EXTRA CONCEPT LTD v. AN JINCHEN

HCA 1591/2019

[2023] HKCFI 1133

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1591 OF 2019

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J U D G M E N T

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1.  In this action, the plaintiff, Extra Concept Limited (“P”), seeks specific performance and damages against the defendant, Mr An Jinchen (“D”), in respect of a Put Option Agreement dated 12 December 2014 (“Put Option Agreement”).

2.  In his Defence, D pleaded the following grounds in opposition to P’s claims:

(1)  D never entered into or executed the Put Option Agreement or granted any put option in favour of P[1];

(2)  D “is not literate in English”[2];

(3)  The Put Option Agreement “makes no commercial sense”, it is inconceivable for D to grant a put option which requires him to purchase the share of an “unknown/unrelated company at a substantial price, in return for a nominal consideration of HK$1.00” [3]; and

(4)  The Put Option Agreement is “void for total failure of consideration” and hence unenforceable[4].

3.  Until 22 March 2023 when he filed a notice to act in person, D was represented by Messrs. Hastings & Co.  By letter dated 18 April 2023 sent to the court, D stated that he was required to remain in the Mainland and would not be able to attend the trial, but urged the court to consider the opening submissions belatedly lodged by him on 17 April 2023[5]. By letter dated 18 April 2023 , D was informed that the trial will proceed as scheduled. 

4.  D does not attend the trial to give evidence.  Consequently, his witness statement dated 15 July 2020 and his supplemental witness statement dated 4 January 2021 are not admissible.  There is no evidence in support of any of the defences raised in his Defence. 

5.  P calls 2 factual witnesses to give evidence at trial.  They are Mr Wong Fung Yuen (“FY Wong”), a director of P; and Mr Lee Kwok Wa (“Lee”), a solicitor at Messrs C&T Legal, LLP (“C&T”).  Each of FY Wong and Lee adopts his witness statement as his evidence-in-chief.  Neither FY Wong nor Lee has been subject to any cross-examination and their evidence remain unchallenged.   

A.  BACKGROUND

6.  Save where otherwise indicated, the following facts and matters are not in dispute.

A1.  Parties

7.  P is a company incorporated in the British Virgin Islands.  It is an investment holding company owned and controlled by the members of the Wong family including FY Wong and his elder brother, Mr Wong Chung Tak.  The Wong family also owns and controls other companies bearing the name of “Thing On” (晉安), including Thing On Capital Ltd (晉安融資有限公司) (“Thing On”) and Thing On Holdings Ltd. 

8.  Asia Galaxy Ltd (“AGL”) is a wholly owned subsidiary of P and FY Wong and Mr Roland Wong (“Roland”) are its directors. 

9.  FY Wong came to know D in 2011. At that time, D introduced himself as the Chairman and ultimate beneficial owner of Tianlai Holding Group Limited (天來控股集團有限公司) (“THGL”), which was said to be a conglomerate based in Chongqing in the Mainland engaging in property development, real estate investment, hotel construction, finance and cultural businesses in various jurisdictions. 

10.  THGL has a subsidiary, Chengdu Tianlai Real Estate Development Co. Ltd (成都天來房地產開發有限公司) (“Chengdu Tianlai”), which operates in Chengdu in the Mainland.   

A2.  TF Agreement and Facility

11.  In 2014, D approached P to see if it was interested in becoming one of the lenders of a syndicated loan facility in favour of THGL, which would be secured by a personal guarantee to be given by D. P was not interested and did not participate in the proposal.

12.  By a Term Facility Agreement dated 18 July 2014 (“TF Agreement”) entered into between THGL (as borrower), Wing Lung Bank Ltd (“WLB”) (as facility agent and security agent), and the Original Facility A and B Lenders named therein, THGL obtained a syndicated term loan facility of up to HK$1,795 million (“Facility”).

13.  The TF Agreement was executed by D on behalf of THGL and contains the following terms:

(1)  D is the “Personal Guarantor” and will grant a Personal Guarantee dated on or about the date of the TF Agreement in favour of WLB (clause 1.1).  The execution of the Personal Guarantee was a condition precedent to drawdown of the Facility (Schedule 4, §2(e)). 

