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HCA 1582/2002
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1582 OF 2002
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BETWEEN
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URBAN RENEWAL AUTHORITY |
Plaintiff |
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and
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AGRILA LIMITED |
1st Defendant |
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CHEUNG KONG (HOLDINGS) LIMITED |
2nd Defendant |
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| Before : Hon Au J in Court |
| Dates of Hearing : 8-11, 14-18, 23 January 2013 |
| Date of Judgment : 29 November 2013 |
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J U D G M E N T
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A. INTRODUCTION
1. In 1989, the Land Development Corporation (“LDC”) (together with its wholly owned subsidiary Lillington Ltd) entered into the Heads of Agreement with the 1st defendant for the development (“the Development”) of a site located at Queen’s Road Central and Jubilee Street.
2. The Development was part of an urban renewal project and is now completed and known as the Center, 99 Queen’s Road Central.
3. It is common ground that at the time of entering the Heads of Agreement, the site of the Development was owned by diverse owners. Thus, it would be necessary to apply to the Government for resumption of various property interests within the site as part of the land acquisition for the Development. The Government would have to make resumption payments to the affected owners whose properties had been so acquired. LDC would then have to reimburse the Government those resumption payments.
4. The Heads of Agreement was later in July 1997 replaced by what is known as the Restructuring Agreement.
5. The 2nd defendant, which is the parent company of the 1st defendant, is the named guarantor of the 1st defendant’s performance in these agreements.
6. This is the claim by the plaintiff (URA) against the defendants for $3,263,160.30 in resumption payments (or alternative as damages) and for a declaration that the 1st defendant is liable to reimburse and pay URA all the land cost including resumption payments.
7. URA was set up under the Urban Renewal Authority Ordinance (Cap 563) (“URAO”) and succeeded LDC in 2001. Under the URAO, every contract entered into by the LDC shall have effect and be vested in URA as if URA is substituted for the LDC and the contract, legal claims and rights may be enforced by URA.
8. That is why URA is the plaintiff in this claim.
B. THE ISSUES
9. URA says the defendants are liable for the resumption payments on the basis that:
(1) They are under contractual obligations to do so under the relevant agreements, whether by way of express or implied term;
(2) Alternatively, they are estopped by convention from denying such liability to pay for the resumption payments. The course of conducts relied on by URA to support the estoppel is that, since the Heads of Agreement until August 2000, the defendants had been paying the resumption payments whenever called upon to do so. This shows a common assumption between the parties that the defendants were under an obligation to do so.
10. The defendants however deny that they are liable. The pleaded defences raised by them are in gist:
(1) As a matter of construction, there is no contractual obligation on the 1st defendant to pay the resumption payments under the relevant agreements.
(2) Alternatively, if there is such contractual obligation, it has been discharged:
(a) By way of a settlement embodied in the Agreement and Indemnity (3) (“A&I(3)”) executed by the parties on 31 May 2000; or
(b) If the A&I(3) did not discharge that obligation, that was settled and discharged under an oral collateral agreement (“the Collateral Agreement”) entered into between Dr Lau Wah Sum (the then Chairman of LDC) and Mr Victor Li (Managing Director of the 2nd defendant) on 27 May 2000. The Collateral Agreement was to fully and finally settle all of the 1st defendant’s payment obligations under the Restructuring Agreement. The Collateral Agreement was further later amended orally (“the Amended Collateral Agreement”) through the staffs of LDC and the defendants when drafting up the A&I(3).
11. The defendants further counterclaim $60,580.70 as the sum they made in August 2000 for settling the resumption payment. They say this was made under a mistake.
12. URA obviously disagrees with all the above defences. In particular, URA denies that there was ever a meeting held between Dr Lau and Mr Li on 27 May 2000 as alleged.
13. In light of the parties’ above contentions, the principal issues that call for determination at this trial are:
(1) Whether the 1st defendant was obliged to pay the resumption payments under the Heads of Agreement and thereafter the Restructuring Agreement;
(2) If not, whether the conducts of the parties gave rise to an estoppel by convention such that the 1st defendant is precluded from denying responsibility for the resumption payments;
(3) If there was such an obligation to pay the resumption payments, whether such obligation was discharged or otherwise compromised by the A&I(3);
(4) If not, whether as a matter of fact the alleged conversation which allegedly formed the basis of a Collateral Agreement and the Amended Collateral Agreement existed;
(5) If so, whether the alleged conversation amounted to a Collateral Agreement and the Amended Collateral Agreement and has the legal effect as suggested by the defendants;
(6) If also so, whether the persons who allegedly entered into the alleged Collateral Agreement and the Amended Collateral Agreement had actual authority from the LDC to do so, and if not, whether the defendants had knowledge that the said individuals lacked such authority;
(7) Whether the sum of HK$60,580.70 paid by the 1st defendant to LDC is recoverable on the ground that this payment was made under a mistake.
14. Before dealing with each of these issues, I would first set out the relevant background facts (which are largely undisputed unless otherwise stated).
C. THE RELEVANT BACKGROUND FACTS
C1. The parties and personnel
15. LDC was established under the Land Development Corporation Ordinance (Cap 15) (“LDCO”) (now repealed) for the purpose of urban renewal and incidental matters.
16. Under s 3(2) of the LDCO, the powers and duties of LDC were to be exercised and performed by its managing board (“the Board”).
17. At the relevant time:
(1) Dr Lau Wah Sum was the Chairman of the Board.
(2) Mr Razack was the Chief Executive of the Board. He left the LDC in the middle of 2000 to take up the Real Estate Functional Constituency in LegCo in October 2000.
(3) Ms Marina Lo (“Marina”) was an executive of the LDC holding the position as the Director of the Commercial Division.
(4) Ms Ellen Tsao (“Ellen”) was the partner of the solicitors’ firm JSM (“JSM”) which acted for LDC.
18. As mentioned above, LDC was replaced by URA in 2001, which was set up under the URAO.
19. The 1st defendant was a wholly owned subsidiary of the 2nd defendant.
20. At the relevant time:
(1) Mr Victor Li (“Mr Li”) was the Managing Director of the 2nd defendant and one of the 1st defendant’s directors.
(2) Mr Emmanuel Yip (“Mr Yip”) was the Chief Manager of the Legal Department of the 2nd defendant.
(3) Ms Amy Wong (“Ms Wong”) was the Senior Manager of the Legal Department of the 2nd defendant, assisting Mr Yip.
C2. The Heads of Agreement for the Development
21. On 15 February 1989, the LDC, the defendants together with Lillington entered a Heads of Agreement for the Development.
22. Under the Heads of Agreement, it was contemplated that the parties would sell units in the Development upon its completion and that the profits would be divided on a 50:50 basis after making a guaranteed payment (in the sum of $180 million) to LDC and reimbursements to the 1st defendant[1]. The parties agree that this agreement was in the nature of a joint-venture agreement.
23. Further, at the time of entering into the Heads of Agreement, the site of the Development was owned by diverse owners, which fact was also acknowledged by the parties in the Heads of Agreement[2]. The parties thus contemplated at that time by the parties that it would be necessary to apply to the Government for resumption of various property interests within the site as part of the land acquisition exercise for the Development[3]. It was similarly envisaged that the LDC would, in due course, obtain the grant of the site and would have to reimburse the Government the resumption payments that the Government had paid to the owners of the property interests that had been resumed.
24. It is clear under the relevant provisions of the Heads of Agreement that the 1st defendant shall be the party to provide the cost of acquisition of the land, including such resumption payments:
(1) The 1st defendant would be responsible for the “Land Costs”: clause 24.01 of the Heads of Agreement.
(2) “Land Cost” was defined as the aggregate of “Acquisition Funds” and Land Premium: clause 1 of the Heads of Agreement.
(3) “Acquisition Funds” was defined to mean the funds provided or to be provided by the 1st defendant pursuant to clause 4.01 of the Heads of Agreement.
(4) Clause 4.01 provides that the 1st defendant shall provide all necessary funds (ie, “Acquisition Funds”) to meet, inter alia, acquisition costs, compensation and resumption payments.
25. Clause 43.01 of the Heads of Agreement further provided that the 2nd defendant, as the parent company of the 1st defendant, irrevocably and unconditionally guaranteed to LDC and Lillington the 1st defendant’s due and punctual performance of its obligations under the Heads of Agreement[4].
C3. The Restructuring Agreement and the Memorandum of Agreement
26. On 19 July 1997 the parties entered into the Restructuring Agreement and the Memorandum of Agreement. The Restructuring Agreement was to replace the Heads of Agreement[5], whereby the profit that the LDC was to receive was adjusted from the 50:50 basis in the Heads of Agreement to what was termed as the “Guaranteed Profit” of HK$1,947,460,000 in the Restructuring Agreement.
27. The Guaranteed Profit was subject (a) to adjustment set out in clause 1.01 of the Restructuring Agreement, and (b) also to clause 5.01 of the Restructuring Agreement:
(1) Under clause 1.01, the Guaranteed Profit would be adjusted upwards or downs depending on whether the actual future land cost was lower or higher than the $121m as estimated. I would look at this adjustment mechanism in greater detail below.
(2) Under clause 5.01, if the actual sale proceeds were to exceed the notional sale proceeds figure of $11,890,983,000 as set out in the Restructuring Agreement in the first five years of agreement, LDC was entitled to a proportionate share of that excess. The proportion that LDC was entitled to would decrease from 50% in the first year after the Restructuring Agreement to 30% in the fifth year. This was called by the parties as the “super profit” provision. I would adopt the same term in this Judgment.
28. Clause 2.04 of the Restructuring Agreement provided that the 1st defendant shall, on the signing of the Restructuring Agreement, pay to LDC the sum of HK$778,984,000, being part of the Guaranteed Profit and shall, on the “Final Payment Date” pay to LDC the balance of the Guaranteed Profit. The “Final Payment Date” was stipulated as 31 March 1999.
29. Clause 2.05 of the Restructuring Agreement provided that the 1st defendant shall pay default interest at Best Lending Rate on any part of the Guaranteed Profit remaining unpaid after the Final Payment Date.
30. The Memorandum of Agreement set out how the “Guaranteed Profit” was quantified. In gist, the “Guaranteed Profit” was 50% of the “Net Profit” figure, which was calculated as being the “Total Sale Proceeds” less the “Reimbursable Costs”. “Reimbursable Costs” was defined as including Land Costs of HK$3,251,069,360, while “Land Cost” was defined in the Restructuring Agreement to have the same meaning as in the Heads of Agreement[6]. The meaning of Land Cost in the Restructuring Agreement is therefore the same as that set out in paragraph 24 above.
31. The undisputed evidence is that prior to their entering into the Restructuring Agreement and the Memorandum of Agreement, the parties have agreed upon an estimate of Future Land Cost (in the sum of HK$121 million), which the parties agreed should be deducted from the “Total Sale Proceeds” before arriving at the “net profit” for sharing. It is also undisputed that, at the time of the Restructuring Agreement, the claim for compensation in respect of a number of properties viz. 5 Jubilee Street 3/F and Roof, 20 Hing Lung Street, 12 Tung Man Street, 16 Tung Man Street, 34 Tung Man Street, 18 Tung Man Street and 15 Gilman Bazaar, and various claims by tenants or for business loss had not been settled[7]. The Future Land Cost thus was provided to, inter alia, cater for these future potential claims.
