LAU KWOK FAI v. renren HOLDINGS LTD

HCMP 4539/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 4539 OF 2003

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J U D G M E N T

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1. By these proceedings commenced by Originating Summons dated 14 October 2003, the Plaintiff, Mr Lau Kwok Fai, seeks declaratory relief against the Defendant, renren Holdings Limited (formerly known as renren Media Limited), as to the proper construction of certain provisions in convertible bonds issued by the Defendant, a company whose shares are listed on the Stock Exchange of Hong Kong, to the Plaintiff. In particular, a determination is sought as to whether the Defendant was entitled, in the circumstances which I shall describe below, to require the Plaintiff to accept shares in the Defendant in settlement of its liabilities to him under such bonds. A number of further declarations and orders, which arise consequentially if the principal questions are determined in the Plaintiff's favour are also sought.

The Factual Background

2. The main facts underlying these proceedings are not in dispute, and can be summarised as follows.

3. In July 2001, the Defendant decided to issue a series of convertible bonds ("the Bonds") in the aggregate principal amount of HK$12,000,000 for the purpose of raising additional funding for the Defendant, and announced its intention to do so by an announcement issued through the Stock Exchange on 23 July 2001. On the same date, the Defendant entered into a Placing Agreement ("the Placing Agreement") with a number of securities companies as placing agents, who agreed to act as placing agents and underwriters on behalf of the Defendant to locate subscribers for and to underwrite (to the extent that they were unable to locate sufficient subscribers) the issue of the Bonds.

4. The Placing Agreement contained, inter alia, the following terms:-

(1) Clause 1.4, by which the schedules to the Placing Agreement, which included drafts of the intended Deed Poll and Terms and Conditions of the Bonds were made part of the Placing Agreement;

(2) Clause 3.1, which provided that, subject to certain conditions being fulfilled (or waived by the placing agents) by 31 August 2001, the Defendant should on completion create and issue the Bonds and execute the Instrument governing them, and the placing agents should procure subscribers for the Bonds, or subscribe for them themselves;

(3) Clause 3.3, which provided (among other things) that the Bonds should be offered to placees in principal amounts of HK$240,000 each;

(4) Clause 5.1, which provided for completion to take place within seven days after completion or waiver of the conditions referred to in clause 3.1; and

(5) Clause 16.3, which provided that time should be of the essence of the Placing Agreement.

5. Completion of the Placing Agreement took place on 23 August 2001, and on that date, the Defendant executed a Deed Poll constituting the Bonds. Schedule 1 to the Deed Poll set out a form of certificate, which made it clear that the Bond to which the certificate related was, as between the Defendant and the holder of the Bond, governed by the terms of the Deed Poll and the Terms and Conditions of the Bonds ("the Conditions"), which appear also to have formed part of Schedule 1. That the Bonds were subject to the Conditions would also appear to be clear from the Deed Poll itself, which contains a number of references to particular provisions in the Conditions.

6. In essence, the Bonds carried interest at 2.5% per annum, and were to mature at the end of one year (on 23 August 2002). The Bonds were convertible at the option of the bondholder at any time until their maturity, at a conversion price of HK$0.022 per share (subject to adjustment as provided by the terms of the Deed Poll). However, even if the bondholder did not wish to convert his Bond into shares, the Conditions entitled the Defendant to elect to satisfy its liabilities under the Bond by issuing shares to the bondholder at the conversion price by giving notice to the bondholder of its intention to do so. Thus, the bondholder could, if the appropriate notice were given, be required to accept shares in the Defendant instead of receiving payment of the principal and interest on the bonds in cash at the maturity date.

7. The question which arises in these proceedings is whether the appropriate notice has been given, so as to entitle the Defendant to insist on the Plaintiff accepting shares instead of cash in redemption of the Bonds which he holds.

8. For this purpose, the key provision is Clause 8 of the Conditions. So far as material, this is in the following terms:-

"(A) Maturity

Unless previously redeemed or converted or purchased and cancelled as provided herein, the Company will redeem each Bond on the date immediately following one year after the first issue of the Bonds ... ("the Maturity Date"), at the Redemption Amount. ..."

