MORTEN LOK v. MSB INTERNATIONAL LTD AND OTHERS

HCCW 386/2021
HCA 400/2021

[2022] HKCFI 3751

HCCW 386/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 386 OF 2021

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AND

HCA 400/2021

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 400 OF 2021

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J U D G M E N T

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1.  There are before the court 2 summonses issued on 18 May 2022 by the plaintiff, MSB International Ltd (“MSB”),in HCA 400/2021 (“HCA 400”) and the 2^nd and 3^rd respondents (“Ben” and “Sammy”) (together with MSB, “Applicants”) in HCCW 386/2021 (“HCCW 386”) for stay of proceedings until further order or final determination of HCA 547/2022 (“HCA 547”)(“Stay Summonses”). HCA 547 is an action commenced by the Applicants to enforce the Settlement Agreement, which has since 2 June 2022 been stayed on case management ground.

2.  The applications are made on the ground that the Applicants have entered into a settlement agreement on 22 March 2022 with Morten Lok, the petitioner in HCCW 386 and the 1^st defendant in HCA 400 (“Morten”), and Keson Ltd, the 2^nd defendant in HCA 400 (“Keson”) (together “Respondents”), in full and final settlement of all the disputes in HCA 400 and HCCW 386 (“Settlement Agreement”). 

3.  In their affidavits, the Respondents oppose the applications on the ground that no binding agreement was reached as the Settlement Agreement was conditional upon execution of a formal settlement deed.  In his Skeleton, Mr Julian Lam, counsel for the Respondents, advances 2 further arguments: (1) the parties only arrived at a consensus on some “basic terms” and did not reach any agreement; and (2) the “basic terms” are not sufficiently certain and complete to be enforceable. 

4.  At the directions hearing of the Stay Summonses on 18 August 2022, this Court made clear to the parties that the issue as to whether the parties had reached a binding agreement to settle their disputes in HCCW 386 and HCA 400 (“Issue”) would be determined at the substantive hearing of the Stay Summonses.  Since the handling solicitors for the Applicants and the Respondents give conflicting evidence on the Issue, they are required to attend the hearing and be cross-examined on their affidavits filed in respect of the Stay Summonses.  Both parties acknowledge that the determination of the Issue would obviate the need for the parties to pursue HCA 547.

A.      BACKGROUND

A1.    Parties

5.  MSB was incorporated in Hong Kong on 11 June 2012.  It engages in the business of trading and distribution of horse feed and associated products in Hong Kong.  The Hong Kong Jockey Club (“HKJC”) is one of MSB’s major customers and accounts for over 90% of its turnover[1].

6.  Until 17 January 2014, Sammy and Morten were the only shareholders of MSB.  Sammy held 55% of MSB’s issued shares while Morten held 45% (“Shares”).  On 17 January 2014, Sammy transferred his 55% shareholding to Morten who, in turn, transferred the same to Ben on 21 August 2018[2].

7.  Since the incorporation of MSB, Ben has been one of the directors.  Morten was the other director until he resigned on 18 August 2020[3].

8.  On 1 September 2020, Keson was incorporated with Mr Anders Oesterballe (“Mr Oesterballe”) as its sole shareholder and director.  In the same month, Keson became one of HKJC’s registered suppliers for equine-related products[4]:

9.  It is Ben/Sammy’s case that Morten was the true owner and controller of Keson and Mr Oesterballe was merely Morten’s nominee[5]. Morten denies that he owns or controls Keson, but admits that[6]:

(1)  He is a friend of and did business with Mr Oesterballe in the past;

(2)  Since Keson’s formation he has been employed as its Business Manager;

(3)  He notified several of his key contacts who had business dealings with him whilst at MSB when he resigned from MSB; and

(4)  He provided funds to Keson so that Keson could take on business opportunities with TRM Ireland, Pryde’s Australia and KKH Netherlands, which were 3 of MSB’s suppliers.

A2.    Commencement of HCA 400, HCCW 386, HCMP 994

10.  On 12 March 2021, MSB commenced HCA 400 against Morten and Keson for breach of fiduciary duty and dishonest assistance respectively[7].

11.  On 16 July 2021, Ben commenced HCMP 994/2021 (“HCMP 994”)for an order to extend the time limits for holding the AGMs of MSB for the years ended 31 December 2019, 2020 and 2021.  The application was opposed by Morten, who obtained leave to intervene on 15 September 2021, and filed an affidavit in opposition on 12 October 2021 making various allegations against Ben/Sammy (“Morten’s Affidavit”)[8]. 

12.  On 21 October 2021, Morten commenced HCCW 386 seeking to wind up MSB on the “just and equitable” ground alternatively, an order requiring MSB to pay the outstanding dividend in the amount of HK$2,723,894.26 to him, and an order requiring Ben/Sammy to purchase his shares in MSB[9].

A3.    Settlement negotiations

13.  In around February 2022, Morten’s son was diagnosed with a serious illness.  Morten instructed his solicitor, Mr Troy Joshua Greig (“Mr Greig”) of Messrs. Tanner De Witt (“TDW”) to reach out to Mr Luke Ki Chi Yip (“Mr Yip”) of Messrs. Cheung & Yip (“C&Y”), solicitors for Ben, Sammy and MSB to enquire as to the possibility of a settlement[10].

