XCHRX MAXMEDIA LTD v. ROBERTO DE VIDO

HCA 4233/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4233 OF 2000

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J U D G M E N T

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1. This is an application brought by summons under Order 14A of the Rules of High Court (O.14A RHC) for certain determinations to be made before trial in proceedings brought by the plaintiff against the defendant for breach of contract.

Background

2. The plaintiff is a company owned and controlled by the second defendant in the counterclaim (Fjelddahl), who also owns and controls the third defendant in the counterclaim (Motiv8). The plaintiff and defendant were co-shareholders in Communic8 Limited (Communic8) a company incorporated in Hong Kong in 1996. The parties negotiated the purchase by the defendant of the plaintiff's shares in Communic8, and this resulted in their entering into an agreement for the sale and purchase of the shares on 26 January 1999. As this is central to the dispute that subsequently erupted I reproduce its terms in full:-

"THE AGREEMENT is made the 26th day of 1999

BETWEEN

1. MAXMEDIA LTD, a company incorporated in Hong Kong whose registered office is situated at 27/F Yan's Tower, 27 Wong Chuk Hang Road, Hong Kong (the "Vendor") of the one part; and

2. ROBERTO DE VIDO, (holder of Hong Kong Identity Card No. XXXXXXX(X)) of Hong Kong (the "Purchaser") of the other part.

Recitals

(a) Information concerning the Company (as defined herein) is set out in Schedule 1.

(b) The principal business of the Company is the provision of marketing services.

(c) The Vendor is the legal and beneficial owner of 46.25% of the entire capital of the Company, 100% of which are owned beneficially by Mr. Chris Fjelddahl (the "Sale Shares").

(d) The Vendor has agreed to sell and the Purchaser has agreed to purchase the Sale Shares on and subject to the provisions of this Agreement.

WHEREBY IT IS AGREED as follows:-

1. Interpretation

1.1 In this Agreement save where the context otherwise requires the following expressions shall have the following meanings:-

"Company"	means Communic8 Ltd.;
"Completion"	means completion of the sale and purchase of the Sale Shares pursuant to this Agreement;
"Completion Date"	means the 26th March 1999 or such other date as the Vendor and the Purchaser agree in writing;
"Sale Shares"	has the meaning given in Recital (c);

2. Sale and Purchase of the Sale Shares

2.1 On and subject to the terms of this Agreement, the Vendor shall sell and Purchaser shall purchase upon the Completion Date all the Sale Shares, free from all charges, liens, encumbrances, equities, claims and other third party rights whatsoever and together with all benefits and rights attached or accruing to them for the consideration as thereafter set out.

3. Consideration

3.1 The total Consideration payable to the Vendor for the Sale Shares upon Completion shall be the amount of HK$2,712,500.00, payable as follows:-

3.1.1 HK$500,000.00 payable by the Purchaser on or before 26th February, 1999 upon payment of which the Vendor shall transfer such number of Sale Shares as represents 18% of the entire paid up capital to the Purchaser's nominee Mizue Nagai (Holder of Hong Kong Identity Card No. XXXXXXX(X);

3.1.2 HK$1,437,500 payable by the Purchaser on or before Completion upon payment of which the Vendor shall transfer the balance of Sale Shares to the Purchaser's nominee Mizue Nagai (Holder of Hong Kong Identity Card No. XXXXXXX(X);

3.1.3 HK$387,500.00 payable by the Purchaser on or before 26th September, 1999;

3.1.4 HK$387,500.00 payable by the Purchaser on or before 26th March, 2000;

4. Completion

4.1 Completion shall take place on the Completion Date or at such other place and/or time as shall be agreed in writing by the parties hereto at which time the Vendor shall cause to be delivered to the Purchaser duly executed Instruments of Transfer of the Sale Shares and Contract Notes to the Purchaser in the name of Mizue Nagai and payment of the sum due to the Purchaser under 3.1.2 shall be effected.

4.2 The Vendor shall at Completion date cause its nominee to resign as director from the Company without claim for compensation for of office or otherwise.

5. Acknowledgement

5.1 It is acknowledged by the Purchaser that it is buying the Sale Shares on an "as is" basis, that it has participated in the management of the Company and is aware of its activities, and that the Vendor gives and has given no representations or warranties regarding the Company. In the premises, the Vendor shall not withhold or attempt to withhold, set off or otherwise delay the balance of consideration in manner at all payable under 3.1.3 and 3.1.4 hereof, notwithstanding any claim of whatever nature it claims to have against the Vendor.