"(D) Redemption Amount

"Redemption Amount" means such amount as equals 100 per cent of the principal amount of the outstanding Bonds together with accrued interest from and including the last Interest Payment Date to but excluding the Maturity Date."

"(E) Option

The [Defendant] shall be entitled by written notice to the Bondholders given within three business days immediately prior to the Maturity Date to satisfy all or part of the principal amount then outstanding on the Bonds together with outstanding accrued interest from the date of issue of the Bonds to but excluding the Maturity Date by alloting an issuing such number of Shares calculated by reference to [a formula under which the number of Shares to be issued was to be arrived at by dividing the Redemption Amount by the Conversion Price]."

9. Other relevant provisions of the Conditions included the following:-

(1) Condition 4(A), by which the Bonds were freely transferable, so long as the transfer was not to a "connected person" of the Defendant (as defined in the Listing Rules of the Stock Exchange).

(2) Condition 6(A), which provided that bondholders had the right to convert their Bonds into shares in the Defendant at any time until 4:00 pm on the Maturity Date, so as to obtain a number of shares that was equivalent to the principal amount of the Bonds converted divided by the conversion price.

(3) Condition 15(B) which provides, so far as relevant, that a notice is to be given to bondholders by personal delivery or prepaid registered mail.

(4) Condition 15(D), by which notices are deemed to have been served on the first day after personal delivery or deposit of the notices with the postal authorities or in a postbox.

10. On or about 23 August 2001, the Plaintiff subscribed for three Bonds through one of the placing agents. As each bond was worth HK$240,000, the total value of the Bonds for which he subscribed was HK$720,000. As I have indicated, the Bonds were to mature on 23 August 2002.

11. The Plaintiff did not exercise his conversion rights under the Bonds so as to acquire shares in the Defendant. However, on 14 August 2002, the Defendant wrote to the Plaintiff in the following terms:-

"We refer to our letter dated 4th April, 2002 and would like to remind you that the August Bonds will be due on 23rd August, 2002."

"We would like to advise you that the [Defendant] desires to satisfy all your outstanding principal amount of HK$720,000.00 by allotting and issuing ordinary shares of HK$0.01 each in the capital of the [Defendant] ... in accordance with the condition 8(E) as stipulated in the terms and conditions of the August Bonds."

12. The conversion price had by this time been adjusted in accordance with the terms of the Deed Poll to HK$0.053, apparently because of certain changes in the capital structure of the Defendant - no issue arises as to this. The effect was that the Plaintiff would receive 13,584,905 shares in the Defendant in settlement of the principal amount of HK$720,000 represented by his Bonds. The letter went on to request the Plaintiff to advise the Defendant on or before 21 August 2002 whether he wished to accept only these shares, or to subscribe for slightly more than 11.5 million additional shares on payment of a further amount of HK$600,000.

13. Although this letter is couched only in terms of expressing a desire or intention on the part of the Defendant to exercise its rights under condition 8(E) (and thus might arguably not constitute a notice, as opposed to notification of an intention to give one in due course), Mr Sakhrani for the Defendant stated that the letter was intended by the Defendant to constitute the notice that was required to be given under condition 8(E). Mr Wong, appearing for the Plaintiff, made it clear that he accepted that this was the case, although he contended that the letter did not amount to a valid notice under that condition.

14. As at 14 August 2002, the market price of shares in the Defendant was only HK$0.01. Not surprisingly, the Plaintiff was not happy about the prospect of having to take shares (which would, at this market price) be worth less than one-fifth of the principal value of his Bonds. He expressed his unhappiness and requested redemption in cash by a letter dated 20 August 2002 to the Defendant, in which he stated:-

"In reply to your letter dated 14 August 2002, I ... hereby request to redeem my outstanding principal amount of HK$720,000.00 by cash instead of by allotment of shares."

"I do not agree with your company by allotting an issuing ordinary shares of HK$0.01 each in the capital of the [Defendant]. I doubt such kind of Convertible Bonds with compulsory exercise and deemed allotment are very rare in the Hong Kong capital market. The price adjustment upon share consolidation and rights issue caused material loss to the bondholders."

