NAVIRE OY v. SUOMEN ERIKOISAJONEUVOT OY AND OTHERS

HCA 977/2018

[2020] HKCFI 1159

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 977 OF 2018

________________________

________________________

_________________________________

DECISION

_________________________________

INTRODUCTION

1.  This is the Plaintiff’s application under Order 86 against the 1^st and 2^nd Defendants, for specific performance of a contract (the validity of which, as explained below, is disputed) for, inter alia, transfer of shares in the 3^rd Defendant (the “Company”) from the 1^st Defendant to the Plaintiff and resignation of the 1^st Defendant from the board of directors of the Company. 

2.  The Plaintiff is a limited company incorporated under the laws of Finland.  Its managing director is one Mr Jun Shi (“Mr Shi”).  The 1^st Defendant is also a limited company incorporated under the laws of Finland, and its managing director is the 2^nd Defendant. 

3.  The Company is a limited company incorporated under the laws of Hong Kong.  It is a company of joint venture between the Plaintiff and the 1^st Defendant, the former holding 20% (2,000 shares) and the latter 80% (8,000 shares).  The 2^nd Defendant and Mr Shi are the two directors and authorised signatories of the HSBC bank account of the Company.  The Company carries out the business of dealing with projects for automobile models and parts.  It accepts orders for automobile and their mechanical parts from its clients in Mainland China through Mr Shi’s connections, and places orders for their production and engineering work with European engineering houses such as the 1^st Defendant.

4.  On 1 October 2017, the Plaintiff (via Mr Shi) and the 1^st Defendant (via the 2^nd Defendant) signed a document entitled “MOU”. 

PLAINTIFF’S CLAIM

5.  In this regard, in paragraphs 6 and 7 of the Statement of Claim, the Plaintiff pleads that: -

“By an agreement dated 1^st October 2017 (“the Agreement”) entered into between the Plaintiff on one part, as represented by Mr Shi, and the 1^st Defendant on the other part, as represented by [the 2^nd Defendant], it was agreed, inter alia, that: -

(1)     The 1^st Defendant would sell its 80% shareholding in the Company to the Plaintiff, with the payment of €8.00.

(2)     [The 2^nd Defendant] would resign from the board of directors of [the Company].

(3)     The 1^st Defendant agreed to take on all the ongoing project delivery responsibilities and project related financial liabilities with 3 PRC companies…

(4)     [The Company] and the Plaintiff would cease to represent the 1^st Defendant and its affiliated companies’ business interests.

(5)     [The Company] and the Plaintiff would hand over to the 1^st Defendant all the business ownerships and associated business interests, which were conducted under [the Company’s] name and brand at the time; and

(6)     In the future, should [the Company] be needed to support the 1^st Defendant for any financial transaction, the 1^st Defendant should agree to pay up to 2% of the total transaction volume as the administration fees to [the Company].

7.     It is understood and agreed between the parties and implied by the Agreement that Suomen and [the 2^nd Defendant] would give up control over [the 3^rd Defendant], and consequently should have no right to access the HSBC Account anymore.”

6.  The Plaintiff paid €8.00 to the 1^st Defendant by bank transfer shortly after the signing of the MOU, and it was accepted by the 1^st Defendant.  With respect to this payment, the Plaintiff pleads in paragraph 8 of the Statement of Claim that “the Plaintiff had duly honoured the Agreement”. 

7.  The Plaintiff commenced the present action against the 1^st and 2^nd Defendants for breach of the MOU, in particular, failing and/or refusing to transfer its 80% shareholding in the Company to the Plaintiff; and failing and/or refusing to procure the 2^nd Defendant to resign from the board of directors of the Company.  Therefore, the Plaintiff claims specific performance of the MOU and/or damages in lieu. 

8.  The Plaintiff also claims for other remedies on some other causes of action.  However, they are independent of the claim in the present application.  Suffice to say that those matters will go to trial in any event, irrespective of the outcome of the application before me today. 

