HONGKONG CHANGYI REAL ESTATE DEVELOPMENT LTD v. NEO CHINA (GROUP) INFRASTRUCTURE INVESTMENT LTD AND ANOTHER

HCA 1576/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1576 OF 2011

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1.  In this action the plaintiff, HongKong Changyi Real Estate Development Limited, claims against the 1^st defendant, Neo‑China (Group) Infrastructure Investment Limited, for unpaid balance of the consideration under an agreement dated 19 September 2007 (“Agreement”) whereby the plaintiff agreed to sell and the 1^st defendant agreed to purchase the entire issued share capital of a Hong Kong company, Rich Glory Investments Limited (富譽投資有限公司) (“Rich Glory”), at HK$50,000,000.

2.  The claim against the 2^nd defendant was discontinued on 4 November 2011, shortly after commencement of the action.

3.  It is the plaintiff’s case, as pleaded in the amended statement of claim (“ASOC”), that pursuant to the Agreement, the plaintiff transferred the entire issued share capital of Rich Glory (“Sale Share”) to the 1^st defendant whereupon the consideration became due and payable.  In breach of the Agreement, the 1^st defendant only paid part of the consideration in the total amount of HK$40,000,000, leaving an outstanding balance of HK$10,000,000.

4.  Under the Agreement, the consideration for the sale and purchase of the Sale Share is HK$50,000,000, and clause 5.1(b) provides that the 1^st defendant shall pay the consideration to the plaintiff in the following manner:

“(i) a cashier order drawn in favour of the Vendor (or such other person and/or corporation as the Vendor may nominate) in the sum of HK$10 million (HK$10,000,000) shall be delivered to the Vendor at the Vendor’s registered address either on the Business Day immediately following the date of the issuance of the國有土地使用權證 (Land Use Right Certificate) in respect of the Land to the JV Company OR within 60 Business Days after the issuance of a fresh營業執照(Business Registration Licence) by the沈陽市工商行政管理局(Bureau for Administration of Industry and Commerce of Shen Yang City, PRC) showing the change of legal representative in respect of the JV Company, whichever is earlier; and

(ii) a cashier order drawn in favour of the Vendor (or such other person and/or corporation as the Vendor may nominate) for the balance in the sum of HK$40 million (HK$40,000,000) shall be delivered to the Vendor at the Vendor’s registered address on the Business Day immediately following the date of the issuance of the建設工程規劃許可證 (Superstructure Construction Planning Permit) in respect of the Development to the JV Company.”

5.  The “JV Company” referred to in the Agreement is Shenyang Xiangming Changyi Development Limited (沈陽向明長益置業有限公司) (“Shenyang Xiangming”), a sino‑foreign cooperation enterprise with a registered capital of US$63,750,000, which is held by Rich Glory and Beijing Xiangming Investment Management Limited (北京向明投資管理有限公司), a PRC company (“PRC Partner”), as to 50% each.

6.  Until trial, there is no dispute that the Agreement was made. Nor is there any dispute that the sale and purchase of the Sale Shares was completed and that the consideration became payable.  In its Defence filed on 24 May 2012, the 1^st defendant refers to a supplemental agreement dated 12 October 2007 (“Supplemental Agreement”) made between the plaintiff and the 1^st defendant in which the parties agreed to vary “the payment instructions in respect of the consideration of HK$50,000,000” to the following manner:

“(1) On the date of signing this agreement, [the 1^st defendant] shall pay the equity transfer price of HK$10,000,000 to [the plaintiff’s] bank account or a bank account designated by [the plaintiff].

(2) On the first day following the obtaining the land use right certificates for the land at Taiyuan South Street, Shenyang City by Shengyang Xianming Changyi Development Limited, or within 60 days of the transfer procedure for Shenyang Xianming at the Industry and Commerce Bureau being completed (whichever is earlier), [the 1^st defendant] shall pay the equity transfer price of HK$10,000,000 to [the plaintiff’s] bank account or a bank account designated by [the plaintiff].

(3) On the first day following the obtaining of the construction project planning permit for the project, [the 1^st defendant] shall pay the equity transfer price of HK$30,000,000 to [the plaintiff] directly.”