C4. Supplemental Agreement
32. The parties thereafter entered into a supplemental agreement on 14 October 1998 (“Supplemental Agreement”) whereby the time for payment of the “Guaranteed Profit” under the 1997 Agreement was varied. The definition of “Final Payment Date” was changed. The time for payment was made contingent on when the certificate of compliance (“CC”) was issued for the Development. If the CC was issued after 31 March 2000, then the “Guaranteed Profit” would have to be paid on 30 September 2000. However, if the CC was issued on or before 31 March 2000, the time for payment would fall on 31 March 2000. Thus, under the Supplemental Agreement, the payment of the “Guaranteed Profit” was contingent upon the date of issuance of the CC. As would be seen later, this matter (ie, the date of the issuance of the CC) became a central dispute between the parties in April and May 2000.
33. Clause 2 of the Supplemental Agreement replaced clause 2.04 of the Restructuring Agreement to provide that in between the initial payment of HK$778,984,000.00 and the payment of the balance of the Guaranteed Profit on the Final Payment Date, there would be two further payments to be made on or before 31 March 1999 and 30 September 1999 respectively. If one deducts from the unadjusted Guaranteed Profit ($1,947,460,000) the initial payment and the said two payments, the balance would be a figure of $1,051,628,400 (“the Balance Sum”).
C5. Issuance of the CC and the demand for the payment of the Balance Sum
34. Upon LDC’s application to the Lands Department, the CC was issued on 31 March 2000. LDC executed a Letter of Undertaking on 30 March 2000, whereby LDC undertook, inter alia, to ensure that the outstanding works would be completed.
35. Since the CC was issued on 31 March 2000, under the Supplemental Agreement, the 1st defendant was required to pay the Balance Sum on 31 March 2000 (see paragraph 32 above).
36. As a result, on 31 March 2000, LDC immediately demanded the 1st defendant to pay the Balance Sum.
37. The defendants refused to pay. They disputed LDC’s right and entitlement to apply for the CC, which triggered the payment of the Balance Sum. They argued that under the Restructuring Agreement and the Supplemental Agreement, it was for the 1st defendant as developer to apply for the issue of the CC. They also contended that the “early” issue of the CC as triggered by LDC on the basis of an undertaking might also raise the public’s concern that the government was favouring LDC. LDC disagreed. The parties then engaged in exchanges of correspondence under this dispute between April and May 2000.
38. By a letter from LDC to the 1st defendant dated 19 May 2000, LDC reiterated that the Balance Sum had been outstanding since 31 March 2000 and reminded the 1st defendant that interest was payable thereon pursuant to clause 2.05 (wrongly stated in the letter as clause 2.06) of the Restructuring Agreement. It requested the 1st defendant to settle all the outstanding amounts by noon 26 May 2000, failing which the Managing Board of the LDC may take necessary actions against the defendants to preserve its rights.
39. In response, the 1st defendant sent two letters to LDC, one open and one without prejudice, both dated 25 May 2000. In their open letter, the 1st defendant expressed grave concern as to whether the public would cast doubt that there was collusion among the Government, LDC and the Cheung Kong group as the CC was issued “prematurely”. In their without prejudice letter, the 1st defendant offered to pay the Balance Sum on 30 June 2000 without interest.
40. These two letters were tabled for discussion at a meeting of the LDC’s Management Board (“the Board”) held on 27 May 2000.
C6. The Board meeting on 27 May 2000
41. The Board held a meeting on 27 May 2000 (“the 27 May Board Meeting”) discussing the 1st defendant’s failure to pay the Balance Sum. As mentioned above, the 1st defendant’s two letters dated 25 May 2000 were also tabled for discussion.
42. At the end of the discussion, it was resolved by the Board that:
(1) LDC would waive the two-month default interest if the 1st defendant (a) paid the balance payment by 31 May 2000, and (b) undertook to fulfil all the outstanding obligations still required to be undertaken by LDC for the issue of the CC and construct a footbridge (if required) under SC(29) of the Land Grant, failing which, LDC would issue a writ against the defendants.
(2) Dr Lau as Chairman be authorised to write a letter to the 1st defendant setting out LDC’s above position.
C7. Events after 27 May 2000
43. Following the 27 May Board Meeting, a without prejudice letter dated 29 May 2000 was sent by LDC (signed by Dr Lau as Chairman) to the 1st defendant (“LDC’s 29 May Letter”). In that letter, it was stated that the Board had considered the 1st defendant’s without prejudice letter dated 25 May 2000 and decided that LDC would waive the default interest payable by the 1st defendant subject to the conditions that:
(1) The 1st defendant shall pay the Balance Sum by delivering a cheque to LDC by 5pm on 31 May 2000; and
(2) The 1st defendant shall execute an agreement in the form of an Agreement and Indemnity (a copy of which shall be forwarded to the 1st defendant shortly), undertaking that the 1st defendant shall carry out certain works in compliance with Special Condition (27) (relating to landscaping proposal) and (29) (relating to the construction of a footbridge) of the Land Grant. The 1st defendant shall deliver the executed Agreement and Indemnity to LDC together with the cheque.
44. On the same date (ie, 29 May 2000), Marina (of LDC) faxed the draft of the Agreement and Indemnity (under the name Agreement and Indemnity (3), ie, A&I(3)) to Mr Li of the 1st defendant. This draft was passed by Mr Li to Mr Yip for consideration and follow-up. The 1st draft of the A&I(3) was prepared by Ellen (JSM) under Marina’s instructions.
45. Apparently after some telephone conversations between them, on 31 May, Mr Yip faxed to Marina a revised draft of the A&I(3) with his proposed amendments. Further drafts were faxed to Mr Yip by Ellen of JSM whereby Ellen and Marina had made various amendments to Mr Yip’s revised draft.
46. Then, in the later afternoon of 31 May 2000, a telephone conference was held between Mr Razack, Marina and Ellen on the one side and Mr Yip[8] on the other side, discussing the final version of the A&I(3). An agreement was reached as to its final version.
47. The final version of the A&I(3) was then executed by LDC and sent to the 1st defendant.
48. At around 5:00 pm on that day, the 1st defendant delivered a cheque in the sum of the Balance Sum to JSM’s office for LDC.
49. The 1st defendant executed the A&I(3), and a counterpart was sent to LDC the next day.
C8. The 1st defendant’s course of payments of the resumption payments
50. It is common ground that, since the Heads of Agreement, whenever LDC received a demand note from the Government asking for payment of a relevant resumption payment, LDC would forward that to the 1st defendant. The 1st defendant would (via the 2nd defendant) make the payment direct to the Government, and send a record of the payment to LDC. There are altogether over 200 payments made in such manner.
51. This practice of settling the resumption payments continued until 4 August 2000 when the 1st defendant settled a resumption payment to the Government of HK$60,580.70.
52. However, the 1st defendant then refused to settle further resumption payment when asked to do so by LDC, and the present dispute thus arose in 2002.
53. The plaintiff brought the present action in April 2002.
D. THE DETERMINATION OF THE ISSUES
Issue 1: Whether the 1st defendant was under a contractual obligation to pay the resumption payment
54. This issue is predominantly a question of construction of the relevant agreements.
55. The principles of construction of an agreement are well established. The following are the relevant ones advanced by the parties at trial, which are not controversial.
56. The court will in that exercise seek to find out the objective meaning of the agreement or the relevant clauses in the agreement. This is what a reasonable person would have understood the parties to mean by the use of the words in the relevant agreement. Further, in trying to ascertain this objective meaning as understood by a reasonable person, the court should have regard to the factual and legal background against which the agreement was concluded and the principal objects it was intended to achieve. The agreement should also be construed as a whole. See: Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 293F-G per Lord Hoffmann.
57. Further, the implication of a term is also an exercise in the construction of an agreement as a whole, to see what the whole agreement means. Lord Hoffmann has this to say in Attorney General of Belize v Belize Telecom [2009] 1 WLR 1998, at paragraph 21:
“It follows that in every case in which it is said that some provision ought to be implied in an instrument, the question for the court is whether such a provision would spell out in express words what the instrument, read against the relevant background, would reasonably be understood to mean.”
58. At the same time, the courts are slow to imply a term, and will be even more cautious to do so when the terms of the written contract are detailed and comprehensive. See: Codelfa Construction PTY Ltd v State Railway Authority of New South Wales (1982) 149 CLR 337 at 346 per Mason J.
59. The court will start with the words of the contract as representing the presumed objective intention of the parties. The parties have control of those words, and chose them carefully. The factual matrix is of course relevant, but will only alter the natural inference of the actual words chosen by the parties if that factual matrix demonstrates that it is necessary to do so in order to reflect the objective intention of the parties. See North Sydney Leagues Club v Synergy Protection Agency [2008] NSWSC 413 at paragraphs 16 et seq, and Lord Neuberger in Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores [2006] EWCA Civ 1732, at paragraphs 21 and 22.
60. The court should be wary about allowing its view of “commercial common sense” to justify a departure from the natural meaning, or natural inference, of the words actually chosen by the parties to represent their bargain. One of the reasons for that is that Judges are not always the most commercially experienced. See: Skanska Rashleigh Weatherfoil Ltd v Somerfield Stores [2006] EWCA Civ 1732, at paragraph 22. Therefore court will be prepared to do so when it is satisfied that:
(1) The words actually used produce a result which is so commercially nonsensical that the parties could not have intended it; and
(2) That they did intend some other commercial purpose which can be identified with confidence (see Chadwick LJ in City Alliance Ltd v Oxford Forecasting Services Ltd [2001] 1 All ER 233 (CA) at paragraph 13).
61. Bearing these principles in mind, I now look at the relevant agreements in turn.
The Heads of Agreement
62. By reason of the provisions of the Heads of Agreement set out in paragraph 24 above, it is clear to me that the 1st defendant was under a contractual obligation to pay the resumption payments. As rightly submitted by Mr Yu SC for URA, it was expressly provided in the Heads of Agreement that resumption payments formed part of the “Acquisition Funds” and all such “Acquisition Funds” were to be provided by the 1st defendant. The “Acquisition Funds” formed part of the Land Costs and thus the Land Costs included the resumption payments.
63. Mr Manzoni SC for the defendants sought to argue that, given the wording used in those relevant clauses and the common fact that as between the Government and LDC it was LDC who was legally responsible initially to pay for the resumption payments, the 1st defendant’s obligation under the Heads of Agreement was only to “fund” but not to “pay” the resumption payments.
64. In my view, this is a distinction without substance in the circumstances of the present case. The use of the wording was clearly to cater for the fact that, under the relevant provision of the LDCO, it had to be the LDC who applied to the Government to ask the Government to resume the relevant property interests at the Development site. Thus, for the same reason, formalistically, it had to be the LDC who would be liable to the Government to reimburse the resumption payments. However, it was clearly intended in the Heads of Agreement for the 1st defendant to provide all the necessary funds to acquire the land to be used for the Development, including the resumption payments.
65. In any event, whether it is to “pay” or “fund” the resumption payments, the end effect is the same: as between LDC and the 1st defendant, the 1st defendant was the one ultimately liable to shoulder the resumption payments.
