SU SU v. LI WING CHIU

HCA 2225/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2225 OF 2013

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J U D G M E N T

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Introduction

1.  The application before the court was by the plaintiff (“P”)   for summary judgment against the defendant (“D”).

2.  P’s claim against D was for a sum of HK$17m, being the balance of amount said to be due to her from D pursuant to an agreement under which she sold to sell to D all her rights and interests in the restructuring project of a company listed on the GEM Board of the Hong Kong Stock Exchange which had gone into provisional liquidation in 2008, with trading of its shares suspended on 28 October 2008.

3.  P obtained a Mareva injunction on ex-parte basis shortly before the issue of the writ restraining D from, among other things, dealing with a sum of HK$17m, and the ex-parte order was continued on the return date of P’s inter-partes summons on 22 November 2013 subject to D’s level of spending being increased to HK$40,000 per month (“Mareva Order”).

4.  Subsequently, on 19 December 2013, D agreed to pay HK$17m into court and a further amount of HK$680,000, being provision of security of 2 months’ interest at 2% per month, and all D’s obligations  under the Mareva Order were then by consent stayed pending the substantive hearing of P’s inter-partes summons.

5.  After the substantive hearing, I handed down a judgment on 18 February 2014 refusing D’s application to set aside the Mareva Order (“1^st Judgment”), and on 23 May 2014, I handed down a further judgment (“2^nd Judgment”), among other things, refusing D’s application for leave to appeal against the 1^st Judgment, and further allowing P’s application to vary the Mareva Order to raise the ceiling therein of HK$17m to HK$21.08m, to take into account contractual interest for 12 months.

6.  In the present judgment, I shall follow the same abbreviations herein as in my two previous judgments, unless otherwise indicated.

Background

7.  P’s case was a simple one based on an agreement, namely the Transfer Agreement, under which she agreed to sell all her rights and interests in the Restructuring Project of the Company.  The Company was formerly known as China Medical and Bio Science Limited and was known as Oriental Unicorn Agricultural Group Limited after its re-listing (Stock Code No 8120).

8.  P’s case was that D was to pay her a total of HK$32m under the Transfer Agreement, HK$15m having been paid, the balance of HK$17m was to be paid by D to P within one week upon the expiry of the Black Out Period after the successful re-listing.  The Company was re-listed on the GEM board on 1 November 2011 (“Re-Listing”), and the balance of HK$17m became payable on or before 8 November 2013.  D had failed to pay P the same.  It then came to P’s notice that a large block of shares of the Company was sold in open market on 14 November 2013, which would have come from D or his company.  All this led to P applying for the Mareva Order and issuing the writ herein.

9.  The Restructuring Project of the Company was to be carried out by a BVI company Neuf Capital incorporated in July 2009 for such purpose with 3 corporate shareholders, namely Golden Winner 54%, Mack Capital 25% and Cheerise 21%[1] representing the ultimate beneficial interests of 3 investors (“3 Investors”), P, D and a 3^rd investor Chan (who was represented by a person referred to in the 1^st Judgment as Leung, but whose name should in fact be Liang Zhutian (“Liang”).  P held her beneficial interest in the Company through Golden Winner, of which she held 67%, and D and Chan each holding 16.5%.  The exact percentage of the ultimate beneficial ownership of each of the 3 Investors was not quite clear, although it would appear on a rough calculation, P’s beneficial interest in Neuf Capital would be about 36% (ie 67% of Golden Winner’s 54%) and D’s appeared to be about 34% (including his interest held through Mack Capital), and the remaining 30% held by Chan/Liang.   

10.  P’s case in the statement of claim was that she would be “awarded” about 42.18% of the shares in the Company, ie 231,990,000 shares[2] upon re-listing.  This was denied by D, who said that the eventual number of shares to be received by each of the 3 Investors was to be determined by Chan, according to their respective investments[3].

11.  Neuf Capital entered into an exclusivity agreement with the Provisional Liquidators of the Company on 28 July 2009, referred to as the 1^st Exclusivity Agreement in the 1^st Judgment, pursuant to which Neuf Capital was granted exclusivity for, among other things, the negotiation in good faith to enter into a formal restructuring agreement[4].  This was publicly announced by the Company on 3 August 2009 (“03.08.09 Announcement”)[5]. 

12.  Pursuant to the 1^st Exclusivity Agreement, Neuf Capital and  a company wholly owned by the Company, Tony China, entered into an agreement for Neuf Capital to provide funds up to HK$9m as working capital facility of the Company’s group of companies during the course of the proposed restructuring (“Original Working Capital Facility”)[6].  The Original Working Capital Facility was secured by a debenture with a floating charge over the assets of Tony China in favour of Neuf Capital.  In addition, it could be seen from the 03.08.09 Announcement that pursuant to the 1^st Exclusivity Agreement, Neuf Capital also undertook to contribute a sum of not more than HK$1m to the Company to settle operating expenses of the Company and its subsidiaries during the course of restructuring.  There was in fact another non refundable contribution from Neuf Capital of HK$3m for the fees of the Provisional Liquidators.

13.  It was not disputed by D that P would have to approach various other investors in PRC in order to finance her share of the investment capital in the Restructuring Project.  D had produced a copy of the minutes of a shareholders’ meeting of Neuf Capital held on 5 January 2010 setting out the follow up arrangement of the work and respective responsibilities of each shareholder[7]. Subsequently, on 20 December 2010, the 3 Investors signed an agreement, namely the Confirmation Agreement, setting out their respective responsibilities in the Restructuring Project[8].  It was stated in the Confirmation Agreement that P was to be responsible for raising capital of HK$48m (including selling to persons referred to as Zheng in the 1^st Judgment shares and a Wu Shuang 吳雙in the Company) in order for the 3 Investors to subscribe for a total 480m shares of the Company at HK $0.1 each.

14.  Pausing here for a moment, it would appear from the above that Neuf Capital would need initial funds of at least about HK$13m for the working capital and expenses, plus another HK$48m for the subscription of shares for the Re-Listing.

15.  P had in her reply and defence to the counterclaim (“Reply”) stated that she had injected a total of about HK$23m up until the execution of the Transfer Agreement for the Restructuring Project at D’s request and had produced her evidence in support thereof[9].  D had said that he had no written record of the exact amount invested by P or by Chan, but according to the amount invested by him prior to the expiration of the 1^st Exclusivity Agreement, the amount invested by P would be less than HK$20m[10].

16.  By 27 January 2011, the Company, the Provisional Liquidators and Neuf Capital had not been able to enter into a restructuring agreement, and the exclusivity period provided in the 1^st Exclusivity Agreement (“Exclusivity Period”) expired on that day[11].  The Company later made an announcement on 17 March 2011 indicating that the Company and the Provisional Liquidators were then reviewing the situation with a view to continuing with the Re-Listing/resumption proposal (“17.03.11 Announcement”)[12].  As one could be see from a later announcement of the Company on 13 July 2011 (“13.07.11 Announcement”)[13], at the date of the 17.03.11 Announcement, namely on 17 March 2011, Tony China had drawn down approximately HK$7.9m under the Original Working Capital Facility, and that upon the expiry of the 1^st Exclusivity Agreement, the Original Working Capital Facility had become due and payable[14].  Further, it would also appear from the 13.07.11 Announcement that the Stock Exchange of Hong Kong had issued a letter dated 26 July 2010 to the Company’s then financial adviser (“Decision Letter”) agreeing in principle to the resumption of trading of the shares subject to fulfilment of those conditions laid down in the Decision Letter by 30 April 2011.

