DRAGONRIDER OPPORTUNITY FUND LP v. LAM FUNG AND ANOTHER

HCA 752/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 752 OF 2012

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REASONS FOR DECISION

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1.  This was an application by the first defendant for a stay of the orders made by this court on 21 March 2013. The order in HCA 752 was for specific performance in respect of the purchase by the first defendant of the shares of Dragonrider Opportunity Fund LLP (“Dragonrider”) and Addgood Holdings Limited (“Addgood”) in Fabulous Way Limited (“the Company”) following the exercise of a put option contained in an Investment Agreement. The order in HCMP 839 is for the enforcement of a Share Charge dated 12 October 2007 to secure performance by the first defendant.

2.  The first defendant has filed an appeal (CACV 71 of 2013) which is due to be heard on 15 January 2014.

Background facts

3.  The background facts for both matters are set out in §§ 4‑15 and 45‑50 of the Judgment dated 21 March 2013 to which reference should be made.  In outline, in return for Dragonrider and 4 other investors (SIG China Investments One Ltd (“SIG”), Stark Moly Ltd (“Stark Moly”), Angel Wise Ltd (‘Angel Wise”) and Addgood) investing in the Company, they were given a put option exercisable by each investor either in his own name or through Dragonrider during the option period.  After several extensions, the option period expired at the end of March 2010.

4.  The shares of Angel Wise in the Company have been hived off to be dealt with separately and did not form part of these proceedings.

5.  In issue was the validity of the put option notice served by Dragonrider on 30 March 2010.  Prior to the date of that notice, two of the other investors (SIG and Stark Moly) had already exercised the put option in respect of their respective shareholdings on 1 December 2009 and 30 December 2009 respectively.  However, completion never took place although it was due 14 days after service of the relevant notice.

6.  The Dragonrider notice is set out in full at § 12 of the Judgment and I do not propose to replicate the entire notice here.  The last paragraph of the notice together with the footnotes thereto read:

“ We hereby notify you pursuant to Clauses 5.7 and 16.1 (c) of the Agreement that we wish to exercise the Put Option granted under Clause 16.1 of the Agreement to require you to buy 230,700 Ordinary Shares¹ at US$82,660,962, per calculation in the footnote below.²

¹ The 230,700 Ordinary Shares comprise of the 3,397, 87,033, 87,669, 32,876 and 19,725 Ordinary Shares registered in the names of Dragonrider Opportunity Fund L P., Angel Wise Limited, Stark Moly Limited, SIG China Investments One, Ltd and Addgood Holdings Limited respectively.

² Principal Amount = US$52,630,000

18% IRR compounded monthly = 1.5% per month

Assuming that Option Completion occurs on 13 April 2010 (14 days after Exercise Date pursuant to Clause 16.2 of the Investment Agreement)

No of months elapsed from the Completion Date of Tranche Sale Shares (3 October 2007) to Option Completion Date (13 April 2010) = 30.32

Option Consideration = US 52,630,000 x (1.015)^ 30.32”

Singapore law applied to the agreement and there was expert evidence before the court.

7.  Although the order was only served on the first defendant on 3 May 2013 requiring completion on 10 May 2013, the first defendant was hardly taken by surprise.  He had known since 21 March 2013, the date judgment was handed down, that specific performance had been ordered.  The first defendant issued a summons which came before me on 8 May 2013. I granted an interim stay pending determination of the stay application and ordered that the substantive hearing take place on 16 May 2013.  At the conclusion of the hearing, the stay application was refused.  Written Reasons were to be handed down which I now do.

8.  Mr Kwok who appeared for the first defendant applied for an extension of time for completion, intimating to the court that an application would be made to the Court of Appeal for a stay.  By consent, it was ordered that the time for performance under the Order in HCA 752 be extended to 5 pm on Thursday 23 May 2013.

The applicable principles for a stay application

9.  These are not controversial.  Both parties accept that the relevant principles are set out in §§ 7–10 of the judgment of Ma J (as he then was) in Star Play Development Ltd v Bess Fashion Management Company Ltd, unreported, HCA 4276/2001, 7 June 2001 as further explained by him in Wenden Engineering Service Company limited v Lee Shing Yue Construction Company Limited, unreported, HCCT 90/1999, 17 July 2002, § 6.

10.  The key principles relevant to the present case and summarized below are derived from Star Play save for (4) which is based on Wenden:

“(1) The starting point is that the successful party is not to be deprived of the fruits of his success (§ 10).

