MEGA HONOUR HOLDINGS LTD v. 李森田 AND OTHERS

HCA 1131/2015

[2021] HKCFI 149

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1131 OF 2015

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JUDGMENT

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Introduction

1.  This dispute concerns an agreement (“the Agreement”) dated 11 November 2011 between the plaintiff and the 2^nd defendant.  The subject matter of the Agreement is the sale and purchase of shares in the 3^rd defendant.

2.  As the preamble of the Agreement states, the 3^rd defendant is a company incorporated in Hong Kong.  The 2^nd defendant was the sole shareholder in the 3^rd defendant.  The 3^rd defendant was stated to be the owner of 5,058,400 shares in a Taiwan company called 華旭環能股份有限公司 (“the Target Company”).  There is no dispute that 5,058,400 shares (“the Target Shares”) in the Target Company was a 20% shareholding.

3.  The preamble goes on to state that the plaintiff was desirous to invest in the Target Company, and was therefore willing to purchase the entire share capital in the 3^rd defendant held by the 2^nd defendant.  There is no dispute that the preamble accurately states that the purpose of the sale and purchase of the shares in the 3^rd defendant was to enable the plaintiff to indirectly own the Target Shares.

4.  Under clause 1.2.2 of the Agreement, the purchase price of the shares in the 3^rd defendant was USD4,390,000.  Under clause 1.2.3, the purchase price was to be paid at least two working days before the 股權買賣基準日 – that later date was stated in clause 2 to be 20 December 2011. 

5.  Clause 3 of the Agreement provides that the shares in the 3^rd defendant should be transferred by 31 December 2011.

6.  The Target Company was a member of the group of Taiwan companies referred to as the “Arima Group”.  There seems to be no dispute that the 1^st defendant was at all material times the person at the helm of the Arima Group, although the pleas of his official positions within the Arima Group in the Amended Statement of Claim are not admitted.

7.  There is also no dispute that the 2^nd defendant was, at the time of the Agreement, an assistant of the 1^st defendant.  His unchallenged evidence is that he had previously worked in the Arima Group and rejoined it in September 2011; he then left again in September 2012 and returned to assist the 1^st defendant in another capacity in 2015.

8.  The Target Shares were, at the time of the Agreement, owned by 3 companies within the Arima Group (“the Original Shareholders”).  

9.  By virtue of the fact that the Target Company was involved in the business of the manufacture of solar cells and modules, it is common ground that:

(1)  From the date of the Agreement to 30 March 2012, as a matter of Taiwan law, it was not possible for a 20% interest in the Target Company to be directly or indirectly owned by any Mainland person or entity.

(2)  After 30 March 2012, approval from the Investment Commission of the Ministry of Economic Affairs of Taiwan (“the Investment Commission”) would have to be sought and obtained before an acquisition of a direct or indirect 20% interest in the Target Company would be permissible under Taiwan law.

10.  It is not entirely clear what rules governed the acquisition of the Target Shares by a Hong Kong company in which there was no Mainland interest in end 2011.  Be that as it may, it is common ground that on 5 December 2011, approval was given by the Investment Commission for the 4^th defendant to acquire the Target Shares from the Original Shareholders. Pursuant to that approval, the 4^th defendant acquired the Target Shares on 30 December 2011.

11.  The 4^th defendant is and was at all material times a company incorporated in Hong Kong.  Further, at all material times, the entirety of the shares in the 4^th defendant was held by one R&K Nominees Limited.  R&K Nominees Limited executed a Declaration of Trust dated 20 October 2011, declaring that it held the entirety of the shares in 4^th defendant on trust for the 3^rd defendant. 

12.  R&K Nominees Limited is also a company incorporated in Hong Kong.  There is no dispute that on the registered records, it would be not be possible to see any declaration of trust in respect of the shares of the 4^th defendant.  There is also no dispute that on the face of the registered records, there would be no indication that the shares of the 4^th defendant were held, or were to be held, by any Mainland interest.

13.  On the plaintiff side, the registered shareholder of all the shares in the plaintiff is and was at all material times Mr Wang Yanke (“Mr Wang”).  There is a heated dispute about whether Mr Wang held the shares in the plaintiff on his own behalf or whether he held them for 山西南燁集團有限公司 (“Nanye”).  The chairman of Nanye was one Mr Li Jianming (“Mr Li JM”).

14.  It is common ground that Nanye and the Arima Group had a pre-existing commercial relationship by the time of the Agreement. According to Mr Wang whose evidence was not disputed in this regard, eventually the relationship between Nanye and the Arima Group deteriorated significantly and ended in disagreement.