6. Undertakings

6.1 The Purchaser undertakes that he shall procure the Company to change the name of the Company and desist from using the word "Communic8" or any other similar word which includes a numeral eight ("8") in the spelling. It is explicitly stated and agreed for the avoidance of doubt that the Company may trade under the name "Communicate" if so desired.

6.2 The Parties hereto shall not directly or indirectly use or attempt to use the word "Communic8" for a period of two years from the date hereof and the Vendor shall procure on Completion a similar undertaking on the part of Chris Fjelddahl (Holder of Hong Kong Identity Card No.XXXXXXX(X)).

6.3 Any company owned or even partially controlled by the Vendor shall not, so as to compete with the Company and/or so as to harm the goodwill of the Company, solicit or pursue any Contract Publishing business in Hong Kong for a period of 24 months. Contract Publishing shall be defined as any contract between The Company and a client company for which The Company receives payment in exchange for services rendered for the creation of a publication with a frequency of more than two issues per year. It is explicitly agreed for the avoidance of doubt that the Vendor may provide any services required for the production of brochures, annual reports and any other printed items which do not generally get classified as "publications" under contract to any party in Hong Kong.

6.4 The Vendor shall not, during a period of 24 months from the date of this contract, directly or through any company owned or even partially controlled by the Vendor, incite to resign from The Company or offer employment to, any personnel who was an employee of the Company at or before the Completion date.

6.5 Clauses 6.1, 6.2, 6.3 and 6.4 shall go immediately null and void should the Purchaser fail to meet any of the Consideration items listed under Clause 3.

7. Costs

7.1 Each Party shall bear their own legal costs and disbursement in respect of the preparation and execution of this Agreement together with all other costs incidental thereto.

7.2 The Purchaser and the Vendor shall equally bear all stamp duty in relation to the Sale Shares defined herein.

8. Governing Law and Jurisdiction

8.1 This Agreement shall be governed by and construed in accordance with the laws of the Hong Kong Special Administrative Region and the parties hereto hereby submit themselves to the exclusive jurisdiction of the Hong Kong courts.

9. Miscellaneous

9.1 The Vendor hereby agrees to do, execute and perform such further acts, deed, documents and things as the Purchaser may reasonably require in order to effectively vest the beneficial and registered ownership of the Sale Shares in the Purchaser or its respective nominees free from all charges, liens, options, equities and other adverse interests and assuring and securing to the Purchaser the full benefits of the rights, powers and remedies conferred upon the Purchaser in this Agreement.

9.2 This Agreement supersedes any previous agreement between the parties in relation to the acquisition of the Sale Shares and the parties acknowledge that no claim shall arise in respect of any agreement so superseded by this Agreement.

AS WITNESS the parties hereto have duly executed this Agreement the day and year first above written.

Signed by	)
for and on behalf of	)
MaxMedia Ltd.	)	(Signed)
	)
In the presence of	)
Chiaki Fjelddahl	)	(Signed)
Signed by	)
Roberto De Vido	)	(Signed)
	)
in the presence of	)
Wenhui Zhong	)	(Signed)

FIRST SCHEDULE
The Company

1.	Name:		Communic8 Ltd
2.	Date of Incorporation		10th October 1996
3.	Country of Incorporation: and class of company		incorporated in Hong Kong as a private company limited by shares
4.	Company Number:		569213
5.	Registered office:		27/F Yan's Tower, 27 Wong Chuk Hang Road, Hong Kong
6.	Authorised share capital:		HK$10,000
7.	Issued share capital:		HK$10,000
8.	Directors:		FJELDDAHL, Per Christian 12/C Ventris Terrace, 25-27 Ventris Road, Happy Valley, Hong Kong HKIC No.: P102309(1)
			DE VIDO, Roberto 1/F House 51, Kei Ling Wa Lo Wai Village, Sai Kung, New Territories, Hong Kong HKIC No.: K971908(3)"

3. The defendant paid the first instalment on due date. When the time came to meet the second on the date of completion, the defendant was short by $237,000.00 of the required amount. He paid $1,200,000.00 on due date and took a transfer of the shares. He undertook to pay the balance two months later. This was recorded in a document signed by the parties, which I reproduce below:-

"RECEIPT

I, Chris Fjelddahl director of MaxMedia Ltd, confirm to have received a cheque of HK$1,200,000 on March 25, 1999 as partial payment of the total sum of HK$1,437,500 initially due on or before March 26, 1999 under the Share Sale agreement between MaxMedia Ltd and Roberto De Vido dated January 26, 1999.

