YAU SHIK YIN v. MAN SHING ELECTRICAL MANUFACTORY LTD AND OTHERS

HCCW 420/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 420 of 2012

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AND

HCCW 421/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 421 of 2012

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AND

HCCW 422/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO 422 of 2012

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(HEARD TOGETHER)

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D E C I S I O N

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1.  On 19 November 2012 Yau Shik Yin issued 3 Petitions seeking orders for the winding up of Man Shing Electrical Manufactory Limited (“Man Shing”), Winbo Industries (HK) Limited (“Winbo”) and Goldrite Limited (“Goldrite”).  The Companies shareholders were:

(1) Man Shing: The Petitioner, his Mother and Father (4^th and 5^th Respondents) and his elder Brother and Sister (2^nd and 3^rd Respondents)

(2) Winbo: Brothers, Sister and Mother

(3) Goldrite: Brothers and Sister

2.  The details of the dispute are not relevant for present purposes.  On 8 August 2014 the Respondents issued summonses in all 3 Petitions seeking that they be stayed because they had been settled as part of an agreement, which extended to other disputes between the Parties, which is recorded in an agreement dated 17 January 2014 (“Agreement”). The Petitioner disputes this and contests the applications, but if I dismiss the applications the Respondents will not contest the winding-up Petitions. 

3.  The Agreement was signed at the end of a mediation conducted by Richard Leung, who is a barrister.  In addition to the disputes giving rise to the 3 Petitions the mediation also sought to resolve disputes in HCA330 of 2013.  Although the Agreement, the detailed terms of which I shall consider later, is comprehensive it envisaged, as one would expect, that the 4 proceedings be determined by a Tomlin order that included a schedule setting out the terms of settlement. This is clear from clause V.2 of the Agreement, which provides:

“V.2 First, the Parties agree to end the 2 HCCW cases i.e. HCCW 420/2012 and HCCW 422/2012 and stay HCCW 421/2012 with no order as to costs within 1 month from the date of the Tomlin Order to be filed under HCA 330/2013 to facilitate the disposal of landed properties under Goldrite and Man Shing. Upon compliance with the terms set out to be more specifically incorporated into a Tomlin Order subsequently in the HCA 330/2013 and HCCW 421/2012, Parties agree to waive herein all mutual and cross claims against each other. Any rights and obligations remaining are those set out in this Preliminary Settlement Agreement. If any one of the Parties does not perform the terms under this Preliminary Settlement Agreement as encapsulated in the Tomlin Order, others are entitled to apply to Court claiming for specific performance of the terms of this Preliminary Settlement Agreement as encapsulated in the Tomin Order against the party in default and costs should be borne by the party in default on an indemnity basis.”

4.  On 28 January 2014 the solicitors acting for the 2^nd to 4^th Respondents in HCCW 420 of 2012 sent to the Petitioner's solicitors a draft Tomlin order. The draft order was in conventional terms. It provided in paragraph 1 that all further proceedings in the action be stayed except for the purposes of carrying out the terms contained in the schedule to the order. The schedule was not complete and the following had been typed in "enclosing the preliminary settlement agreement dated 17 January 2014". The Petitioner’s solicitors replied on 6 February 2014. They had completed the schedule to the Tomlin order. The agreement contained in the schedule was very largely a copy of the Agreement.  There were some minor changes to the language.  There was only one amendment of substance this was the addition of clause III.5, which provided “The 3^rd Plaintiff agrees to transfer her name in the property located at Flat D, 1/F Westland Heights, 47 Broadcast Drive, Kowloon Tong to Shik Yin within 21 days from the date of signing this Formal Agreement”.  The Agreement recorded that this transfer was to take place.  There is no dispute about that.  The reference to 3^rd Plaintiff was to the Mother, who had a 1/3 share in the flat.  The other 2/3s were owned by the Petitioner and his Wife.  The flat was let out.  All that needed to be done was to transfer title to the flat and the clause self‑evidently was intended to provide a time within which this would take place. One might have thought that this would be uncontroversial, although a longer time period might have been suggested by the Mother.  Unfortunately, this did not prove to the case. 

