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HCA 1357/2011
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1357 OF 2011
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BETWEEN
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CHAN KON FUNG |
Plaintiff
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and
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GALLOP PIONEER LIMITED
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1st Defendant
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L’SEA RESOURCES INTERNATIONAL HOLDINGS LIMITED |
2nd Defendant |
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| Before : Deputy High Court Judge Marlene Ng in Chambers |
| Dates of Hearing : 19 December 2014 and 28-29 July 2015 |
| Date of Handing Down Decision : 4 August 2016 |
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D E C I S I O N
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I. INTRODUCTION
1. In 2014, the defendants in the present action, a HK listed company L’Sea Resources International Holdings Limited (“D2”) (formerly known as Vitar International Holdings Limited, “Vitar”) and its wholly owned subsidiary Gallop Pioneer Limited (“D1”) (collectively, “Ds”), took out the following applications:
(a) Ds’ summons filed on 17 July 2014 for joinder of a PRC company 雲南錫業集團(控股)有限責任公司 (“PRC Yunnan Tin”) as the 3rd defendant and for consequential directions for re-amendment of the Amended Defence and Counterclaim (“AD&C”) as per the draft annexed thereto (“1st Draft”) and service out of jurisdiction (“Joinder Summons”);
(b) Ds’ summons filed on 14 November 2014 for leave to amend the Joinder Summons for joinder of PRC Yunnan Tin and Yunnan Tin Hong Kong (Holding) Group Co, Limited (“HK Yunnan Tin”) as the 3rd and 4th defendants and for consequential directions for re-amendment of the AD&C as per the revised draft attached thereto (“2nd Draft”) (“Amended Joinder Summons”);
(c) Ds’ summons filed on 21 August 2014 for leave to adduce further expert evidence and for consequential directions (“Expert Summons”); and
(d) Ds’ summons filed on 15 December 2014 (“Nie Affirmation Summons”) for retrospective leave to file/serve the 2nd and 3rd affirmations of Ds’ director Nie Dong (“Nie”) filed on 14 November and 10 December 2014 respectively in support of the Joinder and Amended Joinder Summonses (“Nie 2nd and 3rd Affs”).
For the Joinder and Amended Joinder Summonses, on 17 July 2014 Ds filed Nie’s 1st affirmation (“Nie 1st Aff”) in support, and on 27 August 2014 P filed his 3rd affirmation (“P 3rd Aff”) in opposition. There were no substantive amendments proposed in the 1st and 2nd Drafts except for adding PRC Yunnan Tin and HK Yunnan Tin as the 3rd and 4th defendants. For the Expert Summons, on 21 August 2014 Ds filed the affirmation of their regional chief financial officer Wong Tak Shing Rex (“Wong”) in support, and on 23 September 2014 P filed his 4th affirmation in opposition.
2. The substantive hearing for argument in respect of the Joinder, Amended Joinder, Expert and Nie Affirmation Summonses came before me on 19 December 2014 (“1st Hearing”), and was adjourned part-heard. At the 1st Hearing, I granted inter alia the following directions:
(a) on/before 4:00pm on 23 December 2014, Ds shall notify P in writing of their nomination of proposed accounting expert on the issue of “production shortfall” together with his/her curriculum vitae;
(b) within 21 days from the date of the order, ie on/before 9 January 2015, Ds shall (if so advised) file and serve application on alternative basis for relief against sanction imposed by paragraphs 4-5 of the order of Master Ho dated 26 June 2014 (“Sanction”) supported by affidavit;
(c) within 21 days from the date of the order, without prejudice to P’s position that Ds were in breach of the Sanction in taking out the Amended Joinder and Expert Summonses, leave be granted for P to file and serve affidavit in reply to the Nie 2nd and 3rd Affs and to oppose Ds’ application for relief against the Sanction (if any);
(d) leave for Ds to file/serve affidavit in reply within 14 days thereafter;
(e) no further affidavit shall be filed/served without leave of the court;
(f) any application for leave to file and serve further affidavit shall be made no later than 14 days before the adjourned hearing of the Joinder, Amended Joinder, Expert and Nie Affirmation Summonses with 2 days reserved;
(g) Ds’ application for relief against the Sanction (if any) shall be returnable at the same time as the aforesaid adjourned hearing; and
(h) within 21 days from the date of the order, ie on or before 9 January 2015, Ds shall (if so advised) serve further revision of the 2nd Draft on the issue of “Cash Calls”.
3. On 9 January 2015, Ds served further revision of the 2nd Draft (“Ds’ Draft”) by introducing proposed amendments on the issue of “Cash Calls” and additionally proposing other amendments. At first, Mr Li SC (and with him Mr But), counsel for P, took procedural issue on these additional proposed amendments made without leave or without summons for leave. But upon further exploration Mr Li SC did not appear to have any significant substantive objection, and the additional proposed amendments did not feature much in oral submissions at the 2nd Hearing referred to in paragraph 6 below. Since P by the Amendment Summons referred to in paragraph 5(a) below also wished to amend his own pleadings, it appeared more sensible to consider both applications substantively rather than to dwell on any procedural/technical resistance.
4. On 9 January 2015, Ds also filed summons for relief against the Sanction to allow them to take out the Amended Joinder and Expert Summonses in the event of breach of the Sanction (which Ds denied) (“Relief Summons”), and further filed the 4th affirmation of their senior business manager Ip Ka Fai (“Ip”) (“Ip 4th Aff”) in support.
5. Subsequently, the parties took out further applications:
(a) P’s summons filed on 3 June 2015 for leave to amend his Amended Reply and Re-Amended Defence to Amended Counterclaim (“AR&RADAC”) as per the draft attached thereto (“P’s Draft”) (“Amendment Summons”); and
(b) Ds’ summons filed on 27 July 2015 for leave to file/serve the 6th affirmation of Ip Ka Fai (“Ip Affirmation Summons”)
On 3 June 2015, P filed his 5th affirmation (“P 5th Aff”) in support of the Amendment Summons. On 17 July 2015, Ds filed Ip’s 5th affirmation (“Ip 5th Aff”) in opposition.
6. The adjourned hearing of the Joinder, Amended Joinder, Expert and Nie Affirmation Summonses came before me on 28 and 29 July 2015 (“2nd Hearing”). The Relief, Amendment and Ip Affirmation Summonses were made returnable at the 2nd Hearing.
7. At the 2nd Hearing, Mr Li SC and Mr Chan SC (and Mr Khaw and Ms Seto with him), counsel for Ds, optimistically suggested I should hear all of the aforesaid summonses. I prudently adjourned the Expert Summons pending the outcome of the other summonses, but that was still overly optimistic because apart from the Ip and Nie Affirmation Summonses[1] senior counsel were only able to address on the Amendment Summons and very briefly on the proposed amendments in Ds’ Draft. This Decision will deal with the aforesaid matters and give case management directions for further conduct of the remaining summonses.
II. IP AFFIRMATION SUMMONS
8. At the 2nd Hearing, I granted leave for Ds to file/serve the Ip 6th Aff, and reserved my reasons for decision and my decision on costs. The Ip 5th Aff explained that HK Yunnan Tin and Ds wrote to PRC Yunnan Tin on 15 July 2015 to ascertain the latter’s stance on the status of the sum of AUD16,300,000[2] in light of the proposed amendments in P’s Draft. The sole purpose of the Ip 6th Aff was to exhibit PRC Yunnan Tin’s reply letter dated 24 July 2015, which Mr Chan SC submitted was pertinent to the Joinder and Amended Joinder Summons as it set out PRC Yunnan Tin’s current stance on P’s pleaded case and affidavit evidence for resisting the Joinder and Amended Joinder Summonses. As seen below, the nature/status/treatment of the sum of AUD16,300,000 was at the heart of one of the disputes between the parties, and PRC Yunnan Tin was an involved party to the relevant background dealings. In my view, PRC Yunnan Tin’s reply letter that addressed this subject appeared prima facie pertinent, so at the 2nd Hearing I granted leave for Ds to file/serve the Ip 6th Aff.
9. On the question of costs, Mr Li SC complained that Ds delayed for about 1½ months after the Amendment Summons (3 June 2015) before they made enquiries with PRC Yunnan Tin (16 July 2015), and submitted that Ds should pay P costs of the Ip Affirmation Summons. But P acknowledged in the P 5th Aff that the genesis of the Amendment Summons was Mr Chan SC’s submissions at the 1st Hearing, and yet the Amendment Summons was not filed until 5½ months later. Given such lengthy gestation, P’s complaint that Ds took a month or so to seek legal advice and to take action in response to the Amendment Summons would hardly draw sympathy. Anyway, even if there were delay, it had no material consequence because (a) there was no suggestion P could not deal with the Joinder and/or Amended Joinder Summonses, and (b) in any event such summonses were further adjourned. I therefore order that costs of and occasioned by the Ip Affirmation Summons be costs in the cause of the Joinder Summons (whether to be amended or otherwise).
III. NIE AFFIRMATION SUMMONS
10. On 30 July 2014, Master J Wong gave directions for filing/ serving affidavits in opposition/reply for the Joinder Summons, and further directed no further affirmation shall be filed without leave of the court. The Nie 2nd and 3rd Affs were filed out of time and without leave. Mr Li SC submitted there was no justification for non-compliance with the prescribed deadline, and P would suffer prejudice in view of the then imminent 1st Hearing. But the adjournment after the 1st Hearing allowed P time and opportunity to consider the Nie 2nd and 3rd Affs and (without prejudice to his opposition) to file affidavit in reply. P chose not to file any affidavit in reply, and in all the circumstances I am not satisfied he would suffer any prejudice that could not be overcome by Mr Li SC’s able submissions. I therefore grant retrospective leave for Ds to file/serve the Nie 2nd and 3rd Affs already filed on 14 November and 10 December 2014 respectively. Nevertheless, Ds were late with the Nie 2nd and 3rd Affs, and they had to come to court to seek indulgence. I therefore grant a costs order nisi that Ds shall pay P costs of and occasioned by the Nie Affirmation Summons in any event to be taxed if not agreed.
11. I now turn to some background matters (which both Mr Chan SC and Mr Li SC canvassed in some detail) to put the parties’ applications in context. Apart from abbreviations expressly adopted in this Decision, I also adopt some terms in clause 1.01 of the SPA referred to in paragraph 23 below, but in case of conflict the former shall prevail.
IV. BACKGROUND
12. The present dispute arose out of P’s sale and Ds’ purchase of the entire share capital of Parksong Mining and Resource Recycling Limited (“HK Parksong”). HK Parksong (incorporated on 16 July 2008 with P as its sole shareholder/director) was P’s corporate vehicle for investing in mining rights in tin mines at Renison in Tasmania, Australia (“Mining Rights” or “Tin Mines”).
13. According to《收購澳大利亞藍石礦業塔斯馬尼亞有限公司資產備忘錄》dated 25 July 2009 and made between HK Parksong and PRC Yunnan Tin (“25/7/09 Memorandum”), it was agreed inter alia that:
“[HK Parksong]全額出資收購澳大利亞藍石礦業塔斯馬尼亞有限公司(以下簡稱藍石公司)60%的資產。收購完成後,[HK Parksong]享有上述合作項目60%的權益,[PRC Yunnan Tin]在[HK Parksong]佔1%的名義股份(不享有實際股權),該1%的名義股份在香港公司註冊部門登記在[PRC Yunnan Tin]名下,即[HK Parksong]與[PRC Yunnan Tin]形成關聯關糸,但[HK Parksong]的所有資產及股權都歸[HK Parksong]所有,[PRC Yunnan Tin]只享有[HK Parksong]在該項目中所分取淨利潤的分享權,享有[HK Parksong]在該合作項目中所獲得淨利潤在分給YTC資源有限公司……5%後剩餘利潤中18%的權益。由[PRC Yunnan Tin]出面辦理收購合作項目資產的所有手續,以[HK Parksong]名義與藍石公司簽訂合同。” (clause 1)
14. According to《承諾書(一)》dated 25 July 2009 and made between HK Parksong and PRC Yunnan Tin (“25/7/09 1st Undertaking”), it was agreed inter alia that:
“一、兩年內[PRC Yunnan Tin]有權用備忘錄第一條所述[PRC Yunnan Tin]所享有的18%的收益收購[HK Parksong]的不超過20%的普通股股權,該20%的股權價值對應[HK Parksong]購買的備忘錄中所指合作項目不超過12%的資產及權益的價值。
二、上述股權收購價格以[HK Parksong]初始進入的基價為基礎,以[PRC Yunnan Tin]收購當時的經中介機構評估的資產價值增減額為調整依據,雙方協商確定合理的價格,之後[PRC Yunnan Tin]按此價格購買[HK Parksong]的股份。”
15. By《承諾書(二)》dated 25 July 2009 and made between HK Parksong and PRC Yunnan Tin, PRC Yunnan Tin confirmed certain production feasibility reports to HK Parksong.
16. On 11 June 2009, HK Yunnan Tin under its previous name was incorporated as the corporate vehicle for investment in the Mining Rights / Tin Mines. On 4 August 2009, the sole subscriber share of HK Yunnan Tin was transferred to P at par value of HK$1 with 9,899 new shares allotted to P and 100 new shares allotted to PRC Yunnan Tin’s related company all at par value of HK$1 each. As a result, 99% and 1% of the shares in HK Yunnan Tin were held in the names of P and PRC Yunnan Tin’s related company.
17. According to《合作收購澳大利亞藍石礦業塔斯馬尼亞有限公司資產協議書》dated 9 September 2009 (“9/9/09 Agreement”), HK Parksong and PRC Yunnan Tin agreed to set up HK Yunnan Tin as the joint venture company for investing in the Mining Rights / Tin Mines (clause 1), and PRC Yunnan Tin and HK Parksong were to respectively hold 45% and 55% of the issued shares in HK Yunnan Tin (clause 2). Clause 3 provided that “雙方同意,各自按其在[HK Yunnan Tin]的股權比例承擔收購藍石公司60%的資產所需資金。即:[HK Parksong]出資55%,[PRC Yunnan Tin]出資45%”.
18. According to《補充協議》for the 9/9/09 Agreement also dated 9 September 2009 and made between HK Parksong and PRC Yunnan Tin (“9/9/09 Supplemental Agreement”), it was agreed inter alia that:
“一、為盡快順利完成收購澳大利亞藍石礦業塔斯馬尼亞有限公司(以下簡稱藍石公司)60%資產的項目,[HK Parksong]同意將收購所需資金的45%先提供給[PRC Yunnan Tin],再由[PRC Yunnan Tin]辦理相關手續後付到[HK Yunnan Tin],同時[HK Parksong]將收購所需資金的55%付到[HK Yunnan Tin],由[HK Yunnan Tin]將全部收購所需資金付給澳洲子公司,由澳洲子公司簽署上述資產收購的相關協議。
……
三、雙方同意,[HK Parksong]提供給[PRC Yunnan Tin]收購藍石公司資產項目所需45%的資金,採用委托投資的方式。即[HK Parksong]委托[PRC Yunnan Tin]投資收購,待收購完成後,依據本協議,雙方解除委托投資關係,[PRC Yunnan Tin]將其名下的[HK Yunnan Tin]44%股權無條件轉讓變更為[HK Parksong]持有,[PRC Yunnan Tin]僅保留1%的名義股份。雙方在收購藍石公司資產項目中的權利義務關係按雙方簽訂的[25/7/09 Memorandum]等文件執行。”
19. On 14 September 2009, 100 HK Yunnan Tin shares in the name of PRC Yunnan Tin’s related company were transferred to P at par value of HK$1 each, and on 14 September 2009 P transferred to HK Parksong and PRC Yunnan Tin 5,500 shares and 4,500 shares respectively at par value of HK$1 each.
20. HK Yunnan Tin acquired and wholly owned the entire share capital of YT Parksong Australia Holding PTY Ltd (“Australia Parksong”), which was incorporated on 15 December 2009. Pursuant to the JV and Management Agreements both dated 28 January 2010, Australia Parksong acquired a 50% (not 60%) interest in a joint venture with Bluestone Mines Tasmania Pty Ltd (“BMT”) for exploring/managing the Tin Mines (“BMTJV”). The Tin Mines used to be managed by Bluestone Mines Tasmania Joint Venture Pty Ltd (“BMTJV Manager”), a management company incorporated in Australia pursuant to the Management Agreement. Investment in the Mining Rights / Tin Mines was made with financial assistance provided by PRC Yunnan Tin (as explained in the paragraph below) and Sun Hung Kai Structured Finance Limited (“SHK”).
21. By a《墊資協議書》dated 11 February 2010 and made by HK Parksong and PRC Yunnan Tin (“11/2/10 Advancement Agreement”), both parties “為盡快順利完成收購澳大利亞藍石礦業塔斯馬尼亞有限公司(以下簡稱“藍石公司”)50%資產的項目” agreed inter alia as follows:
“一、[HK Parksong and PRC Yunnan Tin]雙方簽訂的[9/9/09 Agreement]及[9/9/09 Supplemental Agreement]等相關協議約定,由[HK Parksong]支付收購所需的全部資金,現因[HK Parksong]不能在收購交割日之前籌集到足夠的資金,為了保證按時完成藍石公司資產收購項目的交割,[PRC Yunnan Tin]同意提供該項目收購所需全部資金的45% (1948.5萬美元),代[HK Parksong]先行墊資。
二、[PRC Yunnan Tin] 墊資期限為6個月, 墊資期間的利息按照中國人民銀行規定的同期貸款利率計算,在[HK Parksong]歸還[PRC Yunnan Tin]墊資款時一併支付。
三、[HK Parksong]同意在6個月的墊資期間,盡快籌集資金歸還[PRC Yunnan Tin]。
四、[HK Parksong]同意以此次收購的藍石公司的資產中[HK Parksong]所享有的55%的資產及其權益,以及雙方為收購項目合作設立的[HK Yunnan Tin]的55%股權,作為歸還[PRC Yunnan Tin]墊資及其利息的擔保。
五、[PRC Yunnan Tin] 墊資期滿6個月(以實際墊資之日起算)時,如果[HK Parksong]未能全部償還[PRC Yunnan Tin]墊資款及利息,[HK Parksong]同意[PRC Yunnan Tin]上述墊資款成為[PRC Yunnan Tin]實際出資並持有此次收購的藍石公司的資產中的45%的資產及其權益,實際持有[HK Yunnan Tin]45%的股權。[HK Parksong and PRC Yunnan Tin]雙方在此之前簽訂的收購藍石公司資產的相關協議所約定的權益應據此作相應的修訂。”
22. On 22 February 2010, PRC Yunnan Tin lent US$19,485,000 to HK Yunnan Tin as recorded in the latter’s general ledger for the period from 1 July 2009 to 30 June 2010.
23. In June/July 2010, P and D1/Vitar entered into discussions about possible sale by P’s interest in the Mining Rights / Tin Mines to D1/ Vitar. By an agreement dated 13 July 2010 made by P as vendor, D1 as purchaser and Vitar as guarantor (“SPA”[3]), P agreed to sell and D1 agreed to purchase the entire issued share capital of HK Parksong, and Vitar guaranteed D1’s obligations/liabilities thereunder. The recitals of the SPA provided inter alia that:
“(B) [HK Parksong] holds 55% of theentire issued share capital of [HK Yunnan Tin] …… which in turn holds the entire issued share capital of [Australia Parksong] …… Following the signing of [the SPA] but prior to Completion, [HK Parksong] will acquire from [PRC Yunnan Tin] its 27% shareholding in [HK Yunnan Tin] with the result that prior to Completion, [HK Parksong] will be the sole legal and beneficial owner of 82% of the entire issued share capital of [HK Yunnan Tin].
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(D) Pursuant to the JV Agreement, the [BMTJV] was established in Tasmania by [Australia Parksong] and BMT as to 50% and 50% respectively, and currently owns the Joint Venture Property and conducts the Joint Venture Activities.
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(F) Upon completion of the sale and purchase of the Sale Shares contemplated herein, [D1] would indirectly own 50% interest in the Assets and Tenements free from all the Encumbrances.”
According to such recitals, it was contemplated that prior to completion of the SPA on 4 March 2011, HK Parksong would acquire from PRC Yunnan Tin 27% shareholding in HK Yunnan Tin to become the legal/beneficial owner of 82% shareholding in HK Yunnan Tin (“82% Shares”) and PRC Yunnan Tin would be the owner of the remaining 18% (“18% Shares”).
