GLORY EMPIRE GLOBAL LTD v. BATESON INVESTMENT LTD

HCA 866/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 866 OF 2017

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D E C I S I O N

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INTRODUCTION

1.  There are two applications before me:-

(1) the defendant’s summons dated 11 May 2017 (“the Strike Out Summons”) seeking to strike out the plaintiff’s claim, or alternatively a stay of all further proceedings in this action pending determination of the disputes concerning the “SPA Breaches” by way of arbitration; and

(2) the plaintiff’s application for the costs of this action (“the Costs Application”) consequent upon the defendant’s withdrawal of the “Enforcement Notice”, the subject matter of this action, on 25 April 2017.

2.  In view of the defendant’s withdrawal of the Enforcement Notice, the plaintiff’s substantive claim in the action has become academic.  In reality, the only outstanding issue between the parties relates to the costs of this action.

BASIC FACTS

3.  The background facts of this matter are of some considerable complexity.   For the purpose of resolving the two applications before me, the following brief summary should suffice.

(i)    The Sale and Purchase Agreement

4.  In 2013, the plaintiff and the defendant became joint venture partners in the development of a commercial complex in Nanjing, China, as a result of the purchase by the plaintiff of a 51% interest (“the Shares”) in a BVI company called Leading Holdings Ltd (“the Company”) from the defendant pursuant to an agreement for the sale and purchase of shares in the Company dated 2 February 2013 (“the Sale and Purchase Agreement”).  The defendant became a 49% owner of the Company after the sale of the Shares to the plaintiff.

5.  Clause 9.01(c) of the Sale and Purchase Agreement provides that it may be terminated upon any serious breach of the agreement by either party making it impossible for the other party to achieve the purpose or object of entering into the agreement.

6.  Clause 18 of the Sale and Purchase Agreement provides that all disputes arising out of or relating to that agreement shall be referred to arbitration in Hong Kong if the same cannot be resolved by friendly negotiation within a specified period of time.

(ii)   The Share Charge and the Shareholders’ Agreement

7.  In addition to the Sale and Purchase Agreement, the plaintiff and the defendant entered into, inter alia:-

(1) a share charge dated 4 February 2013 (“the Share Charge”), under which the plaintiff agreed to charge the Shares to the defendant as security for the plaintiff’s “Secured Obligations” as defined in the Share Charge; and

(2) a shareholders’ agreement in respect of the Company dated 4 February 2013 (“the Shareholders’ Agreement”).

8.  In the Share Charge, the expression “Secured Obligations” is defined, in Clause 1.1 thereof, to mean (inter alia) all present and future, actual or contingent obligations of the plaintiff under the Sale and Purchase Agreement and the Share Charge.  There is a dispute between the parties on the question of whether the Shareholders’ Agreement should be regarded as forming part of the Sale and Purchase Agreements for the purpose of determining the scope of the “Secured Obligations” under the Share Charge.  However, it is not necessary for me to resolve this dispute for the purpose of deciding the two applications before me.

9.  By Clause 3.2 of the Shareholders’ Agreement:-

(1) the board of the Company shall comprise 5 directors;

(2) the plaintiff is entitled to nominate 3 directors to the board of the Company; and

(3) the defendant is entitled to nominate 2 directors to the board of the Company.

10.  By Clause 5.1(e) of the Share Charge, the plaintiff undertakes to the defendant, immediately upon the execution of the Share Charge and immediately upon acquisition of any other shares in the Company by, or the issuance of any new shares in the Company to, the plaintiff from time to time, to deposit (or procure to be deposited) with the defendant and permit the defendant to hold and retain the originals of, inter alia, the following documents (“the Documents”):-

(1) an undated letter of resignation executed by each director of the Company nominated by the plaintiff in substantially the form as set out in Schedule 2 thereto (sub-paragraph (iv));

(2) an undated written resolutions of the board of directors of the Company signed by all of the directors of the Company nominated by the plaintiff in substantially the form as set out in Schedule 3 thereto (sub-paragraph (v)); and

(3) a letter of undertaking and authorisation executed by each of the directors of the Company nominated by the plaintiff in substantially the form as set out in Schedule 4 thereto (sub-paragraph (vi)).