(2)  The Facility was to repay the “amounts outstanding under the Existing Facility Agreement” (i.e. the facility agreement entered into by Chengdu Tianlai) (clause 3.1(a)).

(3)  Interest on each Facility A loan is 10% per annum (clause 8.1(a)).

14.  The Facility was drawn down by THGL in full. 

A3.  Proposed Transfer of Loan to P

15.  In December 2014, Junson Capital Company Ltd (“JCCL”), one of the Original Facility A Lenders under the TF Agreement, wished to sell its rights and obligations in respect of the HK$100,000,000 it had advanced to THGL pursuant to the TF Agreement (“Loan”). D approached P again to see if P would purchase JCCL’s rights in the Loan so that the Facility could continue.

16.  According to FY Wong, D offered the following incentives to secure P’s agreement to act as a replacement lender:

(1)  In addition to 10% interest payable under the TF Agreement, D would pay a monthly commitment fee of 14% per annum on any outstanding principal due to P (“Commitment Fee”). 

(2)  D would buy back all the rights and obligations under the Loan to be acquired by P from JCCL (“Buyback Undertaking”).

17.  In his email dated 9 December 2014 to Roland, Mr Wang Jing of JCCL stated that “An Zong just called and informed me that you would like to move forward with the deal”.  The reference to “An Zong” was a reference to D.

A4.  Commitment Fee - Entrustment Agreement and Side Letter

18.  So far as the Commitment Fee is concerned, P relies on the following 2 agreements:

(1)  委託協議 (in Chinese) dated 1 December 2014 made between D (as party A) and Chengdu Tianlai (as party B) (“Entrustment Agreement”), which was executed by D and Chengdu Tianlai; and

(2)  The Side Letter Agreement (“Side Letter”)dated 12 December 2014 executed by P and D.

19.  The Entrustment Agreement (as translated) states that as follows:

“In December 2014, Party B’s syndicated loan members in Hong Kong need to withdraw. The syndicated party requires Party B to find a new funder as replacement. The new funder is the company designated by a person from Hong Kong, Wong Chung Tak of Thing On Company, with the amount of HKD100 million, and the total interest rate is 24%/year (the funds of the said substitute are on the senior level of the syndicate. The interest within the syndicate is 10% per year, and Party B is required to make up an additional interest of 14% per year). Party B entrusts Party A, Mr. An Jinchen or company held by him, to sign the relevant agreement and pay this interest difference on its behalf, and the said interest difference shall be paid monthly, and Party B shall bear the full amount. Party B recognizes all expenses incurred by this entrustment and assumes the corresponding debts. Party A shall enjoy the corresponding obligations against Party B, and shall be fully responsible for the losses and damages incurred by Party A.” (underlined added)

20.  The Side Letter contains, inter alia, the following terms:

(1)  Recital A refers to and exhibits the TF Agreement;

(2)  Recital C states that JCCL has participated in the Facility and is interested in the Loan;

(3)  Recital D states that:

“[JCCL] desires to sell and transfer the entire [Loan] for a consideration equal to the face value of the [Loan]. [D] has introduced [P] who would be interested in acquiring the [Loan] through its wholly owned subsidiary [AGL] (the ‘New Lender’). In consideration of [P] agreeing to procure [AGL] to acquire the [Loan] from [JCCL], [D] agrees to pay a commitment fee to [P] on the terms and conditions set out in this Agreement.”

(4)  Clause 1.1 defined “Outstanding Sum” as the total amount due from THGL to AGL from time to time under the TF Agreement”.

(5)  Clause 2 sets out the conditions precedent, namely “(i) an agreement having been reached between [JCCL] and [AGL] for the transfer by novation … all of [JCCL’s] rights and obligations under the [TF Agreement] … to [AGL]; and (ii) [AGL] paying [JCCL] in full the consideration for the transfer of the [Loan]”.

(6)  Clause 3.1 provides that “[i]n consideration of [P] agreeing to procure [AGL] to acquire from [JCCL] the [Loan], [D] agrees to pay [P] the Commitment Fee equals to fourteen (14%) per annum on the Outstanding Sum from time to time until the Outstanding Sum is repaid in full”.

(7)  Clause 5.1 states that D represents and warrants to P that “(i) the obligations expressed to be assumed by him under this Agreement are legal, valid, binding and enforceable in accordance with its terms …”.