24. The《會談紀要》of a meeting held on 16 July 2010 and signed by HK Parksong and PRC Yunnan Tin (“16/7/10 Minutes”) recorded that:
“一、[PRC Yunnan Tin]總經理高文翔通報了[PRC Yunnan Tin]辦公會的決定:一是由[HK Parksong]替[PRC Yunnan Tin]墊資做實[HK Yunnan Tin]……18%的股權和資產,對應雷尼森項目50%資產中的18%的股權資產和收益權;二是依據雙方‘墊資協議’,原[PRC Yunnan Tin]替[HK Parksong]墊資的1948.5萬美元由[HK Parksong]將本金及利息全部還給[PRC Yunnan Tin];三是要綜合以前簽訂的相關協議、備忘錄,與[HK Parksong]簽訂一個雙方協議。
二、[HK Parksong]總經理[P]同意了[PRC Yunnan Tin]作出的決定。
三、會談會還研究了這次收購雷尼森項目50%資產成本開支情況,總成本為77,350,699.00澳元及2,000,000.00港元。2,000,000.00港元中,[PRC Yunnan Tin]認可其中18%部份,合計50,000.00澳元。匯率差按1.17計算,做實18%股權需要的成本為77,350,699.00 x 1.17 x 18% + 50,000.00 = 16,340,057.21澳元。……
四、針對[PRC Yunnan Tin]按照2010年2月11日[11/2/10 Advancement Agreement]的約定為[HK Parksong]墊付的1948.5 萬美元,該款項已投入[HK Yunnan Tin],並由[HK Yunnan Tin]用於收購藍石公司雷尼森資產項目,[HK Parksong]保証按照雙方簽訂的[11/2/10 Advancement Agreement]的要求,按期歸還[PRC Yunnan Tin]墊資1948.5萬美元以及利息37.62萬美元,本息合計為1986.12萬美元,由[HK Parksong]支付到[PRC Yunnan Tin]指定的帳戶。其中1169.1萬美元支付到[PRC Yunnan Tin]賬戶,817.02萬美元支付到[PRC Yunnan Tin]所屬澳大利亞TDK公司賬戶。[HK Parksong]償還的上述款項,採用[PRC Yunnan Tin]減少對[HK Yunnan Tin]的投資的方式,即[HK Parksong]將款項投入[HK Yunnan Tin],[PRC Yunnan Tin]減少對[HK Yunnan Tin](對應澳大利亞雷尼森項目)的投資,由[HK Yunnan Tin]支付給[PRC Yunnan Tin]。
五、[PRC Yunnan Tin]同意實際出資承擔[HK Parksong]通過[HK Yunnan Tin]收購藍石公司雷尼森項目50%資產的18%的款項,雙方確認[PRC Yunnan Tin]據此需承擔的金額為澳幣1630萬元。該款項由[PRC Yunnan Tin]以其在雷尼森項目的收益分紅優先抵還,直至抵還完畢;同時,[PRC Yunnan Tin]享有收購藍石公司雷尼森項目50%資產的18%的資產和收益權,以及享有[HK Yunnan Tin]18%實際股權和分紅權,[HK Yunnan Tin]其餘82%股權及分紅權歸[HK Parksong]所有。
六、雙方共同辦理[HK Yunnan Tin]的股權變更手續,即[HK Parksong]股權比例登記為82%,[PRC Yunnan Tin]股權比例登記為18%。雙方之前約定的股權代持協議終止執行。
……”
25. By a《協議書》dated 18 July 2010 and made between HK Parksong and PRC Yunnan Tin (“18/7/10 Agreement”), it was agreedinter alia that:
“一、針對[PRC Yunnan Tin]按照2010年2月11日[11/2/10 Advancement Agreement]的約定為[HK Parksong]墊付的1948.5 萬美元,該款項已投入[HK Yunnan Tin],並由[HK Yunnan Tin]用於收購藍右公司雷尼森資產項目,[HK Parksong]保証按照甲乙雙方簽訂的[11/2/10 Advancement Agreement]的要求,按期歸還[PRC Yunnan Tin]墊資1948.5萬美元以及利息37.62萬美元,本息合計為1986.12萬美元,由[HK Parksong]支付到[PRC Yunnan Tin]指定的帳戶。其中1169.1萬美元支付到[PRC Yunnan Tin]賬戶,817.02萬美元支付到[PRC Yunnan Tin]所屬澳大利亞TDK公司賬戶。[HK Parksong]償還的上述款項,採用[PRC Yunnan Tin]減少對[HK Yunnan Tin]的投資的方式,即[HK Parksong]將款項投入[HK Yunnan Tin],[PRC Yunnan Tin]減少對[HK Yunnan Tin](對應澳大利亞雷尼森項目)的投資,由[HK Yunnan Tin]支付給[PRC Yunnan Tin]。完成上述事項涉及中國政府的報批手續及相關工作,[HK Parksong]應積極給予配合。
二、[PRC Yunnan Tin]同意實際出資承擔[HK Parksong]通過[HK Yunnan Tin]收購藍石公司雷尼森項目50%資產的18%的款項,雙方確認[PRC Yunnan Tin]據此需承擔的金額為澳幣1630萬元。該款項由[PRC Yunnan Tin]以其在雷尼森項目的收益分紅優先抵還,直至抵還完畢;同時,[PRC Yunnan Tin]享有收購藍石公司雷尼森項目50%資產的18%的資產和收益權,以及享有[HK Yunnan Tin]18%實際股權和分紅權,[HK Yunnan Tin]其餘82%股權及分紅權歸[HK Parksong]所有。”
26. The written resolution of Hong Kong Parksong made on 19 July 2010 by P as its sole director (“19/7/10 Resolution”) stated inter alia that:
“1. [HK Parksong]與[PRC Yunnan Tin]於二零一零年七月十八日簽訂的[18/7/10 Agreement]第二條中約定: ……
據此並鑒於,[HK Parksong]為[PRC Yunnan Tin]墊付的該收購款澳幣1630萬元,是由[P]……向[HK Parksong]提供的股東貸款,故[HK Parksong]確認並同意: [HK Parksong]對[PRC Yunnan Tin]享有的上述澳幣1630萬元的債權由[P]享有。”
27. By a 《轉讓契約》dated 19 July 2010 and made by HK Parksong and P (“19/7/10 Assignment”), it was provided in the recitals inter alia that:
“C. 根據[HK Parksong]與[PRC Yunnan Tin]的約定,[PRC Yunnan Tin]同意實際出資,並承擔[HK Parksong]通過[HK Yunnan Tin]收購藍石公司雷尼森項目50%資產的18%的款項(即澳大利亞元1630萬元)(下稱 ‘該貸款’),該貸款由[PRC Yunnan Tin]在雷尼森項目的收益分紅優先抵還,直至抵還完畢,故此,[PRC Yunnan Tin]尚欠[HK Parksong] 該貸款。”
Under clause 1 (as rectified by《轉讓契約補充協議》dated 6 December 2010 and made by HK Parksong and P (“6/12/10 Supplement”)), it was agreed inter alia that: “[鑒於[HK Parksong]為[PRC Yunnan Tin]墊付的該貸款是[P]向[HK Parksong]提供的股東貸款及[P]給予澳幣共計1630 萬元對價予[HK Parksong]],[HK Parksong]作為該貸款的法定及實益擁有人就此不可撤銷地向[P]轉讓該貸款及其所附帶的全部權益及利益。”
28. On 19 July 2010, HK Parksong served on PRC Yunnan Tin and HK Yunnan Tin notices in respect of the 19/7/10 Assignment, and these companies gave receipts therefor (“1st Notices/Receipts”). On the same day, P also served on PRC Yunnan Tin and HK Yunnan Tin notices in respect of the 19/7/10 Assignment, and these companies also gave receipts therefor (“2nd Notices/Receipts”). By the 1st/2nd Receipts, PRC Yunnan Tin and HK Yunnan Tin agreed to “按照上述通知的要求將澳幣1630萬元全部直接歸還給[P]”.
29. There was no dispute HK Parksong repaid USD19,485,000 with interest to HK Parksong.[4] By instrument of transfer and bought and sold notes dated 19 July 2010, PRC Yunnan Tin transferred 2,700 HK Yunnan Tin shares to HK Parksong, and as a result HK Parksong and PRC Yunnan Tin held the 82% Shares and 18% Shares respectively.[5]
30. On 16 August 2010, Vitar made a public announcement in relation to the SPA which stated inter alia that:
“Pursuant to the [SPA], the Purchaser agreed that all receivables owing to the Target Group together with the 50% share of the Target Group in all the receivables owing to [BMTJV] and [BMTJV Manager] up to and including the Completion Date shall belong to [P] absolutely and [P] shall be entitled to receive all income and payments to be received by the Target Group in respect of the said receivables from time to time.
…… Immediately before the Completion, the major assets of the Target Group shall comprise the Assets while there will be no liabilities held by the Target Group given that the receivables and payables of the Target Group up to and including the Completion Date will be taken up by [P] together with the assignment to [D1] of the shareholder loans, due to [P]. Accordingly, the Yunnan Tin PRC Debt,[6] being the outstanding account receivable in the sum of approximately AUD16 million payable by [PRC Yunnan Tin] to [HK Parksong], will be taken up by [P].”
31. The SPA was amended by 3 supplemental deeds all dated 30 December 2010 and a further supplemental deed dated 28 February 2011 (“1st, 2nd, 3rd and 4th Supplemental Deeds” and collectively, “Supplemental Deeds”). The relevant terms/conditions of the SPA are summarised as follows:
(a) P shall sell and D1 shall purchase the entire share capital of HK Parksong for the price of HK$1,086,500,000 (clause 5.01);
(b) P guaranteed/warranted to D1 the contained tin in concentrate produced by the Group companies[7] for each of the 1st 3 years from the Completion Date shall not be less than 6,500 tonnes (“Production Guarantee”), and D1 shall be entitled to claim against P for damages for breach of the Production Guarantee for any or all the aforesaid anniversaries (clause 5.02);
(c) P further guaranteed/warranted to D1 that P would
bear all Payables[8] (that remained unpaid) by the Review
Group[9] as at the Completion Date (clause 5.03);
(d) P would assign to D1 all existing loans owed to him by HK Parksong and HK Yunnan Tin, the exact value of which was to be shown/determined by the Audited (the Review Group) Accounts[10] (clause 5.05); and
(e) D1 agreed/acknowledged all Receivables[11] owed to the Review Group up to and including the Completion Date shall belong to P absolutely, so P shall be entitled to receive all income and payments to be received by the Review Group for the Receivables from time to time, and D1 agreed/undertook to take further action as might be required by P to give full effect to such provision (clause 5.04).
32. On 31 December 2010, Vitar published a circular notice of extraordinary general meeting in relation to the acquisition contemplated in the SPA stating inter alia that:
“Pursuant to the [SPA] and [the 1st, 2nd and 3rd Supplemental Deeds], the Purchaser agreed that all Receivables owing to the Review Group up to and including the Completion Date shall belong to [P] absolutely and [P] shall be entitled to receive all income and payments to be received by the Review Group in respect of the Receivables from time to time.
…… Immediately before the Completion, the major assets of the Target Group shall comprise the Assets while there will be no liabilities held by the Target Group given that the receivables and payables of the Target Group up to and including the Completion Date will be taken up by [P] together with the assignment to [Vitar] of the shareholder loans, due to [P] including the exercise by BMT of put option granted by [Australia Parksong] to BMT according to the terms and conditions under the acquisition agreement dated 28 January 2010 made between BMT, [Australia Parksong] and [PRC Yunnan Tin].
……
Pursuant to the [SPA], [D1] has conditionally agreed to acquire and [P] has conditionally agreed to dispose of the Sale Shares, being the entire issued share capital of [HK Parksong]. The Sale Shares are to be acquired free from all Encumbrances and [D1] will be assigned with the shareholder loans due to [P] upon Completion as part of the Consideration. As at 30 November 2010, the amount of outstanding shareholder loans was approximately HK$596,546,000.”
33. Completion of the sale and purchase under the SPA took place on 4 March 2011.[12] At completion, P assigned/transferred the entire issued share capital in HK Parksong to D1, which meant D1 through HK Parksong held the 82% Shares and through HK Yunnan Tin and Australia Parksong indirectly held a 41% stake in BMTJV. On 4 March 2011, P and D1 also executed 2 assignment deeds with HK Parksong and HK Yunnan Tin respectively to assign to D1 all loans due to P by these 2 companies[13] (collectively, “4/3/11 Assignments”).
34. On 17 March 2011, pursuant to clause 5.05 of the SPA, P sent the unaudited Completion Accounts to Ds. The audited Completion Accounts (ie the Audited (Review Group) Accounts) were completed on 1 June 2011, and signed by Ds’ directors on 22 June 2011.
V. PROCEDURAL HISTORY
35. After completion, P demanded payment of the Receivables (ie AUD15,143,422.44) under clauses 5.04-5.05 of the SPA. D1 did not pay as demanded, so P claimed D2 became liable to pay him pursuant to clauses 10.01-10.02 of the SPA. On 6 July 2011, P’s solicitors formally demanded P to pay the Receivables. On 11 July 2011, D1’s former solicitors denied P’s claim, and suggested P was in breach of the SPA. On 5 August 2011, P’s solicitors denied any alleged breach.
36. On 11 August 2011, P commenced the present action for recovery of the Receivables, an account/inquiry of all income/payments to be received by the Review Group for the Receivables, and payment upon such account/inquiry. On 12 October 2011, Ds filed their Defence and Counterclaim (“D&C”) to deny liability and to raise D1’s counterclaim against P. On 23 May 2012, Ds amended the D&C to inter alia raise Ds’ counterclaim against P. On 5 June 2013, P filed the AR&RADAC.
37. In late 2012, the parties exchanged witness statements as to fact: (a) P served his witness statement and that of Zhou Wei Jing Joe (“Zhou”) both filed on 15 November 2012, and (b) Ds served the witness statements of Cheng Hau Yan (“Cheng”), Wong, Cheung Wai Biu and Fu Wing Kwok Ewing (“Fu”) all filed on 5 December 2012. The parties exchanged 2 further rounds of witness statements: (i) Zhou’s 1st supplemental witness statement filed on 5 June 2013 (“Zhou 1st Supp Stmt”) and Zhou’s 2nd supplemental witness statements filed on 25 April 2014, and (b) Ds served Fu’s supplemental witness statement filed on 14 August 2013 and Wong’s 1st and 2nd supplemental witness statements filed on 14 August 2013 and 17 July 2014.
38. On 26 September 2012 P assigned to 許靈 (“Xu”) and 暢學軍 (“Chang”) his interests in a sum of AUD16,300,000 due from PRC Yunnan Tin to him, and on 18 October 2012 he gave notice of such assignment to PRC Yunnan Tin. By 民事訴狀 issued on 5 January 2013, Xu/Chang commenced action in 廣東省深圳市中級人民法院 to recover such sum with interest and costs.
39. By 民事判決書 dated 25 August 2014 ((2013)深中法涉外初字第2號), 廣東省深圳市中級人民法院 entered judgment against PRC Yunnan Tin to pay Xu/Chang the sum of AUD16,300,000 with interest and costs. 廣東省深圳市中級人民法院 held that:
“…… [HK Parksong]與[PRC Yunnan Tin]按照[18/7/10 Agreement]的約定,於2010年7月19目變更[HK Yunnan Tin]的股權結構為[PRC Yunnan Tin]持有18%股份,[HK Parksong]持有82%股份。[18/7/10 Agreement]也約定[PRC Yunnan Tin]可以向[HK Yunnan Tin]和[Australia Parksong]指派董事,並由[PRC Yunnan Tin]主要負責收購項目的經營管理並包銷錫礦產品。因此,本院認定[PRC Yunnan Tin]已按照[18/7/10 Agreement]約定享有[HK Yunnan Tin]18%股權和分紅權,並通過[HK Yunnan Tin]享有收購藍石公司雷尼森項目50%資產和收益權,結合雷尼森項目50%資產的價值、[HK Parksong]支付收購款的事實和[P]作証的內容,可以認定雙方協商一致確定[PRC Yunnan Tin]應承擔抱持有[HK Yunnan Tin]18%股份的對價1630萬澳元。”
In respect of PRC Yunnan Tin’s “請求本案中止審理”, 廣東省深圳市中級人民法院 held that:
“…… [P]與[D2]、[D1]就轉讓[HK Parksong]股權發生的爭議在香港進行訴訟,該股權轉讓爭議與本案屬不同的法律關係,且香港法院就該股權轉讓爭議的處理與我國法院對本案的處理互相之間沒有約束力,本案不以該案的處理給果為前提,因此,本案不應中止審理。”
40. PRC Yunnan Tin appealed, and 廣東省深圳市高級人民法院dismissed such appeal by 民事判決書 dated 2 June 2015 ((2014)粵高法民四終字第177號). It was held that under the 18/7/10 Agreement PRC Yunnan Tin “同意承擔收購雷尼森項目50%資產的18%的款項即1630萬澳元,該約定意思明確,也未違反相關法律法規的強制性規定,合法有效。[PRC Yunnan Tin]應按照協議承擔該1630萬澳元,由於該款項已由[HK Parksong]代為支付,故原審法院認定[HK Parksong]對[PRC Yunnan Tin]享有1630萬澳元債權並無不當,本院予以維持。[PRC Yunnan Tin]上訴否認該債權,理據不足,本院不予支持”.
VI. LEGAL PRINCIPLES
41. Guidance has fallen from the Court of Final Appeal on the rationale/purpose of pleadings in Sinoearn International Limited v Hyundai- CCECC Joint Venture (a firm)[14] and Kwok Chin Wing v 21 Holdings Ltd.[15] In the former case, Ribeiro PJ (with whom Chan Acting CJ, Tang PJ, Mortimer NPJ and Gault NPJ agreed) said:
“30. …… The other party is entitled to know from a clear pleading what is the entire case he has to meet so that he can decide whether particulars should be sought; how he should plead in response; what discovery he is entitled to; what evidence he should adduce to meet it; and what points of law should be taken. ……
31. Where a late attempt is made to introduce a new case, it is doubly important that the other side should have a clearly pleaded draft amendment so that proper consideration can be given as to whether objections should properly be made to such amendment and whether an adjournment should be sought. ……
34. Pleadings are not mere formalities. They impose a necessary discipline and are fundamental to enabling every procedural facet of the adversarial system to operate fairly.”
Mortimer NPJ at paragraph 84 of the judgment summed it all in saying that “[claims] must be made and answered in pleadings or injustice may be the result”.
42. In the latter case, Ma CJ reiterated the aforesaid guidance and highlighted the dangers of inconsistent pleas as follows:
“21. …… The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues: Wing Hang Bank Ltd v Crystal Jet International Ltd. It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. ……
23. The purpose of pleadings, in clearly and unambiguously setting out the true extent and nature of a dispute not just for the benefit of the parties but also for the Court in managing and trying cases, remains important under our system of civil justice. The retention of the old rules as to pleading as well as the introduction of new provisions over four years ago under the Civil Justice Reform, reinforce this.
24. One of the new provisions introduced under the Reform was Rules of the High Court (Cap 4A, sub. leg.) O.18 r.12A which reads:
‘ A party may in any pleading make an allegation of fact which is inconsistent with another allegation of fact in the same pleading if–
(a) the party has reasonable grounds for so doing; and
(b) the allegations are made in the alternative.’
If the Plaintiff had, as he ought to have done, sought leave to plead a case on joint and several liability, questions would inevitably have been raised as to whether the Plaintiff could in the first place properly plead such a cause of action, which would have been (at least at first blush) quite inconsistent with his pleaded case based on the Initial Agreement and the Subsequent Agreement. The cause of action based on these Agreements assumed that there was no pre-existing liability as far as RHL was concerned, hence the need to enter into agreements which made RHL liable for the repayment of the loans to the Plaintiff. In these circumstances, it would therefore have been quite difficult to see how a pre-existing liability jointly and severally assumed with others, fitted in. Before us, the Plaintiff did not provide any enlightenment on this. To me, this only served to highlight even more the insuperable weaknesses in the Plaintiff’s case made on this new basis.”
43. Mr Li SC submitted that, generally speaking, all amendments of pleadings ought to be made for the purpose of determining the real question in controversy between the parties to any proceedings or for correcting any defect or error in any proceedings, and the court is not to punish parties for mistakes they made in the conduct of their cases unless it would cause injustice to the other party.[16] But both DHCJ Lok (as he then was) in Li Shiu To v Li Shiu Tsang & anor[17] and Recorder Horace Wong SC in Igal Dafini v CMA CGM SA[18] put in a caveat brought about by the Civil Justice Reform (“CJR”). Order 1A of the Rules of the High Court makes clear that court will give effect to the underlying objectives when it exercises its powers, including increasing cost-effectiveness of litigation, ensuring a case is dealt with as expeditiously as is reasonably practicable, and promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings. “If the amendment application is made in circumstances offending these underlying objectives, the court may have to balance all the factors in the case in determining whether to grant the application.”[19]
44. Mr Chan SC did not say P’s “new” case (if properly pleaded) was bound to fail, but argued that the proposed amendments in P’s Draft were deficient and in view of the above principles P could not say such deficiencies “can be made good from the evidence to be adduced in due course, or by way of further information if requested, or as volunteered without any request. The opponent must know from the moment that the amendment is made what is the amended case that he has to meet, with as much clarity and detail as he is entitled to under the rules”.[20] Mr Chan SC also referred to Wellfit Investments Ltd v Poly Commence Ltd[21] where the following passage from Perak Pioneer Limited v Carrian Holdings Limited[22] was cited with approval:
“As regards particulars, in my view, it is no answer to an objection that a proposed amendment lacks particulars, to say that particulars can later be given. Of course, if a pleading lacks particulars, particulars can be asked for in the usual way and ordered by the court if necessary, but where an amendment is applied for it would be an unusual case where the court would consider it appropriate to allow an amendment to be made which lacks particularity, and might cause embarrassment.”
and suggested these considerations apply more intensely when a party seeks to change to or introduce a new case:[23]
“Since the introduction of the precondition under r.8(1A) by the Civil Justice Reform, the court will only allow an amendment to a pleading to introduce a new case under exceptional circumstances, when it is satisfied that such proposed amendment is necessary either to dispose fairly of the cause or matter or for saving costs.”
45. Mr Li SC accepted P should properly plead his proposed amendments, but argued Swain-Mason & ors v Mills & Reeve LLP[24] and Wellfit Investments Ltd concerned late amendments made at trial or shortly before trial that called for more stringent scrutiny. However, the application in Perak Pioneer Limited that invited Fuad JA’s observations did not appear to have been made at or near the court doors. More importantly, given the rationale for pleadings in the post-CJR era, courts nowadays are unlikely to smile kindly on amendments that lack particularity or may cause embarrassment as they will prejudice the underlying objectives. Anyway, even though the present action had not been set down for trial, Mr Li SC’s written submissions suggested “[the] evidence has been fully unfolded” (by several rounds of witness statements) and “[the] case should be ready to be set-down for trial”, so the proposed amendments deserved scrutiny to ensure they were properly formulated and would not cause prejudice/ embarrassment (especially if they had the effect of altering the applicant party’s case). With these principles in mind, I turn to the parties’ disputes.
VII. DISPUTES
(a) P’s claim
46. Ds’ essential defence against P’s claim was set-off against P’s alleged liabilities under D1’s and Ds’ counterclaims (“Counterclaims”). But Ds put forward proposed amendments to the AD&C as follows:
(a) §§8, 11 and 16: Ds denied liability for AUD3,048,387.10 out of apportioned “Cash Calls” / “Called Sums” (AUD3,500,000) that Australia Parksong advanced to BMTJV Manager on 23 Febrtuary 2011 since it did not (i) form part of the Receivables and/or (ii) amount to “prepayment” of operating expenses or “cash/bank balance” of BMTJV for March 2011 but constituted payment for BMTJV’s operating expenses for February 2011; and
(b) §§25A-25B: Ds claimed P was liable to pay AUD476,393 to D1 being the apportioned “Cash Calls” paid by Australia Parksong to BMTJV in respect of the latter’s operating expenses for the period from 1-4 March 2011, but P failed to settle such sum.
