FIRST LASER LTD v. FUJIAN ENTERPRISES (HOLDINGS) CO LTD AND ANOTHER

CACV 97/2020, [2023] HKCA 961

On appeal from [2020] HKCFI 495

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 97 OF 2020

(ON APPEAL FROM HCA NO 4414 OF 2001)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  Both sides in this action have applied for leave to appeal to the Court of Final Appeal (“CFA”) against the judgment of this court handed down on 31 March 2023 (“CA Remitter Judgment”)[1]. The applications arose in this way.

2.  Very briefly, on 6 July 2012 the CFA[2] ordered the issue of restitution to be remitted to the Court of First Instance for determination under PRC law, having dismissed the appeal of the plaintiff (“First Laser”) and upheld the ruling of the Court of Appeal that the “First Laser Agreement” (an agreement for the sale and purchase of 51% of the shares in FCL and FCO, under which First Laser had paid the purchase price in the equivalent of HK$24,640,000) was governed by PRC law and was held to be invalid by the Supreme People’s Court, as the necessary approval for the transfer of shares in FCL and FCO had not been obtained from the PRC authorities.

3.  The trial of the remitted issue took place before Deputy High Court Judge To who gave a judgment on 8 April 2020 (“Remitter Judgment”)[3].

4.  On 31 March 2023, we handed down the CA Remitter Judgment allowing the defendants’ appeal from the Remitter Judgment. We set aside the judge’s order that the defendants do pay First Laser HK$250,168,048 with interest and substituted that with an order that the defendants do pay First Laser the sum of HK$5,288,716.61 with interest.

5.  The big difference in the two sums awarded is primarily because the judge proceeded on the basis that to restore the parties to their pre-contractual position, First Laser is entitled to be returned “the value of the actual investment sum, interests, dividends, and a reasonable distribution of the benefits arising from the investment represented by the enhancement in value of the equity based on the actual value of the enterprise invested at the material valuation date”[4]. We proceeded on the basis that the judge’s finding of a separate “nominee investment contract” is not supported by the evidence and that the legal principles in PRC law invoked by the judge would not apply. We held that as the contract found to be void was the First Laser Agreement, what is required for the parties to be restored to their pre-contractual position is merely the return of the investment sum of HK$24,640,000[5] to First Laser.

6.  On 28 April 2023, both sides applied for leave to appeal to the CFA against the CA Remitter Judgment.

The plaintiff’s leave application

7.  Two questions said to be of great general or public importance (“GPI”) are raised in the notice of motion of First Laser:

Question 1

8.  What is the scope of a remitter when the CFA (or an appellate court) remits an issue for trial but in the course of that decision made obiter comments or findings on issues that did not arise for determination? In particular, whether the obiter comments or findings give rise to any issue estoppel or are otherwise binding on the trial judge in the trial of the remitter, such that the trial judge is not permitted to consider evidence overlooked or not considered by the appellate court or make any factual findings on the remitted issue which may be inconsistent with such obiter comments or findings?

Question 2

9.  Whether the answer to Question 1 depends on the identity of the issue remitted to the trial judge for determination and the issue for which the obiter comments or findings were made by the appellate court?

10.  First Laser also seeks leave to appeal on the “or otherwise” basis, contending the following.

11.  First, the Court of Appeal fundamentally erred in setting aside the judge’s finding on First Laser’s “alternative claim”[6] based on Article 58 of the Contract Law, Article 61 of the GPCL, the “improper profits regime” under Article 92 of the GPCL as interpreted by Article 131 of the GPCL Opinion, and the “principle of fairness” 公平原則 under PRC law, and substituting its own finding that the scope of restitution is confined to the purchase price with interest.

12.  Second, the Court of Appeal erred in rejecting the plaintiff’s “primary claim”[7] under Article 18 Provisions I.

13.  It is contended that leave to appeal ought to be granted given the highly unusual circumstances, including (but not limited to) the complex factual history of the case, that it is the first case in which the Hong Kong courts have considered the issue of restitution under PRC law, the remitter of that issue by the CFA, the factual findings of the judge in the two trials, and the questions of law involved.

The defendants’ leave application

14.  The questions of GPI in the defendants’ notice of motion are as follows.

15.  In making an award of interest under section 48 of the High Court Ordinance, Cap 4:

(a)  whether the Court should take into account the conduct of a party in unreasonably refusing to settle, especially when a plaintiff fails to do better than the offer made by the defendants (even when the offer is not a sanctioned offer within the meaning of Order 22 of the Rules of the High Court); and

(b)  whether the Court is then entitled to disallow the interest or part of it in light of the conduct of that party?

16.  The defendants also seek leave to appeal on the “or otherwise” basis, contending the following.

17.  First, the Court of Appeal was wrong in law or in principle or was plainly wrong or made ‘self-evident’ errors in holding that the 1^st defendant (“FEHC”) was not entitled from First Laser, by way of counter-restitution, the dividends distributed from FCO (RMB 23,802,718.60) and the accumulated profits (RMB 27,380,435.80)[8].

18.  Second, in awarding interest to First Laser, the Court of Appeal erred in law or in principle or was plainly wrong or made ‘self-evident’ errors in failing to take into account an open offer made by the defendants to First Laser in June 2010 (“Open Offer”), namely, that FEHC will return HK$20,000,000 (being the amount paid by First Laser to FEHC) with interest and will forego the return of the FCO shares and dividends declared or paid by FCO[9]. Had the Court of Appeal taken the Open Offer into account, it would not have made any order for interest in favour of First Laser after June 2010.

