FINE VISION OPPORTUNITY III LTD v. XINYUAN REAL ESTATE CO LTD AND OTHERS

HCA 355/2023

[2024] HKCFI 2773

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 355 OF 2023

____________

____________

______________

J U D G M E N T

______________

Introduction

1.  By a summons dated 16 February 2024 and under Order 86 and Order 14 respectively of the Rules of the High Court, the plaintiff seeks summary judgment against D1 for specific performance of its obligation to purchase certain notes (“Notes”) pursuant to a sale and purchase agreement dated 26 October 2021 (“NPA”) or damages in lieu, and against D2-4 as guarantors under a guarantee (“Corporate Guarantee”) in the sum of US$15,246,702. In opposition, the defendants raise the issue of economic duress as a defence and further submit that in any event, specific performance is not a viable remedy when damages are adequate. On such bases, the defendants counterclaim for inter alia (i) a declaration that the NPA and the Corporate Guarantee be rescinded; and (ii) a final injunction against the plaintiff to restrain it from enforcing the NPA and the Corporate Guarantee. A hearing of the plaintiff’s summons was held on 10 September 2024 with Judgment reserved to be handed down. This is the Court’s Judgment.

Background facts

2.  D1 is a Mainland property developer and D2-D4 are its direct or indirect subsidiaries. On 15 April 2019, in order to raise funds, D1 issued 14.20% senior notes of an aggregate principal amount of US$200,000,000 due 2021 (“Old Notes”) pursuant to an indenture of the same date. Like many other Mainland developers, D1 ran into financial difficulties in the second half of 2021 due to unfavourable prevailing market conditions. Owing to its lack of liquidity, D1 had to consider alternative options to avoid a default under the Old Notes which were due on 14 October 2021. To that end, on 30 September 2021, two weeks before the maturity date of the Old Notes, D1 issued an exchange offer and release and consent memorandum to the holders of the Old Notes (“Exchange Offer Memorandum”).

3.  Under the Exchange Offer Memorandum, eligible holders of the Old Notes could exchange any outstanding Old Notes for the Notes to be issued (“Exchange Offer”); however, the consent of not less than 90% (by value) of the holders of the Old Notes was required in order for D1 to proceed with the Exchange Offer.

4.  When the Exchange Offer Memorandum was issued, the plaintiff already held an aggregate principal amount of US$170,000,000 in two other senior notes issued by D1 (not being the Old Notes). In or about October 2021, the plaintiff, both by itself and through its affiliates, acquired and accumulated the Old Notes in the total amount of US$14,725,000 from the secondary market (of about 6.8% in value of the issued Old Notes).

5.  At about the same time, the plaintiff approached D1 and offered to consent to the Exchange Offer to exchange the Old Notes for the Notes to be issued in an aggregate principal amount of US$14,725,000 (“the Sale Notes”). However, in return for its consent, the plaintiff required that (1) D1 provide a separate undertaking that it would purchase the Sale Notes (the principal amount plus all accrued interest and unpaid amounts) upon the exercise by the plaintiff of its option to sell all or any of the Sale Notes to D1 on the date falling three calendar months from the issuance of the Notes (“Separate Undertaking”); and (2) guarantees be provided by additional corporate guarantors in respect of the liabilities under the Sale Notes and the Separate Undertaking (“Additional Guarantees”).

6.  It is the defendants’ case that if the plaintiff did not consent to the Exchange Offer, there was a substantial risk that the 90% threshold for the Exchange Offer could not be reached. The defendants thus alleged that D1 had no other realistic option of avoiding a default under the Old Notes, which maturity was 2 weeks or less away, but to concede to the plaintiff’s demand. Any default would trigger cross-defaults under various notes issued by D1 and expose D1 to numerous claims (including from the plaintiff) with potentially disastrous financial consequences.

7.  In about October 2021, the plaintiff gave its consent to the Exchange Offer to D1 and thereby exchanged the Old Notes beneficially owned by it for the Notes. The Notes were issued pursuant to an indenture dated 15 October 2021 between D1, the trustee China Construction Bank (Asia) Corporation Ltd. (“Trustee”) and various guarantors who were the subsidiaries of D1 (but not including D2-D4) (“2021 Indenture”). As consideration or a condition to the plaintiff’s consent to the Exchange Offer, the plaintiff and D1 entered into the NPA on 26 October 2021. By the NPA, the plaintiff agreed to sell and D1 agreed to purchase the Sale Notes by 15 January 2022 as per the Separate Undertaking.