47. The proposed amendments in paragraph 46(a) above were tied to the Expert Summons. At the 1st Hearing, Mr Chan SC submitted leave should be granted for adducing supplemental accounting expert evidence on this subject, but Mr Li SC reminded there was no plea in the AD&C to put such subject in issue. I invited Mr Chan SC to re-consider Ds’ position over the adjournment after the 1st Hearing, so Ds put forward the aforesaid proposed amendments. As for the proposed amendments in paragraph 46(b) above, Mr Li SC raised some initial objection that they were outside the ambit of my directions made at the 1st Hearing.
48. Since the Expert Summons was still pending, it would not be appropriate to say too much on the “Cash Calls” / “Called Sums” except to note the existing pleadings already demonstrated vigorous dispute over the Payables and Receivables. Ds suggested the proposed amendments in the paragraph 46 above raised nothing new (except to explain why further accounting expert evidence was required) since the CCC Report filed pursuant to a consent order dated 10 July 2013 had already canvassed issues over “Cash Calls” / “Called Sums”. Even though P disputed the admissibility of the CCC Report as accounting expert evidence, he agreed there was contested issue over the true nature of the “Called Sums” (ie whether they were “prepayment for upcoming expenses” or “payment of expenses in arrears”), whether such cash held by BMTJV Manager fell within the Payables or Receivables, and whether it should be apportioned between the parties. P’s essential objection was that accounting expert evidence was unnecessary to resolve this factual dispute. In my view, given the way Mr Li SC framed the issues concerning the “Called Sums”, the proposed amendments in the paragraph 46 above were not so far out on a new tangent that I ought to disallow them. I am also not satisfied they were too late or too prejudicial.
(b) Ds’ defence and Counterclaims
49. A disputed issue was whether P failed to comply with the guarantees/warranties under clauses 5 and 10 of the SPA concerning (a) the financial condition of the Group Companies (including HK Yunnan Tin),[25] (b) P’s liability for all outstanding Payables as at the Completion Date,[26] and (c) the alleged shortfall in tin concentrates produced by the Group as against the Production Guarantee.[27]
50. For (a) above, question arose as to whether P misrepresented the Group’s accounts and was thereby in breach of the guarantees/warranties stipulated in the SPA. Ds alleged P made representations and furnished accounting information (“A/C Info”) to the effect HK Yunnan Tin was indebted to P / HK Parksong for about HK$590,000,000, which debts would be assigned to D1 upon completion of the SPA. Ds also argued the A/C Info failed to reflect the existence of a shareholder loan (AUD16,300,000) that was regarded to have been advanced by PRC Yunnan Tin as creditor to HK Yunnan Tin as debtor. But P denied the existence of such shareholder loan, and further denied any misrepresentation and/or breach of warranty. P further claimed the parties did not contractually agree on the exact amount of indebtedness to be assigned to D1, and alleged the eventual amount of indebtedness shown in the Audit (the Review Group) Accounts as audited by the auditors of Ds / HK Parksong was consistent with the A/C Info. As for the “wrong entries” in the A/C Info, P claimed he had no fraudulent intent and Ds did not rely on them. P denied Ds suffered any loss/damage, but if they did they failed to show any causal link between any breach of the SPA and any loss/damage. A summary of the dispute over the A/C Info and the alleged “wrong entries” on the basis of Ds’ case and P’s existing pleadings is set out in the 1st Schedule to this Decision (“1st Schedule”).
51. Ds sought to reinforce their case by the new §66B(1)-(2) in Ds’ Draft that averred the sum of AUD16,300,000 (ie the 18% Funds in paragraph 67 below) carved out of P’s / HK Parksong’s loans to HK Yunnan Tin (about HK$590,000,000 being the Funds in paragraph 67 below) was regarded as having been advanced on behalf of PRC Yunnan Tin, so HK Yunnan Tin owed PRC Yunnan Tin a sum of AUD16,300,000 as “outstanding liability”, “loan capital” or “loan stock” within the meaning of clause 10 of schedule 5 of the SPA, but this was not so recorded in HK Yunnan Tin’s accounts, so P was in breach of warranty under inter alia clause 10 of schedule 5 of the SPA and Ds thereby suffered loss.
52. But in the AR&RADAC P claimed that out of his total investments in HK Yunnan Tin (made through HK Parksong) for acquiring a 50% stake in BMTJV, AUD16,300,000 was regarded “as paid by HK Parksong on behalf of [PRC Yunnan Tin]”[28] as PRC Yunnan Tin’s “capital investment” for the 18% Shares:
“7. ……
(a) The said sum of AUD 16.3 million was a loan advanced by [P] in the name of [HK Parksong] (which was wholly owned by him prior to 4th March 2011) to PRC Yunnan Tin for the latter’s acquisition of [the 18% Shares] in HK Yunnan Tin.
(b) It was the understanding of [P] and PRC Yunann Tin that the said sum of AUD 16.3 million as lent to PRC Yunnan Tin by [P] should be treated and booked as [PRC Yunnan Tin’s] share capital in the accounts of HK Yunnan Tin.”
The proposed amendments in the new §66A in Ds’ Draft pleaded that P’s such allegations were not supported by any resolution of HK Yunnan Tin to such effect and/or were not consistent with the A/C Info.
53. For (b) above, Ds claimed P should pay D1 AUD4,166,893.27 as Payables, but P only agreed to pay AUD3,244,520.24. In the new §66B(3) in Ds’ Draft, Ds averred a sum of AUD16,300,000 should be recorded in HK Yunnan Tin’s accounts as shareholder loan due to PRC Yunnan Tin (and PRC Yunnan Tin in turn owed P / HK Parksong the same amount being the 16.3m Payment in paragraph 72(f) below),[29] which was therefore an item of Payables under clause 5.03 of the SPA that P was liable to pay D1.
54. In my view, the above showed the new averments introduced by §§66A-66B in Ds’ Draft concerned the nature/status/treatment of the sum of AUD16,300,000 (ie the 18% Funds in paragraph 67 below) that went to support Ds’ existing pleas on the subject that in turn formed the underlying basis for the Joinder and Amended Joinder Summonses. I further note the new §§46A and 66B(4)-(5) in Ds’ Draft raised some background matters on the subject (eg the 16/7/10 Minutes, 18/7/10 Agreement, 2nd Notices/Receipts and PRC proceedings) that were uncontroversial as they were also canvassed in P’s proposed amendments in P’s Draft.
55. For (c) above, Ds alleged they suffered loss/damage because BMTJV failed to achieve the guaranteed production. On the other hand, P claimed BMTJV was capable of achieving the required production level, but the annual actual tin production fell below the guaranteed amount for the 1st 2 years due to a host of market factors and/or Ds’ failure to properly manage BMTJV. P also claimed Ds failed to mitigate loss.
56. Despite his initial demur, Mr Li SC did not raise any strong objection to the proposed amendments in Ds’ Draft. In my view, such proposed amendments, which were consistent with the existing pleas in the AD&C, only sought to clarify Ds’ stance. On the principles discussed in Part VI above, I grant the following order:
(a) without prejudice to the Joinder, Amended Joinder and Relief Summonses, leave be granted for Ds to re-amend the AD&C in the manner marked in green as per Ds’ Draft save and except that all references to the Intended 3rd and 4th Defendants in the intituling, body and backsheet of Ds’ Draft are disallowed;
(b) Ds shall file and serve the Re-Amended Defence and Counterclaim within 7 days from the date of this order;
(c) leave to P to consequentially amend the AR&RADAC and (if so advised) to file/serve Re-Amended Reply and Re-Re‑Amended Defence to Re-Amended Counterclaim within 21 days thereafter;
(d) leave to Ds (if so advised) to file/serve Reply to Re-Re-Amended Defence to Re-Amended Counterclaim (if any) within 21 days thereafter; and
(e) time to run during court vacation.
For the avoidance of doubt, consequential amendments would not include overhaul changes or retraction of fundamental aspects of P’s pleaded case as discussed in Part VIII below.
57. There is no reason why the usual costs order should not apply. I grant a costs order nisi that Ds shall pay to P costs of and occasioned by Ds’ application to amend the AD&C in any event to be taxed if not agreed.
VIII. AMENDMENT SUMMONS
(a) P’s proposed amendments
58. Mr Li SC submitted the proposed amendments in P’s Draft[30] were mainly to set out the background facts/matters before the execution of the SPA and to supplement the existing pleas in the AR&RADAC to form the factual matrix for the court’s fact-finding/adjudication on the existence or otherwise of any shareholder loan due from HK Yunnan Tin to PRC Yunnan Tin as Ds alleged:
(a) earlier corporate structures of HK Yunnan Tin since its incorporation in June 2009;
(b) PRC Yunnan Tin’s loan of USD19,485,000 to P to finance the acquisition of the Mining Rights / Tin Mines, and P’s subsequent repayment thereof;
(c) PRC Yunnan Tin’s acquisition of the 18% Shares “from P / HK Parksong at the price of AUD16.3M” being PRC Yunnan Tin’s “debt of AUD16.3M to HK Parksong as consideration” for such acquisition (my emphasis); and
(d) corresponding changes in HK Yunnan Tin’s shareholdings and arrangements in debt repayment under the above dealings.
59. Mr Li SC said there were also minor amendments to clarify “the term “capital investment” as previously used in the [AR&RADAC] which might have generated confusions in its meaning” to ease all possible confusions and unnecessary debates between the parties over the issue of proper booking treatment in HK Yunnan Tin’s accounts, which would dispense with any purported need for so-called accounting expert evidence and hence save costs and time at trial:
“14. …… By the former expressions of ‘capital investment’ or ‘share capital’ referred to in the [AR&RADAC], P was in fact referring to the consideration paid by [PRC Yunnan Tin] in acquiring the ownership of [the 18% Shares] instead of having made any fresh injection or actual payment of funds by [PRC Yunnan Tin] as “share capital” or as “loan” in favour of HK Yunnan Tin (which never took place). ……
15. …… the proposed amendments …… in [P’s Draft] serves to remove all unnecessary confusions or misunderstandings about P’s true position from expressions that may be ambiguous in meaning. Such clarifications made also refutes Ds’ suggestions that the ‘issued paid-up share capital’ of the [18% Shares] should be booked in the amount of AUD16.3M or there being the alleged ‘loan’ owed by HK Yunnan Tin to [PRC Yunnan Tin] in the amount of AUD 16.3M ……”
(b) Reasons for P’s proposed amendments
60. P claimed Mr Chan SC’s submissions at the 1st Hearing failed to fully reflect the true factual background as to HK Yunnan Tin’s earlier corporate structures, so after the 1st Hearing he had preliminary discussions with his legal advisors, reviewed the background documents surrounding the making the SPA “which had not been examined in detail before”, and reflected on the true nature of the 16.3m Payment in paragraph 72(f) below against such background documents. P claimed that as a result of such exercise it was tolerably clear it could not have been a loan advanced by PRC Yunnan Tin to HK Yunnan Tin or PRC Yunnan Tin’s contribution to share capital for acquiring the 18% Shares. But the term “capital investment” was used in the AR&RADAC. The P 5th Aff explained P’s then mindset was that the negotiated price of AUD16,300,000 payable by PRC Yunnan Tin to P/ HK Parksong (ie the 16.3m Payment in paragraph 72(f) below) was set/agreed on the basis of the 18% Funds invested in HK Yunnan Tin so he thought it was some sort of “investment” or “capital”. When P discovered his mistake after the 1st Hearing, he filed the Amendment Summons for leave to amend the AR&RADAC to facilitate correct understanding of the contextual background leading to historical changes in HK Yunnan Tin’s shareholding before the execution of the SPA, to avoid ambiguity/confusion, and so as not to perpetuate the error in describing the 16.3m Payment in paragraph 72(f) below as capital. But given P’s busy itinerary he and his legal advisors were only able to come up with the proposed amendments in P’s Draft in June 2015.
61. Mr Li SC’s written submissions suggested there was no real delay in seeking to amend P’s pleadings by the Amendment Summons, but in his oral submissions Mr Li SC accepted P had not been diligent in picking up errors/confusions in the AR&RADAC. P said the application was not made before the 1st Hearing because he and his legal advisors concentrated on other aspects of the dispute between the parties and on Ds’ various applications, and it was not made sooner after the 1st Hearing because (a) P was too busy to meet his legal advisors to explain the “convoluted background facts” until April 2015 so P’s Draft was only run up shortly before the 2nd Hearing, and (b) Zhou was on leave for his wedding so P did not have ready access to documents/information to be explained with Zhou’s assistance.
62. Ds opposed the Amendment Summons. Mr Chan SC complained that the proposed amendments in P’s Draft, which came about 6 months after the 1st Hearing when P had the benefit of reading/listening to his submissions as to why the true nature of the sum of AUD16,300,000 HK Parksong injected into PRC Yunnan Tin (ie the 18% Funds in paragraph 67 below) could not have been and/or could not have been booked as PRC Yunnan Tin’s share capital for the 18% Shares, were wholly different from P’s case on his existing pleadings that had been maintained for more than 3½ years. Mr Chan SC argued this could not be lightly brushed aside as a careless mistake or a layman’s misdescription as suggested in the P 5th Aff. After all, P was personally involved in the transactions and his legal advisors must have known the fundamental conceptual difference between his pleaded case and the proposed stance in P’s Draft.[31]Mr Chan SC submitted there was no proper explanation for P’s present attempt to alter his case.
63. I find P’s explanations unconvincing. Whether or not Mr Chan SC correctly reflected P’s case in his oral submissions at the 1st Hearing was neither here nor there since P himself must have knowledge/understanding of his own case. He was personally involved in the relevant background dealings (as evident from 16/7/10 Minutes and his signatures on various background agreements/documents), and for some years he had maintained his existing case not just in his pleadings but also in his and in Zhou’s statement/affirmation evidence. Further, P could easily have access to the background documents from his legal advisors (if not from Zhou) after the 1st Hearing, and in this modern age of handy electronic communications, P’s reasons for delay in putting forward the Amendment Summons were unconvincing. But I accept this was only a factor to be considered in the exercise of discretion on whether or not to allow the proposed amendments in P’s Draft, and I also bear in mind there were other outstanding interlocutory summonses yet to be resolved and the present action had not been set down for trial.
64. Mr Li SC suggested the proposed amendments would not cause severe prejudice to Ds since they largely turned on interpretation of the available background documents. I find it more appropriate to consider the question of prejudice below in the context of whether or not the proposed amendments introduced a complete change of case and/or were so embarrassing that Ds could not properly meet the same.
65. Mr Li SC argued that if Ds were allowed to amend the AD&C as per Ds’ Draft to make good their case (which I have allowed), P should not be “deprived of the opportunity to respond to Ds’ amendments and further clarify his own position in the RAR”. Of course P should be allowed (and I did allow P) to consequentially amend the AR&RADAC in response to Ds’ Re-Amended Defence and Counterclaim to be filed, but this was different from P’s independent application to amend his own pleaded case (ie the Amendment Summons) in respect of which he would have to face Ds’ contentions that he fundamentally changed his case, retracted from his existing position, and put forward embarrassingly inconsistent pleas.
(c) Ds’ objections
66. P suggested the minor supplements/clarifications to his existing pleas as proposed in P’s Draft “do not raise any new case but only serve to assist the Court in arriving at a fully informed decision. They also eliminate all possible scope for challenges against P for running any un-pleaded cases at trial”. For convenience, I shall refer to P’s case as presently pleaded in the AR&RADAC as the “Old Case” and P’s case as put forward in P’s Draft as the “New Case”.
67. Ds accepted the New Case (if properly/consistently pleaded) that HK Parksong sold the 18% Shares to PRC Yunnan Tin against the latter’s promise to pay the price of AUD16,300,000 would remove the present debate on whether or not 18% of the investment funds that P through HK Parksong injected into HK Yunnan Tin (“Funds”) to cover the cost for acquiring a 50% stake in BMTJV to be held indirectly via HK Yunnan Tin and Australia Parksong (“Acquisition”) (“18% Funds”) were in fact capitalised, but it nevertheless amounted to a wholesale/fundamental change from the Old Case and, more importantly, a retraction from the parties’ common ground that PRC Yunnan Tin’s acquisition of the 18% Shares was financed by an advance/loan by P through HK Parksong being the 18% Funds already injected into HK Yunnan Tin but subsequently regarded as being attributable to and having been paid on behalf of PRC Yunnan Tin (ie the Commonality referred to in paragraph 79 below). Ds claimed it was this Commonality that gave rise to the “share capital verus shareholder loan” dispute between the parties on the existing pleadings whereby Ds pleaded the 18% Funds were PRC Yunnan Tin’s shareholder loan due from HK Yunnan Tin whilst P presently pleaded the 18% Funds were PRC Yunnan Tin’s share capital for the 18% Shares (an averment which P sought to disavow in P’s Draft).
68. Mr Chan SC agreed the New Case (if properly/consistently pleaded) was not bound to fail, but since the proposed amendments attempted to retract the Commonality in paragraph 79 below as well as P’s stance that the 18% Funds were PRC Yunnan Tin’s share capital in HK Yunnan Tin, it behoved P to plead an unambiguous/particularised position on the nature/status/treatment of the 18% Funds in the New Case that would engage with Ds directly on this very issue raised in their Counterclaims (ie the 1st Issue in paragraph 79 below). Mr Chan SC complained that whilst P boldly retracted from the Commonality in paragraph 79 below and also his allegation of share capital for the 18% Shares, he coyly declined to square up on his “new” stance as to the nature/status/treatment of the 18% Funds by camouflaging such lacuna behind abundant pleas in P’s Draft on immaterial matters pertaining to (according to Ds) how PRC Yunnan Tin was to repay, reimburse or “pay back” the advance/loan by P / HK Parksong (ie the 18% Funds injected into HK Yunnan Tin) in the sum of AUD16,300,000 (ie the 16.3m Payment under the 2nd Issue in paragraph 86 below) or (according to P) how PRC Yunnan Tin was to pay the price for purchasing the 18% Shares in the sum of AUD16,300,000 (ie the 16.3m Payment under the 3rd Issue in paragraph 91 below), neither of which engaged with Ds on the 1st Issue in paragraph 79 below. Mr Chan SC suggested this unsatisfactory situation was compounded by a confusing mix of new averments and retained pleas in P’s Draft that wavered uncertainly between the Old Case and New Case, and Ds were embarrassed by such oscillation in putting up any meaningful revised pleading in response.
69. Mr Li SC submitted this was exaggerated/unfounded because at all material times the available factual/documentary evidence was essentially the same and clear to both parties, and the crux of their dispute had always been and continued to be the existence or otherwise of the alleged shareholder loan due from HK Yunnan Tin to PRC Yunnan Tin rather than any accounting treatment in HK Yunnan Tin’s accounts (which was wrongly framed by Ds in the first place).
(d) Parties’ existing pleaded case
70. Funds P claimed the starting point was how P / HK Parksong came to inject the Funds (including the 18% Funds in the sum of AUD16,300,000) into HK Yunnan Tin. It came about because P (through HK Parksong) and PRC Yunnan Tin entered into a joint venture to acquire a stake in BMTJV via corporate vehicles, and the intention was to inject investment funds into a corporate vehicle (eventually HK Yunnan Tin) to cover the entire cost of the Acquisition. PRC Yunnan Tin became a 1% shareholder of HK Yunnan Tin as nominee for HK Parksong, but was entitled to 18% net profits[32] and an option to use such profits to acquire not more than 20% shareholding.[33]
71. There was further understanding that HK Parksong and PRC Yunnan Tin would respectively have 55% and 45% shareholding in HK Yunnan Tin, and would contribute to the investment funds for the Acquisition in the same ratio.[34] But it was eventually agreed HK Parksong would also advance 45% of the investment funds on behalf of PRC Yunnan Tin who would then hold 45% shareholding in HK Yunnan Tin on trust for HK Parksong.[35] So P transferred to PRC Yunnan Tin 4,500 HK Yunnan Tin shares at par value of HK$1 each without fresh allotment of shares and/or without actual advance made by PRC Yunnan Tin to HK Yunnan Tin. It turned out HK Parksong did not have the necessary funds, so PRC Yunnan Tin lent US$194,850,000 (ie about 45% of the Acquisition cost) to HK Parksong to be repaid with interest after 6 months, failing which such loan would be regarded as PRC Yunnan Tin’s “實際出資並持有此次收購的藍石公司的資產的45%的股權”.[36] But HK Parksong eventually repaid such loan (USD19,485,000) with interest (US$376,200),[37] and injected the Funds of about AUD77,350,699 and HK$2,000,000[38] or about HK$590,000,000[39] into HK Yunnan Tin, so PRC Yunnan Tin ended up not having paid any part of the Funds (including the 18% Funds) for the Acquisition.[40]
72. 18% Funds There was no dispute:
(a) the 18% Funds HK Parksong injected into HK Yunnan Tin came from P’s shareholder loan to HK Parksong;[41]
(b) the 18% Funds amounted to AUD16,340,057.21 (rounded to AUD16,300,000);[42]
(c) PRC Yunnan Tin acquired the 18% Shares, so HK Parksong and PRC Yunnan Tin were respectively holders of the 82% and 18% Shares;[43]
(d) as a result of the Acquisition financed by the 18% Funds and the remaining 82% of the Funds (“82% Funds”), HK Parksong and PRC Yunnan Tin through their 82% and 18% Shares and also through the corporate vehicles HK Yunnan Tin and Australia Parksong indirectly held the underlying joint venture assets being 41% and 9% stakes in BMTJV;
(e) the 82% and 18% Funds injected into HK Yunnan Tin for the Acquisition constituted the asset-based value of the 82% and 18% Shares allotted at par value of HK$1 each, so the asset-based value of the 18% Shares was AUD16,300,000;
(f) PRC Yunnan Tin promised to pay AUD16,300,000 to HK Parksong (“16.3m Payment”);[44]
(g) HK Parksong and PRC Yunnan Tin agreed that the 16.3m Payment was to be settled from future dividends to be declared in favour of PRC Yunnan Tin by HK Yunnan Tin;[45] and
(h) HK Parksong assigned to P its entitlement to receive the 16.3m Payment from PRC Yunnan Tin.[46]
73. So under Ds’ case and P’s Old Case, there were 2 separate and distinct sums of AUD16,300,000 each, ie (a) the 18% Funds that P through HK Parksong injected into HK Yunnan Tin for the Acquisition, and (b) the 16.3m Payment PRC Yunnan Tin promised to pay P / HK Parksong. There was no dispute that for (a) above the nature of the 18% Funds received by HK Yunnan Tin had a bearing on how it should be recorded in its books and accounts and on whether HK Yunnan Tin had to repay the same, and for (b) above the 16.3m Payment was merely between PRC Yunnan Tin and P / HK Parksong and would not be entered in HK Yunnan Tin’s books and accounts at all.
