CHAN HON WAH v. TAM CHAK KEUNG AND ANOTHER

HCA 1006/2018

[2020] HKCFI 1150

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1006 OF 2018

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J U D G M E N T

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1.  The defendants (respectively, “D1” and “D2”) appeal from the order of Master Kate Li dated 26 February 2019, entering summary judgment for the plaintiff (“P”) in the sum of HK$3,100,000 plus interest and costs.

2.  The appeal is brought under Order 58 rule 1 of the RHC, and proceeds by way of re-hearing.

Background

3.  D1 and D2 (collectively, “Ds”) are husband and wife. Ds are the former 50% owners of a group of companies referred to as the Tamjai Samgor Group (the “Group”). The former owners of the other 50% share of the Group are Mr Tam Chak Kwan (“Mr Tam”, who is D1’s brother) and Ms Chan Suk Yee (“Ms Chan”, who is Mr Tam’s wife), (collectively, the “Tams”).

4.  Ds and the Tams will be referred to collectively as the “Former Owners”. 

5.  The Group, through its various companies, owns and operates a chain of restaurants in Hong Kong, and owns certain trademarks[1].

6.  From August 2015 until his retirement in June 2018, P was employed as the Chief Executive Officer (“CEO”) of Best New Management Limited (“BNML”), one of the Group’s operating subsidiaries.

7.  Around June 2017, a Japanese company (“Toridoll”) expressed interest in acquiring from the Former Owners the restaurant business and/or the Group. 

8.  P’s claim arises from an one-page agreement written in Chinese and dated 22 June 2017 (the “Agreement”), entered into between the Tams (as Party A), Ds (as Party B) and P (as Party C). The detailed terms of the Agreement are set out below, but in short it provides for:(i) P’s participation in the project to sell the Group to a third party; and (ii) payment from the Former Owners to P of certain remuneration and bonus upon successful sale of the Group.

9.  It is common ground that the Group was sold to Toridoll for a consideration of HK$1,120,000,000, pursuant to a Stock Purchase Agreement dated 30 November 2017. Completion took place on 31 January 2018, and the Former Owners received the said consideration.

10.  P claims that given the successful sale of the Group and quantum of consideration, a sum of HK$6,200,000 was due to him under the Agreement. Of this, P was paid HK$3,100,000 by the Tams, and in these proceedings claimed the remainder from Ds.

11.  Ds’ defences are summarised at §§16 to 18 below.

Principles

12.  Before the learned Master, P applied for and obtained summary judgment under Order 14 of the RHC.

13.  The principles applicable on an application for summary judgment are well-known: see Hong Kong Civil procedure 2020 at §§14/4/1 to 14/4/16A. I will not repeat them.

Provisions of the Agreement

14.  The relevant provisions of the Agreement are as follows[2].

“PROJECT: Party A and Party B each own 50% of the shareholding in the Tamjai Samgor Group, totalling 100% of its shareholding together with the relevant registered trademark (defined hereinafter as the ‘Common Assets’).

1. Party A and Party B together currently intend to sell the aforesaid Common Assets to an independent third party (this sale of assets being defined hereunder as the ‘Project’).

2. Party C is currently employed as the Chief Executive Officer of the Tamjai Samgor Group. Both Party A and Party B agree to allow Party C to participate in the Project on top of his current employment, to be responsible for the giving of professional advice, and to assist and to deal with tasks relating to the Project.

3. If the Project can be successfully completed, including the successful completion of the sale of the Common Assets whether in its entirety (i.e. 100%) or partly (i.e. less than 100%), Party A and Party B agree to pay Party C HK$4,000,000 as remuneration. Furthermore, if the transaction amount (computed by reference to 100% shareholding) reaches HK$950,000,000 or above, there would be additional bonus. The aforesaid bonus as agreed by Party A and Party B is calculated according to the following method:

Transaction Amount (HK$)	Bonus (HK$)	Bonus in total (HK$)
950,000,000	+500,000	500,000
1,000,000,000	another +500,000	1,000,000
1,050,000,000	another +600,000	1,600,000
1,100,000,000	another +600,000	2,200,000
1,150,000,000	another +700,000	2,900,000
1,200,000,000	another +700,000	3,600,000

4. If Party A and Party B eventually only sell less than 100% of their shareholding, Party C’s remuneration and bonus will still be computed on the basis that the transaction involved 100% of their shareholding …”.