A5.  Buyback Undertaking - Option Agreement

21.  It is FY Wong’s evidence that the Buyback Undertaking was implemented in this way:

(1)  P would use AGL to acquire JCCL’s rights and obligations under the Loan;

(2)  If necessary, P could require D to purchase AGL and hence all the rights and obligations under the Loan; and

(3)  The parties would execute a Put Option Agreement giving P the option to require D to purchase AGL.

22.  The Put Option Agreement, as executed by P and D, contains the following terms:

(1)  P is the legal and beneficial owner of AGL’s only paid up share (“AGL Share”).  AGL’s sole business is the holding of the Loan (Recital A, §7(a) of Schedule 4).

(2)  Recital C describes the transfer of the Loan from JCCL to AGL:

“[JCCL] had participated in the [Facility] and as of the date hereof is interested in the sum of HK$100 million (‘Loan Receivable’) in the [Facility]. [JCCL] and AGL has reached an agreement for the transfer by novation … all of [JCCL’s] rights and obligations under the [TF Agreement] … which relate to that portion of [JCCL’s] commitment and participations in the [Facility] to the AGL.”

(3)  Clause 3.1 describes the grant of the Put Option:

“In consideration of the sum of HK$1.00 paid by [P] to [D] (the receipt, sufficiency and adequacy of which, [D] hereby acknowledges) and subject to Clause 2, [D] hereby grants to [P] an option (the ‘Put Option’) to require [D] to acquire the AGL Share together with the Shareholder’s Loan[6] at the Option Price calculated as per Clause 3.2 below, which Put Option may be exercised, if at all, at any time during the Option Period as provided in Clause 5”.

(4)  Clause 3.2 sets out how the Option Price is calculated:

“The price for acquiring the AGL Share and the Shareholder’s Loan upon exercise of the Put Option equals to the sum (‘Option Price’) of (i) fair value of the Net Assets of AGL; and (ii) the amount of the Shareholder’s Loan [P] assigns to [D] on a dollar to dollar basis, both upon Completion. The value of the Net Assets will be established by a completion accounts (‘Completion Account’) prepared by [P] in accordance with in accordance with HKFRS and consistent with AGL’s past accounting practices. In the event that [D] disagrees with the value of the Net Assets shown in the Completion Account, it may serve notice in writing to the [P] within one month from Completion requesting an audit on the Completion Account. Within one month thereafter an auditor acceptable to both parties shall be appointed to audit the Completion Account at the costs of [D]. The results of the audit will be final and conclusive and binding upon both parties. Any adjustment for shortfall or surplus (as the case may be) shall be settled between the parties within five (5) business days from the day of issue of the audit report.”

(5)  Clause 4.2 provides that“[o]n the effective exercise of the Put Option, [D] shall be bound to buy from [P] the AGL Share at the Option Price … and the AGL Share shall be sold and the Shareholder’s Loan shall be assigned …”.

(6)  Clause 5 provides that the Put Option “may be exercised at any time from the satisfaction of the Grant Condition and ends at the repayment or otherwise redemption of the [Loan] in full by [THGL]”.

(7)  Clause 6.1 provides that “[c]ompletion of the sale and purchase of the AGL Share and assignment of the Shareholder’s Loan pursuant to exercise of the Put Option shall take place at 10:00 a.m. on the second business day … after the serving of the Put Option Notice at [P’s][7] principal place of business in Hong Kong at the address set out in Clause 8 …”.

(8)  Clause 6.2 provides that, upon Completion, P shall deliver various documents pertaining to the AGL Share to D, and D shall pay to P the Option Price.

(9)  Clause 6.4 provides that “[i]f Completion does not take place on the Completion Date as a result of failure to comply with its obligations under Clause 6.2 or breach of other provisions of this Agreement by [D], [D] is liable to pay [P] damages in the amount of HK$150,000 per day until fulfilment by [D] of its obligations hereunder, including without limitation, payment of the Option Price in full”.

10)  Clause 8 provides thatany notice shall be deemed validly served by delivery to D’s stated address at Golden Plaza upon expiry of 2 days after the package containing the same shall have been received by the courier company.