74. For the Funds, as explained in Boyle & Birds’ Company Law, joint venture parties can finance an acquisition of an asset for a joint venture through a corporate vehicle either by funding the corporate vehicle by share capitalisation (whether the shares are issued at par or at premium) or by shareholder loan.[47] So in theory the nature/status of the 82% and 18% Funds injected into HK Yunnan Tin for the Acquisition could be either share capital or shareholder loan, and recorded accordingly in HK Yunnan Tin’s books and accounts.
75. For the 82% Funds, there was no dispute they were loans from P / HK Parksong which HK Yunnan Tin had to repay. D1 now had control over such loans because D1 owned the entire issued share capital of HK Parksong and P assigned to D1 debts due to him from HK Yunnan Tin.[48] For the 18% Funds, P’s Old Case was it was share capital for PRC Yunnan Tin’s 18% Shares, but Ds averred it was PRC Yunnan Tin’s shareholder loan due from HK Yunnan Tin.
76. Focusing on the 18% Funds, it was recorded in clause 3 of the 16/7/10 Minutes (also reflected in clause 2 of the 18/7/10 Agreement) that “會談會還研究了這次收購雷尼森項目50%資產成本開支情況,總成本為 [the Funds], …… 做實18%股權需要的成本為” the 18% Funds (AUD16,340,057.21), and in clause 5 that “[PRC Yunnan Tin]同意實際出資承擔[HK Parksong]通過[HK Yunnan Tin]收購藍石公司雷尼森項目50%資產的18%的款項,雙方確認[PRC Yunnan Tin]據此需承擔的金額為澳幣1630萬元 …… 同時,[PRC Yunnan Tin]享有收購藍石公司雷尼森項目50%資產的18%的資產和收益權,以及享有[HK Yunnan Tin]18%實際股權和分紅權 ……” (my emphasis). Other background documents also revealed the following:
clause 1 of the 19/7/10 Resolution |
“……,[HK Parksong]為[PRC Yunnan Tin]墊付的該收購款澳幣1630萬元 ……” (my emphasis) |
recital C of the 19/7/10 Assignment |
“……根據[HK Parksong]與[PRC Yunnan Tin]的約定,[PRC Yunnan Tin]同意實際出資,並承擔[HK Parksong]通過[HK Yunnan Tin]收購藍石公司雷尼森項目50%資產的18%的款項(即澳大利亞元1630萬元)(下稱 “該貸款”) …… 故此,[PRC Yunnan Tin]尚欠[HKParksong]該貸款” (my emphasis) |
clause 1 of the 19/7/10 Assignment as rectified by the 6/12/10 Supplement |
“[鑒於[HK Parksong]為[PRC Yunnan Tin]墊付的該貸款是[P]向[HK Parksong]提供的股東貸款及[P]給予澳幣共計1630萬元對價予[HK Parksong]] ……” (my emphasis) |
letter dated 26 August 2011from PRC Yunnan Tin’s representatives on HK Yunnan Tin’s board of directors |
“……根據[HK Yunnan Tin]兩個股東[PRC Yunnan Tin]與[HK Parksong]的若干投資協議,[HK Yunnan Tin]2011年3月4日出具的賬目是不正確的,主要問題是: …… 2、沒有真實反映出[PRC Yunnan Tin]及[HK Parksong]18%:82%出資的情況” (my emphasis) |
letter dated 10 March 2014 from PRC Yunnan Tin to HK Parksong and HK Yunnan Tin |
“…… 根據[PRC Yunnan Tin]與[HK Parksong]於2010年7月18日簽訂[18/7/10 Agreement] …… 約定,[PRC Yunann Tin]同意實際出資承擔[PRC Yunnan Tin]通過[HK Yunnan Tin]收購藍石公司雷尼森項目50%資產的18%的款項,並確認據此需承擔的金額澳幣1630萬元” (my emphasis) |
77. The above was also reflected in P’s Old Case in the AR&RADAC as follows:
“7. On the sum of AUD 16.3 million as mentioned in paragraph 7 of the Amended Defence ……, [P] says as follows:-
(a) The said sum of AUD 16.3 million was a loan advanced by [P] in the name of HK Parksong (which was wholly owned by him prior to 4th March 2011) to PRC Yunnan Tin for the latter’s acquisition of 18% shares in HK Yunnan Tin.
(b) It was the understanding of [P] and [PRC Yunnan Tin] that the said sum of AUD 16.3 million as lent to PRC Yunnan Tin by [P] ……
……
(d) In fact, prior to the making of the [SPA], [P] had orally related to representatives of [D2] …… the nature of the said sum of AUD 16.3 million as being loan lent by [P] to [PRC Yunnan Tin] to be used as PRC Yunnan Tin’s investment for acquiring 18% of its shares in HK Yunnan Tin ……
……
21. (d) …… the third set of documents as pleaded in paragraph 29 of the [AD&C] reflect the correct position and understanding of [P] and [Ds] in making the SPA which is that the said sum of AUD 16.3 million was money advanced by [P] to be used as capital payment by PRC Yunnan Tin for having 18% of the shares of HK Yunnan Tin and the money was channeled through HK Parksong to HK Yunnan Tin for such purpose.
……
23. (c) [P] says that as evidenced by the [18/7/10 Agreement], PRC Yunnan Tin was and is the 18% shareholder of HK Yunnan Tin which shareholding was acquired on the basis of the said sum of AUD 16.3 million advanced by [P] for it to be capitalized as share capital payment.
……
28. (d) In the aforesaid discussion which resulted in the making of the [SPA],
……
(iii) [P] also told the buyer’s representatives that the said sum of AUD16.3 million was to be a loan lent by him to PRC Yunnan Tin and be regarded as PRC Yunnan Tin’s capital investment in HK Yunnan Tin for acquiring its 18% shareholding;” (my emphasis)
78. Bolstered by “做實18%股權需要的成本”, “同意實際出資承擔 ……收購 ……的18%的款項 …… 據此需承擔的金額為澳幣1630萬元”, “[HK Parksong]為[PRC Yunnan Tin]墊付……該收購款澳幣1630萬元”, “[HK Parksong]為[PRC Yunnan Tin]墊付的該貸款” and “[PRC Yunnan Tin] …… 18% ……出資的情況” in the background documents,P’s Old Case plainly acknowledged HK Parksong advanced a loan of AUD16,300,000 to PRC Yunnan Tin for acquiring the 18% Shares. Since HK Parksong did not make any fresh money advance to PRC Yunnan Tin or HK Yunnan Tin, the “loan”, “AUD 16.3 million” or “money” “advanced” (ie not future advance) by P in the name of HK Parksong and “channeled …… to HK Yunnan Tin” could only have been the 18% Funds.[49]
79. In this respect, P’s Old Case was consistent with Ds’ stance that pursuant to 18/7/10 Agreement, 19/7/10 Resolution and 19/7/10 Assignment the 18% Funds being investment funds for the Acquisition that P through HK Parksong injected into HK Yunnan Tin were regarded as attributable to PRC Yunnan Tin (實際出資承擔) and/or paid on behalf of for PRC Yunnan Tin (墊資). Both P’s and Ds’ existing pleadings rested on such common premise (“Commonality”) otherwise the 18% Funds could not have been PRC Yunnan Tin’s share capital (according to P’s Old Case) or PRC Yunnan Tin’s shareholder loan (according to Ds) in HK Yunnan Tin. Given the Commonality, the absence of any fresh money advance was neither here nor there since the only question was whether “the funds as provided by PRC Yunnan Tin to HK Yunnan Tin (made through [P] and HK Parksong)” were PRC Yunnan Tin’s share capital or PRC Yunnan Tin’s shareholder loan (ie the “share capital versus shareholder loan” dispute). For convenience, such dispute that rested on the 18% Funds and Commonality is described as the “1st Issue”, which was quite different from the 16.3m Payment whether under the 2nd or 3rd Issue in paragraphs 86 and 91 below.
80. Share capital versus shareholder loan The 1st Issue queried whether the 18% Funds attributable to and regarded as paid on behalf of PRC Yunnan Tin (ie the Commonality) was in nature (and hence to be booked as) PRC Yunnan Tin’s share capital or its shareholder loan for the 18% Shares.
81. For Ds, they clearly stated in paragraph 1 of the Further and Better Particulars of the D&C filed on 9 December 2011 (“FBP”) that the 18% Funds[50] were PRC Yunnan Tin’s shareholder loan, ie a debt due from HK Yunnan Tin to PRC Yunnan Tin. P’s Old Case in AR&RADAC asserted the 18% Funds was PRC Yunnan Tin’s share capital for its 18% Shares:[51]
“7. (b) It was the understanding of [P] and PRC Yunnan Tin that the said sum of AUD 16.3 million as lent by PRC Yunnan Tin by [P] should be treated and booked as PRC Yunnan Tin’s share capital in the accounts of HK Yunnan Tin.
……
(d) In fact, prior to making the [SPA], [P] had orally related to representatives of [D2] …… the nature of the said sum of AUD 16.3 million as being loan lent by [P] to [PRC Yunnan Tin] to be used as PRC Yunnan Tin’s investment for acquiring 18% of its shares in HK Yunnan Tin ……
……
19. (b) (iii) (bb) In the 26/8/2011 letter, PRC Yunnan Tin …… had just pointed out the inaccuracy of the Completion Accounts in that the said sum of AUD 16.3 million should be recorded as PRC Yunnan Tin’s capital investment in HK Yunnan Tin and not loan and they asked for correction of the accounts accordingly.
(cc) …… For the avoidance of doubt, [P] has no quarrel with the rectification of the audited accounts as requested by PRC Yunnan Tin.
……
21. (d) …… the third set of documents as pleaded in paragraph 29 of the [AD&C] reflect the correct position and understanding of [P] and [Ds] in making the SPA which is that the said sum of AUD 16.3 million was money advanced by [P] to be used as capital payment by PRC Yunnan Tin for having 18% of the shares of HK Yunnan Tin and the money was channeled through HK Parksong to HK Yunnan Tin for such purpose.
……
23. (c) [P] says that as evidenced by the [18/7/10 Agreement], PRC Yunnan Tin was and is the 18% shareholder of HK Yunnan Tin which shareholding was acquired on the basis of the said sum of AUD 16.3 million advanced by [P] for it to be capitalized as share capital payment.
……
28. (d) In the aforesaid discussion which resulted in the making of the [SPA],
……
(iii) [P] also told the buyer’s representatives that the said sum of AUD16.3 million was to be a loan lent by him to PRC Yunnan Tin and be regarded as PRC Yunnan Tin’s capital investment in HK Yunnan Tin for acquiring its 18% shareholding;
……
47. (b) Insofar as it is alleged that Zhang Guo Qing and Chen Yong of PRC Yunnan Tin stated that the said sum of AUD 16.3 million would be regarded as PRC Yunnan Tin’s capital contribution for its 18% shares in HK Yunnan Tin, the statement reflected the correct position. ……” (my emphasis)
82. Plainly, Ds in the AD&C squarely raised and P in the AR&RADAC squarely engaged and joined issue with Ds on the 1st Issue in relation to the 18% Funds injected into HK Yunnan Tin (and not the 16.3m Payment payable to P / HK Parksong). Further, this “share capital versus shareholder loan” dispute under the 1st Issue was not mere disagreement over accounting treatment in HK Yunnan Tin’s books and accounts and/or evidential matters for the eventual trial, but was a true dispute of substance over the nature/status of the 18% Funds that had ramifications on the rights and liabilities of the parties. For example, if the 18% Funds were PRC Yunnan Tin’s shareholder loan to HK Yunnan Tin (a Review Group company), question might arise on the pleas in Ds’ Draft (which proposed amendments I have allowed) as to whether P was liable to pay the same to D1 as an item of the Payables. As another example, if the 18% Funds were shareholder loan due from HK Yunnan Tin to PRC Yunnan Tin, even though it was contemplated in the 16/7/10 Minutes, 18/7/10 Agreement and 19/7/10 Assignment that PRC Yunnan Tin would repay or “pay back” to P / HK Parksong the advance/loan of the 18% Funds to P / HK Parksong by the 16.3m Payment to be settled by way of future dividends to be declared in favour of PRC Yunnan Tin by HK Yunnan Tin out of upstream profits from its 50% stake in BMTJV, D1 by virtue of its majority control over HK Yunnan Tin could postpone such declaration of dividends until after all loans due from HK Yunnan Tin to P / HK Parksong (ie the 82% Funds) had been fully repaid out of upstream cashflow/profits from the 50% stake in BMTJV.[52]
83. 18% Shares Ever since 4 August 2009, there was no change to HK Yunnan Tin’s issued share capital, ie 10,000 issued shares and share transfers were effected at par value of HK$1 each. As at September 2009, PRC Yunnan Tin held 4,500 HK Yunnan Tin shares for which it had not paid any consideration (since HK Parksong eventually repaid the advance of USD19,485,000 with interest). But on 19 July 2010 “……[HK Parksong]替[PRC Yunnan Tin]墊資做實[HK Yunnan Tin’s] …… 18%的股權和資產”[53] by PRC Yunnan Tin transferring 2,700 HK Yunnan Tin shares to HK Parksong at par value of $1 each with the result that HK Parksong had the 82% Shares and PRC Yunnan Tin had the 18% Shares.[54]
84. As explained in paragraph 79 above and also in paragraph 13 of the Zhou 1st Supp Stmt, the Commonality over the 18% Funds “as provided by PRC Yunnan Tin to HK Yunnan Tin (made through [P] and HK Parksong)” and Ds’ contention that it was shareholder loan did not depend on any fresh allotment of shares. Instead, as P acknowledged under the Old Case in the AR&RADAC, the 18% Funds invested in HK Yunnan Tin and regarded to have been paid on behalf of PRC Yunnan Tin was in nature an advance/loan by P through HK Parksong for PRC Yunnan Tin to acquire 18% Shares to be effected by transferring 2,700 HK Yunnan Tin shares to HK Parksong as contemplated in recital (B) of the SPA.[55]
85. But as P now recognised, the absence of fresh allotment of HK Yunnan Tin shares at par/premium did not sit well with P’s Old Case that the 18% Funds were PRC Yunnan Tin’s “capital investment”, especially when there was no members’ or directors’ resolution of HK Yunnan Tin to such effect and when the 82% Funds were loans due from HK Yunnan Tin to P / HK Parksong. This probably explained why P in P’s Draft attempted to disown (but according to Mr Chan SC rather unsuccessfully) the pleas that the 18% Funds were share capital for PRC Yunnan Tin’s 18% Shares.
86. 16.3m Payment There was little dispute on the parties’ present pleadings that PRC Yunnan Tin’s acquisition of the 18% Shares was (a) financed by an advance/loan by P through HK Parksong being the 18% Funds that was regarded to have been paid on behalf PRC Yunnan Tin into HK Yunnan Tin (ie the Commonality) (whether as PRC Yunnan Tin’s share capital or PRC Yunnan Tin’s shareholder loan) (ie the 1st Issue) against PRC Yunnan Tin’s promise to reimburse, repay or “pay back” HK Parksong’s advance/loan by the 16.3m Payment to P / HK Parksong from future dividends to be declared by HK Yunnan Tin out of profits to be earned from the 50% stake in BMTJV (described below as the “2nd Issue”), and (b) achieved by reducing HK Yunnan Tin shares in PRC Yunnan Tin’s name from 45% to 18% and increasing such shares in HK Parksong’s name from 55% to 82% through a transfer of 2,700 HK Yunnan Tin shares from PRC Yunnan Tin to HK Parksong.
87. Clause 5 of the 16/7/10 Minutes (also reflected in clause 2 of the 18/7/10 Agreement) provided “該款項[56]由[PRC Yunnan Tin]以其在雷尼森項目的收益分紅優先抵還,直至抵還完畢 ……” In the PRC proceedings, P gave evidence that “當時預測與[PRC Yunnan Tin]合作大概一年左右就能將1630萬澳元收回,所以沒有約定還款的期限,如果沒有利潤,[PRC Yunnan Tin]對這個項目就是不作為,其並不能免費享有18%的股權和收益,[PRC Yunnan Tin]應該向[HK Parksong]償還該1630萬澳元” (my emphasis). The background documents also revealed the following:
the 19/7/10 Resolution |
“據此並鑒於,[HK Parksong]為[PRC Yunnan Tin]墊付的該收購款澳幣1630萬元,…… [HK Parksong]對[PRC Yunnan Tin]享有的上述澳幣1630萬元的債權由[P]享有” (my emphasis) |
recital C of the 19/7/10 Assignment |
“根據[HKParksong]與[PRC Yunnan Tin]的約定,…… 該貸款[57]由[PRC Yunnan Tin]在雷尼森項目的收益分紅優先抵還,直至抵還完畢,故此,[PRC Yunnan Tin]尚欠[HKParksong]該貸款” (my emphasis) |
clause 1 of the 19/7/10 Assignment as rectified by the 6/12/10 Supplement |
“[鑒於[HK Parksong]為[PRC Yunnan Tin]墊付的該貸款是[P]向[HK Parksong]提供的股東貸款及[P]給予澳幣共計1630萬元對價予[HK Parksong]],[HK Parksong]作為該貸款的法定及實益擁有人就此不可撤銷地向[P]轉讓該貸款及其所附帶的全部權益及利益” (my emphasis) |
Vitar’s public announcement on 16 August 2010 |
referred to an outstanding account receivable in the sum of approximately AUD16,000,000 payable by PRC Yunnan Tin to HK Parksong that would be taken up by P |
88. This was further reflected in the averments on P’s Old Case in the AR&RADAC as follows:
paragraph 7(g) |
by the 16/7/10 Minutes PRC Yunnan Tin confirmed it would “pay back the said sum of AUD16.3 million which was the sum required for acquiring 18% shares in HK Yunnan Tin as advanced to HK Yunnan Tin through HK Parksong” (my emphasis) |
paragraph 7(k) |
“…… PRC Yunnan Tin …… acknowledged receipt of the notice and confirming that PRC Yunnan Tin would pay back the said sum of AUD 16.3 million to [P] ……” (my emphasis) |
paragraph 7(l) |
“…… HK Yunnan Tin had …… acknowledged receipt of the notice and confirming that PRC Yunnan Tin would pay back the said sum of AUD 16.3 million to [P] ……” (my emphasis) |
paragraph 33(c) |
“…… [P] did tell the buyer’s representatives that PRC Yunnan Tin planned to pay back [P] the said sum of AUD 16.3 million from the dividends coming from its 18% shares in HK Yunnan Tin” (my emphasis) |
89. Clearly, P’s Old Case was that PRC Yunnan Tin had to “repay” or “pay back” the “loan”, “AUD 16.3 million” or “money” “advanced” by P in the name of HK Parksong and “channeled …… to HK Yunnan Tin” (see paragraph 78 above), but instead of making immediate “pay back” to P / HK Parksong[58] such advance/loan would be settled by future dividends to be declared by HK Yunnan Tin in favour of PRC Yunnan Tin out of profits earned from the 50% stake in BMTJV (presumably channeled upstream via Australia Parksong and HK Yunnan Tin). The 19/7/10 Assignment rectified by the 6/12/10 Supplement appeared to suggest that the 16.3m Payment was payable by PRC Yunnan Tin to P / HK Parksong as “對價” for the “該貸款” (ie loan of the 18% Funds) that P / HK Parksong “墊資” (ie advanced or paid on behalf of) PRC Yunnan Tin.
90. But even though this 2nd Issue was alluded to in the existing pleadings, there was no disagreement between the parties, and indeed Ds did
not raise it as a contested issue for their Counterclaims. After all, (a) HK Yunnan Tin and Ds would be unconcerned as to whether, how and when PRC Yunnan Tin would repay or “pay back” to P / HK Parksong, and (b) the 16.3m Payment was distinctly different from the 18% Funds (even though it was in the same amount of AUD16,300,000).
(e) P’s proposed amendments
91. Mr Li SC submitted the purpose of the proposed amendments in P’s Draft was to plead a simple sale and purchase of shares whereby HK Parksong (as vendor) sold the 18% Shares to PRC Yunnan Tin (as purchaser) against PRC Yunnan Tin’s promise to pay the price being the 16.3m Payment in the sum of AUD16,300,000 (which payment would be settled from future dividends to be declared by HK Yunnan Tin in favour of PRC Yunnan Tin), so the 18% Funds were neither PRC Yunnan Tin’s share capital nor its shareholder loan in HK Yunnan Tin (“3rd Issue”).
92. On the premise of the 3rd Issue, Mr Li SC submitted:
(a) the 18% Funds being part of the Funds HK Parksong injected into HK Yunnan Tin were not made on behalf of PRC Yunnan Tin as its contribution to the Funds for the Acquisition at all (which in my view was necessarily a retraction of the Commonality);
(b) the 18% Funds was not PRC Yunnan Tin’s share capital for the 18% Shares (which in my view was a retraction of P’s stance on the 1st Issue under the Old Case notwithstanding Mr Li SC’s skilful arguments that suggested otherwise);
(c) the 18% Funds was not PRC Yunnan Tin’s shareholder loan due from HK Yunnan Tin (which stance P continued to maintain since his Old Case);
(d) the 18% Funds was therefore quite extraneous and irrelevant save that the negotiated price for PRC Yunnan Tin’s purchase of the 18% Shares from HK Parksong (ie the 16.3m Payment) was set/agreed by reference to the value of the 18% Funds;
(e) since such negotiated price (ie the 16.3m Payment) was a matter between PRC Yunnan Tin (purchaser) and HK Parksong (vendor) only, it would not be entered in HK Yunnan Tin’s books and accounts whether as share capital or shareholder loan or at all.