7.  It is the 1^st defendant’s pleaded case that it duly paid the consideration in the amount of HK$50,000,000 to the plaintiff pursuant to the Agreement and the Supplemental Agreement, which comprised of the following five payments:

(1) RMB10,000,000, which the 1^st defendant caused to be transferred to the bank account of Shenyang Xiangming on 17 October 2007 pursuant to a payment instruction dated 12 October 2007 and the oral instructions given by Mr Xu Zhong Ping (“Mr Xu”).

(2) HK$10,000,000 transferred by the 1^st defendant to the plaintiff’s bank account pursuant to a payment instruction dated 31 December 2007.

(3) HK$10,000,000 transferred by the 1^st defendant to the plaintiff’s bank account pursuant to a payment instruction dated 24 November 2008.

(4) HK$5,000,000 transferred by the 1^st defendant to the plaintiff’s bank account pursuant to a payment instruction dated 16 February 2009.

(5) HK$5,000,000 transferred by the 1^st defendant to the plaintiff’s bank account pursuant to a payment instruction dated 22 July 2009.

8.  The second to fourth payments in the total amount of HK$40,000,000 are not controversial, as the plaintiff all along accepted that they had been paid.  As to the first payment, the 1^st defendant’s pleaded case is that:

(1) Mr Xu, who had authority to act on behalf of the plaintiff, had instructed and confirmed to the 1^st defendant that RMB10,000,000 should be paid to Shenyang Xiangming, whereupon the 1^st defendant caused its subsidiary, Beijing Xinsong Real Estate Investment Consultancy Co Ltd, to transfer RMB10,000,000 to Shenyang Xiangming on 17 October 2007.

(2) At around the time the parties entered into the Agreement, it was agreed between the plaintiff and the 1^st defendant that the plaintiff would providing funds to Shenyang Xiangming to enable it to repay the RMB250,000,000 loan previously advanced by the PRC Partner to it.  The plaintiff provided such funding through:

(i) Rich Glory remitting US$31,875,000 (equivalent to HK$250,000,000 or RMB238,727,812.50) to Shenyang Xiangming on 21 September 2007; and

(ii) agreeing with the 1^st defendant that part of the consideration in the amount of HK$10,000,000 should be paid to Shenyang Xiangming for such purpose (even though the balance of the RMB250,000,000 loan was RMB11,272,187.50 and the amount transferred to Shenyang Xiangming was RMB10,000,000).

9.  In support of its pleaded case, four witness statements were filed on behalf of the 1^st defendant.

10.  However, at trial, Mr Ronny Wong SC (leading Ms Wing Kay Po) informs the court that the 1^st defendant no longer contends that the RMB10,000,000 paid to Shenyang Xiangming on 17 October 2007 constituted a payment made under the Agreement and the 1^st defendant will not call any witness.

11.  Nevertheless, Mr Wong SC submits that the plaintiff has failed to prove its case as pleaded.  His arguments run thus:

(1) The plaintiff’ cause of action as pleaded in the ASOC is based on the Agreement. As Mr Ip Kin Fan (“Mr Ip”), the only witness of the plaintiff, has admitted in his witness statement that the Supplemental Agreement had been signed, which superseded the Agreement, the plaintiff’s cause of action is therefore “defective”.

(2) The plaintiff has not adduced any evidence to prove that the conditions for payment of the consideration under clause 5.1(b) of the Agreement had been complied with. In the correspondence between the parties from 8 June 2011 to 27 June 2011, the plaintiff accepted that payment of the $40 million was conditional upon issuance of the Superstructure Construction Planning Permit but the same had not been issued.

(3) The assignment of the Sale Share is totally irrelevant, as it is “not a condition upon which payments depend”.  There is no proof in support of the plaintiff’s assertion that the consideration has become due and payable in light of the non-compliance with the conditions for payment.

(4) Although the 1^st defendant pleaded the Supplemental Agreement in its Defence, and Mr Ip has admitted the same, it is not open to the plaintiff to base its case on the Supplemental Agreement as the same has not been pleaded in the ASOC.  The plaintiff is not entitled to “cherry‑pick parts of the defence case not pleaded by it to make up its own claim”.

(5) Even if the plaintiff is entitled to rely on the Supplemental Agreement, the obligation to pay the 3^rd instalment under the Supplemental Agreement, which is predicated on the issuance of the Superstructure Construction Planning Permit, had not been fulfilled.