14.  From February to March 2022, the parties through their solicitors engaged in many rounds of settlement negotiations.  By mid-March 2022, the solicitors began to set out their proposed terms for settling the disputes in HCA 400 and HCCW 386 in a series of “without prejudice as to costs” correspondence, as further described below.

15.  By letter dated 12 March 2022 (“12 Mar Letter”) C&Y made an offer in the following terms:

“4. We are instructed to offer in full and final settlement of [HCA 400 and HCCW 386] on the following basic terms:

(a) Your client [i.e. Morten] shall transfer 4,500 ordinary shares of MSB [i.e. Shares] to [Ben] or his nominee at a nominal consideration of HK$1.

(b) Both [HCA 400 and HCCW 386] be discontinued with no order as to costs.

(c) Your client [i.e. Morten] shall withdraw his opposition to [Ben’s] originating summons in [HCMP 994] and there be no order as to costs as between your client (as intervener) and our client (as plaintiff). Further, your client shall confirm in writing that he withdraws all allegations in the Affidavit of Lok Morten filed on 12 October 2021 in [HCMP 994].

(d) MSB shall waive its claim against your client for the sum of HK$31,442.50.”

(collectively “Undisputed Terms”)

16.  In response, TDW by letter dated 16 March 2022 (“16 Mar Letter”) rejected C&Y’s offer, and made the following proposal to settle HCA 400 and HCCW 386:

(1)  Morten was prepared to accept the sum of HK$3,623,894.26, which represented (a) the declared dividend for FY 2019 in the amount of HK$2,723,894.26; and (b) the proposed but undeclared dividend for FY 2020 in the sum of approximately HK$900,000, “in full and final settlement of the disputes between the various parties”;

(2)  Morten “will waive his entitlement to his share of any and all future dividends of [MSB] (i.e. FY 2021 onwards) along with his beneficial share in the net assets of [MSB]”.  This is despite the fact that “[Morten’s] share as at 31 December 2020 (after allowing for the above two dividend payments), exceeded HK$6.4m with further increases in net assets no doubt accruing for FY 2021 and FY2022 to date”; and

(3)  “This offer is open for acceptance in writing by no later than 4pm, 21 March 2022 after which it lapses automatically”.

17.  By letter dated 17 March 2022, C&Y stated that MSB was ready and willing to distribute the dividend for FY 2020 and the dividend for FY2019 had already been paid to Morten through assignment of the debt between MSB and “Rolands”.  C&Y counter-proposed the sum of HK$900,000 together with the Undisputed Terms in full and final settlement of HCA 400 and HCCW 386.

18.  In their letter dated 17 March 2022 (“17 Mar Letter”) TDW rejected C&Y’s contentions about the dividends and contended that their client’s interest in MSB “indisputably exceeds” HK$12 million; the Applicants would spend HK$8 million as legal costs in HCA 400 and HCCW 386; and even assuming that the Applicants succeed in both proceedings, they would still be out of pocket for over HK$2.5 million (representing 1/3 of the costs being taxed off), and Morten would still own 45% shareholding in MSB.  Nevertheless, TDW stated that:

“Having said the above, our client is prepared to be a little more flexible. As such he is prepared to make a final offer to accept HK$3,000,000 in full and final settlement of all claims. He is also prepared to agree to the terms stated in paragraph 4(a) to 4(d) of your without prejudice letter dated 12 March 2021. He is not prepared to negotiate further. By any measure this is a very, very good deal for your clients and if they cannot see that then our client will simply press on.

Please respond by 5pm tomorrow as to whether your clients accept our client’s proposal”.

19.  By letter dated 18 March 2022 (“18 Mar Letter”) C&Y stated that “their clients counter-offered to pay the sum of HK$2,100,000 together with the [Undisputed Terms] in full and final settlement of [HCA 400 and HCCW 386]”, which offer would lapse if not accepted by 6pm on 18 March 2021.

20.  In his email to Mr Yip on 18 March 2022 (“18 Mar Email”) Mr Greig replied to 18 Mar Letter in this way:

“In short, the only item outstanding between our respective clients is the figure to be paid.

Your clients improving the offer is a step in the right direction, and is appreciated by Morten. But the HK$3m figure is not arbitrary, and really is his best offer. This is because Morten needs to have his legal fees paid, anything less than this is of no interest given the actual value of his shares. In fairness, your clients are getting a great deal even paying HK$3m. His entitlement to dividends etc is about HK$12m alone. The Company will be forced to pay these sums if the litigation continues. Keep in mind that the petition seeks a buy-out at the time before the company incurred legal costs (so these fees will not be factored into the calculation of the value of his shares).