66. That takes me to look at the Restructuring Agreement.
The Restructuring Agreement
67. Under the Restructuring Agreement:
(1) The 1st defendant was to pay LDC what was termed as the “Guaranteed Profit” of HK$1,947,460,000 (clauses 1.01 and 2.05). This Guaranteed Profit was subject to adjustment set out in clause 1.01 of the Restructuring Agreement and also subject to clause 5.01 of the Restructuring Agreement.
(2) It is provided that the Guaranteed Profit was as quantified in the Memorandum of Agreement (clause 1.01).
(3) The 1st defendant was the party to receive all the sale proceeds from the sale of the units of the Center (clause 3.06).
(4) The term “Land Cost” has the same meaning as defined in the Heads of Agreement. Thus, “Land Cost” in the Restructuring Agreement includes resumption payments (since it means, as provided in the Heads of Agreement, the aggregate of “Acquisition Funds” and “Land Premium”, and Acquisition Funds included resumption payments).
68. The Memorandum of Agreement (signed by the parties) provides that:
“We hereby agree that the sum of HK$1,947,460,000 referred to in the definition of ‘Guaranteed Profit’ in the [Restructuring Agreement] is quantified in accordance with the attached breakdown of cost and reimbursements.”
69. The breakdown attached to the Memorandum of Agreement shows that the Guaranteed Profit figure of $1,947,460,000 was calculated by deducting from the estimated total sale proceeds the “Reimbursable Costs” of $10,605,330,871. One of these reimbursable costs as itemized in this breakdown is “Land Costs” of $3,251,069,360. For convenience, a copy of this breakdown is reproduced at the Appendix to this Judgment.
70. Further, it is common ground with the evidence adduced at trial that:
(1) For calculating the estimated total sale proceeds, the parties adopted an agreed estimated unit price for the saleable units of the Development (see Appendix III of the Restructuring Agreement).
(2) The Land Costs as an item of the “reimbursable costs” was made up of (a) Land Cost incurred up to 1 May 1998 (being $3,130,069,359.56) and (b) future Land Cost estimated at $121,000,000 (“the Estimated Future Land Cost”).
71. In light of the above, it is clear to me that, on a proper construction, it was the intention of the parties in entering the Restructuring Agreement that it was the 1st defendant’s responsibility or obligation to pay for the resumption payments. My reasons are as follows.
72. First, the Guaranteed Profit (which was to be paid to LDC) was calculated on the basis of deducting from the notional total sale proceeds, inter alia, the Land Costs, which included the resumption payments. In the premises:
(1) The resumption payments were to be paid from and by the sale proceeds.
(2) Given that all the sale proceeds were to be received by the 1st defendant, it is only objectively commercially sensible and reasonable that it would be the 1st defendant who would make the payments for the resumption as part of the Land Costs as one of the reimbursable costs items.
(3) I further accept Mr Yu’s submissions that it is significant that the defendants do accept that the $3,251,069,360 figure attributed to land costs includes a figure of HK$121 million as the Estimated Future Land Cost[9]. This supports the intention that it was the 1st defendant to ultimately pay the resumption payments. This is so since if the LDC had an obligation under the Restructuring Agreement to pay this vis-à-vis the Government, then there would not even be a need to provide for this sum of HK$121 million from the calculation. In the defendants’ scenario, as between the LDC and the 1st defendant, there would be no future land costs and thus that figure should have been HK$0, and not HK$121 million. In other words, on the defendants’ reckoning, the parties would have deliberately included something unnecessary into the sums. This cannot be right.
73. Second, the way the Guaranteed Profit was provided to be adjusted shows also that it only makes sense objectively if it was the 1st defendant who was responsible to pay the resumption payments.
74. The definition of “Guaranteed Profit” under clause 1.01 of the Restructuring Agreement provides relevantly that the sum of $1,947,460,000 to be received by LDC as the Guaranteed Profit:
(1) Shall be adjusted downwards if the future Land Cost required to be paid exceeds the estimated sum of $121m. The adjustment is to deduct from the Guaranteed Profit figure an amount equivalent to one half of the difference between the said actual further Land Cost and the estimated sum of $121m.
(2) Shall be adjusted upwards if the further Land Cost shall be less than the estimated sum of $121m. The adjustment is to add to the Guaranteed Profit figure an amount equivalent to one half of the difference between the estimated sum of $121m and the said actual further Land Cost.
75. I agree with Mr Yu’s submissions that these contractual adjustments would not make reasonable and commercial sense if it was the 1st defendant who was to be responsible to pay for the Land Costs (which included the resumption payments). This is so because:
(1) The only way to rationalize the adjustment is to see that the parties made a provision in 1997 that there would be, inter alia, an outlay to third parties in the form of displaced owners or tenants of expenses in the form of future land costs of HK$121 million. If the provision of HK$121 million turned out to be an overprovision in that actual land cost was lower than HK$121 million, then the parties would have more to share. If HK$121 million turned out to be an under provision in that actual land cost was more than HK$121 million, then the parties would have less to share. In other words, the quantification of the “Guaranteed Profit” and the adjustment to that figure in the event of any deviation from the HK$121 million mark is premised on the underlying assumption, and does not make sense otherwise, that whichever party which was to receive the total sale proceeds would be the party responsible for the resumption payments as part of the land cost.
(2) It can also be seen in this way: assume that the actual future land cost exceeded HK$121 million by say HK$20 million. By virtue of the definition of “Guaranteed Profits” the LDC has agreed that it would reduce the amount of the profits it would receive by half of the difference between the actual land cost and the figure of HK$121 million, ie, by HK$10 million. This would make no commercial sense if the 1st defendant was the one that would receive all the sale proceeds and the LDC was the one that would have to pay the land cost, because not only would the LDC have to pay HK$20 million more, it would also have agreed to reduce its profits by HK$10 million. The LDC would be doubly out of pocket. On the other hand, the defendants would be able to pocket HK$10 million more despite the fact that the adjustment of the Guaranteed Profit was caused by an increase in expenses. Such postulation is commercially absurd. In a proper case, the court will prefer a construction which would not be commercially unsound or unreasonable[10]. In this respect, I am aware of the authorities on applying commercial common sense to imply a term as set out at paragraph 60 above. Mr Manzoni for the defendants relied on them to urge me to be slow to do so. However, it must be noted that the present case is not about applying commercial common sense to imply a term to justify a departure from the natural meaning, or natural inference, of the words actually chosen by the parties to represent their bargain. To the contrary, the reference to commercial common sense (or the lack of it) in the present analysis is to underline and aid the implication of a term from the natural meaning of the words used in the agreement.
(3) The purpose of the quantification of the “Guaranteed Profit” and the adjustment mechanism was to ensure that the parties would be sharing in the net profits from the sales of the Development (ie, total sale proceeds less reimbursable costs) in the manner as provided for in the Restructuring Agreement. Given that there was a provision for HK$121m for future land cost, as a matter of construction, or alternatively by way of an implied term, the parties’ agreement meant that the 1st defendant would have to pay the resumption payments. It is obvious as it is unworkable otherwise: If the defendants are correct in saying that the liability for resumption payments (and thus future land cost) rested on LDC, then LDC would have to double pay: the first time is in taking the Guaranteed Profit, where LDC would have already contributed to the future land cost as the Guaranteed Profit was coming out from the notional sale proceeds net of, inter alia, the Land Costs (including future land cost), the second time is when it then had to pay the future land cost again out of the Guaranteed Profit it had received. On the other hand, if the 1st defendant was responsible to pay the Land Costs, it would not have this problem, as the Land Costs would come out from the sale proceeds the 1st defendant received.
76. If necessary, in my view, the above construction is further underlined or fortified by reference to the following factual and legal background leading to the Restructuring Agreement:
(1) Under the Heads of Agreement, it was the 1st defendant who was responsible for all the land costs, including the resumption payments.
(2) The 1st defendant had factually been paying the resumption payments since the Heads of Agreement up to the time of the Restructuring Agreement.
77. Mr Manzoni raised a number of principal contentions against the above construction of the Restructuring Agreement. I would deal with them in turn.
78. Mr Manzoni first said the court should not and cannot take into account of the Memorandum of Agreement in construing the Restructuring Agreement, as that is not part of the Restructuring Agreement. This is particularly so (Mr Manzoni further submitted) as clause 9.13 of the Restructuring Agreement provided expressly that, save as the side letters relating to various matters entered into on the date of this agreement (and it is common ground that the Memorandum of Agreement is not one of these side letters), the Restructuring Agreement constituted the entire agreement among the parties, and the agreement itself negated all other statements or agreement whether orally or in writing.
79. I do not accept this contention.
80. I think the court is entitled to, and in fact should, take into account of the Memorandum of Agreement (and its attached breakdown) in construing the relevant parts of the Restructuring Agreement:
(1) First, insofar as it is necessary to construe the meaning of the Restructuring Agreement with and by reference to the meaning of Guaranteed Profit and how it was arrived at, the court should look at the Memorandum of Agreement as it has been expressly referred to in clause 1.01 of the Restructuring Agreement for that purpose[11]. To that extent, it must be the parties’ intention that, at least for that purpose, the Restructuring Agreement and the Memorandum of Agreement should be read and construed together.
(2) Second and in any event, the actual workings (which are not disputed) in arriving at the calculations set out in the breakdown attached to the Memorandum of Agreement, and the Memorandum of Agreement (together with that breakdown) itself must be properly regarded as the relevant factual and legal background to the entering of the Restructuring Agreement. As a matter law, the court is entitled to, and should, look at them in construing the Restructuring Agreement.
81. Mr Manzoni also submitted that, by way of the Restructuring Agreement, it was the intention of the parties to completely change their relationship from a joint venture partnership to one where LDC was only contractually entitled to receive a guaranteed sum. This is equivalent to a sale and purchase contract whereby LDC agreed to sell off its entire interest in the Development to the 1st defendant for an agreed sum. This is demonstrated by Recital 2, clauses 7.04, 9.01 and 9.09 of the Restructuring Agreement where they provided that all the parties’ respective rights and obligations under the Heads of Agreement shall be replaced by those in the Restructuring Agreement and that nothing contained in the Restructuring Agreement shall be deemed to constitute partnership between the parties. Further, clause 9.13 made it clear that the Restructuring Agreement constituted the entire agreement amongst the parties and superseded the Heads of Agreement.
82. On that basis, by way of the Restructuring Agreement, the parties (further contended by Mr Manzoni) intended and agreed to have a clean break in their relationship, and thus there is nothing unreasonable for them to have intended that LDC should be the one shouldering the resumption payments, in particular when it had the primary and legal liability to pay them.
83. With respect, I am also not persuaded by these submissions:
(1) My above reasons for arriving at the construction of the Restructuring that it was the 1st defendant who had the contractual obligation to be ultimately liable to pay the resumption payments are not in any material aspects based on the analysis that there was an ongoing partnership relationship between the parties under the Restructuring Agreement. Thus, Mr Manzoni’s submissions, even if correct, do not in any material ways impact on or affect those reasons.
