30th April 2019.  The Plaintiffs say that this evidence is not admissible, being covered by privilege.

169.  In view of the conclusions I have reached in section E above, it is not necessary for me to determine whether, as the Defendants say, there is yet further evidence that supports their stance that the Alleged Oral Agreement was not made.

G.  ESTOPPEL BY CONVENTION 

170.  Mr Man submitted that by executing the Bought and Sold Notes and submitting them for stamping, the Plaintiff and the Defendants must have conducted themselves on the basis that the Alleged Oral Agreement they had reached was legally binding, as the execution of the notes must have been premised on a sale and purchase of shares being effected or completed.  As it would now be unjust for the Defendants to say that there was no agreement, they are estopped from doing so.[24]

171.  This argument cannot get off the ground.

171.1  As I have earlier observed, there is no evidence that any of the signatories (Mr Mi, Ms Ding D2, or Mr Li) signed the Bought and Sold Notes because they considered that they were under a statutory obligation to do so.

171.2  On the contrary, I accept Ms Lu’s evidence as to how and why they came to be signed by the Defendants (namely, upon Mr Guo’s representations as to their effect and the Plaintiff’s need for the same, and to assuage the Plaintiff’s risk control personnel), and also Ms Ding’s evidence as to why she signed (namely, upon Ms Lu’s explanation of the concerns of the Plaintiff and that the signed note could help persuade the Plaintiff not to further sell the Shares).

171.3  Furthermore, the evidence that shows that there was no Alleged Oral Agreement is also evidence that shows that the parties did not, in fact, share any assumption that the Plaintiff and the Defendants had entered into a legally binding agreement.

H.  THE POSITION OF MS DING D2

172.  Thus far, I have considered the issue of whether Mr Li and Mr Mi came to any binding agreement in the Telephone Conversation, and I have concluded that they did not.  I have not yet dealt with the Plaintiff’s case that the Alleged Oral Agreement was made by Mr Mi on behalf of Ms Ding D2, the latter being an unidentified principal.[25]

173.  First, the allegation has not been pleaded in the SOC.

174.  Mr Man submitted[26] that since SOC paragraph 15 pleaded that an agreement was reached between Mr Li of the Plaintiff and Mr Mi of Lanhai Holdings, paragraph 16 pleaded that the acquisition of the Remaining Shares would be by two nominees of Lanhai Holdings, namely Lanhai D1 and Ms Ding D2, paragraph 17 pleaded that “accordingly”, the Plaintiff and Ms Ding D2 came to an oral agreement for the sale and purchase of 30,981,000 of the Remaining Shares, one should be left with “little doubt” that the Plaintiff’s case is that Mr Mi was the agent for Ms Ding D2.

175.  However, this is not a sufficient plea of agency or of unidentified principal.

175.1  It does not properly identify who the agent is.  The lack of clarity can be illustrated by the fact that at the pre-trial review, the Plaintiff’s case was that Lanhai D1 was the agent (and it sought to make an amendment to this effect), whereas at trial, the Plaintiff’s case was that Mr Mi of Lanhai Holdings was the agent.  On each of these occasions, the submission was that the position contended for was clear from the pleadings (the amendment at the pre-trial review being said to be nothing more than clarification of what was already pleaded, and the submission in opening at trial being that there could be “little doubt” that this was what the pleading meant).  But as Mr Man himself submitted in closing,[27] these are in fact two different cases.

175.2  The plea in the SOC is not that Ms Ding D2 was an unidentified principal of Mr Mi, but that she was a nominee of Lanhai Holdings in the acquisition of the Remaining Shares.  It hardly needs to be pointed out that Mr Mi and Lanhai Holdings are two different persons, so that it is difficult to see how it can be said that the SOC sufficiently pleaded Mr Mi (as opposed to Lanhai Holdings) as being the agent for Ms Ding D2.  But what is more important, the plea of nominee surely meant that it was Ms Ding D2 who was acting as the “agent” for Lanhai Holdings in acquiring and holding shares for it, rather than Lanhai Holdings being the agent for Ms Ding D2.  