8.  On 23 November 2021, the plaintiff as creditor and D2, D3 and D4 (“D2-4”) as guarantors entered into the Corporate Guarantee to provide for the Additional Guarantees. By Clause 2.1 of the Corporate Guarantee, each of D2-4, inter alia, jointly and severally guarantees the punctual performance of D1’s obligations under the NPA. Under both the NPA and the Corporate Guarantee, in the event of any default in payment, interest shall accrue on the unpaid sum from the due date up to the date of actual payment (both before and after judgment) at a rate of 0.05% per day.

9.  By an email dated 14 January 2022, the plaintiff gave notice to D1 requiring D1 to purchase the Sale Notes by the same day pursuant to the terms of the NPA (“Repurchase Notice”) but D1 failed to do so.

10.  On 18 January 2022, D1 sent an email to the plaintiff to confirm receipt of the Repurchase Notice (“D1’s Email”). In particular, D1 sought the plaintiff’s consent to extend the repurchase obligation for 3 months on account of its liquidity issues:-

“Your email is well received. The company is fully aware of the repurchase obligation Note Sale Purchase Agreement entered between Xinyuan Real Estate Co., Ltd. (the “Purchaser”) and Fine Vision Opportunity III Limited (the “Seller”), on or before 14 January 2022.

However, due to the unexpected Covid pandemic in Henan, Shanxi province and the market fluctuation of domestic real estate market, the Company’s liquidity remains tight… Considering the extremely hard situation the company and the whole industry is facing, we hereby seek for the consent to extend the repurchase obligation for the period of 3 months, and We will meet the obligation as soon as the offshore asset liquidation made completed.” (emphasis added)

11.  Despite the plaintiff’s repeated demands, none of the defendants performed their respective obligations under the NPA and/or the Corporate Guarantee. The plaintiff commenced these proceedings in March 2023 to pursue its claims against the defendants.

The applicable principles for summary judgment

12.  There was no dispute between the parties as to the applicable principles to be applied on an application under Order 86 or Order 14. As stated by Deputy Judge To (as he then was) in Super Town Investments Ltd v Ives Developments Ltd, HCA 86/2006 (unreported and dated 22 May 2007):-

“5. While the scope of application of Order 86 and Order 14 of the RHC are different, the legal principles applicable to an application for summary judgment under both Orders are the same. These principles are well-established. The cardinal principle is that a defendant ought not to be driven from the judgment seat if he has an arguable defence. Thus, summary judgment should only be given where it is a clear and obvious case and ought therefore not to be tried: see Hong Kong Civil Procedure 2007 Note 86/4/1, Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106 and Chow Yim Woon v Lam Yung Ming [2000] 3 HKLRD 373.

6. A concise statement of the standard approach in an application for summary judgment is to be found in the dicta of Ma J, as he then was, in Schindler Lifts (Hong Kong) Ltd v Ocean Joy Investments Ltd [2004] 1 HKC 438. The court has to determine two questions: firstly, whether what the defendant says is believable as opposed to whether its version of events is to be believed; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law. In determining the first question, the court should not embark on a mini trial of the action on affidavit evidence. The burden of proof is not a heavy one. It is not the function of the court at this stage to assess if a defence will succeed at trial. The court should not rule out a defence simply because it thinks the defence would not be believed by the trial judge because of some inherent weaknesses, save where what the defendant says is practical moonshine. Insofar as the second question is concerned, summary judgment will not be granted if there are arguable defences or serious disputes of law: see Man Earn Ltd v Wing Ting Fong [1996] 1 HKC 225 and Ng Lung Sang Anita v Lam Yuk Lan [1999] 4 HKC 106.”

13.  In short, the court has to determine two questions: firstly, whether what the defendant says is believable; and secondly, if it is, whether what the defendant says amounts to an arguable defence in law.

14.  The defendant may show cause on the merits, for example, that he has a good defence to the claim, that a difficult point of law is involved, or a dispute as to the facts which ought to be tried, or a real dispute as to the amount due which requires the taking of an account to determine, or any other circumstances showing reasonable grounds of a bona fide defence: see Polykote Coatings Manufacturing Co Ltd v Grace Rehabilitation Centre Ltd [2016] 2 HKC 29 (at §§12-20).

Summary of the plaintiff’s case

15.  The plaintiff asserts that this is a simple case of enforcing an obligation to purchase the Sale Notes and the defences (economic duress and/or public policy) put up by the defendants are unsustainable at law and on the facts. The plaintiff further contends that even if the NPA was entered into under duress, by asking in D1’s Email for the plaintiff’s consent to extend the repurchase obligation for 3 months to meet its obligations under the NPA, D1 had affirmed the NPA (“Affirmation Issue”).

