ASSET MANAGERS CO LTD AND ANOTHER v. PACIFIC ELECTRIC WIRE & CABLE CO LTD

HCA 1867/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1867 OF 2006

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J U D G M E N T

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Background facts

1.  The 1st Plaintiff in this action, Asset Managers Company Limited (“Asset Managers”) is a listed company in Japan in the business of fund management and business solutions.    The 2nd Plaintiff, Sino-JP Fund Company Limited (“Sino-JP”) is a Cayman Islands company and a wholly owned subsidiary of Asset Managers.    I shall refer to them collectively as “the Plaintiffs”.

2.  The Defendant, Pacific Electric Wire and Cable Company Limited (“PEWC”) is a Taiwanese company.  It is one of the world’s largest wire and cable manufacturers.  Its shares were listed on the Taiwan Stock Exchange until it was delisted in August 2004 by reason of its involvement in the largest financial and corporate fraud in Taiwan.  It reported a huge loss of NTD 8.3 billion for the first quarter of 2003 and is undergoing financial restructuring and is subject to the supervision of 32 banking creditors.

3.  Asia Pacific Wire & Cable Corporation (“APWC”) is a company incorporated in Bermuda and is the holding company for over 40 subsidiaries located in Singapore, Thailand, Australia and the PRC.  As at 2002, PEWC had 75.4% interest in APWC held through 2 wholly owned subsidiaries. 

4.  In 2003/2004, PEWC was involved in a dispute with Set Top International Inc. (“Set Top”) over the ownership of the shares of APWC.  An action was filed by PEWC in the US in December 2003 and a settlement was reached in June 2004 whereby PEWC was granted the right to repurchase all of Set Top’s interest in APWC (10,074,102 shares) for US$25 million subject to the condition that the right must be exercised on or before 30th September 2004 (“the Buy-Back”). 

5.  PEWC did not have enough funds to finance the Buy-Back.  Hence, it sought the assistance of Sino-JP in early August 2004.  Asset Managers were approached by Sino-JP and it was agreed that Asset Managers would finance the Buy-Back provided that it could have some stake in APWC Group.  The gist of their agreement were that:

(1)     Asset Managers would acquire 10,074,102 shares (“the Sale Shares”) in APWC for US$26m,  US$25m of which would be paid to Set Top and the remaining US$1m for the costs and expenses incurred for the transaction.  The Sale Shares represents 72.84% interest in APWC.

(2)     PEWC would be granted an option (“the Option”) to repurchase from Asset Managers 7,307,948 of the Sale Shares (“the Option Shares”) which represents 52.84% interest in APWC.

(3)     At that time, it was within the contemplation of the parties that PEWC would exercise the Option and Asset Managers/its assignees would become a shareholder of the remaining 2,766,154 shares.  

6.  At the time of Asset Managers’ acquisition of the Sale Shares, PEWC had full management control over APWC and its subsidiaries.

7.  Asset Managers and PEWC entered into a Share Purchase Agreement (“SP Agreement”) on 10^th September 2004 whereby the Sale Shares were purchased by Asset Managers.

8.  Asset Managers subsequently assigned to Sino-JP its interest in the Sale Shares and its rights and obligations under the SP Agreement.

9.  On 15^th September 2004, Sino-JP and PEWC entered into an Option Agreement (“the Option Agreement”) whereby PEWC was given the Option to repurchase the Option Shares.  The parties were all represented by lawyers when the SP Agreement and Option Agreement were drawn up.  Asset Managers was advised by Simmons & Simmons whilst PEWC was advised by Lee & Li (Taiwanese lawyers).   

Procedural history

10.  The Option Agreement provided that the Option could be exercised by PEWC on one of three “Option Dates” by serving a notice to exercise the Option at least 30 Business Days prior to the relevant Option Date.    The three Options Dates were 14^th September 2005, 14^th September 2006 and 14^th September 2007.  On 14^th September 2005 (i.e. the earliest of the three Option Dates) PEWC exercised the Option and re-purchased the Option Shares.    Following the exercise of the Option, Sino-JP became the minority shareholder of APWC, holding the Remaining Shares (totaling 2,766,154). 

11.  Disputes arose between the parties after completion of the SP Agreement.  Of particular relevance to this action is a dispute as to whether, put broadly, the provisions of clauses 9.1(F) and 9.2(A) (both of which had a significant impact on the way in which the affairs of APWC and its subsidiaries were to be run in the future) of the SP Agreement “survived” the exercise of the Option by PEWC.  This judgment is concerned with the resolution of this dispute.

12.  This turns on the proper construction of the SP Agreement.    I shall set out the wording of these (and other relevant) provisions in the SP Agreement later in this judgment. 

13.  As a result of this and other disputes between the parties, various sets of proceedings were commenced. 

(1)     On 19^th July 2005, Asset Managers and Sino-JP commenced an action in the High Court of Hong Kong against PEWC and its director namely one Mr. David Sun (HCA No.A1386 of 2005), alleging misrepresentation and breach of warranty.

(2)     On 1^st May 2006 (after the exercise of the Option by PEWC), Sino-JP issued a Petition in Bermuda (the place of incorporation of APWC) pursuant to s.111 of the Bermudan Companies Act alleging that the affairs of APWC and/or its subsidiaries had been conducted by PEWC in a manner oppressive and prejudicial to Sino-JP.  An application was made by PEWC to set aside service of the Petition, alternatively for a stay of the Petition on the ground of forum non conveniens.    On 26^th June 2006 the Chief Justice of Bermuda made an order staying the Petition pending the outcome of HCA No.A1386 of 2005 in Hong Kong.  

(3)     PEWC then appealed against the decision of the Chief Justice to the Bermudan Court of Appeal.    The hearing of this appeal took place on 20^th and 21^st November 2006.  The appeal hearing resulted in an agreed course of action which had a significant impact on the conduct of the present action as well as the earlier action, namely HCA No.A1386 of 2005.  This course of action is described in the judgment of the Bermudan Court of Appeal dated 23^rd November 2006.  I shall come back to this later.

