EMINENT INVESTMENTS (ASIA PACIFIC) LTD v. DIO CORPORATION

CACV 207/2016

[2019] HKCA 1050

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 207 OF 2016

(ON APPEAL FROM HCA NO. 1292 OF 2011)

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D E C I S I O N

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Hon Cheung JA (giving the Decision of the Court) :

1.  This is the plaintiff’s application for leave to appeal to the Court of Final Appeal against our judgment of 28 May 2019.

2.  Both limbs of section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance (Cap. 484) are relied upon.

3.  In respect of the great general public importance limb, the framed question is as follows :

‘ In construing a “tailgunner” clause in a financial adviser engagement agreement (i.e. a clause which provides that, if a transaction completes within a given time after termination of that engagement, the fee is payable to the adviser as if termination had not occurred), whether the effective cause of the transaction plays any role, and if so, what (e.g. as an implied term or a special requirement of “casual or proximity” for construing this type of clause)?’

4.  We are of the view that this question is not reasonably arguable and its formulation is too vague and general.  We interpreted Clause 3(i) by reference to its language and context, both of which are fact specific.  We did not resort to the ‘effective cause’ requirement either by way of implied term or the causal or proximity requirement.  As we have stated in our judgment, the plaintiff itself had chosen not to rely on the implied term or causal/proximity arguments before us.  Now it is attempting to resurrect these arguments in its formulated question and one can see how unreal the situation is.  To seize upon the term ‘tailgunner’ clause and attempt to craft out from it some universally applicable principles is to ignore the fact that Clause 3(i) is not a standard term clause one finds, for example, in an insurance policy.

5.  It would appear from the plaintiff’s written submission that it is more concerned with the correctness of the Recorder’s reasoning, but an appeal only lies against the correctness of the decision and not its reasons, particularly when we have not even adopted the Recorder’s reasons.  It is farfetched, to say the least, that somehow we were ‘subconsciously influenced’ by his reasons.

6.  In respect of the ‘or otherwise’ limb, the plaintiff relies on the following :

‘ Further and/or alternatively, the Applicant should be given leave pursuant to section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance (Cap. 484) on the ground that the appeal ought otherwise be submitted to the Court of Final Appeal for the following reasons:

(a)  The only issue is a question of law i.e. how clause (3)(i) (“the Clause”) of the FAA (as defined in the CA Judgment) should be construed.

(b)  Under that clause, contractual fees became payable if the following conditions were satisfied (“the Conditions”):

“within 2 years after the termination of the FAA, the Defendant either:

(i)  completed a transaction (including and not limited to a secondary listing or fund raising) with any third parties; or

(ii)  received funds from a financing source introduced by the Plaintiff”.

(c)  Insofar that the Court of Appeal (“CA”) construed the Clause as including three transactions non-exhaustively, it was wrong. “Received funds from a financing source” was an alternative to “completed a transaction with any third parties”. Only two examples were given (i.e. a secondary listing, fund raising) to make it clear that, in the context of “completed a transaction with any third parties”, the transaction should be a financial transaction (cf. paragraph 7.5 of the CA Judgment).

(d)  The present case concerned the scenario under sub-paragraph (b)(i) above i.e. “completed a transaction ... with any third parties”.

(e)  “A transaction” contemplates any financial transaction and, the word “transaction” by itself does not connote any requirement that the Plaintiff had to be an, let alone the, effective cause of that particular transaction.

(f)  The only casual link required was that the third party with whom the Defendant completed the transaction must have been “introduced” by the Plaintiff. The word “introduced” is not a term of art or a technical word; it is a word in common usage and should be given its ordinary and natural meaning i.e. to bring into personal acquaintance; it carries the simple connotation of initial or first presentation.

(g)  The Conditions had been satisfied in this case:

(i)  Dentsply (i.e. a third party within the meaning of the Clause) was introduced by the Plaintiff to the Defendant in April 2009. Dentsply and the Defendant did not know each other before that; and it was through the Plaintiff that they became acquaintance.

(ii)  The Defendant and Dentsply entered into a deal in December 2010 (as described in paragraph 3.9 of the CA Judgment), which was a financial transaction within the meaning of the Clause.

(iii)  That transaction was completed within 2 years after the termination of the FAA (entered on 10 October 2008 and terminated by effluxion of time on 9 April 2010) as stipulated under the Clause.

(h)  The CA was wrong in holding that “there must be a link between the introduction and the transaction before [the Plaintiff] is entitled to the fees” (paragraph 7.5 of the CA Judgment).

(i)  CA’s construction of the Clause cannot be supported by a proper application of well-established principles of contractual interpretation, and is plainly wrong.

(j)  It is against the natural and ordinary meaning of the Clause.

(i)  It is wrong to “relate-back” to clause 2 in construing the Clause. Clause 2 dealt with services to be provided by the Plaintiff during the currency of the FAA. In contrast, the Clause dealt with a 2-year post-termination period when, by definition, the Plaintiff would have ceased to provide service to the Defendant. Contrary to what CA held in paragraphs 7.6-7.7 of the CA Judgment, Clause 2 cannot be used to qualify or alter the natural and ordinary meaning of the Clause.

(ii)  The mere fact that, with hindsight, the Defendant might have made a bad bargain, and the mere fact that the contractual arrangement under the Clause, if interpreted according to its natural language, has worked out badly for the Defendant is not a reason for departing from the natural language .

(iii)  CA’s construction of the Clause is tantamount to re-writing the Clause by adding an “effective cause” requirement. It is also no different from implying a term into the FAA to the effect that the Plaintiff must be an, or the, effective cause of the transaction under the Clause when it is clear that the business efficacy test (which is a test of necessity) for implied terms cannot be satisfied.

(k)  The Court of Final Appeal should intervene because the Plaintiff has suffered serious injustice i.e. being deprived of its contractual entitlement due to an error of law made by the CA. It is also most desirable for the Court of Final Appeal to give guidance on how principles of contractual interpretation should be applied in construing tailgunner clauses commonly found in financial adviser engagement agreements.’

7.  We would generally defer this issue to the Court of Final Appeal.  But in this case we are of the view that it is not reasonably arguable.  First, the plaintiff, without elaboration, said that the intended appeal under the ‘or otherwise’ limb is closely related to the first limb.  As such, what we said earlier will also apply here.  Second, the plaintiff is now mounting a different case from its ‘conditional embargo’ argument that was advanced before us.  This is its third attempt in mounting what it considered to be arguments in favour of its claim since the action began.  This is most unsatisfactory.  As it has been repeatedly held, an appeal to the Court of Final Appeal is not an occasion for the losing party to re-argue its appeal or to reconstruct its case and arguments in the light of the reasons given by the Court of Appeal.  What the plaintiff is in effect saying is that we were wrong in our judgment because of these new reconstructed arguments which it did not bring forward in the first place. We do not see how this can ever overcome the high threshold of the ‘or otherwise’ limb. 

8.  Accordingly the application is refused with costs to the defendant.  We will summarily assess the costs at $120,000.