16.  On the question of specific performance, the plaintiff contends that given the substantial quantity and value of the Sale Notes to be sold, and the extreme difficulty in locating interested buyers, it is impracticable to require the plaintiff to resort to the market for sale of the Sale Notes and it will cause serious prejudice to the plaintiff.

Summary of the defendants’ case

17.  The defendants contend that there is at least an arguable case that the NPA and the Corporate Guarantee were procured by economic duress and are therefore unenforceable. It is the defendants’ submission that the plaintiff manipulated the defendants’ vulnerable financial position to force them to agree to the NPA and the Corporate Guarantee, thereby causing them to waive protections afforded to them under the global note structure and the terms of the 2021 Indenture.

18.  In their Defence and Counterclaim filed on 11 September 2023, the defendants further contend that it would be against public policy to enforce the NPA and the Corporate Guarantee when some of their provisions undermine the terms of the 2021 Indenture and unfairly prejudice the interests of other noteholders. At the hearing of the summons, counsel for the defendants, Mr. Danny Tang, confirmed that this “public policy” ground would no longer be relied upon as a separate defence but instead, it pertains to matters that form part of the overall circumstances in determining the legitimacy or otherwise of the demand made by the plaintiff and the pertinent issue of economic duress.

19.  On the Affirmation Issue, the defendants assert that the plaintiff fails to show affirmation on the part of the defendants, when the circumstances under which the author (one Mr. Rick Wang) of D1’s Rely Email issued that email were entirely unclear, or in any event they fail to support an inference of an unequivocal act of affirmation after the duress had ceased.

20.  On the question of specific performance as a remedy, it is the defendants’ case that such a relief should not be granted when damages are adequate. They say the onus is on the plaintiff to show an exceptional case for specific performance of a payment obligation and further aver that the plaintiff’s assertion that there is no readily available market for the Sale Notes is speculative.

Principles of economic duress

21.  The concept and constituent elements of economic duress have been discussed in a number of cases in the last few decades. In Pao On v Lau Yiu Long [1980] AC 614, 635, on an appeal from Hong Kong, Lord Scarman giving the opinion of the Privy Council stated:-

“Duress, whatever form it takes, is a coercion of the will so as to vitiate consent. … In determining whether there was a coercion of will such that there was no true consent, it is material to inquire whether the person alleged to have been coerced did or did not protest; whether, at the time he was allegedly coerced into making the contract, he did or did not have an alternative course open to him such as an adequate legal remedy; whether he was independently advised; and whether after entering the contract he took steps to avoid it.”

22.  In Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corporation Ltd [2007] 3 HKLRD 439, Stock JA (as he then was) stated:-

“154. The key to proving economic duress is proof of the illegitimacy of the suggested pressure. Much commercial activity necessarily involves pressure, often considerable and sometimes overwhelming, exercised by parties who find themselves in powerful bargaining positions. But that of itself is not illegitimate. It was suggested by McHugh JA, as he then was, in Crescendo Management Pty Ltd v Westpac Banking Corporation (1988) 19 NSWLR 40, 46 that:

‘Pressure will be illegitimate if it consists of unlawful threats or amounts to unconscionable conduct. But the categories are not closed. Even overwhelming pressure, not amounting to unconscionable or unlawful conduct, however, would not necessarily constitute economic duress.’ ”

23.  In Zebra Industries (Orogenesis Nova) Ltd v Wah Tong Paper Products Group Ltd [2016] 1 HKC 213 (at 234 – 238), G Lam J (as he then was) briefly surveyed the cases (including Pao On and Esquire (Electronics) Ltd) on economic duress and concluded that there are few hard and fast rules; each case has to be decided on its own facts based on the guidance provided by the cases.

24.  In their respective skeleton submissions and at the hearing, both the plaintiff and the defendants referred to the recent UK Supreme Court’s decision in Times Travel (UK) Ltd & Anor v Pakistan International Airlines Corpn [2023] AC 101 (“Times Travel”)[1]. Whilst the decision is not binding, the parties invite this Court to regard it as a highly persuasive authority that should be applied to the present case. As counsel for the defendants Mr. Tang accepted, the doctrine of lawful act duress was given “authoritative recognition” by the Supreme Court in Times Travel.[2] On the other hand, leading counsel for the plaintiff Mr. Dawes SC put the decision as one which, absent contrary CFA authorities, is to be regarded as expounding the position of the common law in Hong Kong: see Monat Investment Ltd v All Person(s) in Occupation of Part of No 16 Ma Po Tsuen [2023] 2 HKLRD 1311 (at §52.4). On that basis, I shall apply the legal principles set out in Times Travel to the present case.