(4)     After the first instance judgment in Bermuda ordering a stay of the s.111 Petition (but before the hearing of the appeal), Asset Managers and Sino-JP commenced this action on 28^th  August 2006.  The key issue raised in this action (as elaborated in the Statement of Claim dated 12^th September 2006) is whether clauses 9.1(F) and 9.2(A) of the SP  Agreement survived exercise of the Option by PEWC.  Apart from declaratory relief and damages, the Plaintiffs also sought a decree of specific performance, as well as injunctive and other relief. 

(5)     On the same day as the issuance of the Writ, the Plaintiffs issued a summons for interlocutory injunctive relief against PEWC.   This summons was subsequently amended (with leave by Deputy Judge Saudners, as he then was) on 2^nd September 2006.    The summons (as amended) was fixed to be heard by me on 29^th and 30^th November 2006.

14.   The following procedural steps in this action had taken place since the filing of the Statement of Claim:-

(1)     On 14^th September 2006 the Plaintiffs issued a summons under RHC Order 14 for judgment upon the claims contained in the Statement of Claim.     This was fixed to be heard by me on 29^th and 30^th November 2006.

(2)     On 5^th October 2006 PEWC issued a summons under RHC Order 14A for the determination of certain questions of construction raised in the Statement of Claim.   This was also fixed to be heard by me on 29^th and 30^th November 2006.

(3)     On the evening of 19^th October 2006 the Plaintiffs applied, ex parte on notice, to Hartmann J, for interim interlocutory relief in relation to the affairs of one Sigma Cable Company (Pte) Limited, which was part of the APWC Group of companies.

(4)     Hartmann J entertained submissions late into the night and, having considered the matter overnight, His Lordship refused the Plaintiffs’ application in the morning of 20^th October 2006. Reasons for the refusal were handed down on 27^th November 2006.

(5)     On 21^st November 2006 the Plaintiffs issued a summons for leave to amend their Statement of Claim.  By the proposed amendments, the Plaintiffs sought to introduce a claim for rectification of the SP Agreement.    This was returnable before me on 29^th November 2006.

(6)     There was also a summons, dated 24^th November 2006, by PEWC seeking to strike out certain parts of the 1^st affirmation of Wellam Sham which was filed on behalf of the Plaintiffs in support of their summons for interlocutory injunction.  Originally this summons was returnable on 11^th January 2007 but the hearing date was moved forward so that it could be heard my me together with all the other summonses described above.

The hearing on 29^th and 30^th November 2006

15.  On the basis of the matters set out above, the following matters were originally scheduled to be resolved by me on 29^th and 30^th November 2006:-

(1)     The Plaintiffs’ amended summons for interlocutory injunctions (dated 28^th August 2006 and amended on 2^nd September 2006).

(2)     The Plaintiffs’ summons for judgment under Order 14 (dated 14^th September 2006).

(3)     PEWC’s summons under Order 14A (dated 5^th October 2006).

(4)     The Plaintiffs’ summons for leave to amend their Statement of Claim (dated 21^st November 2006).

(5)     PEWC’s summons to strike out parts of Wellam Sham’s 1^st affirmation (dated 24^th November 2006).

16.  However, as I mentioned earlier, in the Bermudan Court of Appeal the parties had agreed on a course of action which had a significant impact upon the way the Hong Kong proceedings were to be conducted.  I summarize its effect below:-

(1)     On Sino-JP’s undertaking to submit to an Order by the Hong Kong Court staying further proceedings in HCA No.A1386 of 2005 (which, it will be recalled, was the earlier Hong Kong action commenced by the Plaintiffs) and this action, save for the Order 14/14A proceedings currently before the Court, the stay ordered by the Chief Justice on proceedings in the s.111 Petition would be lifted, with effect from the date(s) when the stay(s) are ordered.

(2)     Sino-JP shall, if so advised, issue a Writ action in Bermuda seeking so much of the relief claimed in the HCA No.A1386 of 2005 and this action as may not be available in the s.111 Petition, and if so the parties shall co-operate and do all things necessary and within their power to procure that:

(i)      such a Writ action would be heard together with the s.111 Petition;

(ii)     evidence in such a Writ action and in the s.111 Petition would  stand as evidence in both proceedings.

(3)     Upon each party undertaking that it would not commence proceedings against the other party to the appeal, or against APWC or any of its subsidiaries, without the consent of the other party or, failing such consent, without leave of the Court in Bermuda, save where it would be impracticable by reason of urgency to obtain such leave, it was ordered that neither party was to commence such proceedings in any jurisdiction, save as aforesaid: provided that such order was not to take effect unless both parties had undertaken as aforesaid.

(4)     Liberty to apply.

17.  The effect of the above is that the only matters which remained alive before me were the Plaintiffs’ Order 14 summons, PEWC’s Order 14A summons and PEWC’s strike out summons (because Wellam Sham’s 1^st affirmation was also relied on by the Plaintiffs in relation to the Order 14 / Order 14A summonses).  The Plaintiffs’ summonses (i) for interlocutory injunction and (ii) for leave to amend their Statement of Claim fell within the ambit of the stay order contemplated by the agreed course of action.  I had not been asked by Counsel to deal with them.

18.  At the hearing on 29^th November 2006, the scope of the parties’ disputes requiring my resolution was further narrowed down.

(1)     PEWC’s Order 14A summons originally sought the Court’s determination of two questions. 

(2)     The first one was the question raised by paragraph (1) of the prayer for relief in the Statement of Claim, namely whether the respective rights and obligations of the Plaintiffs and PEWC in respect of and/or in relation to APWC and its Subsidiaries remained governed by clause 9.2(A) and clause 9.1(F) of the SP Agreement in spite of the exercise by PWEC of the Option contained in the Option Agreement, and remained binding on the Plaintiffs and PEWC. 