I urge your clients to agree to pay HK$3m to make this all go away and allow everyone to go on with their lives. Please can you let us know by Monday 4pm.” (underlined added)

21.  This was followed by a letter from TDW dated 21 March 2022 (“21 Mar Letter”) rejecting C&Y’s counter-offer of HK$2.1 million and reiterating that Morten should “be paid no less than HK$3 million” for the reasons stated in the 16 Mar Letter and 17 Mar Letter.  In the last paragraph TDW stated as follows:

“This is your clients’ last opportunity to walk away with a deal that on any view is overwhelmingly in their favour. In other words, this offer will not be repeated – the deadline for acceptance in writing is 12pm on 22 March 2022 after which it automatically lapses. Your client should be under no misapprehension that if a payment of HK$3 million is not agreed by tomorrow that our client will press on with the litigation”.

22.  By letter dated 22 March 2022 (emailed to TDW at 11:56) (“22 Mar Letter”), C&Y referred to the 21 Mar Letter and accepted TDW’s offer in this way:

“2. By your without prejudice letter dated 17 March 2022, your client is prepared to accept [the Undisputed Terms] in case of a settlement.

3. Having considered your client’s proposal, our clients hereby accept the offer to pay your client the sum of HK$3 million together with the [Undisputed Terms] in full and final settlement of [HCCW 386 and HCA 400].

4. We shall send the draft Consent Summons together with the associated documents in all related action for your approval in due course.”

23.  By email sent on 22 March 2022 (17:12), Mr Greig asked Mr Yip when he would be available “to discuss the mechanics of  the payment, documents to be lodged at court etc”. 

24.  In his reply email dated 23 March 2022 (18:25) Mr Yip stated that “the settlement concerns with 3 actions (i.e. [HCA 400, HCMP 994 and HCCW 386]) and the transfer of shares” and he believed that the parties would like all 3 actions to be discontinued at the same time.  Once the court grants the order to discontinue the 3 actions, the transfer of the Shares and payment of settlement sum will take place. 

25.  None of the above without prejudice letters or emails exchanged between the parties were marked “subject to contract”. 

A4.    Comments on draft documents 

26.  Between 25 March 2022 and 7 April 2022, TDW and C&Y began to prepare and exchange draft documents for the other parties’ consideration.  Unlike the previous correspondence, both TDW and C&Y marked each of their emails and letters as “without prejudice; subject to contract”.

27.  By email dated 25 March 2022 to Mr Yip, Ms Christy Cheung of TDW enclosed a draft settlement agreement (“draft SA”) and requested C&Y to provide their comments by 28 March 2022.  In the draft SA, Keson was listed as one of the “Parties” and appended the draft instrument of transfer and bought & sold notes in respect of the Shares together with a draft letter to be signed by Morten informing MSB of the transfer of the Shares (in schedule 3).   

28.  In their letter dated 30 March 2022 C&Y provided their comments on the draft SA and provided (1) a draft letter from TDW to C&Y confirming the withdrawal of the allegations made by Morten in HCMP 944 (schedule 1) and (2) the draft consent summonses to be filed in HCA 400, HCCW 386 and HCMP 994 (schedule 2); and replaced the draft instrument of transfer and bought & sold notes with a draft agreement for sale and purchase of the Shares. 

29.  By another letter dated 4 April 2022, C&Y enclosed the draft documents with further revisions made to reflect the matters discussed between Mr Yip and Mr Greig during the telephone conversation on 1 April 2022 at 11am.  In their email dated 7 April 2022, TDW stated that they would provide their comments on the draft documents by next week. 

A5.    Dispute over Settlement Agreement

30.  The matter took a turn on 14 April 2022 when TDW proposed to add a term to recital (B)(a), clauses 3.1 and 3.3 of the draft SA (“New Term”) which provides for waiver of claims against any related party, shareholder or director of the “Parties” as follows:

“(a) the on-going actions between the Parties or any or more of the Parties (or any person or entity related to a Party by way of former or current shareholding or directorship) be dismissed and/or discontinued and/or withdrawn, as the case may be, with no order as to costs;”

“3.1 Upon execution of this Settlement Agreement, the Parties fully, finally, wholly and completely settle, release, discharge, waive, abandon and extinguish all and/or any claims, counterclaims, actions, causes of action and/or suits at law or in equity of whatsoever nature, and whether past, existing, contingent or future, known or unknown between the Parties in relation to the subject matters of [HCA 400 and HCCW 386] and [HCMP 994] against the parties or any one or more of the Parties (and any entity or person who is a former or current shareholder or director of any one or more of the Parties).”

“3.3 This Settlement Agreement may be pleaded by any one or more Parties (or any entity or person contemplated to be released under this Settlement Agreement pursuant to Clause 3.1 above) as an absolute bar to proceedings in any court of law, arbitral tribunal or otherwise in response to any claim brought by or on behalf of one or more the Parties (or an entity or person released pursuant to Clause 3.1 above) which is the subject of release contained in this C clause 3.”

