WEALTHY TECH GROUP HOLDINGS LTD v. YUNG MAY FONG BETTY AND OTHERS

HCA 1937/2020

[2021] HKCFI 2966

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1937 OF 2020

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DECISION

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1.  The plaintiff has brought proceedings against the 1^st to 3^rd defendants for breaches of a settlement agreement and against the 4^th defendant for recovery of loans. On 22 April 2021, Master Anthony Chan granted summary judgment in favour of the plaintiff against the defendants. This is the defendants’ appeal against the learned Master’s decision.

A.  THE BACKGROUND

2.  The plaintiff is a limited company incorporated in Hong Kong.

3.  The 1^st, 2^nd and 3^rd defendants were at all material times up to 8 May 2019 the directors and shareholders of the entire issued share capital of the 4^th defendant (a limited company in Hong Kong)  with the 1^st defendant holding 4,000 shares, the 2^nd defendant holding 4,000 shares and the 3^rd defendant holding 2,000 shares.

4.  By a written sale and purchase agreement dated 28 September 2017 (“the SPA”), it was envisaged/agreed between the plaintiff as purchaser and the 1^st to 3^rd defendants collectively as vendors that (1)  the 1^st to 3^rd defendants would transfer their shares in the 4^th defendant to Eco-talent Limited (“Eco-talent”), (2)  the 1^st to 3^rd defendants would become the shareholders holding the entire shareholding (1,000 shares)  of Eco-talent, and (3)  the 1^st to 3^rd defendants would sell and the plaintiff would purchase a total of 425 shares of Eco-talent (i.e. 42.5% of its issued share capital)  for HK$20,180,000.  It was one of the conditions precedent of the SPA that the shares in the 4^th defendant would be transferred to Eco-talent.

5.  Pursuant to the SPA, the plaintiff paid the 1^st to 3^rd defendants HK$15,000,000 as part payment of the consideration.

6.  Separately, the plaintiff advanced money to the 4^th defendant in the total sum of HK$2,842,033.

7.  By a letter dated 16 July 2019, the plaintiff (through its solicitors)  notified the 1^st to 3^rd defendants that Eco-talent had not become 100% shareholder of the 4^th defendant by the date envisaged in the SPA, which meant that there was a non-fulfilment of one of the conditions precedent.  The plaintiff exercised its right to terminate the SPA and sought repayment of HK$15,000,000 and the money previously advanced to the 4^th defendant.  Despite such a demand, no payments were made by the defendants.

8.  By a settlement agreement written in Chinese dated 30 December 2019 (“the Settlement Agreement”), the 1^st to 3^rd defendants as Party A, the plaintiff as Party B and the 4^th defendant as Party C agreed as follows:

8.1  The plaintiff had advanced HK$15,000,000 to the 1^st to 3^rd defendants under the SPA (Recital B and Clause 1).

8.2  The plaintiff had advanced loans to the 4^th defendant in the total sum of HK$2,842,033 (Recital C and Clause 1).

8.3  The 1^st to 3^rd defendants did not comply with a condition precedent of the SPA and the plaintiff had notified the 1^st to 3^rd defendants of the termination of the SPA (Recitals A & D and Clause 1).

8.4  The 1^st to 3^rd defendants promised to pay to the plaintiff a sum of HK$16,000,000 on or before 5 May 2020 unconditionally (Clause 2).

8.5  Upon the plaintiff’s receipt of HK$16,000,000 in full by the due date, the payment obligation of the 1^st to 3^rd defendants would be regarded as fully discharged and the plaintiff would not be able to pursue any action or make any claim against the 1^st to 3^rd defendants, and the 4^th defendant (Clause 3).

8.6  If the 1^st to 3^rd defendants failed to pay HK$16,000,000 in full by the due date, the 1^st to 3^rd defendants would need to pay to the plaintiff HK$17,842,033 together with interest at 8% per annum from 6 May 2020 (Clause 4).