9.  It is noted that in the Statement of Claim, neither was any specific clause of the MOU singled out; nor was there any plea made that only a certain clause of the MOU was enforceable or to be enforced.  However, in his 4^th Affirmation filed in support of the Plaintiff’s present application, Mr Shi singled out in paragraph 12 of his affirmation that Clause 7 was a “self-contained contract of sale and purchase of [the 1^st Defendant’s] 80% shareholding in [the Company].  The contract is governed by Hong Kong law and is a legally binding contract severable from the other terms of the MOU.”  In the skeleton submissions filed by Mr Brian Lo, the Plaintiff’s counsel, he also ran the same argument that Clause 7 was a self-contained contract severable from other parts of the MOU and was a legally binding clause.  At the hearing, Mr Lo made it clear that the Plaintiff’s position is that the whole MOU was legally binding, but for the present purpose, I need not be concerned with the other parts of the MOU. 

10.  It is also noted that in the present application, the Plaintiff is also seeking specific performance of the implied term pleaded in paragraph 7 of the Statement of Claim as set out above.  Although the pleading does not say on what basis the term was implied, Mr Lo had to submit to me that it was a term implied upon Clause 7. 

11.  I must say that the way the Plaintiff runs its pleaded case and now specifically singles out Clause 7 of the MOU with an implied term crafted only upon Clause 7 is unsatisfactory. There is, however, no submission on whether this may per se be a bar to a summary judgment application, which could only be granted on the claims and facts pleaded in the Statement of Claim.  I am prepared to proceed to consider the substantive merits of the present application. 

DEFENDANTS’ DEFENCE

12.  The premise of the Plaintiff’s claim for the present application is of course that the MOU is a legally binding agreement.  This premise is contested by the 1^st and 2^nd Defendants. 

13.  The 1^st and 2^nd Defendants claim that the MOU was originally titled “agreement”. However, when discussing the terms, the parties could not come to agreement, and therefore towards the end of the discussion, the parties agreed to change the title to “MOU”. 

14.  Ms Frances Lok, counsel for the 1^st and 2^nd Defendants, refers to various factors to contend that the MOU is governed by the laws of Finland.  She further contends that under the Finnish law, the MOU was not legally binding.  This contention, however, is not supported by expert opinion.  There are only pleas in the Defence and evidence from the 2^nd Defendant, who is not a Finnish lawyer.  Thus, I do not accept the Finnish law to be what the 1^st and 2^nd Defendant allege before me.  That said, from what the 1^st and 2^nd Defendants plead in the Defence as to the Finnish law and from the non-expert evidence from the 2^nd Defendant’s affidavit, I can say for the present purpose that the test to determine whether an “agreement” is legally binding is essentially the same as Hong Kong law, namely, whether there is a meeting of minds.  Thus, it does not make much difference here whether or not there is any expert evidence, because it is trite that absent any evidence as to what the foreign law is, it is taken as the same as the Hong Kong law.  

15.  In any event, Ms Lok does further contend that even assuming that the MOU is governed by the Hong Kong law, it is not binding, because it is a mere agreement to agree.  Their reasons are these: in addition to its claim that the parties deliberately changed the title from “agreement” to “MOU” after the 2^nd Defendant refused to sign on the “agreement” emailed to him during the meeting on 1 October 2017, which he did not have sufficient time to read and consider, many important matters remained not agreed.  For example, the issue relating to the transfer and takeover of client projects, and the share purchase price if the parties would agree on a deal relating to a sale and purchase of any part of the Company’s shares by either party.  Further, Mr Lok submits that subsequent email correspondence between the parties show that the MOU was a “goodwill offer” and the parties could still “take… time to think it over” (see email sent by Mr Shi to the 2^nd Defendant on 1 October 2017 at 17:21). 

16.  As regards the 1^st Defendant’s acceptance of the payment of the €8 by the Plaintiff, the defence pleaded is that it was accepted as part of the interest on the unpaid subscription price by the Plaintiff for its shares in the Company, being €2,000 and the interest of €12.  There is, however, no evidence even as to this explanation.  This allegation remains a mere allegation in the 1^st and 2^nd Defendants’ Defence only. 