31.  TDW recognised that the New Term might be controversial and stated that “it would be more efficient to deal with the 2 substantive arguments first and will proceed to comment on the other schedules of the [draft SA]”.  They also added a note next to the revised recital (B)(a) which reads as follows:

“As discussed by phone on 1 April 2022, the underlying objective of the settlement is to draw a firm line such that no party or any party related to a party will be the subject of any future litigation. This is non-negotiable and is in everyone’s interest that the litigation comes to an end”. (underlined added)

32.  In response, by email dated 21 April 2022, C&Y provided further comments on the draft SA and disagreed with the inclusion of the New Term which “was and is never a term to the settlement agreement reached by the parties”. 

33.  In their email dated 28 April 2022, TDW stated that Morten did not agree with the deletion of the New Term on the basis that “The settlement is on the basis that all current and future potential litigations will be shut down, and [Morten] is not prepared to settle if these related parties are not released”.

A6.    Breakdown in negotiations and HCA 547

34.  Thereafter, TDW and C&Y both sought to state their respective stances in open correspondence. 

35.  On 4 May 2022, C&Y sent to TDW (1) a cashier’s order for HK$3 million payable to Morten; (2) the instrument of transfer and bought & sold notes for transferring the Shares from Morten to Ben; (3) the draft consent summonses for discontinuation of HCA 400 and HCCW 386; and (4) a draft letter to be signed by TDW confirming withdrawal of the allegations in Morten’s Affidavit. TDW was requested to return the signed documents by 5pm on 6 May 2022 failing which their clients may apply for specific performance of the binding agreement without further notice.

36.  By letter dated 5 May 2022, TDW rejected C&Y’s demand and asserted for the first time that Mr Greig had at a phone call on 10 March 2022 (“10 Mar Call”) stated that any settlement was subject to 2 conditions namely, execution of a deed and releases of all the claims against all related parties (“Conditions”) in this way:

“Contrary to your assertion in your letter dated 4 May 2022, during the first without prejudice telephone call between our Mr Greig and your Mr Yip on 10 March 2022, your Mr Yip was expressly told that any settlement was subject to a deed being executed that provided for full releases of all concerned and without any admission of liability (or words to that effect). This is the basis upon which all negotiations took place. In any event subsequent exchanges of the draft settlement documents between our respective firms were marked ‘without prejudice; subject to contract’. Moreover, it is clear in the final paragraph of your without prejudice letter dated 17 March 2022, that the payment from your client was to be made in full and final settlement of ‘all claims’ (emphasis added). The letter does not state ‘all current claims’ nor does it say ‘all proceedings’.

As such our client’s insistence that persons/entities related to the parties to the litigation be released from any and all future liability was known to your clients from the outset of the negotiations….” (underlined added)

37.  On 12 May 2022, MSB, Ben, and Sammy commenced HCA 547 for specific performance of the Settlement Agreement. 

38.  On 18 May 2022, MSB, Ben and Sammy issued the Stay Summonses.

B.      APPLICABLE PRINCIPLES

39.  The principles governing application for stay of proceedings are well-established.  As submitted by Mr Victor Dawes SC (leading Mr Lau Ka Kin and Mr Johnathan Fung), counsel for the Applicants:

(1)  The court has inherent jurisdiction to regulate its own proceedings, including the jurisdiction to grant a stay in appropriate circumstances (Re Chime Corp Ltd,HCMP 4146/2001, 11 March 2005, §11, per Kwan J (as she then was).  The jurisdiction to stay is also enshrined in s.16(3) of the High Court Ordinance (Cap. 4) and Order 1B rule 1(2)(e) of the Rules of the High Court (Cap. 4A).

(2)  In considering an application for a stay, the court considers balance of convenience and fairness as between the parties.  The court should exercise its discretion in such a manner to ensure that its procedures are used in a “logical, fair and cost-efficient manner” (Re Chime Corp Ltd§14).

(3)  Where the dispute over a settlement agreement is not one which can be readily resolved by a summary process but has to be resolved through fresh action, the court may order a stay of the substantive proceedings pending resolution of such dispute. The important point is the purpose of the stay, as the court does not order a temporary stay without any purpose (Fok Chun Yue Benjamin v Fok Chun Wan Ian[2015] 2 HKLRD 212, §§53-60, per Lam VP (as he then was)).

40.  I do not agree with Mr Lam’s argument that the Applicants bear the burden of establishing a “high degree of assurance” of success at trial or “high probability of success at trial”, which are the thresholds for the grant of a mandatory injunction and an anti-suit injunction respectively.  The argument is not supported by any authority, and I do not think that the court’s discretion to grant a stay should be circumscribed in this way. 

41.  As regards the formation of settlement agreement, the principles are set out in RTS Flexible Systems Ltd v Molkerei[2010] 1 WLR 753 §§45-50, per Lord Clarke, and applied in Banco del Austro v Regal Prosper Trading Ltd HCA 477/2015, 1 April 2016, §§21-26, and may be summarised as follows:

(1)  Contract formation depends not on the subjective state of minds of the parties.  The court applies an objective test, based upon a consideration of what was communicated between them by words or conduct, and whether that leads to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations (RTS §§45, 47, 50).

(2)  In considering whether an agreement has been concluded, it is legitimate to look at the whole correspondence between the parties including subsequent letters (Banco del Austro§24). 