5.  On 10 February 2014 the Father’s solicitors wrote raising an issue in relation to title deeds to property in the Mainland, which resulted in a brief exchange of correspondence.  This minor issue was resolved by 19 February.  By 20 February both the Petitioner’s solicitors and the Father’s solicitors were pressing for the other Parties’ agreement to the terms of the Tomlin order that the Petitioner’s solicitors had sent on 6 February.  On 24 February the Petitioner’s solicitors sent a revised draft incorporating the comments that they had received to date.  On 27 February the Father’s solicitors sent some minor amendments to the language.  The Petitioner’s solicitors incorporated them and circulated a revised draft on 3 March 2014.  The 2^nd to 4^th Respondents’ solicitors sent their comments on 7 March.  Most of these were minor, but for the deletion of clause III.5, although no reason for deleting the clause was given in their covering letter.

6.  By this time the 5^th Respondent seems to have been happy with whatever variant to the agreement the other Parties agreed.  However, the  Petitioner’s and 2^nd to 4^th Respondents’ solicitors continued to correspond with the Petitioner seeking an agreement to a time being specified and the 2^nd to 4^th Respondents initially refusing and then suggesting on 8 May 2014 that it be 21 days after the completion of the transfer of all the other properties.  One would have thought that in the absence of an agreement to a specified time period it necessarily would be implied that it would be within a reasonable time.  The 2^nd to 4^th Respondents gave no reason for suggesting this time period was reasonable.  It seems to me that it was not.  A number of the other properties were to be sold on the open market and there was no link between these different parts of the Agreement.  The 2^nd to 4^th Respondents give the impression of being difficult for the sake of it.  On 22 May 2014 the 2^nd to 4^th Respondents’ solicitors wrote proposing that the agreement to be incorporated in the Tomlin order be in exactly the same wording as the Agreement, sign the draft agreement subject to the deletion of clause III.5 or treat the Agreement as binding.  The first and third proposals seem to amount to the same thing.  It should have been obvious to the 2^nd to 4^th Respondents’ solicitors that under either of these arrangements that the Mother would have to complete the transfer of the Flat within a reasonable period.  They do not make this point or suggest what a reasonable period would be.  On 26 May the 5^th Respondent’s (Father) solicitors wrote saying their client preferred the latter proposal.  On 29 May they wrote again stating that the 5^th Respondent intended to represent himself and that nothing they had written in their previous 3 letters should be construed as binding on their client until a formal agreement was signed.

7.  On 13 June the Petitioner’s solicitors replied.  They complain about the proposal that clause III.5 be amended to provide that the Flat has to be transferred within 21 days of completion of the other transfers.  They do not point out that the 4^th Respondent’s obligation under the Agreement must be to complete within a reasonable period and suggest what that period would be.

8.  The correspondence seems to demonstrate obtuseness on the part of the 2^nd to 4^th Respondents and their solicitors and a lack of imagination on the part of the Petitioner’s solicitors.  This was a minor matter which it should have proved easy to agree.

9.  An impasse existed for the next couple of months.  On 18 August 2014 the Petitioner’s solicitors wrote explaining that their client had been approached with an offer to buy the flat and requested the 4^th Respondent’s cooperation in signing the necessary conveyancing documents.  On 20 August 2014 the 2^nd to 4^th Respondents’ solicitors wrote stating that the 4^th Respondent had always been willing for her part to effect the transfer of the Flat within a reasonable time, which was in my view inconsistent with their previous position, and said she was willing to agree to assist in completing the transfer by 18 September 2014.  However, she would only do so if she received confirmation from the Petitioner that she was only doing so because she was bound by the Agreement.  It would appear from the letter, although it is not entirely clear, that the reason for this unnecessary requirement was as follows.  By this time the 2^nd to 4^th Respondents had issued their summonses seeking orders that the Petitions be stayed because the disputes between the Parties had been settled by the Agreement.  At an earlier hearing on 24 June 2014 at which reference had been made to the binding effect of the Agreement by counsel for the 2^nd to 4^th Respondents, the Petitioner’s counsel had disputed the assertion.  It seems to me that this request was childish.  However, it did not matter.  The Petitioner could have agreed it as it would have made no difference to him.  But no, that was too simple.  He refused and so I have to determine the applications.  I must say that this hearing had been an appalling waste of time and reflects very poorly on the Parties and their solicitors.  The Court does not have unlimited resources to waste on resolving unnecessary disputes between petulant litigants.  But be that as it may I now turn to consider that substantive issues.