175.3  The plea in the SOC is not that Mr Mi was, unbeknown to the Plaintiff, all along acting on behalf of Ms Ding D2 during the Telephone Conversation with Mr Li.  Rather, it is a plea that Ms Ding D2 only came into the picture afterwards, upon nomination by Lanhai Holdings.

175.4  The plea of the particulars of the agreement in SOC paragraph 17 is not that an agreement was made by Mr Mi on behalf of an unidentified principal.  It is a plea that there were terms expressly agreed between the Plaintiff and each of the Defendants that they were to execute bought and sold notes – they were not unidentified principals at all.

176.  Mr Man sought to argue that it is only undisclosed principals, rather than unidentified principals, that must be pleaded.  The point however is a much more fundamental one, and that is that the pleading simply does not clearly or unambiguously set out the case as now sought to be run by the Plaintiff.

177.  I therefore do not consider that it is open to the Plaintiff to now mount a case that Mr Mi acted as the agent of Ms Ding D2.[28]

178.  Second, and in any event, the Plaintiff has not adduced evidence to support the claim that Mr Mi acted as agent for an unidentified principal, Ms Ding D2.  Mr Man submitted that in the Telephone Conversation, Mr Mi “indicated that he was contracting for some entities to be identified/nominated”.[29]  But there is no evidence that Mr Mi gave any such indication.

179.  Certainly, the nomination of Ms Ding D2 does not appear to have been the topic of discussion between the parties until after the Telephone Conversation.  Mr Guo’s message of 7:45pm in the OCI-Orient WeChat Group said that “The other side has just informed us that the buyer of the deal will probably not be a company but two individuals or so” [emphasis added].

180.  I further accept the evidence of Ms Ding D2 that all she agreed to was to act as a nominee for Lanhai Holdings in holding some of the Shares if an agreement could be reached between Lanhai Holdings and the Plaintiff.  Ms Ding D2 says that it was Ms Lu who approached Ms Ding D2 to ask whether Ms Ding D2 would be willing to act as such a nominee.  Ms Ding D2 was agreeable to such an arrangement given her long acquaintance with Mr Mi, but there was no detailed discussion about the arrangement given that the discussions between the Plaintiff and Lanhai Holdings were at an early stage.  There was no real challenge to this description of the discussions.

181.  I note that Ms Lu’s approach took place a few days before 30th April 2019, at a time when (on both parties’ cases) there was not yet any agreement on the price for the Remaining Shares or the allocation of the number of shares between Lanhai D1 and Ms Ding D2.  In the circumstances, it is unlikely that such a preliminary discussion could have constituted the conferral of authority on Mr Mi to negotiate and agree on behalf of Ms Ding D2 (as a principal and not merely nominee) a substantial acquisition of the Shares of an amount yet to be determined and at a price yet to be determined.  Whilst Ms Lu agreed that she had approached Ms Ding D2 in anticipation of the need to find a nominee to hold the Shares as the acquisition would likely exceed the threshold at which Lanhai Holdings would need to make an announcement, I do not agree that it follows that any agreement to acquire part of the Shares was made on behalf of Ms Ding D2 in her own right.  As Ms Lu explained, she was simply looking for a nominee. It seems to me that this must mean someone who was to hold the legal title to the Shares as registered owner, on behalf of another who owned the beneficial interest, rather than someone who owned the Shares absolutely.

182.  The cross-examination of Ms Ding D2 centred on the fact that in paragraph 10 of the Defence of the 2nd Defendant, it was pleaded that several days before 30th April 2019, Ms Lu asked Ms Ding D2 “whether she would be willing to act as a nominee of [Lanhai Holdings] to acquire and hold some of the [Shares] if Lanhai Holdings and the Plaintiff managed to reach an agreement in due course on the settlement of the Debt, and Ms Ding D2 indicated her willingness to do so”.  It was said that this reflected the true position, and that Ms Ding D2’s witness statement wrongly described the arrangement as being limited to “holding” rather than “acquiring and holding”.

