YBN REEVER AND OCEAN PARTNERS LTD v. UNIBIOCHEM INTERNATIONAL LTD AND OTHERS

HCA 312/2017

[2022] HKCFI 1422

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 312 OF 2017

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DECISION

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Introduction

1.  There are three applications before the Court.

The First Application

2.  As more particularly described below, the first is an application by the Plaintiff for summary judgment against the 1^st to 3^rd Defendants by Amended Summons. The Plaintiff’s Summons was dated 20 March 2017 and amended pursuant to the Order of Master R. Lai dated 24 May 2017.

The Second Application

3.  The second is an application by the 2^nd Defendant for leave to:

(1)  file his 3^rd Affirmation, Frank Chen 3^rd, in opposition to the Plaintiff’s summary judgment application;  and

(2)  re-amend his Amended Defence and Counterclaim.

The Third Application

4.  The third is an application by the Plaintiff for leave to file evidence by way of affirmation, Choy 4^th, in reply to Frank Chen 3^rd.

Second and Third Applications

5.  It is appropriate to deal with the second and third applications first.

6.  The 2^nd Defendant submits that his application was prompted by an admission by the Plaintiff in Choy 3^rd, which gave rise to a defence of illegality.  The 2^nd Defendant acknowledges that he has the burden to prove there are triable issues and to depose to all matters of fact that he wishes to rely on in showing cause against an Order 14 application and hence, his application for leave to file Frank Chen 3^rd.

7.  The Plaintiff does not oppose the 2^nd Defendant’s application provided that (a) leave is granted to file Choy 4^th and (b) costs are awarded to it.

8.  The Court considers that costs of both the second and third applications as between the Plaintiff and the 2^nd Defendant should follow the determination of the first application as between them and hence, orders that such costs be in the cause of the Plaintiff’s summary judgment application; and grants leave to the 2^nd Defendant to re-amend its Amended Defence and Counterclaim and file Frank Chen 3^rd; and grants leave to the Plaintiff to file Choy 4^th.

First Application

9.  The first application is one by the Plaintiff for an order pursuant to Order 86 or alternatively Order 14 of the Rules of the High Court for:

(1)(a) specific performance by the 1^st Defendant of Clause 11.4 of the Investment Agreement, (i.e. to complete and deliver to the Plaintiff the 1^st Defendant Group’s Audited Consolidated Accounts, prepared in accordance with the Hong Kong Financial Reporting Standards, for the financial years ending 31 December 2014 and 31 December 2015), by a date to be ordered by the Court; and

    (b) the 2^nd and 3^rd Defendants, pursuant to Clauses 8 and 11.4 of the Investment Agreement, to procure the 1^st Defendant so to complete and deliver such Audited Consolidated Accounts by a date to be ordered by the Court; and the Defendants, pursuant to Clauses 8 and 10 of the Investment Agreement, to complete the purchase of the 644 Put Option Shares in the 1^st Defendant held by the Plaintiff pursuant to the Plaintiff’s exercise of the Put Option by way of the Put Option Exercise Notice in accordance with Clause 10 of the Investment Agreement at a date and time to be appointed by the Court, with such date being deemed the date of Option Completion for the purpose of calculating the Put Option Price;

          or

(2) in the alterative to (1)(a) and (b) above, damages in lieu of specific performance, with such damages to be assessed.

The Parties:

10.  The Plaintiff is a BVI company that engages in the business of private equity investment.

11.  The 1^st Defendant is a Hong Kong company.

12.  The 2^nd Defendant and the 3^rd Defendant were at the relevant time the majority shareholders and directors of the 1^st Defendant.  Although the 2^nd Defendant had ceased to be a director by 18 January 2017.  However, by then his son, Frederick Chen, was a director of the 1^st Defendant.

The Plaintiff’s Position

The Investment

13.  The Plaintiff pleads in the Amended Statement of Claim endorsed on the Writ of Summons and dated as amended on 8 May 2017 pursuant to Order 20 rule 3 of the Rules of the High Court as follows:

5.      By a written agreement dated 20 March 2015 (the “Investment Agreement”) by and among (a) the Plaintiff, as the investor (the “Investor”); (b) the 1^st Defendant, as the company (the “Company”); and (c) the 2^nd and 3^rd Defendants, as the guarantors (the “Guarantors”), the Company agreed to allot and issue and the Plaintiff agreed to subscribe for a total of 644 new ordinary shares in the issued share capital of the Defendant (the “Subscription Shares”), then representing approximately 4.62% of the issued share capital of the 1^st Defendant immediately upon completion of the subscription, for the aggregate consideration of HK$20,800,000 (the “Subscription Price”).

