ENERGY ALLY GLOBAL LTD v. HUI SAI HA AND OTHERS

HCA 198/2017
[2018] HKCFI 72

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 198 OF 2017

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D E C I S I O N

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INTRODUCTION

1.  This is the plaintiff’s application for summary judgment against the 1^st defendant for a sum of HK$28,750,000 and HK$13,750,000 being two deposits, with interest thereon.

PLAINTIFF’S CLAIM

2.  The plaintiff’s claim is that by an acquisition agreement dated 5 February 2015 (the “Acquisition Agreement”), the plaintiff would acquire one Cadre Project Development Company Limited (the “Target Company”) from the 1^st defendant as vendor (who is also the director and controlling shareholder of the Target Company), with the 2^nd and 3^rd defendants as guarantors.  The Target Company was to carry out a project in Inner Mongolia. 

3.  In particular, by the Acquisition Agreement, it was agreed that the plaintiff would purchase and the 1^st defendant would sell 20% of the issued share capital of the Target Company for RMB44 million (the “Purchase Price”).  Under the Acquisition Agreement, it was also agreed, inter alia, that the Target Company should provide the documents listed in Annex 3 thereto.

4.  On 6 February 2015, the plaintiff paid to the Target Company RMB23,000,000 as deposit under the 1^st phase in accordance with the Acquisition Agreement (the “Deposit under the 1^st Phase”).  This is not in dispute.

5.  By a supplemental agreement dated 23 March 2015 (the “Supplemental Agreement”), it was agreed by Clause 2.1 that the sum of RMB11 million, being the initial deposit under the 2^nd Phase, would become payable by the plaintiff to the Target Company within 3 days upon signing of the same.  Further, by Clause 2.2 thereof, a sum of RMB10 million would only become payable 3 days upon delivery by the Target Company to the plaintiff of the documents listed under Annex 3(2), (3), (4) and (5) of the Acquisition Agreement (the “Outstanding Documents”).

6.  The Supplemental Agreement provided that if the Target Company failed to provide all the Outstanding Documents to the plaintiff on or before 15 June 2015, the plaintiff should be entitled to terminate the Supplemental Agreement forthwith by written notification.

7.  On 24 March 2015, the plaintiff paid to the Target Company RMB11 million (the “Initial Deposit under the 2^nd Phase”).  Again, this payment is not in dispute.

8.  On 3 August 2015, the parties entered into a further supplemental agreement (the “Further Supplemental Agreement”).  Clause 2.7 provided for the consequence of the failure to provide the Outstanding Documents on or before 15 June 2015.

9.  Subsequently, the parties further entered into settlement agreements dated 19 March 2016 and 8 April 2016 (respectively, the “March 2016 Settlement Agreement” and the “April 2016 Settlement Agreement”) whereby the parties were released from the obligations under the Acquisition Agreement, the Supplemental Agreement and the Further Supplemental Agreement.  In addition, the 1^st defendant would have to repay the Deposit under the 1^st Phase and the Initial Deposit under the 2^nd Phase after 31 August 2016, together with interest thereon.  I shall refer to these sums collectively as the “Outstanding Sums”. 

10.  On 31 August 2016, the parties entered into another settlement agreement (the “Final Settlement Agreement”), whereby the 1^st defendant had to repay the Outstanding Sums after 30 November 2016. 

11.  However, the 1^st defendant still has not repaid the Outstanding Sums.  Thus, the plaintiff commenced the present action for the Outstanding Sums.

DEFENCES

12.  The 1^st defendant’s evidence is that by 15 June 2015, all the documents listed in Annex 3 to the Acquisition Agreement had been provided.  The reason for the 1^st defendant to enter into the Further Supplemental Agreement, and subsequently the various Settlement Agreements, was that Mr Ma, Chairman and director of the plaintiff had represented to the 1^st defendant, and the 1^st defendant relied on Mr Ma’s representation, that although the 1^st defendant had provided all the documents requested, the plaintiff would like to postpone the further payments, that because the plaintiff was a listed company, it would not enter into any documents which would indicate it was in default of the Acquisition Agreement.  Thus, the plaintiff suggested, and the 1^st defendant relying on such representations, agreed that they entered into the Supplemental Agreement and the Further Supplemental Agreement. 