Alleged Defence(s)

15.  Ds ran various lines of defence in their pleaded Defence and affidavit evidence, and further provided a draft Amended Defence[3].

16.  At the hearing, Mr Benjamin Chain (for Ds) was helpfully clear as to what defence was relied upon, namely, Ds’ contentions that:  

(1)  On true construction of the Agreement, the Former Owners’ payment obligation in clause 3, is conditional on P’s performance of obligations under clause 2.

(2)  P rendered no performance under clause 2 (alternatively rendered defective/unsatisfactory performance), such that the payment obligation under clause 3 never arose. 

17.  Accordingly, the first issue is whether Ds’ construction of the Agreement is correct or at least maintainable for the purposes of resisting summary judgment. The second issue is whether, if so, Ds raise a believable/credible case as to deficiencies in P’s performance under clause 2 of the Agreement[4].

18.  On the second of these issues, Ds’ complaints about P’s performance were put in various ways in the pleadings and evidence. The principal complaints included that:  

(1)  After signing the Agreement, P contributed nothing or virtually nothing towards the intended sale of the Group (or nothing beyond his ordinary duties as CEO of BNML);

(2)  On 7 July 2017, Toridoll indicated in writing a non-binding offer of HK$1 billion for the acquisition, which P advised the Former Owners to accept;

(3)  In August 2017, and due to P’s inadequate performance, Deloitte & Touche Corporate Finance Limited (“Deloitte”) was retained in connection with the intended sale of the Group; 

(4)  It was due to the efforts of Deloitte, rather than P (including by Deloitte introducing rival potential buyers) that Toridoll increased its offer to HK$1.12 billion, around 11 August 2017;

(5)  In broad terms, P was criticised for lack of contribution and for advising the Former Owners to accept a lower offer; whereas Deloitte was credited with achieving the eventual higher sale price of HK$1.12 billion.

19.  Mr Martin Ho, for P, leveled opposing arguments on both issues. On the first issue, he argued that on correct construction of the Agreement, P’s entitlement to be paid arose simply from the successful sale of the Group at one of the prices specified in the Agreement, and was not contingent on P performing any obligations under clause 2. Mr Ho submitted that this was sufficient to dispose of the appeal.

20.  On the second issue, and as a fallback position, Mr Ho submitted that Ds’ complaints about P’s performance were in any event not credible or believable in light of the objective evidence, such that no triable issue arose. 

First Issue: Construction of the Agreement

21.  As noted above, Ds argued that the payment obligations in clause 3 are conditional on P’s performance under clause 2. Mr Chain put this in terms of a “promissory condition”, as described in Treitel, The Law of Contract (14^th Ed) at §17-016, meaning a condition relating to one party’s performance of a contractual obligation.

22.  Conversely, Mr Ho argued that the Agreement is unambiguous. The conditions which trigger P’s entitlement to be paid are expressly set out in clause 3, and there is no basis to impose a further condition of P’s compliance with clause 2.

23.  The approach to contractual construction was recently summarised by the Court of Appeal in Maeda Kensetsu Kogyo Kabushiki Kaisha v Bauer Hong Kong Ltd [2020] HKCA 158 at §29 per Kwan VP. In construing the Agreement, I have regard to the well-established principles there set out.

24.  On an application of those principles, I agree with Mr Ho on the construction point.

25.  First, I consider the meaning of the relevant wording in clauses 2 and 3, to be clear. Clause 3 expressly sets out the conditions which must be satisfied in order to trigger the payment obligations therein, namely, successful completion of the Project, and the quantum of consideration achieved. On the plain meaning of the wording used, clause 3 simply does not contain the further condition for which Ds contend. If the parties had intended to impose such an additional condition precedent to P’s entitlement to payment, they could have expressly so provided, but they did not.

26.  In other words, I consider Ds’ position to be inconsistent with the plain wording of the Agreement, and in effect an attempt to depart from the bargain that was struck.

27.  Second, Mr Chain argued that on P’s construction, the Agreement is unworkable since it enables P to obtain payment irrespective of non-performance or breach under clause 2.

28.  I do not accept this. On P’s construction of the Agreement, if P acted in breach of any obligations contained in clause 2, the Former Owners would have potential remedies including: (i) in the event of a repudiatory breach, electing to accept P’s repudiation and terminate the Agreement; and (ii) in the event of a non-repudiatory breach causing loss to the Former Owners, claiming damages.