25.  The following legal principles can be gleaned from the decision of Times Travel:-

(i)  Lawful act duress, including lawful act economic duress, exists in English law (see §§1, 82-92 and 136(i)).

(ii)  Three elements need to be established for lawful act economic duress: an illegitimate threat; sufficient causation; and that the threatened party had no reasonable alternative to giving in to the threat (see §§1, 78-80 and 136(ii)).

(iii)  As the threat is lawful, the illegitimacy of the threat is determined by focusing on the justification of the demand (see §§1 and 136(iii)).

(iv)  In focusing on the justification, the court has regards to, amongst other things, the behaviour of the threatening party including the nature of the pressure that it applies, and the circumstances of the threatened party (see §1).

(v)  A demand motivated by commercial self-interest is, in general, justified. Lawful act economic duress is essentially concerned with identifying rare exceptional cases where a demand, motivated by commercial self-interest, is nonetheless unjustified (see §§1 and 136(iv)).

(vi)  A commercial party in negotiation with another is entitled to use its bargaining power to obtain by negotiation contractual rights which it does not have until the contract is agreed. A powerful commercial party, such as a monopoly supplier or purchaser, can impose onerous terms, for example demanding a premium, as a condition for entering into a transaction with another party (see §44).

26.  Lord Hodge DPSC in his majority judgment (with whom Lord Reed PSC, Lord Lloyd-Jones and Lord Kitchin JJSC agreed) pointed out (at §4) that the English courts have thus far only recognized and provided a remedy for lawful act duress in two circumstances: (i) where a defendant uses his knowledge of criminal activity by the claimant or a member of the claimant’s close family to obtain a personal benefit from the claimant by the express or implied threat to report the crime or initiate a prosecution; (ii) where a defendant, having exposed himself to a civil claim by the claimant, deliberately manoeuvres the claimant into a position of vulnerability by means which the law regards as illegitimate and thereby forces the claimant to waive his claim. In both categories, the defendant has behaved in a highly reprehensive way which the courts have treated as amounting to illegitimate pressure.

27.  His Lordship also observed (at §3) that the boundaries of the doctrine of lawful act duress are not fixed and the courts should approach any extension with caution, particularly in the context of contractual negotiations between commercial entities, bearing in mind not only that analogous remedies already exist in equity, such as doctrines of undue influence and unconscionable bargains, but also the absence in English law of any overriding doctrine of good faith in contracting or any doctrine of imbalance of bargaining power.

Arguable defence of economic duress?

28.  The primary defence raised by the defendants is lawful act economic duress. However, as acknowledged in their skeleton submissions and by their counsel Mr. Tang at the hearing, the present case does not fall within any of the two circumstances as identified by Lord Hodge where a relief based on lawful act duress would be granted. In particular, none of the defendants in the present case were induced by the plaintiff’s alleged threat or demand into waiving any pre-existing claims or rights so as to bring the case within the second circumstance as recognized in Times Travel. Nonetheless, Mr. Tang submitted that the categories are not closed and incremental development of the law was envisaged in §§3, 94 and 120 of Times Travel. Mr. Tang contended that in the circumstances of this case, it would be appropriate to extend the second circumstance (or category) to the present case, when D1 was allegedly coerced into waiving the benefit of the contractual provisions in the 2021 Indenture which was signed with the Trustee (and not with the plaintiff) through whom all bondholders must act.

29.  Before I proceed to consider the question of extension of the law, it is my view that I should first address the issue of illegitimacy of the alleged threat in the present case. For if the plaintiff’s alleged threat cannot be regarded as illegitimate at all (illegitimacy being one of three essential elements of lawful act economic duress), it would appear to be unnecessary or even pointless for the Court to consider any extension of the law. On this issue of an illegitimate threat, the defendants essentially raise two allegations:-

(i)  The plaintiff allegedly created and increased the defendants’ vulnerability by acquiring 6.8% of the outstanding Old Notes from the market in about October 2021 and threatening to withhold consent if its demand was not met. A 6.8% opposing vote would significantly contribute to the likelihood that the Exchange Offer would fail. The reprehensibility of the plaintiff’s conduct is said to be compounded by the fact that the plaintiff acquired the Old Notes only at about the time when the demand was made and when the maturity date for the Old Notes was about two weeks away. This, the defendants contend, demonstrates that the plaintiff was acting opportunistically to exploit the defendants’ vulnerability (“Allegation of Opportunistic Manipulation”).