183.  The suggestion was that an agreement to “acquire” must have meant that Ms Ding D2 agreed for Lanhai Holdings to negotiate and enter into an agreement on her behalf to purchase the Shares (or part thereof).  At the same time, Mr Man did not go so far as to suggest that this meant that Ms Ding D2 was to purchase the Shares in her own right, since it was also put to Ms Ding D2 that for any payment to be made, given that she was only a nominee, she would look to Lanhai to make payment.

184.  Ms Ding D2 gave straightforward answers and was unshaken in her explanation that what she had agreed to do was to be the nominee of Lanhai Holdings in holding some of the Shares.  As to why the word “acquire” had also been used in the pleading, Ms Ding D2 said that she could not read English, but she had clearly explained to her lawyers that she was simply to hold the Shares.  She did not shy away from acknowledging that the word “acquire” might not correctly reflect this meaning, and she did not seek to place blame on any mistranslation or misunderstanding on the part of the lawyers, but it was clear from what she was saying that she was rejecting any suggestion of having agreed to acquire the Shares in her own right.

185.  I agree with Mr Lau that nothing really turns on the use of the word “acquire”.  In order for Ms Ding D2 to be holding the Shares for Lanhai Holdings, she would have had to “acquire” them in the sense of becoming the registered owner of the Shares (and indeed Ms Ding D2 also pointed this out).  It is therefore not surprising that her Defence used this word.  Insofar as it was sought to make more of this word (so as to suggest that Ms Ding had authorised Mr Mi to conclude a contract on her behalf, with Ms Ding D2 being both the legal and beneficial owner of the Shares), Ms Ding D2’s witness statement, which was written in Chinese, only referred to holding and not to acquisition.  Furthermore, such a meaning is inconsistent with the question put to Ms Ding that she could look to Lanhai Holdings for payment.

186.  In that regard, I do not agree that by agreeing to be the nominee of Lanhai Holdings, it must follow that Ms Ding D2 “thereby also agreed to assume the obligation to pay for and buy the Shares”.[30]  It is a non sequitur.

187.  I therefore conclude that even if the Plaintiff were allowed to run a case that Mr Mi acted as agent for Ms Ding D2 in negotiating and concluding an agreement on her behalf to acquire 30,981,000 of the Remaining Shares, it fails on the evidence.

I.  LANHAI D1

188.  I now turn to deal with the position of Lanhai D1.  As with Ms Ding D2, the Plaintiff’s case that the Alleged Oral Agreement was made by Mr Mi on behalf of Lanhai D1.

189.  The plea in the SOC is that Mr Mi represented Lanhai Holdings during the Telephone Conversation (paragraph 15) and that Lanhai D1 was to be the nominee of Lanhai Holdings in the acquisition of the Remaining Shares (paragraph 16).  There is then a jump to the plea in paragraph 17 that “accordingly”, there was an agreement between the Plaintiff and Lanhai D1 for the sale and purchase of 45m of the Remaining Shares.  As Mr Lau pointed out, the pleas are inconsistent, and paragraph 17 does not, in fact, follow from paragraphs 15 and 16.

190.  Having said that, there are the following pieces of evidence.

190.1  Mr Mi was the sole director of Lanhai D1.

190.2  In Mr Mi’s witness statement, he referred to Lanhai Holdings and Lanhai D1 collectively as “Lanhai”.  Mr Man relies on this to say that Mr Mi entered into the Alleged Oral Agreement on behalf of Lanhai D1 (rather than Lanhai Holdings).  However, I do not think that one can read too much into the statement, which was prepared at a time when there was no express allegation that Mr Mi was acting on behalf of Lanhai D1 in making the Alleged Oral Agreement, so that Mr Mi would not have been addressing this.