(3)     The second one was raised by paragraphs 22 and 23 of the Statement of Claim and prayer (8) of the prayer for relief, namely whether the alleged breaches of contract pleaded by the Plaintiffs in paragraph 22 of the Statement of Claim were capable of causing loss to the Plaintiffs or either of them.  

(4)     When the matter was opened before me on 29^th November 2006 by Mr. Russell Coleman SC (with Mr. Victor Dawes), the matter was further narrowed down.    I was invited only to deal with the question of construction raised by paragraph (1) of the prayer for relief in the Statement of Claim.   I was further invited not to deal with the question of whether I should grant judgment pursuant to the Plaintiffs’ Order 14 summons.

(5)     The effect of the above is that (if I were in the Plaintiffs’ favour on the issue of construction) I did not have to proceed to deal with (say) discretionary considerations governing whether relief such as injunctions and specific performance (both of which were sought by the Plaintiffs in the Statement of Claim) should be granted.  Nor do I have to deal with questions such as whether the Plaintiffs’ claim for damages was barred, as a matter of law, by the rule precluding claims for reflective loss.    Whilst the initiative for such narrowing down of the issues came from Mr. Coleman SC, Mr. Barrie Barlow for PEWC did not dispute that this was the course that I should take.   Mr. Barlow’s skeleton arguments originally contained a section 10 which addressed the discretion and damages issues I had just mentioned.  Because of the way the matter was agreed to be dealt with by me, those arguments were not pursued or dealt with before me.  The hearing before me focused on a single issue of construction (to which I shall now turn) of the SP Agreement.

(6)     Further, by reason of a consensus reached between counsel during the hearing (to which I shall return later in this judgment), I did not have to deal with PEWC’s summons to strike out parts of Wellam Sham’s 1^st affirmation.

Material provisions of the SP Agreement

19.  As I had said above, the question I have to determine is whether or not clauses 9.1(F) and 9.2(A) of the SP Agreement survived PEWC’s exercise of the Option.  I shall set out these two clauses in full below.  However, it is trite that a contract should be construed as a whole.  Therefore, in addition to setting out clauses 9.1(F) and 9.2(A), I shall also set out below some of the more important provisions of the SP Agreement which may cast light on the proper interpretation of clauses 9.1(F) and 9.2(A)[1]:-

 “8.1     General

(A)       Each of the Vendor and the Guarantors hereby warrants, represents and undertakes to and for the benefit of the Purchaser in the terms of the Vendor’s Warranties and acknowledges and accepts that the Purchaser is entering into this Agreement in reliance upon each of the Vendor’s Warranties each of which is given on the basis that it will remain true and accurate in all respects at all times up to and including Completion Provided that the Guarantors’ warranties are limited to items 2.1, 2.2, 3 and 4.1 in Schedule 2 only.

………

Undertakings

9.1       By the Vendor

(A)      The Vendor hereby undertakes to the Purchaser not to, and will procure that none of its Affiliates may, on or prior to Completion, purchase, acquire or otherwise deal in any of the Shares or any interest therein.

(B)       The Vendor hereby undertakes to the Purchaser that it will, and will procure that the Company shall take such action and give such information and assistance in connection with the affairs of the Company as the Purchaser may reasonably require in respect of any matters or claims in relation to or in connection with Tax or otherwise.

(C)      Each of the Vendor and the Guarantors shall procure the delivery of the audited consolidated accounts of Charoong Thai Wire & Cable Co. Ltd and its subsidiaries and its associates, companies for the period between 1 January to 30 June 2004 signed off by Ernest & Young and addressed to the Purchaser on or before 17 September 2004.

(D)      The Vendor undertakes to the Purchaser that the composite service agreement dated 7 November 1996 entered into between the Company and the Vendor shall remain subsisting and valid and shall be renewed in accordance with its existing terms and will not be terminated at any time on or before 23 September 2007.

(E)       The Vendor hereby undertakes to the Purchaser that all of the business relationship and transactions between the Vendor or any of its Affiliates on he one hand, and the Company or any other member of the Group on the other hand, shall be maintained in such manner which is consistent with past practices (including, without limitation the supply of raw materials and distribution of products) and on an arm’s length basis, based on fair commercial terms.

(F)      The Vendor hereby undertakes to the Purchaser that all the existing loan agreements or arrangements between the Vendor or any of its Affiliates on the one hand, and the Company or any other member of the Group on the other hand, shall remain subsisting and valid in accordance with its existing terms, and none of such arrangements or agreements may be terminated nor shall any payment or repayment be demanded thereunder by the relevant lender for whatever reasons nor may any security or Encumbrance interest in relation thereto be enforced at any time on or before 23 September 2007. (emphasis added)

(G)      The Vendor hereby undertakes to the Purchaser that it will, and will procure that all pledges and other Encumbrances over or in relation to the shares of APWC General Holdings Ltd. and Samray Inc. shall be terminated by the parties thereto within 7 days of the date of Completion, without any liability on any of the party thereto and without affecting the loan(s) in relation to such pledge or Encumbrance in any manner.

(H)      The Vendor hereby warrants that the cash deposits under the personal names of various directors of Pacific Thai Wire & Cable Co., Ltd. And its subsidiaries for the aggregate amount of Baht 62.5 million has been transferred to the names of the relevant Group Company and further undertakes to the Purchaser that it will, or procure that the relevant Group Company will maintain such amounts in such cash deposits and transfer such moneys into its own bank accounts (if it is not already done so) to the satisfaction of the Purchaser.

(I)        The Vendor hereby warrants and covenants that it currently holds directly or indirectly through its Subsidiaries legal and beneficial ownership in 50.39% of the entire issued common share capital of Charoong Thai Wire & Cable Co., Ltd. (“Charoong Thai”) and will at all times maintain not less than such shareholding percentage after Completion.  If, for any reason, Charoong Thai’s shareholding drops below such percentage, whether due to any dilution (including, but not limited to, the exercise of any warrants issued by Charoong Thai) or otherwise, the Vendor undertakes that it will forthwith acquire shares in Charoong Thai so that the Vendor’s shareholding percentage in it shall be maintained at all times, failing which the Vendor shall indemnify the Purchaser against any loss or liability suffered by the Purchaser against any loss or liability suffered by the Purchaser and/or any member of the Group as a result of or in connection with such dilution.