17.  Notwithstanding the expiration of the Exclusivity Period, what seemed to be not disputed was that P and D were at that time still on relatively amicable terms. 

18.  There seemed to be negotiations among the 3 Investors to explore how to continue with the Restructuring Project, notwithstanding the expiry of the Exclusivity Period.  According to D, Neuf Capital had requested the Provisional Liquidators to renew or extend the 1^st Exclusivity Agreement, but the Provisional Liquidators refused to do so on, inter alia, the ground of the shareholding of Neuf Capital was chaotic and the management was messy[15].

19.  That the Restructuring Project could no longer continue to be carried out in the name of Neuf Capital was clearly known to P and Chan/Liang, as P had produced a memorandum signed by her and Liang on 19 March 2011 (“Memorandum”), in relation to 2 proposals on how to continue[16].  The 2 proposals were either (i) each of the 3 Investors to form his/her own new company to individually sign the restructuring agreement or (ii) each of the 3 Investors to form his/her own new company to be the shareholders of another new company formed for the purpose of signing the restructuring agreement, and the proposed shareholding was P 42.18%, D and Liang each 28.91%.  It was also stated in the Memorandum that if any party failed to agree to the proposals, then that party should be responsible for all losses incurred by all the investors.

20.  P had said that D refused to sign the Memorandum.  For whatever reasons, it would appear that in the end there was no agreement among the 3 Investors, and D entered into negotiations with the Provisional Liquidator on his own through a company solely owned by him, namely Thousand Jade.  D himself had produced a letter dated 6 April 2011 written by Thousand Jade’s solicitors Troutman Sanders to the Provisional Liquidators[17] which, among other matters, had set out proposals for the Restructuring Project to be undertaken by Thousand Jade.  In the letter, it was proposed that Thousand Jade would pay a total of approximately HK$14m to Neuf Capital, as to approximately HK$9m for repayment of the Original Working Capital Facility, and approximately HK$5m for repayment of other amounts advanced by Neuf Capital.

21.  Subsequently, the Provisional Liquidators entered into a restructuring agreement with the Company and Thousand Jadeon 29 April 2011 (“Restructuring Agreement”) which was referred to in the 13.07.11 Announcement[18]. The Re-Structuring Agreement appeared to be the “New Exclusivity Agreement” referred to by D in his affirmations / pleadings[19], which was referred to as the 2^nd Exclusivity Agreement in the 1^st Judgment[20].

22.  Under the Restructuring Agreement, Thousand Jade agreed, among other things, to subscribe for and the Company agreed to issue and allot 240m shares at HK$0.20 each for a total consideration of HK$48m[21].  The capital for subscription of ordinary shares seemed to have remained the same as in the Confirmation Agreement.  Further, it transpired from the 13.07.11 Announcement that upon signing of the Restructuring Agreement, Thousand Jade had deposited an amount of HK$15m in an escrow account held by an escrow agent, for the benefit of the Company, pending the working out of a new working capital facility agreement[22].

23.  Prior to Thousand Jade entering into the Restructuring Agreement with the Provisional Liquidators, as mentioned in the 1^st Judgment, D had entered into 3 agreements with P as follows:

(i) P and D entered into the Transfer Agreement on about 23 April 2011 under which, among other things, P was to sell to D her entire rights and interests in the Restructuring Project (“Entire Rights”) for payments to her of a total of HK$32m;

(ii) On the same day, P and D also signed the 1^st Consultancy Agreement, under which P was to become a director of Thousand Jade and would, among other things, continue to facilitate the financing by investors in the Restructuring Project and that for her services, she would be entitled to 50m shares in the Company after Re-Listing at no consideration.

(iii) Subsequently, about 3 months later, on 20 July 2011, due to the proposed consolidation of the shares in the re-listed Company, P and D signed the 2^nd Consultancy Agreement under which, among other things, P’s entitlement to 50m shares became 16.5m shares in the Company, to be transferred to her or her nominee within one week after expiration of the Black Out Period.

24.  In fact, by the time of the signing of the Transfer Agreement and the 1^st Consultancy Agreement, P was already a director of Thousand Jade, having been appointed on 12 April 2011.  She had remained a director until 28 October 2011[23].

25.  At the substantive hearing of P’s inter-partes summons for the continuation of the Mareva Order, D’s grounds of objection were mainly  that there had been material non-disclosure on part of P, in particular (i) her failure to disclose the Chen Agreement which was alleged by D to have voided the Transfer Agreement, (ii) her failure to disclose the Confirmation Agreement and the 1^st and 2^nd Consultancy Agreements (collectively “Consultancy Agreements”), (iii) her failure to disclose her breach of the Transfer Agreement in failing to recover a deposit of RMB 4.32m from Tai Ke (“Deposit”), (iv) her failure to disclosure receipt of a sum of about HK$10m loan repayment by Thousand Jade to Neuf Capital (“Repayment”), and (v) her failure to disclose the Zheng Agreements, and (vi) failure to disclose the Miao Agreement.

26.  As stated in the 1^st Judgment, I was of the view that the non-disclosure by P of those various agreements/transactions with third parties had not been material non-disclosure and that even had there been, such non-disclosure was innocent.  I further pointed out that the duty was on P to demonstrate that she had a good arguable case, and that there was no need for P to show that her case against D was so strong that she was likely to obtain summary judgment[24].  In the end, I was satisfied that P had established a good arguble case for her claim of HK$17m under the Transfer Agreement, that there was real risk of dissipation and it was just and convenient to continue the Mareva Order.  I also ordered P’s undertaking as to damages to be fortified and topped up to a total of HK$2m to be paid into court.

Matters after the 1^st Judgment

27.  Shortly after the 1^st Judgment, D filed his defence and counterclaim on 20 February 2014 (“D&C”). This was followed by D’s Leave Summons, for leave to appeal against the 1^st Judgment, and later the Release Summons, for the release of a sum of HK$680,000 from the court.  P also issued the Variation Summons, for variation of the Mareva Order, and both parties issued Costs Summonses, for variation of the costs order nisi in the 1^st Judgment.  All these summonses were heard together and dealt with under the 2^nd Judgment.

28.  On 20 March 2014, P filed its Reply and issued the present summons before the court for summary judgment under Order 14 (“O14 Summons”).

29.  The O14 Summons was originally fixed for a substantive hearing on 2 September 2014, but shortly before that hearing, P and D respectively issued a last minute summons for leave to file further affirmations.  There were also other summonses, one from a company called Help U Credit Finance Limited (“Help U Credit”) applying for leave to intervene in the present action and sought, among other things, an order for the HK$17,680,000 paid into court under the Mareva Order be released to Help U Credit instead.  Also the  liquidators for Thousand Jade (which had gone into liquidation), the plaintiff in a separate action in the High Court against P, D and Help U Credit (HCA 1710/2014) issued a summons to restrain D from among other things, withdrawing, or dealing with the sum of HK$17m paid into court.  

30.  Leave was given by this court for the respective parties to file further affirmations as a result of which the hearing had to be adjourned.  As for Help U Credit and the liquidators of Thousand Jade, upon the parties agreeing that there be no payment out of the funds in court pending determination of their respective summonses or further order, those summonses were then adjourned to another hearing on 2 December 2014 for directions.  However, prior to that hearing, the parties arrived at a consensus for leave to Help U Credit and the liquidators of Thousand Jade to withdraw their respective summonses in the present action.  So far as HCA 1710/2014 is concerned, it would appear that the liquidators are proceeding with their claim against P, D and Help U Credit.