10.  The starting point is to consider the Agreement in detail.  As I have mentioned it resulted from a mediation at which the Parties were represented by solicitors, before a barrister who I understand drafted the Agreement.  It is headed “Preliminary Settlement Agreement”.  It identifies in the heading:

Party A: Yau Shik Yin

Party B: Yau Simon Shik Man, Yau Lai Ming

Party C: Yau Yat Min.

11.  Recital C says that the Parties have agreed in broad principle that all Family Assets (as defined in the Agreement) are to be divided between 4 Families equally.  Recital D identifies the “4 families”, which are:

(1) Yau Yat Min’s family (“Parents”) (which includes equal interest of Father and Mother)

(2) Yau Simon Shik Man’s family (“Simon”)

(3) Yau Lai Ming’s family (“Lai Ming”)

(4) Yau Shik Yin’s family (“Shik Yin”)

12.  The 4^th Respondent was part of Yau Yat Min’s (5^th Respondent and Father) Family.  This would explain why, although she was present at the mediation, and was required by the Agreement to do various things she did not sign it.  This is a point taken by the Petitioner as demonstrating that the Agreement is not binding: one of the necessary Parties did not agree to it.  I disagree.  The 2^nd and 3^rd Respondents say that they understood their Father was signing on their Mother’s behalf, and  this is what the 4^th Respondent herself says in her 2^nd affirmation, which as I have said makes sense given the way the Agreement is framed.  I would note that the 5^th Respondent, who appeared in person before me, said, indeed this was his only submission, he did not sign the Agreement on his Wife’s behalf.  This was a submission rather than evidence, but in any event I do not accept it.  Despite his position when he had solicitors the 5^th Respondent told me that he would now prefer a winding up of the Companies and it seems to me that his suggestion that he did not sign on both his own behalf and that of his Wife’s is a recent concoction, which will assist the Petitioner, who he has generally sided with in this litigation.  In any event it does not seem to me that it makes any difference.  It is clear that the 4^th Respondent has all along taken the view that she is a party to the Agreement and this is the basis upon which all Parties proceeded after it was signed.  The Petitioner’s solicitors did not, for example, write to her solicitors after the Agreement’s execution asking her to confirm her agreement to its terms.  They clearly proceeded on the basis that she had done so otherwise much of the earlier correspondence that I have referred to does not make sense.

13.  The terms of the settlement are comprehensive.  As I mentioned earlier the first draft of the Tomlin order which was produced by the 2^nd to 4^th Respondents’ solicitors envisaged incorporating it without amendment as the schedule to the order.  The Petitioner’s solicitors’ version was very largely a copy of the Agreement.  Other than clause III.5 they did not seem to think that there was anything of any substance that remained to be agreed.  The assets to be divided and how they were to be divided is dealt with in the Agreement and nothing remained to be agreed in this regard.  Insofar as the Agreement deals with timing this is specified by reference to the date of the Agreement.  In clause IV.2 it provides that the net assets of Winbo are to be divided and distributed within 2 months of the date of the Agreement.  Similarly clause V.3 provides for the vacation of lis pendis within 1 month of the signing of the Agreement and clause V.7 requires the Petitioner to notify the Police of the settlement within 14 days from the date of the Agreement.  Mr. Coleman submitted that this indicated that the Parties thought that they had a concluded agreement and that it was to be put into effect without waiting for the signing of the formal documents which would bring the proceedings to an end.