6.  The Investment Agreement provides relevantly as follows:-

6.1    Clause 1 (Definitions):-

““Listing Due Date” means 18 months from the Completion Date;”

6.2    Clause 2 (Subscription):-

“2.1 ... the Investor agrees to subscribe for, and the Company agrees to allot and issue to the Investor, the number of Subscription Shares set out below, free from all Encumbrances and together with all rights and benefits attached to the Subscription Shares as at the Completion Date at the Subscription Price.

Shareholder	Shares	Percentage shareholding in the Company immediately upon Completion	Total subscription monies
Investor	644 Shares	4.62%	HK$20,800,000

…

2.4 Completion shall take place on the Completion Date.”

6.3    Clause 8 (Guarantee and Warranties by the Guarantors):-

“8.1 Each of the Guarantors jointly and severally as primary obligor unconditionally and irrevocably:-

(i) guarantees by way of continuing guarantee to the Investor the payment of all amounts by the Company under this Agreement;

(ii) undertakes to ensure that the Company and members of the Group will perform when due all of their respective obligations under this Agreement; and

(iii) agrees to indemnify and keep indemnified the Investor against all losses and damages sustained by it flowing from any non-payment or default of any kind by the Company or any member of the Group under this Agreement.

8.2 Each Guarantor's obligations under this clause:-

(i) constitutes direct, primary and unconditional obligation to pay on demand by an Investor any sum which the Company is liable to pay under this Agreement and to perform on demand any obligation of the Company or any member of the Group under this Agreement without requiring the Investor first to take steps against the Company or any member of the Group or any other person; and

(ii) shall not be affected by any matter or thing which but for this provision might operate to affect or prejudice those obligations, including without limitation:-

(a) any time or indulgence granted to, or composition with, the Company or any member of the Group or any other person;

(b) the taking, variation, renewal or release of, or refusal or neglect to perfect or enforce any right, remedy or security against the Company or any member of the Group or any other person; or

(c) any legal limitation, disability, or other circumstance relating to any member of the Group or any unenforceability or invalidity of any obligation of the Company or any member of the Group under this Agreement.”

6.4    Clause 10 (Put Option):-

“10.1   The Company hereby grants to the Investor an option (the “Put Option”) to require the Company (and/or its Subsidiaries as determined by the Investor) to, subject to all applicable laws, the Listing Rules and any requirements from the Stock Exchange, purchase all the Subscription Shares then held by the Investor (the “Put Option Shares”)at the Put Option Price during the period commencing on the Listing Due Date and ending on the date falling six months after the Listing Due Date (the “Put Option Period”)PROVIDED THAT the Put Option shall not be capable of being exercised if the Listing takes place prior to the Listing Due Date.

The Put Option Price shall be calculated as follows:

Put Option Price = A x (1 + IRR)

Where for the purpose of this clause:

“A” means the number of Put Option Shares (for the avoidance of doubt, the number of Put Option Shares shall exclude such Subscription Shares which have been sold, transferred or otherwise disposed of or agreed to be disposed of by the Investor before the exercise of the Put Option) multiplied by the Subscription Price; and

“IRR” means: -

(30% / 365) x (number of days from Completion Date to the date of completion of the Put Option)

10. 2   The Investor may exercise the Put Option in full but not in parts by serving a Put Option Exercise Notice on the Company during the Put Option Period.

10. 3   Once served, the Put Option Notice is irrevocable and shall oblige the Investor to sell and the Company to purchase or procure the purchase of all the Put Option Shares.

10. 4   Upon the service by the Investor of a Put Option Notice:

(i)     and where the Put Option price(sic) is to be settled by the Company by a reduction in its share capital, the Guarantors shall procure that a meeting of the Shareholders be held or written resolutions of the Shareholders be passed to approve the reduction in capital and the Guarantors, in their capacity as Directors, shall give the required statements of insolvency or such other statements as may be necessary to support the resolutions of the Shareholders and do such acts as may be required by the Company, including but not limited to placing the required notices in the Government gazette and one English language and one Chinese language newspaper, to enable the Company to make payment for the Put Option Shares out of capital;

(ii)    the Guarantors shall procure that a board meeting of the Company be held or written resolutions of the Director(s) be passed to approve and authorise the performance by the Company of its obligations upon the Investor's exercise of the Put Option and its acquisition of all of the Put Option Shares, including but not limited to the payment of the Put Option Price, and any other resolutions required for the Company to carry out its obligations in connection therewith; and

(iii)   the Guarantors shall deliver to the Investor a certified copy or extract of the resolutions or minutes referred to in Clauses 10.4(i) and 10.4(ii) above.