15.  One major complaint by the plaintiff in the present action is pleaded in paragraph 12 of the Amended Statement of Claim. It is said that at various meetings that took place in Changzhi, Shanxi during the period “from, inter alia, July to November 2011”,the 2^nd defendant, acting in his personal capacity and for and on behalf of the 1^st and the 3^rd defendants, made certain representations and/or assurance to Mr Wang acting for and on behalf of the plaintiff, that:

(1)  Under the laws of Taiwan, it was impermissible for PRC (meaning Mainland) entities and/or investors to hold the shareholdings and/or interests in Taiwanese companies involved in the manufacture of equipment in connection with solar electric systems.  However, although the Target Company carried on a business of manufacturing equipment in connection with solar electric systems, Mr Wang and/or the plaintiff “might” still acquire the shares and/or interests in the Target Company indirectly through layers of Hong Kong companies and it was “possible” to own and/or control the shares and/or interests in the Target Company indirectly through the Hong Kong companies without triggering the prohibitions and/or restrictions under Taiwanese laws (“the 1^st Representation”).

(2)  The 3^rd defendant was indirectly holding the Target Shares. Therefore, by acquiring the 100% shareholding in the 3^rd defendant, the plaintiff would be indirectly holding the Target Shares and become an ultimate shareholder of the Target Company (“the 2^nd Representation”).

16.  Mr Kwong, counsel for the plaintiff, made clear in oral closing submissions that he would not pursue the complaint based on the 2^nd Representation.

17.  It is further pleaded that around the time when the Agreement was signed and before the plaintiff made payments to the 3^rd defendant, the 1^st defendant repeated the Representations to Mr Wang on an occasion when they met in Hong Kong.

18.  The plaintiff says that the 1^st Representation was false, and it was made dishonestly and/or recklessly.

19.  The other complaint of the plaintiff is that the 2^nd defendant had failed and/or refused to transfer the shares in the 3^rd defendant to the plaintiff on or before 31 December 2011.  It is said that this amounted to a repudiation of the Agreement, which repudiation was accepted by the plaintiff’s then solicitors’ letter dated the 27 November 2014.  It is contended that the result of this is that the Agreement was discharged by breach, and the plaintiff is entitled to restitution of the amounts paid under the Agreement, on the ground of total failure of consideration.

20.  For completeness, I should also record that the Amended Statement of Claim also contained a plea, at paragraph 16, that there was an implied term in the Agreement to the effect that the 2^nd defendant warranted that the 3^rd defendant should ultimately own and control the Target Shares. On day 1 of the trial, Mr Kwong accepted that this pleaded implied term would not be breached if the 3^rd defendant had, at a point in time later than the Agreement, become the indirect owner of the Target Shares.  After seeing the original share certificates of the Target Shares produced by Mr Wong (for the defendants) on day 2 of the trial, Mr Kwong confirmed that he would no longer take issue with the fact that the 4^th defendant had become the owner of the Target Shares in December 2011.  Since there is no dispute that the 3^rd defendant, through R&K Nominees Ltd and the trust arrangement outlined above, indirectly owned the shares in the 4^th defendant since at least December 2011, I believe it is plain that even if this pleaded implied term exists, it is clearly not breached.

21.  There was also a plea of a Quistclose trust in the Amended Statement of Claim which Mr Kwong abandoned at the beginning of the trial.

22.  In opening, Mr Wong contended that, notwithstanding the large number of legal arguments raised by Mr Kwong, this is essentially a case to be resolved on the facts.  It will be apparent from the analysis below that I am in agreement with that submission.  In my judgment, once the facts are found, the legal result is straightforward.

23.  Accordingly, in the next few sections of this judgment I will discuss the following factual issues and state my findings in those regards. 

(1)  Whether Mr Wang was holding the shares in the plaintiff and conducting this transaction in the name of the plaintiff on his own behalf, or whether he was doing so on behalf of Nanye.

(2)  Whether the 1^st Representation had been made.

(3)  Whether, on 27 November 2014 (i.e. the date of the plaintiff’s solicitors’ letter purporting to accept the repudiation of the Agreement by the 2^nd defendant), the 2^nd defendant was evincing an intention not to be bound by the Agreement.

24.  In the final section of the judgment, I will set out what I hold to be the legal result which should follow from the facts as I find them.