PLAINTIFF’S RESPONSE

17.  In its reply affirmation (namely, the 5^th Affirmation of Mr Shi), the Plaintiff points out that the 1^st and 2^nd Defendants never mentioned in any contemporaneous correspondence that the MOU was not intended to be legally binding, and such allegation was raised for the first time in the Defence.  The Plaintiff further points out that on the contrary, in the email on 1 October 2017, the Plaintiff told the 1^st and 2^nd Defendants to “honour what we agreed for”, and the 1^st and 2^nd Defendants did not dispute the validity of the MOU. 

18.  However, in its reply affirmation, the Plaintiff makes no response to the circumstances leading to the signing of the MOU, in particular, the short notice of the “agreement” emailed to the 1^st Defendant only during the meeting, and the reasons for the changing of the title from the “agreement” to “MOU”.  The Plaintiff makes no response to the 1^st and 2^nd Defendants’ evidence that the 1^st Defendant refused to sign the “agreement” and only agreed to do so after the title was changed to “MOU”.  In its reply affirmation, the Plaintiff only dismissed the change of title as a “red herring”, and emphasised that the contents of the “agreement” or the “MOU” were not changed. 

ANALYSIS

19.  In my view, the circumstances leading to the signing of the “MOU” rather than “agreement” are not red herring.  They relate to the states of mind of the parties at the time of signing of the MOU.  There is not even a bare denial from the Plaintiff of the 1^st and 2^nd Defendants’ such evidence, in particular the 1^st Defendant’s evidence that the 1^st Defendant refused to sign only after the title was changed to “MOU”.  If the events took place as alleged by the 1^st and 2^nd Defendants, it is reasonably arguable that the MOU was not intended to be legally binding. 

20.  I appreciate the high point taken by Mr Lo, that the 1^st Defendant accepted the payment of €8 made shortly after the signing of the MOU and that the 1^st Defendant’s plea (not even evidence) that it was part of the interest payment of the unpaid subscription of the shares in the Company are, as I described during the hearing, “very troubling”.  However, it is not the Plaintiff’s case that the binding “agreement” was formed by conduct, namely, the 1^st Defendant’s acceptance of the €8.  The Plaintiff’s case is that the MOU was legally binding in the first place and the acceptance of the payment was performance of the MOU.  Thus, the acceptance is at best evidence shedding light on whether the 1^st and 2^nd Defendants thought that the MOU was binding or not.  Assessing all these against the 1^st and 2^nd Defendants’ evidence relating to the circumstances leading to the signing of the MOU and the lack of any positive evidence from the Plaintiff in response, I am satisfied that the 1^st and 2^nd Defendants have raised triable issues as to the states of mind of the parties when signing the MOU, and thus, the 1^st and 2^nd Defendants shall have unconditional leave to defend. 

21.  I should add that even if the evidence of the acceptance of the payment of €8 would have any significant effect in favour of the Plaintiff, that would be a borderline case only.  In a normal summary judgment application, this may be appropriate to give conditional leave.  However, it is unusual to give conditional leave in an Order 86 application: see Fine Elite Group Ltd v Cheng Wai Tao, HCA 1269/2008, 27 April 2010 per Fok J(as he then was) at paragraph 108.  Added to this is that specific performance is a discretionary remedy and given that the action will go to trial in any event, I should still give unconditional leave for the Defendants to defend: see Skillsoft Asia Pacific Pty Ltd v Ambow Education Holding Ltd (No 2) [2016] 1 HKLRD 1052 per Anthony Chan J at paragraph 20. 

ORDER

22.  In the circumstances, I order that there shall be unconditional leave for the 1^st and 2^nd Defendants to defend. 

[submissions on costs]

23.  Having heard counsel’s submissions, I order that costs of this application be in the cause, with certificate for counsel.