A6.  Transfer of Loan

23.  The transfer and novation of the Loan from JCCL to AGL was completed on 16 December 2014, evidenced by the following documents:

(1)  In the emails dated 12 December 2014 between JCCL, WLB and P, the parties agreed to execute the transfer documents at WLB on 16 December 2014;

(2)  By a cheque dated 16 December 2014, AGL paid HK$100,000,000 to JCCL;

(3)  By a Form of Transfer Certificate dated 11 December 2014 signed by JCCL, AGL and WLB, the parties confirmed that JCCL’s rights and obligations under the TF Agreement which relate to the Loan were transferred to AGL with effect from 16 December 2014; and

(4)  By email dated 16 December 2014 to Roland, WLB confirmed that “[t]he HKD100m loan has been transferred from [JCCL] to [AGL] today, as part of the HKD1795m loan to [THGL]”.

A7.  Performance of Side Letter

24.  Pursuant to the Side Letter, from 15 March to 15 October 2015, P issued debit notes to D every month requiring him to pay the Commitment Fee on the Loan.  All the debit notes were emailed to Ms Shaine Jiang (“Shaine”), a staff of “Tianlai Group”. 

25.  In her email dated 20 October 2015 to Roland, Ms Edith Chan (“Edith”), the Assistant Finance Manager of “Tianlai Group”, stated that:

“We are now preparing a personal financial statement of 安總 and we noted that [sic] were loans from your side. While we do not have any related loan agreements on hand, would you please help to provide for [sic] signed copies of the agreements?”

26.  In around November 2015, THGL repaid approximately HK$22 million to P, leaving an unpaid principal of HK$77,715,877.44 (“Reduced Loan”). 

27.  In the debit notes issued by P to D from 15 December 2015 onwards, the Commitment Fee was calculated at 14% p.a. of the Reduced Loan.  The debit notes were sent to Shaine and/or Edith.

28.  On 8 November 2016, Roland sent an email to Edith, attaching “2 files of summary of Mr An’s interest due” as of 31 October 2016 (“10/2016 Summary”) and 8 November 2016 (“11/2016 Summary”):

(1)  In the 10/2016 Summary, D was described as “借款人” (borrower) liable to pay interest on 3 loans, namely (a) the Reduced Loan at 14% p.a.; (b) a loan in the principal amount of HK$100 million at 24% p.a.; and (c) another loan in the principal amount of US$13 million at 18% p.a.;and

(2)  In the 11/2016 Summary, D was described as “借款人” liable to pay interest on the same 3 loans save that in respect of the Reduced Loan, interest was stated at “14% + 10%”.

29.  Thereafter, D signed a 承諾函dated 22 December 2016 (“Letter of Commitment”) in these terms:

“本人承諾於六個月內為晉安公司解決收回有關投資於永隆銀行天來項目約七千八百萬元債權餘額, 以及從成都天內所購買一億元商舖之安排”

 (Agreed translation: “I promise to solve and take back for Thing On Company, within six months, the arrangements about the remaining debt obligation(s) of approximately 78 million yuan invested in the Tianlai Project of Wing Lung Bank, and the purchase of retail units in the sum of 100 million yuan from Chengdu Tianlai.”)

30.  In another summary dated 31 December 2016 (“12/2016 Summary”), D was again listed as “借款人” of the Reduced Loan liable to pay interest at “14% + 10%”.  The 12/2016 Summary was signed by D under “Confirmed by An Jinchen on 6^th January 2017”.

31.  By email dated 22 May 2017 to Roland, Ms Queena Wong of THGL (“Queena”) attached a summary dated 4 May 2017 requesting him to read the words written in blue.  In respect of the Reduced Loan (listed as item 2), someone circled the interest calculation for the period from 16 May to 15 September, and wrote the following words immediately before D’s signature on 22 May 2017:

“此前利息已全結清, 按原承諾必須將整體利息調為年10~12%”

 (Agreed translation: “The interest has been fully settled before, and according to the original commitment the overall interest must be adjusted to 10%~12% per year”)

32.  On 25 May 2017, Roland sent an email to Queena attaching an “updated loan summary of Mr An” which set out the interest on the Reduced Loan for the period from 16 June to 15 September at 14%, 10% and 12%, and underneath the column “current interest 12%”, it was stated in red “先還利息, 本金四個月內回購”.