(ii)  The defendants further contend that the Notes were held under a global note structure and the terms of the 2021 Indenture ensured that bondholders all act through the Trustee, such that there was neither competition between them, nor the potential for multiplicity of actions, including those brought by the Trustee on the one hand and individual bondholders on the other: see clauses 6.5 and 6.6. By clause 9.2, without the consent of bondholders of no less than 75% of the aggregate principal amount of the outstanding Notes, there could be no modification, amendment or waiver of the 2021 Indenture so as to change the time of payment of the Notes, or their redemption date or price. By coercing the defendants into signing the NPA, the plaintiff, it is argued, obtained an unfair advantage over other bondholders and imposed an obligation on the defendants to redeem the Sale Notes ahead of other bondholders, thus bypassing the Trustee and the collective procedure under the Exchange Offer Memorandum and the 2021 Indenture. As to the Corporate Guarantee, the defendants contend that it was contrary to the terms of the 2021 Indenture that D1 shall not permit D2-4 to guarantee any indebtedness of D1 unless certain conditions were fulfilled (see clause 4.10). These matters are hereinafter collectively referred to as the “Allegation of Undermining the Indenture Terms”.

30.  Having considered everything submitted by the defendants both in their skeleton submissions and by their counsel Mr. Tang at the hearing, this Court takes the view that there is simply no triable issue of economic duress in the present case for the following reasons:

(i)  As explained by Lord Hodge in Times Travel (at §§28 & 30), the scope for lawful act duress in contractual negotiations is “extremely limited”; and against the commercial background, the pressure applied by a negotiating party will “very rarely” come up to the standard of illegitimate pressure or unconscionable conduct. In the present case, it was plainly the result of commercial negotiations between the parties that led to the NPA and the Corporate Guarantee.

(ii)  It was held in Times Travel (at §57) that a hard-nosed exercise of monopoly power could not by itself amount to illegitimate pressure; “[s]omething more was needed, such as the reprehensible characteristics of the behaviour in Borrelli and The Cenk K to which I have referred in para 18 above.” In Borrelli[3], the unconscionable conduct in question involved the breach of one’s duty as an officer of the insolvent company, the dishonest use of a forged document and the procurement of false evidence. In The Cenk K[4], the reprehensible conduct included a prior breach of contract as well as “misleading activity” that induced others to rely on false assurances to their detriment. In the present case, there was nothing in the conduct of the plaintiff that could be said to come anywhere close to such reprehensible or unconscionable conduct as in Borrelli and The Cenk K. In the Court’s view, the plaintiff’s “hard-nosed” exercise of its bargaining power that exploited the defendants’ vulnerability by itself would not give rise to economic duress: see Times Travel at §§57 & 58.

(iii)  The question of illegitimacy of the threat is determined by focusing on the justification of the demand: see Times Travel at §§1 and 136(iii). In the present case when D1 was already having financial difficulties in redeeming the Old Notes, there were plainly good commercial reasons for the plaintiff to demand for more favourable terms (including an option to early redemption and additional guarantees by D2-4) in return for giving consent to the Exchange Offer. It is remarkable that there is no suggestion in the evidence adduced by the defendants that the redemption price or date under the NPA was particularly harsh or unacceptable. On the other hand, as Mr. Dawes submitted, the commercial rationale of the deal for the defendants is obvious: D1 was able to avoid an immediate default on the Old Notes and further cross-defaults on other senior notes that had also been issued. The Court also notes that there is no evidence of any protest having ever been made by the defendants against the plaintiff’s demand during or after the negotiations.

(iv)  This Court also takes into account the circumstances of the defendants. As pointed out by Mr. Dawes, the defendants are part of a multinational billion-dollar real-estate conglomerate conversant with commercial negotiations and having ready access to professional advisers. D1 is a company listed on the New York Stock Exchange. In the NPA, D1 represented that it had knowledge and experience in financial matters and was capable of evaluating the merits and risks of purchasing the Sale Notes; that the transaction had been entered into in good faith and at arms’ length: see clauses 7 and 10 of the NPA. By Clause 4.16 of the Corporate Guarantee, each of D2-4 represented that they had received independent legal advice and had acted independently and free from any undue influence.