31.  There was a total of 3 affirmations from P, namely her 4^th, 6^th and 7^th and one from her solicitor, his 2^nd affirmation, filed in support of the O14 Summons.  There were 3 affirmations from D, namely his 5^th, 7^th and 8^th.  D also filed a supporting affirmation from Chen and one from a person known as Zhang Xiaobin (“Zhang XB”).

32.  Mr Paul Lam SC appeared for P, and Ms Audrey Eu SC appeared for D at the hearing of the O14 Summons before this court.

Legal Principles

33.  There was no dispute that the tests for an application for Mareva injunction would not be the same as for an application for summary judgment. As summarised by Ms Eu in D’s Skeleton Argument[25]:

“(i) Summary judgment is only for clear cases in which there is no serious factual dispute[26] ;

(ii) Unless it is obvious that the defence put forward is frivolous and practically moonshine, summary judgment ought not to be ordered and leave to defend ought to be given;

(iii) If the defence asserted is less than probable but more than shadowy, conditional leave should be granted:Unic Co v Centus Development Ltd [1988] 1 HKC 643 at 647-648;

(iv) Where a defendant sets up a bona fide counterclaim arising out of the same subject matter of the action and connected with the grounds of defence, the order should not be for judgment on the claim subject to a stay of execution pending trial of the counterclaim, but should be for unconditional leave to defend, even if the defendant admits the whole or part of the claim[27];

(v) Under O14 rule 1(2)(b) claims based on allegation of fraud are excluded from summary judgment. ”

34.  Mr Lam had no quarrel with the general principles but highlighted that:

(i) not in every case factual disputes would mean triable issues and it depends on whether the factual disputes were relevant;

(ii) the court would not conduct a mini trial on factual issues, but the question was, whether the factual issues raised would be credible, and the burden would be on the defendant to show that there were triable issues.

Allegations of fraud

35.  Ms Eu had submitted that P had made some very serious allegations against D and his witnesses, namely fraud, a trump up case, malicious prosecution, forgery and collusion etc.

36.  Mr Lam had referred this court to what was held by the Court of Appeal in Menfold Electronic Art & Computer Design Co Ltd v Wong Wang Tat Victor and another, CACV 18/2013 (14/5/2014).  It was said by Kwan JA that in considering whether an action included a claim in respect of which an underlying allegation constituted an allegation of fraud, the court should have regard not only to the statement of claim, but also to the pleadings as a whole[28]. Kwan JA had also said that the Court should not infer the making of an allegation of deliberate dishonest too liberally, it should not put a spin of deliberate dishonesty on an allegation of an act or omission simply because the plaintiff said it was wrongful on his version of events; and in the absence of an express attribution of dishonesty, a party should not be held to have made an allegation of deliberate dishonesty unless the act or omission complained of was by its very nature inherently or implicitly dishonest[29].

37.  As I have mentioned earlier, P’s claim was a simple claim for breach of contract, namely D failed to pay the sum of HK$17m under the Transfer Agreement.  P had not pleaded any deliberate dishonesty.  I accept Mr Lam’s submission that the failure to pay the said sum in breach of contract would not be, by its nature, inherently or implicitly dishonest. 

38.  P had said in her affirmations in response to D’s allegations  that D had not put forward any arguable ground not to pay, and that the grounds that D sought to rely on to oppose the present application involved various wrongful acts on his part. These in my view would not bring P’s claim within the exception. 

39.  Having considered the pleadings as a whole, I am of the view that P’s claim against D was not based on allegations of fraud.

P’s ground for summary judgment

40.  P’s O14 Summons was on the ground that D had failed to show any bona fide triable issue or defence.

41.  As P’s claim was simply based on the Transfer Agreement,  I will first of all set out the entirety of the terms of the Transfer Agreement[30]:

“甲方：李永超

乙方：苏苏

监于neuf capital limited 投资中华药业重组复牌的独家排他性协议过期，甲乙双方经协商达成共识，合作以千玖国际有限公司承担并继续推动重组计划,并由甲方受让乙方投资中华药业 (8210) 重组复牌之全部权益,前提与代价支付安排如下﹕

1. 双方对第五期总投资款进行核算确认，并移交给甲方指定人员；对乙方所委任法人及董事的相关公司，进行就任期间债权债务的清理确认,若有任何甲方没有签署确认的债务，包括而不限于担保或借贷等，将由乙方自行永久承担。

2. 以千玖国际签订重组正式协议生效 (即联交所同意2011年4月30日原则批复延期) 当天，支付港币800万元；

3. 在完成下列变更至甲方指定人员手续后，取得相关证照当天支付港币700万﹕厦门市东岳贸易有限公司法人代表， 台科加丹 (厦门) 生物科技有限公司法人及股东董事，厦门市弘海生物科技有限公司法人及股东董事。

4. 由甲方承担重组继续投资，乙方负责追回吳尚欠款五岳投资公司的33.4万元人民币，冲减甲方尚欠乙方之第五期投资款30万元人民币；

5. 乙方负责追回龙岩台科加丹的押金432万元人民币返还甲方。

6. 在中华药业复牌后,股东禁售期满后一周内支付港币1700万元；若以千玖国际作为投资人的复牌后失败，此款项目自动取消不再返还；若复牌成功股东禁售期满后而未能按时支付，应以欠款形式月息2%，并可通过香港法院追讨。

甲方双方之间的顾问服务协议另外签订。”

D’s D&C

42.  There was a total of 7 Clauses in the Transfer Agreement.  D had pleaded that it was agreed between P and D[31] among other things, that:

(a) D would pay HK$8m to P on the date of Thousand Jade’s execution of the formal restructure agreement for and in relation to the re-listing (Clause 2);

(b) Upon the accomplishment of Clause 2, and further upon the persons nominated by D being appointed as, inter alia, directors and/or legal representatives of such PRC companies named therein, D would pay P a further sum of HK$7m (Clause 3);

(c) Upon the accomplishment of Clause 3, P was to recover RMB 334,000 from吳尚for D (Clause 4);

(d) Upon the accomplishment of the 4^th Provision, P was to recover the deposit of RMB 4.32m paid to Tai Ke Jia Dan (“Deposit”) and pursuant to the Tai Ke Agreement (Clause 5);

(e) Clause 6 of the Transfer Agreement specifically linked the Transfer Agreement with the Consultancy Agreements;

(f) The Transfer Agreement would be terminated unequivocally and absolutely for any breach and/or non-performance of each and every of the provision under the Transfer Agreement in their respective orders, except Clause 1.

43.  In short, according to D, the accomplishment of each of Clauses 2 to 5 would be conditional upon the accomplishment of preceding clause (“Conditional Term”).