9.2              By the Purchaser

(A)      To the extent permissible under applicable laws and subject always to not resulting in the Vendor and the Purchaser (or their respective Affiliates) being implicated as parties “acting in concert” (within the meaning under the Code on Takeovers and Mergers in Hong Kong) or other analogous or similar doctrines under other applicable jurisdictions, the Purchaser hereby agrees with the Vender and the Company not to take any action, or to commit any omission by wilful default which would cause consequence as if an action had been taken, which would prevent the Vendor from maintaining management control in all aspects of the operation of the Company and its Subsidiaries, including but not limited to election and removals of directors or board and/or managerial positions in the Company and its Subsidiaries, Provided however that, for the avoidance of doubt, the Purchaser may (i) notwithstanding any other provisions of this Agreement, the Memorandum and Articles or other constitutional documents of any Group Company or any other document, from time to time appoint up to three (3) directors to the board of each of the Company and its Group Companies and such directors shall be entitled to an absolute right to veto any resolution which would otherwise be passed by the relevant board; and (ii) exercise its right sot supervise the financial operation of the Company and its Subsidiaries (and the Memorandum and Bye-laws, or similar constitutional documents, of the Group Companies shall be amended to reflect the foregoing provisions). (emphasis added)

(B)       The Purchaser agrees that it (or the person designated by it to purchase the Sale Shares on Completion) will not dispose of the Sale Shares in any way which will result in the inability of the Purchaser (or such designee) to transfer such Sale Shares to the Vendor upon its exercise of the call options pursuant to the Option Agreement, Provided however that the Purchaser (or such designee) may at any time without transferring its legal title to the Sale Shares.  Encumber or otherwise deposit any of the Sale Shares as collateral or security provided that disclosure is made to the Vendor and the Encumbrance holder is notified of the existence of the call options.

……

14.1    Assignment

(A)      This Agreement shall be binding upon and enure for the benefit of the successors of the parties hereto but shall not be assignable, save that the Purchaser (and any assignee of the Purchaser and subsequent assignee thereof) may at any time assign all or any part of its rights and benefits under this Agreement and any agreement referred to herein, including any of the Vendor’s Warranties and any other indemnities, undertakings and obligations given or undertaken by the Vendor and/or any of the Guarantors and any cause of action arising under or in respect of any of them without the prior written consent of the Vendor or any of the Guarantors.

(B)      Any assignee of the Purchaser or subsequent assignees thereof (as the case may be) an enforce any right or benefit assigned to it as if it had been named in this Agreement as the Purchaser and as if it had acquired the Sale Shares (or the appropriate proportion thereof) for the consideration per Sale Share and upon the other terms of this Agreement and had thereby sustained all diminution of value, losses and expenses in consequence of such acquisition as have been sustained by the purchaser.

(C)      Any assignee of the Purchaser (or subsequent assignee thereof) shall be entitled to enforce the benefits conferred upon it by such assignment and this clause 14.1 directly against the Vendor and for that purpose each such assignee shall be entitled to the benefit of and be subject to all the provisions of this Agreement in any way relevant to the rights assigned to it and conferred upon it by this clause 14.1.  The consent of such assignee shall be required to any amendment to or the rescission of this Agreement.

(D)      Without prejudice to the generality of the foregoing, the Purchaser shall designate Sino-JP Fund Co., Ltd. To take up the Sale Shares on Completion, which will become the legal and beneficial owner of the Sale Shares.  For the purpose of this clause 14.1(D), such designation shall not constitute an assignment but in case a competent Authority determines that such designation is deemed to be an assignment, this clause 14.1 shall become applicable accordingly.

 14.3   Agreement survives Completion

The Vendor’s Warranties and all other provisions of this Agreement, in so far as the same shall not have been performed at Completion, shall remain in full force and effect notwithstanding Completion.”

The rival interpretations

20.  It is the Plaintiffs’ case that both clauses 9.1(F) and 9.2(A) of the SP Agreement operate without limitation as to time.   They survived exercise of the Option by PEWC (which took place on 14^th September 2005).    This would continue to be the position for as long as Sino-JP or its assignee was a shareholder of APWC.   In their Statement of Claim, the Plaintiffs sought various items of relief designed to implement such rights (such as the appointment of their designees to the boards of certain APWC subsidiaries) which, it is alleged, PEWC refused to give effect to.  PEWC, on the other hand, contends that the operation of clauses 9.1(F) and 9.2(A) did not last beyond the exercise of the Option by PEWC.

21.   As Hartmann J observed at paragraph 15 of his judgment refusing the Plaintiffs’ application for an interim interlocutory injunction, a declaration as to the true meaning and intent of clause 9.2(A) would profoundly influence how and by whom the APWC Group would be run, and if the Plaintiffs were correct, they would hold the whip hand even though they were minority shareholders. 

Discussion

22.  The principles governing the construction of written contracts are relatively well settled[2].   Counsel for both parties had referred me to a number of authorities on the topic.   I shall not unduly lengthen this judgment by setting out all the principles or passages that the parties had referred me to.  Suffice it to say that I have borne them in mind when construing the SP Agreement.    On the facts and wording of a particular case and of a particular contract, however, one principle or “maxim” could well carry greater weight (or could be of greater significance) than others. 

23.  Counsel for both parties had addressed elaborate arguments on the interpretation of the two clauses in question.  I acknowledge the assistance they had given me.   I hope I can be forgiven for not setting out or rehearsing their arguments in great detail because in this case, as in any case of contractual interpretation, elaborate submissions tend to become variations on the same theme.   I shall confine myself to setting out my understanding as to the key points in the Plaintiffs’ and PEWC’s submissions.