(2) In any event, it must still be open to the court to look at the previous relationship and liability of the parties under the Heads of Agreement by way of background to construe how they intended to change, if any, those liabilities. The said clauses in the Restructuring Agreement referred to above only mean that the obligations in the Restructuring Agreement replaced those in the Heads of Agreement as a matter of entering into a new agreement. What that means is only that the parties decided to and did set out all their contractual obligations all over again in the new document. Those provisions however do not show or indicate that the parties must have intended to change every obligation as previously agreed. It is certainly not inconsistent with those provisions if the parties agreed to change some obligations, such as the receiving of the Guarantee Profits together with adjustment instead of sharing all the profits on a 50:50 basis, but not some other obligations. Thus, the above construction of the Restructuring Agreement that the 1st defendant was liable for making the resumption payments (as in the Heads of Agreement) is not in my view inconsistent with the position that the Restructuring Agreement was to completely replace the Heads of Agreement.
84. Counsel further argued that if it had been the parties’ intention that the defendants would continue to be liable for the resumption payments, then why they did not expressly say so in the Restructuring Agreement (and also the Memorandum of Agreement). This is particularly so since (contended Mr Manzoni) clause 2.01 of the Restructuring Agreement expressly provided that the 1st defendant as the developer was to proceed with the completion of the Development at its own cost. If the parties did intend the 1st defendant also to pay the “reimbursable costs”, they would have expressly provided that too. The failure to expressly provide that (contrasted with the express provision under clause 2.01) shows that the parties did not intend the 1st defendant to bear those reimbursable costs, including the Land Costs.
85. I agree with Mr Yu that this contention does not assist the defendant. It is now often said that this type of submission is unhelpful to the court in the exercise of construction. As Lord Hoffmann explained in Transfield Shipping Inc v Mercator Shipping Inc [2009] 1 AC 61 at paragraph 26, when a court is tasked with considering problems arising from either construction or implication of terms, posing the question “why not say it?” is circular because “it can be said of many disputes over interpretation, especially over implied terms, that the parties could have used express words or at any rate expressed themselves more clearly than they have done” but a Court “cannot decline this task on the ground that the parties could have spared it the trouble by using clearer language”. See also: Lewison, The Interpretation of Contracts (5th Ed), paragraph 2.13.
86. Mr Manzoni also in his closing submissions referred to the evidence of Mr Man as to the intention of the Memorandum Agreement. Mr Man was the person from the 1st defendant who prepared the Memorandum Agreement. With respect, it is trite that this evidence of the subjective intention of the person who had prepared the agreement is simply not admissible.
87. Mr Manzoni further relied on the fact that it was LDC who was responsible to calculate the Estimated Future Land Cost to show that it must have also been the parties’ intention that LDC should bear this item. That was why, counsel further said, the 1st defendant was to bear the construction cost as this was worked out by the 1st defendant’s staff.
88. I do not accept this. The above fact is equally consistent with the position that the party who was likely to have the more relevant information to work out the estimate should prepare the calculations and estimated figure. As mentioned above, LDC was the entity under the statutory provision to apply to the Government to resume properties for its redevelopment purposes. It was therefore the entity which was in a position to better estimate the future Land Cost in this respect. At the same time, the 1st defendant being a developer was obviously more equipped to accurately work out the estimated future construction cost. This has nothing to do with who was liable to pay the respective estimated item. This fact is therefore at most equivocal and would not aid the construction as suggested by the defendants.
89. Finally, Mr Manzoni submitted that the adjustment mechanism provided under clause 1.01 in relation to the Estimated Future Land Cost makes equal commercial sense if it was LDC’s obligation to bear it. This is so as the adjustment mechanism is there to adjust the price payable to that which they would have agreed had they correctly estimated the cost at the time of the Restructuring Agreement. In particular, in assessing whether a particular construction makes commercial sense, one should look at it from the perspective of both parties and the agreement as a whole. Leading Counsel sought to demonstrate this argument by way of the following model on how the adjustment provisions work:
(1) If the income is less, the 1st defendant as developer still has to pay the higher Guaranteed Profit, and yet also suffers the effect of the lower income. The developer hence suffers a “double dip” loss, but LDC is unaffected.
(2) If the construction costs are higher, the developer still incurs those higher costs, and yet still has to pay the unadjusted Guaranteed Profit. Hence the developer suffers a “double dip” loss, but LDC is unaffected.
(3) If the Land Costs are higher, LDC suffers the higher costs, and suffers the reduction of the Guaranteed Profit. LDC therefore suffers a “double dip” loss, but the developer remains unaffected, because he obtains the reduced obligation to pay the reduced Guaranteed Profit.
90. With respect, I am not convinced. The model advanced by Mr Manzoni could not in any way affect the court’s above analysis that it must be the objective intention of the parties that the Reimbursable Costs, including the Land Costs, should come out from the sale proceeds. The adjustment therefore also only makes sense if the reimbursable costs, including the Land Costs, were to come out from the sale proceeds.
91. In the premises, I am unable to accept any of Mr Manzoni’s above contentions.
Determination on issue 1
92. I conclude and hold that, on an objective and proper construction:
(1) It is an express term of the Heads of Agreement that the 1st defendant was required to pay for all resumption payments in relation to the Development,
(2) It is an implied term of the Restructuring Agreement that the 1st defendant was under a contractual obligation to make the resumption payments. This term was implied as an obvious intention of the parties on proper construction.
Issue 2: Estoppel by convention
The law
93. In Unruh v Seeberger (2007) 10 HKCFAR 31, the Court of Final Appeal considered the law relating to estoppel by convention. Ribeiro PJ considered (at paragraphs 133 and 150) that three elements must be satisfied for an estoppel by convention to be raised:
“133. As the statements of principle make clear, the parties must enter into some legal relationship on the basis of an assumption that is shared by or common to them both. The commonality of the assumption is what marks out estoppel by convention as a distinct form of estoppel.
…
150. Two further elements must be established for constituting an estoppel by convention. First, there must be an attempt by one party to depart from the common assumption which departure would be unjust because of ‘the part taken by him in occasioning its adoption by the other party’. Secondly, the other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption ‘if the opposite party were afterwards allowed to set up right against him inconsistent with the assumption’ when abandoning the common assumption.” (emphasis added)
94. Thus, the party seeking to rely on estoppel by convention has to show:
(1) The parties must enter into some legal relationship on the basis of a common assumption;
(2) It is unjust for a party to depart away from the said assumption; and
(3) The other party would suffer prejudice.
95. As to the “shared or common assumption”, it was explained by Bingham LJ in The “Captain Gregos” (No 2) [1990] 2 Lloyd’s Rep 395 at 405 that estoppel by convention “requires communication to pass across the line between the parties. It is not enough that each of the two parties act on an assumption not communicated to each other”.
96. Further, Amalgamated Investment & Property Co Ltd (in liquidation) v Texas Commerce International Bank [1982] 1 QB 84 is an authority which shows that in seeking to establish this doctrine, a party can in an appropriate case rely upon subsequent conducts to evidence a prior common assumption.
97. The Texas Bank case involves these facts. The plaintiff in that case was a property development company in England. The bank had been advancing loans (“the English Loans”) to the plaintiff. The plaintiff had a wholly owned subsidiary in Bahamas (“ANPP”). ANPP intended to develop a property in Nassau, Bahamas. The plaintiff asked the bank to make a loan of US$3.2m to ANPP for that purpose (“the Nassau Loan”). The bank agreed on the basis that the plaintiff executed a guarantee in relation to the Nassau Loan. The guarantee provided in effect that the plaintiff guaranteed to pay the bank loans owed by ANPP to the bank. Subsequent to the execution of the guarantee, the Nassau Loan was advanced in this way: first by the bank making a loan to its wholly owned subsidiary in Bahamas (Portsoken, which was set up solely for this purpose), and then by Portsoken making the loan to ANPP. This was done for exchange control reasons. Two years later, both the plaintiff and ANPP defaulted on repayments. The bank exercised it rights over the respective properties held by the plaintiff and ANPP as security to settle the English Loans and the Nassau Loan respectively. The sale proceeds from the ANPP’s properties were insufficient to repay the Nassau Loans with interest, leaving a short fall. On the other hand, the sale proceeds from the plaintiffs’ properties were more than sufficient to settle the English Loans with interest, leaving a surplus of $0.75m. On the basis of the guarantee, the bank applied this surplus to set off the sum still owed under the Nassau Loans.
98. The plaintiff later was wound up compulsorily, and the liquidators brought the action against the bank seeking to recover the said $0.75m. The liquidators claimed that the guaranteed did not cover the Nassau Loan. The liquidators argued that, since the guarantee provided expressly that the plaintiff was only to guarantee the debts owed by ANPP to the bank, the guarantee therefore did not cover the Nassau Loan, which was owed by ANPP to Portsoken but not the bank.
99. The bank however contended that, on a proper construction of the guarantee (with reference to the relevant factual matrix), the parties did intend by way of the guarantee to cover the Nassau Loan. Alternatively, the bank said by reason of the parties’ conducts subsequent to the guarantee, which were based upon the assumption that the guarantee covered the Nassau Loan, the plaintiff was now estopped to deny that the guarantee covered the Nassau Loan.
100. Robert Goff J at first instance did not accept the construction. However, he found in favour of the bank on a novel form of equitable estoppel[12]. He therefore dismissed the plaintiff’s claim. The plaintiff appealed. The court of appeal dismissed the plaintiff’s appeal, finding however in favour of the bank’s arguments both on construction and (as an alternative) estoppel by convention.
101. In relation to the ground of estoppel by convention, after stating that one cannot rely on subsequent conducts to aid the construction of an agreement, Lord Denning MR said that a party could rely on such conducts to show that there was a common assumption of the partiers on a particular interpretation (albeit mistaken) of the agreement, and it would then be unjust for a party to seek to resile from such an interpretation. The Master of Rolls said these at pp 120C – 122A:
“So here we have available to us – in point of practice if not in law – evidence of subsequent conduct to come to our aid. It is available – not so as to construe the contract – but to see how they themselves acted on it. Under the guise of estoppel we can prevent either party from going back on the interpretation they themselves gave to it.
The conduct here
The evidence is overwhelming to show that, from the very moment when the $3,250,000 was advanced to ANPP, all the parties thought that it was secured – not only by the mortgage of the Harrison Building – but also by the guarantee of the plaintiffs. In pursuance of that belief the bank embarked on a course of conduct – rearranging their portfolio of investments – releasing properties and moneys to the plaintiffs – which they would not have done except on the basis that the guarantee of the plaintiffs covered the loan to ANPP. The judge tells the story, ante, pp 95B—99D.
Now assuming that this belief was mistaken (and the judge thought it was but I do not) a question arises about the law of estoppel. The mistake by the bank was self-induced. They had overlooked the wording of the guarantee. They thought it applied to moneys owing to Portsoken as well as moneys owing to the bank. This was the bank’s own mistake. It was not induced by the plaintiffs. Nor did the plaintiffs do anything to contribute to it, or to reinforce it – except this: that they did not contradict it. They did not tell the bank that it was mistaken. But then, it is said, how could the plaintiffs be expected to contradict it, when they were under the same mistake? So runs the argument on behalf of the plaintiffs. The bank made a mistake of its own – everything it did followed from its own mistake. So it should put up with the consequences.