10.5   The Put Option Shares shall be sold by the Investor as legal and beneficial owner free from all Encumbrances and together with all rights attaching to them as at the date on completion of the sale.

10.6   Completion of any sale and purchase of the Put Option Shares following an exercise of the Put Option by the Investor shall take place at 23/F., Bank of America Tower, 12 Harcourt Road, Central, Hong Kong at 10:00 a.m. on the date which is the third business day after the date of receipt of the Put Option Exercise Notice by the Company or, where payment for the Put Option Shares is to be made out of the capital of the Company, on such date as shall be five weeks from the date of the resolutions referred to in Clause 10.4, or such other time and place as may be agreed between the Investor, the Company and/or the Guarantors.

10.7   At the completion as referred to in Clause 10. 6, the Company shall pay or procure payment of the Put Option Price in full for the Put Option Shares in cash or in cleared funds by electronic transfer. Each of the Company and the Guarantors undertake to procure sufficient funds to enable the Company to settle the Put Option Price in full including but not limited to procuring declaration of dividends by or loans from the Company and/or Subsidiaries and/or through other financing arrangements.

10.8    Against payment of the Put Option Price referred to in Clause 10.7, the Investor shall procure the delivery to the Company or as it may direct:

(i)     a duly executed transfer or transfers and contract notes in respect of the Put Option Shares in favour of the Company or as it may direct;

(ii)    (if any) share certificate(s) representing such Put Option Shares;

(iii)   a certified true copy of the resolutions passed by the board of directors of the Investor approving the sale of the Put Option Shares to the Company and or as it may direct; and

(iv)   all other documents as the Company may reasonably require for completion of the transfer of the Put Option Shares.

10.9    All stamp duty in respect of the transfer of the Put Option Shares contemplated in this Agreement shall be borne by the transferees.”

2.5    Clause 11 (Accounting and Information Rights):-

“11.4 The audited accounts of the Company and the audited consolidated accounts of the Group Companies prepared in accordance with the HKFRS [i.e. the Hong Kong Financial Reporting Standards] in respect of each financial year shall be completed and approved by the Board and delivered to the Investor within 90 days after the end of the accounting period to which such audited accounts relate.”

2.6    Clause 26 (Governing Law and Jurisdiction):-

“26.1 This Agreement shall be governed by and construed in all respects in accordance with the laws of Hong Kong.

26.2 The Parties submit to the non-exclusive jurisdiction of the courts of Hong Kong.

26.4 Mr. Zhang [i.e. the 3^rd Defendant] hereby irrevocably appoints Unibiochem International Limited of Unit 3, 10/F., Progress Commercial Building, 9 Irving Street, Causeway Bay, Hong Kong as its agent to receive and acknowledge on its behalf service of any writ, summons, order, judgment or other notice of legal process in Hong Kong ...”

14.  The Plaintiff further pleads that:

(a)  On 1 April 2015 (“Completion Date”), 644 Subscription Shares were allotted and issued to the Plaintiff pursuant to the Investment Agreement and the name of the Plaintiff was entered in the register of members of the Defendant as holder of the Subscription Shares.

(b)  There was an obligation pursuant to clauses 8.1(ii) and 11.4 of the Investment Agreement for audited consolidated accounts of the 1^st Defendant’s group companies for the financial years ending 31 December 2014 and 31 December 2015, prepared in accordance with the Hong Kong Financial Reporting Standards, to have been delivered to the Plaintiff by the Defendants by respectively 31 March 2015 and 30 March 2016.

(c)  As the listing of the Company’s shares did not take place before 1 October 2016, being the Listing Due Date under the Investment Agreement, on 9 November 2016 the Plaintiff, through its solicitors, served on the Defendants a Put Option Exercise Notice exercising the Put Option and requesting the Defendants to complete the purchase of the Put Option Shares.

(d)  Pursuant to notices from the 1^st Defendant that the Plaintiff received a shareholders’ meeting of the 1^st Defendant was arranged to take place at 14:30 on 13 December 2016, which meeting was attended by a representative of the Plaintiff, Mr. Choy Wong Hoi Peter, by telephone and the Plaintiff supported a special resolution in respect of the Company’s proposed reduction of its working capital in order to satisfy the Plaintiff’s demand pursuant to the exercise of the Put Option.