9.  The 1^st to 3^rd defendants failed to pay any money under the Settlement Agreement.

10.  By a supplemental agreement written in Chinese dated 22 May 2020 (“the Supplemental Agreement”), the 1^st to 3^rd defendants as Party A, the plaintiff as Party B and the 4^th defendant as Party C agreed as follows:

10.1  The 1^st to 3^rd defendants did not make any payment in accordance with the Settlement Agreement (Recital B).

10.2  The 1^st to 3^rd defendants promised to pay to the plaintiff HK$16,000,000 on or before 5 September 2020 unconditionally (Clause 1).

10.3  The 1^st to 3^rd defendants agreed to pay to the plaintiff two instalments of interest, namely (1)  HK$118,947 on or before 5 August 2020 and (2)  HK$118,947 on or before 5 September 2020 (Clause 2).

10.4  If the 1^st to 3^rd defendants failed to make any of the payments, the plaintiff could immediately demand payment of the payment of all sums including interest under the Settlement Agreement together with costs on an indemnity basis (Clause 3).

10.5  The provisions in the Settlement Agreement would remain valid except as varied in the Supplemental Agreement (Clause 4).

11.  The 1^st to 3^rd defendants subsequently failed to pay any money under the Supplemental Agreement except one interest payment of HK$118,943 on 14 August 2020.

12.  On 16 November 2020, the plaintiff issued the Writ with a Statement of Claim herein against the defendants.  The plaintiff amended its Statement of Claim on 10 December 2020 and issued the inter partes summons for summary judgment on 11 December 2020.  In its Amended Statement of Claim, the plaintiff seeks (1)  against the 1^st to 3^rd defendants a sum of HK$17,842,033 pursuant to the Settlement Agreement and the Supplemental Agreement with interest and costs on indemnity basis, and (2)  against the 4^th defendant a sum of HK$2,842,033 with interest as the total of the outstanding loans previously advanced.

13.  On 22 April 2021, after hearing arguments from the parties, Master Anthony Chan gave judgment to the plaintiff and made the following orders: (1)  the 1^st to 3^rd defendants do jointly and severally pay the plaintiff the sum of HK$17,842,033 and interest thereon at the rate of 8% per annum from 6 May 2020 until the date of full payment (with credit to be given to the interest payments in the sum of HK$356,837), (2)  the 4^th defendant do pay the plaintiff the sum of HK$2,842,033 and interest thereon at the prime + 1 % from 6 May 2020 up to date of judgment and thereafter at judgment rate (provided that there is no double recovery of the sum set out in (1)), and (3)  costs of this action and this application with certificate for counsel be to the plaintiff to be summarily assessed at the sum of HK$300,000 (save that such costs as against the 1^st to 3^rd defendants be on an indemnity basis).

14.  On 4 May 2021, the defendants filed a notice of appeal to appeal against the orders made by the learned Master.  The defendants subsequently sought to adduce new evidence in their appeal but their application to adduce new evidence was dismissed by DHCJ MK Liu on 8 June 2021.

B.  THE DEFENCES RAISED BY THE DEFENDANTS

15.  In this appeal, Mr Gary Lam, counsel for the defendants, submits that there are the following arguable defences and that the Court should give unconditional leave to the defendants.

15.1  The payments of money advanced by the plaintiff to the 4^th defendant were not loans but capital injections.

15.2  The 4^th defendant’s obligation to repay has been discharged under the Settlement Agreement.

15.3  The defendants entered into the Settlement Agreement and the Supplemental Agreement under duress.

15.4  There was no consideration for the Settlement Agreement.

15.5  The defendants have a number of counterclaims which can be raised as set-offs.

C.  DISCUSSION

16.  The applicable principles on summary judgment are trite and have not been subject to any dispute between the parties.  In this section, I will examine whether each of the 5 purported defences is sufficiently arguable for the purpose of resisting the plaintiff’s summary judgment application.

C1.  Whether the Payments of Money by the Plaintiff to the 4^th Defendant were Capital Injections and not Loans

17.  The plaintiff seeks against the 4^th defendant a sum of HK$2,842,033 representing the total of all the loans it previously made to the 4^th defendant.