The judge put this telling point at p 108B-C: Suppose that the plaintiffs knew that the bank were under a mistake – and did not tell the bank – but took advantage of it for their own benefit. Could the plaintiffs then take advantage of it? Clearly not. Then what difference does it make that the plaintiffs were under the same mistake?
Course of dealing
Although subsequent conduct cannot be used for the purpose of interpreting a contract retrospectively, yet it is often convincing evidence of a course of dealing after it. There are many cases to show that a course of dealing may give rise to legal obligations. It may be used to complete a contract which would otherwise be incomplete; see Brogden v Metropolitan Railway Co. (1877) 2 App Cas 666, 682, per Lord Hatherley. It may be used so as to introduce terms and conditions into a contract which would not otherwise be there (J. Spurling Ltd. v Bradshaw [1956] 1 WLR 461); Hardwick Game Farm v Suffolk Agricultural Poultry Producers Association [1966] 1 WLR 287, 308, 316, 317, CA; and [1969] 2 AC 31, 90. per Lord Morris of Borth-y-Gest; p 104, per Lord Guest, and p 113, per Lord Pearce, all disapproving the dictum of Lord Devlin in McCutcheon v David Macbrayne Ltd. [1964] 1 W.L.R. 125, 134, and Hollier v Rambler Motors (AMC) Ltd. [1972] 2 QB 71, 77-78. per Salmon L.J. If it can be used to introduce terms which were not already there, it must also be available to add to, or vary, terms which are there already, or to interpret them. If parties to a contract, by their course of dealing, put a particular interpretation on the terms of it – on the faith of which each of them – to the knowledge of the other – acts and conducts their mutual affairs – they are bound by that interpretation just as much as if they had written it down as being a variation of the contract. There is no need to inquire whether their particular interpretation is correct or not – or whether they were mistaken or not – or whether they had in mind the original terms or not. Suffice it that they have, by the course of dealing, put their own interpretation on their contract, and cannot be allowed to go back on it.
To use the phrase of Latham CJ and Dixon J in the Australian High Court in Grundt v Great Boulder Proprietary Gold Mines Ltd. (1937) 59 CLR 641, 657, 677, the parties by their course of dealing adopted a ‘conventional basis’ for the governance of the relations between them, and are bound by it. I care not whether this is put as an agreed variation of the contract or as a species of estoppel. They are bound by the ‘conventional basis’ on which they conducted their affairs. The reason is because it would be altogether unjust to allow either party to insist on the strict interpretation of the original terms of contract – when it would be inequitable to do so, having regard to dealings which have taken place between the parties. That is the principle upon which we acted in Crabb v Arun District Council [1976] Ch 179, 187. It is particularly appropriate here – where the judges differ as to what is the correct interpretation of the terms of the guarantee. The trial judge interpreted it one way. We interpret it in another way. It is only fair and just that the difference should be solved by the course of dealing – by the interpretation which the parties themselves put upon it – and on which they conducted their affairs for years.
So I come to this conclusion: When the parties to a contract are both under a common mistake as to the meaning or effect of it – and thereafter embark on a course of dealing on the footing of that mistake – thereby replacing the original terms of the contract by a conventional basis on which they both conduct their affairs, then the original contract is replaced by the conventional basis. The parties are bound by the conventional basis. Either party can sue or be sued upon it just as if it had been expressly agreed between them.” (emphasis added)
102. See also Brandon LJ at 131B-C:
“Applying that description of estoppel by convention to the present case, the situation as I see it is this. First, the relevant transactions entered into by the plaintiffs and the bank were the making of new arrangements with regard to the overall security held by the bank in relation to both the U.K. and Nassau loans. Secondly, for the purposes of those transactions, both the bank and the plaintiffs assumed the truth of a certain state of affairs, namely that the guarantee given in relation to the Nassau loan effectively bound the plaintiffs to discharge any indebtedness of A.N.P.P. to Portsoken. The transactions took place on the basis of the assumption, and their course was influenced by it in the sense that, if the assumption had not been made, the course of the transactions would without doubt have been different.”
103. As commented by learned author in Handley,Estoppel by Conduct and Election, at paragraph 8-006, the significance of the Texas Bank case lies in the fact that it is a recognition that a “post‑contractual convention could support an estoppel which trumped the text”.
104. Moreover, for the purpose of this estoppel, injustice can be established by showing that the parties have acted upon the assumption, and that one party then seeks to resile from the position. As explained by the learned editors in Wilken & Ghaly, The Law of Waiver, Variation and Estoppel (3rd ed) at paragraph 10.12[13]:
“…provided that the party seeking to establish the estoppel has so acted, detriment will be suffered by the mere fact that there has been a change from the presumed position. This is because there is an element of injustice inherent within the concept of the shared assumption – one party has acted unjustly in allowing the belief or expectation to “cross the line” and arise in the other’s mind. Therefore, the detriment suffered by the withdrawing from the shared assumption will suffice to establish the estoppel….”(footnotes omitted)
The present case
105. Under this issue, URA contends that, if on a proper construction of the Restructuring Agreement the 1st defendant was not obliged to pay the resumption payments, then by reason of estoppel by convention, the defendants are now estopped from denying that the 1st defendant was so liable to pay.
106. Mr Yu’s arguments for URA run as follows:
(1) Since entering the Restructuring Agreement in July 1997 and until August 2000, the parties continued to conduct themselves in such a way that the 1st defendant was under an obligation to continue to fund and settle the resumption payments. These conducts are evidenced by the fact that LDC had continued to forward the government demands for such payments to the 1st defendant, and the 1st defendant continued to settle the same by way of the 2nd defendant’s cheques (see paragraphs 50-51 above).
(2) This shows that the parties were under a common assumption that it was the 1st defendant who was under an obligation to settle those payments.
(3) In particular, the unchallenged evidence shows that the parties’ common understanding started even before the date of the Restructuring Agreement. The Reimbursable Costs Schedule was already worked upon by the parties in June 1997. The common assumption in that exercise was a provision of $121 million for future land cost in the exercise of arriving at the Guaranteed Profit.
(4) In the premises, the 1st defendant is now estopped from denying such obligation, as it would be unjust for the 1st defendant to resile from this assumption.
107. Mr Manzoni for the defendants contended that no estoppel by convention can be established on the facts of the present on the principal basis that:
(1) URA cannot rely on the said payment conducts prior to the Restructuring Agreement since that was carried out pursuant to the legal obligation under the Heads of Agreement. There was thus no question of common assumption arising from that.
(2) The payment conducts subsequent to the Restructuring Agreement could not support the doctrine since there was no legal relationship entered into by the parties relying on this course of conduct. In relation to this, it is also not open to URA to contend alternatively that the A&I(3) was entered into by reason of this conduct, since at the very least, it was LDC’s own position the A&I(3) had nothing to do with resumption payments.
108. With respect, I am unable to accept Mr Manzoni’s submissions for the following reasons.
109. Although I accept that URA cannot rely on the payment conducts prior to the Restructuring Agreement, I do not agree that the subsequent payment conducts do not support the finding of a common assumption in entering the Restructuring Agreement. Applying the Texas Bank case, I am satisfied that, given the unchallenged fact that the 1st defendant had been paying the resumption payment after the Restructuring Agreement in 1997 until August 2000, URA has shown that when they were to enter into the Restructuring Agreement, the parties were already under an assumption as to its interpretation and effect that the 1st defendant had a contractual obligation to pay the Land Costs, including the resumption payment. That assumption was clearly shared by the 1st defendant. This is demonstrated by the subsequent fact that, when LDC communicated the same to the 1st defendant by continuing to forward the resumption payment demand notes to the 1st defendant for settlement, the 1st defendant, with knowledge of that assumption, had furthered that assumption and acted upon it by paying those payments and sending records of such payments back to LDC.
110. I am fully conscious that whether any subsequent conduct could be relied on to support a prior common assumption to establish estoppel by convention must depend on the circumstances of each case, and there must be clear evidence to that effect. In the present case, I find the significantly prolonged conduct (which lasted for almost three years) of the 1st defendant’s settlement of the resumption payments whenever it received the demand note from LDC sufficiently clear evidence to support the finding of such a prior common assumption.
111. In the premises, I accept that the first element in Seeberger is satisfied.
112. As to the second and third elements, I also accept that they are met because:
(1) The parties had been conducting and acting on that assumption since July 1997 until August 2000, when the 1st defendant sought to resile from that assumption;
(2) In the circumstances, it is unjust for the 1st defendant to resile from that position;
(3) There is also no doubt that LDC would suffer prejudice from the 1st defendant’s departure from the assumption, as it would now be required to shoulder the resumption payments.
Determination on issue 2
113. For the above reasons, I hold that all the three elements of estoppel by convention as set out in Seeberger are met in the present case. The 1st defendant is estopped by convention to deny that it was under an obligation to settle the resumption payments.
Issue 3: On a proper construction, whether the A&I(3) discharges the defendants from paying the resumption payments
114. The term in the A&I(3) which is relevant to this issue is clause 1, which provides as follows:
“We refer to the [Restructuring Agreement], the Agreement and Indemnity dated 2nd July 1998 relating to tenancies, the Supplemental Agreement dated 14 October 1998, and the Agreement and Indemnity (2) (collectively ‘the Agreement’) with respect to the Property. This Agreement and Indemnity is supplemental to the Agreement. Expressions defined in the Agreement shall have the same meaning when used herein.
This Agreement and Indemnity records the following:-
I. In consideration of the [LDC] agreeing to waive all interest accrued on the outstanding balance of the Guaranteed Profit in the sum of HK$1,051,628,400 and in full and final settlement of the obligations and liabilities of [the 1st defendant] under (i) Clauses 2.02, 2.04 and 2.05 of the [Restructuring Agreement] and (ii) the aforesaid Agreement and Indemnity (2), we, [the 1st defendant] (‘the Developer’) hereby undertake as follows:-
(a) The Developer shall, at the direction of the [LDC] and at the Developer’s costs and expenses, diligently complete and/or discharge and caused to be completed and/or discharged the following obligations:-
(i) to carry out the works as set out in the letter dated 16th March 2000 from the District Lands Office to Belt Collins Hong Kong in respect of Special Condition (27) of the Conditions of Exchange No. 12379 (as varied and modified) relating to the Property (hereinafter referred to as ‘the Conditions’ and
(ii) to construct the Footbridge if required under Special Condition (29) of the Conditions in accordance with the terms and conditions of the Conditions and to the satisfaction of the Director of Lands
(such obligations under (a) (i) and (ii) above are hereinafter referred to as ‘the Outstanding Works and Obligations’).
(b) The Developer shall reimburse the [LDC] for all costs and expenses required to complete and/or discharge the Outstanding Works and Obligations should the Developer fail to comply with Clause I(a) above and shall keep the [LDC] fully indemnified (on a full indemnity basis) against all liabilities, losses, actions, proceedings, suits, cost, damages, expenses, claims and demands whatsoever which the [LDC] may sustain, suffer or incur as a result of any breach by the Developer of its obligations undertaken hereunder or relating to or in connection with the carrying out of the Outstanding Works and Obligations.” (emphasis added)
115. As a starting point, on a plain reading of this clause of the A&I(3), the agreement to settle was only in relation to two matters: (a) the 1st defendant’s liabilities and obligations under the three specific clauses of 2.02, 2.04 and 2.05 of the Restructuring Agreement, and (b) the 1st defendant’s liabilities and obligations under the Agreement and Indemnity (2) (“A&I(2)”). See the italicised words quoted above.