93. Mr Li SC submitted P did not plead any new case or wholly changed his case. He reminded that P’s claim started out as a straightforward claim for outstanding Receivables due from Ds under the SPA, and Ds resisted such claim and counterclaimed for certain Payables under the SPA. But the AD&C raised other defences and Counterclaims including one concerning the sum of AUD16,300,000. Mr Li SC characterised P’s Old Case as PRC Yunnan Tin’s acquisition of the 18% Shares valued at AUD16,300,000 as capital investment, and Ds’ case as PRC Yunnan Tin’s agreement to pay “consideration” for acquiring the 18% Shares which should be treated as shareholder loan due from HK Yunnan Tin.
94. I have already explained P’s Old Case and D’s case as pleaded, and do not agree with such simplistic characterisation of their respective case, which conveniently ignored the Commonality over the nature of the 18% Funds that underlied both parties’ case, and confused (a) the 18% Funds regarded to have been injected into HK Yunnan Tin on behalf of PRC Yunnan Tin either as PRC Yunnan Tin’s shareholder loan due from HK Yunnan Tin (on D’s case) or its share capital for the 18% Shares (on P’s Old Case) (which was relevant to the 1st Issue) with (b) the 16.3m Payment payable by PRC Yunnan Tin from future dividends to be declared by HK Yunnan Tin to “pay back” HK Parksong (on D’s case and P’s Old Case) (which was relevant to the 2nd Issue).
95. Mr Li SC suggested the letter dated 26 September 2011 to PRC Yunnan Tin by D1’s former solicitors (on behalf of HK Yunnan Tin and D1) contradicted D’s case. Such letter referred to the stance adopted by PRC Yunnan Tin’s representatives on HK Yunnan Tin’s board of directors that accorded with P’s Old Case that “[P] has advanced money to [HK Yunnan Tin] on behalf of [PRC Yunnan Tin] [ie the Commonality] and the said advance in the sum of AUD16.3 million should have been recorded as [PRC Yunnan Tin’s] contribution of 18% share capital of [HK Yunnan Tin]”, and went on to query why the 18% Funds should be regarded as share capital when HK Parksong transferred 4,500 HK Yunnan Tin shares to PRC Yunnan Tin and later PRC Yunnan Tin transferred 2,700 such shares to HK Parksong at par value of HK$1 each. As explained in paragraphs 79 and 84-85 above, whilst this posed difficulty for P’s Old Case that the 18% Funds was share capital, it did not appear to be inconsistent with Ds’ case.
96. Turning to P’s New Case, Mr Li SC accepted the AR&RADAC was somewhat ambiguous and P did aver there was an understanding between P / HK Parksong and PRC Yunnan Tin that the sum of AUD16,300,000 (ie the 18% Funds) would be treated as PRC Yunnan Tin’s capital investment and should be booked as share capital,[59] so confusion if not mistake might have arisen out of such description, hence the necessity for the proposed amendments to make clear the sum of AUD16,300,000 (ie the 16.3m Payment) was merely the price payable by PRC Yunnan Tin (as purchaser) to HK Parksong (as vendor) and later to P (as HK Parksong’s assignee) for acquiring the 18% Shares. Mr Li SC submitted P’s New Case was made in the context of meeting Ds’ allegation that the sum of AUD16,300,000 (ie 18% Funds) was a “loan” due from HK Yunnan Tin to PRC Yunnan Tin, but P’s consistent case all along was such sum (ie the 16.3m Payment) only referred to the “consideration” for PRC Yunnan Tin’s acquisition of the 18% Shares and no alleged loan in fact ever existed. Hence, P’s disavowal of his early averments that the sum of AUD16,300,000 (ie the 18% Funds) was PRC Yunnan Tin’s capital contribution was a mere correction of error and not change of case, and the proposed amendments did not alter the parties’ fundamental positions as originally pleaded regarding the alleged shareholder loan due from HK Yunnan Tin to PRC Yunnan Tin.
97. In my view, it was not easy to understand Mr Li SC’s submissions when he referred to the sum of AUD16,300,000 without specifying whether it was the 18% Funds or 16.3m Payment. For proper understanding, I have in the above paragraph included references to the 18% Funds and 16.3m Payment as appropriate. Once this was done, it became quite clear that Mr Li SC was drawing together 2 entirely separate and distinct strands in an attempt to justify the proposed amendments. As Mr Chan SC submitted, the 16.3m Payment was extraneous to HK Yunnan Tin (whether as repayment or “pay back” under P’s Old Case or as price under P’s New Case) and also extraneous to the true nature of the 18% Funds (whether as share capital or shareholder loan). In pulling the carpet under the Old Case, ie by retracting the Commonality over the 18% Funds, removing the averment that the 18% Funds was share capital (even though P still denied the 18% Funds were PRC Yunnan Tin’s shareholder loan to HK Yunnan Tin), and putting forward the New Case that addressed only on the 16.3m Payment, P purported to simply remove his positive case (which he did plead in the Old Case) concerning the 18% Funds as to its true nature, its true owner, and its proper treatment without re-stating a “new” stance on the subject. This left a gaping hole because in the AD&C Ds only put up the 1st Issue on the 18% Funds, which was quite understandable since it had ramifications on the rights and liabilities of the parties, and Ds were quite unconcerned (and it would be extraneous and irrelevant to HK Yunnan Tin and its books and accounts) as to whether or how PRC Yunnan Tin would pay P / HK Parksong.
98. In my view, the proposed amendments in P’s Draft were plainly not minor supplements/clarifications, but represented a fundamental shift in P’s case. As explained in paragraph 91 above, the 3rd Issue was concerned with the price to be paid for a sale of shares (ie the 16.3m Payment) that ignored the 18% Funds, which was a far cry from P’s Old Case that focused on the 18% Funds as an advance/loan from P / HK Parksong for PRC Yunnan Tin’s share capital in acquiring the 18% Shares.
99. Mr Li SC argued the pivotal consideration was that there was no surprise arising from the proposed amendments in P’s Draft that Ds could not meet. He reminded that as early in the FBP Ds had already set out their committed position that the 18% Funds was a debt due from HK Yunnan Tin to PRC Yunnan Tin, so they could hardly object if P now also disagreed it was share capital. Mr Li SC further suggested that P’s case was evident from the background documents which were in Ds’ possession all the time, so they would be able to find out and clarify the position. In this respect, Mr Li SC turned to the 16/7/10 Minutes and 18/7/10 Agreement which he said showed an agreement/understanding with P / HK Parksong that PRC Yunnan Tin would acquire the 18% Shares by promising to pay the 16.3m Payment representing 18% of the Funds, and P’s Draft set out the correct “contractual” position (backed up by such background and share transfer documents) as follows:
“There is also no mention of any loan stock (or shareholder’s loan) to be ‘assigned’ or ‘transferred’ altogether with the 18% shares in favour of [PRC Yunnan Tin]. All PRC Yunnan Tin was entitled as contractually agreed under the relevant agreements was the 18% shares (absolutely) and rights to dividends declared from such shares, subject to full repayment of the AUD16.3M loan (in Chinese: (‘[PRC Yunnan Tin]….享有18% [HK Yunnan Tin]實際股權和分紅權’ [16/7/10 Minutes and 18/7/10 Agreement] …… and no further. On that basis there was an agreement for [PRC Yunnan Tin] to arrange transfer of 27% of shares of [HK Yunnan Tin] back to P and to keep 18% and nothing more:-
‘雙方共同辦理[HK Yunnan Tin]的股權變更手續,即[HKParksong]股權比例登記為82%,[PRC Yunnan Tin]股權比例登記為18%。雙方之前約定的股權代持協議終止執行。’” (my emphasis)
100. Taking Mr Li SC’s submissions on the 16/7/10 Minutes and 18/7/10 Agreement first,
(a) it was not quite correct to say that under the 16/7/10 Minutes and 18/7/10 Agreement all PRC Yunnan Tin was entitled was the 18% Shares (absolutely) and rights to dividends and “no further” since it expressly provided that “[PRC Yunnan Tin]同意實際出資承擔[HK Parksong]通過[HK Yunnan Tin]收購藍石公司雷尼森項目50%資產的18%的款項,雙方確認[PRC Yunnan Tin]據此需承擔的金額為澳幣1630萬元 …… 同時,[PRC Yunnan Tin]享有收購藍石公司雷尼森項目50%資產的18%的資產和收益權,以及享有[HK Yunnan Tin]18%實際股權和分紅權 ……” (my emphasis), so PRC Yunnan Tin’s entitlements came hand in hand with its “同意實際出資承擔[HK Parksong]通過[HK Yunnan Tin]收購 …… 的18%的款項”;
(b) it appeared P’s New Case under the 3rd Issue of a mere sale of the 18% Shares by P / HK Parksong against PRC Yunnan Tin’s promise to pay the price (ie the 16.3m Payment) had nothing to do with the 18% Funds (except as a yardstick to set/agree the amount of the purchase price) or with the investments in or accounts of HK Yunnan Tin, so it was not easy to understand why P’s understanding of the correct contractual position was that PRC Yunnan Tin’s entitlement to the 18% Shares and future dividends was “subject to full repayment of the AUD16.3M loan” (but such concept was consistent with Ds’ case and P’s Old Case in paragraphs 94 and 97 above):
(i) if “the AUD16.3M loan” to be repaid was referable to the 18% Funds, why was there such a “loan” (and who was the “owner” of such loan) in the context of a mere sale and purchase of shares? On P’s New Case under the 3rd Issue, the 16.3m Payment being outstanding price payable by PRC Yunnan Tin to P / HK Parksong was nothing more than an outstanding contractual debt due from the purchaser to the vendor; and
(ii) but if somehow “the AUD16.3M loan” was a notional “loan” by P / HK Parksong to PRC Yunnan Tin for the outstanding 16.3m Payment (even though this was not raised in Mr Li SC’s submissions), there was no explanation how this concept sat with (1) paragraph 13 of Mr Li’s written submissions dated 22 July 2015 that PRC Yunnan Tin “owes a debt of AUD 16.3 million to HK Parksong as consideration for its acquisition of the [18% Shares]”, ie mere outstanding price rather than loan, (2) the 16/7/10 Minutes and 18/7/10 Agreement referred to in P’s Draft that provided “[PRC Yunnan Tin]同意實際出資承擔[HKParksong]通過[HK Yunnan Tin]收購藍石公司雷尼森項目50%資產的18%的款項,雙方確認[PRC Yunnan Tin]據此需承擔的金額為澳幣1630萬元 ……” (my emphasis), which necessarily referred to the 18% Funds and not the 16.3m Payment, and (3) the decision by 廣東省深圳市高級人民法院 that under the 18/7/10 Agreement PRC Yunnan Tin “同意承擔收購雷尼森項目50%資產的18%的款項即1630萬澳元,該約定意思明確,也未違反相關法律法規的強制性規定,合法有效。[PRC Yunnan Tin]應按照協議承擔該1630萬澳元, …… 已由[HK Parksong]代為支付,……” (my emphasis), which suggested the 18/7/10 Agreement referred to the 18% Funds that HK Parksong had paid on PRC Yunnan Tin’s behalf, especially when according to Mr Li SC’s written submissions “…… the PRC Judgment is adjudicated to be final and conclusive between [PRC Yunnan Tin] and [Chang and Xu] (together with P as well ……”
101. Moreover, quite irrespective whether Ds had the relevant background documents, it was for P to properly plead his case and not for Ds to review the background documents and to surmise what P’s case would have been beyond/despite his pleadings. Further, as explained in Part VIII(d) above, P’s Old Case (at least insofar as the Commonality and the 2nd Issue were concerned) was not inconsistent with the background documents, so it was not for Ds to second-guess that P might have wished to adopt the proposed amendments in P’s Draft for his pleadings as he wished to do so now by way of the Amendment Summons.
102. Mr Li SC next suggested Ds knew P’s true case under the 3rd Issue because paragraph 45(4) of the AD&C expressly pleaded that at the meeting on 13 July 2010 before the signing of the SPA P told Fu “[the] consideration for acquiring the 18% shareholding in HK Yunnan Tin by PRC Yunnan Tin would be in the sum of AUD 16.3 million” to be paid out of future dividends to be declared by HK Yunnan Tin. Mr Li SC submitted the 18% Shares were necessarily worth more than their par value so logically the price would also exceed the nominal value of such shares, and given what P told Fu Ds must have known “the sum of AUD 16.3 million” was the price for purchasing the 18% Shares. Mr Li SC therefore argued it was quite incorrect for Ds to suggest P was pleading a new case or P misled Ds about his case on this issue.
103. I am unable to see how Ds could have discerned P’s New Case of a direct sale and purchase of the 18% Shares as between HK Parksong (as vendor) and PRC Yunnan Tin (as purchaser) for the price of AUD16,300,000 from Ds’ pleadings as to what P said to Fu. In fact, paragraph 45(4) of the AD&C expressly pleaded that PRC Yunnan Tin would “repay” the sum of AUD16,300,000 to P / HK Parksong which was consistent with the 16.3m Payment being repayment or “pay back” (ie the consideration) for the advance/loan being the 18% Funds that P through HK Parksong injected into HK Yunnan Tin and regarded as having been paid on behalf of PRC Yunnan Tin for the 18% Shares under the 2nd Issue (which reflected the Commonality and also sat well with P’s Old Case in paragraphs 77, 81 and 88 above) that was different from the 1st Issue being the “share capital versus shareholder loan” dispute. I do not think these matters demonstrated there was no change in P’s case by virtue of the proposed amendments in P’s Draft.
104. Mr Li SC submitted P’s stance under the 3rd Issue was tenable as the 18% Funds could not have been PRC Yunnan Tin’s shareholder loan to HK Yunnan Tin for acquiring the 18% Shares: (a) P had repaid the advance/loan of USD19,485,000 (with interest) from PRC Yunnan Tin, (b) the 18% Funds were past investment funds P / HK Parksong had injected into HK Yunnan Tin and booked as loans due from HK Yunnan Tin to them, (c) PRC Yunnan Tin did not make further money advance to HK Yunnan Tin by reference to the 18% Shares or otherwise, and (d) there was no mention or evidential basis for any “assignment” or “transfer” of shareholder loan together with the 18% Shares to PRC Yunnan Tin.
105. In my view, it is not easy to understand why (a)-(c) above would preclude the 18% Funds from being PRC Yunnan Tin’s shareholder loan to HK Yunnan Tin when even P’s Old Case recognised on the basis of the Commonality that P / HK Parksong and PRC Yunnan Tin understood that the 18% Funds previously injected into HK Yunnan Tin by P through HK Parksong was to be regarded as “a loan advanced by [P] in the name of HK Parksong …… to PRC Yunnan Tin for the latter’s acquisition of [the 18% Shares]”.[60] I also refer to paragraphs 76-79 above.
106. In respect of (d) above, I need only refer to the discussion in paragraphs 99 and 100(a) above. Mr Li SC suggested that even if there were mention/evidence of “assignment” or “transfer” of shareholder loan together with the 18% Shares to PRC Yunnan Tin, it would be a mere factual dispute for trial as to what transpired in terms of HK Parksong’s injection of the 18% Funds into HK Yunnan Tin, ie whether or not it was regarded as having been made on behalf of PRC Yunnan Tin to acquire the 18% Shares. I disagree. As explained in paragraph 82 above, this was more than a mere evidential dispute for this 1st Issue (ie the “share capital versus shareholder loan” dispute that rested on the Commonality and that concerned the nature/treatment of the 18% Funds and not the 16.3m Payment) was the very issue Ds raised in their Counterclaims, but P’s New Case under the 3rd Issue that concentrated on the 16.3m Payment not only retracted the Commonality and resiled from the Old Case of share capitalisation under the 1st Issue but also declined to square up on P’s “new” stance on the actual nature/status of the 18% Funds. This lacuna was not one of mere evidence but an absence of properly pleaded response that engaged with Ds on the very issue Ds raised on their Counterclaims premised on the Commonality and 18% Funds, and in the context of change of case and withdrawal of common ground such obscurity could not be overcome by pleading abundant background facts/documents that went to the 16.3m Payment (ie the 2nd and 3rd Issues with which Ds were not concerned).
107. Of course, a trial is for dispute resolution, but for a trial to be effective it is essential to have clear pleadings for the other party to know “what is the entire case he has to meet so he can decide whether particulars to be sought; how he should plead in response; …… what evidence he should adduce to meet it; and what points of law should be taken”. I find it inappropriate to allow P to retract his position on the Commonality and 18% Funds and at the same time retreat from engaging with Ds on the very issue raised in the A&DC, which approach would run counter to the basic objective of pleadings to “fairly and precisely to inform the other party or parties …… the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues ……” This was especially so in the present case when P must have a stance on the nature/status of the 18% Funds since (a) he was the party who injected the 18% Funds into HK Yunnan Tin via HK Parksong, (b) he through HK Parksong was the joint venture party who entered into the background dealings with PRC Yunnan Tin including the 16/7/10 Minutes, 18/7/10 Agreement and 2nd Notices that gave notice of the 19/7/10 Assignment amended by the 6/12/10 Supplement, (c) he was the vendor under the SPA who made agreement with D1/Vitar on the Payables and gave various guarantees/warranties to Ds, (d) he through Zhou furnished the A/C Info to Ds, and (e) he executed the 4/3/11 Assignments. I also note Mr Li SC very carefully did not suggest P had no knowledge of the nature/treatment of the 18% Funds, but only contended it was unnecessary for P to come forth with a positive case as explained in paragraph 111 below.
108. Mr Li SC agreed that conceptually the 18% Funds were part and parcel of the total Funds that had to be booked in HK Yunnan Tin’s books and accounts. According to the 1st Schedule, the A/C Info (which Ds had in their possession) showed HK Yunnan Tin’s general ledgers / balance sheets recorded total loans of about HK$590,000,000 (including the 18% Funds) due from HK Yunnan Tin to P and HK Parksong. Mr Li SC noted that except for the “wrong entries” which might have given erroneous impression that the 18% Funds were attributable to PRC Yunnan Tin (but which P had clarified by his pleadings and the Zhou 1st Supp Stmt), the 18% Funds had not been booked in PRC Yunnan Tin’s name as loan or capital, which seemed to suggest the 18% Funds were attributable to HK Parksong rather than PRC Yunnan Tin, but ultimately whether or not the “wrong entries” were mistakes or whether the 18% Funds was shareholder loan advanced on behalf of PRC Yunnan Tin to HK Yunnan would be matters for trial.
109. I note the 1st Schedule set out the differing positions on the A/C Info and the 1st, 2nd and 3rd Sets as set out in Ds’ case and P’s existing pleadings. Bearing in mind the existence of the alleged “wrong entries”, it could not be said Ds’ stance in respect of the A/C Info and the 1st, 2nd and 3rd Sets was unarguable, but at the same time P also gave explanation for the alleged “wrong entries”. Still it did not mean this was a mere evidential dispute, and I have explained above why proper pleadings on the 18% Funds were required. It is, however, significant to note that P insinuated the 18% Funds was still attributable to HK Parksong rather than PRC Yunnan Tin since the 18% Funds (which was injected into HK Yunnan Tin by P / HK Parksong) were not booked in PRC Yunnan Tin’s name either as loan or capital in HK Yunnan Tin’s accounts. When pressed on this point, Mr Li SC drew attention to paragraph 7(r) of P’s Draft which in the proposed amended form read as follows:
“As recorded in the [16/7/10 Minutes] mentioned above, it was confirmed by PRC Yunnan Tin that it would pay back HK Parksong the said sum of AUD16.3 million which was the sum required for having its 18% Shares in HK Yunnan Tin without PRC Yunnan Tin having to make any actual payment to HK Yunnan Tin whether by way of fresh capital injection or loan or otherwise ……”
Mr Li SC submitted such plea showed that the 18% Funds were injected by HK Parksong.
110. But in fact there was no dispute it was P through HK Parksong who injected the 18% Funds into HK Yunnan Tin. Rather, P and Ds on their existing pleadings contended the “share capital versus shareholder loan” dispute came about after such injection of the 18% Funds by P / HK Parksong on the basis that the 18% Funds were regarded as paid on behalf of PRC Yunnan Tin as either its share capital or shareholder loan for the 18% Shares. But P did not square up and come clean on his current stance on the 18% Funds under the New Case in direct response to Ds’ Counterclaims, ie (a) whether the 18% Funds were actually attributable to HK Parksong, (b) if so whether the 18% Funds was shareholder loan due from HK Yunnan Tin to HK Parksong (and if not to whom), (c) if so whether it was still such shareholder loan due to HK Parksong upon completion of the SPA, (d) if not whether HK Parksong had assigned its entitlement to repayment of such shareholder loan to P, and (e) if so whether such debt due to P had been assigned to D1 by the 4/3/11 Assignments, all of which were the very matters which went to the heart of Ds’ Counterclaims. In short, P’s coyness would leave Ds awondering as to what P’s answer to their Counterclaims would be. I also bear in mind Mr Chan SC’s submissions that Ds’ and P’s stance on (a)-(e) above had substantive ramifications on their rights and liabilities under the SPA and/or 4/3/11 Assignments (and not merely on HK Yunnan Tin’s accounting treatment of the 18% Funds) (see paragraph 82 above).
111. In the end, Mr Li SC was constrained to assert P had no obligation to advance/plead any positive case on the accounting treatment of the 18% Funds under P’s New Case, and it was sufficient for P to aver that the 18% Funds were neither PRC Yunnan Tin’s share capital nor its shareholder loan. Mr Li SC submitted how a sum was booked was only a piece of evidence as to the true nature of the sum, and it was incumbent on Ds to assert whether the 18% Funds had been booked in the name of PRC Yunnan Tin as loan or capital in order to take issue with “P’s account of the true nature of the AUD 16.3M”. Mr Li SC submitted there was no need for P to help Ds to build/formulate their case by telling them whether the 18% Funds was share capital or shareholder loan since P was on the receiving end of Ds’ Counterclaims. Further, if it were said the 18% Funds was booked as shareholder loan in P’s name in HK Yunnan Tin so that such debt should be assigned to P upon completion of the SPA, Mr Li SC submitted this was a matter for trial.