A8.  Exercise of Put Option

33.  From May 2019 onwards, D failed to make any further payment to P.

34.  By letter dated 14 August 2019 from C&T to D, P exercised the Put Option by enclosing:

(1)  a copy of the “Notice to exercise Put Option” (“Notice”) in the prescribed form[8], requiring D to purchase the AGL Share at the option price of HK$97,267,658.43 (“Option Price”), which shall be completed at 10:00 a.m. on 20 August 2019 (“Completion Date”); and

(2)  the balance sheet of AGL as at 20 August 2019, which shows that AGL had total assets of HK$97,267,658.43, of which HK$85,849,429.54 was “INV: Wing Lung Bank Bonds”; and its liability was HK$60,570,964.46, all of which was owed to P (“Shareholder’s Loan”).   

35.  The Notice was sent to D to inter alia the address for service stated in the Put Option Agreement.  The courier received the package on 14 August 2019 and delivered it on 15 August 2019.

36.  D did not comply with the Notice or take any step to purchase the AGL Share on the Completion Date. 

37.  By letter dated 21 August 2019, Messrs. SSW & Associates on behalf of P referred to the Notice and D’s failure to complete the purchase of the AGL Share, and stated that D is liable to pay damages in the amount of HK$150,000 per day from 20 August 2019.  The letter demands D to pay the Option Price and the damages in full within 7 days thereof.

38.  No payment was made by D.  P commenced this action against D  on 29 August 2019.

B.  ANALYSIS

39.  P’s case is straight-forward.  It seeks to enforce the terms of the Put Option Agreement which was on its face signed by D. Unless D is able to establish a recognized legal basis to disown the Put Option Agreement, he is bound by its terms (Ming Shiu Chung & ors v Ming Shiu Sum & ors (2006) 9 HKCFAR 334 at §§84-87, per Ribeiro PJ). 

40.  It is not in dispute that the Notice in the prescribed form was duly served on D on 15 August 2019.  If and insofar as it is necessary, the Notice was deemed to have been served on 16 August 2019.  D never indicated his disagreement on the Option Price or served any notice requesting an audit on AGL’s balance sheet.  Pursuant to clause 6.1 of the Put Option Agreement, D was obliged to purchase the AGL Share on the Completion Date but he failed to do so. 

41.  It seems to me that subject to the defences raised by D, P is entitled to (1) a decree of specific performance requiring D to purchase the AGL Share at the Option Price; and (2) an order that D do pay damages in the amount of HK$150,000 per day from the Completion Date pursuant to clause 6.4 of the Put Option Agreement.   

42.  I turn to consider the defences raised by D.

B1.  Put Option Agreement allegedly not executed by D

43.  Mr Justin Lam, counsel for P, submits that the present case is primarily a factual dispute which turns on the assessment of the evidence. The approach of the court in fact-finding has been stated by DHCJ Eugene Fung SC (as he then was) in Hui Cheung Fai v Daiwa Development Ltd, HCA 1734/2009, 8 April 2014, §§76-82:

“76. In making my findings of fact in this case, I am guided by a number of general principles which judges apply as to fact finding and the assessment of credibility.

77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility …

78. In deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events …

79. In determining a witness’ credibility, I have also attached importance 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 a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from … the assessment of the witnesses’ character.

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

‘Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.’

82. Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court’s determination. They are particularly apposite in a case like the present where very serious allegations (akin to allegations of fraud) have been made …” (underlined added)

44.  Mr Lam submits that D’s allegation that he never signed the Put Option Agreement is an extremely serious allegation.  In effect, D is alleging a criminal conspiracy which involved P and Lee creating 2 fictitious agreements and forging D’s signatures on such agreements.  The burden is on D to prove that the signatures on the Put Option Agreement and the Side Letter were not genuine.  This accords with the principles stated in the following cases:

(1)  To Pui Kui v Ng Kwok Piu, CACV 281/2012, 21 August 2014, §31, per Lam VP (as he then was):

“Since it was the Plaintiff who alleged that the official resolution was a forged document, she bore the burden of proving that the signatures of the father were not genuine. The judgments of the Court of Final Appeal in Nina Kung v Wong Din Shin (2005) 8 HKCFAR 387 and Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 clearly stated that inferences of fraud or forgery were not to be reached by conjecture. There must be a proper foundation of primary facts to provide a reasonable basis for a definite conclusion of such serious misconduct to be inferred.”