(3)  If the documents relied on as constituting a contract contemplate the execution of a further contract between the parties, it is a question of construction whether that is a condition of the bargain or whether it is merely an expression of the desire of the parties as to the manner in which the transaction already agreed to will in fact go through (Banco del Austro §§25, 29).

(4)  It is possible for the parties to intend to be bound forthwith even though there are further terms to be agreed or some further formality to be fulfilled, provided that the unagreed terms do not render the contract void for uncertainty (RTS §§45, 48-49, Banco del Austro §25(4)). 

(5)  It is for the parties to decide whether they wish to be bound, and if so, by what terms, whether important or unimportant.  Generally speaking, the more important a term is the less likely that the parties would have left it for future decision.  However, there is no legal obstacle which stands in the way of parties agreeing to be bound now while deferring important matters to be agreed later (RTS §49, Banco del Austro§25(6)).

42.  Mr Lam emphasises that where the negotiations were not expressly stated to be “subject to contract”, it is a question of construction whether the parties intended that the terms agreed on should merely be put into form, or whether they should be subject to a new agreement the terms of which are not expressed in detail (Cheverny Consulting Ltd v Whitehead Mann Ltd [2007] 1 All ER (Comm) 124, §42 per Sir Andrew Morritt C).

C.      DISCUSSION

43.  On the Applicants’ case, the Settlement Agreement was made on 22 March 2022 when C&Y accepted TDW’s offer contained in the 21 Mar Letter, and contains the following terms:

(1)  Morten shall transfer the Shares to Ben (or his nominee) at a nominal consideration of HK$1;

(2)  HCCW 386 and HCA 400 shall be discontinued with no order as to costs;

(3)  Morten shall withdraw his opposition to HCMP 994 with no order as to costs as between Morten (as intervener) and Ben (as plaintiff).  Morten shall confirm in writing that he withdraws all the allegations in Morten’s Affidavit;

(4)  MSB shall waive its claim against Morten for the sum of HK$31,442.50; and

(5)  The Applicants shall pay HK$3 million to Morten in full and final settlement of all the claims in HCA 400 and HCCW 386. 

44.  It is indisputable that on 22 March 2022, TDW and C&Y on behalf of their respective clients reached agreement on the terms set out in the preceding paragraph.  These terms were clearly stated in the 12 Mar Letter, 16 Mar Letter, 17 Mar Letter, 18 Mar Email and the 22 Mar Letter. 

45.  In Morten 1^st and Greig 1^st and Mr Lam’s submissions, the Respondents contend that the Settlement Agreement is not binding between the parties for the following reasons:

(1)  It was “commonly understood” between the parties that a formal deed with appropriate releases was essential to a binding settlement[11] (i.e. Conditions), given that:

(a)  Mr Greig expressly told Mr Yip that a settlement deed was required during (i) a phone call on 21 February 22 (“21 Feb Call”); and (ii) the 10 Mar Call[12]; and

(b)  It had always been Morten’s position that a settlement should contain full releases for all persons concerned with or connected to the subject matters of the litigations[13]. 

(2)  The Settlement Agreement is not sufficiently certain and complete because:

(a)  the essential parties, Keson and MSB, were not privy to the Settlement Agreement;

(b)  the parties were not ad idem as to the scope of the agreement or that its scope is too uncertain in that given the background and the correspondence between the parties, “all claims” referred to in 17 Mar Letter can only be interpreted to mean all possible claims and not just the litigations on foot.  However, the 22 Mar Letter only purported to accept the offer of HK$3 million in full and final settlement of the 2 actions plus HCMP 994; and

(c)  the costs position of MSB remained outstanding.   

(3)  The parties only arrived at a consensus on some “basic terms” which formed “part of a continuous and seamless period of negotiations” commenced on 21 February 2022 and ended in mid-May 2022[14].  In this regard, Mr Lam points to the following:

(a)  the 3 uncertainties described in sub-§(2)(a), (b) and (c) above;

(b)  C&Y failed to insist on performance of the Settlement Agreement, and affirmed that the parties were still attempting to settle;

(c)  the parties were still adding substantive terms and making significant amendments on the draft SA without any indication that these were variations to a binding agreement;

(d)  in the 22 Mar Letter and the subsequent correspondence, C&Y used language which indicated that there was no binding agreement until the formal agreement was produced and signed; and

(e)  C&Y did not refer to any earlier binding agreement in the draft SA until 21 April 2022 when they belatedly alleged that the Settlement Agreement had been concluded. 

46.  It seems to me that the last point (§45(3) above) is no more than a repetition of the same contentions under the first 2 points.  I have not lost sight of the fact that under cross-examination, Mr Greig repeatedly says that prior to 22 March 2022, the parties were merely discussing the “framework” for further negotiations.  However, the assertions do not sit well with the fact that from at least 12 March 2022 to 22 March 2022, both TDW and C&Y described the terms set out in their letters as “offer”, “counter-offer” or “final offer” made to the other party with stated date and time for acceptance.  These descriptions are the antitheses of a “framework” for further negotiations as Mr Greig suggests. 