(e)  The Plaintiff was informed by the 2^nd and 3^rd Defendants that the Special Resolution was passed on 13 December 2016, and that a board resolution of the Company was passed on 20 December 2016 to approve and authorise the performance by the Company of its obligations to pay the Put Option Price.

(f)  Completion of the sale and purchase of the Put Option Shares was required to have taken place on 24 January 2017 and the 1^st Defendant was obliged to pay or procure the payment of the Put Option Price in full in cash or cleared funds by electronic transfer, and that each of the Defendants undertook to procure sufficient funds to enable the 1^st Defendant to settle the Put Option Price in full.

(g)  Pursuant to clause 8.1 of the Investment Agreement the 2^nd and 3^rd Defendants guaranteed, by way of a continuing guarantee, to the Plaintiff, the payment by the 1^st Defendant and indemnified the Plaintiff against all losses and damages sustained by it flowing from any non-payment or default by the 1^st Defendant.

(h)  The Defendants failed to delivered the required Audited Consolidated Accounts by the required dates or at all; and failed to deliver to the Plaintiff the full amount of the Put Option Price.

15.  In light of the forgoing, the Plaintiff has sought the relief set out in the description of the first application above.

16.  However, as the 3^rd Defendant has not given notice of an intention to defend, the Plaintiff does not seek summary judgment against the 3^rd Defendant under Order 14 rule 1, as such rule requires a notice of intention to defend to have been filed.  The Plaintiff seeks summary judgment against the 3^rd Defendant under Order 86 rule 1 as such rule does not require the defendant to have filed a notice of intention to defend and reliance is placed on Order 86 rule 1(2).  Mindful that the Plaintiff accepts Order 86 rule 1 limits applications under it to specific subject matters, it only pursues summary judgment against the 3^rd Defendant in relation to its claim for specific performance of the purchase of the 644 Put Option Shares pursuant to the Plaintiff’s exercise of the Put Option, and not its claim compelling the 3^rd Defendant to procure the 1^st Defendant to furnish audited accounts.

17.  The Court accepts and agrees that the Plaintiff is entitled to pursue such an application for specific performance under Order 86, (see Dragonrider Opportunity Fund LP v Lam Fung & Anor (unreported) HCA 752/2012 [21 March 2013] (DHCJ Le Pichon); Kou Lau Ru Ling & Ors v Tse Sui Luen [2000] 2 HKC 644 (CA)).

18.  As regards the 1^st Defendant, the Plaintiff acknowledges that it filed a notice of intention to defend.  However, due to the 1^st Defendant’s, and the 3^rd Defendant’s, failure to participate in defending the Plaintiff’s application, the Plaintiff submits that they have failed to discharge their burden of showing any triable defence and having established a prima facie case that they have breached express terms under the Investment Agreement, the Plaintiff is entitled to summary judgment as set out in the Amended Minutes of Judgment provided by the Plaintiff to the Court, as further amended during submissions.

The Defendants’ Position

The 1^st and 3^rd Defendants

19.  The 1^st Defendant acknowledged service of the Writ of Summons under its own name by way of an acknowledgement of service form received by the Registry on 24 February 2017.

20.  The 3^rd Defendant, as noted above, has not acknowledged service.

21.  The Court is satisfied as a consequence of the Affirmation dated 22 February 2017 and 2^nd Affirmation dated 24 April 2017 both of Lee Chun Kuen, the Affirmation of Cheng Tin Yau dated 9 May 2017, the Affirmation of Lam Wai Wing dated 16 May 2017, the 3^rd Affirmation of Cheng Tin Yau dated 5 July 2017, the Exhibits to all such Affirmations and the additional communications provided to the Court, that the relevant documents have been served on the 1^st and 3^rd Defendants and that they have notice of the hearing of the applications.

22.  The Court finds that the lack of appearance of the 1^st and 3^rd Defendants at the hearing before it of the applications does not restrict the Court from making any orders against them.

The 2^nd Defendant

23.  In his Re-Amended Defence and Counterclaim, the 2^nd Defendant raises the following matters to meet the Plaintiff’s pleaded claim and by way of counterclaim:

(a)  That there was an implied term under the Investment Agreement, based upon mutual intention of the parties, and/or as a matter of necessity, and/or to give business efficacy, that the guarantee and warranties given by him and the 3^rd Defendant is subject to them having the necessary power or right in the capacity of a director and/or shareholder at the material time to do such reasonable acts under the Investment Agreement.