(v)  The general proposition, that a lawful act threat coupled with a demand motivated by commercial self-interest is legitimate, is well illustrated in the New Zealand case of Dold v Murphy [2021] 2 NZLR 834 (cited by Lord Hodge with approval at §98). Each of Mr. Dold, Mr. Jacobs and Mr. Murphy owned 46.9%, 46.9% and 6.2% shares respectively in a company. Mr. Dold and Mr. Jacobs wanted to sell the company but Mr. Murphy refused to sell unless he was paid another AUD 2 million each from Mr. Dold and Mr. Jacobs for his shares. Reluctantly, as they needed his approval to be able to sell the company, Mr. Dold and Mr. Jacobs agreed. Mr. Dold subsequently sought to recover the AUD 2 million he paid Mr. Murphy on the basis of economic duress. The New Zealand Court of Appeal held (at §79) that the behaviour of Mr. Murphy had been “opportunistic” but “he was entitled to act in his own self-interest, even if his action were both unexpected and ungenerous.” This authority significantly diminishes the force of the defendants’ Allegation of Opportunistic Manipulation. In the present case, the plaintiff had perhaps also been “opportunistic” in acquiring up to some 6.8% of the issued Old Notes to gain its bargaining power, but in this Court’s view, it was entitled to do so and to make its demand to serve its self-interest. There was no unlawfulness involved in what the plaintiff had threatened (i.e. to withhold consent to the Exchange Offer) and absent any reprehensible or unconscionable conduct on its part, a case of economic duress would not be made out against the plaintiff.

(vi)  To rebut the Allegation of Undermining the Indenture Terms, Mr. Dawes submitted that the plaintiff was not a party to the 2021 Indenture and it was not absurd for the plaintiff to retain some right of enforcement that was not available to other bondholders. He prayed in aid the case of China Ping An Insurance Overseas (Holdings) Ltd v Luck Gain Ltd & Ors HCA 1196/2022, [2023] HKCFI 3315 where a similar argument was rejected by the Court. The Court there held that there is no inconsistency between the plaintiff’s direct contractual rights under the subscription agreement and the bond instruments, since they dealt with different parties who were governed by different contractual relationships: §28, 35-36. Mr. Dawes submitted that although the case is not directly concerned with economic duress, it shows that it is entirely legitimate for bond investors to bargain for additional rights by a separate and independent agreement, especially when both parties are sophisticated. I can see force in that submission. In my judgment, in the circumstances of this case and as a matter of commercial negotiations, there was nothing to debar the plaintiff (and indeed, any bondholder) to negotiate with the defendants to obtain a direct right of early redemption or additional guarantees which were not available under the 2021 Indenture. That demand for additional rights, in my judgment, was not illegitimate in the context of commercial negotiations.

31.  I therefore find both the Allegation of Opportunistic Manipulation and the Allegation of Undermining the Indenture Terms to be without substance. I am thus not satisfied that there is a triable issue of economic duress when one of its key elements, namely an illegitimate threat, is clearly absent in the present case.

32.  Mr. Dawes went further to submit that it would be unnecessary and indeed undesirable for this Court to extend the principle of economic duress to the facts of the present case. I agree. As Lord Hodge admonished in Times Travel (at §3), the courts should approach any extension with caution, particularly in the context of contractual negotiations between commercial entities. When the facts of the present case do not even show an illegitimate threat, it would plainly be unwarranted for this Court to consider extending the principle to circumstances outside the two already recognized in Times Travel.

The Affirmation Issue

33.  It is further contended by the plaintiff that even if there had been economic duress, the defendants had in the present case affirmed the NPA and the Corporate Guarantee; in particular, by asking in D1’s Email for consent by the plaintiff to extend the repurchase obligation for 3 months, the defendants had acknowledged D1’s obligation under the NPA and affirmed the NPA. Mr. Dawes prayed in aid the decision of Mir v Mir [2013] 4 HKC 213 (at §§59-60) where it was held that a person who has entered into a contract under duress may either affirm or avoid such contract after the duress has ceased; and if he has voluntarily acted under it with a full knowledge of all the circumstances, he may be held bound on the ground of ratification, or if, after escaping from the duress, he takes no steps to set aside the transaction, he may be found to have affirmed it; affirmation requires an unequivocal act from which it may be inferred that he intends to go on with the contract.

34.  Looking at the wording of D1’s Email (reproduced at §10 above), I find that it does contain an unequivocal acceptance of the repurchase obligation under the NPA. The email is significant in that it was copied by the author to a number of individuals one of whom was the Chairman of D1 who had executed both the NPA and the Corporate Guarantee as a signatory. The email was clearly issued with a full knowledge of all the circumstances and with a request for time extension to honour D1’s obligation under the NPA.