24.  For the Plaintiffs, the following points were made:-

(1)     At the time of the SP Agreement and the Option Agreement, it was already within the contemplation of the parties that the Option would be exercised by PEWC.  If the parties had wanted to limit the operation of these provisions to the period of time prior to the exercise of the Option, they could have said so expressly.  There is nothing in clauses 9.1(F) or 9.2(A) which limited their operation to the time before the exercise of the Option.

(2)     Clause 9.1(F) contained an “in built” limitation as to time (namely 23^rd September 2007) and to read in a further time limitation by reference to the date of exercise of the Option would contradict the express wording of clause 9.1(F).

(3)     Even after the exercise of the Option by PEWC, there was still a viable commercial reason for clause 9.2(A) to subsist.  After exercise of the Option, Sino-JP would be a minority shareholder holding a 20% stake in APWC.  There was nothing unusual or inappropriate in a 20% minority shareholder having the benefit of the protection in clause 9.2(A).

(4)     The second part of clause 9.2(A) (by which I mean the part starting with “Provided …”), whilst worded as a “proviso”, could just have been placed anywhere in the agreement.    In other words it was, or its proper construction, a “stand alone” provision which created obligations on the part of PEWC. 

25.  On behalf of PEWC, the following points were made:-

(1)     To allow clause 9.2(A) to operate beyond the exercise of the Option would be unreasonable, oppressive and un-businesslike.   On the Plaintiffs’ construction, Sino-JP or any subsequent assignee of the benefit of clause 9.2(A) (as long as it held at least one share in APWC) could control APWC and all its subsidiaries forever. 

(2)     On the Plaintiffs’ construction of clause 9.1(F), Asset Managers or any subsequent assignee of the benefit of that clause could prevent APWC and its subsidiaries from repaying any loan arrangements with PEWC or its affiliates before 23^rd September 2007 irrespective of changed circumstances such as a drop in available interest rates and irrespective of the best interests of the borrower companies concerned.

(3)     On the Plaintiffs’ construction, the SP Agreement would “supplant” the constitution of APWC and its subsidiaries without 24.6% of APWC’s shareholders being party to the SP Agreement.

 (4)    The second part of clause 9.2(A) (i.e. that part starting “Provided …”) was not a “stand alone” contractual performance obligation but was in the nature of a “withholding” by Asset Manager from an undertaking given by it in the first part of clause 9.2(A).  The undertaking in the first part of clause 9.2(A), if it were ever to “bite”, would become “spent” by the time of the exercise of the Option.   The proviso would become “spent” at the same time. 

26.  In my judgment, the construction contended for by the Plaintiffs is the correct one.  My reasons are as follows.

27.  The parties had not provided for an expiry date in clause 9.2(A) itself. 

(1)     There was no express wording in the clause 9.2(A) which limits the operation of that  clause to the period prior to the exercise of the Option by PEWC.

(2)     This is to be contrasted with other parts of the SP Agreement where specific “expiry dates” (or events by reference to which an obligation was to expire) were expressly provided for:- see e.g. clause 9.1(A) (prior to completion), clause 9.1(D) (23^rd  September 2007).

(3)     The argument that “if the parties had intended a particular result, they could have expressly provided for it” (I shall call this the “they could have said so” argument) cannot always be afforded too much weight.  Disputes over construction (or implication of terms) often arise precisely because the parties had not expressly provided for a certain eventuality, and if this argument is always to be given great or conclusive weight, then words can almost never be “read in”, through a process of construction, to cure an omission.  The absence of an express provision does not therefore, by itself, mean that the parties did not intend that.  However, where the parties did take the trouble of expressly providing for the expiry of certain obligations in some parts of a contract, then the absence of such express provision as to expiry in another part of a contract is something that the court is entitled to place some weight on. 

28.  The force of the above argument is reinforced by the fact that the exercise of the Option is an event which (at the time when the SP Agreement was entered into) the parties contemplated would take place.  This is therefore not a case where the parties had failed to provide for a particular eventuality because they had not thought that it would occur.  The parties contemplated that the Option would be exercised; yet they did not provide that upon the exercise of the Option, clause 9.2(A) was to become “spent”.   This lends weight to the “they could have said so” argument.

29.  Thus far I have focussed on clause 9.2(A).  In my view the argument in favour of the Plaintiffs is stronger in the case of clause 9.1(F).

(1)     Clause 9.1(F), like clause 9.1(D), contained an express provision as to the date of its expiry, namely 23^rd September 2007.   

(2)     This date is quite close to the third (and last) date on which the Option could be exercised, namely 14^th September 2007 (it was 9 days after that), and Mr. Barlow had submitted that this fact is indicative of a linkage between the chosen expiry date and the period prior to the exercise of the Option. 

(3)     I do not have evidence (and in any event such evidence would have been inadmissible) as to the thought-process which led to the choice of 23^rd September 2007 as the expiry date.  But the objective fact is that clause 9.1(F) expressly provided for 23^rd September 2007.  Also, the objective fact is that the Option could have been exercised earlier than September 2007 and in fact in the present case, the Option was exercised in September 2005.  PEWC’s construction would have involved construing that clause as providing for the expiry of PEWC’s obligation on 23^rd September 2007 or, if the Option was exercised, on whatever date the Option was exercised.    I fail to see how the court can, by any legitimate means of construction, arrive at this result.