(b)  That he has no personal duty to perform what the 1^st Defendant is required to do as regards the completion and delivery of the 1^st Defendant Group’s Audit Consolidated Accounts to the Plaintiff.

(c)  That there was a settlement agreement orally reached between the Plaintiff and him on the telephone whereby he would transfer to the Plaintiff 876 shares of his shares in the Company in full and final settlement of his obligation to pay the Put Option Price and in discharging his obligation as guarantor in relation to the Put Option under the Investment Agreement (the “Oral SA”), and that on about 25 November 2016 he so transferred 876 shares.

(d)  That following performance of the Oral SA, the further steps taken by the 2^nd Defendant to procure the Company to pay the Plaintiff, including the procuring of a shareholder meeting on 13 December 2016 to arrange for the Company to reduce its share capital through a reduction of its working capital in order to satisfy the Plaintiff’s demand on the exercise of the Put Option, were as a gesture of goodwill.

(e)  That the 2^nd Defendant’s procuring of the passing of a special resolution at the shareholders’ meeting on 13 December 2016 to reduce the Company’s share capital through a reduction of its working capital and the passing of a resolution of the directors to authorize the Company to settle its obligations in relation to the Plaintiff’s exercise of the Put Option, meant the 2^nd Defendant has complied with the terms of the guarantee in relation to the Put Option under the Investment Agreement.

(f)  That in substance and effect the Investment Agreement was a loan agreement with an effective interest rate exceeding 60% per annum, which is a breach of section 24 of the Money Lenders Ordinance (Cap. 163) (the “MLO”), such that the Investment Agreement is tainted with illegality and is unenforceable.

(g)  That he is entitled to a set off due to his counterclaim, which counterclaim is essentially that due to the Plaintiff’s breach of the Oral SA by the bringing of these proceedings the 2^nd Defendant has suffered loss and damage and the Plaintiff is liable to him for the value of the 876 shares as on 25 November 2016.

The Balance of the Pleadings

24.  Pursuant to the Amended Reply and Defence to the 2^nd Defendant’s Amended Defence and Counterclaim (the “Amended Reply” ) and Answers to the 2^nd Defendant’s Request for Further and Better Particulars of the Reply and Defence to the 2^nd Defendant’s Defence and Counterclaim, the Plaintiff made the following points of relevance to the first application:

(a)  That the 2^nd Defendant ceased to be a director of the Company on 2 November 2016.

(b)  That Clause 16.3 of the Investment Agreement provides for the obligations of the Guarantors to survive them ceasing to be a director.

(c)  That there were negotiations, but that the transfer of the 876 shares was as security until the Put Option Price was paid in full and then in relation to other amounts due to it under the Investment Agreement such as the ‘Profit Guarantee Compensation’ (as defined in paragraph 8.7 of the Amended Reply) and there was no Oral SA or any settlement agreement.

(d)  That the 2^nd Defendant was obliged to have procured the Company’s compliance with clause 11.4 of the Investment Agreement in relation to the accounts on dates before he ceased to be a director and that such accounts are required in order that the Plaintiff may claim the 2014 Profit Guarantee Compensation and the 2015 Profit Guarantee Compensation from the Guarantors under clauses 6.1 and 6.2 of the Investment Agreement.

(e)  That the agreement regarding the transfer and holding of the 876 shares was reached orally on the telephone between Mr Choy for the Plaintiff and Frederick Chen for the 2^nd Defendant on or around 18 to 23 November 2016 and confirmed in email communication in the period from 21 to 23 November 2016 between the same two people.

25.  In essence, the Plaintiff submits that the transfer of the 876 shares was pursuant to a separate agreement that has nothing to do with the Investment Agreement.  The Plaintiff has submitted that it is prepared to return such shares to the 2^nd Defendant upon full satisfaction of the Defendants’ obligations.

The Applicable Legal Principals

26.  As was stated by Bokhary JA (as he then was) in Re Safe Rich Industries Limited [1994] CACV 81/1994, pp.4-5:

“In this connection, our attention has been drawn to the decision of this Court in Civil Appeal No. 182 of 1993, Ng Shou Chun v. Hung Chun San, January 26, 1994 (unreported) in which Godfrey JA, giving the first judgment at the invitation of the President, referred to the decision of this Court in Murjani v. Bank of India [1990] 1 HKLR 586, and then continued thus (at p.4):-

'But Murjani was decided before National Westminster Bank v.Daniel ... ' - that was a decision of the Court of Appeal in England given on February 19, 1993, - ' ... and I would sound a note of caution about Murjani, which has come to be cited in almost every case under 0.14 or 0.86 to justify the plaintiff in asking the court to embark on a mini-trial of the action on affidavit evidence. That is not a proper course for the court to take. It will in future be sufficient for the court to ask itself the simple question: 'Is what the defendant says credible?' If so, he must have leave to defend. If not, the plaintiff is entitled to summary judgment. The issue is not whether the defendant's assertions are to be believed; it is whether those assertions are believable.'