14.  Nothing that I have been told or find in the evidence suggests that there remained anything commercially material to be agreed, other than perhaps the timing of the transfer of the Flat.

15.  Clause V.9 states that “A formal settlement agreement by Tomlin order is to be finalised and executed within one month from the date hereof and the parties agreed to bear his/her own legal costs in preparing the formal settlement agreement.”  It was necessary for an order to be obtained from the Court to bring the Petitions and the High Court Action to an end.  It is unsurprising that the Agreement provided for this to be done by a Tomlin order.  This clause does not suggest that this process involved anything other than the preparation of a formal document.  It does not suggest that that the Agreement was “Preliminary” in any sense other than that it would be subsumed by or into the formal documents needed to bring the disputes and the proceedings to an end.

16.  Clause V.16 is a governing law clause.  Mr. Coleman submits that it only make sense to include such a clause if the Agreement was binding.  This is correct.

17.  Clause V.17 reads like an entire agreement clause:

“This Preliminary Settlement Agreement supersedes all prior negotiation, representation and/or discussion made by any of the Parties and contains all the key settlement terms reached by the Parties subject to the making of a formal Settlement Agreement encapsulating all the terms set out herein. Any variation must be agreed by all parties in writing.”

18.  Mr. Bell argues that this clause not only repeats what is in clause V.9 it states that the Agreement is “subject to the making of a formal Settlement Agreement …” and this language is to the same effect as the expression “subject to contract” which is commonly used in preliminary contracts, particularly those involving land, namely, that the Agreement is not binding until all the terms between the Parties are finalised and reduced into a formal contract. 

19.  The starting point in considering whether or not a binding agreement has arisen is the terms of the documents and what it reveals, assessed objectively, about the intention of the parties.  Lord Clarke explains this in paragraph 45 of his judgment on behalf of the Supreme Court in RTS Flexible Systems Ltd v Molkerei Alois Müller GmbH & Co KG [2010] 1 WLR 753:

“45. The general principles are not in doubt. Whether there is a binding contract between the parties and, if so, upon what terms depends upon what they have agreed. It depends not upon their subjective state of mind, but upon a consideration of what was communicated between them by words or conduct, and whether that leads objectively to a conclusion that they intended to create legal relations and had agreed upon all the terms which they regarded or the law requires as essential for the formation of legally binding relations. Even if certain terms of economic or other significance to the parties have not been finalised, an objective appraisal of their words and conduct may lead to the conclusion that they did not intend agreement of such terms to be a precondition to a concluded and legally binding agreement.”

20.  This is developed more fully in the decision of the New South Wales Court of Appeal in Baulham Hills Private Hospital Pty Limited v G R Securities Pty Limited & others (1986) 40 NSWLR 634:

“However, the decisive issue is always the intention of the parties which must be objectively ascertained from the terms of the document when read in the light of the surrounding circumstances: Godecke v Kirwan (1973) 129 CLR 629 at 638; Air Great Lakes Pty Ltd v K S Easter (Holdings) Pty Ltd (1985) 2 NSWLR 309 at 332-334, 337. If the terms of a document indicate that the parties intended to be bound immediately, effect must be given to that intention irrespective of the subject matter, magnitude or complexity of the transaction.

Even when a document recording the terms of the parties’ agreement specifically refers to the execution of a formal contract, the parties may be immediately bound. Upon the proper construction of the document, it may sufficiently appear that “the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms”: Sinclair, Scott & Co Ltd v Naughton (at 317).”

