STELLAR GROUP CO LTD v. KUDROW FINANCE LTD AND ANOTHER

HCA 961/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 961 OF 2009

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BETWEEN

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J U D G M E N T

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1.  I think that this is an appropriate case for summary judgment.

2.  Stellar entered into a Share Sale Agreement dated 1 June 2006 with Kudrow. By this contract, subject to a condition precedent, Stellar agreed to purchase 2,935,000 ordinary shares in World Trade Systems plc from Kudrow. Completion was originally to take place on 31 July 2006. But that date was postponed to 31 July 2008 by a Supplemental Share Agreement. Otherwise, under the Share Sale Agreement, time was expressly stated to be of the essence and (save for subsequent variations agreed in writing) the contract constituted “the entire agreement and understanding between the parties in connection with [its] subject matter”. Pursuant to the terms of the Share Sale Agreement, Stellar paid the agreed consideration of £102,742.50 to Robert Lee as “escrow” agent.

3.  The condition precedent did not materialise by the Completion Date as extended by the parties. Accordingly, Stellar has treated the contract as rescinded and claims its money payment back .

4.  Kudrow resists Stellar’s application. Kudrow says that the Share Sale Agreement must be read in conjunction with a Consulting Agreement also dated 1 June 2006. By the latter agreement, Stellar appointed King Power Group (Hong Kong) Ltd. as Consultant to find and develop business opportunities. King Power and Kudrow belong to the same group of companies. Stellar paid ¥225,000,000 to King Power for its consultancy services.

5.  It is Kudrow’s case that the Share Sale and Consulting Agreements must be read together. According to Kudrow, since the time when both contracts were executed, the parties have been considering various potential business opportunities with a view towards injecting them into World Trade Systems. Kudrow, it is said, has acquired Patrick Cox (an English fashion brand) and Agatha SA (a French jewellery business) with a view towards such injection. But the parties have not been able (Kudrow claims) to reach agreement on the businesses actually to be injected into World Trade Systems. Accordingly, Kudrow submits that the parties are in a joint venture, the Share Sale Agreement is not a standalone agreement, and (even if the condition precedent has not materialised) Stellar cannot unilaterally terminate the Share Sale Agreement.

6.  But I am unable to see how reading the Share Sale Agreement in the context of the Consulting Agreement assists Kudrow.

7.  First, the Share Sale and Consulting Agreements are between different parties. Even if Kudrow and King Power belong to the same group, that is no warrant for piercing the corporate veil and reading the contracts as concerning the same parties.

8.  Second, even if the contracts are somehow to be regarded in conjunction, I do not see how the terms of the Consulting Agreement mean that I should not give effect to the clear terms of the Share Sale Agreement. The latter plainly states that, in respect of the purchase of World Trade System shares, it constitutes the parties’ entire understanding. I see nothing in the Consulting Agreement’s terms which affects or varies that entire agreement provision.

9.  Third, Kudrow vaguely hints at an estoppel. It is said that, given the purchase by Kudrow of Patrick Cox and Agatha, Stellar is estopped from unilaterally treating the Share Sale Agreement as rescinded. But why? What in any event is the representation upon which it is contended that Kudrow relied upon? By whom was such representation allegedly made and precisely when was it made? How does this so far unparticularised representation mean that the terms of the Share Sale Agreement cannot be relied upon to meet what that contract plainly states?

10.  Kudrow asserts waiver. It says that, by not suing Kudrow immediately after the expiry of the extended Completion Date, Stellar waived any right to sue for the return of its money. I do not see how the granting of an indulgence for Kudrow to fulfil the condition precedent can conceivably amount to a waiver in this case.

11.  Kudrow further contends that there is no term in the Share Sale Agreement, whether express or implied, whereby the purchase consideration is to be returned upon failure of the condition precedent. That is nonsense.

12.  The purchase monies were expressly paid to Robert Lee in “escrow”. That must mean that, if (as here) the deal falls through without fault on Stellar’s part, the monies have to be returned by Robert Lee. In other words, where the condition precedent is not met by the agreed Completion Date, Kudrow has no right to the purchase monies and must authorise Robert Lee to return the same to Stellar. I note that Stellar alleges no fault on the part of Robert Lee. Robert Lee is joined as a party to these proceedings simply to be bound by the Court’s Judgment.

13.  For the above reasons, Stellar succeeds in its claim.