25.  I should also record here that the plaintiff called two factual witnesses, i.e. Mr Wang and Mr Li JM.  The defendants, on the other hand, called the 2^nd defendant and Ms Elaine Lin of the Arima Group to give factual evidence.  Ms Elaine Lin assisted in the administrative matters concerning this transaction.

26.  I have generally found the witnesses of the defendants credible and reliable.  There are occasions where they could not remember, or even misremembered, details of the relevant events.  In my view this is understandable given that the material events happened a long time ago.  I also note that the defendants have provided extensive discovery of contemporaneous emails and documents.  I am satisfied that the defendants’ witnesses have tried their best to truly recollect the events by reference to the contemporaneous emails and documents.

27.  On the other hand, I am afraid I am of the view that the evidence given by the witnesses of the plaintiff is generally not reliable. As will be apparent from the next section, I have come to the view that both Mr Wang and Mr Li JM gave incorrect evidence as to identity of the person acting through the plaintiff in this transaction.  I regard this aspect to be a major matter which the witnesses could not have forgotten.  Also, I do not think they harboured any misunderstanding as to whether Nanye or Mr Wang was the person who owned and controlled the plaintiff. 

28.  The plaintiff and the defendants have each called an expert witness on Taiwan law.  I am grateful for the experts’ assistance, and I am satisfied that they have applied their best endeavours to assist the court.  However, with no disrespect to them, as will be apparent from the analysis below, I do not regard that there is any disputed Taiwan law issue that requires determination by me.

Was Mr Wang acting on his own behalf or on behalf of Nanye

29.  For the reasons I shall endeavour to state, I am of the view that Mr Wang held the shares in the plaintiff, and conducted the transaction in the name of the plaintiff for Nanye, rather than on his own behalf.

30.  First, I accept Mr Wong’s analysis that the Agreement was not a standalone document.  It was plainly made in the context of an indirect investment by Nanye.  The negotiations for such indirect investment had been ongoing for some time before the execution of the Agreement.  These negotiations were all conducted by or on the instructions of Mr Li JM.  Indeed, it is plain that even after the execution of the Agreement, the involvement of Mr Li JM and Nanye continued in the implementation of the Agreement.

(1)  It is common ground that the investment into the Target Company was at first a subject of discussion between Mr Li JM on behalf of Nanye and the Arima Group. 

(2)  The gist of the evidence of Mr Li JM and Mr Wang is that Mr Li JM lost interest in the proposed acquisition in around June or July 2011, and he then introduced his friend Mr Wang to take up the opportunity.

(3)  It is not necessary for me to recite all the documents evidencing the negotiations between Mr Li JM and the Arima Group leading up to the execution of the Agreement, and all the documents showing that Mr Li JM and Nanye continued to be involved even after the execution of the Agreement. I would only highlight the following.

(4)  There is an authorisation dated 6 October 2011 executed by Mr Li JM on behalf of Nanye.  The terms of this authorisation note that Nanye was dealing with the investment in the Target Company, and could not directly handle matters concerning its shareholding.  It also provides that Nanye appointed the 2^nd defendant as its agent to, inter alia, take up the positions of natural person shareholder and chairman of the board of directors of the 3^rd defendant, and to execute trust and indemnity agreements on behalf of the 3^rd defendant with R&K Nominees Ltd.

(5)  Mr Wang’s evidence is that he did not know that Mr Li JM had signed this authorisation, and Mr Li JM had never told him about it.  I reject that evidence as being incredible.  There was no reason why Mr Li JM would have signed such a document behind the back of Mr Wang on the plaintiff’s version of events.

(6)  There is another authorisation dated 20 October 2011, again signed by Mr Li JM on behalf of Nanye, appointing the 3^rd defendant to sign an indemnity agreement with RK Directors Limited.

(7)  Mr Wang’s evidence is likewise that he had never seen this authorisation, which I likewise reject as being unbelievable.

(8)  I note that Mr Li JM’s evidence on these authorisations was that they were signed on certain preconditions involving some investments to be made by the Arima Group.  Suffice to say that I have no difficulty rejecting that evidence.  It finds no support in the contemporaneous documents, and indeed in the very terms of the authorisations themselves.

(9)  In my view, the plain reason why Mr Li JM, rather than Mr Wang, signed these authorisations was that it was obviously understood by all concerned that it was Nanye, not Mr Wang himself personally, who was behind the plaintiff and undertaking the acquisition of the Target Shares.

(10)  It is also telling that in the minutes of the Taiwan meeting of 13 November 2011, it was clearly stated that the draft of the Agreement was to be vetted by the legal department of Nanye.  It was also clearly contemplated that it was Nanye who was going to undertake the application to remit the funds out of the Mainland to complete the purchase.

