PUMA AG RUDOLF DASSLER SPORT v. WONG CHONG SHAN

HCCL28/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.28 OF 1998

---------------

---------------

_____________________

J U D G M E N T

_____________________

1. I have before me the Plaintiff's Order 14 application dated 11th March 1998. In this case, the Plaintiff applies for summary judgment against the Defendant arising out of the Defendant's breach of an Acquisition Agreement relating to the sale and purchase of shares in Hwa Kay Thai Holdings Limited, which I gather was a company beneficially owned by the Defendant and which company, I understand, was heavily involved in the distribution of Puma merchandise in South East Asia.

2. The precise details do not, I think, greatly matter. The Acquisition Agreement, the breach of which forms the Plaintiff's cause of action, is annexed to the first affidavit of Mr Ulrich Heyd. And I have before me, as a sum total of the evidence, two affidavits from Mr Heyd and two affidavits from Mr Laracy in support of this application.

3. The matter was first brought on before me on 22nd April 1998. On that date Mr Coleman appeared, as he does today, on behalf of the Plaintiff, and Mr Bernard Mak, instructed by Messrs Lau & Chan, appeared for the Defendant. On that date Mr Mak sought an adjournment of the application. The Defendant personally could not be reached, he said; I understand that at that time the Defendant was in Thailand, although apparently he could be communicated with through his office. In any event, said Mr Mak, the Defendant's previous solicitors had not adequately prepared or indeed prepared at all the Order 14 application, and effectively therefore Mr Mak was left holding the baby at what was a very late stage.

4. After some deliberation, and in the face of opposition from Mr Coleman, I allowed the adjournment. It seemed to me appropriate given the change of solicitors to permit the Defendant to put his case on affidavit. I thought this was particularly important since by letter dated 7th January 1998 from Hwa Kay Thai Holdings Limited to Puma, the Defendant had said as follows :

"At the outset I would like to say that when the agreement was made in May last year, I was confident I would be able to honour my obligation therein on the first day this year. Since then god knows what things have gone to the way that I never expected, nor do anybody expect in the whole of Asia. In particular, the drastic adverse development in economic condition in Thailand has affected me severely ...

I am now a broken man, I may well say 'come what may'. I am sure my other creditors is making a similar painful decision as to whether to be the first one to pull the plug. However, these thoughts give no real answer to the debts owed to you under the agreement ..."

5. The letter then goes on to discuss potential repayment plans including "the amount owed to you by HKT on the unpaid royalties and the amount claimed under the agreement".

6. Although the opportunity was afforded to Mr Wong by the Court, at Mr Mak's request, to put his case in order, that opportunity has not been taken. No affidavit in opposition to this Order 14 application has been filed by the Defendant or upon his behalf. Indeed, Mr John Kerr, who was instructed by the Defendant's new solicitors Messrs Lau & Chan, appears before me and says frankly that he is not in a position to consent to judgment, but that equally he is not in a position to advance any substantive argument on liability. Such case as he has, or as he does feel able to put forward, revolves around quantum only. Mr Kerr suggests that the case is not yet properly pleaded, and that so far as the measure of damages is concerned, the Plaintiff should give credit for the sale proceeds of the shares which Mr Wong has not bought back from Puma under the Acquisition Agreement - hence the present application. Until these matters are formally pleaded, says Mr Kerr, the Plaintiff is not entitled to a monetary judgment.

7. I do not think that the pleading point is a very good point. The case is eminently clear, and I can see no virtue in the circumstances of making this Plaintiff go to trial on a case where liability, at least, is beyond doubt.

8. That then leaves the question of quantum. The situation is that since the application was first taken out, and indeed the claim first pleaded, the shares that had been retained by Puma, and which were due to be resold to Mr Wong, have been liquidated in the market. As I understand it, the value of the shares had risen somewhat, and Puma was keen to take advantage of the amelioration of a potential loss. However, Mr Coleman's primary argument is that out of the debt that is otherwise undoubtedly due by Mr Wong to Puma, in the amount of US$4,813,307.30, his client does not have to give credit for the amount received in terms of the proceeds of sale of the shares, which proceeds, when translated into US Dollar terms at the rate of 7.752, produces the figure of US$446,685.78. Mr Coleman argues that the measure of damages should be the difference between the contract price and the market price of the shares at the contractual date for acceptance (in terms of the "Lock Up Shares") and the difference between the contractually agreed sum and the value of the shares as at the date of the termination with regard to the "Option Shares". In other words, says Mr Coleman, the movement in the value of the shares is causally unconnected to the breach of contract for which his client claims damages.

9. That is all well and good, but for present purposes, and this of course is a summary judgment application, I am not greatly interested. As far as I am concerned, Puma has received the proceeds of the sale of the shares, and although there may or may not be merit in Mr Coleman's somewhat ambitious contention, for the purposes of the current application I am going to proceed on the basis that Puma is to give credit for the monies received.

10. There is only one other fly in the quantum ointment, so to speak. In the second affidavit of Mr Laracy, which serves to bring the Court up to date with the full amount of the claim made by Puma against Mr Wong (at page 2 thereof), Mr Laracy lists therein at paragraph 8, in sub-paras (B), (C), (D) and (E), different interest calculations which, I am informed by Counsel, amount in total to US$351,865.24. Mr Coleman suggests that so far as (B) and (D) are concerned, the interest therein is not true interest, but simply reflects the enhanced cost of the shares caused by Mr Wong's late redemption thereof. He concedes, I think, that (C) and (E) are true interest sums. Mr Kerr, anxious no doubt to achieve something from the wreckage of this case, says stoutly that (B), (C), (D) and (E) are all interest sums, and that if they were to be included in such principal judgment sum as was to be awarded against his client, the Defendant herein, this would be the classic case of interest upon interest.