47.  In any event, even if Mr Greig subjectively believed that the parties were discussing a “framework” for further negotiations, his subjective belief is irrelevant to and does not affect the question as to whether the Settlement Agreement is binding upon the parties (see §41(1) above).  In his Skeleton, Mr Lam accepts (rightly) that the parties’ subjective beliefs are irrelevant (unless the offeree actually knows that the offeror in fact has no intention to contract with him, or to contract on the terms alleged), citing Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd (2004) 7 HKCFAR 79, §§40-46 per Ribeiro PJ.

48.  It seems to me that the parties’ arguments boil down to the following issues:

(1)  whether TDW’s offer contained in the 21 Mar Letter was subject to the Conditions;

(2)  if the answer to §(1) is yes, no binding agreement was reached between the parties as neither of the Conditions were met, and the Stay Summonses must be dismissed.  Conversely, if the answer to §(1) is no, the issue is whether the terms agreed between the parties (i.e. the Settlement Agreement) are sufficiently certain and complete to give rise to a binding agreement. 

49.  I consider these 2 issues in turn. 

C1.    Whether TDW’s offer was subject to the Conditions

50.  As stated in §25 above, in none of the letters or emails exchanged between the solicitors from 12 March 2022 to 23 March 2022 did TDW or C&Y ever state that the offers or counter-offers were subject to any execution of any contract or deed. 

51.  At the hearing, Mr Greig is cross-examined as to why he did not in any of the pre-22 March 2022 correspondence include the words “subject to contract” if the offers or counter-offers were made by TDW on that basis.  Mr Dawes submits that Mr Greig has no good answer on this in that:

(1)  Mr Greig says that the absence of the words “subject to contract”was not an oversight but a deliberate choice: he only instructed his staff to include the words “subject to contract” after the parties had begun negotiations on the terms of the draft written agreement as it was only at that point (but not before) that there was a risk that the parties might be found to have reached a binding agreement. 

(2)  The evidence makes very little sense.  As put to Mr Greig, given that the parties were at that point negotiating the terms of a draft written agreement, there was no realistic risk of the parties being found to have reached a binding agreement as to its terms unless and until those documents were signed (cf. Cheverny§45). 

(3)  It is inconceivable that Mr Greig would have consciously chosen to exclude those words from the parties’ earlier correspondence, even if he subjectively believed that the parties’ discussions were far from a binding contract.  As an experienced commercial litigator, Mr Greig would have been mindful of the need for absolute clarity as to the terms being proposed and their legal effect. 

(4)  As Mr Greig puts it, this was no “run of the mill settlement” given Morten’s family situation at the time.  There was a heightened sense of urgency in the negotiations, which TDW described as a desire was “to secure a settlement now”. 

52.  I agree with Mr Dawes’ submissions.  I am unable to accept Mr Greig’s explanation on the absence of the words “subject to contract” in all the pre-22 March 2022 correspondence. The need to state that the offers and counter-offers were made “subject to contract” was all the more important after C&Y had in their letter of 10 March 2022 requested TDW to “put all your future correspondence in writing” so as “to avoid any alleged miscommunication”.

53.  The next question is whether Mr Greig did in the 21 Feb Call or the 10 Mar Call inform Mr Yip that the negotiations were subject to the Conditions.  On this question, I have to consider the conflicting evidence of Mr Greig and Mr Yip against the objective facts. For the reasons set out below, I prefer Mr Yip’s evidence over that of Mr Greig.

54.  First, there is no documentation in the support of Mr Greig’s evidence that the negotiations were subject to the Conditions in that:

(1)  TDW did not mention either of the Conditions when they “reiterate[d] the terms of our client’s offer” in their letter of 8 March 2022.

(2)  Even after C&Y had in their letter of 10 March 2022 requested TDW to put all their future correspondence in writing to avoid any misunderstanding, Mr Greig still did not mention the Conditions. 

(3)  When this is put to Mr Greig during cross-examination, he is unable to offer any plausible explanation as to why TDW did not mention the Conditions in all the pre-22 March 2022 correspondence despite their obvious importance. 

(4)  Even in TDW’s letter of 5 May 2022 issued in response to C&Y’s letter of 4 May 2022 demanding performance of the Settlement Agreement, they referred only to the 10 Mar Call, but not the 21 Feb Call.  Given that (as Mr Greig accepts in cross-examination) the intention behind this letter was to set the record straight, one would have expected TDW to include all matters which they thought were relevant and supportive of the Respondents’ case.

55.  Second, even after C&Y had accepted TDW’s offer on 22 March 2022, in the draft SA sent to C&Y on 25 March 2022, there was still no reference to either of the Conditions:

(1)  The draft SA was the product of careful preparation: Morten’s evidence is that he had reviewed and discussed the draft SA with TDW and was “satisfied” that the release clause achieved his aims[15].

(2)  In the draft SA sent to C&Y on 25 March 2022, “Parties” was defined as Morten, Keson, MSB, Ben and Sammy; the release clause only applied to such “Parties”[16]; and third party rights was expressly excluded[17]. Had the Conditions been mentioned by Mr Greig during either of the 2 calls, TDW would have included them in the draft SA.  When this is put to Mr Greig, he is unable to offer any explanation as to why the Conditions were not mentioned in the draft SA other than suggesting that it was an oversight. 