(2)  Lee Yuk Shing v Dianoor International Ltd (in liq) [2016] 4 HKC 535, §37, per Kwan JA (as she then was):

“Whilst an inference of fraud may be drawn on the basis of circumstantial evidence where direct proof is not available, such an inference must be properly grounded in the primary facts found and the court must guard against indulging in conjecture under the guise of drawing an inference where the primary evidence does not logically and reasonably justify the particular inference in question. There is the need for such a disciplined approach to the drawing of inferences, in particular for inferences of fraud or serious misconduct to be drawn only where such inferences are compelling.”

45.  As D has not adduced any evidence to prove that the signature on the Put Option Agreement was not his signature, his defence that the Put Option Agreement was not executed by him must fail.   

46.  In any event, the contemporaneous documents and evidence all show that the Put Option Agreement was signed by D as part and parcel of the arrangements put in place by D to secure P’s agreement to acquire the Loan from JCCL.

47.  First, the Entrustment Agreement (admittedly signed by D) confirms that D was involved in finding P/Thing On as a replacement lender under the Facility, and that he signed the relevant agreement for paying the “additional interest of 14% per year” (i.e. the Commitment Fee) at the request of Chengdu Tianlai. 

48.  Second, apart from signing the Put Option Agreement, D also signed the Side Letter on 12 December 2014 in the presence of Lee.  The fact that D signed both agreements on 12 December 2014 is confirmed by the evidence of Lee. It is also corroborated by the email between Roland and Lee on 11 December 2014, wherein he attached the WORD version of the Side Letter and the Put Option Agreement, and stated that Lee would meet D at his office at 9:30am on 12 December 2014 to sign the agreements.  Although D belatedly suggests that he did not sign the Side Letter in the presence of Lee[9], such suggestion is incredulous as it is only raised for the first time more than 6 years after the Side Letter came into existence and more than 2 years after the commencement of this action.

49.  D also in his supplemental witness statement (“SWS”) makes the point that Lee did not sign as attesting witness in the Put Option Agreement, unlike the transaction documents in respect of a HK$50 million loan advanced by Thing On to D in December 2016[10]. There is nothing in the point.  As explained by Lee in his oral evidence:

(1)  unlike a mortgage which is executed as a deed and needs to be attested, the Put Option Agreement is an agreement under hands and does not need to be attested; and

(2)  the HK$50 million loan was advanced by Thing On as money lender, and Thing On required Lee to sign all relevant documents as attesting witness. 

50.  Third, the arrangements put in place by D to secure P’s agreement to acquire the Loan from JCCL to AGL including all the conditions precedent stipulated in clause 2 of the Side Letter were completed on 16 December 2014, evidenced by the contemporaneous documents described in §23 above.

51.  Fourth, until May 2019, D continued to pay the monthly Commitment Fee on the Loan/the Reduced Loan pursuant to the debit notes issued by P.  The staff of THGL (Edith and Shaine) were fully aware of D’s agreement to pay the Commitment Fee and were involved in arranging payments of the same and preparing D’s personal financial statement in accordance with the agreements signed by D and P, as can be seen from the facts described in §§24-28, 30-32 above.

52.  Fifth, D signed the Letter of Commitment confirming his agreement to “take back” the Reduced Loan.  This Letter is consistent with and supports P’s case on the Buyback Undertaking.  If, as D alleges, he never executed the Put Option Agreement, there was no reason why he had to give such a commitment to “take back” the Reduced Loan within 6 months.  

53.  Lastly, as submitted by Mr Lam, D’s signature on the Put Option Agreement is the same as his signature on the Facility, the Waiver Letter and the Side Letter.   

54.  There is not a shred of evidence in support of D’s allegation that he never executed the Put Option Agreement.  The allegation is contradicted by all the contemporaneous documents and the evidence adduced by P and must be rejected.

B2.  D “not literate in English”

55.  The point can be disposed of shortly.  As a matter of law, once D signed the Put Option Agreement, he cannot disavow it on the ground that he does not know or understand its contents (Ming Shiu Chung, §§84, 86).