"I hereby request your Company to redeem the bond with principal sum by cash. We look forward to your earliest reply."

15. The Defendant did not respond to this letter. It would appear from the evidence filed on its behalf that its view was that it was unnecessary to do so, as the Plaintiff had no choice in the matter, having regard to the conditions of the Bonds, if the Defendant chose to exercise its rights under condition 8(E) (which it considered that it had done by its letter of 14 August 2002), there being no right of redemption prior to the Maturity Date unless there had been an event of default (which there had not been).

16. Thereafter, on 27 August 2002, the Defendant issued a share certificate representing 13,584,905 shares to the Plaintiff. This was sent to the Plaintiff under cover of a letter from the Defendant's share registrar dated 3 September 2002, which also informed the Plaintiff that these shares had been consolidated into 543,396 new shares of HK$0.01 each in the Defendant as the result of a capital reduction and share consolidation in respect of the Defendant's share capital which had come into effect on 30 August 2002, by which 25 old shares of HK$0.01 each were consolidated into one new share of HK$0.01. On 6 September 2002, the Defendant sent the Plaintiff a cheque dated 4 September 2002 in the sum of HK$18,000 in respect of the accrued interest on the Plaintiff's Bonds.

17. On 9 September 2002, the Plaintiff wrote to the Defendant again, referring to his letter of 20 August 2002 and the share registrar's letter of 3 September 2002 and continuing:-

"I was very surprised to receive such letter from [the share registrar] because as early as 20 August 2002, I had informed your Company that I wanted your Company to redeem the above Bonds in cash."

"I do not agree that your Company has any right to satisfy the outstanding principal by allotting shares to me in accordance with condition 8(E) of the above Bonds. If you read condition 8(E) carefully, you will notice that condition 8(E) only allows your Company to allot shares by giving notice to the Bondholders within 3 Business Days immediately prior to the Maturity Date. As NO such notice had been given by your Company, your Company had no right or option to allot shares to the Bondholders."

"I now return herewith the letter from [the share registrar] with the enclosed shares to your Company and hereby demand immediate payment of the principal amount and accrued interest to me, failing which I shall pass the matter to my lawyers to proceed."

18. Although the Plaintiff did not return the cheque which he had received from the Defendant, he has stated in his evidence that as he declined to accept the shares, he has not encashed the cheque (which became stale some six months later) pending the determination of the dispute between himself and the Defendant. This statement has not been challenged by the Defendant.

19. Thereafter, correspondence ensued between solicitors acting for the Plaintiff and the Defendant. As the matter could not be resolved, the Plaintiff issued these proceedings on 14 October 2003.

The Relief Sought

20. By his Originating Summons, the Plaintiff seeks the following relief:-

(1) A Declaration that on the true construction of condition 8(E) of the Bond that the Defendant is entitled to exercise its option to allot shares to the Plaintiff in place of payment of the outstanding sum due under the Bonds held by the Plaintiff only if notice of conversion is given by the Defendant to the Plaintiff within three business days before the Maturity Date;

(2) A Declaration that the notice given by the Defendant to the Plaintiff under the letter dated 14 August 2002 is not valid and effective to enable the Defendant to exercise its option under condition 8(E) of the Bonds;

(3) A Declaration that the sum payable to the Plaintiff under the Bonds which he held, in the total sum of HK$720,000 plus interest in the amount of HK$18,000 remains outstanding and due from the Defendant to the Plaintiff;

(4) An Order for the payment by the Defendant to the Plaintiff of HK$720,000 plus interest in the amount of HK$18,000;

(5) A Declaration that the 13,584,905 shares of the Defendant allotted to and registered in the name of the Plaintiff were wrongly issued;

(6) An Order (pursuant to section 100 of the Companies Ordinance (Cap. 32) rectifying the register of members of the Defendant by striking out therefrom the name of the Plaintiff as the holder of 13,584,905 (or following the consolidation, 543,396) shares of the Defendant; and

(7) Interest on the amount of HK$720,000.