11.  In respect of the aforesaid Documents to be provided by the plaintiff:-

(1) The one referred to in sub-paragraph (iv) is a draft letter to provide for the eventuality when a director nominated by the plaintiff leaves the Company in future.  By that letter, the director confirms that he has no claim whatsoever against the Company on any account, and there is no outstanding agreement or arrangement with the Company under which the Company has or would have any obligation to him or under which he would derive any benefit.

(2) The one referred to in sub-paragraph (v) is a set of board resolutions relating to matters such as approval of transfer of shares, appointment of additional director, resignation of director, financial controller and secretary, etc.

(3) The one referred to in sub-paragraph (vi) is a draft letter to provide for the situation where the defendant becomes entitled to enforce the Share Charge.  By that letter, each director nominated by the plaintiff undertakes to procure, to the extent of his powers as a director of the Company, that all or any of the Shares which are charged to the defendant pursuant to the Share Charge shall, upon a written request by the defendant and presentation to the Company of a proper instrument of transfer duly signed, be promptly registered in the name of the defendant or its nominee(s), and authorise the defendant to complete, date and put into effect the aforesaid letter of resignation and written resolutions and any other document signed by him and delivered pursuant to the Share Charge at any time after the security constituted by the Share Charge shall have become enforceable in accordance with its terms.

12.  By Clause 5.1(f) of the Share Charge, the plaintiff further undertakes to the defendant that –

“it will procure that as from any appointment of any further director of the Company nominated by the [plaintiff] items (iv) to (vii) in Clause 5.1(e) for signing by the directors of the Company nominated by the [plaintiff] deposited with the [defendant] will be those signed by all the then directors of the Company nominated by the [plaintiff] (including but without limitation to the further director appointed) …”

13.  By Clause 7.1 of the Share Charge:-

(1) Upon default of any Secured Obligations and its continuation for 30 days, the defendant may issue a 14 days’ advance written notice of the intention to enforce the security to the plaintiff.

(2) Where the security constituted by the Share Charge has become enforceable, the defendant may exercise all the rights which may be exercisable by the registered holder of the Shares, including (a) taking possession of, collecting and getting in the Shares, and taking any steps necessary to vest all or any of the Shares in the name of the defendant or its nominee, and (b) selling, exchanging, converting into money or otherwise disposing of or realising the Shares to any person and for such consideration and on such terms as the defendant may think fit.

(iii)  The Termination Notice

14.  By a letter dated 9 October 2016 (“the Termination Notice”) from the defendant’s solicitors, King & Wood Mallesons (“KWM”), which letter the plaintiff says was only received on 8 December 2016, the defendant gave notice of termination of the Sale and Purchase Agreement to the plaintiff pursuant to Clause 9.01(c) thereof on the ground of various alleged breaches by the plaintiff of the Sale and Purchase Agreement and Shareholders’ Agreement (“the SPA Breaches”), and demanded the plaintiff to re-sell the Shares back to the defendant in accordance with the formula set out in Clause 9.04(a) of the Sale and Purchase Agreement.

15.  The plaintiff gave detailed answers to the defendant’s allegations in respect of the SPA Breaches by a letter dated 20 December 2016 and a further letter from its solicitors, Latham & Watkins (“LW”), dated 28 February 2017.  Up to the date hereof, the defendant has not made any substantive reply to the plaintiff’s answers. Nevertheless, on 12 May 2017, KMW issued a Notice of Negotiation pursuant to Clause 18.01 of the Sale and Purchase Agreement in respect of the disputes relating to the SPA Breaches, as a prelude to referring those disputes to arbitration.

16.  On 31 July 2017, the defendant gave formal notice of arbitration to the plaintiff.

(iv)  The Enforcement Notice

17.  Prior to 20 February 2017, the three directors of the Company nominated by the plaintiff were Mr Li Congrui, Mr Jiang Nan, and Mr Lu Tianxue (“Mr Lu”).  Mr Lu became a director of the Company on 22 October 2015 to replace a former director called Mr He Cao.

18.  It is not in dispute that the plaintiff did not deposit with the defendant the Documents in relation to the appointment of Mr Lu as required by Clause 5.1(f) of the Share Charge until 18 April 2017, some 17 months after his appointment, in circumstances more particularly described below.