44.  Mr Lam summarised that there were 6 main points in the D&C (“Main Points”), briefly:

(i) Failure to recover the Deposit:  P had failed to recover the Deposit from tai Ke pursuant to her obligations in Clause 5 of the Transfer Agreement and the payment of HK$17m was conditional on her accomplishment of Clause 5;

(ii) Breach of the Consultancy Agreements:  P had failed to secure capital injection referred to in the Consultancy Agreements for the Re-Listing, and P’s performance of the Consultancy Agreements, as well as the recovery of the Deposit from Tai Ke were condition precedents to the remuneration of HK$17m under the Transfer Agreement and also the transfer of 16.5m shares in the Company under the Consultancy Agreements (“2 Conditions Precedents”)[32];

(iii) The Chen Agreement:  without consent and knowledge of D, P had transferred to Chen 70m shares in the Company at consideration of HK$1 under the Chen Agreement, and therefore P had failed to transfer her Entire Rights to D under the Transfer Agreement;

(iv) The Zheng Agreements:  P had failed to repay Zheng the loan advanced under the Zheng Agreements which resulted in D being liable as a co-guarantor under the Zheng Agreement as ordered by a judgment issued by the Middle People’s Court in Xiamen in Fujian (“PRC Judgment”)[33], and that P should indemnify him;

(v) Repayment:  P would have received not less than HK$5.4m under the Repayment of HK$10m and there should be a set off[34];

(vi) Loss under the Mareva Order:  D had suffered loss under the Mareva Order.

45.  D counterclaimed against P for, among other things:

(1) P to repay to him the sum of HK$15m already paid by him to P under the Transfer Agreement;

(2) Further, and/or in the alternative, rescission of the Transfer Agreement and the 1^st and 2^nd Consultancy Agreements;

(3) Further, and/or in the alternative, damages to be assessed for the breach of the Transfer Agreement and the Consultancy Agreements;

(4) Further, and/or in the alternative, a declaration that P was to indemnify D for any costs, charges, expenses and liabilities of any kind incurred by D in connection with and/or arising out of the Zheng Agreement.

Main Points (i) and (ii)

46.  Main Points (i) and (ii) would essentially turn on the interpretation and the provisions of the Transfer Agreement and the Consultancy Agreements.  The main issue was whether the Transfer Agreement was a free standing or stand alone agreement, and whether there were conditions precedent to be accomplished prior to the payment of HK$17m.

47.  Initially, D’s stance in his 1^st affirmation was merely that (a) that by reason of the Chen Agreement, P failed to transfer to D her Entire Rights to D under the Transfer Agreement (namely Main Point (iii)) ; and (b) P was in breach of her obligations in Clause 5 of the Transfer Agreement by failing to recover the Deposit from Tai Ke, and the amount of the Deposit should be set-off against the HK$17m[35].  There was nothing in D’s 1^st affirmation stating that the payment of HK$17m was dependent on P’s performance of her obligations under the Consultancy Agreements, nor was there any reference to the alleged agreement to there being the Conditional Terms, or the payment of HK$17 m was conditional upon the accomplishment of the recovery of the Deposit from Tai Ke.

48.  In fact, at the return hearing of the ex-parte application for the Mareva Order before DHCJ Seagroatt, at the commencement of that hearing, the Learned Judge had expressed the view that Clause 6 in the Transfer Agreement relating to the payment was freestanding, and not affected by Clause 5[36].  There seemed to be no submissions made by D’s then Counsel Mr Wong otherwise or in response to what DHCJ Seagroatt had said.  Further, later on at that hearing, Mr Wong accepted that the Transfer Agreement was a freestanding agreement, although at that stage he was responding to P’s then Counsel Mr Liang’s submissions in relation to the Chen Agreement[37]. 

49.  Anyway, D’s stance clearly changed in his 2^nd affirmation.  What he said about the Transfer Agreement in the 2^nd affirmation was that it was not, and should never be regarded as any independent or freestanding agreement, and rather it had to be interpreted in light of and on the basis of the Confirmation Agreement and discussions between he and P[38], and it was in his 2^nd affirmation that he set out for the first time the alleged agreement of the Conditional Terms.  

50.  D’s then case was based on pre-contract negotiations. 

51.  Mr Lam had referred this court to the case of Marble Holdings Ltd v Yatin Development Ltd (2008) 11 HKCFAR 222.  In his judgment, Mr Justice Mortimer NPJ had summarised the approach towards the interpretation of the meaning and effect of commercial agreement.  He had quoted the well known passage from Lord Hoffman NPJ in Jumbo King Ltd v Faithful Properties Ltd and Others (1999) 2 HKCFAR 279.  Mr Justice Mortimer had also said “It is trite to add that generally evidence of the negotiations leading to the agreement and subjective statements of intent is inadmissible for this purpose although there are limited qualifications not relevant to this appeal…”[39]

52.  Looking at each of the clauses in the Transfer Agreement, there was no stipulation in Clause 6 that the payment of the HK$17m was dependent on the recovery of the Deposit in Clause 5, or that it was dependent on the 2 Conditions Precedent.  The conditions which needed to be fulfilled before D was obliged to pay the 1^st and the 2^nd instalment of the consideration totalling HK$15m had been expressly set out in Clauses 2 and 3.  In Clause 6, the only condition for payment of the HK$17m was the successful re-listing.

53.  Further, based on what D had pleaded about the Conditional Terms, Clause 4 would then be conditional upon the accomplishment of Clause 3.  It was not quite clear as to why the recovery of the Deposit should be conditional upon the recovery of the sum of RMB 334,000 from a person known as 吳尚, which seemed to be a separate provision in that the amount recovered would go towards reducing D’s own indebtedness of RMB 300,000 to P for the 5^th stage of capital injection into the Restructuring Project.

54.  D’s 2^nd affirmation was filed prior to the hearing for the continuation of the Mareva Order.  At the time of the 1^st Judgment, I had expressed the view that I was of the view Clause 6 was independent of the accomplishment of Clauses 4 and 5. 

55.  After the 1^st Judgment and after P had issued the O14 Summons and the 2^nd judgment, D filed his 5^th affirmation in opposition to P’s supporting 4^th affirmation.

56.  In his 5^th affirmation, D’s stance changed yet again.  For the first time, he asserted that the entire contractual arrangement between him and P (“Entire Contract”) was in fact made partly in writing consisting of the Confirmation Agreement, the Transfer Agreement and the Consultancy Agreements (“Relevant Agreements”), and partly orally, consisting of various conversations during the period from around December 2010 to around August 2011.  

57.  In particular, D referred to discussions with P on the terms and conditions of the buying-out transaction (“Buying-Out Transaction”) on about 21 April 2011 in Xiamen, Fujian (“Relevant Negotiations”). According to D, those present during the Relevant Negotiations were P, her husband Lian Yu Min (previously referred to as Lin Yuman or Lin in the 1^st Judgment) (“Lian”), Zhang XB and D. Zhang XB was at that time the Deputy CEO of a subsidiary of the Company and Zhang XB was also the witness to D’s execution of the Transfer Agreement and the Consultancy Agreements. 

58.  D said that P “undertook and guaranteed” to him during the Relevant Negotiations in the presence of Zhang XB that her Entire Rights would be free from any charge, liens, encumbrance or third party right of any kind at the time of completion of the Buying-Out Transaction, and that P would not assign or dispose of her Entire Rights prior to such completion to any party other than D.  It was D’s case that the agreement reached between her and him during the Relevant Negotiations were an integral part of the Entire Contract between P and D and should rank pari passu with the Relevant Agreements.

59.  D had said that the Relevant Negotiations continued after 21 April 2011 and that P and D proceeded to identify the 6 issues which ought to be dealt with to implement the Buying-Out Transaction.  D claimed that he had proposed to have the Transfer Agreement properly prepared by lawyer, but P and Lin insisted that just by setting out those 6 issues in the Transfer Agreement should be sufficient and eventually those 6 issues were set out according to the order of their respective accomplishment in the Transfer Agreement.