29.  Mr Chain confirmed that, though it was part of Ds’ case that P breached clause 2 (by non-performance or inadequate performance), it was not part of Ds’ case that P was in repudiatory breach leading to termination of the Agreement[5].

30.  Third, Mr Chain prayed in aid the context of the Agreement and all the background facts. He argued that the process of construction requires the court to take into account all the factual background leading up to and context of the Agreement, and that on this point there were significant differences between the parties’ factual accounts. Such factual differences could only be resolved at trial, and accordingly, debate as to the correct construction of the Agreement could not properly resolved under a summary procedure. 

31.  In this regard, the alleged factual disputes as to context cited by Ds, went to the genesis of the Agreement. Mr Chain argued that: (i) P’s case was that Ds approached him prior to the Agreement to discuss P’s retirement plan and offer him an incentive for retirement planning; (ii) in contrast, Ds’ case was that P had asked for and obtained the Agreement on the basis of various representations said to have been made by P as to his skill and experience relevant to negotiations with Toridoll[6]. Mr Chain further argued that P was already well paid as CEO of BNML, and that at the date of the Agreement, there was considerable time before P was due to retire.

32.  In this case, I do not think that there is a need to resolve these alleged factual differences in order to construe the Agreement, because I do not think that they alter the result as to its correct construction. In other words, even assuming these factual points in Ds’ favour, I would find for P on the construction point. Accordingly, the construction point can be properly resolved within the summary judgment procedure.

33.  Fourth, Mr Chain argued that since the contract was drafted by P (Ds allege), any ambiguity should be resolved in Ds’ favour. However, since I do not think that the contractual wording is ambiguous, this principle is not engaged.

34.  Fifth, Mr Chain relied on the concept of an “entire” obligation, referred to in Chitty on Contracts (32^nd Ed) at §§21-028 to 21‑031 & 24-045, and Treitel (supra) at §§17.031, 17.032 & 18-041. As discussed in those texts, an entire obligation is one under which complete performance by one party is a condition precedent to the liability of the other. In the case of such obligations, the partial (as opposed to complete) performance by the first party is insufficient to trigger the obligation of the second. On this basis, Mr Chain argued that only complete rather than partial performance of P’s obligations in clause 2, could trigger the payment obligations in clause 3.

35.  In my view, this line of argument does not take matters further. Whether a contract imposes an “entire” obligation in this sense, depends on the wording and construction of the particular contract. For the reasons already identified, I reject Ds argument on the construction of the Agreement[7].

36.  Sixth, I am fortified in reaching this conclusion by Mr Ho’s argument that where one party’s obligation in a contract is contingent on the happening of an event, the circumstances of that event should be identified unambiguously in the contract[8]. P’s construction, as contrasted with Ds’, has an advantage of certainty in ascertaining whether the conditions imposed for payment have arisen, and I am satisfied that that construction reflects the parties’ intentions, as objectively evinced to one another[9].

37.  Finally here, Ds cited Eminent Investments (Asia Pacific) Limited v DIO Corporation [2019] HKCA 606, in which the Court of Appeal held that on true construction of the relevant contract and having regard to its context, the plaintiff’s entitlement to a fee would be triggered not merely by the introduction to the defendant of a third party, but required an introduction which led to a transaction; such that the fee was not due on the facts. 

38.  The Court’s conclusion in Eminent Investment depended, of course, on the construction of the particular agreement in that case, in light of its wording and context. I take into account the dicta in that case,but nonetheless maintain the above conclusions on the construction of the Agreement which is before me. 

Second Issue: Alleged Non-performance under Clause 2

39.  For the above reasons, I reject Ds’ construction of the Agreement, and accept P’s. Since Ds’ defence as deployed at the hearing requires success on the construction issue, this is sufficient to dispose of the appeal.

40.  However, for completeness, below I give some consideration to the second issue, ie whether Ds in any event raised a believable case of non-performance or defective performance by P (or a triable issue on this point).

41.  In response to Ds’ complaints on his performance (summarised at §18 above), P’s main points included the following:

(1)  P’s evidence was that he had extensive involvement in the project during its various phases[10], including liaising with Toridoll, Deloitte and PC Woo & Co (who were appointed as legal advisor), attending numerous meetings, acting as coordinator, liaising with the Former Owners, and providing information. 

(2)  P’s evidence included copies of WhatsApp messages exchanged between himself and the Former Owners from June 2017 to January 2018, said to evidence his role and that he provided professional advice.