18.  The 4^th defendant submits that the plaintiff’s payments of money to the 4^th defendant were not loans, but capital injections.  As such, it is argued that the money paid by the plaintiff to the 4^th defendant is not repayable, and that the plaintiff as an investor would have to bear its own loss. 

19.  I do not consider this argument to be reasonably arguable.

19.1  The 4^th defendant relies on various minutes of meeting of the 4^th defendant (and in particular some Chinese terms used in the minutes)  to suggest that the payments by the plaintiff were in the nature of capital investment.  The terms used in the minutes relied upon by the 4^th defendant are “募集營運資金” and “集資”. 

19.2  However, having regard to the context in which they were used in the minutes, it seems to me that the terms only suggest that the payments from the plaintiff were for the 4^th defendant’s business and operation. I am unable to see how such minutes can reasonably support an argument that the payments of money by the plaintiff to the 4^th defendant were in the nature of capital injections.

19.3  In any event, the 4^th defendant’s argument is flatly inconsistent with the express wording of the Settlement Agreement, which described the payments of money by the plaintiff to the 4^th defendant as loans (“貸款”).  Indeed, a sum of HK$935,783 was described in Recital C of the Settlement Agreement as an amount paid by the plaintiff to the 4^th defendant for the purchase of machinery.

19.4  I also note that the plaintiff has never become a shareholder of the 4^th defendant.  This further undermines the 4^th defendant’s argument that the money paid by the plaintiff was capital investment.

C2.  Whether the 4^th Defendant’s Obligation to Repay has been Discharged

20.  The 4^th defendant further argues that even if the plaintiff had lent to it money in the total sum of HK$2,842,033, the 4^th defendant’s obligation to repay has been discharged by the Settlement Agreement.  The 4^th defendant submits that a compromise agreement will discharge all original claims and counterclaims unless it expressly provides for their revival in the event of breach, relying on Korea Foreign Insurance Co v Omne Re Sa [1999] Lloyd’s Rep 509.  It is argued that there is nothing in the Settlement Agreement and the Supplemental Agreement to suggest that the plaintiff’s claims for the loans would be revived in the event of breach and the 4^th defendant’s obligation to repay the loans would have been discharged.

21.  As acknowledged by Evans LJ in Korea Foreign Insurance Co (above)  at 514, the proposition relied upon by the 4^th defendant in fact came from a textbook on the law of compromise, and can now be found in Foskett on Compromise(9^th ed, 2020)  §8-07, which states that “[g]enerally speaking, therefore, a compromise agreement will discharge all original claims and counterclaims unless it expressly provides for their revival in the event of breach”.  It is clear that such a proposition only represents the general position.  In particular, the proposition in question is found in the context of a discussion about whether the consideration for the compromise (i.e. the promised or actual forbearance)  should be properly construed as being in return for (1)  the promised performance, or (2)  the actual performance, of some act by the other party.  The following passages from Foskett (at §§8-02 to 8-03)  are instructive:

“Given the normal meaning, purpose and effect of a compromise, the natural inference is that the parties’ common intention is that the compromise will henceforth govern their legal relationship in connection with the disputes in which they had been engaged. Accordingly, those disputes would still be regarded as ‘dead’ even in the event of breach of the compromise. In these circumstances, recourse to the original claims will not be permitted unless, upon a true construction of the compromise, it is clear that this is what the parties intended. In this context, whilst the matter is primarily one of construction, the nature of the consideration furnished by the parties may operate as a pointer.

In the discussion on consideration, attention was drawn to the fact that consideration usually furnished in the context of a compromise is the promised or actual forbearance of one party to pursue a claim against another in return for some promised or actual act by the other. If the promised or actual forbearance to pursue the claim is construed as being in return for the promised performance of some act by the other party, such agreement will be regarded as one involving the immediate discharge of the claim. Where, however, the promised or actual forbearance is construed as being in return for the actual performance of some act by the other party, the claim forborne will not be discharged until such performance takes place. The propositions may be illustrated by reference to two simple examples:

(a)  A agrees not to pursue his claim against B in return for B’s performance to pay A the sum of £10,000 within 28 days;

(b)  A agrees not to pursue his claim against B if B pays to A the sum of £10,000 within 28 days.