Transfer of 28.25% shares (all remaining shares held by MaxMedia Ltd) due from MaxMedia Ltd to Roberto De Vido has been completed as of today.

I, Roberto De Vido hereby confirm that I will undertake to pay the balance due (HK$237,500) to complete the original payment of HK$1,437,500 on or before May 26, 1999.

For and on behalf of

(signed)	(signed)
-----------------------	---------------------
Chris Fjelddahl	Roberto De Vido
on behalf of MaxMedia Ltd	"

4. The defendant paid the sum of $237,500.00 on or before 20 May 1999.

5. In compliance with clause 6.1 the defendant changed the name of Communic8 to Communicate Limited (Communicate). But in July it came to Fjelddahl's attention that he was continuing to use the domain name communic8.com. This prompted the following exchange in emails:

"Subject: Re: Domain name
Date: 07/13 8:23
Received: 07/13 16:24
From: roberto de vido, roberto@communic8.com
To: chris fjelddahl, chris@motiv8-online.com

>BTW, although there's no great rush, I see you are
>still using the "communic8.com" domain name. Do
>you have any idea of when you are planning to make
>the switch
>chris
I'm not planning to switch that issue was never raised by you.
Roberto"

"Subject: Re: Domain name
Date: 07/13 8:40
Received: 07/13 16:45
From: roberto de vido, roberto@communic8.com
To: chris fjelddahl, chris@motiv8-online.com

>In my mind that made the issue of not using the name "Communic8"
>in any way, clear enough without resorting to a long and >exhaustive listing of what can and can't be done.
>
>In spirit, I thought we had agreed to let go of the name Communic8
>completely and unequivocally. You never raised the issue that you
>were planning to keep using the name for the email addresses.

well, the name change is what I understood we agreed and that's what's been done.

In MY mind, the domain name shouldn't matter one whit to you.

Roberto"

6. When the date for payment of the third instalment fell due the defendant did not pay it. He says he did not because a few days prior he learned that Fjelddahl either in his name or through the plaintiff or Motiv8 was in the throes of negotiating a publishing contract in direct contravention of the non-competition clause 6.3. Instead of posting a cheque he instructed his solicitors to inform the plaintiff that by this breach it had repudiated the agreement which he accepted. They did so by letter of 24 September which I reproduce below:

"AJ Halkes solicitors
	24 September 1999

MaxMedia Limited (Motiv8)
21/F, Room 2106
Causeway Bay Plaza II
463 Lockhart Road
Causeway Bay, Hong Kong
Attn: Mr Chris Fjelddahl

Dear Sirs,

Re: Share Purchase Agreement dated 26th day 1999 (the "Agreement")

We are instructed to act for Mr Roberto DeVido.

We refer to above Agreement signed by our client and by Mr. Chris Fjelddah on behalf of your company. We specifically draw your attention to the condition of the Agreement as set out in clause 6.3.

It has come to our client's attention that in breach of the above condition, employees and or directors/shareholders or representatives of your company and its associated companies have been soliciting or pursuing Contract Publishing business in Hong Kong directly from a current customer of our client.

Such conduct can only lead to the reasonable inference that your company does not intend to fulfil its obligations under the Agreement and is clear evidence that your company has the intention no longer to be bound by the same. Clearly your company has repudiated the Agreement. We are instructed by our client to inform you that our client accepts such repudiation and shall treat the same as discharging him from further performance thereof.

Our client also reserves the right to issue proceedings against your company for damages for the repudiation of the Agreement.