(3)  However, the suggestion cannot be reconciled with Mr Greig’s evidence that the Conditions constituted an “essential” part of the settlement[18].

(4)  The language in TDW’s draft SA shows that by 25 March 2022, there was no discussion between the parties that the settlement was subject to the Conditions.

56.  Third, although Mr Greig relies heavily on the WhatsApp messages sent to his clients shortly after the 21 Feb Call and the 10 Mar Call, neither sets of messages referred to the Conditions:

(1)  The text messages sent on 21 February 2022 did not state that he had informed Mr Yip that the negotiations were subject to execution of a deed. 

(2)  Rather, the messages stated that Mr Yip had called Mr Greig to ask about Keson[19] and “that the settlement deed should be a full release etc, so to allow the parties to get on with life”. The messages only referred to a “full release” of the parties, and did not say that the negotiations were subject to execution of a deed. 

(3)  Similarly, the text messages sent on 10 March 2022 did not refer to either of the Conditions. 

57.  By contrast, Mr Yip’s evidence on the 2 calls remains unshaken during his cross-examination.

(1)  Mr Yip is firm in his recollection that Mr Greig did not raise the need for a deed or any releases for non-parties in either the 21 Feb or the 10 Mar Call.  His evidence is consistent with (a) his notes of the 2 calls (which he confirms were made right after the calls); and (b) the parties’ subsequent correspondence.

(2)  Mr Yip accepts that his notes were not full records of the 2 calls. There is no basis for doubting his evidence that he would have noted down Mr Greig’s stipulation of a settlement deed and full releases for “all concerned” if these were in fact raised during the calls[20].

(3)  As he explains, these were important terms which would have affected his clients’ approach to the offer made, on which he would have had to inform his clients and seek their instructions.  This is so even if (as Mr Lam puts to him in cross-examination) such terms are often found in settlement agreements.

(4)  It is implausible that Mr Yip would have neglected to record the Conditions in his notes had it been mentioned by Mr Greig.  The evidence shows that Mr Yip had been very cautious during the settlement negotiations in that (a) he specifically requested TDW to “put all future correspondence in writing” to avoid any miscommunications on 10 March 2022; and (b) he was reluctance to make any amendments to the draft SA on the basis of what had been conveyed by TDW to him during a telephone conversation on 1 April 2022.

58.  Even if, contrary to my view, Mr Greig’s evidence as to what he said in the 21 Feb Call and/or the 10 Mar Call is to be preferred, the objective evidence shows that TDW did not insist on the Conditions in their subsequent correspondence and therefore waived the same (cf. RTS §§55-56, 67):

(1)  TDW’s “reiterat[ion]” of its offer on 8 March 2022 made no mention of the Conditions. 

(2)  In the 18 Mar Email, Mr Greig confirmed that the “only item outstanding” was the amount to be paid by the Applicants.  Thus, whatever Mr Greig might have said during the 21 Feb Call and/or 10 Mar Call, this had clearly been superseded and waived by TDW’s formal written communications.

(3)  It is clear from Mr Greig’s oral evidence that the Conditions were no longer operative by 22 March 2022.  This is apparent from his proposal to discuss “mechanics of the payment” and the absence of the Conditions in the draft SA.  

(4)  Mr Greig’s evidence is that he had forgotten about the 21 Feb Call (which he characterised as a “passing comment”) by the time of TDW’s letter of 5 May 2022. 

59.  For completeness, Mr Lam relies heavily on the parties’ conduct in negotiating on the terms of the draft SA which, he contends, supports the Respondents’ case that the negotiations and the terms offered by TDW were subject to the Conditions.  I disagree:

(1)  In TDW’s email of 25 March 2022 attaching the draft SA, they expressly stated that the negotiations on the draft SA were “subject to contract”. 

(2)  C&Y did not object to the “subject to contract” condition imposed by TDW and negotiated on the terms of the draft SA on that basis.  It was plainly open to the parties to negotiate on other terms set forth in the draft SA to see if they would be able to agree on such terms (see §41(4)-(5) above).  If no agreement was reached, the parties would still have to abide by the terms of the Settlement Agreement. 

(3)  The fact that parties tried to negotiate on the other terms not covered by the Settlement Agreement, which Mr Greig described as the “mechanics of the payment, documents to be lodged at court etc”, should not be taken as C&Y’s acceptance that the negotiations pre-22 March 2022 including TDW’s offer in the 21 Mar Letter were subject to the Conditions. 

60.  For the reasons set out above, I find that TDW’s offer contained in the 21 Mar Letter was not subject to the Conditions.  It follows that upon C&Y accepting TDW’s offer in the 22 Mar Letter, the Settlement Agreement was made between the Applicants and the Respondents. 