116. The obligations and liabilities under A&I(2) are totally irrelevant to the payment of resumption payments, so for the present purpose, we could put this aside.
117. Insofar as the obligations and liabilities under clauses 2.02, 2.04 and 2.05 are concerned, they are clearly not related to the payment of resumption payments.
118. Clause 2.02 of the Restructuring Agreement provides as follows:
“The Developer shall cause the Development to be completed in a manner which is not less than the standards as set out in the Finishing Schedule of the Development and in accordance with the Building Contract.”
119. This relates to the 1st defendant’s obligation to ensure the Development to be completed up to certain standards and has nothing to do with payment of resumption payments.
120. Clause 2.04 provides as follows:
“The Developer shall on the signing hereof pay to the Corporation the sum of HK$778,984,000.00 being part of the Guaranteed Profit and shall on the Final Payment Date pay to the Corporation the balance of the Guaranteed Profit.”
121. This relates to the 1st defendant’s obligation to pay the Guaranteed Profit in two stages. On the face of this, it has nothing to do with the payment of resumption payments.
122. The 1st defendant however sought to argue that the payment of Guaranteed Profit involved impliedly an obligation to pay the resumption payments, and thus the settlement of this obligation also means it was not required to make any more resumption payments once the Balance Sum was paid.
123. This argument is, with respect, without merit. As I have explained above, the Guaranteed Profit was calculated on the basis of sale proceeds net of Reimbursable Costs, which included the resumption payments. In the premises, as a matter of construction and logic, I cannot see how it could be said that the payment of the Guaranteed Profit per se included the obligation to pay the resumption payments. Further, as I have held above on the construction of the Restructuring Agreement, the obligation to pay the resumption payment (as part of the Land Cost) was the 1st defendant’s, which is distinct from the obligation to pay the Guaranteed Profit. Clause 2.04 relates only to the latter and thus has nothing to do with the obligation to pay the resumption payments.
124. I therefore also find that the settlement of the 1st defendant’s obligation under clause 2.04 does not settle its obligation to pay the resumption payments.
125. Clause 2.05 provides as follows:
“The Developer shall pay interest at Best Lending Rate on any part of the Guaranteed Profit remaining unpaid after the Final Payment Date.”
126. It relates to the 1st defendant’s obligation to pay default interest in failing to settle the Guaranteed Profit. It is also unrelated to resumption payments.
127. Therefore, on the plain reading of this relevant part of clause 1, the settlement embodied in the A&I(3) is not concerned with the payment of resumption payments.
128. Save as to the 1st defendant’s case that there was a meeting between Mr Li and Dr Lau on 27 May 2000 relating to the negotiation of settlement (which I will deal with later), this construction is also consistent with the background concerning the dispute leading to the settlement embodied in the A&I(3). The background is that the only dispute between the parties at the relevant time before this settlement was whether it was correct for LDC to apply for the issue of the CC to trigger the payment of the Balance Sum on 31 March 2000, and whether the 1st defendant should pay any default interest. The dispute had nothing to do with resumption payments. That this is the only dispute at that time is also clearly evidenced by the following objective and contemporaneous documentary records:
(1) In all the correspondences exchanged between the parties between April and May 2000 before the A&I(3), they did not mention at all about resumption payments.
(2) The transcript of the Board’s discussion at the 27 May 2000 Meeting shows that the discussions at the meeting related only to the dispute on the 1st defendant’s refusal to pay the Balance Sum and as to whether to waive the interest (and if so, to what extent) if the 1st defendant was to pay[14]. Again there was no mentioning of resumption payments at all.
(3) The minutes of the 27 May 2000, which recorded the following resolutions of the Board at paragraph 5.6 again has nothing to do with resumption payments:
“5.6 The Board, after lengthy deliberation, decided that the Chairman should write to [the 1st defendant] on the Board’s behalf, demanding payment of the balance of the Guaranteed Profit by 31 May 2000 (thereby foregoing two months’ interest) and that they, at their expense, fulfil all the outstanding obligations still required to be undertaken by LDC when the Certificate of Compliance was approved and construct a footbridge (if required) under Special Condition (29) of the Land Grant failing which a writ would be issued against [the 1st defendant] and [the 2nd defendant].”
129. Further, even the evidence of the witnesses on both side are not controversial on this:
(1) Dr Lau confirmed to the court that the issue at that time between the parties was the date of payment by the defendants of the balance of the guaranteed profit and at that time there were no other problems between the parties[15];
(2) Mr Razack (giving evidence for the defendants) also confirmed that in the context of the dispute at that time, the issue of resumption payments had not even been mentioned[16].
(3) Mr Li under cross-examination agreed that the parties had not been in a dispute over the resumption payments at the material time[17].
Determination on Issue 3
130. For these reasons, I am of the clear view that, on a proper construction of the A&I(3), it was not part of the settlement between the parties as embodied in it to also settle the 1st defendant’s obligation to pay the resumption payments.
Issues 4, 5 and 6: The Collateral Agreement
131. This leaves me to consider the defence raised by the defendants that by way of the Collateral Agreement reached on 27 May 2000, the parties agreed to settle all the 1st defendant’s payment obligations under the Restructuring Agreement. Thus, the settlement included the payment of resumption payments as part of the 1st defendant’s payment obligations under the Restructuring Agreement.
132. The defendants’ case[18] on the Collateral Agreement is in substance that, on 27 May 2000, Mr Li at his office met with Dr Lau and Mr Razack to discuss a settlement between the defendants and LDC. At the end of the meeting, Mr Li agreed to pay the Balance Sum on the basis (as words uttered by Mr Li) of “無拖無欠,沒再有其他錢銀往來” [“no delaying, no owing. No more money relationship”]. This basis was agreed to by Dr Lau.
133. Further, the defendants say the Collateral Agreement was subsequently amended orally by Mr Yip and Marina during the negotiations of the draft A&I(3). The said amended Collateral Agreement (ie, the Amended Collateral Agreement) varied the Collateral Agreement to the extent that to carve out the following obligations from the settlement:
(1) The 1st defendant’s potential obligation to pay super profit to LDC under clause 5 of the Restructuring Agreement (“the super profit payment obligation”); and
(2) The 1st defendant potential obligation (under the Agreement and Indemnity dated 2 July 1998 (“A&I(1)”) to make further payments to LDC in relation to various leasing or licensing of the units of the Development by LDC (as from time to time directed by the 1st defendant) (“the tenancies payment obligations”).
134. LDC denies that there was the Collateral Agreement. In fact, Dr Lau denies that there was a meeting between him and Mr Li on 27 May 2000 as alleged or at all. Naturally, LDC also denies that there was the Amended Collateral Agreement.
135. Alternatively, even if there were such a meeting, URA contends that:
(1) On a proper construction by reference to the relevant factual matrix, the parties to the Collateral Agreement did not intend to settle all the 1st defendant’s payment obligations under the Restructuring Agreement; or
(2) If the Collateral Agreement did so cover all the 1st defendant’s payment obligations under the Restructuring Agreement, it is not binding on LDC as neither Dr Lau nor Mr Razack had the actual authority to enter into it, and Mr Li knew about the lack of authority.
136. Given the position of the parties, this defence therefore raises three issues:
(1) Whether there was in fact the meeting on 27 May 2000, and that an agreement was reached on the basis of “無拖無欠,沒再有其他錢銀往來”.
(2) Even so, whether on a proper construction, the said agreement settled all the 1st defendant’s payment obligations (and thus including the resumption payment obligation) under the Restructuring Agreement.
(3) Even if so, whether Dr Lau had actual authority to enter into the said agreement on behalf of LDC[19].
137. These effectively are issues 4, 5 and 6 listed above.
138. These issues are principally questions of fact, and turn on essentially the reliability of the witnesses’ evidence. I would look at them below.
The defendants’ witnesses and their evidence in gist
139. The defendants’ relevant witnesses are:
(1) Mr Victor Li;
(2) Mr Razack;
(3) Mr Emmanuel Yip; and
(4) Ms Amy Wong.
140. The main witness is of course Mr Li, who is the person purportedly to have entered into the Collateral Agreement with Dr Lau for LDC.
141. Mr Li’s evidence in support of this case is in summary as follows:
(1) On 27 May 2000 in the morning at around 9am, he had a charity event to attend at the Harbour Plaza Hotel in Hung Hom. In the charity event, he cooked breakfast with the singer and actor Mr Leon Lai. As it was not usual to cook breakfast with a movie star, that was why he could remember the incident very well even by now.
(2) It was probably after the charity event that Mr Razack called his mobile phone and said that he and Dr Lau would like to come and see him (Mr Li) at his office. He agreed.
(3) When Dr Lau and Mr Razack came to see him, he first asked them whether they had authority to agree and negotiate all the terms with him on this matter. It was his usual practice to do so. Dr Lau confirmed that they had by saying “yes”.
(4) They then discussed the matter, and eventually, he agreed to pay the Balance Sum “immediately” on the basis of “無拖無欠,沒再有其他錢銀往來”. Dr Lau agreed and acknowledged that by shaking hand with him. He could usually remember important “hand‑shaking” incidents.
(5) There was no mentioning of the payment date at the meeting, although he agreed to pay “immediately”.
(6) After the meeting, he told Mr Yip and Ms Wong that he had agreed to settle and pay the Balance Sum “immediately”. He asked them to follow up the matter and prepare the necessary documentations.
142. Mr Razack’s evidence is as follows:
(1) After the 27 May Board Meeting, it was his idea that he and Dr Lau should go to see Mr Li.
(2) The aim of the meeting was only to make a “courtesy” visit in “the good spirit of cooperation” to inform Mr Li what the Board had resolved before the demand letter was prepared and sent out on the following Monday (29 May).
(3) It was he who called Mr Li to arrange the meeting. He told Mr Li that the Board just had a meeting, and they wanted to see him. However, he did not tell Mr Li what the Board had decided, since it was for the Chairman (ie, Dr Lau) to tell Mr Li that.
(4) He agreed that the aim of the meeting was only to present to Mr Li face to face the “ultimatum” as resolved by the Board, but not to negotiate for any other terms of settlement. He agreed that both he and Dr Lau had no authority to change what the Board had decided at the meeting.
(5) The meeting was held at Mr Li’s office before lunch on that day.
(6) When met at the office, Mr Li asked whether Dr Lau had authority, and Dr Lau said he represented the Board. Then they put forward the Board’s proposal to Mr Li. Mr Li was not happy, and not in his best mood. Mr Li said he agreed and then shook hand with Dr Lau saying “無拖無欠”. They agreed the payment date to be 31 May.
(7) He confirmed that at the meeting, there was no mentioning about the payments of super profit or resumption payments. They only talked about the payment of the Balance Sum on 31 May and the building of the footbridge and nothing else:
“Q. There was no discussion, therefore, from what you said about super profits during this discussion, right? No discussion.
A. To the extent never need to -- as executive at that level we don’t discuss details and the details actually is all -- will only be found in the documents subsequently to be worked out by my staff and Cheung Kong staff.