(4)     Mr. Barlow had submitted that the restriction imposed by clause 9.1(F) would mean that if, say, interest rates were to drop after the exercise of the Option then APWC or its subsidiaries would not be able to re-finance its debts by making early repaying its debts[3].    But then this would equally have been the case during the period prior to the exercise of the Option.   Mr. Barlow submitted that this restriction would make sense during the period prior to the exercise of the Option.   I do not agree.  I can readily understand why, as a minority shareholder with a 20% stake in APWC, Asset Managers (and its assignee) would be interested in the continued financial stability of APWC and its subsidiaries and wish the restriction to continue after exercise of the Option.  I am not making a finding that this was the actual subjective intention of the parties at the time of the agreement (such intention being inadmissible on a question of construction).  I am only saying that I can see a rational basis for the Plaintiffs’ construction, and that it cannot be said that the restriction in clause 9.1(F) only made sense prior to exercise of the Option.   In any event, the express stipulation as to the “expiry date” of the clause 9.1(F) obligation is clear.

30.  Notwithstanding the use of the words “Provided however that …” in the second part of clause 9.2(A), I do not think that the effect of that part of the clause was (as Mr. Barlow submitted) simply to “withhold” certain rights from its undertaking given in the earlier part of that clause (which undertaking, Mr. Barlow submitted, was only meaningful during the period before the exercise of the Option. I shall deal with this submission in the next paragraph).    I am of the view that the latter part of clause 9.2(A) gives rise to a self-standing obligation on the part of PEWC and not subject to any time constraints which may apply to the earlier part.

(1)     There is no magic about the use of the words “provided …..”.  I have not been referred to any authorities to the effect that once the words “provided that …” are used in a contract then a specific legal consequence must follow as a matter of law.  Such words may sometimes indicate a “withholding” from an earlier part of the same clause.  But it is all a matter of construing the clause in the context of the contract as a whole. 

(2)     On the wording of the SP Agreement, I regard the use of the words “notwithstanding any other provisions of this Agreement …” in the latter part of clause 9.2(A) as significant.  Those words indicate that the effect of the second part of clause 9.2(A) was not merely to “carve out” (or withhold) certain rights from the earlier part of that clause.  Had that been the intention, the clause would have said “notwithstanding anything in this clause”.  It did not.

(3)     The use of the words “… from time to time appoint …” also indicates that the right to appoint up to three directors, etc was one which is not limited by any constraints as to time. 

(4)     It is true that, as a matter of positioning of the words in the contract, the words in question are included as part of clause 9.2(A) (preceded by “provided ….”) and not as a self-standing clause with a separate clause number.  It is also true that the SP Agreement was so structured that there were separate sections headed Undertakings by the Vendor and Undertakings by the Purchaser.  I have taken these considerations into account but I do not believe that these considerations are sufficient to outweigh the significance of the express words I have just mentioned.   

(5)     Mr. Barlow raised the question as to who would be the promisor and who would be the promisee on the Plaintiffs’ construction.   The answer is that for the second part of clause 9.2(A), PEWC would be the promisor and Asset Managers (and its assignee) would be the promise.     Mr. Barlow raised the rhetorical question of how a promisor could obtain a decree of specific performance against himself: this argument presupposes that the whole of clause 9.2(A) consists of undertakings by the Purchaser.  But on the Plaintiffs’ construction (which I have accepted) clause 9.2(A) does not only consist of undertakings or promises by the Purchaser alone.  The second part consists of an undertaking (or a promise) by PEWC.

31.  In any event I am not persuaded that the earlier part of clause 9.2(A) is, as Mr. Barlow submitted, meaningful only during the period before the exercise of the Option.   

(1)     After the exercise of the Option, PEWC held just over 50% (but less than 60%) of the shares in APWC and Sino-JP held 20%.   

(2)     PEWC would be able, by virtue of its shareholding, to accomplish matters which only required approval of a simple majority of shareholders in APWC. 

(3)     But there were matters relating to the management of APWC which, under the relevant provisions of the Bermudan Companies Act 1981, required the more than a simple majority of APWC’s shareholders.  These include, for example, conversion of preference shares into redeemable preference shares (75% consent required: s.43), removal of auditor (2/3 consent required: s.89(5)), approving loan by a company to make a loan to its director or a director of its holding company (9/10 consent required: s.96(1)) and agreeing to a compromise with creditors and members (3/4 agreement required: s.99(2)).  These are not trivial matters.

(4)     For PEWC to be able to accomplish the subject matter of any of the above provisions after the exercise of the Option, Sino-JP’s assistance and co-operation would still be required in order to constitute the requisite majority.    The words in the earlier part of clause 9.2(A) are very broad – “maintaining management control in all aspects”.     The words are wide enough to cover the matters set out above which required the approval or consent of more than a simple majority of shareholders.   “Management control” in the clause is not limited to maintaining control over the composition of the board of directors (which was, after all, listed only by way of example in clause 9.2(A) itself: note the use of “including but not limited to …”  in that clause).     

(5)     There is therefore still “flesh” in the undertaking given in the earlier part of clause 9.2(A) after the exercise of the Option.  The consequence is that even if the second part of clause 9.2(A) is in the nature of a “withholding” from the earlier part, the earlier part did not become spent upon the exercise of the Option.  The second part did not become “spent” either. 

32.  The Plaintiffs’ position was not the same as, or analogous to, a mere financier/equitable mortgagee of the Option Shares.    

(1)     At the time of the SP Agreement it was contemplated by the parties that after the Option was exercised, Asset Managers (or its assignee) would remain a minority shareholder of APWC with a 20% stake.  A 20% shareholding was by no means insubstantial or insignificant. 

(2)     The position of the Plaintiffs was therefore different from that of a mere financier who, after the security has been redeemed by the borrower, would have nothing further to do with the borrower or (if the security consisted of shares in a company) the company whose shares were pledged. 

(3)     There is therefore some rational basis for providing Asset Manager (or its assignee) with the sort of protection contained in the latter part of clause 9.2(A).     Whether to agree to that stipulation is a matter of commercial judgment and risk assessment of the parties.   