C2.    Whether the Settlement Agreement is sufficiently certain and complete

61.  Mr Lam contends that the Settlement Agreement is not sufficiently certain and complete to be legally enforceable because the parties did not agree on the “essential terms” namely: (1) the parties to the settlement; (2) the scope of the settlement; and (3) costs, whether parties are to bear their own costs or otherwise.  I do not think that it is open to Mr Lam to advance these contentions when the Respondents have not taken issue on such matters in their evidence filed in opposition to the Stay Summonses. 

62.  Even if, contrary to my view, it is open to the Respondents to argue that there was “uncertainty” on these “essential terms”, I do not consider that there is any merits in the arguments.

63.  Mr Lam argues that MSB, being an essential party to the settlement, was not a party to the Settlement Agreement.  This is because C&Y only represented MSB in HCA 400.  In HCCW 386, MSB was represented by Messrs Oldham, Li and Nie while in HCMP 994, MSB was unrepresented.  I disagree. 

(1)  As can be seen from the correspondence, the negotiations and the offers were made by the parties on the basis that MSB was a party to, and would be bound by the terms of, the settlement if an agreement was reached. 

(2)  The suggestion that MSB was not a party to the offers does not sit well with the fact that (a) in the 12 Mar Letter §(d) of the Undisputed Terms, MSB had to waive its claim against the Respondents; (b) TDW repeatedly referred to Morten’s  rights to receive dividends from MSB in their letters of 16 and 17 March 2022 which formed part of the settlement; and (c) in TDW’s draft SA, MSB was one of the “Parties”.

(3)  The fact that MSB was a party to the settlement is not affected by the representation in HCCW 486 and HCMP 994 as there is no question but that Ben and Sammy, being directors of MSB, had authority to instruct C&Y to act on behalf of MSB in negotiating and entering into the Settlement Agreement. 

64.  The other “uncertainty” on the parties raised by Mr Lam concerns Keson.  The argument is equally without merits, having regard to the following facts:

(1)  Keson was a party to HCA 400, and was represented by TDW in such action;

(2)  HCA 400 was one of the 3 actions mentioned in the pre-22 March 2022 correspondence;

(3)  In reporting to his clients on 21 February 2022, Mr Greig said that the settlement covered Keson; and

(4)  In the draft SA, TDW defined the “Parties” as includes Keson.  Mr Greig’s evidence under cross-examination that he included Keson as “Parties” in the draft SA without its authority cannot be right, in light of the report made to his clients on 21 February 2022.   

65.  As for Mr Lam’s argument that there was “uncertainty” on the question of costs, it is simply untenable. The question of costs is dealt with under the Undisputed Terms, specifically §(4)(b) and (c) in the 12 Mar Letter. 

66.  As to Mr Lam’s argument on the “uncertainty” in the scope of the settlement, I am unable to see how the fact that the parties did not reach agreement on all the terms which the Respondents wanted to cover would render the Settlement Agreement to become uncertain or incomplete.  The terms of the Settlement Agreement can readily be seen from the correspondence exchanged between TDW and C&Y up to 22 March 2022.  There is no alleged or any uncertainty on the terms.   

67.  In any event, as Mr Dawes submits, there is nothing conceptually uncertain or unworkable as a matter of law about a settlement agreement which only covers ongoing proceedings between the parties and not potential claims:

(1)  It is for the parties to define the scope of a settlement agreement.  As with any other contract, the court gives effect to what the contracting parties objectively intended.  Indeed, while it is possible for parties to surrender claims which they are unaware and could not have been aware, the courts will be slow to infer that the parties intended to do so.  Furthermore, however widely drawn the language, the circumstances in which the release was given frequently do suggest, that the parties intended the release should only apply to claims relating to a particular subject matter (Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251, §§8-10, (Lord Bingham), §28 (Lord Nicholls)).

(2)  While one might well think that TDW and C&Y could (and should) have negotiated a more all-encompassing settlement to ensure that the parties truly achieved a clean break, but this does not mean that the settlement which was agreed to by these parties with the benefit of legal advice was thereby insufficiently certain to be enforceable.

(3)  There is also no suggestion that MSB, Ben and Sammy have claims ready to be deployed against Morten and Keson upon the settlement of HCA 400 and HCCW 386.  If such claims were to be made, they would naturally be open to objection on the basis that they were claims which could and should have been made in earlier proceedings and therefore barred as an abuse of process. 

68.  There is no merits in Mr Lam’s arguments that the Settlement Agreement is not sufficiently certain or complete to be enforceable. 

69.  I hold that the Applicants and the Respondents have settled all their disputes in HCA 400 and HCCW 386 on the terms of the Settlement Agreement. 

70.  There should be a stay of HCA 400 and HCCW 386 save for the purpose of enforcement of the terms of the Settlement Agreement, and I so order. 

71.  I make a costs order nisi that:

(1)  the costs of and occasioned by the Stay Summonses be paid by the Respondents to the Applicants, to be taxed if not agreed and with a certificate for one counsel. With no disrespect to counsel, it seems to me that the applications can be dealt with by one counsel; and

(2)  the Official Receiver’s costs in respect of the stay summons in HCCW 386 be paid by Morten, to be assessed by way of gross sum assessment if not agreed.