B3.  Put Option Agreement “makes no commercial sense”

56.  This is not a valid defence to the claim. 

57.  If, as I so hold, D is bound by the terms of the Put Option Agreement he signed, it does not matter whether the Put Option Agreement makes any commercial sense. 

58.  In any event, D’s allegation is wholly without merit for the following reasons:

(1)  AGL is not an “unknown/unrelated company” but a vehicle used by P to purchase the Loan from JCCL, and D was intimately involved in securing P’s agreement to use AGL to purchase the Loan so as to ensure that the Facility advanced to his company (THGL) could continue;

(2)  The Option Price is equivalent to the value of the assets of AGL.  In purchasing the AGL Share, in effect D is acquiring all the rights held by AGL in the Reduced Loan (including the Commitment Fee and interest accrued thereon) as well as the other assets held by AGL. Although AGL has liability in the form of the Shareholder’s Loan, such Shareholder’s Loan will be assigned to D on completion and hence does not need to be repaid; and

(3)  D has been personally liable to repay the Facility which includes the Loan/Reduced Loan. The obligation to purchase the AGL Share (and hence the Reduced Loan) is no more onerous than his existing obligation to repay the Reduced Loan under the TF Agreement.   

B4.  Alleged total failure of consideration

59.  Mr Lam submits that the argument that the Put Option Agreement is void for total failure of consideration is wholly without basis, relying on the principle on contractual estoppel in Wong Lai Ling v Lam Kin Chung, HCA 828/2011, 10 August 2012, §34:

“Where in my judgment it is quite impossible for the defendant to demonstrate that this agreement was a sham then the law must take its course on the face of the document itself which contains an ‘express acknowledgment’ clause which will bind the party signing the document and give rise to a contractual estoppel which prevents the defendant from now asserting facts contrary to what he has acknowledged. In this case the defendant acknowledged receipt of the loan advance in the Loan Agreement and in my judgment is now estopped from denying that this was so. The parties had entered into this agreement which in my judgment is conclusive. … The case of Peekay Intermark Ltd v ANZ Banking Group Ltd [2006] 1 CLC 582 at paras 57-60 and para 70 is authority for the proposition that it is open to a party to enter into transactions on the basis that a certain state of affairs is true. In this case the defendant had acknowledged receipt of the loan and he is therefore now to be prevented from denying that this was the case.”

60.  Any doubt that the doctrine of contractual estoppel may not form part of the law in Hong Kong was dispelled by Barma JA in Nokia Corp v TCT Mobile Ltd [2017] 3 HKC 102, §§20-24:

(1)  Where the terms of the agreement assume or stipulate a certain state of affairs to be the case, the parties will be bound to proceed on the basis that this is the position for the purposes of the agreement, whatever the true state of affairs may be as a matter of actual fact.  It would not be open to any party to contend otherwise.

(2)  Such provisions were commercially useful, in that they enabled the parties to know precisely the basis on which they entered into their contractual relationship.

(3)  The concept is quite firmly established in English law and there are sound reasons for it to be adopted in Hong Kong, as it would promote certainty in contractual relationships, and reduce the scope for disagreement and disputes in the working out of the contract.

61.  Mr Lam contends that in clause 3 of the Put Option Agreement, D expressly acknowledges the “receipt, sufficiency and adequacy” of HK$1.00 as consideration for the contract.  D is estopped from denying the same, and cannot assert any failure of consideration.  Alternatively, there was clearly consideration for the Put Option Agreement as it was entered into by D as part of the incentives provided to P to purchase JCCL’s interests in the Loan for the benefit of THGL, of which he was the Chairman and ultimate beneficial owner.  In this regard, the doctrine of consideration is simply that “[a]n act or forbearance of one party, or the promise thereof, is the price for which the promise of the other is bought, and the promise thus given for value is enforceable” (Dunlop Pneumatic Tyre Company Ltd v Selfridge and Co Ltd [1915] AC 847, 855).

62.  In my view, clause 3.1 of the Put Option Agreement is sufficient to defeat D’s contention that the Put Option Agreement is “void for total failure of consideration”.  Under clause 3.1, D acknowledges the fact that P has provided consideration for the Put Option Agreement and that such consideration is sufficient and adequate.  It is not open to D to allege that there was no or insufficient consideration in support of the Put Option Agreement. 