If B fails to make the payment within the period specified, A’s remedy under (a)  would merely be to sue B for damages upon the compromise.  Under (b)  he would have the option of accepting B’s repudiation of the agreement, treating himself as discharged from further performance of his obligations and reasserting his original claim, or of affirming the compromise and suing upon it.”

22.  Accordingly, whether or not an original claim can be sued upon as a result of a breach of a compromise is a question of construction of the compromise agreement.  This is consistent with the principles relating to accord and satisfaction in the law of contract.  In order to establish a valid compromise, it must be shown that there has been agreement (accord)  which is complete and certain in its terms, and that consideration (satisfaction)  has been given or promised in return for the promised or actual forbearance to pursue the claim: Chitty on Contracts (33^rd ed, 2018)  §22-013.  As stated by the learned editors of Chitty on Contracts at §22-015, “[the question is one of the construction of the accord: whether it was intended that the promise itself or the performance of the promise should discharge the original claim”.  This passage was accepted by Woo VP as accurately summarising the law in Kin Wah J F Construction & Engineering Co Ltd v L&M Foundation Specialist Ltd (unreported, CACV 28/2005, 28 July 2005)  §10.

23.  The issue for determination is whether as a matter of construction of the Settlement Agreement, the parties intended that it was (1)  the making of the promises therein, or (2)  the performance of the promises therein, that would discharge the 4^th defendant’s obligation to repay to the plaintiff. 

24.  In my view, on a proper construction of the Settlement Agreement and the Supplemental Agreement, the parties intended that the 4^th defendant’s obligation to repay to the plaintiff would only be discharged upon the performance of the promise to pay HK$16 million on or before 5 September 2020.

24.1  Clause 3 of the Settlement Agreement sets out the situation in which the plaintiff would be barred from taking any action as against the 4^th defendant, i.e. only upon the payment of HK$16 million on or before 5 June 2020.  This deadline was extended to 5 September 2020 under the Supplemental Agreement.  In my view, the express wording of clause 3 of the Settlement Agreement makes it clear that it would only be upon the performance of the promise to pay HK$16 million that would discharge the 4^th defendant’s obligation to repay.

24.2  In other words, if it was the parties’ intention that the mere making of the promise to pay HK$16 million would immediately discharge the 4^th defendant’s obligation to repay, clause 3 would not be drafted in the way it did and the words in Chinese “不能再向甲方及丙方對該協議作出任何追究及索償” would be otiose.

24.3  The defendant argued that if the above interpretation is correct, clause 4 of the Settlement Agreement would become otiose. I do not accept this argument.  It is clear that the 4^th defendant’s position is not mentioned in clause 4.  Clause 4 deals with the consequences of the 1^st to 3^rd defendants if they fail to pay HK$16 million by the stipulated deadline.

24.4  The 4^th defendant’s argument may be easier to accept if the plaintiff were able to pursue its claim for HK$2,842,033 against the 4^th defendant pursuant to the Settlement Agreement or the Supplemental Agreement.  That may then provide some basis to suggest that the 4^th defendant’s original obligation to repay has been discharged and all the plaintiff can do in the event of breach is to sue the 4^th defendant under the Settlement/Supplemental Agreements.  However, the plaintiff’s ability to pursue a claim against the 4^th defendant for HK$2,842,033 under the Settlement/Supplemental Agreements was simply not provided therein.  It seems to me to be a remarkable construction that the parties had intended to immediately discharge the 4^th defendant’s obligation to repay HK$2,842,033 upon the making of promise to pay HK$16 million without preserving the ability of the plaintiff to pursue any further claim against the 4^th defendant in the event of breach of the promise.

24.5  For these reasons, I consider that it is not reasonably arguable to contend that the 4^th defendant’s obligation to repay to the plaintiff would immediately be discharged upon the making of the promises set out in the Settlement/Supplemental Agreements.