Discussion

19.  The questions of GPI raised by both sides are all within very narrow confines. It would appear that what both parties really seek to do is to challenge the respective rulings in the CA Remitter Judgment that are against them, contending that the rulings are fundamentally or plainly wrong or are ‘self-evident’ errors so that leave should be granted under the “or otherwise” limb. Whether the CFA would wish to consider all those issues which have been canvassed before us and rejected is a matter for the CFA. We ought not depart from the usual practice of deferring the consideration of the “or otherwise” ground to the Appeal Committee of the CFA. We decline to grant leave to appeal to First Laser and to the defendants on the “or otherwise” grounds in their respective applications.

20.  On the questions of GPI raised by First Laser, we are not satisfied it would be appropriate to grant leave to appeal.

21.  The questions are concerned with the holding that the defendants’ ground of appeal that the judge’s finding of a “new relationship and contract” between First Laser and FEHC is inconsistent with the findings in the CFA Judgment is established[10]. First Laser contended that the holding is incorrect in that the CFA’s findings of fact are not germane to the determinations of the CFA and are obiter and issue estoppel does not arise, and that the comments of the CFA were based on un-pleaded matters which did not arise in the appeal before the CFA.

22.  The questions are fact-sensitive and do not appear to meet the requirement of GPI. Nor do we think it reasonably arguable that the trial judge should have “free rein to contradict or undermine facts upon which the CFA had adjudicated”[11] in the same action. Further, we think it would be futile to grant leave to appeal on those questions in light of the holdings against First Laser in the other grounds of appeal (the finding of a nominee investment contract is not supported by the evidence; Article 18 Provisions I is not engaged in any event as there has been no determination under PRC law of the invalidity of a nominee investment contract[12]).

23.  The questions of GPI raised by the defendants regarding the discretion to deprive First Laser of interest under section 48 of the High Court Ordinance for refusing to accept the Open Offer when First Laser fails to do better than the Open Offer by the award in the CA Remitter Judgment have not been argued before the judge or on appeal. We decline to grant leave to appeal on the questions for these reasons.

24.  The defendants raised for the first time on appeal an argument that First Laser should be deprived of interest for a period of time on account of its substantial delay in pursuing the remitter proceedings. We permitted them to do so and deprived First Laser of interest for part of the period[13]. The defendants had also made express reference to the Open Offer at the trial and on appeal. However, they did not advance any argument that First Laser should be denied interest altogether for rejecting the Open Offer. The questions in their notice of motion raise an entirely new point. We were not informed why they did not raise the issue earlier. It is well-established that the CFA would be very reluctant to consider an issue not duly raised and considered in the Court of Appeal and it must only be under very exceptional circumstances when it would entertain a new point (Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR §39). We could discern no exceptional circumstances in this instance. The questions are also one of the two grounds on which the defendants seek leave to appeal on the “or otherwise” limb. We would leave it to the Appeal Committee to decide whether a new point not argued before the Court of Appeal should be heard by the CFA (Leung Ping Chiu Roy v Wai Wai Chen & Anr [2022] HKCA 1730 §65).

25.  Further, we do not agree with the defendants there is no reasonable possibility that the state of the evidence relevant to the point could have been materially more favourable to First Laser if the point had been raised, in that there would be no factual controversy as the only relevant fact is that First Laser failed to do better than the Open Offer.

26.  There was divergence of opinion in the English Court of Appeal in Benedetti v Sawiris [2010] EWCA Civ 1427 on the exercise of discretion to disallow interest where a party has refused to accept an offer of not less than the amount which he has succeeded in recovering. Etherton LJ considered that a party’s conduct in respect of offers and negotiations relating to settlement should not be taken into account at all, and most particularly where the claim is for restitution of the defendant’s unjust enrichment (at §§164 to 165). Rimer LJ took the view that it would be rare and exceptional for the refusal of an offer to be relevant to the exercise of discretion as to interest and, in declining to penalise a claimant for turning down an offer to pursue a greater claim, the court may consider whether the pursuit of the claim was improper, or whether it was pursued with no genuine belief or other than in good faith (at §§177, 179). Arden LJ disagreed with both Etherton LJ and Rimer LJ and held that where there is an acceptable offer, the claimant should bear the risk and cost of failure (at §130).

27.  If the approach of Rimer LJ in taking the middle road is followed, the reasonableness of the conduct of First Laser in turning down the Open Offer would be looked into. It could not be said there is no need to look beyond the fact that First Laser did not do better than the Open Offer. The questions are not merely one of law that can be decided without any need to make factual findings.

28.  For the above reasons, we decline to give leave to appeal on the questions raised by First Laser and the questions raised by the defendants. Both applications are dismissed.

29.  We order First Laser to pay the defendants’ costs of resisting First Laser’s application for leave to appeal, which we assess summarily at HK$450,000.

30.  We order the defendants to pay First Laser’s costs in opposing their application for leave to appeal, assessed summarily at HK$600,000. We decline to grant a certificate for three counsel. The costs in settling the statement of costs for summary assessment are disallowed, see Practice Direction 14.3 para 13.