For my own part, I must say that when I used to hear applications for summary judgment I was never so unfortunate as to come across any advocate bold enough to attempt to get me to embark upon a mini-trial on affidavit evidence. But I fully accept of course that it may have been attempted before other judges; and certainly no such attempt should ever be made.

The test at the summary stage is indeed as simple as whether the defendant's assertions are believable. But it must be recognised - because failure to recognise it would create a debt-dodgers' charter - that whether the defendant's assertions are believable is a question to be answered not by taking those assertions in isolation but rather by taking them in the context of so much of the background as is either undisputed or beyond reasonable dispute.”

27.  Further, in Mass International Ltd v Hillis Industries Limited [1996] 1 HKC 434 at 439 Patrick Chan J (as he then was) said:

“It is appropriate to be reminded of the principles applicable to an Order 14 application. They are well-known and in fact not disputed by the parties. The plaintiff (a defendant to the second defendant's counterclaim) must show that there are triable issues. He has to satisfy the court that he has a 'real or bona fide defence' (see Ackner LJ in Banque de Paris et tes pays-bas (Suisse) SA v Costa de Naray [1984] 1 Lloyd's Rep 21 at 23). If he makes an allegation, it must be credible or believable in the light of the evidence placed before the court. As Bokhary JA said in Re Safe Rich Industries Ltd. … [see the final paragraph quoted above].

On the other hand, it must also be borne in mind that for an application like the present, the court must not embark on a mini trial on affidavits.”

28.  Additionally, in a collateral contract case, Cheung JA (as he then was) in Paul Y. Management Limited v Eternal Unity Development Limited [2008] CACV 16/2008, para.19 stated the test for determining whether there are credible triable issues, as follows:

“Test for summary judgment

19.  In deciding whether a plaintiff is entitled to summary judgment the relevant test is whether the defendant has raised credible triable issues. If there are, the matter should go to trial. If not, judgment should be entered against the defendant. In considering whether there are triable issues the Court will, of course, not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence.  But what the Court should not do is to conduct a mini-trial on complicated factual issues.”

The Evidence

29.  It is either not disputed or, bearing in mind the above legal principals and having tested the evidence in the manner set out therein, but without embarking on a mini trial on affidavits, the Court finds as follows.

(a)  In early 2015 or thereabouts the 1^st Defendant had plans to list and the Plaintiff was interested to invest, which lead to the parties entering into the Investment Agreement.

(b)  Under Clause 10 of the Investment Agreement the Plaintiff had a Put Option exercisable if a listing had not occurred within 18 months from the Plaintiff’s subscription for shares in the 1^st Defendant and that such a listing did not occur.

(c)  A Put Option Exercise Notice was served on 9 November 2016 and appropriate resolutions were passed on 13 and 20 December 2016 to permit a reduction of capital of the 1^st Defendant to satisfy the said notice.

(d)  Prior to such resolutions being passed, on 25 November 2016 the 2^nd Defendant transferred 876 shares in the 1^st Defendant to the Plaintiff.

(e)  With respect to the Oral SA, a binding enforceable settlement agreement is not made out when testing its alleged terms against the contemporaneous emails that were exchanged between Mr Choy and Frederick Chen in the period between 21 to 23 November 2016, as set out below (quoted as written, but with emphasis added and the reference to CITIC being to the Plaintiff), and the evidence of Frederick Chen in his 2^nd affirmation:

(i)  Mr Choy's email to Frederick Chen dated 21 November 2016:

“ … The certain shares [i.e. the 876 shares] are for the further guarantee referring to the put option notice (dated 28 Oct 2016). The certain shares will be transfer back to the founders upon Unibiochem International Limited completes the obligation of the put option notice. If Unibiochem International Limited does not comply the obligation, the certain shares will not be returned to the founders. However, CITIC still reserves the right to take immediate steps without further notice to Unibiochem International Limited according to the letter issued by ReedSmith Richards Butler on 9 Nov 2016.”

(ii)  Frederick Chen's reply email dated 22 November 2016:

“Although in principle we agree to transfer shares to your company.