19.  On 20 February 2017, the plaintiff notified the defendant that it proposed to appoint a person called Mr Lin Zhonghai (“Mr Lin”) to replace Mr Lu as director of the Company. In response, on 23 February 2018, the defendant requested the plaintiff to provide the Documents in relation to the proposed appointment of Mr Lin.

20.  By a letter dated 21 March 2017 from KWM to LW, the defendant reiterated its demand on the plaintiff to provide the Documents in relation to the proposed appointment of Mr Lin, and complained, for the first time, that the plaintiff had failed to provide the Documents in relation to the appointment of Mr Lu in accordance with the requirement of Clause 5.1(f) of the Share Charge.  Further letters were exchanged between the parties on the question of whether the plaintiff was under any obligation to provide the Documents sought, but no agreement was reached.

21.  On 5 April 2017, the defendant issued an enforcement notice (“the Enforcement Notice”) pursuant to Clause 7.1 of the Share Charge.  In the Enforcement Notice, the defendant relied on the following alleged breaches of the Secured Obligations:-

(1) the failure to provide the Documents in relation to the appointment of Mr Lu as director of the Company;

(2) the failure to provide the Documents in relation to the proposed appointment of Mr Lin as director of the Company; and

(3) the SPA Breaches.

22.  Although the Enforcement Notice referred to the plaintiff’s failure to provide the Documents in relation to the proposed appointment of Mr Lin as a breach of the Secured Obligations on the plaintiff’s part, I understand from Mr Paul Shieh SC’s submissions made at the hearing on 9 August 2017 that the defendant would not rely upon this allegation in support of the validity of the Enforcement Notice.

23.  On 11 April 2017, LW sent to KWM copies (but not the originals) of the Documents relating to the appointment of Mr Lu as director of the Company.  The copied Documents provided to KWM were apparently signed by Mr Lu, but the board resolution (referred to in sub-paragraph (v) of Clause 5.1(e) of the Share Charge) was not signed by the other two directors nominated by the plaintiff (namely, Mr Li Congrui and Mr Jiang Nan).  In that letter, LW also said that:-

(1) the non-provision of the Documents relating to the appointment of Mr Lu as director of the Company would at the highest render the appointment of Mr Lu invalid, but could not constitute a default of any Secured Obligations under the Share Charge on the part of the plaintiff; and

(2) in any event, even if the non-provision of the Documents constituted a default of the Share Charge, such default had now been remedied (subject to the final provision of the fully executed board resolution, which would be provided as soon as possible) and ceased to exist.

(v)   Commencement of the action and the injunction

24.  On 11 April 2017, the plaintiff commenced the present action seeking (i) a declaration that the defendant is not entitled to enforce the security given by the plaintiff under the Share Charge pursuant to the Enforcement Notice, and (ii) an injunction to restrain the defendant from enforcing the security pursuant to the Enforcement Notice.

25.  On the same date (ie 11 April 2017), the plaintiff took out a summons for an interlocutory injunction against the defendant to restrain it from enforcing the Share Charge pursuant to the Enforcement Notice.

26.  The plaintiff’s application for injunctive relief came before this court on 13 April 2017.  By consent of the parties and upon the plaintiff’s undertaking to produce the original Documents (in relation to the appointment of Mr Lu) to the defendant on or before 19 April 2017, the court granted an interim injunction to restrain the defendant from enforcing the Share Charge pursuant to the Enforcement Notice pending the substantive hearing of the plaintiff’s summons.

(vi)  Withdrawal of the Enforcement Notice

27.  On 18 April 2017, pursuant to the aforesaid undertaking given to the court, the plaintiff provided to the defendant the original Documents, duly signed by all the directors nominated by the plaintiff, in relation to the appointment of Mr Lu.

28.  By a letter dated 19 April 2017, LW informed KWM that the plaintiff wished to make effective the replacement of Mr Lu by Mr Lin as director of the Company, enclosing therewith signed copies of the Documents relating to the appointment of Mr Lin.

29.  On 25 April 2017, the plaintiff provided the signed original Documents relating to the appointment of Mr Lin to the defendant in exchange for (inter alia) a board resolution of the Company duly signed by the directors nominated by the defendant approving the appointment of Mr Lin as new director of the Company.