(4)     In this connection I remind myself of the words of Lord Hoffman in in Jumbo King Ltd. v Faithful Properties [1999] 2 HKCFAR 279 at 296G-I:-

“If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard for one side or the other.  The court is not privy to the negotiation of the agreement - evidence of such negotiations is inadmissible - and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession.  Or one of the parties may simply have made a bad bargain.  The only escape from the language is an action for rectification, in which the previous negotiations can be examined.  But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean.  Therefore, it in spite of linguistic problems the meaning is clear, it is that meaning which must prevail.” (my emphasis)

(5)     In this case I am of the view that the ordinary meaning of the words does make sense in relation to the rest of the document.   They may now appear onerous to PEWC but I caution myself against the temptation to descend into the business arena too readily with a view to judging whether a result is “too harsh” against one party or “too favourable” in favour of another.  Those are really matters for the parties to assess.  Having assessed them and contracted for them, then in the absence of vitiating factors, they are, put bluntly, “stuck with it”.  Different considerations will arise if the result is absurd, illegal, or unworkable.  This, however, is not such a case.  Lord Hoffman’s observations cited above, in my view, apply with full rigour. 

(6)     If one were to utilize the language of “purposive construction”, then the SP Agreement had two purposes: one was to provide something akin to a security arrangement but another purpose was to confer upon Asset Managers (and its assignee) with the status and protection of a minority shareholder having 20% stake.  The SP Agreement did not have only one purpose of providing a security arrangement.  The Plaintiffs’ construction is consistent with this duality of purpose.

33.   It was submitted by Mr. Barlow that the construction contended for by the Plaintiffs, insofar as it purported to amend the constitutional documents of APWC and its subsidiaries, sought to “supplant” those constitutional documents and would not be lawful.      However, as I understand Mr. Coleman SC for the Plaintiffs, the Plaintiffs are not contending that the effect of clause 9.2(A) was to “supplant” the constitutional documents of APWC and it subsidiaries in the sense that clause 9.2(A) amended those documents and to bind APWC (and its subsidiaries) to the amendments.   The Plaintiffs’ case is that as a matter of construction clause 9.2(A) imposed an in personam obligation on the part of PEWC to co-operate or join in any resolution to effect the necessary amendment or amendments to the constitutional documents.  I am of the view that this is the correct way of interpreting the words in the last part of clause 9.2(A) in parentheses (especially in view of the use of the words “shall be amended to reflect ….”).

34.  Viewed in this light, clause 9.2(A) does not “supplant” the Constitution of APWC or its subsidiaries or seek or effect any amendments thereto (or bind the companies and other shareholders of these companies without them being a party to the SP Agreement).  

35.  It may well be that APWC is only a minority in some of its subsidiaries (or it did not command a sufficiently large number of shares to be able to push through the requisite constitutional amendments), but that is a different point.  As Mr. Coleman SC submitted, it is possible to construe clause 9.2(A) as simply requiring PEWC to do all that was within its power to cause APWC to procure the requisite amendments to the constitutional documents of its subsidiaries.   

36.  Mr. Barlow referred to the opening words of clause 9.2(A) (“… subject always to not resulting in the Vendor and the Purchaser (or their respective Affiliates) being implicated as parties “acting in concert” (within the meaning under the Code on Takeovers and Mergers in Hong Kong) or other analogous or similar doctrines under other applicable jurisdictions …”).  He submitted that if the second part of clause 9.2(A) is given the construction contended for by the Plaintiffs, then it would result in a situation where a holder of 20% of the shares in APWC (namely Sino-JP) would be able to enjoy more than 30% of voting rights (by virtue of the ability to veto board decisions through directors nominated by it).  This, said Mr. Barlow, would turn PEWC and the Plaintiffs into parties “acting in concert” within the meaning of the Code of Takeovers and Mergers in Hong Kong (“the HK Code”).   And this is not permitted by the opening words of clause 9.2(A).  There are several answers to this:

(1)     First, the words italicized above require one to identify the “applicable jurisdiction”, and then examine whether under the relevant code in that jurisdiction (being a code governing listed companies, analogous to the HK Code) PEWC and Asset Managers (or its assignee) would become parties acting in concert.   In our case PEWC was listed in Taiwan and not in Hong Kong.  APWC itself is a Bermudan company and is not listed.  The Hong Kong Code is therefore not applicable.  There is no evidence as to the effect of the relevant rules or code in Taiwan governing listed companies or whether, under those rules or code, PEWC and Asset Mangers (or its assignee) would become parties acting in concert.  There is in fact no evidence of any code anywhere in the world analogous to the HK Code which would be applicable to any of the relevant entities in this case and which contained, or would trigger, the “acting in concert” concept.

(2)     Second, even assuming for the sake of argument that somehow, one has to examine the HK Code, I am not satisfied that under the HK Code, PEWC and Asset Managers (or its assignee) would become parties acting in concert if one adopts the Plaintiffs’ construction.   

(a)     Under the HK Code, parties acting in concert comprise persons who, pursuant to an agreement or understanding (whether formal or informal), actively co-operate to obtain or consolidate “control” of a company through the acquisition by any of them of voting rights in the company.

(b)     “Control” shall be deemed to mean a holding or aggregate holdings of 30% or more of the voting rights of a company, irrespective of whether that holding or holdings gives de facto control. 

(c)     Lastly, “voting rights” means all the voting rights currently exercisable at a general meeting of a company whether or not attributable to the share capital of the company. 

(d)    Mr. Barlow’s argument is that under the Plaintiffs’ construction, after the exercise of the Option Sino-JP would – albeit the holder of only 20% of the shares in APWC – enjoy “voting rights” exceeding 30% by reason of the ability of its nominate directors on the board of APWC to veto any board resolution. 

(e)     In my view the veto right enjoyed by Sino-JP nominee directors on APWC’s board is not the same as 30% or more of the “voting rights” of APWC.  “Voting rights” is defined in the HK Code by reference to voting at a general meeting (i.e. a shareholders’ meeting).    The fact that in practical terms Sino-JP may be able (through the veto right of its nominee directors) to control the way the board of APWC votes does not translate itself into control of the general meeting.   