21. In addition, the Plaintiff seeks an order for costs in its favour, together with any additional or alternative relief that the court thinks appropriate.

The Parties' Respective Arguments

22. The argument for the Plaintiff is a simple one - Mr Wong submits that in order for the Defendant to be entitled to avail itself of the right to settle the outstanding amount under the Bonds by an issue of shares, for which it stipulated in condition 8(E), it was incumbent on the Defendant to comply strictly with the terms of that condition. This meant that the Defendant could only require the Plaintiff to take shares at the conversion price in satisfaction of the outstanding amount under his Bonds if it gave the Plaintiff a notice in writing which was given within three business days immediately prior to the Maturity Date of the Bonds. On any view, 14 August 2002, the date of the Defendant's letter which both parties accepted was intended to be the notice under condition 8(E), was more than three business days prior to the Bonds' Maturity Date of 23 August 2002. The letter of 14 August 2002 therefore was not a valid notice for the purposes of condition 8(E). No other notice having been given within three business days prior to 23 August 2002, the Defendant had failed to avail itself of the right for which it had stipulated by condition 8(E), and it was therefore obliged, pursuant to conditions 8(A) and (D) to pay the Plaintiff the principal amount of HK$720,000 plus accrued interest of HK$18,000.

23. Mr Wong suggested that there were a number of reasons why this conclusion should be reached. These were:-

(1) This was the clear meaning of condition 8(E);

(2) The Conditions having been drafted and put forward by the Defendant, they should be construed strictly against the Defendant;

(3) The right given to the Defendant by condition 8(E) was in the nature of an option, and therefore had to be exercised strictly in accordance with its terms, particularly as regards time. In support of this proposition, Mr Wong relied on Samuel Properties (Developments) Ltd v Hayek [1972] 3 All ER 473 and United Scientific Holdings Ltd v Burnley Borough Council [1978] AC 904, per Lord Diplock at 929C;

(4) It was a general principle of law and equity that where the subject matter of the option is liable to fluctuate in price (e.g. shares), time is of the essence of the contract, relying on Re Schwabacher (1908) 98 LT 127;

(5) Time is of the essence where an option confers a privilege upon the party who will benefit from it, relying on Hare v Nicoll [1966] 2 QB 130, per Willmer LJ at 141B;

(6) Time was of the essence in this case because of the effect of Clauses 1.4 and 16.3 of the Placing Agreement;

(7) In any event the commercial nature of the transaction dictated that time should be of the essence;

(8) If the time provision in condition 8(E) was not adhered to, there would (or at least could) be prejudice to the Plaintiff, either because it might result in the Plaintiff losing his conversion rights once the notice was given, or because the effect of an exercise by the Defendant of its rights under condition 8(E), if exercised earlier, could result in the Bond being less marketable or less easily transferable by the Plaintiff.

24. Mr Sakhrani, however, contended that the letter of 14 August 2002 was a good and valid notice for the purposes of condition 8(E), notwithstanding that it was given outside the three business days immediately prior to the Maturity Date of the Bonds. In support of this proposition, he suggested that:-

(1) Once given, the notice was a continuing notice which continued in effect into the three business days immediately prior to the Maturity Date, at which point, it would (if not previously valid) become valid.

(2) In any event, the time stipulation in condition 8(E) was not of the essence and did not require to be strictly complied with, since the purpose of the clause was to give the Plaintiff and other bondholders sufficient notice of the Defendant's intention to exercise its rights under condition 8(E), and the notice given by the letter of 14 August 2002 achieved that purpose.

25. Mr Sakhrani went on to submit that even if I was of the view that the time stipulation in condition 8(E) had to be strictly complied with, so that the notice in the letter of 14 August 2002 was not effective, the Plaintiff's claims should nonetheless be dismissed because:-

(1) The Plaintiff had waived any defect in that notice, either by his letter of 20 August 2002, or otherwise by failing to inform the Defendant, prior to the Maturity Date, that the notice given was invalid; and/or

(2) As a matter of discretion, the Plaintiff should be refused relief because of his behaviour in failing to inform the Defendant of the alleged invalidity of the notice until after it was too late for the Defendant to rectify the position.