Q. Right.
A. And somehow I will see copies of those things that transpired.
Q. And likewise there was no discussion or even mention of the question of resumption of payments of future land costs, correct?
A. Never had that actually came out. If it came out it’s an internal LDC problem. My staff probably, probably, had missed out on that particular aspect because if we arrived at 1.05 we would have taken into consideration of everything and if there is any outstanding we should have drawn the attention that this is not the final 1.05, this is my understanding.
Q. I am simply asking you as regards your recollection of this meeting that there was nothing...
A. Yes, and I answered that already.
Q. Right.
A. No discussion...
Q. No discussion whatsoever.
A. ...on any other details apart from that.
Q. Apart from the balance of the guaranteed profit...
A. Apart from the 31st payment, 31 May payment, and the bridge.
Q. Yes, and the bridge, okay.
A. On our part and he agreed and he agreed that this will be full and final settlement, 冇拖冇欠.
Q. Yes.
A. It’s in...
Q. So in your understanding, 冇拖冇欠 is only talking about this payment of 1 billion-something.
A. 1.05.
Q. 1.05, yes.
A. And this is the full and final payment.”
(8) When he returned to office, he instructed LDC’s staff to prepare documentations in accordance with the agreement reached at the meeting. He could not remember whether he had told Marina directly, but he had told some staff about it. He believed that Marina should also know about the result of the meeting. He believed JSM should also know about that.
(9) He confirmed that LDC’s 29 May Letter in fact reflected and was consistent with what was agreed at the meeting on 27 May.
(10) When he attended JSM’s office on 31 May 2000 for the telephone conference to finalize the A&I(3), he did not mention about the meeting they had with Mr Li on 27 May 2000.
143. Mr Yip’s evidence is that:
(1) His office was nearby Mr Li’s office. On or around 27 May 2000[20], he saw Dr Lau and Mr Razack entering into Mr Li’s room for a meeting.
(2) After the meeting, Mr Li told him in the presence of Ms Amy Wong that he had a meeting with Dr Lau and Mr Razack. Mr Li further said LDC agreed to accept the payment of the Balance Sum without further charging interest and the 1st defendant had no further liability to make any more payments to LDC on the 1st defendant’s undertaking to carry out certain outstanding positive obligations under the Land Grant. Mr Li repeated that he told Dr Lau that, after this settlement, the relationship between the parties would be “冇拖冇欠” and that both of them had shaken hands as an acknowledgment of reaching this settlement.
(3) Mr Li told him that to follow the matter quickly, and asked him and Ms Wong to prepare the necessary settlement documentation based on this agreement.
(4) When he received the draft A&I(3) from LDC on 29 May 2000, he was surprised to see that the payment date of the Balance Sum was 31 May. He therefore had to seek instructions from Mr Li.
(5) It was on 31 May that he amended the draft A&I(3) and sent the same back to LDC. He was assisted by Ms Amy Wong. They inserted in the draft that the payment of the Balance Sum was “in full and final settlement and as a mutual discharge of all the obligations and liabilities amongst Lillington, [LDC], [the 1st and 2nd defendants]” (“the Full and Final Settlement Wordings”) to reflect the instructions from Mr Li as the agreement he had reached with Dr Lau on 27 May.
(6) Thereafter, he had a few telephone conversations with Marina. She raised the concerned that there were still potential ongoing payment obligations on the defendants. They are the super profit payment provisions under clause 5 in the Restructuring Agreement and the tenancy payments under the A&I(1). She said as the Board had not resolved to also settle these payment obligations, it would be difficult to obtain such approval from the Board to also waive these rights.
(7) He finally agreed to carve out these obligations from the Full and Final Settlement Wordings. This was the Amended Collateral Agreement. He so agreed as he thought that the possibility for the super profit liability to arise was remote as the property market was down at that time, and in any event he regarded this as a “happy problem” for all parties concerned. He also told Ms Wong his thinking.
(8) In the afternoon of 31 May, he had a telephone conference with Marina, Ellen, Mr Razack and Mr K N Chan (Deputy Chief Executive of LDC) to finalize the terms of the A&I(3). Ms Wong was present in his office during the telephone conference. He looked at the final wordings provided by LDC. He then muted the speaker of the phone and discussed it with Ms Wong. They agreed that the those final provisions “reflected the Amended Collateral Agreement” as they specified that the payment of Balance Sum would fully and finally settle the 1st defendant’s obligations of the Guaranteed Profit (which by definition included Land Costs and therefore resumption payments) save for the possible tenancy and super profit payments. They therefore agreed to those final wordings.
(9) He agreed that there was no mentioning of the meeting on 27 May 2000 on that day.
144. Ms Wong’s evidence is generally in line with that of Mr Yip. She also said she remembered that Mr Li had not specified a date of payment when he told them that a settlement was reached between him and Dr Lau. He only said that the 1st defendant would pay the sum immediately.
LDC’s witnesses and evidence
145. LDC has called the following witnesses to give evidence in relation to these issues:
(1) Dr Lau.
(2) Marina.
(3) Ellen.
146. The relevant evidence given by Dr Lau in relation to whether he had a meeting with Mr Li on 27 May 2000 and reached an agreement thereat is as follows:
(1) He only recalled having a meeting with Mr Li on 7 April 2000. At that meeting, it was a discussion on the dispute of LDC applying to the Lands Department for the issue of the CC.
(2) There were no more meetings with Mr Li since then.
(3) He recalled that after the 27 May Board Meeting, he asked Ms Angelina Lee (who was a partner of Woo, Kwan Lee and Lo, and was acquainted with Mr Li) to talk to Mr Li to request the defendants to pay the balance without delay.
(4) He then noted on his diary to remind him to call Angelina on 29 May 2000 (Monday) for the result. He cannot remember clearly whether he had called her on that day, or if so, whether Angelina told him that she had not yet spoken to Mr Li.
(5) However, he could remember that Angelina called him in the morning of 30 or 31 May. She told him that she had succeeded in persuading Mr Li to pay LDC.
(6) Thereafter, the first time he came to know that Mr Li was willing to pay was when Mr Li called him after lunch on 31 May, when he was in his car. Mr Li was talking in an unfriendly manner, insisting that LDC was in the wrong. He remembered that the last phrase Mr Li used was “brother Wah Sum, now I give you face, I give you face, I will pay”.
(7) He categorically denied that he had a meeting with Mr Li together with Mr Razack on 27 May 2000 after the Board meeting. There was therefore never any agreement reached with Mr Li on the basis of “無拖無欠,沒再有其他錢銀往來”. He even said that if Mr Razack said that there was such a meeting, he was making it up.
(8) He also said that he had never agreed with Mr Li for the settlement of resumption payments.
147. Marina’s evidence is as follows:
(1) On 10 April, she had a telephone conversation with Mr Li about the dispute on the issue of the CC. She recorded the telephone discussion in a note.
(2) At the meeting on 27 May 2000, the Board resolved to issue a demand letter to the 1st defendant on 29 May, offering to waive two months interest if the defendants agreed to pay the Balance Sum on 31 May 2000 by 5pm and to undertake to build the footbridge (if so demanded) as provided under the Land Grant.
(3) LDC issued the letter signed by the Chairman on 29 May to reflect the same. In the letter it required the defendants to execute an “Agreement and Indemnity” in the form as to be provided to defendants soon.
(4) On 29 May 2000, she instructed Ellen of JSM to prepare the Agreement and Indemnity referred to in that letter with the terms set out therein. That was the A&I(3). The first draft was prepared by Ellen. Marina then faxed it to Mr Li at around 4:14 pm on that day.
(5) It was only at around 1:12 pm on 31 May 2000 (ie, more than 2 days later) that Mr Yip of the defendants faxed to LDC a revised draft A&I(3) with the defendants’ proposed insertion of the Full and Final Settlement Wordings at paragraph 1 of the draft.
(6) She did not accept that, as the Board only authorised a settlement with waiving of interest but not all the 1st defendant’s obligations and liabilities under the Restructuring Agreement. She discussed this with Ellen, and as a compromise further revised and limited the full and final settlement wordings to relate to “only those obligations and liabilities of the 1st defendant under clauses 2.02, 2.04 and 2.05 of the Restructuring Agreement”. The settlement of the obligations under these clauses were consistent with what the Board had resolved to settle if the defendants did pay the Balance Sum on 31 May 2000:
(a) Clause 2.02 related to the 1st defendant’s obligation to cause the Development to be completed in accordance with the required standard. This was similar to the obligations under clause 1(a) of A&I(3) to carry out certain outstanding works and obligations;
(b) Clause 2.04 related to the 1st defendant’s obligation to pay the Balance Sum; and
(c) Clause 2.05 related to the 1st defendant’s obligation to pay default interest.
(7) She then asked Ellen to revise the Full and Final Settlement Wordings as above and incorporate the defendants’ other proposed amendments (which are immaterial for the present purposes).
(8) They then met up at JSM’s office at around 3 pmtogether with Mr Razack and Mr K N Chan. Ellen produced the further revised draft for discussion. They later telephoned Mr Yip. Mr Yip initially disagreed with the further revision. She told him that if he insisted on their version, she needed to get approval from Board again, and the matter would be delayed and could not be completed before the deadline. Mr Yip eventually agreed with the final wordings as proposed by LDC.
(9) She does not recall the presence of Ms Wong at this telephone conversation.
(10) At around 4pm, she instructed JSM to dispatch two original counterparts of the A&I(3) already executed by LDC and Lillington to the 1st defendant, asking them to execute and return the same by 5 pm on 1 June 2000.
(11) At about the same time, she caused a fax to be issued from LDC to the 1st defendant enclosing the signed copy of the A&I(3), requesting them to send the cheque for the Balance Sum. The cheque arrived at JSM’s office at about 5 pm. She, Mr Razack and Mr Chan then left JSM office with the cheque.
(12) She was aware of the defendants’ obligations to reimburse resumption payments and that there would be further payments of that in the future. But she never had any intention to settle that.
(13) She also had attended all the relevant board meetings, and had never heard anyone mentioning or indicating during those discussions that they intended to discharge the 1st defendant from reimbursing LDC the resumption payments.
(14) She is not aware of a meeting as described by Mr Razack between Dr Lau, Mr Li and him on 27 May 2000. She also does not recall Mr Razack instructing her to prepare settlement documentations based on any such meeting.
(15) She denies reaching any agreement to vary the alleged oral agreement during the telephone conversations with Mr Yip. She was not aware of any such oral agreement in the first place, and there was thus simply no question of agreeing to vary that. In fact, during that telephone conversation, the 1st defendant’s potential payment obligations in relation to super profits and the tenancy payments were not mentioned at all.
148. Ellen’s evidence is as follows:
(1) She was a partner at JSM and involved in the drafting of the A&I(3).
(2) On or about 29 May 2000, she was instructed by Marina to start preparing a draft A&I(3) to be sent to the 1st defendant for signing upon payment of the Balance Sum by 31 May. She was instructed to provide in this document that LDC had agreed to waive default interest which had accrued since the Balance Sum was due on 31 March 2000.