(3)     The above discussion presupposes that the words in italics apply both to the earlier part of clause 9.2(A) as well as the second part.  But that is not necessarily so, especially given the conclusion (see above) that the second part of clause 9.2(A) has the effect of a self-standing, obligation-creating provision and not something whose operation is somehow dependent upon the earlier part. 

37.  Mr. Barlow placed some weight on clause 14.3 of the SP Agreement relating to survival of certain provisions after Completion.  However, I am not satisfied that this provision really assists in ascertaining whether clauses 9.1(F) and 9.2(A) are intended to survive exercise of the Option.

(1)     Clauses 9.1(F) and 9.2(A) would, of course, not survive exercise of the Option if they did not even survive completion.  But as I understand Mr. Barlow he is not contending that the provisions did not survive completion.  And in any event I am of the view that the provisions did survive completion.

(2)     Clause 14.3 does not define the “completion-surviving” provisions by listing out specific clause numbers.   It is true that the clause started off by mentioning “the Vendor’s Warranties” but it immediately goes on to mention all other provisions of the SP Agreement insofar as they had not been performed at completion.    On the face of it, therefore, clause 14.3 does not expressly exclude clauses 9.1(F) and 9.2(A) as “completion-surviving” provisions. 

(3)     It is demonstrably clear that both clauses 9.1(F) and 9.2(A) are intended to survive completion.  Clause 9.1(F) contains a built-in expiry date.  The operation of clause 9.2(A) presupposes that Asset Managers (and its assignee) would have some influence as a shareholder and that shareholder status could only be achieved after completion.  

(4)     Of course, the fact that both clauses 9.1(F) and 9.2(A) survived completion does not necessarily mean that they must also survive exercise of the Option.  That still remains a matter of construction.  But the point under discussion is whether clause 14.3 has any bearing on whether they survived exercise of the Option.  In my view it does not. 

38.  For the above reasons I am of the view that the Plaintiffs’ construction of clauses 9.1(F) and 9.2(A) is the correct one.  I would therefore answer the question posed by paragraph 2 of PEWC’s Order 14A summons dated 5th October 2006 (which, in turn, refers to the declaration sought by paragraph 1 of the prayer for relief in the Statement of Claim herein dated 12th September 2006) in the affirmative, that is to say, that the respective rights and obligations of the Plaintiffs and PEWC in respect of and/or in relation to APWC and its Subsidiaries remain governed by clause 9.2A and clause 9.1(F) of the SP Agreement in spite of the exercise by PEWC of the Option contained in the Option Agreement and remain binding on the Plaintiffs and PEWC.  I grant a declaration to that effect.

Miscellaneous

39.  PEWC had a summons dated 24^th November 2006 to strike out certain parts of Sham’s 1^st affirmation.  However, during the course of the hearing it transpired that Mr. Barlow was content not to pursue that summons if the Plaintiffs were to exclude certain contentious matters from the scope of the factual matrix that I was invited to have regard to for the construction exercise.  After some discussions before me Mr. Coleman SC and Mr. Barlow reached consensus that certain contentious matters relied on in paragraphs 4 to 16 of Mr. Coleman SC’s skeleton arguments can be edited.  I have summarized the final form of those paragraphs in paragraphs 1 to 9 of this Judgment.  Mr. Coleman SC agreed to so confine himself.  There is therefore no need to deal with the summons to strike-out. 

40.  As I had said above, as a result of the Court of Appeal judgment in Bermuda, it was contemplated that the Hong Kong proceedings would (save for the Order 14 and Order 14A summonses before me) be stayed.  I understand that the stay will be effected by a consent order to be agreed by the parties, which order will also contain provisions reserving the costs incurred so far in Hong Kong (save for the costs order that I am about to make arising out of this Judgment) to the Bermudan Courts.  I shall leave that to the parties.

41.  Lastly, as to the costs arising out of this Judgment, technically the stay contemplated by the Bermudan Court of Appeal judgment did not cover the Order 14 and Order 14A summons; and technically both these summons were supposed to have been argued before, and determined by, me.  But by reason of the way of matter has developed, I was only asked by the parties to answer one question of construction in the Order 14A summons.  Therefore only part of the Order 14A summons was argued. 

42.  The Order 14 summons was not pressed in full by Mr. Coleman SC, in the sense that I was not asked to consider whether I should give final judgment for damages, injunctions, etc as prayed (save for the declaration in paragraph 1 of the prayer of relief in the Statement of Claim - which I grant following my resolution of the construction issue in favour of the Plaintiffs).   

43.  I have taken into account all the above matters in the exercise of my discretion as to costs.  The costs order that I am going to make, on a nisi basis, is as follows:-

(1)     The Plaintiffs are to have 70% of the costs of and occasioned by the Order 14 and Order 14A summonses, such costs to be taxed if not agreed, with certificate for two counsel. 

(2)     There be no order as to costs in respect of PEWC’s summons to strike out, dated 24^th November 2006.

(3)     The balance of the costs of the Order 14 and Order 14 summonses to form part of the costs in the cause of this action.

44.  It remains for me to thank counsel on both sides for the assistance that they had given me. 

[1] I have set out only the more important provisions of the SP Agreement for ease of reference in this judgment.  In construing the contract I have in fact had regard to all the provisions of the SP Agreement, but to set out all the terms of the SP Agreement would unnecessarily burden this judgment

[2] There have been suggestions that certain aspects of the rules of contractual interpretation (such as the inadmissibility of evidence as to pre-contract negotiations, as to the parties’ actual understanding of the meaning of the contract and as to the parties' subsequent conduct) should be revisited:- see the latest discussion of the relevant arguments and materials in a lecture by Lord Nicholls of Birkenhead My Kingdom for a Horse: the Meaning of Words published in (2005) 121 LQR 577.  But none of the parties before me had addressed any argument on this and I shall therefore approach my task of contractual interpretation by reference to the established principles.

[3] Or, put more accurately, PEWC would be under an obligation to see to it that such debts were not repaid earlier.