(3)  P further produced emails between himself, Deloitte and Toridoll, during July 2017, and November 2017 to January 2018, said to further evidence his involvement and contribution.

(4)  P relied on affidavit evidence from the Tams to the effect that they were very happy with his performance under the Agreement, hence they paid him their share of the sum due.

(5)  P provided letters from BNML signed by D2, dated February 2016, January 2017, and January 2018, awarding P bonuses (as CEO of BNML) in recognition of effort; and argued that there was no contemporaneous document indicating any dissatisfaction by Ds with P’s performance under the Agreement, prior to the Defence in these proceedings. 

(6)  P relied on shifts in Ds’ pleaded defence. Notably, the original Defence pleaded that Ds had expressly instructed P of their intention to sell at a price no less than HK$1.2 billion, which P said was inconsistent with the terms of the Agreement offering P bonus payments at lower sale prices. In addition, the original Defence complained that P failed to retain or consider retaining a financial advisor, which was said to be inconsistent with the revised complaint that due to P’s defective performance, it was necessary to retain Deloitte. 

(7)  P disputed that Deliotte was appointed due to any defective performance by P, arguing that a transaction of this magnitude would plainly require a professional financial adviser such as Deliotte. P further disputed that Deloitte fell to be solely credited with Toridoll’s increased offer, whilst maintaining that this was in any event irrelevant.

42.  At the hearing, I sought further clarification as to precisely what was Ds’ case on P’s alleged non-performance. Mr Chain explained that: (i) Ds accepted that after the Agreement, P had some involvement in the project (as is plainly apparent from the documents); (ii) Ds maintained that nothing P did qualified as “professional advice”, and hence maintained an argument of non-performance under clause 2; (iii) Ds further argued that any performance under clause 2 was defective/unsatisfactory in quality; (iv) Ds argued that all or many of the things P did would in any event have been required by him under his ordinary duties as CEO of BNML.

43.  As to the second of these points, I accept Mr Ho’s submission that it is incredible for Ds to assert that P rendered no performance at all under clause 2, or that nothing that he did after the Agreement amounted to “professional advice”. There is no triable issue on this point.

(1)  Ds’ position here is plainly inconsistent with the WhatsApp messages and emails referred to above. These show substantial participation by P in various aspects of the project in at least the capacity as a coordinator for the Former Owners’ benefit, and further, quite a few examples of P expressly rendering advice or opinion to the Former Owners on aspects of the project[11].

(2)  Ds’ position is also directly contrary to Ds’ own pleaded complaint that P “advised that the offer of $1 billion was acceptable or represented the highest price obtainable, which was bad, unprofessional and was rendered without any or any sufficient basis”[12].

44.  As to the third of these points, (ie the complaint of performance by P which was defective/unsatisfactory in quality), there is some force in Mr Ho’s submissions on the merits, particularly given the notable absence of any contemporaneous complaint (for example in the WhatsApp messages at the stage where Deloitte’s involvement was first discussed), and the shifts in Ds’ pleaded case. Having said this, I accept that it is questionable whether this issue, if it were available to Ds as a matter of construction, could be appropriate for summary resolution.

45.  In the event, it is unnecessary for me to conclusively resolve this point since the line of defence only arises if, on correct construction of the Agreement, the clause 3 payment obligations were conditional not only on some performance under clause 2, but on performance of satisfactory quality; which construction I reject[13].

46.  As to the fourth of Ds’ points (ie that the assistance which P did render would in any event have been required by him as CEO of BNML), I am not persuaded that it gives rise to any triable issue. I accept Mr Ho’s argument that P’s assistance with the project on behalf of the Former Owners falls outside the scope of what would normally be associated with the duties of a CEO of BNML; BNML being simply one of the entities in the Group being sold by the Former Owners.

47.  Ds pleaded an additional line of defence, regarding P’s alleged failure to assist with a threatened industrial action in the period between the Stock Purchase Agreement, and completion. Since this was not addressed in Ds’ written or oral submissions, I assume that it is not pursued for the purposes of the appeal. 

Conclusion and Disposition

48.  For the reasons above, I conclude that Ds have no arguable defence, and have failed to raise a triable issue. Accordingly, summary judgment for P is justified.

49.  The appeal will be dismissed, with an order nisi that Ds pay P’s costs of the appeal, to be taxed if not agreed.

50.  Last, I thank both counsel for their helpful assistance.