112. I do not agree. First, Ds were not asking P to help them build or formulate their case. Their case (defence as well as Counterclaims) on this subject rested on the Commonality and their plea (as clearly shown in the FBP) that the 18% Funds were PRC Yunnan Tin’s shareholder loan which HK Yunnan Tin was liable to repay. Rather, it was for P to plead a proper answer thereto, which he did under the Old Case by putting forward a positive case, ie the Commonality and his plea that the 18% Funds were PRC Yunnan Tin’s share capital for the 18% Shares. This went to the true nature of the 18% Funds and not just mere accounting treatment, and as explained in paragraph 82 above the nature of the 18% Funds would have ramifications on the rights and liabilities of the parties. Further, as explained in paragraph 110 above, it was also plain P was in position to (and he previously did) put forward a positive case on the 18% Funds. Given his personal involvement and knowledge, fairness required that P should set out his stance on the 18% Funds clearly to directly engage with Ds on their Counterclaims if he be allowed to retract his Old Case and replace it with his New Case, so Ds could properly understand the nature/scope of the dispute and marshal legal/factual answers to the same before the trial in the present action.
113. Anyway, a simple assertion that the 18% Funds were originally injected into HK Yunnan Tin by P / HK Parksong and a simple denial that the 18% Funds were PRC Yunnan Tin’s share capital or its shareholder loan in HK Yunnan Tin led nowhere to proper understanding of P’s case on the 18% Funds. First, if the 18% Funds were not PRC Yunnan Tin’s but HK Parksong’s share capital, such stance faced the same criticism by Mr Li SC that all HK Yunnan Tin shares were issued at par value of HK$1 each and there was no fresh allotment for the 18% Shares at premium. Secondly, if the 18% Funds were HK Parksong’s shareholder loan, then P offered no answer to the matters in paragraph 110(c)-(e) above. In such context, it was also difficult to understand why (if such shareholder loan was not regarded as having been paid on behalf of PRC Yunnan Tin) P / HK Parksong would be entitled to repayment of such shareholder loan being the 18% Funds in the sum of AUD16,300,000 from HK Yunnan Tin and also be entitled to the 16.3m Payment again in the sum of AUD16,300,000 from PRC Yunnan Tin as price for the 18% Shares under P’s New Case.
114. Mr Li SC submitted there would be time enough after P’s proposed amendments were allowed for Ds to interrogate P or to request for further and better particulars. But in the context of P’s attempt to retract his positive case under the Old Case, the fact he must have known the nature/status of the 18% Funds, his reserve in squaring up and engaging directly with Ds on their pleaded case in the AD&C, and the lacuna his reticence created in the proper understanding of his “new” stance on the 18% Funds on the 1st Issue in contra-distinction to the 16.3m Payment on the 2nd and/or 3rd Issues (which Ds were not concerned), I am not persuaded the proposed amendments in P’s Draft were fairly pleaded to enable Ds to properly meet P’s New Case.
115. P’s New Case that the parties merely agreed on a negotiated price for transfer of the 18% Shares at par value payable by PRC Yunnan Tin to P / HK Parksong only raised indirect/partial answer to Ds’ Counterclaims, and the New Case was tantalisingly silent on the nature/treatment of the 18% Funds. I am not persuaded Ds’ complaints against the proposed amendments could be so lightly brushed aside, as Mr Li SC would have me do, by the suggestion that the proposed amendments in P’s Draft did not change the crux of the dispute between the parties as to whether the 18% Funds was shareholder loan due from HK Yunnan Tin as Ds alleged.
(f) Inconsistent averments?
116. Mr Chan SC argued the proposed amendments in P’s Draft failed to properly/sufficiently set out and explain P’s “new” position on “the said sum of AUD16,300,000”, and were self-contradictory, embarrassing and confused as to the pertinent issues, hence they would not be conducive to the fair disposal of the matter (or to save costs).
117. As pointed out by Mr Chan SC, the 1st Issue as to the true nature of the 18% Funds injected into HK Yunnan Tin which had to be booked in some way in HK Yunnan Tin’s accounts was distinct from the issue of PRC Yunnan Tin’s liability to pay P / HK Parksong in the same amount either as repayment to P / HK Parksong in respect of the advance/loan of the 18% Funds (on P’s Old Case) or as price payable to P / HK Parksong for the sale of the 18% Shares to PRC Yunnan Tin (on P’s New Case) (ie the 2nd and 3rd Issues). Mr Chan SC complained that the abundance of averments in P’s Draft concerning the 3rd Issue not only would not assist in identifying the extent/scope of the disputed issue by failing “to properly plead what P’s new case [on the 18% Funds] really is”, they also failed to recognise the distinction between the 1st and 2nd (now 3rd) Issues by conflating them in the proposed amendments.
118. Mr Chan SC submitted P had so entrenched his Old Case in the AR&RADAC that in putting forward extensive amendments to retract from his Old Case (eg disavowing the Commonality in relation to the 18% Funds that was regarded as having been injected by PRC Yunnan Tin into HK Yunnan Tin) and to change into his New Case (eg the said sum of AUD16.3 million was in fact the 16.3m Payment being the price for the purchase of the 18% Shares rather than the 18% Funds), it was incumbent on P to be particular/precise about the proposed changes to ensure they hang/sit together with the retained parts of the AR&RADAC to give Ds a clear picture of P’s New Case as a whole. Mr Chan SC suggested it would be inappropriate to allow the proposed amendments in P’s Draft that would leave Ds to wonder how much of P’s Old Case was overturned and what was the full scope of P’s New Case, and require Ds to interrogate or request for further and further particulars to tie up any loose ends.
119. In the course of his submissions, Mr Chan SC highlighted certain aspects of the proposed amendments in P’s Draft which at first blush purported to alter P’s case but on closer scrutiny were found to be, according to Mr Chan SC, conflicting, muddled and embarrassing in the aforesaid sense that made it impossible for Ds to properly appreciate and/or respond to P’s New Case. Mr Chan SC cited many paragraphs in P’s Draft to illustrate this, but suffice for me to refer to some salient examples in the 2nd schedule to this Decision (“2nd Schedule”). For convenience and unless otherwise stated, references to “§xx” in the 2nd Schedule and in the paragraph below are references to paragraphs in P’s Draft and the strikethrough and underlined parts of the extracts drawn from P’s Draft reflect the proposed amendments.
120. I have set out my views in the 2nd Schedule. But for proper understanding of the discussion, it is necessary to identify what the phrase “the said sum of AUD 16.3 million” in P’s Draft referred to. It was defined in the preamble in §7 as “the sum of AUD 16.3 million as mentioned in paragraph 7 of the Amended Defence”. Paragraph 7 of the AD&C referred to the A/C Info P furnished to Ds and the Completion Accounts, and averred that:
“…… At that time, [D1] and [Vitar] were not aware of the inconsistencies of the documents mentioned in paragraphs 27-31 of the Re-Amended Counterclaim. If the owner of the debt in the sum of AUD16.3 million is not [P], the amount due to a director, being the sum of HK$217,737,225.88 mentioned in the Completion Accounts is incorrect and should have been HK$98,747,225.88.”
Plainly, Ds were referring to the 18% Funds as recorded in the A/C Info and the Completion Accounts, and not the 16.3m Payment that were extraneous to HK Yunnan Tin’s accounts. So “the said sum of AUD16.3 million” in the AR&RADAC and P’s Draft appeared to be a reference to the 18% Funds and not the 16.3m Payment. Moreover, §7 was intended to be P’s response to Ds’ case on the 18% Funds:
“On the sum of AUD16.3 million as mentioned in paragraph 7 of the Amended Defence (‘the said sum of AUD 16.3 million’), in further answer to the allegations made in the second and third sentences of paragraph 7 of the Amended Defence, [P] says as follows:- ……”
But as seen from the analysis in the 2nd Schedule, the references to “the said sum of AUD 16.3 million” in P’s Draft wavered uncertainly between the 18% Funds and 16.3m Payment, and was thereby confusing and embarrassing.
121. In my view, the analysis in the 2nd Schedule showed there were concerns as to whether P’s Draft with the proposed amendments presented a clear and consistent pleading. Taking an overall approach and after giving all allowances for P given the interlocutory nature of the present application, P’s retention of parts of the AR&RADAC that were only explicable on P’s Old Case that rested on the Commonality which D purported to disavow in his New Case, and P’s resort to averments that went to the 3rd Issue that did not address on and/or engage with Ds’ Counterclaims that rested on the Commonality and the 1st Issue undermined the relevance, necessity and fairness of the proposed amendments in P’s Draft. I bear in mind that quite apart from the A/C Info which Ds pleaded as material facts to support their case, Ds’ pleadings squarely raised fundamental issues as to the nature/ treatment of the 18% Funds, and P’s oscillation between the Old Case and the New Case in P’s Draft only compounded the undesirability of his reticence on his “new” stance as to the nature/treatment of the 18% Funds. In my view, P could not put forward an opague pleading that resiled from his positive case and masked his “new” stance by throwing up pleas and averments in relation to 16.3m Payment and sidestepping the 18% Funds by sheltering behind the assertion that how the 18% Funds were booked was just an evidential matter to be resolved at trial.
(g) Summary
122. At this interlocutory stage of the proceedings, I am only concerned with whether there was an arguable case, and indeed Mr Chan SC accepted a properly pleaded and consistent New Case was not bound to fail. But it still begged the question whether the proposed amendments in P’s Draft was properly pleaded. For all of the above reasons, I find the proposed amendments in P’s Draft unsatisfactory and embarrassing, and consequently not conducive to a fair disposal of the matter. Indeed, the proposed amendments would only add to costs for they would burden Ds and the court with efforts and applications to elicit P’s true case and its scope. In my view, it would not be fair for Ds to meet such new pleas as presently formed.
123. Mr Chan SC referred me to the following guidance by the Court of Appeal in Excel Concrete Limited v the Concrete Producers Association of Hong Kong Limited & ors[61] in the context of proposed amendments to pleadings (which were prolix and argumentative) to raise a plea of honest belief to rebut the plea of malice in a defamation action:
“24. …… It is not the function of this court to formulate a proper plea of honest belief for the defendants. All we need to say in this judgment is that our conclusion on the question of malice does not warrant us disturbing the Judge’s decision to disallow paras 4 and 26(jb). If the defendants wish to advance a plea of honest belief to rebut malice in the context of qualified privilege, they should make a fresh application for leave to re-re-amend to the court below with a draft containing a proper plea (in light of our comments above) to that effect.”
In my view, it would likewise be inappropriate for this court to re-formulate P’s Draft for P. Whether P would be in a position to re-formulate his proposed amendments to properly plead his New Case and to make a fresh application for leave to amend (if he can) would be a matter for the future. The Amendment Summons is dismissed, and I need not deal with Mr Chan SC’s interesting arguments on the alleged extravagant waste of costs if P were allowed to put forward his New Case.
124. There is no reason why costs should not follow event. I therefore grant a costs order nisi that P shall pay Ds costs of and occasioned by the Amendment Summons to be taxed forthwith if not agreed with certificate for two counsel.
IX. CASE MANAGEMENT DIRECTIONS
125. The outstanding summonses were the Joinder, Amended Joinder, Expert and Relief Summonses (“Outstanding Summons”). Mr Li SC and Mr Chan SC assured this court that 2 hearing days would be sufficient to deal with the Outstanding Summonses. I now grant the following case management directions:
(a) the Outstanding Summonses be adjourned for argument before this court on a date to be fixed in consultation with the diaries of two counsel for the parties with 2 days reserved (“3rd Hearing”);
(b) the 3rd Hearing shall not be heard before 70 days from today;
(c) within 14 days from today, Ds shall attend before the Listing Clerk to fix the dates for the 3rd Hearing;
(d) no later than 56 days before the 3rd Hearing, the parties shall agree on the index of a core bundle (“2nd Core Bundle”) that comprises only essential documents for the Outstanding Summonses including (i) relevant pleadings, summonses and orders and (ii) affidavits and essential exhibits in separate sections for each of the Outstanding Summonses;
(e) no later than 35 days before the 3rd Hearing, Ds shall lodge with court and serve the 2nd Core Bundle;
(f) no later than 21 days before the 3rd Hearing, Ds shall lodge and serve supplemental written submissions not exceeding 5 pages for the 3rd Hearing that set out the following:
(i) which paragraphs of Mr Chan SC’s written submissions dated 16 December 2014 and 24 July 2015 that Ds intend to adopt for each of the Outstanding Summonses;
(ii) which of the authorities in Mr Chan SC’s list of authorities dated 16 December 2014 and 24 July 2015 that Ds intend to use; and
(iii) any further written submissions Ds may wish to make for the Outstanding Summonses;
(g) no later than 14 days before the 3rd Hearing, P shall lodge and serve supplemental written submissions not exceeding 5 pages for the 3rd Hearing that set out the following:
(i) which paragraphs of Mr Li SC’s written submissions dated 16 and 18 December 2014 and 22 and 27 July 2015 and which annex to Mr Li SC’s written submissions dated 16 December 2014 that P intends to adopt for each of the Outstanding Summonses;
(ii) which of the authorities in Mr Li SC’s list of authorities dated 16 and 18 December 2014 and 22 July 2015 that P intends to use; and
(iii) any further written submissions P may wish to make for the Outstanding Summonses;
(h) no further or supplemental written submissions shall be lodged and/or served by any party;
(i) no further affidavit shall be filed and/or served without leave of the court;
(j) any application for leave in (i) above shall be made no later than 35 days before the 3rd Hearing;
(k) any application for leave in (i) above shall be returnable for call-over hearing with 15 minutes reserved before this court, and shall not be made returnable at the 3rd Hearing;
(l) unless otherwise directed by this court, no further application or summons apart from the Outstanding Summonses shall be made returnable at the 3rd Hearing; and
(m) time shall run during court vacation.
126. The purpose of the above case management directions was to facilitate the substantive hearing of the Outstanding Summonses by protecting the 3rd Hearing from being hijacked by other applications/ summonses, and by focusing submissions on the outstanding matters that took into account the detail in the earlier written submissions. The 3rd Hearing is not to be heard before 70 days from today so that the parties can complete the current round of amendments to pleadings.
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(Marlene Ng)
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Deputy High Court Judge |
Mr C Y Li SC and Mr Adrian But, instructed by Vincent T K Cheung, Yap & Co, for the plaintiff
Mr Chan Chi Hung SC, Mr Richard Khaw and Ms Kay Seto, instructed by Benjamin Au & Billy Chan, for the 1st and 2nd defendants
1st Schedule
1. In the AD&C, Ds pleaded (but P in the AR&RADAC denied) P made representations and furnished the A/C Info to the effect that HK Yunnan Tin owed shareholder loans of about HK$590,000,000 (ie equivalent to the Funds) that should be assigned to D1 upon completion of the SPA:
(a) Ds claimed that on 7 July 2010 Zhou sent email to Fu attaching inter alia HK Yunnan Tin’s balance sheet as of 31 May 2010 that showed its liabilities as follows:
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Loans were due from HK Yunnan Tin to
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Amount (HK$)
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SHK
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250,000,000.00
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P
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45,767,310.09
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HK Parksong
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132,846,147.47
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PRCYunnan Tin
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151,983,000.00
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Total:
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580,596,457.56[62]
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But P averred such balance sheet, which only showed “amount due from HK Yunnan Tin”, did/could not take into account the arrangement and treatment that came to be decided in June/July 2010.[63]
(b) Ds claimed that on/about 7 July 2010 Fu (who thought the sale and purchase of HK Parksong’s shares would be debt-free) expressed to Zhou his concern over HK Yunnan Tin’s substantial liabilities, but Zhou assured the debts due to SHK / PRC Yunnan Tin would be repaid out of the purchase price and the whole debt of about HK$590,000,000 would be converted into loan debts due from HKYunnan Tin to P / HK Parksong to be assigned to D1 upon completion.
P denied the above except Zhou did tell Fu P wanted to repay SHK and PRC Yunnan Tin, and HK Parksong would assign the AUD16,300,000 debt to P.[64] P claimed that on/about 10 July 2010 he told the purchaser’s representatives PRC Yunnan Tin planned to repay AUD16,300,000 to P from dividends to be declared by HK Yunnan Tin on the 18% Shares. Anyway, the entire agreement provision in the SPA precluded Ds from relying on any alleged agreement that P would assign shareholder loans of about HK$590,000,000 to D1.
(c) Ds claimed that on 3 August 2010 Zhou sent email to Fu attaching inter alia HK Yunnan Tin’s balance sheet and general ledger trial balance as of 30 June 2010 that showed its liabilities as follows (hence Vitar made the public announcement on 16 August 2010 in paragraph 30 above):
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Loans were due from HK Yunnan Tin to
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Amount (HK$)
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SHK
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250,000,000.00
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P
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42,900,962.66
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HK Parksong
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293,063,507.47
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Total:
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585,964,470.13
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P’s answer was the same as in (a) above.
(d) Ds claimed that on 13 October 2010 Zhou sent email to Fu attaching inter alia HK Yunnan Tin’s balance sheet as of 30 September 2010 that showed its liabilities as follows: [65]
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Loans were due from HK Yunnan Tin to
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Amount (HK$)
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P
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98,955,664.95
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HK Parksong
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378,616,717.47
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PRC Yunnan Tin
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115,730,000.00
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Total:
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593,302,382.42
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and revised versions of HK Yunnan Tin’s trial balance and balance sheet as of 30 September 2010 that showed its liabilities as follows: [66]
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Loans were due from HK Yunnan Tin to
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Amount (HK$)
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P
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98,955,664.95
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HK Parksong
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494,346,717.47
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Total:
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593,302,382.42
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P claimed the above original/revised balance sheets only showed “amount due from HK Yunnan Tin”.[67]
(e) Ds claimed that on 14 October 2010 Zhou sent email to Fu enclosing inter alia trial balances and balance sheets from 31 July to 30 September 2010 (same as the revised balance sheet in (d) above). P’s answer was the same as in (d) above.[68]
(f) Ds claimed that on 24 November 2010 Zhou sent email to Fu enclosing inter alia HK Yunnan Tin’s balance sheet as of 31 October 2010 that showed its liabilities as follows:
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Loans were due from HK Yunnan Tin to
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Amount (HK$)
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P
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98,154,651.35
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HK Parksong
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494,346,717.47
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Total:
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593,501,368.82
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P claimed the above unaudited balance sheet only showed “amount due from HK Yunnan Tin”.
(g) Ds claimed that from July to November 2010 the A/C Info Zhou delivered to Fu showed the shareholder debt due from HK Yunnan Tin (and to be assigned to D1 upon completion of the SPA) was about HK$590,000,000.
(h) Ds claimed that on 27 January 2011 Zhou sent email to Fu enclosing inter alia HK Yunnan Tin’s balance sheet as of 31 December 2010 that showed its liabilities as follows:
Loans were due from HK Yunnan Tin to
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Amount (HK$)
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P
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98,813,968.98
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HK Parksong
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494,338,717.47
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Total:
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593,152,416.45
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P claimed such unaudited balance sheet only showed “amount due from HK Yunnan Tin”, but “failed to account for and reflect the said arrangement and treatment”.
(i) Ds claimed that on 17 March 2011 Zhou sent email to Fu and Vitar’s auditors enclosing the unaudited Completion Accounts of HK Parksong and HK Yunnan Tin and HK Yunnan Tin’s balance sheet as of 4 March 2011 that showed HK Yunnan Tin’s liabilities as follows:
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Loans were due from HK Yunnan Tin to
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Amount (HK$)
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P
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217,737,225.88
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HK Parksong
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375,344,717.47
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Total:
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593,081,943.35
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P claimed such unaudited balance sheet only showed “amount due from HK Yunnan Tin”.[69]
(j) on 15 April 2011, Vitar’s auditors issued an audit confirmation, and P signed to confirm the same.
2. Ds claimed that prior to completion of the SPA, P had prepared 3 sets of documents for HK Yunnan Tin and HK Parksong that showed a conflicting picture as to who owned the advance of AUD16,300,000 to HK Yunnan Tin (ie the 18% Funds) which inconsistencies Ds were unaware when the Completion Accounts were finalised on 1 June 2011:[70]
(a) the 1st set of documents (“1st Set”) showed P advanced AUD16,300,000 to HK Yunnan Tin;
(b) the 2nd set of documents (“2nd Set”) showed HK Parksong advanced AUD16,300,000 to HK Yunnan Tin which contradicted the 1st Set;
(c) the 3rd set of documents (“3rd Set”) showed P on behalf of PRC Yunnan Tin advanced AUD16,300,000 to HK Yunnan Tin which also contradicted the 1st Set.
3. Ds further claimed PRC Yunnan Tin relied on the 3rd Set to allege the 18% Funds should have been capitalised as its share capital in HK Yunnan Tin, but Ds averred that if this was correct, (a) P would be in breach of the warranties in schedule 5 of the SPA, (b) D1 would suffer loss (because the shareholder loans P assigned to D1 would be reduced from HK$217,677,147 to HK$92,038,377),[71] (c) D1 would not have completed the sale and purchase on 4 March 2011 had it been aware of this unless the purchase price was reduced by AUD16,300,000, and (d) P was therefore liable to indemnify D1 for its loss/damages pursuant to clauses 7.01-7.07 of the SPA.
4. Ds claimed that if the 18% Funds were PRC Yunnan Tin’s share capital in HK Yunnan Tin, P’s representations to Ds were made fraudulently, recklessly or negligently and were untrue because by 17 March 2011 P had in his possession all accounts relating to HK Yunnan Tin (particularly the unaudited Completion Accounts he furnished on 17 March 2011), so P must have known (a) the 18% Funds were carved out of the Funds to be treated as PRC Yunnan Tin’s share capital but were never treated/booked as such in HK Yunnan Tin’s accounts, and (b) P through Zhou continued to represent to D1/Vitar that the entire shareholder loans of about HK$590,000,000 were owed to him alone when the 18% Funds should have been treated as PRC Yunnan Tin’s contribution to its share capital of HK Yunnan Tin. Hence, Dssuffered loss/damage being the difference in amount of loans P assigned to D1 as at the date of completion as explained in the above paragraph. But if HK Yunnan Tin (a Review Group company) were liable to pay AUD16,300,000as shareholder loan to PRC Yunnan Tin, this sum would have been an item of Payables for which P was liable to pay D1. So D1 counterclaimed for AUD16,300,000 or its HK$ equivalent at the time of payment or alternatively damages, and for account and inquiry of the amount of Payables to be paid in future with payment of the Payables thereafter.