30.  By a letter dated 25 April 2017 from KWM to LW, the defendant formally withdrew the Enforcement Notice.  In that letter, it was stated that in view of:-

(1) the plaintiff’s provision on 18 April 2017 of the original Documents relating to the appointment of Mr Lu as director of the Company; and

(2) the plaintiff’s provision on 25 April 2017 (by way of exchange) of the original Documents relating to the appointment of Mr Lin as director of the Company in place of Mr Lu,

the defendant’s rights under the Share Charge would be protected and therefore it was no longer necessary for the defendant to continue with the enforcement procedure pursuant to Clause 7.1 of the Share Charge.

(vii) The present applications

31.  By a further letter dated 25 April 2017 from KWM to LW, the defendant stated that, in light of the plaintiff’s provision of the original Documents relating to the appointments of Mr Lu and Mr Lin and the defendant’s withdrawal of the Enforcement Notice, the present action had become wholly academic, and invited the plaintiff to consent to a discharge of the injunction and discontinue the action.

32.  The plaintiff was agreeable to the dismissal of the action by consent but only on condition that the defendant would (i) provide a written admission that it was not entitled to issue the Enforcement Notice, (ii) undertake that it would not, directly or indirectly, at any time seek to enforce the Share Charge in reliance, whether in whole or in part, on any of the grounds referred to in the Enforcement Notice, and (iii) pay to the plaintiff the sum of US$236,000 as agreed costs of the action.  See LW’s letter to KWM dated 26 April 2017.

33.  By KWM’s letter to LW dated 5 May 2017, the defendant made it clear that it did not accept that it was not entitled to issue the Enforcement Notice, and again invited the plaintiff to withdraw the injunction application and discontinue the action immediately, with costs to the defendant.

34.  The parties were unable to agree on who should bear the costs of the proceedings (including the costs of and occasioned by the plaintiff’s application for injunctive relief).

35.  On 11 May 2017, the defendant issued the Strike Out Summons.

36.  By a Consent Order dated 6 June 2017, it was agreed that the plaintiff’s application for the costs of this action, including all reserved costs, should be determined summarily and be heard together with the Strike Out Summons.

APPLICABLE PRINCIPLES IN RESPECT OF COSTS ONLY PROCEEDINGS

37.  There are two ways in which a party can have the matter of costs determined if the liability issues in the action have become academic.  First, he may apply for leave to discontinue the action and ask for the costs to be determined. In those circumstances, although it would not be impossible for the plaintiff to ask for an order for the payment of the costs by the party against whom he is discontinuing, it has been said that such order would be “most unusual”.  The second way in which the issue of costs can be resolved is for the parties to go to trial and to have the costs dealt with after trial.  It has been said that the issues in such a trial would be “extremely limited”.  See Ta Tung China & Arts Ltd v Fontana Restaurant Ltd [1999] 1 HKLRD 404, per Mortimer VP at 406‑407.  In the same case, Godfrey JA also stated, at 407, the following:-

“Where a plaintiff seeks to recover costs against a defendant in an action in which the substantive issues have been determined in one way or another before the trial, the only way which the plaintiff can recover his costs (if the defendant refuses to pay them) is to bring the action to trial for the purpose of doing so. The issues at the trial will be limited …”

38.  In R (Boxall) v Waltham Forest London Borough Council (unreported), 21 December 2000, Scott Baker J stated the following principles on how the court should exercise its discretion on costs where the substantive proceedings have been resolved without a trial, leaving the issue of costs only to be determined:-

“(i) The court has power to make a costs order when the substantive proceedings have been resolved without a trial but the parties have not agreed about costs. (ii) It will ordinarily be irrelevant that the claimant is legally aided. (iii) The overriding objective is to do justice between the parties without incurring unnecessary court time and consequently additional cost. (iv) At each end of the spectrum there will be cases where it is obvious which side would have won had the substantive issues been fought to a conclusion. In between, the position will, in differing degrees, be less clear. How far the court will be prepared to look into the previously unresolved substantive issues will depend on the circumstances of the particular case, not least the amount of costs at stake and the conduct of the parties. (v) In the absence of a good reason to make any other order the fall back is to make no order as to costs…”

39.  The above principles were endorsed by Longmore LJ in Brawley v Marczynski (No 1) [2003] 1 WLR 813 at 819-820 (paragraph 21), who added the following at paragraph 18:-

“… there is in my judgment no tradition in these matters of there being ‘no order as to costs’ merely because a dispute has been settled except as to costs. No doubt if it is truly impossible to say what the likely outcome would have been it is a possible order. But if one looks at the authorities referred to by Mr Shipley one finds that the position is much more precisely expressed.”