Please confirm that this transfer is for settlement of the profit guarantee as sta[t]ed in our i[n]vestment agreement ...”

(iii)  Mr Choy's further reply email dated 23 November 2016:

“Referring to our discussion today over the phone, the certain shares are for the further guarantee referring to the put option notice (dated 28 Oct 2016) and upon the completion of obligation of the put option notice, CITIC can retain some shares which is equivalent to the difference amount according to the profit guaranteed in the investment agreement and the other portion of shares will be transferred back to Unibiochem International Limited and the founders.

A kind reminder for the put option is that interest calculation period is the number of days from the completion date of investment to the date of completion of the put option. The amount of HK$30,698,521 stated in the put option notice is calculated as at 31 Oct 2016. At the moment, the amount is HK$31,091,726.”

(iv)  Further, Frederick Chen confirms in paragraph 5 of his 2nd Affirmation that following the period between 21 to 23 November 2016 “… there was no email between us [i.e. Mr Choy and him] thereafter in relation to the settlement agreement”.

(f)  Further, when tested against the subsequent conduct of the parties, (in particular the passing of the resolutions referenced above), the alleged Oral SA is not credible.  The Court finds, however, when considering the Plaintiff’s position that the transfer of the 876 shares was by way of security and not part of a settlement of the Put Option, that there is contemporaneous supporting evidence.  The Court prefers the Plaintiff’s position and finds that there was no settlement in terms of the alleged Oral SA.

(g)  Further and in any event, clause 24.1 of the Investment Agreement requires any variation to be in writing and signed by the parties.  Such clause also requires a waiver of any provisions of the Investment Agreement to be expressly agreed by the parties.  It follows that if there was an Oral SA it would constitute a variation of the Investment Agreement and hence, contradict the express terms of clause 24.1 thereof.  As it was not in writing and signed, the Court finds that even if there was an Oral SA it is not enforceable as it is not in compliance with the said clause 24.1.

(h)  As the Court has found against the 2^nd Defendant in relation to the Oral SA, his arguments as to set off are accordingly dismissed.

(i)  The 2^nd Defendant did not press through submissions the averment as to the implied term.  The Court notes that the Investment Agreement contains an entire agreement clause at clause 24.6 and additionally, the 2^nd Defendant admits in his Re-Amended Defence and Counterclaim that he is the second largest individual shareholder of the 1^st Defendant and that Frederick Chen, his son, has been a director of the 1^st Defendant since 21 September 2016.  The Court further notes that 2^nd Defendant expressly pleads at paragraph 10(h) of the same pleading that he procured the directors’ meeting that was held on 20 December 2016 at which a resolution was passed to authorise performance by the 1^st Defendant to settle its obligations in relation to the Plaintiff’s exercise of the Put Option.  Accordingly, the 2^nd Defendant is clearly in a position to procure performance by the 1^st Defendant and the Court so finds.

(j)  In light of the same, the Court does not accept the 2^nd Defendant’s arguments as to impossibility.

(k)  The 2^nd Defendant additionally raised an argument as to a waiver by the Plaintiff of its rights in relation to the delivery of the 1^st Defendant Group’s Consolidated Audited Accounts.  Whereas the Plaintiff relied upon clause 24.3 of the Investment Agreement, which consists of a ‘no waiver’ clause.  The Court accepts the Plaintiff’s submissions in this regard and rejects the 2^nd Defendant’s argument that the Plaintiff has waived such rights.

(l)  (i)  Finally, the 2^nd Defendant has asserted that the Investment Agreement was in effect and substance a loan agreement and accordingly, the Money Lenders Ordinance (Cap. 163) (the “MLO”) applies.  The 2^nd Defendant seeks in its skeleton submissions to categorise the Investment Agreement as follows:-

“(a) The Plaintiff’s agreement to pay the Company the subscription price of $20,800,000 was in effect and substance a loan; and

(b) D2 as a personal guarantor agreeing with the Plaintiff to secure the repayment of such loan in (a) above was in effect and substance also a loan agreement by reason of the broad definition of a “loan” under the MLO.”

(ii)   Further, reliance is placed by the 2^nd Defendant on what was set out by the Court of Final Appeal when, in the context of a charge for carrying out business as a money lender without a licence contrary to section 29(2) of the MLO, such court clarified the definition of ‘loan’ in Secretary for Justice and Global Merchant Funding Ltd (2016) 19 HKCFAR 192, at page 204, where Ribeiro PJ stated in paragraphs 21 and 22 that:

“21. ... The MLO's definition of a "loan" to include "every agreement (whatever its terms or form may be) which is in substance or effect a loan of money" must be understood to be referring to an agreement which has the legal substance or effect of a loan and not an agreement with such an economic or commercial substance or effect. Methods of financing which may be economically indistinguishable from a loan repayable with interest may well be differently categorised in law.