60.  D then went on to “supplement” what he had said in his 2^nd affirmation about the Tai Ke Agreement including that P had guaranteed to him the refund of the Deposit by Tai Ke in the presence of Zhang XB.

61.  Zhang XB had filed an affirmation on 12 June 2014 to support what D had said in his 5^th affirmation.

62.  To summarise, D’s latest case was that the Entire Contract between P and D for the Buying-Out Transaction of P’s Entire Rights in the Restructuring Project was partly in writing and partly orally, and in particular, there were two guarantees on the part of P, namely that (i) she had guaranteed that her Entire Rights would be free from any encumbrances of third party rights, and also (ii) P had guaranteed to him the refund of the Deposit from Tai Ke.

63.  Mr Lam submitted that D’s latest case had to be viewed against the following:

(i) P had set out in her 1^st affirmation her efforts in pressing D  for payment of the HK$17m since beginning of November 2013 and that D was adopting an extremely evasive attitude to delay payment.  There was no mention by D at that time any Conditional Terms, the 2 Conditions Precedent, guarantees, or that the agreement between the parties being made partly orally.

(ii) P had also said in her 2^nd affirmation that D never demanded P for repayment of the Deposit, and only in response, D said in his 2^nd affirmation that in a meeting held in March 2011, he had chased P to recover the Deposit and reminded her that this was one of the pre-requisites for the entitlement to the sum of HK$17m, but there was no evidence provided by him to support his assertion.

(iii) P had produced evidence to show that the Transfer Agreement was in fact drafted and prepared by D well before the date of the Relevant Negotiations, in that she had produced an email dated 11 April 2011 from D to her enclosing the a draft agreement (“Draft Agreement”)[40], and a further email dated 15 April 2011 from D to her, attaching copies of a draft of the Transfer Agreement and the draft of the 1^st Consultancy Agreement[41].

(iv) D himself had said it was the parties’ intention to reduce the important provisions into writing, and it was impossible why they would omit the important and material terms in the Relevant Agreements, and that they had to fall back on an oral agreement.

(v) Whether the Deposit could be recovered would depend on Tai Ke, over which P had no control, and it was most improbable that any reasonable person in P’s position would guarantee the recovery of the Deposit.

(vi) As Zhang XB merely adopted what D said without giving any independent evidence, his evidence did not assist, and also he being D’s cousin was not an independent witness.

64.  It could be seen from the Draft Agreement produced by P that the parties had intended to have their agreed terms incorporated in one agreement, divided into 3 parts.  The 1^st part concerned the time and amount of each instalment, namely the 1^st payment of HK$7m, the 2^nd payment of HK$8m and the 3^rd payment of HK$17m.  The 2^nd part concerned the shareholding held by P and those held by other investors.  The 3^rd part had set out the future co-operation matters between the parties.  The only obligations stated to be guaranteed by P was for the performance in paragraphs 2 and 3 of the 2^nd Part.  The recovery of the Deposit from Tai Ke was part of the future co-operation matters under the 3^rd Part and there was no guarantee expressed therein.

65.  Then on 15 April 2011, D sent 2 draft agreements, one being the draft of the Transfer Agreement, and the other one being the draft of the 1^st Consultancy Agreement.  The draft of the Transfer Agreement contained 7 clauses, as in the signed Transfer Agreement.  As between the draft and the signed Transfer Agreement, the main changes seemed to be in relation to Clauses 1–3. The other clauses had remained unchanged in the signed version, save that the interest in Clause 6 was stated to be monthly. 

66.  However, comparing the Draft Agreement with the draft of the Transfer Agreement, there were the following main differences:

(i) The 1^st instalment of the payment upon signing of the formal restructuring agreement had become HK$8 instead of HK$7m as in the Draft Agreement;

(ii) The recovery of the amount from吳尚and also the recovery of the Deposit from Tai Ke were originally both under the 3^rd part of the Draft Agreement, being “co-operation” matters, and the 3 payment provisions were all under the 1^st part of the  Draft Agreement relating to payment, but in the signed version, the payment provisions were split up, with the recovery of the amount from 吳尚 and the recovery of the Deposit inserted after the 2^nd payment and prior to the 3^rd payment;

(iii) There was no provision for payment of interest for the sum of HK$17m in the Draft Agreement, but in the draft Transfer Agreement, the interest of 2% had been inserted, except it seemed not to have yet been agreed whether such interest was monthly or annually;

(iv) There was a provision in the draft Transfer Agreement that there was to be a separate consultancy services agreement whereas originally what was contemplated was only one agreement, namely the Draft Agreement.

67.  D’s latest case was that the oral part of Entire Agreement consisted of agreements reached in various conversations during the period from around December 2010 to around August 2011, in particular the Relevant Negotiations which took place on about 21 April 2011 in Xiamen.

68.  D had, however, included the Confirmation Agreement as the Relevant Agreements of the Entire Contract.  The Confirmation Agreement was in fact an agreement between the 3 Investors, and not just between P and D, whereas the parties to the other 3 Relevant Agreements were only P and D.  The Confirmation Agreement had referred to there having been a number of agreements and guarantees signed by the 3 Investors and that the 3 Investors agreed to D and Liang to be the direct main body in the Restructuring Project, and P was responsible to raise HK$48m, including selling to Zheng and 吳雙 shares in the Company, for the use of D and Liang to subscribe for 480 shares @HK$0.1 per share.  

69.  The Confirmation Agreement was signed only about 5 weeks prior to the expiration of the Exclusivity Period and the agreed terms seemed to indicate that the 3 Investors were agreeing to continue with their investments and/or responsibilities in the Restructuring Project.   

70.  According to D, he discussed with P the Buying-Out Transaction in April 2011.  It seemed to be D’s case that it was after the expiration of the Exclusivity Period that he explored with P a possible way for recovery of her investment to avoid P losing the entire amount of investment in the Restructuring Project and that he then discussed with her the terms and conditions of the Buying-Out Transaction[42].

71.  In light of what D said above, it was thus not quite clear how the Confirmation Agreement could be part of the Entire Contract.  

72.  The Transfer Agreement and the 1^st Supplemental Agreement were not signed until 23 April 2011. The 2^nd Supplemental Agreement was signed on 20 July 2011. There was in fact a 4^th part included in the 2^nd Supplemental Agreement, namely a “Special Note”, referring to the Transfer Agreement, and stating any liabilities of the 3 companies referred to in Clause 3 of the Transfer Agreement prior to the change of personnel, were to be borne by P. The last sentence of this “Special Note” further stated that if P had represented others or other “hidden investors”, P should be solely responsible for settling with such persons/investors, and that D and his company had no financial or legal liability in connection therewith.

73.  Ms Eu, had, submitted the court would be entitled to consider the whole factual matrix when an agreement was made in interpreting the agreement.  In the Marble Holdings case, it was also held that the whole matrix of circumstances within which a commercial agreement was made was relevant to the interpretation of its meaning and effect, and that the natural and ordinary meaning would apply unless the relevant surrounding circumstances demonstrated otherwise, and where parties failed to express themselves well or clearly, such circumstances were of particular value[43].

74.  Ms Eu had also referred to Paul Y Management Limited and Eternal Unity Development and Others CACV 16/2008, Judgment 12.08.98 and submitted that the facts of that case were quite similar.  In that case, the plaintiff’s claim was based on a loan deed, and the defendants alleged that the loan was part of master agreement.  The plaintiff had denied there was a master agreement and that the loan deed was a stand alone agreement. 

