INVEST GAIN LTD v. NOVEL GOOD LTD

CACV 341 & 344/2019
(Heard together)

[2021] HKCA 1983

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 341 AND 344 OF 2019

(ON APPEAL FROM HCA NO 939 OF 2013)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.  This is the plaintiff’s application for leave to appeal to the Court of Final Appeal against the judgment of this court handed down on 20 January 2021 (“CA Judgment”) dismissing the appeal by the plaintiff against the judgment of B Chu J on 28 June 2019 after a trial lasting for 12 days (“CFI Judgment”). Save otherwise stated, we will adopt the terms and expressions in the CA Judgment.

2.  This action arose out of the agreement for the sale and purchase of a substantial stake of shares in the Target Company in which the plaintiff was the vendor and the defendant the purchaser.  The defendant claimed there were numerous breaches of warranties of the plaintiff resulting in substantial losses.  The plaintiff brought this action to seek the release of the shares it had charged as security for the performance of its obligations.  The defendant counterclaimed for damages for breach of warranties and other terms of the agreement.

3.  The CFI Judgment was given in the trial on liability and causation.  12 issues were set out in the Scott Schedule as issues for trial. The defendant and the plaintiff each brought an appeal (CACV 341/2019 and CACV 344/2019) against those parts of the CFI Judgment with adverse findings against that particular party.

4.  In the CA Judgment, we upheld the judge’s construction on clause 8.05 of the SPA^[1] and her holding that a compliant notice of claim was given pursuant thereto by the MBJSM Letter in respect of some of the defendant’s claims for breaches of Warranties.  We agreed with the judge that on the proper construction of clause 8.05, a ‘bald’ notice is sufficient without having to set out some identification or particulars of the potential claim^[2].

5.  We did not agree with the judge on the proper construction of the Litigation Warranty in Schedule 2 of the SPA.  We held that the judge was in error to hold that the relevant wording of the warranty (that there was no fact or circumstance likely to give rise to any such proceedings or to any other proceedings against any director, officer or employee (past or present) of the Target Company in respect of any act or default for which the Target Company might be vicariously liable) should be construed as being qualified by words such as “to the best of the knowledge, information and belief of the vendor” so that the Litigation Warranty would apply only so far as the plaintiff was aware of the relevant fact or circumstance^[3].

6.  The plaintiff has put forth four questions said to be of great general and public importance in its Amended Notice of Motion filed on 16 March 2021 (which are identical for both CACV 341/2019 and CACV 344/2019) as stated below. 

“First Question

Can the ordinary and natural meaning of a notice of claim clause for breach of warranty be construed properly if divorced from the time limit within which the clause requires notice to be given?”

“Second Question

If a clause providing for notice of a breach of warranty is ambiguous, should the ambiguity be resolved by construing it narrowly so as to restrict the vendor’s liability rather than amplify it?”

“Third Question

Is it correct to characterise a notice of breach of warranty as ‘bald’ where the notice specifically identifies the class and substance of such breach?”

“Fourth Question

Does a warranty that ‘there is no fact or circumstance likely to give rise to any litigation or… proceedings’ import, of necessity, the exercise of judgment so as to be able to warrant that a fact or circumstance is likely to give rise to proceedings, ‘to the best of the knowledge, information and belief of the vendor’?”

7.  The 1^st to 3^rd Questions relate to the construction of clause 8.05.  The 4^th Question relates to the construction of the Litigation Warranty.  Most of the plaintiff’s submissions are a repetition of the unsuccessful arguments advanced on appeal and it has not sought to explain why the questions relating to the construction of particular provisions in a contract ought to be regarded as questions of great general and public importance.

8.  In respect of the 1^st Question, the plaintiff submitted that this court was wrong to focus on the form of words relative to the notice of the claim without any or any proper regard to the qualifying time limit.  We have considered this submission in §§50 to 51 of the CA Judgment and rejected it for the reasons given in §§49 and 52. 

9.  The construction of clause 8.05 is fact and context specific and the general principles are not in dispute.  As emphasised in §20 of the CA Judgment, the only true principle to be derived from the authorities on notification clauses is that every notification clause turns on its own individual wording.  No question of great general or public importance arises from the 1^st Question. Besides, we do not think the plaintiff’s construction of clause 8.05 is reasonably arguable for the reasons given in section B4 of the CA Judgment.  We refuse to give leave to appeal on this question.

10.  The real issue in the 2^nd Question is whether the language of clause 8.05 is ambiguous.  This is again fact specific. The relevant principle was stated in §25 of the CA Judgment (that “an ambiguity in its meaning may have to be resolved by a preference for the narrower construction, if linguistic, contextual and purposive analysis do not disclose an answer to the question with sufficient clarity”, citing Nobahar-Cookson v The Hut Group Ltd [2016] EWCA Civ 128 at §21). As we have agreed with the judge the natural and ordinary meaning of clause 8.05 is that a bald notice is sufficient (at §47), there is no ambiguity which would require the application of the aforesaid principle.

11.  There is no question of great general or public importance arising out of the 2^nd Question. The ambiguity in the wording of clause 8.05 contended for by the plaintiff is not reasonably arguable.  It is not appropriate to grant leave to appeal on the 2^nd Question.

12.  The 3^rd Question is premised on the contents of the MBJSM Letter and is clearly case specific.  It was alluded to in §54 of the CA Judgment:

“54. Mr Sarony also prayed in aid the evidence of the defendant’s witness Mr Ni Jian Da (“Mr Ni”), who had participated in the negotiations, and Mr Ni’s understanding of clause 8.05, as well as the MBJSM Letter which provided details of the 6 Incidents, to contend that such evidence should carry substantial weight as showing how a “reasonable recipient” or participant would have understood clause 8.05 and the need to provide details of the claim. These arguments were raised by the plaintiff’s former counsel before the judge and were rightly rejected as evidence of the parties’ subjective intent or understanding would be irrelevant and inadmissible. And I do not think clause 5.02, which gives an opportunity to the Group to make good the defects in an agreed list prior to Completion, is relevant to the construction of clause 8.05.”

13.  This question has no or little bearing on the proper construction of clause 8.05.  The MBJSM Letter is evidence of the parties’ subjective intent and the subsequent conduct of the parties.  It can hardly give rise to any question of great general or public importance.  We decline to grant leave to appeal on the 3^rd Question.

14.  The 4^th Question is a repetition of the plaintiff’s argument that in order to warrant whether something is “likely to give rise to” litigation, this requires the warrantor to state an opinion for which knowledge is necessary.  We rejected this contention for the reasons given in §§86 to 89 of the CA Judgment.  As we have explained, there is no common usage of the word “warranty”, it all depends on the context in which the word is used.

15.  We do not think this is a question for which the Court of Final Appeal can usefully give general guidance. As in the construction of clause 8.05, the matter was resolved by applying well-established principles with which the plaintiff does not dispute.  We therefore refuse to grant leave to appeal on the 4^th Question.

16.  As for plaintiff’s reliance on the “or otherwise” ground, no particulars are given in the Amended Notice of Motion or the submissions why the present circumstances are considered “exceptional” to justify the Court of Final Appeal undertaking the construction exercise for a third time (Lo Yuk Sui v Fubon Bank (Hong Kong) Ltd formerly known as International Bank of Asia Ltd (2020) 23 HKCFAR 138 at §§15 to 17).  In any event, the practice of this court is to defer to the Appeal Committee of the Court of Final Appeal whether leave to appeal should be granted on the “or otherwise” limb.

17.  The Amended Notice of Motion is therefore dismissed with an order that the plaintiff do pay the defendant’s costs, which we summarily assess in the amount of $110,000.