5. But P in the RA&RADAC claimed (a) the A/C Info Zhou sent to Fu “failed to account for and reflect the said arrangement and treatment”, (b) the exact amounts to be assigned to D1 had not been ascertained, (c) the parties understood the assignment to D1 would not include the sum of AUD16,300,000 by reason of “the said arrangement and treatment”, and (d) the sum of AUD16,300,000 had already been assigned to P personally and was not meant to be part of the shareholder debt to be assigned to D1.[72]
6. In the AR&RADAC, P further claimed the accountants entrusted to prepare the ledger entries inadvertently made “wrong entries” in HK Yunnan Tin’s accounting ledgers in the 1st and 2nd Sets, and P/Zhou inadvertently signed identical audit confirmations dated 15th April 2011 (prepared partly on the basis of the wrong ledger entries) that D1’s auditors sent to P requesting confirmation that HK$217,677,147 was due from HK Yunnan Tin to P.[73] But the 3rd Set reflected the correct position and understanding of the parties (as reflected in the 18/7/10 Agreement) that “thesaid um of AUD 16.3 million” was money P advanced for use as PRC Yunnan Tin’s capital payment for having the 18% Shares, and such “money was channeled through HK Parksong to HK Yunnan Tin for such purpose”. P therefore denied any breach of warranties under schedule 5 of the SPA, but if there were such breach because of the wrong ledger entries resulting in inaccuracies in the Completion Accounts, P contended they did not cause any loss to D1.
2nd Schedule
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P’s Draft
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Extracts and discussion
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§7(j)(iv)
§(j)(ii)
§7(r)
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§7(i)(iv) – according to the 16/7/10 Minutes “PRC Yunnan Tin agreed to be responsible for 18% of the investment amount made in the said tin mines and the amount was the said sum of AUD16.3 million, which was to be paid by the interest and dividends to be distributed to the 18% shares to be beneficially owned by PRC Yunnan Tin in HK Yunnan Tin.”
§7(j)(ii) – P by HK Parksong entered into the 18/7/10 Agreement with PRC Yunnan Tin that “PRC Yunnan Tin agreed to be responsible for 18% of the investment amount made in the said tin mines and the amount was the said sum of AUD16.3 million, which was to be paid by the interest and dividends to be distributed to the 18% shares to be beneficially owned by PRC Yunnan Tin in HK Yunnan Tin.”
§7(r) – “As recorded in the minutes of
16/7/10 Minutes of Meeting of [P] acting on behalf of HK Parksong and PRC Yunnan Tin held on 16th July 2010 at the office of PRC Yunnan Tin in Yunnan PRC
mentioned above, it was confirmed by PRC Yunnan Tin that it would pay back
HK Parksong the said sum of AUD16.3 million which was the sum required for
acquiring having its 18% shares in HK Yunnan Tin
as advanced to HK Yunnan Tin through HK Parksong without PRC Yunnan Tin having to make any actual payment to HK Yunnan Tin whether by way of fresh capital injection or loan or otherwise. The said 1,800 shares which came to be beneficially owned by PRC Yunnan Tin indeed came from the said 4,500 shares as issued earlier at a par value of HK$1 each and transferred to PRC Yunnan Tin by [P].”
The proposed amendments in §§7(i)(iv) and 7(j)(ii) that averred PRC Yunnan Tin “agreed to be responsible for 18% of the investment amount made in the said tin mines” plainly referred to the 18% Funds injected by P through HK Parksong into HK Yunnan Tin for the Acquisition, and was consistent with the Commonality that gave rise to the “share capital versus shareholder loan” dispute under the 1st Issue, which also echoed in the averment in §7(r) that PRC Yunnan Tin confirmed “it would pay back HK Parksong the said sum of AUD16.3million”. In my view, PRC Yunnan Tin’s “responsibility” for the 18% Funds and/or the nature/treatment of the 18% Funds was a clearly matter between PRC Yunnan Tin and HK Yunnan Tin, and hence conceptually different from P’s New Case under the 3rd Issue thatPRC Yunnan Tin agreed to pay the price(ie the 16.3m Payment), but it would be consistent with P’s Old Case under the 2nd Issue that PRC Yunnan Tin had to reimburse or “pay back” P / HK Parksong.
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§7(l)(ii)
§7(l)(iii)
§7(l)(iv)
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“7. In the premises of the matters aforesaid,
……
(ii) PRC Yunnan Tin became actual beneficial owner of the said 1,800 shares or 18% shares of HK Yunnan Tin by agreeing to pay the said sum of AUD16.3 million to HK Parksong;
(iii) the said sum of AUD 16.3 million was a consideration payable to HK Parksong for the said 1,800 shares or 18% of HK Yunnan Tin shares as issued at par value of HK$1 each;
(iv) the said sum of AUD16.3 million was not a sum advanced by PRC Yunnan Tin to HK Yunnan Tin whether by way of fresh capital injection or loan or otherwise for acquiring the 18% shares in HK Yunnan Tin as indeed the total investment in the said tin mines in the sum of AUD 77,350,699.00 plus HK$2,000,000.00 as recorded in the 16/7/10 Minutes of Meeting based on which the consideration of the said sum of AUD16.3 million was calculated had already been invested by [P] through HK Yunnan Tin before the making of the PRC Yunnan Tin 18/7/2010 Agreement.”
It appeared §§7(l)(ii)-7(l)(iii) was related to the 3rd Issue that dealt with the 16.3m Payment as consideration payable to P / HK Parksong for acquiring the 18% Shares issued at par value of HK$1 each, but this was not “the said sum of AUD16.3 million” being the 18% Funds referred to in the preamble of §7. But in averring that PRC Yunnan Tin did not advance “the said sum of AUD 16.3 million” to HK Yunnan Tin whether by fresh capital injection or loan
or otherwise for acquiring the 18% Shares, §7(l)(iv) must be a denial that the 18% Funds was attributable to PRC Yunnan Tin. But in going on to aver that “the consideration of the said sum of AUD 16.3 million was calculated” on the basis of the Funds as recorded in the 16/7/10 Minutes, such “consideration” appeared to be a reference to the 16.3m Payment. This uncertain conflation of the 1st and 3rd Issues gave rise to concern, and in any event it was not easy to see how the 16.3m Payment (which was payable by PRC Yunnan Tin to P / HK Parksong and hence not Ds’ or HK Yunnan Tin’s concern) would be an answer for Ds’ case on the 18% Funds.
Further, as explained in paragraphs 78-79 and 84-85 above, the absence fresh capital injection or loan into HK Yunnan Tin was neither here nor there on Ds’ case or P’s Old Case since the only question then was whether the 18% Funds already injected into HK Yunnan Tin by P / HK Parksong and regarded as having been made on behalf of PRC Yunnan Tin (ie the Commonality) was share capital or shareholder loan, or even on P’s New Case that PRC Yunnan Tin merely promised to pay the price of AUD16,300,000 (and was therefore indebted) to P / HK Parksong. In any event, since §7(l)(iv) accepted the 18% Funds “had already been invested” in HK Yunnan Tin, P’s averments concerning the 16.3m Payment under the 3rd Issue fell short of providing enlightenment on the nature/treatment of 18% Funds, which was the very issue raised in the AD&C.
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§7(n)(i)
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§7(n)(i) – “However, the preparation of the
aforesaid ledgers of HK Yunnan Tin by Jimmy Cheung & Co, the said sum of AUD 16.3 million was wrongly recorded in the ledgers of HK Yunnan Tin:- …… as a loan from PRC Yunnan Tin to [P] when the true position was reverse
(as the said sum of AUD 16.3 million should indeed be a loan owed by PRC Yunnan Tin to HK Parksong as wholly owned by [P] as consideration for having the said 1,800 shares or 18% shares in HK Yunnan Tin and became the absolute beneficial owner of them).”
This was about alleged “wrong entries” of “the said sum of AUD 16.3 million” in HK Yunnan Tin’s ledgers, which must be referable to the 18% Funds under the 1st Issue that was conceptually different from the 16.3m Payment under the 2nd and/or 3rd Issues. P’s existing plea retained in P’s Draft of a “wrong entry” of the “the said sum of AUD 16.3 million” (ie the 18% Funds) “as a loan from PRC Yunnan Tin to [P] when the reverse was true” (ie the reverse being the 18% Funds were P’s loan to PRC Yunnan Tin) and elaborated further by the proposed amendments that “the said sum of AUD16.3 million should indeed be a loan owed by PRC Yunnan Tin to HK Parksong” could only have been consistent with P’s Old Case and/or Ds’ case.
In my view, it was not easy to see how the a loan of the 18% Funds by P / HK Parksong to PRC Yunnan Tin could be “consideration” for the 18% Shares on P’s New Case under the 3rd Issue that HK Parksong sold the 18% Shares to PRC Yunnan Tin against its promise to pay the price by way of the 16.3m Payment (and not repayment of the loan of the 18% Funds). Moreover, whilst the 16.3m Payment might be a liability or receivable for the accounts of HK Parksong and/or PRC Yunnan Tin, the proposed pleas did not enlighten why the 16.3m Payment had anything to do with or was explanation for alleged “wrong entries” in HK Yunnan Tin’s ledgers that concerned the 18% Funds.
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§7(n)(iii)
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§7(n)(iii) – “However, in the preparation of the aforesaid ledgers of HK Yunnan Tin by Jimmy Cheung & Co, the said sum of AUD 16.3 million was wrongly recorded in the ledgers of HK Yunnan Tin:- …… (iii) as part of the loans advanced by HK Parksong to HK Yunnan Tin
when the same should be part of the share capital of HK Yunnan Tin representing PRC Yunnan Tin’s capital investment in HK Yunnan Tin for acquiring 18% of its shares; (“the wrong ledger entries”).”
§7(n)(iii) again referred to the alleged “wrong entries” in HK Yunnan Tin’s accounts/ledgers concerning the 18% Funds that would be relevant to P’s Old Case but irrelevant to P’s New Case as explained above. Although P’s Old Case did previously aver the 18% Funds were PRC Yunnan Tin’s share capital for the 18% Shares, the proposed amendments merely removed such positive case and remained silent on what was the true nature/treatment of the 18% Funds that was the very issue raised by Ds in the AD&C.
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§7(o)
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§7(o) – “In fact, prior to making the [SPA], [P] had orally related to representatives of [D2] …… the nature of the said sum of AUD16.3 million as being loan lent by
the [P] HK Parksong to PRC Yunnan Tin to be used as PRC Yunnan Tin’s investment for acquiring
to enable PRC Yunnan Tin to get 18% of its shares in HK Yunnan Tin ……”
P’s “old” plea that “the said sum of AUD 16.3 million” (ie the 18% Funds) was a “loan” by P (now said to be HK Parksong) to PRC Yunnan Tin was retained in P’s Draft. Such “old” plea was consistent with the Commonality that the 18% Funds injected by P / HK Parksong into HK Yunnan Tin was regarded as having been made on behalf of PRC Yunnan Tin (ie the “loan” that PRC Yunnan Tin had to “repay”, “reimburse” or “pay back” HK Parksong by way of the 16.3m Payment), but did not sit or hang together with P’s New Case under the 3rd Issue that it was a sale of the 18% Shares by P / HK Parksong to PRC Yunnan Tin against the latter’s promise to pay the price in the sum of AUD16,300,000 (ie the 16.3m Payment). There was no explanation why the Commonality pleaded in §7(o) was “to enable PRC Yunnan Tin to get the “[18% Shares]” under P’s New Case.
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§7(t)
§7(u)
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“(t) Consistent with the provisions of the [SPA] mentioned above, [P] had in his capacity as the sole director of HK Parksong signed
a resolution of HK Parksong dated 19th July 2010 stating the fact that the said sum of AUD16.3 million was indeed provided by [P] and hence the right of HK
Parksong against PRC Yunnan Tin on the said sum of AUD 16.3 million should belong to [P] and notices of assignment of debt would be sent to PRC Yunnan Tin and HK
Yunnan Tin (“HK Parksong resolution”).
(u) [P] had also on behalf of HK Parksong as the assignor executed an assignment dated 19th July 2010 with [P] as the assignee whereby HK Parksong assigned the said sum of AUD16.3 million to [P] (“the AUD 16.3 million assignment”).”
§§7(t)-7(u) were P’s “old” pleas by which P averred that the 19/7/10 Resolution/Assignment stated P provided “the said sum of AUD 16.3 million” (ie the 18% Funds), so “the right of HK Parksong against PRC Yunnan Tin” on “the said sum of AUD 16.3 million” (which appeared to be the 16.3m Payment rather than the 18% Funds) should belong to P. This suggested P’s provision of the 18% Funds (presumably by injection into HK Yunnan Tin through HK Parksong) was justification for assignment of HK Parksong’s right to the 16.3m Payment due from PRC Yunnan Tin. But such explanation could only have been consistent with the Commonality and P’s Old Case that the 18% Funds were regarded as having been injected into HK Yunnan Tin by P / HK Parksong on its behalf as share capital for financing PRC Yunnan Tin’s acquisition of the 18% Shares (which therefore gave rise to PRC Yunnan Tin’s obligation to reimburse or “pay back” P / HK Parksong), but inconsistent with P’s New Case that the 16.3m Payment was merely the outstanding price payable by PRC Yunnan Tin (as purchaser) to HK Parksong (as vendor) for the 18% Shares (such that any assignment by HK Parksong’s entitlement to P would be HK Parksong’s right to the outstanding price rather than repayment of loan receivable from HK Parksong).
Mr Li SC tried to explain this away by saying the assignment of the debt of AUD16,300,000 payable by PRC Yunnan Tin to HK Parksong (ie HK Parksong’s entitlement to the 16.3m Payment) was necessary for P to recoup payment from PRC Yunnan Tin and because“the said sum of AUD 16.3 million” was not meant to be loan to be assigned to D1 upon completion of the SPA. Such submissions did not answer the above point. After all, there was no dispute that PRC Yunnan Tin did not make any immediate payment, and would have to pay the 16.3m Payment out of future dividends to be declared in its favour by HK Yunnan Tin. P’s “old” plea (still retained in P’s Draft) that “said sum of AUD16.3 million” (ie the 18% Funds) was treated as a loan by HK Parksong to PRC Yunnan Tin was consistent with P’s Old Case based on the Commonality and P’s case on the 1st and 2nd Issues, and inconsistent with P’s New Case under the 3rd Issue which only had room for direct sale and purchase of shares against price payable.
When confronted with such difficulties, Mr Li SC submitted that the pleas in §§7(t)-7(u) on the 19/7/10 Resolution/Assignment did not require further elaboration/amendment on the meaning of the wordings therein because (a) it was for Ds to formulate their case on the purport/effect of the 19/7/10 Resolution/Assignment, and (b) P was only required to plead material facts, and whether such wordings would give rise to any finding that PRC Yunnan Tin subscribed to the 18% Funds previously invested by P / HK Parksong as loan to HK Yunnan Tin would be a matter of construction/interpretation of the relevant background documents at trial in the context of the relevant dealings and P’s New Case that the 16.3m Payment could only have been the price for the 18% Shares.
But it was P who chose to plead the 19/7/10 Resolution/Assignment. Moreover, (a) P did not just put forward averments in reply for he adopted such averments in his defence to Ds’ Counterclaims, and (b) without further elaboration P’s pleas as to the gist/contents of the 19/7/10 Resolution/Assignment did not sit or hang together with other parts of P’s Draft on P’s New Case (which P proposed to adopt) but was consistent with P’s Old Case (which P proposed to abandon), so it was incumbent upon P to properly plead his case clearly and precisely by giving enlightenment on how the matters §7(t)-§7(u) tie in with the rest of his pleadings on the New Case, and on how much of the Old Case he intended to relinquish.
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§7(z)(i)-(iii)
§23(b)
§31(d)
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“7.(z)(i) …… notwithstanding the wrong ledger entries …… [Ds] knew and accepted that the said sum of AUD16.3 million was owed to [P] by PRC Yunnan Tin and had nothing to do with the sale and purchase of the Shares and the said sum of AUD 16.3 million was not a debt due by HK Parksong and/or HK Yunnan Tin to [P] or PRC Yunnan Tin or other and/or to be assigned as shareholder’s loan
or loan as such to [D1] on the sale of [P’s] shares in HK Parksong.
(ii) Further or alternatively, by reason of the matters aforesaid, on a proper construction of the SPA …… in its context and/or as a matter of implied term based on the mutual intention of the parties, [P] and [D1] agreed that the said sum of AUD 16.3 million was not meant to be a shareholder’s loan or loan or sum of whatever nature to be assigned by [P] to [D1] under the SPA on completing the sale of [P’s] shares in HK Parksong to [D1].
23.(b) [P] repeats paragraphs 7 and 19(b) herein. There was never any agreement or understanding that the said sum of AUD 16.3 million would be part of the shareholder’s loan to be assigned by [P] to [D1] on the sale of HK Parksong’s shares by [P] to D1].
31.(d) In truth and in fact, by reason of the matters said in paragraph 7 herein, there was no loan of the said sum of AUD 16.3 million owed by HK Yunnan Tin whether to PRC Yunnan Tin or others and hence the assignment or shareholder’s loan to [D1] would not and should not have covered the said sum of AUD 16.3 million.”
These paragraphs seemed to aver “the said sum of AUD 16.3 million” (which appeared to be a reference to the 18% Funds) was not shareholder’s loan or loan
from any party to HK Yunnan Tin, sothere would not be any loan of AUD16,300,000 to be assigned to D1 upon completion of the SPA. This was consistent with P’s Old Case based on the Commonality that the 18% Funds were PRC Yunnan Tin’s share capital of its 18% Shares (which P claimed had no place in his New Case premised on a straightforward sale of the 18% Shares for the 16.3m Payment as price payable therefor), but inconsistent with the averments at §7(l)(iv)that the Funds (including the 18% Funds) for the Acquisition “had already been invested by [P] through HK Yunnan Tin” before making the 18/7/10 Agreement.
P’s New Case purported to resile from P’s stance on the 1st Issue premised on the Commonality, so question arose as to what the true nature/treatment of the 18% Funds was if P claimed it was neither shareholder loan from
any party nor share capital at all, and as explained in paragraph 82 above, there would be ramifacications on the rights and liabilities of the parties upon proper identification of the true nature of the 18% Funds (which was not a mere matter of accounting treatment in HK Yunnan Tin’s books/accounts). Ds by the AD&C had put this matter squarely in issue, but P purported to sidestep this by addressing on the 16.3m Payment on the 3rd Issue without direct engagement with Ds and/or by declining to articulate his “new” stance on this 1st Issue.
Mr Li SC argued how the Funds (including the 18% Funds) were booked in HK Yunnan Tin’s accounts before the 18/7/10 Agreement was neither here nor there since the 18% shares were issued at par value of HK$1 each “and [PRC Yunnan Tin] did not make any advancement to [HK Yunnan Tin]”. But as seen in paragraphs 78-79 and 84-85 above and in the above paragraph, this was not a mere book-keeping issue but one of substance that had financial/other consequences depending on what was the true nature of the 18% Funds. But P’s cryptic approach that camouflaged his “new” stance on the 18% Funds did not help in understanding the precise scope of dispute between the parties.
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§21(d)
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“As to paragraphs 26, 27, 28 and 29 of the [AD&C], [P] says as follows:- …… the correct position and understanding of [P] and [Ds] in making the SPA …… is that the said sum of AUD 16.3 million was
treated as money advanced by [P] to be used as capital payment by
lent to PRC Yunnan Tin for having which it had to repay in consideration of having 18% of the shares of HK Yunnan Tin
and the money was channeled through HK Parksong to HK Yunnan Tin for such purpose.”
In §7(a) P deleted previous reference to “[the] said sum of AUD16.3 million” (ie the 18% Funds) as loan advanced by P in the name of HK Parksong to PRC Yunnan Tin for the latter’s acquisition of the 18% Shares, but the proposed amendments in §21(d) still averred “the said sum of AUD16.3 million” (ie the 18% Funds) was treated as money “lent to” PRC Yunnan Tin which it had to “repay” for having the 18% Shares. The proposed new averments in §21(d) were consistent with the Commonality but inconsistent with P’s New Case of a sale of the 18% Shares by HK Parksong against PRC Yunnan Tin’s promise to pay the 16.3m Payment as price for such shares (and not any promise “to repay” a sum of AUD16,300,000 “lent to” PRC Yunnan Tin).
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§35(b)
§40(b)
§41(b)
§43(b)
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“35.(b) The aforesaid un-audited balance sheet of HK Yunnan Tin did not take into account the said arrangement and treatment which indeed was not yet finalized by 30th June 2010.
40.(b) [P] repeats paragraphs 7(a)-(e), 28(d) and 36(b) herein and further says that the un-audited ledgers and accounts sent by [Zhou] to [Fu] failed to account for and reflect the said arrangement and treatment.
41.(b) [P] repeats paragraphs 7(a) to (ep), 28(d) and 36(b) herein and further says that the aforesaid un-audited ledgers and accounts sent by [Zhou] to [Fu] failed to account for and reflect the said arrangement and treatment.
43.(b) [P] repeats paragraphs 7(a) to (ep), 28(d), 36(b) and 42(g) herein
and further says that the aforesaid balance sheet sent by [Zhou] to [Fu] failed to account for and reflect the said arrangement and treatment.”
In §28 “the said arrangement and treatment” was defined as (a) P’s repayment of the loan of USD19,485,000 to PRC Yunnan Tin, (b) PRC Yunnan Tin’s acquisition of the 18% Shares by transferring 27% shareholding in HK Yunnan Tin to HK Parksong “in consideration of which PRC Yunnan Tin had to pay the said sum of AUD 16.3 million” (which seemed to refer to the 16.3m Payment), and (c) “the said sum of AUD 16.3 million” was to be regarded as “a loan lent by him to PRC Yunnan Tin because that was the consideration payable by PRC Yunnan Tin to [P] for acquiring the said 1,800 shares and no actual money was paid by PRC Yunnan Tin to HK Yunnan Tin of such acquisition”. It was rather unclear whether “the said sum of AUD 16.3 million” in (c) above that was regarded as “a loan lent by [P] to PRC Yunnan Tin” was the 18% Funds or the 16.3m Payment. But I note the reference to the “loan” was under P’s “old” plea in the AR&RADAC which was consistent with the Commonality in respect of the 18% Funds, and the “arrangement and treatment” as explained in paragraph 14 of P’s witness statement filed on 15 November 2012 and in the Zhou 1st Supp Stmt essentially referred to the 18% Funds (see footnote 63 above).