(11)  Another cogent indication that Mr Wang was working as a member of staff of Nanye was the email dated 23 December 2011.  That email dealt with the investment into the Target Company, and it also dealt with another investment into one 香‌港建宜公司, which was a cooperation between the Arima Group and Nanye.

31.  Secondly, I agree with Mr Wong’s submission that the evidence of Mr Wang concerning the amount of investigation or analysis he did on the Target Company militates strongly against Mr Wang’s case.

(1)  Mr Wang’s evidence is that he was not familiar with the business of solar energy.

(2)  Mr Wang accepted in cross-examination that he knew nothing about how the investment structure and how the price were arrived at.

(3)  He further accepted that he did not do any financial due diligence on the Target Company.

(4)  This is to be considered in the context of his evidence that this transaction was not a small investment for him.  I do not find it credible that a seasoned businessman, as Mr Wang claims to be, would enter into such a transaction on his own behalf without properly understanding the financial position of the Target Company and without proper due diligence on it.

32.  Thirdly, in my view it is significant that Mr Li JM was one of the two joint signatories of the bank accounts of the 3^rd defendant and the 4^th defendant after the execution of the Agreement.  The other signatory of those bank accounts was the 1^st defendant. 

(1)  The practical effect of this arrangement was that the consent of both Mr Li JM (not Mr Wang) and the 1^st defendant would have to be obtained before any funds could be paid out of the bank accounts of the 3^rd defendant and the 4^th defendant. 

(2)  It seems to me to be overwhelmingly likely (and I so find) that this arrangement was put in place such that Mr Li JM, on behalf of Nanye, not Mr Wang, would be able to control the outflow of funds from the 3^rd defendant and the 4^th defendant. 

(3)  That, in my judgment, was because it was Nanye rather than Mr Wang who was truly interested in the transaction.

(4)  Mr Wang and Mr Li JM’s evidence is that Mr Li JM was appointed as a signatory because he was the person who introduced Mr Wang to the Arima Group, such that somehow if anything went wrong, Mr Wang could have some recourse against Mr Li JM.  Mr Wang’s evidence is also that after the litigation commenced, he appreciated that this view had no legal foundation.  I am afraid I am unable to accept this evidence, which I find incredible.  

33.  Fourthly, it is also significant to note the common ground that at the material time, there was a name card printed for Mr Wang stating that he was a member of the Nanye Group. 

(1)  On the copy of this name card before the court, there is a handwritten marking of a date “11/10/11”.  The 2^nd defendant’s evidence (which is unchallenged and I accept) is that this date was marked by the 2^nd defendant on the first occasion he met Mr Wang, which was 10 November 2011.

(2)  Mr Wang did not accept that this was the date on which he first met the 2^nd defendant, nor did he accept that he handed over the name card on that date.  But he accepted that he did give this name card to the second defendant. 

(3)  Mr Li JM also accepted that he had caused the staff of Nanye to print this name card for Mr Wang.  His evidence is that this was to increase the confidence of the Arima Group.

(4)  I find that the reason why there was a name card of Mr Wang printed under the name of Nanye, and handed over to the staff of Arima, was simply that Mr Wang was indeed acting for Nanye at the material time.

34.  Fifthly, I accept Mr Wong’s submission that it is significant that in numerous emails, members of the Arima Group had addressed Mr Wang as “王秘書”, which demonstrates their understanding at the time to be that Mr Wang was the secretary to Mr Li JM, and was acting on behalf of Nanye.  There is no evidence that Mr Wang ever sought to correct that impression.  I find it extremely unlikely that if Mr Wang was not indeed a secretary or assistant to Mr Li JM, that mode of address would have persisted for so long.

35.  Mr Kwong asked me to consider whether there was any commercial reason why Mr Li JM would want to hide behind Mr Wang.  I do not think that this argument assists the plaintiff.

(1)  First, I do not think it is right to describe the arrangement as I believe to be the truth as Mr Li JM “hiding behind” Mr Wang.  Nanye and Mr Li JM’s involvement in the transaction was transparent, and was fully known and understood by the Arima Group.

(2)  It would appear that the arrangement was simply that Mr Li JM arranged one of his members of staff to register himself as the shareholder and director of the plaintiff, such that that member of staff would be the person signing the requisite documents.  There is nothing uncommon or extraordinary about such an arrangement.

