DAWKINS LTD. v. SOURCE HOLDINGS LTD.

CACV 73/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 73 OF 2000

(ON APPEAL FROM HCA 12748/1999)

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J U D G M E N T

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Hon Rogers JA :

1. This is an appeal from a decision of Nguyen J given on 28 January this year whereby he dismissed an application for summary judgment under Order 14.

2. The case arises in this way. The plaintiff is a company which one understands is, in effect, the alter ego of an accountant, Mr Steven Kwan. It came to his notice that it might be possible to acquire a controlling interest in and as a result be in a position to acquire all the shares of and take over Continental Mariner Investment Company Ltd ("CMIC"), a public company. He interested two other companies in this venture; one by the name of Ringo Trading Limited and the other by the name of Shortridge Limited. These companies were, so it seems, controlled, in the first place, by Mr Zhang Kang Ping and in respect of Shortridge by Mr Wang Wen Xi. The money needed for the purchase of CMIC was some HK$400 million. HK$200 million was to be borrowed from a bank, namely Bankers Trust. The remaining HK$200 million was to be raised by the three parties. Of those three parties, Mr Steven Kwan or his alter ego, the plaintiff, was to be the minor party and to provide the sum of HK$20 million.

3. The defendant was to be the vehicle to be used by the three parties for their investment. In brief, the events which led up to the provision of the money that was to be lent to the defendant are summarised in paragraph 26 of the Defence which has been filed since the hearing in the court below. That reflects almost word for word what is said in the affidavits. It is said there :-

"26. ... it was agreed between Zhang, Wang and Kwan that the required capital would be injected by Ringo, Shortridge and the Plaintiff in the form of "shareholders' loans" in proportion to the interest of each of the shareholders in the Defendant, subject to the condition that no "repayment" of those "loans" would be made without the consent of all the shareholders of the Defendant.

27. The three shareholders of the Defendant - the Plaintiff, Ringo and Shortridge also agreed that :-

(a) No "repayment" of the "shareholders' loans" would be made without the unanimous agreement of all three shareholders;

(b) No "repayment" of the "shareholders' loans" would be made unless all three shareholders were paid at the same time; and

(c) If any of the "shareholders' loans" were to be "repaid", each shareholder would be "repaid" in proportion to their shareholding in the Defendant."

4. The matter then proceeded and there was a directors' meeting on 3 February 1993. The shareholders' loans were dealt with by loan agreements which were separate in each case. The copies of the shareholders' agreements were apparently tabled at the meeting and the relevant clause for the purposes of this case is clause 3, which reads :-

" The Borrower shall repay the Loan and interest thereon either in whole or in part or by instalment at such time and in such manner as mutually agreed by the parties hereto."

5. Mr Swaine, on behalf of the plaintiff, has argued forcefully that this clause, and consequently the agreement, was totally invalid and there was no agreement at all because it was an agreement to agree, and the important terms of any agreement, namely the amount of any repayment and the time of repayment remained to be concluded by a separate agreement and were not part of the agreement itself.

6. In my view, the question which arises in this case is whether there was a collateral agreement involving, what, Mr Tang, SC on behalf of the defendant says, was in effect a collateral shareholders' agreement; whether that collateral shareholders' agreement involved the three shareholders of the company and what the correct construction of that agreement is remains to be decided. In my view, it seems to me to be arguable that there was a valid agreement between the parties and a valid collateral shareholders' agreement that the money would not be repaid except if there was an agreement between all three shareholders. It stands to reason in relation to an arrangement such as I have outlined, that the parties could not contemplate that the money provided for the purchase of the shares should be repaid immediately. If that were to happen, it would bring the commercial arrangement to a grinding halt at the whim of any one of the three parties. It seems to me arguable that even if clause 3 of the loan agreement between the plaintiff and the defendant were invalid, and the loan agreement had to be regarded as a loan which was repayable immediately on demand, the collateral agreement could still stand. In effect, the point would be that the loan from the plaintiff to the defendant would be repayable either when the defendant were wound up or at such time as the directors of the defendant agreed, in effect, the three parties to the shareholders' agreement.

7. For my part, I cannot see that the plaintiff's case is such that this matter should not go to trial and in those circumstances, I consider that this appeal has to be dismissed.

Hon Woo JA :

8. I am not satisfied that no triable issue has been raised that clause 3 of the purported loan agreement must be void for uncertainty or surely unenforceable. Nor am I satisfied that on the facts raised by the affirmations filed on behalf of the Defendant based on which a collateral agreement and an estoppel against the Plaintiff's right to claim repayment are raised that there is in law no defence. I am of the view that Nguyen J was correct in dismissing the Plaintiff's summons for summary judgment. I would dismiss the appeal.

Hon Godfrey VP :

9. I also agree.

10. The plaintiff's case is that the loan agreement of 3 February 1993 was not a concluded agreement, because it left for further agreement the terms on which the loan was to be repaid. But it is at least arguable that the fact that the repayment terms were left to further agreement does not preclude the contract from being treated as a concluded agreement, and on that basis, the loan would, I think, be treated, unless there were something else, as being repayable on demand. But there is something else. On the material before us, it is at least arguable that the plaintiff has precluded itself from demanding immediate repayment of the loan by reason of the contractual arrangements which (it is said) the plaintiff has made with the other parties to the transactions of which the loan formed part. In those circumstances, I, too, am of the opinion that the dispute here is one which ought to go to trial.

11. The appeal will therefore be dismissed and the plaintiff must pay the defendant's costs of the appeal to be taxed if not agreed.