Mr Li SC submitted the A/C Info that stated the loans were owed by HK Yunnan Tin to P, HK Parksong and/or PRC Yunnan Tin were “wrong entries” as they should not have included the sum of AUD16,300,000, but such stance was not inconsistent with P’s case that no sum had been advanced by PRC Yunnan Tin to HK Yunnan Tin whether by way of capital or loan.
Taking the last point first, it was never Ds’ case that PRC Yunnan Tin of itself injected investment funds into HK Yunnan Tin. Mr Chan SC submitted (and I agree) these paragraphs in P’s Draft meant (a) “the said arrangement and treatment” between PRC Yunnan Tin and HK Parksong that were not yet finalised in June 2010 were eventually finalised and set out in the 16/7/10 Minutes and 18/7/10 Agreement in July 2010 that recorded the earlier communications between P’s and Ds’ representatives in/about June 2010, and (b) “the said arrangement and treatment” if taken into account would have effect on HK Yunnan Tin’s accounts. But under P’s New Case, the arrangement or understanding between P / HK Parksong (as vendor) and PRC Yunnan Tin (as purchaser) only concerned the outstanding price for the 18% Shares (ie the 16.3m Payment), and it was difficult to see how such arrangement or understanding under P’s New Case would have any effect on HK Yunnan Tin’s accounts or on the A/C Info,and on such premise it was also difficult to understand why the non-finalisation of “the said arrangement and treatment” by 30 June 2010 could have been an explanation for the state of HK Yunnan Tin’s accounts.
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§42(g)
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“By the date of the [4/3/11 Assignments], the exact amount to be assigned to [D1] had not been ascertained and in any event in accordance with the parties’ understanding the same would not include the said sum of AUD 16.3 million by reason of the said arrangement and treatment and indeed by reason of the matters said in paragraphs 7(g) to (n) herein the said sum of AUD 16.3 million had already been assigned to [P] personally and not meant to be part of the shareholder’s loan to be assigned to [D1].”
§42(g) averred that “the said sum of AUD16.3 million” was not part of the amounts to be assigned to D1 under the 4/3/11 Assignments (ie debts due from HK Yunnan Tin and/or HK Parksong to P) because “the said sum of AUD 16.3 million” (ie the 16.3m Payment) had already been assigned to P personally (presumably by the 19/7/10 Assignment). If the former “said sum of AUD 16.3 million” referred to the 18% Funds, it was difficult to understand why the assignment of HK Parksong’s entitlement to the price for the 18% Shares under P’s New Case under the 3rd Issue had any bearing on P’s claim that the 18% Funds were not due from HK Yunnan Tin to P. If the former “the said sum of AUD 16.3 million” referred to the 16.3m Payment (ie the price for the 18% Shares under P’s New Case under the 3rd Issue), it would be a sum payable by PRC Yunnan Tin and not payable by HK Yunnan Tin or HK Parksong, so it could not have been assigned under the 4/3/11 Assignments anyway.
Anyway, such averments did not sit well with P’s New Case under the 3rd Issue. Whether the exact amount to be assigned to D1 under the 4/3/11 Assignments had been ascertained or not would be irrelevant to P’s New Case of a mere sale and purchase of the 18% Shares between PRC Yunnan Tin and HK Parksong, and the 16.3m Payment payable by PRC Yunnan Tin to P / HK Parksong and the 19/7/10 Assignment of HK Parksong’s right to the 16.3m Payment to P under P’s New Case would be extraneous to HK Yunnan Tin’s accounts and/or the 1st Issue with which Ds were concerned. Mr Chan SC complained of a confusing conflation of the 1st and 3rd Issues and asked rhetorically why “the said arrangement and treatment”between P / HK Parksong and PRC Yunnan Tin under P’s New Case for under the 3rd Issue would be pertinent to any assignment of debts that HK Yunnan Tin owed to P upon completion of the SPA.
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§46(b)
§48
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“46.(b) Insofar as [Ds] allege that they were surprised by the information that the said sum of AUD 16.3 million was PRC Yunnan Tin’s capital investment in HK Yunnan Tin for its 18% shares, the same is denied. [P] repeats paragraphs 7, 28(d), 36(b) and 42(g) herein.
48. Save that there was a letter dated 26th August 2011 from Zhang Guo Qing and Chen Rong
as directors of HK Yunnan Tin to the board of HK Yunnan Tin (“the 26/8/2011 letter”) referring to their discussions with Cheng Hau Yan and [P] as well as [Zhou] and
stating the position pointing out the mistake in
that the accounts of HK Yunnan Tin as at 4th March 2011
in that it had wrongly recorded the said sum of AUD 16.3 million
capital investment as loan when such should indeed be capital with PRC Yunnan Tin and HK Parksong having 18% and 82% shares of HK Yunnan Tin and so the board should have corrected the mistakes, paragraph 60 of the [AD&C] is not admitted.”
In §46(b), P alleged Ds should not be surprised by information that the 18% Funds were PRC Yunnan Tin’s capital investment in HK Yunnan Tin for its 18% Shares. §48 of P’s Draft also purported to refer to PRC Yunnan Tin’s position that the 18% Funds should be capital in HK Yunnan Tin. There was no suggestion by P in both of these pleas (which were consistent with P’s Old Case) that the position taken by PRC Yunnan Tin was wrong. Mr Li SC suggested §48 only recited the contents of the letter dated 26 August 2011, and there was no need for P to plead the correct position vis-à-vis the pleaded contents of such letter that were incorrect. He further reminded the relevant matter was the true nature of the agreement/transaction rather than how a sum was booked in HK Yunnan Tin’s accounts (which would be matter of evidence), so it sufficed for P to plead that it was wrong for the accounts to include the 18% Funds as part of the debt allegedly due from HK Yunnan Tin to P or HK Parksong or PRC Yunnan Tin.
In my view, such plea still left a lacuna in proper understanding as to the true nature of the 18% Funds if, according to P’s New Case, they were neither share capital for the 18% Shares at all nor loan due to P, HK Parksong and/or PRC Yunnan Tin (being all of the involved parties). This would leave Ds quite clueless as to the real and exact nature of agreement/transaction or to what extent P agreed or disagreed with PRC Yunnan Tin’s stance. It flied against the rationale of pleadings (which was to elicit the real question in controversy between the parties) for a party to simply plead a fact inconsistent with his case without letting the other side know what his position/stance in relation to such fact was. Is he relying on such fact that had been pleaded? If not, what was his stance? This was precisely the sort of situation in which the other party would be embarrassed in putting forward any proper plea in response. This was more significant in the present context as the purported effect of the proposed amendments was for P to resile from his Old Case and replace it with his New Case, and Ds were entitled to have a clear picture by way of pleadings as to what aspects of the Old Case were to be abandoned and what the precise scope of the New Case would be.
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[1] which were quickly dealt with as Mr Li SC helpfully advised he did not have strong objection to the reliefs sought in such summonses although P would not consent to the same
[2] ie the subject matter of the proposed amendments in P’s and Ds’ Drafts and the underlying basis for the Joinder and Amended Joinder Summonses
[3] such abbreviation may (as appropriate) include any or all of the Supplemental Deeds referred to in paragraph 31 below
[4] see paragraph 25 of P’s witness statement filed on 15 November 2012 and footnote 37 below
[5] PRC Yunnan Tin and HK Parksong by the 82% Shares and 18% Shares respectively and indirectly held a 9% and 41% stake in BMTJV via HK Yunnan Tin and Australia Parksong
[6] it was defined in the SPA as the account payable and owing by PRC Yunnan Tin to HK Parksong that remained outstanding and unpaid as at the Completion Date (ie 4 March 2011)
[7] means HK Parksong, HK Yunnan Tin, Australia Parksong, BMTJV Manager and BMTJV (see clause 1.01 of the SPA)
[8] means the total amount of the liabilities incurred up to and including the Completion Date by the Review Group, including, but not limited to, all long term and current liabilities, all long term and current capital commitment, if any, and all account payables, but excluding (a) all the outstanding shareholder’s loans owing by HK Parksong to P on the condition that those shareholder’s loans shall be assigned to D1 on the Completion Date; (b) all the outstanding loans owing by HK Parksong to D1 or its associate, if any or (c) derivative financial instruments, and for the avoidance of doubt, all the payables (including the operating expenses and/or cash call) payable by the Review Group to BMTJV Manager shall be apportioned (clause 5.05(b) of the SPA as per clause 6 of the 2nd Supplemental Deed)
[9] means HK Parksong, HK Yunnan Tin, Australia Parksong and YT Parksong Australia Management Pty Ltd (but excluding BMTJV Manager and BMTJV)
[10] means the Completion Accounts as audited by HK Parksong’s auditors (clause 5.05(a) of the SPA as per clause 6 of the 2nd Supplemental Deed), and “Completion Accounts” means the unaudited profit and loss accounts and balance sheet of each of the Review Group prepared from the Accounts date up to the Completion Date in accordance with the applicable laws and the Hong Kong Financial Reporting Standards and certified by the sole director of HK Parksong to represent a true and fair view of the assets and liabilities and profit and loss of each of the companies in the Review Group as at the Completion Date (clause 1.01 of the SPA as per clause 2 of the 2nd Supplemental Deed)
[11] means the bank balances and cash, the account receivables and other receivables owing to the Review Group (including, for the avoidance of doubt, any receivables arising from the sale of the tin concentrates produced on or before the Completion Date no matter whether the sale is conducted thereafter) but excluding derivative financial instruments, deferred tax assets and deposits paid to all the Australian government authorities, if any, up to and including the Completion Date (clause 5.05(c) of the SPA as per clause 6 of the 2nd Supplemental Deed)
[12] D1 paid the purchase price by cash (HK$280,000,000) and by convertible bonds to be issued by Vitar
[13] ie amounts due to P as shown in the accounts of HK Parksong and HK Yunnan Tin the exact amount of which would have to be audited by D1’s auditor and shown in the Audited (the Review Group) Accounts
[14] (2013) 16 HKCFAR 632, 645-646
[15] (2013) 16 HKCFAR 663, 672-674
[16] see Order 20 rules 5(1) and 8(1) of the Rules of the High Court and Hong Kong Civil Procedure 2016 Vol 1 para 20/8/6 at pp 485-486
[17] HCA416/2003 (unreported, 14 August 2012) paras 14 and 16
[18] [2013] 2 HKLRD 73, 81
[19] see Li Shiu To at para 16
[20] see Swain-Mason & ors v Mills & Reeve LLP [2011] 1 WLR 2735, 2750
[21] [1995] 3 HKC 56, 61
[22] CACV59/1985 (unreported, 13 June 1985)
[23] see Hong Kong Civil Procedure 2016 Vol 1 para 20/8/28 at p 496
[24] [2011] 1 WLR 2735
[25] see clause 7.01 of the SPA
[26] see clause 5.03 of the SPA
[27] see clause 5.02 of the SPA
[28] see paragraph 18 of Mr Li SC’s written submissions dated 16 December 2014 which suggested that as late as December 2014 P’s understanding was that the 18% Funds (referred in paragraph 67 below) HK Parksong injected into HK Yunnan Tin was regarded as having been made on behalf of PRC Yunnan Tin (ie the Commonality in paragraph 79 below)
[29] PRC Yunnan Tin was to repay, reimburse or “pay back” HK Parksong for the 18% Funds in paragraph 67 below that HK Parksong previously injected into HK Yunnan Tin but later by the 16/7/10 Minutes and 18/7/10 Agreement were regarded as having been made on behalf of HK Parksong, and HK Parksong by the 19/7/10 Assignment assigned its entitlement to such repayment, reimbursement or “pay back” to P
[30] mainly found in paragraphs 7(a)-(o), 7(r), 7(z), 30(a)-(b), 31(d) and 32(b) of P’s Draft (as explained in paragraphs 11-12 of the P 5th Aff), which proposed amendments P claimed were supported by the existing statement/affidavit evidence and the discovered documents, so they would not cause any surprise or prejudice to Ds
[31] P’s Draft purported to plead that PRC Yunnan Tin promised to pay AUD16,300,000 to HK Parksong as price for purchasing the 18% Shares (ie the 16.3m Payment under the 3rd Issue in paragraphs 72(g) and 91 below), but the AR&RADAC averred the sum of AUD16,300,000 injected into HK Yunnan Tin (ie the 18% Funds under the 1st Issue in paragraph 80 below) was PRC Yunnan Tin’s share capital in HK Yunnan Tin for the 18% Shares
[32] see 25/7/09 Memorandum and paragraph 13 above
[33] see 25/7/09 1st Undertaking and paragraph 14 above
[34] see clauses 1-3 of the 9/9/09 Agreement and paragraph 17 above
[35] see clauses 1 and 3 of 9/9/09 Supplemental Agreement and paragraph 18 above
[36] see clauses 1-5 of the 11/2/10 Advancement Agreement and paragraph 21 above
[37] see clause 4 of the 16/7/10 Minutes, clause 1 of the 18/7/10 Agreement and paragraphs 12-13 of the P’s affirmation filed on 12 July 2013 in answer to Ds’ Interrogatories served on 14 June 2013
[38] see clause 1 of the 16/7/10 Minutes and paragraph 24 above
[39] see sum of about HK$590,000,000 in the A/C Info P furnished to Ds in the 1st Schedule, and Vitar’s circular notice of EGM in paragraph 32 above
[40] see 16/7/10 Minutes and 18/7/10 Agreement and paragraphs 24-25 above
[41] see 19/7/10 Resolution and paragraph 26 above
[42] see clause 2 of the 16/7/10 Minutes and paragraph 24 above
[43] see clause 2 of 18/7/10 Agreement and transfer of shares on 19 July 2010 (see also and paragraphs 25 and 29 above)
[44] see clause 2 of 18/7/10 Agreement and paragraph 25 above
[45] see clause 2 of the 18/7/10 Agreement and paragraph 25 above
[46] see clause 1 of the 19/7/10 Assignment and paragraph 27 above
[47] 8th ed (2011) para 7.2 at pp 193-194
[48] see the 4/3/11 Assignments and paragraph 33 above
[49] this was confirmed in paragraph 13 of the Zhou 1st Supp Stmt that stated “there was no loan owed by HK Yunnan Tin to PRC Yunnan Tin because the funds as provided by PRC Yunnan Tin to HK Yunnan Tin (made through [P] and HK Parksong) [ie the 18% Funds] was in the nature of ‘capital investment’ instead of a ‘loan’” (my emphasis), and in paragraph 56 of P’s witness statement filed on 15 November 2012 that stated “[it] was the understanding of PRC Yunnan Tin and [P] that the said sum of AUD16.3 million as lent to PRC Yunnan Tin by me [ie the 18% Funds] should be treated and booked as PRC Yunnan Tin’s share capital in the accounts of HK Yunnan Tin” (my emphasis)
[50] the 18% Funds were embedded in and carved out of the Funds, and regarded as having been injected into HK Yunnan Tin by PRC Yunnan Tin such that HK Yunnan Tin was liable to repay PRC Yunnan Tin
[51] also seen in paragraph 21 of the P 3rd Aff, paragraph 56 of P’s witness statement filed on 15 November 2012, and paragraph 13 of the Zhou 1st Supp Stmt
[52] Mr Chan SC also queried why PRC Yunnan Tin would have agreed to such lopsided arrangement by capitalising the 18% Funds but treating the 82% Funds as shareholder loan, and thereby creating such imbalance of rights that PRC Yunnan Tin could not look to any future dividends from HK Yunnan Tin to settle the 16.3m Payment to P / HK Parksong until after all loans due from HK Yunnan Tin to P / HK Parksong (now to D1) had been repaid
[53] see clause 1 of the 16/7/10 Minutes and paragraph 24 above
[54] see paragraph 13(9) of the P’s affirmation filed on 12 July 2013 in answer to Ds’ Interrogatories served on 14 June 2013 and corresponding instrument of transfer and bought and sold notes dated 19 July 2010 (see paragraph 29 above)
[55] see paragraph 23 above
[56] being “[PRC Yunnan Tin]同意實際出資承擔[HK Parksong]通過[HK Yunnan Tin]收購藍石公司雷尼森項目50%資產的18%的款項,雙方確認[PRC Yunnan Tin]據此需承擔的金額為澳幣1630萬元”
[57] being “[PRC Yunnan Tin]同意實際出資,並承擔[HK Parksong]通過[HK Yunnan Tin]收購收購藍石公司雷尼森項目50%資產的18%的款項(即澳大利亞元1630 萬元)”
[58] by the 19/7/10 Assignment HK Parksong assigned to P its entitlement to the 16.3m Payment due from PRC Yunnan Tin, and eventually P as assignee further assigned his entitlement to Xu and Chang who later obtained judgment against PRC Yunnan Tin for payment of the 16.3m Payment with interest and costs in the PRC proceedings
[59] see paragraphs 7(b), 19(b), 21(d), 23(c) and 47(b) of the AR&RADAC
[60] whereupon PRC Yunnan Tin promised to pay the 16.3m Payment to P / HK Parksong from future dividends to be declared in favour of PRC Yunnan Tin by HK Yunnan Tin
[61] CACV233/2013 (unreported, 25 June 2014)
[62] the Zhou 1st Supp Stmt alleged HK$135,824,179.37 had been omitted so the aggregate total liabilities should be HK$716,420,636.93
[63] P claimed such arrangement/treatment included (a) P would repay US$19,485,000 that he / HK Parksong borrowed from PRC Yunnan Tin to finance the Acquisition, (b) PRC Yunnan Tin’s acquisition of the 18% Shares would be financed by an advance/loan by P through HK Parksong (ie the 18% Funds invested in HK Yunnan Tin and regarded as PRC Yunnan Tin’s share capital), (c) P would sell his shares in HK Parksong for the purchaser to acquire control over the 82% Shares (and via HK Yunnan Tin 41% stake in BMTJV), (d) P borrowed from SHK for the Acquisition, (e) the cash component of the purchase price for HK Parksong’s shares would be insufficient to repay SHK and PRC Yunnan Tin so P further borrowed from a third party who would be repaid by convertible bonds to be issued by Vitar
[64] the Zhou 1st Supp Stmt claimed inter alia that final adjustments to the balance sheets / statements of cashflow were necessary, so the amounts therein could not be taken as and/or relied upon as correct sums owed by HK Yunnan Tin, hence Zhou/P would not have represented that shareholder loans of HK$590,000,000 would be assigned to D1
[65] this suggested the Funds (about HK$590,000,000) were booked in HK Yunnan Tin’s loan account as shareholder loans from P/ HK Parksong (82%) and from PRC Yunnan Tin (18%)
[66] the revised balance sheet maintained P / HK Parksong injected the Funds into HK Yunnan Tin as shareholder loans (including HK$115,730,000 due from HK Yunnan Tin to HK Parksong) even though the AR&RADAC claimed the 18% Funds were PRC Yunnan Tin’s share capital for its 18% Shares
[67] the Zhou 1st Supp Stmt claimed (a) Zhou received the original balance sheet as of 30 September 2011 from the accountants that correctly stated the amounts due from HK Yunnan Tin to P / HK Parksong but wrongly recorded what was owed to PRC Yunnan Tin, (b) Zhou told the accountants to rectify the accounts to show P advanced HK$115,730,000 (AUD16,300,000) on behalf of PRC Yunnan Tin as its capital investment for the 18% Shares so it should be “booked in favour of HK Parksong instead of PRC Yunnan Tin”, (c) the revised balance sheet showed HK$115,730,000 (AUD16,300,000) was booked as part of the shareholder loan HK Yunnan Tin owed to HK Parksong (HK$378,617,000) to arrive at a total sum of HK$494,347,000, and (d) when Zhou discovered both original and revised balance sheets were sent to Fu he notified Fu/Vitar there were some mistakes which he would rectify/resend the following day
[68] the Zhou 1st Supp Stmt claimed Zhou liaised with the accountants to prepare a further amended version of the accounts, and on 14 October 2010 he sent a clean version of the revised balance sheet as of 30 September 2010 to Fu
[69] the Zhou 1st Supp Stmt asserted the A/C Info he sent to Fu after completion on 4 March 2011 (eg the unaudited Completion Accounts sent on 17 March 2011) or the audit confirmations dated 15 April 2011 did not contain any entry/indication of any shareholder loan that HK Yunnan Tin owed to PRC Yunnan Tin, but he thought HK Parksong’s right to receive dividends under the 6/12/10 Supplement would be receivable by P so he asked the accountants to amend the entries (a) to reduce the loan due from HK Yunnan Tin to HK Parksong from HK$494,339,000 to HK$375,345,000 (ie discounting of HK$118,994,000 (AUD16,300,000)), and (b) to increase the loan due from HK Yunnan Tin to P from HK$98,814,000 to HK$217,737,000 (ie adding HK$118,994,000 (AUD16,300.000)), and he forwarded the amended financial statements to Fu on 17 March 2011
[70] the documents set out in paragraphs 27-29 of the AD&C
[71] the difference was HK$125,638,770 (ie the HK$ equivalent of AUD16,300,000 on 4 March 2011 at the exchange rate of AUD:HK$ of 1:7.7)
[72] the Zhou 1st Supp Stmt claimed the balance sheets (except the original balance sheet as of 30 September 2010 which Ds were not or ought not to rely upon) truthfully represented the fact there was no “loan” due from HK Yunnan Tin to PRC Yunnan Tin, so there was no “misrepresentation” to Ds who did not suffer any loss
[73] the Zhou 1st Supp Stmt claimed the “wrong entries” in the A/C Info were accounting mistakes, and at that time P/Zhou were unaware of any difference between a loan and the right to receive payment of dividends from HK Yunnan Tin, so the amount of “loan” due to P by HK Yunnan Tin should have been booked in the sum of around HK$98,800,000 instead of HK$217,737,000 shown in the unaudited Completion Accounts of 17 March 2011 and/or the Audited (the Review Group) Accounts of 22 June 2011
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