(3)  In any case, for the reasons discussed above, I believe it is clear that the person behind the plaintiff was Nanye rather than Mr Wang, and it is unnecessary for me to speculate or find the reason why Nanye chose to put such an arrangement in place.

Whether the 1^st Representation was made

36.  I do not think that the plaintiff has proved, on the balance of probabilities, that the 2^nd defendant or the 1^st defendant had made the 1^st Representation.

37.  In coming to this conclusion, I take into account my views on the relative credibility of the witnesses of the plaintiff and the defendants as mentioned above.

38.  Morever, as stated above, I accept the evidence of the 2^nd defendant that Mr Wang gave him his name card on 10 November 2011.  I accept Mr Wong’s argument that this means that in all likelihood that was the first time that the 2^nd defendant met Mr Wang.  There is no dispute that the meeting on 10 November 2011 took place in Taiwan.  Accordingly, I reject the pleaded allegation that the 1^st Representation was made from “inter alia, July to November 2011” by the 2^nd defendant in Shanxi.

39.  I also note that there was no indication in the terms of the Agreement, or any contemporaneous documents, that the 2^nd defendant or the Arima Group was to exclusively assume the risk of the indirect investment structure not being permitted under Taiwan law.

40.  Ms Elaine Lin’s evidence, which is supported by the contemporaneous documents and which I accept, is that the suggestion of an indirect investment structure was first suggested by a third party adviser, i.e. Ms Jane Deng of UHY L&C Company, a firm of accountants practising in Taiwan.  This indirect investment structure was suggested because there was a prohibition in Taiwan at the time of Mainland interested entities purchasing the Target Shares; and this structure was proposed as an attempt to sidestep this prohibition. 

41.  I do not think it is necessary for me to form a view as to whether this structure would succeed to legally sidestep the restriction if it was fully disclosed and known to the Investment Commission.  Suffice it to say that I believe it is likely that the parties would have proceeded on the assumption that this structure could possibly factually enable Nanye to invest in the Target Company, because the entire truth might not be revealed to the Investment Commission.

42.  Ms Elaine Lin’s evidence, which I accept, is also that at the meeting of 10 November 2011 in Taiwan attended by Mr Li JM, Mr Wang, the 1^st and 2^nd defendants and others, the indirect structure and the restrictions it was seeking to sidestep were explained to Mr Li JM.  This is also supported by a flow chart bearing a printed date of 10 November 2011. 

43.  I think it is inherently likely that Mr Li JM would have understood the indirect structure, and why such a structure was deemed desirable and necessary, i.e. as an attempt to sidestep the Taiwan restrictions.  This, as Mr Wong pointed out, is also supported by the preamble in the authorisation dated 6 October 2011, which states that the reason for the authorisation was that Nanye could not directly handle the share sale and purchase (“不能直接辦理股權買賣事宜”).

44.  I believe it is inherently unlikely that where Mr Li JM understood that there was a Taiwan restriction against a Mainland interest acquiring the Target Shares, he would readily believe that such a restriction could be easily sidestepped by simply interposing some Hong Kong companies in between (if the true relationships were to be fully disclosed to the Investment Commission). 

45.  Likewise, I think it is unlikely that either the 1^st or 2^nd defendant would make any promises or assurances to Mr Li JM or Mr Wang that there was any degree of certainty or any likelihood that this structure would pass muster with the Investment Commission.  Hence I think it is unlikely that either the 1^st or 2^nd defendant would have made the 1^st Representation to either Mr Li JM or Mr Wang.

46.  I accept Mr Wong’s submission that what most likely happened was that the parties understood they were to be on their own lookout, and both parties appreciated that there was a risk that this structure might not work. 

47.  Ultimately, Nanye was a substantial group of companies, and Mr Li JM was a seasoned businessman.  It would be natural for the parties to proceed on the basis that they would be on their own lookout.    

48.  It is also clear from the minutes of the meeting of 13 November 2011 that Nanye’s legal department would vet the terms of the Agreement. Although Mr Kwong pointed out that there is no evidence that Nanye’s legal department had ever been involved in investments in Taiwan, this still tends to show that Nanye was a substantial undertaking which would rely on its own legal department on legal matters, rather than just act on the oral say-so of a counterparty.

49.  Mr Kwong has invited me to draw an adverse inference from the fact that the 1^st defendant, being a “crucial witness”, was not called to give evidence.  I am of the view that I should not do so, because the quality of the evidence in support of the allegations of the 1^st Representation is weak, and that the 2^nd defendant (who was the primary person whom is alleged to have made the representation) has given evidence that I accept. 