21.  There are various possible permutations to the purpose and effect of agreements that envisage that they will be followed by other, more formal, documents.  These are explained by the High Court of Australia in Masters v Cameron (1954) 91 CLR 353:

“Where parties who have been in negotiation reach agreement upon terms of a contractual nature and also agree that the matter of their negotiation shall be dealt with by a formal contract, the case may belong to any of three classes. It may be one in which the parties have reached finality in arranging all the terms of their bargain and intend to be immediately bound to the performance of those terms, but at the same time propose to have the terms restated in a form which will be fuller or more precise but not different in effect. Or, secondly, it may be a case in which the parties have completely agreed upon all the terms of their bargain and intend no departure from or addition to that which their agreed terms express or imply, but nevertheless have made performance of one or more of the terms conditional upon the execution of a formal document. Or, thirdly, the case may be one in which the intention of the parties is not to make a concluded bargain at all, unless and until they execute a formal contract.”

22.  McLelland J suggests in Baulkham Hills Private Hospital Pty Limited v G R Securities Pty Limited & others [1] that there may be a 4^th category:

“… The intention of the parties to be legally bound by their consensus is sufficiently clearly expressed to take the case out of the third class of cases referred to in Masters v Cameron (1954) 91 CLR 353 at 360-362, that it, “… cases in which the terms of agreement are not intended to have, and therefore do not have, any binding effect of their own” (at 361). There is in reality a fourth class of case additional to the three mentioned in Masters v Cameron, as recognised by Knox CJ, Rich J and Dixon J, in Sinclair, Scott & Co v Naughton (1929) 43 CLR 310 at 317, namely, “…one in which the parties were content to be bound immediately and exclusively by the terms which they had agreed upon whilst expecting to make a further contract in substitution for the first contract, containing, by consent, additional terms”. Their Honours refer to the speech of Lord Loreburn, in Love & Stewart v S Instone & Co (1917) 33 TLR 475 at 476, where his Lordship said that:

‘It was quite lawful to make a bargain containing certain terms which one was content with, dealing with what one regarded as essentials, and at the same time to say that one would have a formal document drawn up with the full expectation that one would by consent insert in it a number of further terms. If that were the intention of the parties, then a bargain had been made, none the less that both parties felt quite sure that the formal document could comprise more than was contained in the preliminary bargain.’ ”

23.  Mr. Coleman argued that what we have in the present case is an agreement that falls into the first of these 4 categories.  Although clause V.17 refers to amendments this does not suggest that that it is anticipated there will be any, indeed he suggests that the language tends to suggest that it was envisaged that everything had been agreed.  If the Agreement was not binding this language would have been unnecessary.  I agree.

24.  Mr. Bell accepted that each case depends on the precise terms the parties have agreed and the circumstances in which they have done so.  However, he argues that clause V.17 uses language familiar to lawyers and it is understood to mean that an agreement described, as this one is, as preliminary is not binding.  This is explained by Godfrey J, as he then was, in Yeung Siu Hong v Chan Siu Mee Sandie [2] :

“The last possibility is that the agreement was not an immediately binding agreement for sale and purchase at all but simply an agreement to agree, coupled with an agreement on the steps to be taken, and the payments to be made, preliminary to the constitution of an agreement for sale and purchase (and with additional terms providing for what was to happen if no such agreement was in fact concluded). In my judgment this is the correct analysis, as was, I think, correctly appreciated by both the vendor’s solicitors and the purchaser’s solicitors, when they each headed their initial letters about the transaction “subject to contract’. The parties had merely agreed on some of the terms of the proposed transaction, on the footing that the contract itself was to be concluded by the signing of the formal agreement for sale and purchase. It is trite law that an agreement on some of the terms of a proposed sale does not constitute an agreement for sale; just as it is trite law that an agreement to agree on a contract of sale, the terms of which are as yet unsettled, is no agreement at all. Of course, when the terms of a contact are concluded, and nothing remains but to reduce it into a formal shape, the contract may be enforced. But not so if there are other points to be determined and made the subject of a future agreement (as each side’s solicitors, in my view rightly, assumed here): Wood v Midgley (1854) 5 De GM & G 41; 43 ER 784 per Lord Justice Turner at p 46.”