Yours faithfully

(Signed)

Adrian J Halkes"

7. The plaintiff's response was to deny the allegations and demand payment due. Its solicitors wrote the following letter of 28 September:-

"Oldham, Li & Nie Solicitors
	DATE: 28th September, 1999

Messrs. AJ Halkes
Solicitors
21st Floor,
19-27 Wyndham Street,
Central, Hong Kong

Dear Sirs,

Re: Share Purchase Agreement dated 26th January, 1999 (the "Agreement")

Your letter of the 24th September, 1999 addressed to MaxMedia Limited has been handed to us for our attention. The allegations that our client is in breach of Clause 6.3 or indeed any other clause of the Agreement are denied. Your client's attempts to avoid his obligations under the Agreement are transparent, obvious and amateurish. We find it almost laughable that your client leaves the situation until two days before his next payment should be made to raise these wild and unsubstantiated claims. Please let us know by return which employees and/or (if you had the evidence you would not have to make such vagaries) and/or directors and/or shareholders and/or representatives of our client and associated companies have been soliciting or pursuing Contract Publishing business in Hong Kong. The complete lack of detail and specific allegations demonstrate that your client has no evidence whatsoever against MaxMedia Limited.

Unless we receive specific details within the course of the next 24 hours we shall not only hold your client responsible for his obligations under the Agreement, we shall also bring to our client's attention the fact that your firm has made statements which are derogatory and defamatory by implication of Mr. Chris Fjelddahl and that the same appear to have been made without any attempt to check the truthfulness of such and in all the circumstances you simply acted as a mouthpiece for your client's slanderous allegations and should be held accountable.

In the meantime, your client's obvious repudiation of the Agreement is accepted and our client will not regard itself as bound by the terms of such though we shall nevertheless advise our client to issue immediate proceedings against your client and claim damages arising from such breach and for the amounts still owing under the Agreement. It appear to us that your client should now be liable for both of the payments referred to in Clause 3.1.3 and 3.1.4.

Whilst writing it is also obvious from the evidence that your client is in breach of the undertaking contained in Clause 6.1 and we are advising our client on the remedies available.

Yours faithfully,

(Signed)"

The proceedings

8. The parties attempted to settle their differences but without success. By writ of 27 April 2000 the plaintiff issued a writ for the balance due under the agreement, and for damages for loss occasioned by the defendant's continuing use of the domain name communic8.com. The defendant filed a defence and counterclaim for recovery of the first two instalments and further damages to compensate for the plaintiff's breach of clause 6.3. The plaintiff filed a reply to the defence and defence to the counterclaim.

9. From these relatively simple beginnings the pleadings have expanded in a series of amendments filed by both sides, and that included the joining of Fjelddahl and Motiv8 as defendants in the counterclaim. As a result, there are a number of issues which at some stage have to be resolved; they include the following:

(1) Did the plaintiff comply with clause 6.2 of the agreement and on completion procure the required undertaking from Fjeddahl not to use the word Communic8?

(2) Was the defendant in breach for continuing to use the domain name communic8.com?

(3) Was the defendant liable for instalments three and four, regardless of alleged misconduct by the plaintiff in purported breach of clause 6.3, by virtue of clause 5?

(4) Was the plaintiff Fjelddahl or Motiv8 acting in competition with Communicate contrary to clause 6.3?

(5) Was the defendant's failure to pay the second instalment by due date a default which rendered clauses 6.1, 6.2, 6.3, and 6.4 immediately null and void, by virtue of clause 6.5?

The Order 14A application

10. By its application of 5 August 2000 later amended the plaintiff seeks my determination on the construction and effect of clauses 3, 5 and 6 of the agreement and of the exchange of emails of 13 July 1999.

11. The relevant terms of O.14A RHC are as follows:

"Determination of questions of law or construction (O.14A, r.1)

(1) The Court may upon the application of a party or of its own motion determine any question of law or construction of any document arising in any cause or matter at any stage of the proceedings where it appears to the Court that-

(a) such question is suitable for determination without a full trial of the Action; and

(b) such determination will finally determine (subject only to any possible appeal) the entire cause or matter or any claim or issue therein.

(2) Upon such determination the Court may dismiss the cause or matter or make such order or judgment as it thinks just.

................"

12. The purpose of the procedure is clear. If in a dispute there are agreed or incontrovertible facts such that the issue to be determined centres round the true construction of a document or point of law the Court can be invited to rule on that and thereby decide the case or narrow the issues as the case may be, and thus save or reduce the time and costs of preparing for trial and the trial itself.