Whether the letter of 14 August 2002 was a valid and effective notice

26. I shall consider first the question of whether or not the time stipulation in condition 8(E) was one which had to be strictly complied with. In my view, it was. I say this for the following reasons.

27. First, it seems to me that the terms of condition 8(E) are explicit and unambiguous. The condition provides for notice to be "given" within the time period stipulated. It seems to me that, having regard to Clause 15(B), the giving of notice connotes the actual act of giving notice, by the delivery or posting of the notice itself, such act to be done in the three business days immediately prior to the Maturity Date of the Bonds.

28. Secondly, condition 8(E) provided the Defendant with the right to insist on the Plaintiff and other bondholders accepting shares instead of cash in repayment of the outstanding amount under the Bonds. It was clearly a right which the Defendant was more likely to avail itself of in circumstances in which it would not be in the interests of the bondholders for it to do so - i.e., in circumstances in which the market price of the Defendant's shares was below the conversion price provided for in the Bond. In those circumstances, it would be possible for the Defendant to convert the debt represented by the Bonds into equity on terms more favourable than would be available if it had to issue new shares for subscription in the market to settle such debt. I consider that it is appropriate to take this into account when construing condition 8(E). Bearing in mind also that condition 8(E) was drafted by or on behalf of the Defendant and not the bondholders, it seems to me to be entirely appropriate to construe it strictly as against the Defendant.

29. Thirdly, if it were open to the Defendant to give notice earlier than provided for by condition 8(E), it is difficult to see what other time limit might be imposed in its place. In theory, at least, it would then be possible for the Defendant to have given notice several weeks, or even several months prior to the Maturity Date. It would, I suppose, even be open to the Defendant to give notice the day after the Bonds were placed with the bondholders. In any of those situations, the bondholders might well find it more difficult to dispose of the bonds in the market, or might have to accept a lower price for the bonds than would be the case had no notice been given by the Defendant. In this sense, it seems to me that the subject matter and commercial nature of the transaction do suggest that the time stipulation in condition 8(E) should be regarded as one which was to be strictly complied with.

30. Fourthly, if I am right in thinking that the effect of the construction of condition 8(E) proposed by Mr Sakhrani is that the Defendant could give notice at any time after the issue of the bonds, this would mean that the time stipulation is entirely otiose. This is a conclusion which I would be slow to come to, having regard to the fact that it is a stipulation which is contained in what would appear to be a carefully drafted commercial document.

31. I do not think that either of the arguments advanced by Mr Sakhrani justify my coming to a different conclusion. The suggestion that the notice, once given, is to be regarded as a continuing notice suffers from the following difficulties. First, even if the notice is to be so regarded, it would nonetheless not have been "given" within the time stipulated, since the positive act which constituted the giving of the notice would have taken place outside that time period. Moreover, this suggestion would seem to imply that the notice could be given at any time prior to the maturity date, however early in the life of the bonds. For the reasons which I have already given, this is a conclusion which I do not consider can be justified. Moreover, such an interpretation would raise further complications which are not addressed in the Deed Poll or the Conditions - for example, what would be the position in relation to such a notice, if given at a very early stage? Would it be open to the Defendant to withdraw it, if subsequent to the giving of the notice the market price of the shares were to rise sharply, so that it ceased to be advantageous to the Defendant to seek to settle the debts represented by the Bonds by the issue of shares? Nothing is said about this scenario in the Deed Poll or the Conditions, but it seems to me that questions of this nature would have been addressed in the Conditions if this were a real possibility.

32. I also do not see that there is any real force in Mr Sakhrani's second point. The terms of the Bond were clear - the Plaintiff must have known, or at any rate is to be taken as having known, that there was a risk that he would be required to take shares in satisfaction of the debt owed to him under the Bonds. It is not a matter in respect of which he has any choice. There therefore does not seem to be any particular purpose to be served by telling him what the Company has decided earlier than is provided for by condition 8(E). On the contrary, as I have pointed out in paragraph 29 above, an early notice might circumscribe or adversely affect such courses of action as might otherwise have been open to the bondholder.