(2) A stay will not be ordered unless the appellant can justify a stay by showing that good reasons exist (§ 7).

(3) The existence of a strong appeal or a strong likelihood that the appeal would succeed will usually by itself enable a stay to be granted because that would constitute a good reason for a stay (§ 9(7)).

(4) To constitute a strong appeal or a strong likelihood of success, the requisite strength of the appeal must be such that the court takes the view that “something has gone wrong with the process of law in the court below” (§ 6 of Wenden).

(5) The existence of an arguable appeal (that is, one with reasonable prospects of success) is the minimum requirement for a stay. Absent an arguable appeal, no stay will be granted (§ 9(6)).

(6) If there is merely an arguable appeal, the appellant must provide additional reasons as to why a stay is justified (§ 9(8)).

(7) That without a stay the appeal would be rendered nugatory is a factor that could constitute such additional reason if supported by sufficient evidence (§ 9(1)‑(2)).

 (8) The requisite quality of the evidence will depend on the nature of the order or judgment appealed against (§ 9(2)).”

11.  There are affidavits from Tang Wai Keong Simon (the first defendant's solicitor) in support of the stay applications.  Mr Tang believes that “the grounds of appeal [in the Notice of Appeal] are strong” and that “since the nature of the claim and the said Order relates to specific performance of the Share Charge in question, the appeal would be rendered nugatory if no stay is granted.”  The court was also advised that the first defendant is unable to raise US$14,358,767.85 to perform the completion of the sale and purchase of the shares.

Merits of the appeal

12.  Mr Kwok raised several issues in support of his stay application.  These are considered in turn below.

Authority – Ground 2

13.  Mr Kwok submitted that this court erred in holding that Dragonrider had the requisite authority from Stark Moly and Addgood to serve the notice on their behalf.  The authority issue arises from §§ 18‑25 of the judgment.

14.  As regards Stark Moly, Mr Kwok again placed reliance on the letter dated 24 September 2010 from the firm of solicitors then acting for Stark Moly which asserted that the Dragonrider notice was invalid because clause 2.3(a) of a Co‑Investment Agreement required that a co‑investor’s written consent be obtained before Dragonrider could exercise rights on its behalf.

15.  I dealt with this point in § 19 of the judgment.  Having regard to e‑mail correspondence therein referred to dated 29 December 2009, I did not consider the point valid because when the option was exercised on 30 March 2010, Dragonrider did have the requisite written consent.  I remain firmly of that view.

16.  The Addgood point was addressed in §§ 22‑25.  The issue was whether a new point is sufficiently raised for the purposes of Order 14 proceedings if it had never featured in either the defence or affirmation resisting summary judgment, and was only raised orally during the Master’s hearing, when the Master considered that the plaintiff did not have to answer the point as it was raised too late.  Mr Kwok insisted that a triable issue or arguable defence could be raised “by affidavit or otherwise” and that what occurred fell within the phrase “or otherwise”.  He further submitted that the Master was wrong and the plaintiff should have applied for leave to adduce evidence notwithstanding the Master's remarks.

17.  Mr Kwok acknowledged that his client could not have filed any evidence because he had none.  It seems to me that Mr Kwok was engaging in a fishing expedition because he could not “condescend upon particulars”.  Issues must be properly raised in a manner that allows the other party to respond.  Those are the ‘rules of the game’.

18.  In short, I do not consider that the authority issue is arguable.

(2)     Severability ‑ Grounds 3 to 10

19.  Mr Kwok's position appears to be that because there is a difference of opinion between the two experts on Singapore law as to whether any issue of severability arises, that is a triable issue that should go to trial and summary judgment should not have been given.

20.  The difficulty with that argument is that in the present case the experts are agreed that should there be an issue as to severability, it would be one of interpretation of the put option notice.  There is no disagreement as to the applicable principles of Singapore law when interpreting such a notice.  Those principles (taken from the opinion of the first defendant's expert) appear in § 30 of the Judgment and were applied to the interpretation of the put option notice.  Further, it is common ground that questions of contractual interpretation are matters for the court rather than the experts.