40.  In BCT Softrware Solutions Ltd v C Brewer & Sons Ltd [2004] FSR 9, at paragraph 17, Mummery LJ said that making no order as to costs –

“has its attractions in cases where it is difficult to fathom from the terms of a settlement who is the winner and who is the loser. It is an obvious candidate for serious consideration. There is, however, no convention that such an order should be made whenever the court is asked to decide costs on the settlement of the case”.

41.  In Lai Yuet Chun v Super Deluxe International Ltd, HCCW 186/2001 (3 June 2003), a minority shareholder of a company presented a petition for the just and equitable winding up of the company, alternatively for relief under section 168A of the Companies Ordinance.  The parties had entered into a deed of settlement of the action before trial but could not agree on the question of costs.  Kwan J (as she then was) said at paragraph 11 that, for the purpose of determining the issue of costs, it is a matter of judicial discretion as to what materials the court should take into consideration, what evidence it should or should not receive, and what findings it should or should not make in a particular case.  In that case, the learned judge heard oral evidence and submissions from both parties over 3 days and make findings on whether the petitioner was entitled to the relief sought in order to determine the issue of costs.

42.  In Graham M Morley v Kwan Wo San, HCA 4366/2003 (30 December 2009), the parties settled their disputes shortly after the plaintiff’s opening at the trial, save for the costs of the action which the parties agreed should be determined by the court.  Mr Recorder Jat SC considered that it would be contrary to the overriding objectives of the Civil Justice Reform, as enshrined in Order 1A, rules 1 and 2 of the Rules of the High Court, to hold that in the absence of agreement the parties must go to trial in order to resolve any outstanding questions of costs (paragraph 33), and that the right approach was to adopt a broad brush approach, substantially the same as what Rogers J (as he then was) did in Re Chinese United Establishments Ltd, HCCW 391/1994, 5 October 1995 (paragraph 41).

43.  In Re Chinese United Establishments Ltd, which concerned a petition for just and equitable winding up, alternative for relief under Section 168A of the Companies Ordinance, the respondents, at the beginning of the second day of the hearing of the petition, made an open offer to purchase the shares of the petitioners at a fair value to be assessed.  The offer was accepted by the petitioners, and a consent order was made by the court giving effect to that agreed purchase.  The consent order also expressly provided that it was without prejudice to the petitioners or respondents seeking any costs order against each other.  The petitioners then applied to the court for the costs of the action, on the basis that they obtained substantially the relief that they came to the court for, even though there was no admission by the respondents of the allegations raised by the petitioners.  Rogers J held that the petitioners were entitled to their costs, on the simple footing that they had, in effect, gained by the proceedings what they had to come to court to get.  Rogers J’s decision was upheld by the Court of Appeal (CACV 214/1995, 24 April 1996), which considered that the judge’s exercise of his discretion on costs was not wrong in principle or manifestly in error, and the reasons given by the judge for making the order he did were valid reasons.

44.  From the above authorities, I consider the following principles to be applicable where a judge is asked to determine the issue of costs in a situation where the issue of liability has become academic:-

(1) The judge has a wide discretion not only as to the manner by which the issue of costs is to be determined, but also what evidence should be received and what findings to make.

(2) In a simple case where the issue of liability is clear on the face of the pleadings or existing affidavit evidence already filed, it would be open to the judge to determine the issue of costs without receiving any further evidence.

(3) Where the issue of liability is not so clear, the judge may direct evidence to be filed and the witnesses to be cross examined.  The judge may also confine the evidence to be filed, and cross examination of the witnesses, to a particular issue or some particular issues.

(4) In determining the issue of liability for the purpose of deciding costs, the court may adopt a broad brush approach and does not necessarily have to conduct a trial to determine the substantive issues.