C.  DISPOSITION AND RELIEF

63.  For the reasons set out in section B1 – B4 above, none of the defence advanced by D has any merit. 

64.  Mr Lam submits that specific performance is the appropriate relief, relying on the well-established principle expounded in Johnson v Agnew [1980] AC 367, at 392:

“… in a contract for sale of land, after time has been made, or has become, of the essence of the contract, if the purchaser has fails to complete, the vendor can either treat the purchaser as having repudiated the contract, accept the repudiation, and proceed to claim damages for breach of the contract, both parties being discharged from further performance of the contract; or he may seek from the court an order for specific performance with damages for any loss arising from delay in performance. … This is simply the ordinary law of contract applied to contracts capable of specific performance.”

65.  The principle has been applied to put option contracts for the sale and purchase of shares (see Galaxy China Opportunities Fund v Tang Jun, HCA 1629/2011, 22 May 2015, §§41-42).

66.  Further, as noted in Lau Suk Ching Peggy v Ma Hing Lam(2010) 13 HKCFAR 226 at §46:

“A plaintiff who seeks a decree of specific performance must show: (a) that he has in the past performed or been ready to perform all the essential terms and conditions of the contract to be then performed by him; and (b) that he is ready, willing and able to perform all such terms and conditions thereafter to be performed by him.”

67.  Mr Lam contends that P is entitled to specific performance of the Put Option Agreement, having regard to the following facts and matters:

(1)  The Notice was duly served on D in accordance with clause 8 of the Put Option Agreement;

(2)  The Notice contained all the material terms and enclosed the completion accounts in accordance with clause 3.2 of the Put Option Agreement. D never challenges the completion accounts or requires any audit of the same.  The Option Price stated in the Notice is therefore final and binding on D; and

(3)  P remains ready, willing and able to perform its obligation of transferring the AGL Share and the shareholder’s loan to D on completion.

68.  P claims damages against D for his failure to comply with the Notice pursuant to clause 6.4 of the Put Option Agreement.

69.  It is well-established that the burden falls on the defendant to establish that a clause is a penalty clause (Dragon Access Holdings Ltd v Lo Chu Hung [2020] HKCFI 2895, §§5, 99). As D has not pleaded or alleged that clause 6.4 is a penalty clause, the clause is valid and enforceable against D. 

70.  I agree with Mr Lam’s submissions. 

71.  In D’s letter to the court, he refers to his dire financial position and that of THGL which suggests that he may not have the financial means to comply with an order for specific performance. As Mr Lam submits, if the order for specific performance is not complied with by the purchaser, the vendor may either apply to the court for enforcement of the order, or to dissolve the order and put an end to the contract and pursue a claim in damages (Xiamen Xinjingdi Group Co Ltd v Eton Properties Ltd (2020) 23 HKCFAR 348 at §149).  P is entitled to decide what steps should be taken in the event that D fails to purchase the AGL Share.

72.  I therefore give judgment in favour of P in the following terms:

(1)  D do within 28 days from the date of this Judgment deliver to P’s solicitors (a) a cashier order drawn on a licensed bank in Hong Kong in the sum of HK$97,267,658.43 payable to P, and (b) the Deed of Assignment duly executed by him;

(2)  Upon such delivery being made, P do deliver to D the documents listed in clause 6.2(1) of the Put Option Agreement;

(3)  D do pay to P the amount of HK$150,000 per day from 20 August 2019 up to the date when the Option Price is paid to P in full (“Damages”);

(4)  Interest on the Damages from 20 August 2019 up to the date of judgment at HSBC prime lending rate plus 1% and, thereafter, at judgment rate until full payment; and

(5)  The parties are to be at liberty to apply.

73.  As for costs, I make a costs order nisi that D do pay to P the costs of and occasioned by the action (including all costs reserved) up to 20 January 2021, to be taxed on a party and party basis, and from 21 January 2021 onwards, to be taxed on an indemnity basis.

74.  It is appropriate to impose costs on a higher scale from 21 January 2021, the date when D filed his SWS and made a very serious allegation of forgery against P and Lee. This is to mark the disapproval of the court over D’s conduct in making very serious allegation against P and Lee and such allegation is without any factual basis and is plainly false (cf. Chinachem Charitable Foundation Ltd v Chan Wai Tong Christopher [2022] HKCA 1907 at §30).