35.  On this Affirmation Issue, Mr. Tang quite sensibly conceded at the hearing that the element of an unequivocal act of affirmation can be made out in the present case. However, he contended that the act was done when the effect of duress had not ceased. In particular, he submitted that the defendants would still need to look to the plaintiff for consent to future exchange offer(s) to be made. I note, however, that nowhere in the evidence filed by the defendants suggests that the act of affirmation was carried out under such duress in relation to potential future transactions. This submission is therefore one that is not supported by evidence and is thus rejected by this Court. It is plain to me that by the time D1’s Email was issued, the Exchange Offer had already been accepted and approved by the bondholders (including the plaintiff) and put into effect. By that time, the defendants were clearly no longer under any duress that might have arisen from the Exchange Offer and they nonetheless affirmed the NPA. I therefore find that even if there had been economic duress earlier (which I do not accept), the Affirmation Issue should clearly be answered in the plaintiff’s favour.

36.  Given this Court’s conclusions that (1) there is no triable defence of economic duress, and that (2) in any event, the Affirmation Issue should clearly be answered in the plaintiff’s favour, Judgment should be entered against the defendants.

Specific performance as a relief?

37.  The next issue is whether specific performance or damages in lieu should be ordered as a relief. The plaintiff seeks an order of specific performance such that D1 do purchase the Sale Notes and pay to the plaintiff the sum of US$15,246,702 as consideration; and Judgment be entered against D2-4 for the said sum. The defendants oppose the relief of specific performance on the usual ground that it should be refused when damages are adequate. It is their submission that in most cases, common law damages will be an adequate remedy for breach of contract for the payment of money; and in the present case, the plaintiff has failed to show an exceptional case for specific performance of a payment obligation.

38.  On this issue, the plaintiff contends that damages are inadequate for this is a clear case where for the plaintiff to resort to the market is impracticable and will cause serious prejudice. The plaintiff submits that:-

(i)  First, the quantity of the Sale Notes to be sold is substantial, being of an aggregate principal amount of US$14,724,000;

(ii)  Secondly, it would be extremely difficult – if not impossible – to locate interested buyers in the secondary market due to D1’s lack of liquidity, worsening creditworthiness and its persistent failure to redeem the Notes in full: see the announcement by D1 on the Singapore Exchange dated 12 June 2023 that it had to resort to another round of exchange offer. That shows the continuous deterioration of D1’s financial conditions. Indeed, it is also part of the defendants’ case that D1 is under serious financial difficulties.

(iii)  Thirdly, in the Exchange Offer Memorandum (adduced as an exhibit referred to in the defendants’ own supporting affirmation), it was made clear that the Notes “are a new issue of securities for which there is currently no trading market” and they “will not be listed on any exchange”. It went further to contain the following remarkable warning:

“The liquidity and price of the New Notes following the offering may be volatile.

The price and trading volume of the New Notes may be highly volatile. Factors such as variations in our revenue, earnings and cash flows, proposals for new investments, strategic alliances and/or acquisitions, changes in interest rates, fluctuations in price for comparable companies, government regulations and changes thereof applicable to our industry and general economic conditions nationally or internationally could cause the price of the New Notes to change. Any such developments may result in large and sudden changes in the trading volume and price of the New Notes. We cannot assure you that these developments will not occur in the future.”

39.  Mr. Dawes also helpfully referred this Court to cases where specific performance was ordered for the sale or allotment of substantial quantity of shares, including the following:-  

(i)  In Able Success Asia Ltd v China Packaging Group Co Ltd and Ors, HCA 1120/2014 (unreported and dated 27 June 2014), the plaintiff there relied on the following passage in Spry, “The Principles of Equitable Remedies”, 9^th edition, 2014 at page 66:-

“So if shares are not listed for quotation, or the parcel in question is a controlling interest or is of such a size or nature that to acquire it elsewhere would involve undue difficulty or uncertain expenditure, damages may be regarded as inappropriate ... Nonetheless even if there is an available market, the size of the relevant parcel, for example, or uncertainty in the amount that the plaintiff would be required to pay, or the risk that to seek to purchase it might prejudice or inconvenience unduly the plaintiff or third parties, may bring about a different position.”

Applying those principles in Spry, G. Lam J (as he then was) found (at §31) that the amount of shares in question (being over 548 million new shares and representing approximately 16.69% of the enlarged issued share capital of the company) was, arguably, not readily available on the market without difficulty and uncertain expense.