50.  In closing submissions, Mr Kwong advanced an argument of implied representation, in the event that his case on express representation failed.  But he fairly accepted that this is not a part of his pleaded case.  In my judgment, a plea of implied representation is one of material fact, hence the absence of a plea would be a sufficient reason for me to say no more about it.  In case it is relevant for any purpose, I would state my conclusion that I do not think it is at all clear, or in any way implied, that the Arima Group side would exclusively assume the risk of the contemplated indirect investment not receiving the requisite approval from the Taiwan authorities.

Whether, on 27 November 2014, the 2^nd defendant had evinced an intention not to be bound by the Agreement

51.  The plaintiff’s case is that there was an extant repudiation of the Agreement on 27 November 2014 which was capable of acceptance by its solicitors’ letter on that date.

52.  In oral closing submissions, Mr Kwong drew my attention to Spar Shipping AS v Grand China Logistics (Group) Co Ltd [2017] Bus LR 663 §21, where Gross LJ sets out three types of situations where an innocent party can treat the contract as at an end.  Mr Kwong made clear that he relies on situation (ii), i.e. an actual breach of an innominate term where the consequences are such as to entitle the innocent party to treat the contract as at an end.

53.  He accepted that the test of whether there was such repudiatory breach was whether, by 27 November 2014, the 2^nd defendant had evinced an intention not to be bound by the Agreement. 

54.  It is common ground that the plaintiff had not paid over the entire purchase price by 31 December 2011.  It is fair to say, however, that by that time, the majority of the purchase price (i.e. EUR2,600,000) had already been paid.  It would appear from two emails of the 2^nd defendant to Mr Wang of 21 December 2011 and 23 December 2011 that the inability to make full payment was due to Nanye’s inability to obtain timely approval from the Mainland authorities to approve the payment out of the Mainland.

55.  It is also be common ground that the entirety of the purchase price was paid finally on 20 March 2012.

56.  Mr Kwong submitted that after 20 March 2012, there was no reason for the 2^nd defendant not to transfer the shares in the 3^rd defendant to the plaintiff.

57.  However, for the reasons which follow, I am of the view that the 2^nd defendant had not, at any rate on or before 27 November 2014, evinced an intention not to transfer the shares in the 3^rd defendant to the plaintiff.

58.  In my judgment, the documents show that the 2^nd defendant did initiate the process of transfer of shares in the 3^rd defendant to the plaintiff, at least from 30 April 2012 onwards.  On that date, there was an email from the 2^nd defendant to Mr Li JM copying, among others, Mr Wang, stating that the Target Shares had been transferred to the 4th defendant, and the 2^nd defendant would be transferring the shares in the 3^rd defendant to the plaintiff, and would appoint Hong Kong accountants to handle the process.  There is nothing to indicate that these efforts were disingenuous.

59.  By email dated 10 May 2012, the 2^nd defendant asked Mr Wang to provide the address and identity of the new company secretary.  It is not entirely clear from that email whether he was asking for such information of the plaintiff, or the 3^rd defendant.

60.  By an email from the 2^nd defendant to Ms Elaine Lin on 11 May 2012, the 2^nd defendant recorded a conversation he had with Mr Wang that morning, confirming that the address and company secretary of the 3^rd defendant were to be changed to the address and company secretary of the plaintiff.  That seems to confirm the necessity of seeking the address and company secretary information (I presume) of the plaintiff.

61.  A good deal of time was spent at the trial on an email sent by Mr Wang to the 2^nd defendant on 4 June 2012. 

(1)  That email was entitled “誠興資料” .  誠興 is the Chinese name of the plaintiff.  That email, however, has no content. 

(2)  It would appear that the email from Mr Wang attached certain information, because there was an email on the same day from the 2^nd defendant to Ms Elaine Lin apparently forwarding some attachments to Mr Wang’s email to Ms Elaine Lin.  The 2^nd defendant’s email to Ms Elaine Lin states “香港誠興公司資料詳加附件”.

(3)  However, there is no evidence on what those attachments were.

62.  There was no meaningful discussion in the subsequent emails between the 2^nd defendant and Ms Elaine Lin as to whether the attachments were sufficient or relevant.  Although by an email of 12 June 2012, the 2^nd defendant relayed a request from Mr Wang to confirm whether the information previously supplied was correct (“正確”), there was no substantial response from Ms Elaine Lin.  Nor was there any indication that this request for confirmation had been meaningfully followed up by either the 2^nd defendant or Mr Wang.