(5) Where it is impossible for the court, on the existing materials, to say what the likely outcome would be, the court may, in appropriate circumstances, decide to make no order as to costs.

(6) Ultimately, the objective is to do justice between the parties without incurring unnecessary court time and consequently additional costs.

45.  In passing, I should point out that where the parties settle their dispute save as to costs prior to trial or judgment and ask the court to determine the issue of costs, the court may well not be in a position to reach a decision on that issue if it turns on facts which have not been agreed or determined.  In such a case, the judge has a discretion to decline to determine the issue of costs only and require the parties to confront the realities of their litigation situation by pointing out to them that, if they have not reached an agreement on costs, they have not settled their dispute and the action must proceed to judgment: see BCT Softrware Solutions Ltd, at paragraphs 6 to 7 per Mummery LJ and paragraphs 24 to 26 per Chadwick LJ.  In the present case, there has not been any settlement, and it would not be right, in my view, to insist on the parties proceeding to a full trial of the substantial issues relating to the validity of the Enforcement Notice solely for the purpose of determining the issue of costs.

PLAINTIFF’S CLAIM SHOULD NOT BE STRUCK OUT

46.  On behalf of the defendant, Mr Shieh submits that:-

(1) The Enforcement Notice relied on two categories of breach of the Secured Obligations, namely, breach of Clause 5.1(f) of the Share Charge and the SPA Breaches.

(2) To succeed in its action, the plaintiff had to show that there were no grounds for issuing the Enforcement Notice, and that means the plaintiff had to show there were no breaches of the Share Charge and the Sale and Purchase Agreement.

(3) The corollary is that:-

(a) the plaintiff cannot succeed in its claim if one obligation relied on by the defendant has been breached;

(b) the plaintiff’s claim can be dismissed summarily if it can be shown that there has indisputably been a breach of one Secured Obligation; and

(c) the plaintiff cannot obtain the costs of the action summarily if it cannot show, without a trial by affidavit, that there has been no breach of all the obligations relied on by the defendant.

(4) There has, indisputably, been a breach of the plaintiff’s obligation under Clause 5.1(f) of the Share Charge to provide the Documents in relation to the appointment of Mr Lu as director of the Company which entitled the defendant to issue the Enforcement Notice.

(5) Accordingly:-

(a) the plaintiff never had any basis to seek any injunction to restrain the defendant from enforcing the Share Charge pursuant to the Enforcement Notice; and

(b) the plaintiff’s action is bound to fail and should be struck out.

47.  For the purpose of the strike out application, the defendant does not rely on the SPA Breaches, which it says should be resolved by arbitration.

48.  The non-provision of the Documents in relation to the appointment of Mr Lu as director of the Company is, prima facie, a breach of the plaintiff’s obligation under Clause 5.1(f) of the Share Charge.  On behalf of the plaintiff, Ms Linda Chan SC argues that there is no breach, on three grounds.

49.  First, Ms Chan says that the non-provision of the Documents would at most only render Mr Lu’s appointment as a director of the Company invalid, but would not constitute any breach of the Share Charge.  I do not accept this submission. Clause 5.1 of the Share Charge sets out a series of contractual undertakings to be observed or performed by the plaintiff.  In particular, Clause 5.1(f) of the Share Charge requires the plaintiff to produce the Documents “as from” the appointment of Mr Lu.  It is not a provision setting out a condition precedent for the validity of his appointment.

50.  Second, Ms Chan says that the plaintiff provided the Documents relating to the appointment of Mr Lu as director of the Company on 18 April 2017 within 14 days of the Enforcement Notice, and thus any breach has been remedied and ceased to exist.  I do not, however, read Clause 7.1 as giving the plaintiff a period of 14 days to remedy a breach complained of by the defendant.  Under that clause, the defendant is entitled to issue an Enforcement Notice “[u]pon default of any Secured Obligation and its continuation for 30 days”.  The 14-day period provided for in that clause relates, in my view, only to the giving of “advance written notice of the intention to enforce the security”.