C3.  Whether the Settlement Agreement and the Supplemental Agreement were Procured by Duress

25.  The defendants submit that the Settlement Agreement was entered into under duress. In his affirmation filed herein to oppose the plaintiff’s summary judgment application, the 2^nd defendant stated that (1)  “in around mid-June 2019, [Cheung Wo Lin] made verbal threats to D1 and I that they would get someone to beat us up and cause financial losses to [the 4^th defendant]”, (2)  such threats were repeated in late November 2019 and (3)  fearing for their safety, the defendants signed the Settlement Agreement on 30 December 2019.  

26.  It is common ground that the Settlement Agreement and the Supplemental Agreement were negotiated by the parties’ respective solicitors and that the question of duress was never raised by the defendants’ former solicitors in the contemporaneous correspondence with the plaintiff’s solicitors.   Indeed, it was suggested in a letter (dated 7 May 2020)  from the defendants’ former solicitors that the reason for the defendants’ negotiation of a settlement was that “[the defendants] have encountered difficulties in sourcing new investors and additional funds for the purpose of repaying any indebtedness owed by [the defendants] to [the plaintiff]”.

27.  The defendants did not raise the issue of duress at any time before the plaintiff issued proceedings in November 2020.  The first time such an allegation was raised was in the 2^nd defendant’s affirmation (dated 18 January 2021)  filed to resist the plaintiff’s summary judgment application.

28.  The defendants have not explained why their case of duress was not mentioned in their former solicitors’ correspondence or at any time before the commencement of proceedings herein.  Moreover, I find their duress allegation vague and unparticularised.  I am not persuaded that the defendants have demonstrated an arguable defence that the Settlement/Supplemental Agreements were procured by duress.

C4.  Whether there was Lack of Consideration for the Settlement Agreement

29.  The defendants further argue that the Settlement Agreement lacked consideration because the SPA was itself unenforceable as a result of certain misrepresentations that were made.    However, as mentioned above, the defendants have acknowledged in the Settlement Agreement that the SPA was terminated as a result of the 1^st to 3^rd defendants’ failure to comply with a condition precedent.  They have never sought to avoid the SPA on the basis of any misrepresentation.  Further, the defendants have not adduced any evidence to explain why the alleged misrepresentations were not mentioned to their solicitors when the terms of the Settlement Agreement were being negotiated.  Indeed, like the allegation of duress, the defendants did not complain about the alleged misrepresentations until after the commencement of these proceedings. 

30.  The defendants also argue that the Settlement Agreement lacked consideration because the 1^st to 3^rd defendants did not breach the SPA and it was the plaintiff who failed to pay under it.  This contention is inconsistent with the parties’ acknowledgement in the Settlement Agreement that the SPA was terminated by reason of the 1^st to 3^rd defendants’ failure to satisfy a condition precedent. 

31.  For these reasons, I do not find the defendants’ contention that there was lack of consideration for the Settlement Agreement to be arguable.

C5.  Whether the Defendants have Counterclaims against the Plaintiff

32.  The defendants contend that if the Settlement Agreement is set aside, they would have a number of counterclaims against the plaintiff for compensation for some alleged loss under the SPA and suffered by the 4^th defendant.  However, given that I do not believe the defendants have shown an arguable defence regarding the enforceability of the Settlement Agreement, it follows that there is no arguable defence on the defendants’ purported counterclaims and set-offs.

D.  DISPOSITION

33.  For all of the above reasons, I am of the view that the defendants have not put forward any real or believable defence to the plaintiff’s claims.  The defendants’ appeal is dismissed.

34.  I make an order nisi that the costs of and occasioned by the appeal be payable by the defendants to the plaintiff to be summarily assessed on paper.  The plaintiff has already submitted its statement of costs for summary assessment.  I direct the defendants to lodge and serve a list of objections to the plaintiff’s Statement of Costs dated 10 September 2021 on or before 13 October 2021.