25.  The meaning of clause V.17 is not, in my view, as clear as Mr. Bell argues.  If a solicitor, and the mediator was not I recognise a solicitor, wished to achieve the affect that Mr. Bell suggests I would have expected him to have inserted “subject to contract” at the top of the first page.  The implication of this would have been clear although not necessarily decisive.  Here we have a provision which looks like an entire agreement clause with a reference to the making of a formal agreement inserted in the middle.  I do not accept that it is clear from the language used that it was intended to record an understanding that the Agreement was not binding until it was encapsulated, to use the language of the clause, in a formal agreement.  In order to ascertain its meaning it is necessary to read it in the context of the rest of the Agreement.  It seems to me that the rest of the Agreement indicates that it recorded a binding agreement as to the distribution of assets owned by members of the Family.  I do not think that the language of clause V.17 is sufficiently strong to justify concluding otherwise and I am of the view that it was simply intended to record that it was envisaged that a formal agreement in the form of a Tomlin order (clause V.9) would be produced and that until that time the Agreement was binding and it could only be altered if all Parties so agreed in writing.

26.  It follows that in my opinion, and I so find, the Agreement was binding.

27.  I would briefly address one further matter that supports, in my view, that conclusion.  It is permissible for the purposes of ascertaining whether or not there was a contractual intention to enter into a binding contract to have regard to the conduct of the parties after the alleged agreement was reached[3].  As is apparent from the correspondence to which I have referred earlier in this decision the Parties initially proceeded on the basis that the Agreement contained all that needed to be agreed.  The only new term that was discussed concerned the production of certain title documents and clause III.5.  None of the parties seem to have envisaged the drafting of a new, more comprehensive or formally worded agreement.  The Petitioner notified the Police in accordance with clause V.7. Generally the Parties conducted themselves in a manner which suggests that they thought they had a “done deal” which bound them.  This supports my conclusion that clause V.17 was not intended to mean that a binding agreement had not yet come into existence. 

28.  Mr. Bell submitted that even if I were to come to the conclusion that the Agreement is binding it is incomplete and unenforceable.  The reason being that no time period is specified for the 4^th Respondent’s transfer of her interest in the Flat.  He argued that this is a critical term in any contract relating to land in Hong Kong and that its absence cannot be filled by implying a term that completion take place within a reasonable time.  This is demonstrated, he submitted, by the Court of Final Appeal’s decision Kwan Siu Man v Yaacov Ozer [4]. The reason why is explained by Bokhary PJ at 362J to 363C:

“In today’s Hong Kong the fixing of a date by when a contract for the sale of land must be completed is at least generally (if not inevitably) of at least considerable (if not vital) commercial importance. There is no practice in the ordinary course of business here of treating the date for completion as a subsequent matter simply to be left to legal advisers to settle.

So even assuming that an open contract can be made under our law, still our courts should always be slow to find that such a contract has indeed been made in any given case. The making of such a contract is not to be found just because there has been a meeting of minds as to parties, property and price. For the strong probability would be that such meeting of minds was no more than one stage in the course of on-going negotiations. This is because in Hong Kong nowadays the inherent probability is that negotiations for the sale of land would, if successfully concluded, result in a contract which includes express terms as to other important matters in addition to parties, property and price: not least of all the date for completion.”

29.  This is so in the case of the sale of land, but that is not the position in the present case.  All that was required was for the 4^th Respondent to transfer her 1/3 interest to the Petitioner and his Wife in a Flat that was tenanted as part of a broader division of Family assets.  The considerations that apply to a commercial sale and purchase of a flat between unconnected parties do not apply with equal force in the present case.  Although it was desirable that a time period for completion be agreed I do not think that it was essential.  The Parties could have proceeded on the basis that it take place within a reasonable period which would be the average period for similar transfers and no reason has been given for suggesting that this would have caused a problem. In fact if this had been recognised by the Parties in early 2014 this pointless application could have been avoided.

30.  I will make an order in favour of the Respondents on their summonses.  I will dismiss the winding-up Petitions on 20 July 2015 unless any Party suggests a more appropriate date and I will hear the parties on costs.