75.  Cheung JA had said as follows:

“In deciding whether a plaintiff is entitled to summary judgment the relevant test is whether the defendant has raised credible triable issues. If there are, the matter should go to trial. If not, judgment should be entered against the defendant. In considering whether there are triable issues the Court will, of course, not take the alleged defence on its face value but test it against the evidence disclosed in the affidavit including matters such as contemporaneous documents, whether the alleged defence is inconsistent with the defence previously put forward or whether the defence is only recently raised despite opportunity being given to the defendant to respond earlier. The Court will also consider the inherent probability of the defence. But what the Court should not do is to conduct a mini-trial on complicated factual issues.[44] ”

76.  In the judgment of Cheung JA, he had also quoted a passage from Chitty on Contracts 29^th Ed Volume 1, as follows:

“It follows that the scope of the parol evidence rule is much narrower than at first sight appears. It has no application until it is first determined that the terms of the parties’ agreement are wholly contained in the written document. The rule ‘only applies where the parties to an agreement reduce it to writing, and agree or intend that the writing shall be their agreement.’ Whether the parties did so agree or intend is a matter to be decided by the court upon consideration of all the evidence relevant to this issue. It is therefore always open to a party to adduce extrinsic evidence to prove that the document is not a complete record of the contract. If, on that evidence, the court finds that terms additional to those in the document were agreed and intended by the parties to form part of the contract, then the court will have found that the contract consists partly of the terms contained in the document and partly of the terms agreed outside of it. The parol evidence rule will not apply.”[45]

77.  It was eventually held in the above case that based on the then evidence, the master agreement as suggested by the defendants was not a fanciful idea, and the defendants were given unconditional leave to defend.

78.  In the present case, it did not seem to be disputed that the transaction which P and D had entered into was a buying out transaction, namely for D to buy out P’s Entire Rights in the Restructuring Project. Even though it was not quite clear at this stage why the Confirmation Agreement was part of the Buying-Out Transaction, in light of the Draft Agreement and other drafts that the other 3 Relevant Agreements, namely the Transfer Agreement and the Consultancy Agreements could all be part of the Entire Contract, namely an entire or overall agreement for the Buying Out Transaction, was not in my view a fanciful idea. 

79.  As for the oral part, although P had denied the Relevant Negotiations had taken place, there seemed to have been various negotiations/discussions between the parties as evidenced by at least the following:

(i) The Memorandum produced by P and signed by P and Liang on 19 March 2011 would indicate proposals from P to D as to how to continue with the Restructuring Project, notwithstanding the expiration of the Exclusivity Period;

(ii) D’s email dated 11 April 2011enclosing the Draft Agreement and produced by P had referred to the parties having had discussions;  

(iii) The separation of the Draft Agreement into two drafts on 15 April 2011 would indicate that there had been discussions  after D’s email dated 11 April 2011;

(iv) The further changes between the two drafts and the final signed versions of 23 April 2011 would indicate that there had been negotiations/discussions after 15 April 2011;

(v) The 2^nd Consultancy Agreement signed on 20 July 2011 would indicate the parties had discussed about the amendments in the 1^st Consultancy Agreement.

80.  Even though Zhang XB’s affirmation was merely adopting what was stated in D’s affirmation, and indeed paragraph 7 of Zhang XB’s affirmation seemed to be “copying and pasting” most part of paragraph 7 of D’s 5^th affirmation[46], Zhang XB did confirm that he was present at the Relevant Discussions and that he witnessed D’s execution of the Transfer Agreement and the Consultancy Agreements.

81.  Having considered the above, and the surrounding circumstances at the time when the Transfer Agreement and the Consultancy Agreements were signed, I am unable to say that D’s allegations of oral guarantees and undertakings on P’s part were fanciful and I have come to the view that D has raised triable issues on whether there was the Entire Contract with terms as alleged by him, and that leave to defend should be granted.  I will deal with whether there should be conditions later in the judgment.

82.  I will in any event consider the other Main Points of D’s defence.

Main Point (iii) – The Chen Agreement

83.  It had been D’s stance that without consent and knowledge of D, P had transferred to Chen 70m shares in the Company, and thus, P had failed to transfer her Entire Rights to D under the Transfer Agreement.

84.  In the 1^st Judgment, I had pointed out that the parties to the Chen Agreement were Golden Winner (although signed by P) and Chen.  For the purpose of the O14 Summons, P was willing to accept that she had entered into the agreement in her personal capacity.

85.  After the 1^st and the 2^nd Judgment, Chen had filed an affirmation to support D’s case.  He had said that he was approached by P to invest cash in the Restructuring Project as she did not have much money, and that P had also requested Chen to raise funds from his friends and relatives and through his connections.  According to Chen, to satisfy investors secured by him, P had transferred and assigned to him not less than 105m shares in the Company, under 3 agreements, namely the Chen Agreement dated 3 September 2009, and two other agreements of 11 and 16 November 2009.   It was Chen’s evidence that he and other investors had remitted to P no less than HK$40m in total, and in return, they had only received a small number of shares and that P had cheated them.  Further, according to Chen, he had already reported P’s fraudulent conduct to the Public Security Bureau of Xiamen City.

86.  At the time of the 1^st Judgment, there was only the Chen Agreement before this court.  P had also produced two further documents referred to in the 1^st Judgment[47], an undertaking dated 30 September 2009 and a further agreement signed on 23 October 2013.

87.  P’s case was that, under the Chen Agreement, she merely undertook a personal liability to transfer shares to Chen after the successful re-listing of the Company, and she had in any event discharged her obligations under the Chen Agreement (which had been superseded by subsequent agreements produced by her).

88.  In reply to Chen’s affirmation, P had alleged certain documents and agreements produced by Chen were forged documents, and that what was said by Chen was a pack of lies.  However, these are not matters which the court should go into at this stage.

89.  It was D’s case that he only learnt of the Chen Agreement while in the course of preparing his 1^st affirmation. Irrespective of whether this was true or not, the possibility that P could have other hidden investors behind her was not unforeseen by D, since, as mentioned earlier, the last sentence of the 2^nd Consultancy Agreement clearly stated that P was to be solely responsible for settling with such hidden investors and that such had nothing to do with D or his company.

90.  More importantly for present purposes, Mr Lam submitted that the subject matter of the Chen Agreement and the Transfer Agreement was different.  Under the Chen Agreement, the subject matter was the 70m shares.  However, the subject matter of the Transfer Agreement was P’s Entire Rights.

91.  P’s Entire Rights would entail the right to participate in the Restructuring Project and to share the fruits upon the successful re-listing of the Company (by receiving shares in the Company).  She enjoyed such rights and interests by virtue of her beneficial ownership in Golden Winner, which was a shareholder of Neuf Capital, which, in turn, had entered into the1^st Exclusivity Agreement with the Provisional Liquidators of the Company.  Such rights of Neuf Capital under the 1^st Exclusivity Agreement would include the right to exclusivity in carrying out negotiations to enter into a formal restructuring agreement, and the right to subscribe for shares after the re-listing.  Neuf Captial also held a floating charge over the assets of Tony China under the Original Working Capital Facility.

92.  Mr Lam submitted that the shares to be transferred to Chen, whether 70m or 105m as now alleged by Chen, could only be transferred to Chen after the successful re-listing of the Company.  D’s own case was that the number of shares each of the 3 Investors was entitled to was unclear and to be decided.  Thus, the subject matter of the Chen Agreement was a “future property” which had not yet come into existence at the time of the agreement, and it was not clear whether P would and could have obtained such “future property” from the Restructuring Project.  On the other hand, what P sold under the Transfer Agreement were her then existing rights.