63.  Most tellingly, on 1 August 2012, the 2^nd defendant sent another email to Mr Wang referring back to his email of 10 May 2012, saying that by that time (i.e. 1 August 2012) he had not received a formal reply; and requesting Mr Wang for further confirmation.

64.  Notably, Mr Wang’s reply was not to say that he had previously provided the requisite information, or that there was an outstanding request from him for confirmation that the information he supplied was correct or sufficient.  Nor did he say, as Mr Kwong now submits, that the information was all public record and could have been obtained by the plaintiff. 

65.  It is clear to me that the 2^nd defendant’s email of 1 August 2012 did not evince an intention not to perform the Agreement.  There was nothing which indicated that his request was in any way disingenuous or contained a refusal to perform the Agreement.

66.  Mr Wang replied by email of 2 August 2012, and stated that:

“各股東意見是必須把華旭的股權轉到誠興公司，如不能各股東要求退股。”

67.  It is curious that Mr Wang referred to shareholders in the plural.  It is not clear why he did so, or to whom he was referring.  But I do not think this matters. 

68.  The germane point is that by this email, Mr Wang requested a different mode of performance of the Agreement, i.e. for the Target Shares to be directly transferred to the name of the plaintiff, rather than for the transfer of the shares in the 3^rd defendant to the plaintiff.

69.  This obviously raised a number of different regulatory issues in Taiwan. 

(1)  The original arrangement under the Agreement was for the Mainland interest to be introduced at the stage of the transfer of shares in the 3^rd defendant to the plaintiff. 

(2)  There were some indications in the evidence that the original contemplation was that the trust arrangement pursuant to which the 3^rd defendant owned shares in the 4^th defendant would not be disclosed to the Investment Commission. 

(3)  There were also some indications in the evidence that it was possible for the Investment Commission not to keep track of the change of ownership of the 4^th defendant after the approval for its acquisition of the Target Shares had been given in December 2011, such that the transfer of shares in the 3^rd defendant to the plaintiff would not be disclosed to the Investment Commission.

(4)  I do not think it is necessary for me to come to a definitive view as to how the defendants intended to put through the original transaction.

(5)  Suffice it to say that obviously if the Mainland Interest was to be introduced by a direct investment by the plaintiff in the Target Company, different steps in Taiwan would have to be taken to seek the requisite approval.

70.  The 2^nd defendant emailed Mr Wang on 3 August 2012 stating that he and the legal department of the Arima Group would investigate into the viability of transferring the Target Shares directly into the name of the plaintiff.

71.  A number of emails then passed between Ms Elaine Lin and the Arima Group’s advisers exploring precisely what steps had to be taken.

72.  By an email to Mr Wang of 13 November 2012, the 2^nd defendant informed him that it was possible for the Target Shares to be directly transferred to the plaintiff, but a number of steps had to be taken to obtain the requisite approval from the Taiwan government, and this could not be done within a short period of time.

73.  One of the steps that had to be taken to effect a direct transfer of the Target shares into the name of the plaintiff would be to amend the constitution of the Target Company, so as to bring its scope of business in line with what was then permissible for Mainland interests to invest in.  This was actually done pursuant to approval by the shareholders in the Target Company on 17 December 2012, and such amendment was approved by the Taiwan authorities on 22 December 2012.  This indicates, in my view, that the Arima Group was earnestly preparing for a direct transfer of the Target Shares into the name of the plaintiff. 

74.  By email of 8 January 2013 to Ms Elaine Lin, in reply to a request from her for further information necessary for approval from the Taiwan authorities, Mr Wang stated that he would still have to consider the situation on the Mainland, undertake further discussions, and would reply to Ms Elaine Lin after a decision was made.

75.  The discussions concerning how to put through the direct investment of the plaintiff in the Target Shares continued for the best part of 2013. 

76.  It would appear that the parties were ultimately unable to reach final agreement on exactly how to effect the direct investment.  In paragraph 87 of Mr Kwong’s Closing Submissions, he listed three areas on which the parties could not reach consensus.

(1)  First, the plaintiff was not agreeable to sign a blanket power of attorney drafted by the Arima Group.  But Ms Elaine Lin did point out in an email to Mr Wang of 4 November 2013 that he could appoint anyone as his attorney for this purpose, and there was no necessity to appoint someone in the Arima Group.  It was also accepted by Mr Wang in evidence that he had never suggested any amendments to the power of attorney.  Hence, I am unable to accept that the disagreement over the contents of the power of attorney was the reason why the direct investment structure was not implemented in the end.

