LAU CHI YUEN JOSEPH v. HO PUI TSUN PETER

HCA 571/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 571 OF 2013

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D E C I S I O N

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1.  This is an Order 14 summons taken out by the plaintiff for summary judgment against the defendant.

I.  Background

2.  On 19 January 2012, the defendant and the plaintiff signed an agreement (“the Agreement”).  The Agreement was in Chinese.  There were 4 main clauses which, as translated into English, reads: -

i) Party A (the defendant) shall sell party B (the plaintiff) 50 million shares of Hong Kong listed company CIL Holdings Limited at HK$0.35 per share, totally HK$17.5 million …

ii) The defendant agrees to coordinate with the plaintiff for selling one or more suitable projects to CIL within a year. CIL will pay for consideration of the relevant transaction(s) by way of shares, of which 5% will be paid to the plaintiff … as introduction fees.

iii) The defendant undertakes that after the transaction(s) mentioned under paragraph (ii) is completed, such shares equivalent to twice the amount mentioned in paragraph (i) (ie equivalent to HK$35 million) will be unconditionally transferred to the plaintiff as consultancy fees.

iv) The plaintiff has right to sell 50 million shares of … CIL … at HK$0.35 per share, totally HK$17.5 million to the defendant within a year (the “Put Option”).

3.  As it happened, no suitable project was sold to CIL.

4.  In about mid 2012, the plaintiff sold 16 million CIL shares in the open market at a small profit.

5.  Then in December 2012 through to January 2013, the plaintiff gave notice repeatedly to the defendant to exercise the Put Option in respect of his remaining 34 million CIL shares (the “Option Shares”) but the defendant failed to buy them.

6.  On 14 January 2013, the plaintiff’s solicitors wrote to the defendant to demand him to complete the purchase of the Option Shares within 7 days.

7.  On 29 January 2013, the plaintiff and defendant entered into a supplemental agreement (“the Supplemental Agreement”) which stated: -

“Whereas

A) Party A (the Defendant) and Party B (the Plaintiff) have entered into a cooperation agreement dated 19^th January 2012….whereby, amongst others, Party A granted to Party B a Put Option…

B) Party B has served on Party A a notice dated 3 January 2013….to exercise the Put Option…within 3 business days;

C) Party A failed to complete or pay Party B the sum of HK$11.9 million pursuant to the Put Option and requested Party B to refrain from taking legal action against Party A;

D) In consideration of Party B agreeing to withhold from taking legal action…Party A and Party B agree to enter this supplemental agreement to amend and modify the Agreement (dated 19^th January 2012) and Exercise Notice as hereinafter appear.”

8.  The terms following this can be summarised as follows: -

i) the plaintiff’s deadline for exercising the Put Option was extended to “before 30 June 2013”;

ii) “As additional compensation”, the defendant shall transfer additional CIL shares to the plaintiff “free from incumbrances” in two tanches: 15,000,000 shares on or before 28 February 2013 and 19,000,000 shares on or before 30 April 2013;

iii) If the defendant failed to comply with any provisions in the Supplemental Agreement, the plaintiff shall sell the option shares to any third party and to claim any deficiency in price and all costs without prejudice to the plaintiff’s right to claim actual loss and damages against the defendant.

iv) “Time shall be of the essence of this Supplemental Agreement.”

9.  The defendant failed to transfer the first tranche of shares to the Plaintiff on or before 28 February 2013.  The plaintiff’s solicitors wrote to the defendant on 7 March 2013 to demand the transfer but there was no reply.

10.  The plaintiff commenced the present proceedings on 10 April 2013.  The defendant filed his Defence on 17 July 2013.

II.  The issues in dispute

11.  The parties were in dispute as to terms of the Agreement.  The crux of the dispute was whether, as the plaintiff submitted, the Put Option could be exercised independently thus the defendant was in breach when he failed to purchase the Option Shares, or whether, as the defendant submitted, the parties had intended that there should be one or more successful “project injection/s” before the plaintiff could exercise the Put Option but since no project injection took place, the defendant was not in breach when he did not buy back the Option Shares.

12.  I am rather surprised that the parties did not, in the first place, instructed lawyers to draft a contract that involved such an amount of money.