93.  Having considered Mr Lam’s above submission and although Ms Eu maintained it was the same subject matter, I am of the view that the subject matter of the Chen Agreement and the Transfer Agreement was not the same, and that Chen’s evidence could not assist D’s case to raise an arguable defence based on total failure of consideration.  

94.  In any event, as mentioned earlier, there had been mutation in D’s case.  In his 5^th affirmation, D stated that P had orally guaranteed during the Relevant Negotiations that her Entire Rights would be free from any charge or lien.  Ms Eu also submitted that even if no express term, then such a term should be implied.  Whether there was the alleged guarantee or the implied term, these were alleged to be terms of the Entire Contract.  As I have said earlier, the issue on whether there was the Entire Contract, is going to trial.

Main Point (iv) – The Zheng Agreements

95.  P entered into a loan agreement for a sum of RMB 30m from Zheng to be paid to Neuf Capital and there was a subsequent Supplemental Agreement revising the loan maturity date, which were collectively referred to as the Zheng Agreements in the 1^st Judgment.  Neuf Capital and D were guarantors to the loan.

96.  The Zheng Agreements came into existence long before the Transfer Agreement, and D was fully aware of this transaction.

97.  In fact, there was no dispute that on 10 March 2011, D himself and Zheng had visited HSBC and arranged for the release to Zheng sums then held in Neuf Capital’s HSBC bank accounts for repayments under the Zheng Agreements.  It was P’s case that the loan under the Zheng Agreements had been discharged in full by D arranging for the repayment.

98.  At the time of the hearing before this court for the continuation of the Mareva Order, D was claiming that P still owed Zheng about RMB 10m due to exchange rate, and accrued interest of some RMB 8m, totalling about RMB 18m.

99.  In the 1^st Judgment, I had expressed the view that the Zheng Agreements were a separate matter from the Transfer Agreement.

100.  Under the PRC Judgment, it was adjudged that P and her husband Lian jointly owed Zheng about RMB 1.2m under the Zheng Agreement, and Neuf Capital and D were jointly liable as guarantors.  P said she was appealing against the judgment.

101.  It was not disputed that D had not paid any sums to Zheng as guarantor. 

102.  In the Counterclaim, what D had said in paragraph 82 thereof was that he was reserving the right to seek an indemnity from P for any costs, charges, expenses and liabilities of any kind incurred by D arising out of the Zheng Agreements, but then later, in paragraph (5) of the relief he claimed a declaration for such an indemnity.

103.  Ms Eu submitted that a guarantor would be entitled to sue once there was a demand by the creditor irrespective of whether the guarantor had paid on the guarantee.  She had referred the court to paragraph 200.094 of Halsbury’s Laws of Hong Kong 2^nd Ed Volume 30.

104.  Mr Lam, however, submitted that what this meant was that   the guarantor would be entitled to apply for a quia timet relief in equity to protect him from having to pay first the principal debt.  The minimum relief available in a quia timet action would be a declaration that the guarantor was entitled to be exonerated from liability to the creditor and discharged on payment by the principal debtor; the order could also require the debtor to pay the creditor the full amount owing forthwith so as to obtain the cancellation or return of the guarantee and to take any other steps necessary for the discharge and exoneration of the guarantor.  Mr Lam also submitted that in such quia timet action, the guarantor should join the creditor in the proceedings, and if the creditor was not a party, the court would not be able to order the debtor to pay the debt to the surety instead as this would not discharge the debtor’s liability to the creditor[48].

105.  I accept Mr Lam’s submissions that in the present context, whether the Zheng Agreements are separate matter or not, D’s right of exoneration would not give rise to any arguable defence to P’s claim of HK$17m.

106.  In any event, the amount ordered in the PRC Judgment was only RMB 1.2m, much less than what D had pleaded in his D&C of about RMB $18m, and P was also appealing against the PRC Judgment, the result of which was yet unknown.

Main Point (v) – the Repayment

107.  Even though this matter had been raised by D earlier, it was not until his 8^th affirmation that D produced some email exchanges between a firm of solicitors and P[49]. The firm of solicitors stated that they were instructed to prepare a written resolution of the directors of Neuf Capital in relation to, among others, collection of the Repayment, and a copy of the draft written resolution was attached[50] (“Resolution”). The Resolution would appear to have been signed by P, her husband Lian, and the other of the 3 Investors, Liang, and another person called Zhang Feng, who was authorised to proceed with the receipt of the Repayment and also to sign all necessary documents to discharge the floating charge under the Original Working Capital Facility. 

108.  The main issue here was whether P had indeed received HK$5.4m as alleged by D, based on what D said was P’s interest of 54% of HK$10m Repayment.

109.  Firstly in the letter from Thousand Jade’s solicitors Troutman Sanders of 6 April 2011 to the Provisional Liquidators produced by D, it would appear that the amounts paid or advanced by Neuf Capital at that time could be as high as approximately HK$14m[51].

110.  P had produced an account memorandum confirmed and signed by the 3 Investors on 19 February 2011[52] indicating that the amount paid to Tony China and accountants of the Company as of that date to be in the region of HK$16m, out of which the amount paid to Tony China was HK$7,942,988.  According to the 13.07.11 Announcement, Thousand Jade had deposited HK$15m with an escrow agent from which the Repayment was to be made.  

111.  The Resolution had referred to a letter dated 30 August 2011 from Tony China to Neuf Capital inviting Neuf Capital to accept repayment of certain loans and accrued interest.

112.  The actual amount of loans and accrued interest then owed to Neuf Capital or accepted had not been stated in the Resolution. Thus, the total amount of Repayment was unknown, if there had indeed been the Repayment as alleged by D.

113.  There simply was no sufficient evidence at this stage that P had received HK$5.4m as the exact amount of the Repayment, if any, was unknown. 

114.  Ms Eu had submitted that as P was selling her Entire Rights under the Transfer Agreement, this included all her interest in the Restructuring Project and she could not claim any further payment through Neuf Capital, and if she had so paid, then she should refund the payment to D as purchaser of all her interest.

115.  As I had said in the 1^st Judgment, there was no provision in the Transfer Agreement that there had been any set off of any amount which P was to receive from the Repayment.  In any event, P denied having received any share of it.

116.  The parties had not disputed that the agreement between them was a Buying Out Transaction, and that P was selling her Entire Interest in the Restructuring Project.  The latest argument that there was an implied term in the Entire Contract that as P was selling her Entire Interest, P could not claim further payment through Neuf Capital would not be in my view fanciful, although this was never pleaded or mentioned previously.  In any event, the issue of the Entire Contract is now going to trial.

Main Point (vi) – Loss under the Mareva Order

117.  P’s case was that the Mareva Order did not and could not have caused D any loss.  If the Mareva Order was wrongly granted and discharged as a result, D’s remedy would be to enforce P’s undertaking as to damages.  The court had refused D’s application to discharge the Mareva Order, and there was no basis for D to seek any damages against P because of the Mareva Order.  In my view, any alleged loss could not be a defence to P’s claim for HK$17m.