51.  Third, Ms Chan says that Mr Lu was appointed on 22 October 2015 but the defendant did not at any time prior to the letter of 21 March 2017 requested for the Documents or raised any objection regarding the plaintiff’s failure to provide the Document.  Hence, the breach (if any) must be regarded as having been waived by the defendant.  It is not in dispute that Mr Lu had been acting as a director of the Company since 22 October 2015, with the knowledge of the defendant. Further, the defendant was plainly aware of the fact that the Documents were not provided by the plaintiff.  In view of the prolonged inaction by the defendant, there is, in my view, a real issue to be tried on whether the plaintiff’s breach of Clause 5.1(f) of the Share Charge has been waived by the defendant.

52.  The plaintiff’s case of waiver, referred to in paragraph 5.12 of the second affirmation of Liao Chi Chiun, has not been addressed by the defendant by way of evidence.  The defendant relies, instead, on the non-waiver provisions in Clauses 11.3 and 18.1 of the Share Charge, which it is not necessary to recite in this decision. Such waiver clauses are not absolute, and do not necessary debar a party from relying on an oral waiver or waiver by conduct.  As pointed out by Ms Chan and, as I understand it, accepted by Ms Shieh, the question of whether the parties have waived compliance with a contractual obligation notwithstanding a non-waiver clause is “fact sensitive”: see Chitty on Contracts, Vol 1, 32^nd Edn, paragraph 22-045, and the cases cited at footnote 196.

53.  Since the issue of waiver cannot be determined on the basis of the existing evidence by affidavits/affirmations, it cannot be said that the plaintiff’s case on the invalidity of the Enforcement Notice is plainly and obviously bad.  It follows that plaintiff’s action should not be struck out.

PRESENT PROCEEDINGS SHOULD NOT BE STAYED PENDING ARBITRATION

54.  In present action, tt is clear that the substantive question concerning the validity of the Enforcement Notice will not be proceeded to a final conclusion in any event. There is, on the face of the matter, no good reason to stay the action pending the arbitration of the disputes relating the SPA Breaches.  Mr Shieh argues, however, that the action should be stayed pending arbitration because the SPA Breaches formed part of the basis of the Enforcement Notice and the disputes in respect of the SPA Breaches must first be resolved before the court can determine (i) whether the defendant had any basis to issue the Enforcement Notice and (ii) the question of the costs of the action.

55.  I am not persuaded that the court should stay the present action, where the only outstanding issue relates to costs, pending arbitration of the disputes relating to the SPA Breaches, for the following reasons:-

(1) Although the defendant has given formal notice of arbitration, there is no guarantee that the arbitration will actually proceed, or be brought to a final conclusion.

(2) It is not known how long it would take for a final award to be given in the proposed arbitration proceedings.

(3) It is by no means certain that a resolution of the disputes relating to the SPA Breaches would resolve the question of the validity of the Enforcement Notice.  If, for example, the outcome of the arbitration is that none of the SPA Breaches can be established, there would still remain the issue of whether the plaintiff’s breach of Clause 5.1(f) of the Share Charge for non-provision of the Documents relating to the appointment of Mr Lu has been waived by the defendant.

(4) Since I am, in substance, dealing only with the costs of the action, I ought to take a broad view as regards the merits of the claim and justice of the case without incurring unnecessary court time and consequently additional costs to the parties.

56.  I should mention that Ms Chan also argues that there should be no stay of the action pending arbitration because:-

(1) the dispute relating to the validity of the Enforcement Notice under the Share Charge is not within the ambit of the arbitration agreement between the parties contained in the Sale and Purchase Agreement; and

(2) on the evidence before the court, it is clear that the SPA Breaches have no substance, alternatively the defendant must be regarded as having abandoned the allegations in respect of the SPA Breaches.

57.  In respect of the first point, while I accept that the arbitration agreement contained in the Sale and Purchase Agreement would not cover the dispute between the parties in respect of the validity of the Enforcement Notice under the Share Charge, since that issue may turn on the disputes relating to the SPA Breaches and those disputes fall within the scope of the arbitration agreement, I consider that, in principle, the court would still have a discretion to stay the present action pending the resolution of those disputes by arbitration.  The question is whether the court should exercise its discretion to grant a stay.

58.  Ms Chan’s submission in respect of the second point is based on the following matters:-

(1) As earlier mentioned, the plaintiff gave detailed answers to the defendant’s allegations in respect of the SPA Breaches by letters dated 20 December 2016 and 28 February 2017 respectively.  Up to the date hereof, the defendant has not made any substantive reply to the plaintiff’s answers. 