13.  Indeed, if all the contemporaneous evidence before the court was the Agreement with its rather vague terms, it would be difficult to decide what the original intentions of the parties were, and the dispute could not be resolved without hearing further evidence from the parties.

14.  However, besides the Agreement, the court has the benefit of the much clearly drafted Supplemental Agreement.  I am of the view that the original intentions of the parties were clearly shown by the Supplemental Agreement.

15.  This was drafted by the plaintiff’s lawyers and the recitals, quoted at paragraph 6 above, stated clearly that the Supplemental Agreement was made against the background that the defendant failed to honor the Put Option (which, in effect, put him in breach of the Agreement) but had requested the plaintiff to withhold legal action.

16.  This showed that the parties never intended in the Agreement that the Put Option must only be exercised after one or more successful “project injection/s”.

17.  The defendant must be, by the time of the Supplemental Agreement, fully alerted to the fact that the plaintiff has instructed lawyers and that this was a proper legal document and therefore must be taken seriously.

18.  If what the defendant alleged now was true and he actually believed that, for example, he had not breached the Agreement at all and that, in fact, the plaintiff had no right to exercise the Put Option, or that the plaintiff was in fact in breach in the first place by prematurely selling some of his shares, I cannot see any reason why he had completely failed to raise such disputes there and then but instead simply signed the Supplemental Agreement.

19.  Under the circumstances, the least that one would expect a reasonable person would do was to object to the reference of the further shares transfers as “additional compensation” since he must have believed that there was no breach and so no “compensation” was due.  This was especially when, as the defendant now claimed, these shares were not compensation but an intended “rescue mission” for the plaintiff to “top up” an urgent “margin call” from his brokers.

20.  The defendant sought to explain that there was a “collateral oral agreement” to the Supplemental Agreement: that the buy back of the Option Shares and the transfer of additional shares were only subject to future successful “project injection”.

21.  If this is true, I cannot understand why the defendant completely failed to put this into the Supplemental Agreement, especially when its terms demanded strict deadline dates for the transfer of shares and buy back of the Option Shares with the “time of essence” clause, and the terms also clearly stated the serious consequences of non-compliance.

22.  The defendant also sought to explain that he did not put this “collateral oral agreement” into the Supplemental Agreement because the plaintiff told him that the collateral terms (regarding “project injection”) should be kept secret.

23.  I do not believe the defendant’s explanation: the “project injection” terms were no secret as it was disclosed in the Agreement already.

24.  The defendant further submitted that there was a total failure of consideration in the Supplemental Agreement based on the argument that he did not breach the Agreement in the first place so the plaintiff had no legal right to take action.  As stated above, I did not accept this argument as this was contradicted by the recitals in the Supplemental Agreements which was signed by the defendant at the time.

25.  It must have been very clear to the defendant that the Supplemental Agreement was a serious legal document drafted by the plaintiff’s lawyers with very strict terms with grave consequences on non-compliance.  The defendant’s explanations for his failure to raise disputes and assert his position under such circumstances were totally unbelievable.

III.  The legal principles

26.  The relevant legal principles for summary judgment are well settled and need not be repeated in details here. In order to ascertain whether there is no arguable defence or otherwise a triable issue, it is not appropriate for the court to embark on a mini-trial of the action on affidavit evidence.  The court should ask itself the question whether what the defendant says is credible or believable. If so, he must have leave to defend, if not, the plaintiff is entitled to summary judgment (Ng Shou Chun v Hung Chun San [1994] 1 HKC 155).

27.  For the reasons as I stated above, I am of the view that the defence raised by the defendant is unbelievable and is nothing but a sham.

28.  In short, by the recitals of the Supplemental Agreement, the defendant has clearly admitted to breaching the Agreement, and by his failure to transfer the first tranche of shares at the specified time, he has clearly breached one of the provisions of the Supplemental Agreement, which entitled the plaintiff to deal with the Option Shares and claim damages against the defendant as specified in the Supplemental Agreement.

IV.  Conclusion

29.  I would therefore give the following orders: -

i)   Summary judgment be entered with damages to be assessed.

ii)  Costs of this application be to the plaintiff to be taxed if not agreed with certificate for Counsel.