12.  The arguments set out in paragraph 11(2), (3) and (5) above all boil down to the contention, raised for the first time at trial, that the condition precedent for triggering the payment obligation under the Agreement had not been performed such that the 1^st defendant was not obliged to pay the consideration to the plaintiff.

13.  I do not think it is open to the 1^st defendant to raise such contention at trial, when the same has never been pleaded in the Defence and, indeed, not mentioned in the 1^st defendant’s correspondence or any of the witness statements filed. Mr Wong SC submits that the non‑fulfillment of condition precedent is not a matter which needs to be pleaded by the 1^st defendant in its Defence, relying on the following passage in Hong Kong Civil Procedure 2014, Vol 1, para 18/7/14:

“Cases occur in which, although everything has happened which would appear to be necessary to the case being advanced, there is something further requiring fulfilment, whether by reason of the provisions of some statute, or perhaps because the parties have expressly so agreed; this something more is called a condition precedent. It is not ordinarily of the essence of such a cause of action, but has been made essential by being superimposed. A general averment of the due performance of all such conditions precedent is implied in every pleading and therefore it need not be alleged (Treasure Rock Development Ltd v Splendid Duesseldorf Production Ltd [1986] 1 HKC 86 at para. (4)).

It follows that the onus is on any party contending that some condition precedent has not been duly performed to state with proper particularity what the condition was, and to plead its non-performance (Bond Air Services Ltd v Hill [1955] 2 QB 41); otherwise its due performance will be presumed. Further, if there is an express averment that some such condition precedent has been performed, the onus of proving it falls on the person making such averment. However, if the defendant properly pleads non-performance of a condition precedent, the burden of proving its due performance then shifts to the plaintiff (Bank of New South Wales v Laing [1954] AC 135).” (emphasis added)

14.  It is clear from the above passage in particular those highlighted that it is not necessary for the plaintiff to plead due performance of the conditions precedent.  The onus is on the 1^st defendant to plead non-performance of the conditions precedent with proper particularity.  In the absence of any such plea raised by the 1^st defendant, due performance of the condition precedent to trigger the payment obligation will be presumed and I so hold. 

15.  As to the contention that the existence of the Supplemental Agreement would render the plaintiff’s cause of action to become defective, I fail to see why this is would be the case.  As Mr Shum submits, the plaintiff’s case as pleaded in the ASOC is based on the Agreement and the essential terms identified, the essence of the Agreement was the sale of the Sale Share for $50,000,000 and the claim is for the outstanding consideration in the amount of $10,000,000.  The plaintiff does not need to rely on the Supplemental Agreement as it does not affect the essential terms upon which the plaintiff’s claim is founded.  If the 1^st defendant wants to rely on the Supplemental Agreement in support of any defence, it should plead the same and identify with particularity the basis for contending that by reason of the terms of the Supplemental Agreement, the obligation for payment of the $10,000,000 claimed by the plaintiff did not arise.  I agree.

16.  I turn to consider the plaintiff’s case.  To succeed in its claim, the plaintiff needs to prove:

(1) the existence of the Agreement and its terms as pleaded in the ASOC;

(2) the Sale Shares were transferred and assigned by the plaintiff to the 1^st defendant; and

(3) in respect of the consideration for the Sale Share, only $40,000,000 was paid, leaving an unpaid balance of $10,000,000.

17.  The first and second matters are not in dispute.  I find that the third matter is proved, as the 1^st defendant no longer contends that the RMB10,000,000 transferred to Shenyang Xiangming on 17 October 2007 constituted a payment under the Agreement. 

18.  I hold that the 1^st defendant has acted in breach of the Agreement by failing to pay $10,000,000, being part of the consideration due and payable under the Agreement.  I make an order that the 1^st defendant do pay $10,000,000 to the 1^st defendant. 

19.  As for interest, Mr Shum submits that the 1^st defendant should pay interest on $10,000,000 from the date of writ to the date of judgment at judgment rate.  Mr Wong SC makes no submission on interest.  I therefore order the 1^st defendant to pay interest on $10,000,000 from the date of the writ until payment at judgment rate.  I make an order nisi that the 1^st defendant pay the costs of the action to the plaintiff on a party and party basis, to be taxed if not agreed.