21.  Mr Kwok submitted that as the construction of a document is a question of fact, it must go to trial.  He relied on Bowes and Others v The Caustic Soda and Chlorine Syndicate (1893) 9 TLR 328.  The report is extremely brief but it seems that the case arose out of the formation of a syndicate for the purpose of working a patent.  The claim was for payment for the sum of £250 on an agreement under which this syndicate were before a certain date to work the patent or to get a company to do so or pay the sum.  The defence was that the patent could not practically or commercially be worked.  The court held that "there was a fair dispute as to the meaning of the document" and granted unconditional leave to defend.

22.  While I agree that the construction of a document is a question of fact, it does not follow that in every such case the matter must go to trial.  This was recognised in Crown House Engineering v Amec Projects Ltd (1990) 6 Const LJ 141 where Bingham LJ remarked (at 154):

“ … Order 14 is for clear cases; that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise.”

23.  In a plain case, there is no reason why the matter should go to trial.

24.  Grounds 5 and 6 attack the judgment on the basis that the wrong test was applied and the court had overlooked MacarthurCook Property Investment Pte Ltd and Another v Khai Wah Development Ltd [2007] SGHC 93.  But MacarthurCook is a decision concerning whether a time stipulation in an option or a unilateral contract is of the essence of the contract.  Further, those grounds appear to be contrary to the evidence of the first defendant's expert on the interpretation of contracts under Singapore law.

25.  In the circumstances, the fact that the two experts disagree on the interpretation of the put option notice does not, ipso facto, give rise to a triable issue.

26.  I do not consider the severability issue arguable either.

(3)     Lack of subject‑matter – Grounds 11 to 12

27.  Contrary to what is suggested, the matters raised are fully addressed in §§ 38 to 43 of the judgment.  I have nothing to add to what I have already said.

28.  These grounds do not appear to me to be arguable.

(4)     Appeal would be rendered nugatory

29.  I have already referred to Mr Tang's affidavit filed in support of the summons.  No particulars have been given of the grounds for his belief that the appeal would be rendered nugatory.

30.  At the hearing, Mr Kwok submitted that for HCA 752, if the first defendant were to be successful in his appeal, there is no evidence of intention that Dragonrider will repay.

31.  That appears to be a novel approach, unsupported by authority, as it is my understanding that it is for the applicant for a stay to adduce evidence that if no stay is granted, the appeal would be rendered nugatory.  See Star Play at § 9 (1) where it is stated that:

“Where the order appealed against is a money judgment, the court will require evidence as to why the levying of execution will result in the appeal being rendered nugatory, such as, for example, an appreciable risk that the respondent to the appeal would not be able to repay in the event of a successful appeal.”

There is no evidence to show that Dragonrider would not be in a position to repay the US $14.3 million odd in the event of the judgment being overturned on appeal.

32.  While the first defendant states that he is unable to raise the necessary funds for completion, he has not filed any evidence relating to his financial position.  It is not suggested that he will face financial ruin.  To the contrary, in the first defendant’s skeleton submissions, it is asserted that it is "very likely" that the proceeds from the first defendant's holding of 55% of the shares in the company as well as a 550,000 ordinary shares in Wiseking would be available to fund the completion ordered.

33.  In my view, in relation to HCA 752, the nugatory point sought to be made is thoroughly bad.

34.  In any event, on the question of a stay, one should not overlook the prejudice to Dragonrider that would result from a stay.  After all it was the successful party.  The put option was exercised three years ago and has still not been honoured.  The first defendant also appears to have a track record of flouting court orders.  It has not complied with costs orders dated 8 January 2013 and 6 February 2013 made against him in these proceedings to pay $55,000 and $70,000 respectively.  And it has not complied with specific performance orders made in favour of Stark Molly and SIG noted in §§ 11 and 33 of the Judgment.

35.  As regards HCMP 839, it does not follow from the fact that the order relates to specific performance of the Share Charge in question that, necessarily, a successful appeal would be rendered nugatory in the absence of a stay.  The shares now constituting the Charged Portfolio are in private companies which indirectly own mining interests and land interests in China.  Those shares are not easily realisable. No evidence has been adduced to show why Dragonrider could not or would not be in a position to re‑transfer the Charged Portfolio to the first defendant in the event of a successful appeal.

36.  There is also the fact that a stay would leave the Charged Portfolio in the hands of the first defendant and his son.  The risk of dissipation is obvious.  The fact that they have not done so to date cannot assist the first defendant since that is no guarantee that it will not happen in the future.  Moreover, disposals of interests such as mining rights are largely affected by market conditions and those are capable of change.

37.  In my view, no case has been made out that the appeal would be rendered nugatory if a stay is not granted.