13.  However, subsequently, in November 2015, the plaintiff purported to cancel the Acquisition Agreement and sought the refund of the payments.  Mr Ma represented to the 1^st defendant that if the 1^st defendant did not agree to the cancellation, the plaintiff as a listed company would commence litigation against the 1^st defendant on the Supplemental Agreement and the Further Supplemental Agreement which on the face of them showed that it was the 1^st defendant who had been in default.  Mr Ma pointed out that such litigation would cause difficulty to any future sale of the Target Company.  Mr Ma further promised that if the 1^st defendant agreed to the cancellation, he guaranteed that he would cause the board of the plaintiff to not commence litigation against her and to claim the refund only after the 1^st defendant would manage to find a substitute purchaser for the sale of the Target Company.  I shall refer to this as the “Promise”.

14.  In reliance on the Promise, the parties entered into the various Settlement Agreements including the Final Settlement Agreement.

15.  In the circumstances, the 1^st defendant raises the defence that the Final Settlement Agreement is void on the ground of misrepresentation and/or fraud.

ANALYSIS

16.  For an actionable misrepresentation, the representation in question has to be a representation of fact.  A promise can be regarded as a representation of the intention of the representor for his future conduct: see Glory Gold Ltd v Star Play Development Ltd [2008] 2 HKLRD 416 at paragraph 20 per Cheung JA.  Thus, in the present case, the representation underlying the Promise made by Mr Ma is that that he had the intention to cause the board of the plaintiff to not commence litigation against the 1^st defendant and to claim the refund only after the 1^st defendant would manage to find a substitute purchaser for the sale of the Target Company. 

17.  As regards falsity, I agree with the 1^st defendant’s submission that from the fact of the commencement of the present action itself, I may infer that in fact, Mr Ma did not have such an intention at the time of making the Promise.  This would amount to either fraudulent or negligent misrepresentation.  Of course, at this stage, I need not decide these questions.  I only have to decide if there is any arguable defence and/or triable issue.

18.  There is no documentary evidence contradicting or supporting the existence of the Promise, save and except for the agreements mentioned above, the very agreements which, according to the 1^st defendant’s defence, were entered into as a result of the Promise.  The question thus boils down to whether the allegation of the Promise is believable in the context of the undisputed background.  The 1^st defendant submits that one particular suspicious feature is that although the 1^st defendant produced evidence of emails sent to the plaintiff showing that by 15 June 2015 (which the plaintiff has not specifically denied), all the documents listed in Annex 3 to the Acquisition Agreement had been provided, she was still requested to enter into the Further Supplemental Agreement on 3 August 2015 on the basis that the Outstanding Documents had not been provided by 15 June 2015, as Clause 2.7 thereof still provided for the consequence of the 1^st defendant’s failure to provide the documents by 15 June 2015.  In the light of this feature, the plaintiff has provided no explanation to this in its reply affirmation.  This feature is in support of the 1^st defendant’s evidence that Mr Ma had consistently asked the 1^st defendant to sign some agreements to show, inaccurately, that it was the 1^st defendant’s default. 

19.  It remains for me to say that the plaintiff’s submission that there has been a substitute purchaser in April 2017 does not advance its case.  This is because if the Final Settlement Agreement was entered into in reliance on the Promise which would prove to be false, what happened subsequently would not have any bearing on this previous agreement.

CONCLUSION

20.  In conclusion, I am satisfied that the 1^st defendant has raised bona fide arguable defence and triable issues.  I shall thus grant leave to the 1^st defendant to defend.

[submissions on consequential directions and costs]

21.  Having heard counsel’s submissions, I order that:-

(1) Leave be to the 1^st defendant to file and serve her defence within 28 days from the date of this hearing.

(2) Costs be in the cause with certificate for one counsel, to be taxed, if not agreed.