11. I have had a look at the Acquisition Agreement, with the assistance of Mr Coleman and Mr Kerr (in particular at pages 10-12 thereof under the heading "Mutual Covenants and Undertakings"), and I have also examined sub-paras (B) and (C) under Clause 8. The primary 'lock up' consideration is stated to be US$3,617,009.62, that is the primary consideration, and Mr Wong could have redeemed those shares by payment to Puma of that sum on or before 1st January 1998. Sub-para (C) goes on to say that :

"Mr Wong shall in addition pay Puma a sum 'equivalent to interest' at the rate of 7% on the lock up consideration, such interest to accrue from 1st April 1997 until completion of the repurchase of the lock up shares by Mr Wong on 31st December 1997 whichever is later (the interest)."

In addition, Clause 8(E)(b) reads :

"Mr Wong shall deliver to Puma AG a banker's draft drawn on a licensed bank in Hong Kong for a sum equal to the lock up consideration plus the interest up to and including the date of the lock up completion."

12. Although I do not, for present purposes, finally have to decide this interesting point, and whilst, of course, my mind remains open on the final determination thereof, I am bound to say that I find difficulty in accepting Mr Coleman's argument on the classification to be afforded to sub-paras 8(B) and (D) of Mr Laracy's affidavit, in the sense of these sums constituting not interest but an integral part of the cost price of the shares. I should be surprised if I change my mind, but there it is; sometimes this does happen. For present purposes, however, I content myself with saying that I think this aspect of the case is arguable. As indeed, in terms of being arguable, is Mr Coleman's more interesting primary contention that credit does not have to be given to the Defendant for the proceeds of the sale of the shares in question. Both those matters, it seems to me, can profitably be left for trial, if indeed trial there is; or to put it in usual Order 14 terms, these two matters constitute, in my view, triable issues.

13. Where then does this leave us? It seems to me that the appropriate order is that the Plaintiff herein, Puma AG Rudolf Dassler Sport, is to have summary judgment in the sum of US$4,014,755.76. This sum would attract interest thereon, at judgment rate from time to time pertaining, from today's date until payment.

14. So far as costs are concerned, I think there can be little argument, but I will hear Counsel in any event.

[Submissions from Counsel]

15. I have now had the opportunity to hear Counsel on the issue of costs. Mr Coleman has asked for the costs of the action to date, such costs to include the application herein. He further asks that these costs should be taxed and paid upon an indemnity basis. He seeks to support that by reference to Clause 22 of the Acquisition Agreement, wherein it is recited that Mr Wong, the Defendant herein, "shall bear all reasonable costs and expenses incurred by Puma AG in connection with or arising out of the preparation and execution of this Agreement and the giving effect to the transactions contemplated hereby including all reasonable legal fees arising therefrom.".

16. Mr Kerr accepts that the costs of the application must, in the circumstances, go to the Plaintiff, and indeed since there is not a great deal of difference between the costs attributable to the application and the costs of the action, he cannot raise a great deal of enthusiasm to argue against the costs of the action. Rather, his enthusiasm is directed against the request for indemnity costs. He suggests that this is not merited either on the basis of conduct to the action or on the basis of any contractual term.

17. On reflection, it seems to me that the proper order and approach is this :-

That the Plaintiff is to have the costs of the action to date, including the costs of and occasioned by the application herein.

As to the latter, namely the costs of and occasioned by the Order 14 application, the Plaintiff is to have these costs, to be taxed and paid on a common fund basis. Save as aforesaid, such balance of costs as remain (and there must be some) are to be taxed and paid upon the usual party and party basis. Naturally there will be no need for taxation if agreement can be reached, but in the circumstances of this case, I think that is highly unlikely.

18. That, I think, deals with all relevant matters today, save that there is one matter of detail which I have omitted in the course of this brief judgment. As will be clear, the two submissions of the Plaintiff to which I have not acceded was a submission that no credit need be given for the proceeds of sale of the shares, and also the submission that the 'interest element' in para. 8(C) and (E) of Mr Laracy's second affidavit was not interest but constituted part and parcel of the purchase price of the shares. For the avoidance of doubt, and this should be reflected on the face of the Order for which the Plaintiff has carriage, the Defendant herein is to have unconditional leave to defend this action upon those two issues.

19. Finally, it remains for me to thank both Counsel for their assistance.

[2:30 pm Court reconvenes]

20. After delivering the foregoing short extemporary judgment, and after reviewing the figures as I had dictated them, it occurred to me that I had been guilty of an omission in the sense that I did not accord to the Plaintiff the sums which accrued due in interest on the principal sums. I suspect I did this out of sheer oversight and it is, I suppose, one of the dangers of computing on the hoof, so to speak. Be as it may. It is my fault, and I will now repeat again, for the avoidance of doubt, what the monetary judgment is to be.

21. The Plaintiff is to have judgment in the principal sum of US$4,014,756.47 together with interest quantified up to the date of judgment, that is today, in the sum of US$351,865.24. Thereafter, interest at the judgment rate from time to time prevailing will accrue upon the principal sum, i.e. US$4,014,756.47, until payment.

22. That, I hope, clarifies what had been in my mind this morning, but which, upon reflection, I do not think was truly reflected in the dictated judgment. I regret bothering Counsel with matters of housekeeping, but this, I think, is a matter which properly could not have been subject to amendment under the 'slip rule'.

23. That, I think, now finally concludes the matters for decision upon this Order 14 application.