33. For these reasons, I am of the view that the time stipulation in condition 8(E) was one that required to be strictly complied with. As it was not complied with in this case, it seems to me that the Plaintiff is entitled to the relief that he seeks, subject only to the questions of waiver and the exercise of discretion which are also relied upon by Mr Sakhrani.

34. Before turning to those matters, however, I would comment briefly on the other submissions made by Mr Wong which I have identified above.

35. I doubt whether the analysis by Lord Diplock in the United Scientific Holdings case is really of assistance to the Plaintiff here. There, Lord Diplock was pointing out that in the case of an option constituting a true "if contract" or unilateral contract, where a contractual relationship comes into existence, or is brought to an end (for example in the case of a break clause), time (where it is stipulated) is of the essence because of the need for correspondence between offer and acceptance. Lord Diplock contrasted such a unilateral contract with a synallagmatic contract in which an obligation is expressed to arise upon the occurrence of a designated event. It seems to me that the contract in this case falls within the latter class - the rights and obligations of the parties were provided for in the contract. The exercise by the Defendant of its rights under condition 8(E) would not have brought a new contract into existence. Nor would it have terminated the existing contract between the parties. All that would have happened would be that the Defendant had availed itself of a course of action that was open to it under the terms of the agreement which it had made with the Plaintiff. That is not, in my view, an option (despite the use of that word in the heading to condition 8(E)) in the sense that was being considered by Lord Diplock at page 929 of the judgment in the United Scientific Holdings case. Further, I do not consider the decision in Samuel v Hayek (supra) to be of particular assistance in this case, particularly as that decision was expressly overruled by the House of Lords in the United Scientific Holdings case.

36. Similarly, I doubt whether the submissions which I have summarised in paragraphs 23(4) and (5) above take the matter a great deal further in this case, having regard to my analysis in the previous paragraph of the "option" in condition 8(E).

37. Finally, so far as the terms of clause 1.4 and 16.3 of the Placing Agreement are concerned, it seems to me that the fact that time was expressly made of the essence of the Placing Agreement is relevant to the obligations arising as between the parties to that agreement - namely the Defendant and the placing agents, but not to the obligations of the Defendant to the Bondholders, which were governed not by the Placing Agreement, but by the Deed Poll and the Conditions. The fact that these documents (in draft form) were incorporated into the Placing Agreement does not, I think, result in the terms of the Placing Agreement being incorporated into them, save perhaps in relation only to clause 2(A) of the Deed Poll.

38. Nonetheless, for the reasons which I have already given, I am of the view that the notice purportedly given by the Defendant pursuant to condition 8(E) by its letter to the Plaintiff dated 14 August 2002 was not valid or effective, and did not operate to entitle the Plaintiff to discharge its indebtedness to the Plaintiff by the issue of shares to the Plaintiff by reference to the conversion price under the Bonds.

Waiver

39. I turn to consider the question of whether or not the Plaintiff has waived his right to treat the purported notice given by the Defendant as invalid. The only matter that Mr Sakhrani was able to point to in support of this contention was the Plaintiff's letters of 20 August 2002 and 9 September 2002. Mr Sakhrani submitted that by the letter of 20 August 2002, the Plaintiff treated the notice contained in the Defendant's letter of 14 August 2002 as valid.

40. I am unable to read the Plaintiff's letter of 20 August 2002 as indicating that the Plaintiff was treating the purported notice of 14 August 2002 as valid. All that the Plaintiff was there doing was to request that the Defendant redeem the Bonds which he held by a payment of cash. He does not refer to the letter of 14 August as a notice. Nor can it be said that by requesting payment in cash, he was acknowledging that a valid notice pursuant to condition 8(E) had been served upon him. If anything, his request for payment in cash, and complaint at the perceived unfairness of the course proposed by the Defendant, might suggest that he did not regard the matter as closed, in that it was not too late for the Defendant to change its mind and refrain from giving notice in accordance with the terms of condition 8(E), which it had not yet done.