190.3  It was put to Ms Lu in cross-examination, and she agreed, that her understanding from what she was told was that during the Telephone Conversation, Mr Mi was representing both Lanhai Holdings and Lanhai D1.

191.  Leaving aside the fact that paragraph 17 does not follow from paragraphs 15 and 16, I would accept that there is a plea of an agreement between the Plaintiff and Lanhai D1, and it is not really denied that Mr Mi had the authority to act on behalf of Lanhai D1 and in fact did so during the Telephone Conversation.  On the other hand, even if a claim against Lanhai D1 is (barely) sufficiently pleaded, there is still an inconsistency between paragraphs 15 and 17, in that paragraph 15 pleads a sale and purchase of all of the Remaining Shares by Lanhai Holdings (and paragraph 16 pleads that Lanhai Holdings was to do this through two nominees), whereas paragraph 17 pleads a sale and purchase of 45,000,000 of the Remaining Shares by Lanhai D1 as principal (and another tranche by Ms Ding D2). It seems to me that this once again highlights the uncertainty of what is said to have been agreed in the Telephone Conversation, and the fact that there was no binding agreement reached on that occasion, as I have concluded from my consideration of the evidence above.

J.  RECORDS OF SHARE PRICE OF RUNDONG LISTCO

192.  At the trial, the Plaintiff sought to introduce a set of printouts from a website, said to show the price of Rundong Listco from mid- April 2019 to the end of March 2021 (“the Share Price Records”).  In his opening submissions, Mr Lau objected to this late discovery, saying that no affidavit had been filed to explain the provenance and relevance of the documents, citing note 24/2/17 of Hong Kong Civil Procedure 2023.  It was said that the records had not been taken from a publicly available website, and it was not accepted that the information therein was publicly available (Rundong Listco having been delisted by the time of the trial).  In response, Mr Man indicated that the Share Price Records were relevant to two matters: (1) paragraph 58 of his written opening submissions, which referred to the fact that the Plaintiff had sold some 6 million of the Remaining Shares in December 2020 and January 2021, resulting in proceeds of some $5-odd million; it was said that this went to the mitigation which the Plaintiff had carried out; (2) the fall in the price of the Shares around the time of the Alleged Oral Agreement.

193.  Upon conclusion of the oral evidence, the Plaintiff filed an affirmation seeking to explain why the Share Price Records (amongst other documents) had been disclosed.  The reasons given were that they showed the movement of Rundong Listco’s share price at the material time, providing context to the disputed issues between the parties; and that the brief recovery in share price in December 2020 and January 2021 explains why the Plaintiff took the opportunity to mitigate its losses.  It was also said that information as to Rundong Listco’s share price could still be publicly found, notwithstanding the delisting.

194.  I accept that the Share Price Records are admissible for the aforesaid two purposes, and did not understand Mr Lau to be seriously objecting to the same.

195.  However, in his closing submissions, Mr Man sought to rely on the Share Price Records for a third purpose, and that was for the calculation of damages claimed by the Plaintiff.  The calculations were provided to the court after the conclusion of the closing submissions,[31] and showed alternative calculations of damages assessed as at 10th May 2019 and as at 24th June 2019.

196.  Mr Lau objected to the reliance on the Share Price Records for this purpose.  These amounts and dates had not been pleaded, nor had the matter been canvassed in the oral evidence.

197.  In the circumstances, I agree with Mr Lau that the Share Price Records are not admissible for the purpose of supporting the Plaintiff’s claim for damages.

198.  In any event, in the light of my findings above, the Plaintiff is not entitled to any relief.

K.  CONCLUSION

199.  I dismiss the Plaintiff’s claim.

200.  I further make a costs order nisi that the Defendants are to have the costs of and occasioned by the proceedings, to be taxed if not agreed.