(2)  Second, the parties were unable to agree on the arrangement for a Taiwan notary to notarise the relevant documents to be submitted to the Taiwan authorities for approval.  This does not appear to me to be a major disagreement.

(3)  Third, there was a disagreement on the terms of the new agreement to be executed, as evidenced by an email of 16 April 2013. Likewise, this disagreement does not appear to me to be a major disagreement.

77.  It is clear to me that none of these reasons assists the plaintiff in showing a repudiation.  The most important point, it seems to me, is that whilst the parties were unable to reach agreement on the above issues, there is nothing which indicated that the 2^nd defendant refused to perform the Agreement on its terms.  Further, at no point before 27 November 2014 did the plaintiff demand a reversion to the original Agreement for the transfer of the shares in the 3^rd defendant to the plaintiff.  In opening, Mr Kwong accepted that there was no evidence of any such demand.

78.  It is clear to me that from August 2012 onwards, the parties were working towards a different way of effecting the sale and purchase, i.e. by the transfer of the Target Shares directly into the name of the plaintiff.  It is clear that the parties were ultimately unable to reach a final accord on how exactly that could be done.  Whether this is because Nanye and the Arima Group had fallen out on other matters of cooperation is something unclear on the present evidence, nor should it matter.

79.  What matters, in my judgment, is that there was no demand for the performance of the Agreement on its terms and no indication by the 2^nd defendant of an intention not to perform.  There were certain demands in 2014 for the return of the purchase price, but not the performance of the Agreement on its terms.  Hence, I do not think it is right to say that by 27 November 2014, there was a refusal to perform the original Agreement “despite the plaintiff’s repeated requests and enquiries” as alleged in paragraph 19 of the Amended Statement of Claim. 

80.  Whilst it is true that by 27 November 2014, there was no transfer of the shares in the 3^rd defendant to the plaintiff, that, in my judgment, was not because of any refusal by the 2^nd defendant to do so, but rather because the plaintiff was asking for something else at the time.

81.  I make clear that I do not hold, and I do not think I have to hold, that the parties had agreed to vary or amend the Agreement.  It would suffice to hold, as I do, that the parties were exploring another option to transfer the interest in the Target Shares and there was no request, and no refusal, to perform the terms of the Agreement.  I conclude that that the events before 27 November 2014 do not support a suggestion that there was an evinced intention by the 2^nd defendant not to perform the Agreement.

82.  There is a letter of 10 February 2015 from the defendants’ solicitors tendering a number of documents for the plaintiff’s execution, apparently to effect the transfer of shares in the 3rd defendant to the plaintiff.   I do not think I should take this into account in deciding whether there was an extant repudiation on 27 November 2014, as the letter of 10 February 2015 came afterwards.

The legal result

83.  It follows from my finding that the 1^st Representation was never made by the 1^st or 2^nd defendant that I will dismiss the complaints based on misrepresentation.

84.  There is a further reason why the misrepresentation complaints should be dismissed. 

(1)  I have held that Mr Wang did not hold the shares in the plaintiff on his own behalf, and the shares in the plaintiff were in truth owned by Nanye. 

(2)  I do not think there is sufficient plea or proof that on that factual scenario, Mr Wang was still the person whose act, knowledge, or state of mind was intended to count as the act, knowledge or state of mind of the plaintiff.  Hence, I do not think it is sufficiently pleaded or proved that Mr Wang’s reliance on any representation would be attributable to the plaintiff. 

(3)  There is also no plea that Mr Li JM had relied on any representation made by the 1^st or 2^nd defendant. 

(4)  Accordingly, I do not think there is any valid plea of reliance by the plaintiff on the 1^st Representation.  That is another reason why the misrepresentation complaints must fail.

85.  It also follows from my holdings above that there was no repudiation capable of acceptance by 27 November 2014. Accordingly, I hold that the Agreement has not been discharged by breach as claimed by the plaintiff.  It follows that I should dismiss the claim based on total failure of consideration.

86.  For the above reasons, I will dismiss the plaintiff’s claim.

87.  Mr Wong indicated in oral closing submissions that if I were to dismiss the claims of the plaintiff, he would invite me to make a declaration that the Agreement has not been validly terminated.  Mr Kwong indicated that he would take a neutral stance on such relief.  I am prepared to make the declaration sought and will do so accordingly.

88.  I also make a costs order nisi that the plaintiff do pay the costs of the defendants in this action, to be taxed if not agreed.

89.  It remains for me to register my gratitude to the legal representatives for conducting this trial with courtesy, proportion and professionalism.