41. Mr Sakhrani submitted that where a party by his conduct led another to believe that the strict rights arising under the contract between them would not be insisted on, intending that the other should act on that belief, and the other did act on it, then the first party would not be allowed to insist on his strict legal rights where it would be inequitable for him to do so (see W J Alan & Co v El Nasr Export [1972] 2 QB 189, per Lord Denning MR at 213). This is no doubt correct. However, I am unable to see that the Plaintiff, in writing as he did on 20 August 2002, did anything which could have led the Defendant to think that he was treating the notice given on 14 August 2002 as valid. Mr Sakhrani submitted that as the Plaintiff never explicitly stated or treated the notice of 14 August 2002 as invalid, he must be taken by his letter of 20 August 2002 to have treated it as valid.

42. With respect, that appears to me to be a non sequitur. It does not follow from the fact that there was no explicit statement by the Plaintiff to the effect that he regarded the notice as invalid that the Plaintiff was treating it as valid. At best, he was silent on the point. However, he was to my mind under no obligation to point the invalidity of the notice out to the Defendant in order to enable them to rectify the position. In failing to point out the invalidity of the notice, he did not do anything which could have led the Defendant to think that he regarded the notice as valid.

43. Moreover, it seems to me that on the basis of the Defendant's evidence, the Defendant was of the view (which I have concluded was mistaken) that the notice which it had served on 14 August 2002 was valid and effective for the purposes of condition 8(E) , and that it appears to have considered that it was unnecessary to respond to the Plaintiff's letter because, a valid notice having been given, the Plaintiff was not in a position to insist on payment in cash. In these circumstances, it would not appear that the Defendant was led to act any differently as a result of the Plaintiff's letter.

44. I therefore do not consider that there was any waiver by the Plaintiff of his right to insist on strict compliance with the terms of condition 8(E), or of his right to contend, as he does in these proceedings, that the notice served by the Defendant on 14 August 2002 was invalid and ineffective for the purposes of that condition.

Clean hands

45. The Defendant's last point can, I think be dealt with very briefly. In essence, it amounted to a submission that the granting of a declaration involves an equitable remedy, which is subject to the usual equitable considerations including a consideration of whether the Plaintiff has come to court with clean hands. I am not sure that this is necessarily correct where a Plaintiff seeks, as it appears to me that the Plaintiff in this case does, declarations as to his legal rights under a contract entered into between himself and the Defendant.

46. But even if it did, I cannot see that the Plaintiff can be said to have come to court with hands that are less than clean. The Defendant's complaint under this argument is really no different from the waiver argument - that the Plaintiff has somehow acted shadily or dishonourably in failing to point out to the Defendant the defect in the notice which it served on him on 14 August 2002. I cannot see that this is so - even if (which is not entirely clear on the evidence) the Plaintiff was alive to the invalidity of the notice served by the Defendant when he wrote to the Defendant on 20 August 2002, given that I am of the view that he was under no obligation to do so, he was entitled to seek to rely on his strict legal rights, not having done anything to lead the Defendant to think that he would not do so.

Conclusions

47. For all of these reasons, I would grant the Plaintiff the relief sought in paragraphs 1 and 2 of the Originating Summons, save that the reference to the Defendant at the end of the third line of paragraph 1 should, I think, be a reference to the Plaintiff. I would also grant orders in terms of the relief sought under paragraphs 3 to 6 of the Originating Summons, as it seems to me that these follow from my making the Declarations sought under paragraphs 1 and 2. Although the Defendant did tender the sum of $18,000 to the Plaintiff by its cheque dated 4 September 2002, it seems to me that the Plaintiff did not act unreasonably in failing to present that cheque for payment, since had he done so, he might have been faced with an argument that he had in some way accepted the correctness of the position being taken by the Defendant. So far as interest is concerned, the Plaintiff seeks interest only on the principal sum of HK$720,000, and I propose to award interest on that sum from 23 August 2002 to the date of judgment at 1% over the Hongkong & Shanghai Banking Corporation's best lending rate. Finally, the Plaintiff having succeeded in his claim, I shall make a costs order nisi that the Defendant should pay the Plaintiff his costs of these proceedings, to be taxed on the party and party basis if not agreed.