22.  Assuming that the transaction is not merely a sham, the Court can only decide whether a transaction is or is not a loan by construing the relevant documents and analysing the legal effect of what the parties have actually agreed.  The language used by the parties is relevant but if it is inconsistent with what, as a matter of law, they have mutually agreed, the Court disregards the parties' terminology in categorising the transaction.”

(iii)  Reliance is also placed by the 2^nd Defendant on an alleged admission by the Plaintiff that the subscription of shares was in substance a “loan” in an email disclosed by the Plaintiff dated 28 October 2016, that sought a sum of $40,597,041, which it was submitted would be equivalent to an interest rate of around 63%.

(iv)  In reply the Plaintiff relied upon Chitty on Contracts (32^nd ed) Vol. 2 at §39-258:-

“Definition of a loan. A contract of loan of money is a contract whereby one person lends or agrees to lend a sum of money to another, in consideration of a promise express or implied to repay that sum on demand, or at a fixed or a determinable future time, or conditionally upon an event which is bound to happen, with or without interest.”

Such that, the Plaintiff submitted, a “loan of money” comprises 2 elements, namely first, a lending of money and secondly, an obligation to repay; and hence, the Investment Agreement is not a loan agreement.

(v)  The Plaintiff pointed out that its equity investment was by way of share subscription with rights attached to such investment; that it became the legal and beneficial owner of the shares; and that it had a Put Option, which it did not have to exercise (i.e. it could keep the shares) and it could not exercise if the 1^st Defendant listed.

(vi)  The Court agrees with and accepts the Plaintiff’s position and finds that in substance and effect the Investment Agreement is an agreement to invest in the 1^st Defendant and its shares, and not a loan agreement.

(vii)  Accordingly, the Court does not need to, and will not, deal with the submissions raised by the 2^nd Defendant regarding the alleged admission and rate of interest nor with the argument by the Plaintiff that the transaction, if it was a loan, was an exempt loan.

Relief

30.  The Plaintiff submitted Amended Minutes of Judgment to the Court and made submissions as to the date, time and place to complete the orders sought.  Counsel for the 2^nd Defendant had no contrary submissions in respect of such matters.

31.  In light of the matters set out above the Court orders as follows:

(1)  A declaration is made that the Plaintiff is entitled to enforce against the 1^st to 3^rd Defendants the terms of the investment agreement dated 20 March 2015, entered into by and among the Plaintiff and the 1^st to 3^rd Defendants (the "Investment Agreement").

(2)  The 1^st Defendant shall, pursuant to Clause 11.4 of the Investment Agreement complete and deliver to the Plaintiff, and the 2^nd Defendant shall, pursuant to Clauses 8 and 11.4 of the Investment Agreement, procure the 1^st Defendant to complete and deliver to the Plaintiff, the 1^st Defendant Group's Audited Consolidated Accounts (as defined in the Amended Statement of Claim of this Action), prepared in accordance with the Hong Kong Financial Reporting Standards, for the financial years ending 31 December 2014 and 31 December 2015 respectively within 28 days from the date of this order;

(3)  The 1^st to 3^rd Defendants shall, pursuant to Clauses 8 and 10 of the Investment Agreement, complete the purchase of the 644 Put Option Shares (as defined in the Amended Statement of Claim of this Action) in the 1^st Defendant held by the Plaintiff pursuant to the Plaintiff’s exercise of the Put Option by way of the Put Option Exercise Notice (as defined in paragraph 10 of the Amended Statement of Claim of this Action) in accordance with Clause 10 of the Investment Agreement, within 28 days from the date of this order, by 16:00 on any day that is to be agreed between the parties and failing which on last day of the 28 days, at the offices of the Plaintiff’s Solicitors, such date to be deemed the date of Option Completion (as defined in paragraph 15 of the Amended Statement of Claim of this Action) for the purposes of calculating the Put Option Price (as defined in the Investment Agreement);

(4)  There be liberty to apply as to the implementation of the orders made.

(5)  The costs of this Action, including the costs of and occasioned by the first application, the second application and the third application (as described above), be to the Plaintiff with certificate for Counsel, such costs to be taxed if not agreed.

32.  Finally, the Court thanks Counsel and the Solicitors for their help and assistance.