13. It follows that in such circumstances it is appropriate for the parties or on its own motion the court to make use of O.14A. But equally it should not be invoked if there are material disputes of fact, for they must be resolved first in the calling of evidence at trial. It is not right for the Court in an O.14A application to give a direction on the basis of a hypothetical scenario or unproven facts.

14. I turn now to the arguments put forward by Mr Hoy in support of the plaintiff's application for determinations on the construction and effect of clauses 3, 5 and 6 and of the exchange of emails.

15. There are, as he concedes, material disputes of fact. But he submits that based on what is incontrovertible, I am entitled to make rulings which will stand regardless of the outcome of the disputes of fact. He invites the following determinations:

(a) by a proper construction of the agreement and having regard to the subject matter, the parties agreed that time was intended to be of the essence;

(b) by the defendant's failure to pay the second instalment in time, clause 6.5 was activated making clauses 6.1 to 6.4 null and void;

(c) by virtue of clause 6.3 being null and void the plaintiff was no longer bound by an obligation not to compete;

(d) by virtue of clause 6.2 being null and void Fjelddahl was not bound to give an undertaking; alternatively, the exchange of emails establish he did give the undertaking;

(e) clause 5 required the defendant not to delay, withhold or set-off the third and fourth instalments, notwithstanding any impropriety by the plaintiff or those connected;

(f) the fact that the defendant did not pay the third and fourth instalments put him in breach and entitles the plaintiff to judgment for the amount in question, stayed pending the outcome of his counterclaim.

16. Mr Thomson for the defendant says in response that the application is misconceived and should be dismissed. The numerous issues raised by the greatly expanded pleadings, all hotly contested, make this an unsuitable case for the O.14A procedure. There are significant substantial disputes of fact, and in particular the timing, nature and extent of the plaintiff's alleged failure to comply with the non-competition clause, which need to be resolved before rulings on construction of the contract and the law can be given. And the exchange of emails is at best evidence of the existence of an undertaking and not proof there was one.

The outcome

17. I have come to the conclusion that it is wholly inappropriate for me to invoke O.14A RHC and make determinations as asked for.

18. I shall deal with the points in turn:

(a) it is impossible for me to establish definitively without evidence and argument that it was an express or implied term that time was intended to be of the essence;

(b) the proposition that the defendant's not paying the second instalment on the agreed due date activated clause 6.5 fails to address the prospect that the parties may by the document reproduced headed RECEIPT herein have varied the terms, or that the plaintiff had waived its rights, or granted forbearance;

(c) the proposition that 6.3 was void and the plaintiff no longer bound does not reflect Fjeddahl's view in a letter he wrote to a potential customer on 23 September 1999:-

"Motiv8. Asia's below-the-line marketing specialists.

Pearl Tong
Flat 36 Chater Hall,
1 Conduit Road,
Mid-levels, Hong Kong

September 23, 1999

Dear Pearl,

As a matter of record, I would just like to leave no room for confusion with regards to Motiv8's interest in providing potential work for some of your projects or clients.

As you know, my contractual agreement with Mr. De Vido does not allow me to produce printed paper-newsletters and magazines for corporations (by way of contracted services) for a specified period of time. I have of course mentioned this several times verbally in our dealings during the last few months as we've explored various online publishing and editorial services opportunities together.

It does now appear that Mr. De Vido is in breach of our contract.

I will start engaging in legal proceedings against Mr. De Vido to dear the contractual situation as quickly as possible. If and when Mr. De Vido's breach of contract is legally confirmed, there may indeed be a situation where I could again provide contract publishing services to customers in Hong Kong. Until this is formally confirmed, I will not be in a position to do so.

Just for the record.

Best regards,

Chris Fjelddahl
Managing Director, Motiv8 o/b MaxMedia Ltd "

(d) it is by no means conclusive that Fjelddahl was not obligated to give the undertaking at clause 6.2; the exchange of emails is not incontrovertible proof that he did;

(e) clause 5 when read in full does not by its construction presuppose that the defendant had no right at all, in any circumstances, to withhold instalments three and four; there will need to be evidence and findings of fact on the nature and extent of the plaintiff's alleged misconduct;

(f) there can be no judgment for either party without a full examination of the evidence and findings of fact.

19. The result is that the plaintiff's application fails and is dismissed. Costs will follow the event and be to the defendant taxed if not agreed, but will be nisi at first instance.