(2) In KWM’s letter dated 25 April 2017 giving notice of withdrawal of the Enforcement Notice, KWM stated that the defendant’s rights under the Share Charge would be protected by the plaintiff’s provision of the Documents relating to the appointments of Mr Lu and Mr Lin and thus it was not necessary for the defendant to continue with the enforcement procedure pursuant to Clause 7.1 of the Share Charge.  There was no reference at all to the SPA Breaches in that letter.

(3) The plaintiff dealt with the defendant’s allegations in respect of the SPA Breaches substantively in the first affirmation of Liao Chi Chiun filed on 12 April 2017 (paragraphs 6.16 to 6.40).  Wang Boyang, who filed an affirmation on behalf of the defendant on 11 May 2017, did not address the relevant evidence filed by the plaintiff, relying instead on legal advice that any disputes in respect of the SPA Breaches must be resolved through arbitration pursuant to Clause 18 of the Sale and Purchase Agreement (see paragraph 57 of Wang’s affirmation).

59.  While I do not think the defendant can be regarded as having abandoned the allegations in respect of the SPA Breaches, I consider, on the evidence before me, that the defendant’s allegations do not appear to be strong.  This is a matter which supports a refusal of the stay of proceedings sought by the defendant.  I should make it clear, however, that I would refuse to grant a stay of proceedings based on the matters mentioned in paragraph 55 above, irrespective of this additional consideration regarding the strength or weakness of the defendant’s allegations in respect of the SPA Breaches.

THERE SHOULD BE NO ORDER AS TO THE COSTS OF THE ACTION

60.  On behalf of the plaintiff, Ms Chan submits that the plaintiff should be awarded the costs of the action because:

(1) it is the successful party, having substantially obtained the relief it sought in the action; and

(2) the Enforcement Notice was based on misconceived or wholly unmeritorious grounds, and the defendant should never have issued the Enforcement Notice in the first place.

61.  In so far as (1) is concerned, Ms Chan relies on the decision of Rogers J in Re Chinese United Establishments Ltd. However, unlike the petitioner in that case, there has not been any court order giving the plaintiff substantially the relief that it sought in the action.  Further, the defendant’s decision to withdraw the Enforcement Notice, as mentioned in KWM’s letter dated 25 April 2017, was made in view of (inter alia) the plaintiff’s provision on 18 April 2017 of the original Documents relating to the appointment of Mr Lu as director of the Company.  As stated in paragraph 37 of the affirmation of Wang Boyang filed on 11 May 2017, it is the defendant’s position that, at the time when it issued the Enforcement Notice, its intention was to prompt the plaintiff “to rectify its breaches, especially by providing the documents under the Share Charge”.  In these circumstances, I do not consider the present case to be similar to the situation in Re Chinese United Establishments Ltd.

62.  In so far as (2) is concerned, as earlier mentioned, I consider that the validity of the Enforcement Notice would depend on, inter alia, whether the defendant has waived the plaintiff’s breach in failing to provide the Documents relating to the appointment of Mr Lu as required by Clause 5.1(f) of the Share Charge. That issue cannot be determined on the basis of the existing materials before the court.

63.  It is the agreement of the parties that the costs of the action should be determined summarily without a trial.  Neither party has suggested that the court should hear oral evidence and determine the issue of waiver.  In my view, this is a case where it is impossible for the court, on the existing materials, to say what the likely outcome of the action would be.  The overall justice of the case points to no order being made as to the costs of the action.

DISPOSITION

64.  For the foregoing reasons, I make the following order:

(1) the Strike Out Summons be dismissed;

(2) the plaintiff be granted leave to discontinue this action against the defendant; and

(3) without prejudice to any costs orders which may previously have been made by the court in favour of either party and subject to the matters mentioned in paragraph 65 below, there be no order as to the costs of this action (including any costs previously reserved).

65.  In relation to the costs of the two applications before me, the defendant has failed in the Strike Out Summons while the plaintiff has failed in the Costs Application.  In all the circumstances, I consider that the fair order to make would be no order as to the costs of those applications, and I made an order nisi to that effect accordingly.

66.  Lastly, it remains for me to thank counsel for the assistance that they have rendered to the court.