(ii)  In Pacas Worldwide Ltd v China Health Group Ltd, HCA 2961/2015 (unreported and dated 18 May 2016), the plaintiff there submitted that 200 million shares in the company (over 9.4% of its issued share capital) was not readily available on the market due to its substantial quantity; and the costs and expenses for buying such shares on the market were very substantial (exceeding HK$30 million) and were in any event uncertain due to the volatility of the stock market. It was thus contended that the plaintiff would suffer prejudice, inconvenience and difficulties if it were to be required to purchase such shares on the market. The plaintiff further maintained that it would be difficult to enforce any award of damages against the company in view of its dire financial position at the time. Having considered the plaintiff’s submission, M. Chan J accepted that damages were inadequate and ordered specific performance as sought by the plaintiff: see §§ 8 and 39.

40.  Notwithstanding everything said by Mr. Tang in his submissions on the issue, I am satisfied that damages are inadequate in the present case. As Mr. Dawes put it during the hearing, any potential purchaser will be buying into a dispute given the dire financial conditions of D1, the lack of listing of the Notes on any market, and the likely volatility of their price and trading on the secondary market (if any). I am therefore satisfied that there is not a readily available market for the sale of the Notes. Given the substantial quantities of the Notes, to require the plaintiff to find a buyer in all those circumstances will also involve undue difficulty and uncertain expenditure. Accordingly, the Court will order specific performance as sought by the plaintiff.

Other considerations

41.  At the hearing, there were also submissions made on the issue of availability of damages in lieu and that of mitigation of damages. Given the fact that specific performance will be ordered, there is no need for the Court to go on to deal with such issues.

42.  There was also a summons dated 4 September 2024 filed by the defendants with the Court seeking leave to amend their Defence and Counterclaim (“Amendment Summons”). It was essentially to include references to clauses 6.5 and 6.6 of the 2021 Indenture and other matters pertaining to restrictions on bondholders from directly asserting their claims against the defendants as opposed to acting through the Trustee, such matters not having been pleaded previously. At the hearing, this summons was dealt with on a de bene esse basis for the Court to consider whether or not the proposed amendments would add materially to the strength of the defendants’ case, thereby justifying leave to be granted. Given the Court’s findings above, in particular, that it was not illegitimate for the plaintiff to procure contractual terms that were inconsistent with those of the 2021 Indenture, it follows that the Amendment Summons should be dismissed with costs to the plaintiff.

43.  I therefore make the following orders:-

(i)  Judgment be entered against the 1^st Defendant for an order of specific performance of the Sale and Purchase Agreement dated 26 October 2021 between the Plaintiff and the 1^st Defendant that the 1^st Defendant do purchase all the guaranteed 14.2% senior notes due 2023 issued by the 1^st Defendant pursuant to the Indenture dated 15 October 2021 in the aggregate principal amount of US$14,724,000 and pay to the Plaintiff the sum of US$15,246,702 (or its Hong Kong Dollars equivalent at the time of payment) as consideration;

(ii)  Judgment be entered against the 2^nd, 3^rd and 4^th Defendants jointly and severally for the sum of US$15,246,702 (or its Hong Kong Dollars equivalent at the time of payment);

(iii)  Judgment be entered against 1^st, 2^nd, 3^rd, and 4^th Defendants jointly and severally for interest on the sum of US$15,246,702 from 15 January 2022 until actual payment at a rate of 0.05% per day (or its Hong Kong Dollars equivalent at the time of payment), minus the amount of US$1,045,475;

(iv)  The Defendants’ counterclaim in the Defence and Counterclaim filed herein on 11 September 2023 be struck out and dismissed;

(v)  The Defendants’ summons dated 4 September 2024 be dismissed; and

(vi)  An order nisi that the costs of this action, including the costs of and occasioned by the Plaintiff’s summons dated 16 February 2024 and the Defendants’ summons dated 4 September 2024, be to the Plaintiff forthwith, with certificate for a junior counsel of requisite standing, to be taxed on a party to party basis if not agreed. On a nisi basis, I summarily assess the costs to be HK$616,905.

44.  In particular, the terms of orders (i), (ii) and (iii) above are in line with the reliefs sought in the Statement of Claim and the plaintiff’s summons. As for the costs order, I agree with Mr. Tang’s submission that it is the plaintiff’s own case that this is “a simple case of enforcing an obligation” and “the law is in fact well-settled”. The pleadings and the affirmations are not long and there is insufficient justification for leading counsel to be engaged. The certificate is therefore limited to one junior counsel of requisite standing.

45.  I thank counsel for their able assistance.