Where leave should be subject to conditions

118.  It has been said by Godfrey J in Unic Co v Centus Development Ltd [1988] 1 HKC 643 by Godfrey J :

“15. Nevertheless, it is appropriate, in some cases, to give leave to defend only upon condition of making a payment into Court. A good example of this is the sort of case in which there is good ground for believing that the defence advanced is a sham defence, the sort of case (as it is sometimes said) in which the Master is prepared very nearly to give judgment for the plaintiff. Put another way, leave to defend, conditional on the full amount paid being paid into Court, may be ordered where there is little or no substance in the defence, or the case is almost one in which summary judgment should be ordered. And where the defence can be described as more than shadowy but less than probable conditional leave to defend may be given : see Rafidain Bank v. Agom Universal Sugar Trading Co., reported only in "The Times'' newspaper, 23rd December 1986.

16. But if there is no sign of bad faith, or anything to show that the defence raised is a sham, nor anything suspicious about the defendant's case, leave to defend should not be made conditional. Further, leave to defend should not be made conditional where on the evidence as to the financial circumstances of the defendant, it is plain, or even probable, that to give the defendant leave to defend only upon condition that he pays the whole sum into Court would be tantamount to refusing him leave to defend at all …”[53]

119.  It is also stated in paragraph 14/4/16 of the Hong Kong Civil Procedure 2014 Vol 1, referring to the cases cited therein, that a condition of payment into court ought not to be imposed where a reasonable ground of defence is set up, and similarly, it should not be made conditional where there is a fair probability of a defence; nor where the practical result of applying it would be unjustly to deprive the defendant of his defence.

120.  Paragraph 14/4/16 further states that :

“It should be noted that the discretionary powers given by r4(3) are very wide, and the terms imposed on granting conditional leave to defend may relate to the giving of security or time or mode of trial or otherwise or any combination thereof. The more usual terms are to require the defendant to bring into court within a specified time a sum representing the whole or part of the claim, and in default leave to the plaintiff to sign final judgment for such sum …”

  When granting conditional leave to defend, the court is required to consider all the circumstances, which include the financial circumstances of the defendant, and for practical purposes should not impose a condition, e.g. the payment into court of such a sum of money as would make fulfilment of the condition impossible and that impossibility was known or should have been known to the court by reason of the evidence placed before it; and therefore it would be a wrong exercise of discretion to grant the defendant leave to defend on condition that he should pay into court a sum which he would never be able to pay, for that would be tantamount to giving judgment for the plaintiff, notwithstanding the court’s opinion that there was an issue or question in dispute which ought to be tried …”

121.  Ms Eu had referred the court to the case Billion Silver Development Ltd v All Wide Investments Ltd [2000] 2 HKC 262 in which the judge below had granted the defendant conditional leave to defend, and on appeal, it was held by Mayo JA that if the judge had doubts or suspicion as to the plaintiff’s case, the correct course for him to adopt was to give unconditional leave to defend so that all matters could be ventilated at the trial. The defendant’s appeal was thus allowed and the defendant was given unconditional leave. 

122.  Ms Eu submitted that P’s own case in the present action was very suspicious as follows:

(i) P’s case was that when she inspected the books and accounts of Neuf Capital and Neuf Investment and discovered that substantial sums were diverted from Neuf Capital to Neuf Investment in February/March 2011, she decided to sell her Entire Rights, and that D had demonstrated a low standard of commercial morality.  Yet, she gave a different version, when, according to her, after the Transfer Agreement, she was willing to execute the Consultancy Agreements to further assist D in the Restructuring Project, and further she became a director to Thousand Jade on 12 April 2011.

(ii) P had signed the Resolution, and at that time D was no longer a director of Neuf Capital, and yet P’s case was simply that D should know whether money was repaid and who got the money. 

(iii) By April 2011, Neuf Capital already out of picture, and what could P get back, and what was her interest worth?  At best, she could only get back a share of the Repayment unless Thousand Jade could sign the Restructuring Agreement, and yet she was to get HK$32m, when she only paid about HK$23m.  P’s case could not have been that simple.

123.  Ms Eu also submitted that P simply denied D’s account in the D&C of the background and events leading to parties’ execution of the Confirmation Agreement, the Transfer Agreement, and the Consultancy Agreements.

124.  Although P had denied D’s allegations on the background, P did repeat in her Reply what she had pleaded in her statement of claim and had further set out more details in paragraph 4 (1) to (15) of her Reply.

125.  P’s alleged reasons to sell her Entire Rights and her subsequent agreement to sign the Consultancy Agreements would not in my view raise a doubt or suspicion over her claim based on the Transfer Agreement.  As to the alleged payment and/or receipt of HK$5.4m of the Repayment, this was a matter raised by D and the burden was on him to satisfy this court that there was at least the Repayment and the amount of the Repayment.  D himself had beneficial interests in Neuf Capital.  There was no evidence at this stage that he had ever chased for his own share of the Repayment from the directors of Neuf Capital.

126.  As for why the consideration in the Transfer Agreement was HK$32m when P had only paid about HK$23m, in fact under D’s latest case based on the Entire Contract, the consideration for the Buying-Out Transaction would not only be HK$32m, as P was also to receive 16.5m shares in the Company within one week after the expiration of the Black Out Period.  As pointed out by Mr Lam, D had never challenged P was giving up her Entire Rights under the Transfer Agreement or the consideration therein.  Mr Lam had submitted that P’s Entire Rights would include an opportunity to make some profits out of shares which would be granted to her after re-listing of the Company and whether it was a good deal or not one could not simply look at the amount paid by P.

127.  Anyway, I have come to the view that the matters raised by Ms Eu would not mean that there were shortcomings and deficiencies in P’s case as in the Billion Silver case, or that P’s case was very suspicious.

128.  It is stated in paragraph 14/4/16 that conditional leave may be granted where there is something suspicious in the defendant’s mode of presenting his case, or the court is left with a real doubt about the defendant’s good faith[54].

129.  As I have mentioned earlier, D’s case had mutated and he had gone through a number of different versions, and leave to defend was only granted on his latest version based on the Entire Contract and whether there could have been guarantees/implied terms in the Entire Contract, and his latest case had not even been pleaded in his D&C.  I am of the view that D’s mode of presenting his case is suspicious.  Although his latest case is more than shadowy, having considered the matters in paragraph 63 herein above, it is not quite probable. 

130.  I have come to the conclusion that the leave granted should be on condition, and the condition I am going to impose is payment of a sum of HK$17m plus 12 months interest, making a total of HK$21.08m, namely the amount already paid into court by D as security.

131.  Mr Lam had submitted that by reason of the claims by Help U Credit and also the liquidators of Thousand Jade, the beneficial owner of the sums paid by D was not clear, and he had submitted that if the court were to impose condition, D should pay an additional sum of HK$17m plus interest, that is in addition to the sums currently held by the court.

132.  Help U Credit had withdrawn its summons to intervene in the present action.  Although I understand that the liquidators of Thousand Jade are claiming that the sum of $17m belonged to Thousand Jade, at the moment, there has not been any  determination yet that D was/is not the beneficial owner of the sums paid into court. Having considered all the circumstances of this case, I decline to order D to pay an additional sum of HK$21.08m into court to meet the condition.

Order

133.  My Order is as follows:

(i) D shall be granted leave to defend on condition that he pays a sum of HK$21.08m into court;

(ii) The sum of HK$21.08m already paid into court as security by D shall remain as D’s payment into court to meet the above condition;

(iii) Costs be in the cause and there be certificate for two Counsel.  This is an order nisi, which shall be made final after 14 days.

134.  Lastly, I would express my gratitude to all Counsel for their helpful assistance to the court.