(3) By way of a fax to Marina on 29 May 2000, she asked in the covering letter whether paragraph 4 (which provided that nothing therein shall restrict the parties’ rights against each other under the Restructuring Agreement) should be retained. Marina later called back and confirmed that it was better to leave clause 4 out. She could not remember the detailed reasoning for removing clause 4 but felt at that time that it would not prejudice LDC even if removed. She therefore removed clause 4 from the draft.
(4) When she saw the proposed addition of the Full and Final Settlement Wordings sought to be added to the draft A&I(3) by the defendants on 31 May 2000, her reaction was that this should not be allowed as her understanding from Marina was that LDC was only prepared to waive the interest.
(5) After discussing with Marina, they thought that they could compromise by adding specific sub-clauses to that clause specifying that LDC was only to waive obligations under clauses 2.02, 2.04 and 2.05 of the Restructuring Agreement.
(6) She could not remember that there were any instructions, or any discussions, regarding any waiver of payments of other sums, such as resumption payments, payable by the 1st defendant from time to time under the Restructuring Agreement.
(7) Her evidence is line with Marina’s on what happened at the telephone conference held at her office at around 4pm on 31 May 2000 with Mr Yip. The wording of A&I(3) was finally agreed over the phone, without incorporating the Full and Final Settlement Wordings. She also did not recall the presence of Ms Amy Wong over Mr Yip’s side during this telephone conference.
(8) She was not aware of any oral agreement alleged to have been reached between Mr Li and LDC or that her drafting was supposed to cover any such oral agreement. Given no such oral agreement, it was also impossible for her to enter into any variation of such oral agreement.
Assessment of the evidence
149. There is a direct and acute conflict between parties’ principal evidence under this issue. It is Dr Lau’s evidence that the meeting never occurred. Mr Li on the other hand said he could vividly recall the meeting and the agreement (ie, the Collateral Agreement) he reached with Dr Lau.
150. The incident of the alleged meeting on 27 May 2000 happened almost 13 years ago. It is natural that the witnesses’ recollection of the events is likely to be hazy and may even be incorrect over certain details. In these circumstances, the assessment of the acute conflict between the witnesses’ evidence should best and more reliably be tested against the contemporaneous documents (where they exist) and the inherent probabilities of the different versions. See: Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 at 481D-F per Stock JA.
151. Applying this approach, in my view, the defendants’ witnesses’ evidence insofar as it supports the existence of that meeting and the Collateral Agreement is clearly unreliable. My reasons are as follows.
152. First, the existence of the Collateral Agreement and the said meeting is inconsistent with (and to some extent contradicted by) the following contemporaneous documents.
153. LDC’s 29 May Letter: the letter stated as follows:
“The Managing Board of the Corporation [ie, LDC] has considered your ‘without prejudice’ letter of 25th May 2000.
The Managing Board has decided that the Corporation will agree that interest accrued under Clause 2.06 [sic] of the Restructuring Agreement dated 19th July 1997 payable by Agrila Limited [1st defendant] shall be waived, subject to the following conditions:-
1) a cheque in respect of the balance of the Guaranteed Profit in the sum of HK$1,051,628,400 made payable to the Corporation is delivered to us by 5:00 p.m. on 31st May 2000; and
2) Agrila Limited and Cheung Kong (Holdings) Limited [2nd defendant] shall execute under seal and deliver to us together with the cheque mentioned above an agreement (in the form of an Agreement and Indemnity which we shall forward to you shortly) undertaking that, at their expense, they shall (a) submit and implement the Landscaping Proposal in accordance with Special Condition (27) of the Land Grant relating to the Lot, and (b) construct the Footbridge (if required) under Special Condition (29) of the aforesaid Land Grant.
If any of the above conditions are not met, the Corporation reserves all its rights including the commencement of legal proceedings against Agrila Limited and Cheung Kong (Holdings) Limited.”
154. The existence of a meeting on 27 May where an agreement had agreed to settle everything is clearly inconsistent with this letter:
(1) The letter is objectively in the form of a demand letter, which set out LDC’s offer to waive 2 months’ interest only if the 1st defendant agreed to pay the Balance Sum by 5 pm on 31 May and to execute an agreement and indemnity in the form of the draft to be sent to the defendants. If the Collateral Agreement was already reached on 27 May as alleged, it is beyond me as to why LDC would not have referred to that agreement and the meeting in this letter but instead referred in its opening the 1st defendant’s letter dated 25 May making an offer to pay on 30 June 2000.
(2) Further, the tone and nature of this letter is entirely consistent with the resolution made in the Board on 27 May (as described above) to make a final offer to the 1st defendant to settle in those terms, but inconsistent with the fact that an agreement to settle had already been reached.
(3) When confronted with this letter under cross‑examination, Mr Li, Mr Razack and Mr Yip simply asserted in evidence that they found this letter reflected the Collateral Agreement. For the above reasons, I cannot accept such an explanation and find this part of the evidence incredible.
155. LDC’s internal note dated 30 May 2000: This note was issued by the Secretary to the Board dated 30 May 2000 to members of the Board. It stated as follows:
“ Members are requested to note that Mr Emmanuel Yip, Chief Manager (Legal) of Cheung Kong (Holdings) Ltd rang Marina Lo this morning (30/5/2000) to convey a message from Mr Victor Li to the Chairman, LDC, that Mr Li wished to meet with members of the Managing Board as soon as possible.
The Executives discussed this message with the Chairman and it was decided that Marina should inform Cheung Kong that the Board had resolved at its meeting on 27 May 2000 that Agrila must fulfil all conditions as outlined in the Chairman’s letter dated 29 May 2000 to Agrila (attention to Victor Li), a copy of which was sent to members. A meeting with Mr Victor Li is, therefore, not necessary.
If Agrila pays the outstanding amount on the due date, the Chairman would be pleased to arrange for members to meet with Mr Victor Li, if members so desire.”
156. There is no question that the note was made contemporaneously on 30 May 2000. Mr Razack confirmed under cross‑examination that the note had been circulated to members of the Board at that time. Dr Lau also confirmed this. There is also no challenge of its authenticity by the defendants.
157. In my view, this note is clearly inconsistent with the evidence that there was the Collateral Agreement reached on 27 May 2000 because:
(1) If the Collateral Agreement was reached on 27 May, it would be entirely inconsistent or even absurd that (a) Mr Li would still have wanted to meet the members of the Board on 30 May 2000, and (b) the members decided that it was not necessary to meet him given the resolutions they reached at the 27 May Board Meeting, and indicated that the 1st defendant “must fulfil” those conditions set out in LDC’s 29 May Letter.
(2) When asked about this note under cross-examination, Mr Yip simply said he could not recall this. His evidence therefore does not in any way affect the above observations.
(3) When put with this note under cross-examination, Mr Li asserted that it was impossible that he would have asked to see the Board members on that day. He further sought to downplay this note by saying that Marina always acted strangely and she might have felt unhappy as she was not involved in meeting on 27 May. He even said that Marina was one of the most difficult persons in LDC that he had dealt with during his “painful experience with LDC”. However, he did not go so far to suggest that this note was made up.
(4) I do not accept this evidence of Mr Li. In my view, it is simply beyond any logic and reasons that Marina would have at that material time gone all the way to make up a story that Mr Li had asked to see the members of the Board simply because, as alleged by Mr Li, she was unhappy that she was not involved at the meeting resulting in the Collateral Agreement. This is further underlined by the fact that (a) this position was never put to Marina under cross‑examination by the defendants’ counsel, and (b) Mr Li gave a long and convoluted answer when asked of this note before (when asked again) he eventually asserted that that was impossible. See: paragraph 163(4) below.
158. The A&I(3):
(1) As I have held above, on a proper construction of the A&I(3), it did not include a settlement of all the 1st defendant’s payment obligations under the Restructuring Agreement.
(2) It is inconsistent that if the Collateral Agreement was reached at the 27 May meeting as alleged, this would not have been expressly included and reduced into the A&I(3). This is particularly so as even the defendants’ witnesses all agreed that it was contemplated that the parties would put into writing any agreements that were to be entered between them. This contemplation and practice is also consistent with (a) the express provisions in the Heads of Agreement and Restructuring Agreement saying that any variation or amendments must be in writing, (b) the history of the parties’ practice in this Development to enter into various written side letters or Agreement and Indemnity to record various incidental agreements, such as the defendants’ agreement to give up their rights to claim any residual value in a private light bus[21] and the agreement for LDC to have the right to nominate a solicitor to undertake up to 50% of the conveyancing work of the whole development[22], and (c) the evidence (which was also confirmed by Mr Razack) that the Board members were wary of the defendants’ tendency to renege on agreements.
(3) In this respect, I of course note the evidence of Mr Yip and Ms Wong that the A&I(3) in fact confirmed and reflected the Collateral Agreement save that they agreed, during the finalization of the drafting, to carve out the potential payment obligations for super profits and the tenancy payments under A&I(1)[23]. This is the defendants’ case on the Amended Collateral Agreement.
(4) I do not accept their evidence. It is inherently incredible in that they (as legal officers of the defendants) would have agreed to vary a settlement agreement purportedly reached by their Managing Director (Mr Li) without obtaining any approval from him first.
159. Second, the defendants’ evidence and case on the Collateral Agreement to settle everything, including the payment of resumption payments, is also inherently improbable in light of the following:
(1) Dr Lau and Mr Razack did not have any authority to negotiate anything other than what had been resolved by the Board at the meeting on 27 May 2000. The resolution only authorised to settle on the question of outstanding interest:
(a) It is clear from the minutes and the transcript of the 27 May Board Meeting that, after rejecting the 1st defendant’s offer under its letter dated 25 May 2000, the Board only resolved to (a) offer as an ultimatum to the 1st defendant that LDC would waive two months’ interest if the 1st defendant paid the Balance Sum by 5pm on 31 May 2000 and undertook to build the footbridge, and (b) authorise the Chairman to sign and issue a demand letter under those terms to the 1st defendant and specifying that a writ would be issued against the defendants if they failed to agree with those terms.
(b) Even Mr Razack (who is the defendants’ witness) confirmed in court that they had not been authorised by the Board to talk to or negotiate with the defendants anything else other than what had been resolved by the Board at that meeting.
(c) Mr Manzoni sought to argue that, reading the minutes in detail, the members wanted to have a clean break with the defendants in this project, and thus they wanted and agreed to settle everything to render such a clean make. This gave Dr Lau the general authority to settle. He sought to gain support from Dr Lau’s evidence in confirming under cross-examination that they wanted a clean break of everything in this project. I do not accept Mr Manzoni’s contentions. In my view, reading the transcripts and the minutes objectively, the discussions therein clearly only relate to seeking to settle the payment of the Balance Sum and the defendant’s obligation to build the footbridge by waiving the interest and nothing more. This is also consistent with the material dispute at that time (see my discussion below). Further, Dr Lau on re-examination in answering the court’s question confirmed that when he said he wanted a clean break in this project, he was referring only to the matter then in dispute.
(2) The Board at the 27 May meeting expressly rejected Mr Li’s expressed wish (as conveyed by Dr Lau) to meet them, and resolved to issue an ultimatum to the defendants as summarised above. In that case, it is inherently unlikely that Dr Lau would have wanted and agreed to meet Mr Li later after the Board meeting.
(3) The payment of resumption payments and super profit were never in the context of the dispute at the time between the parties:
(a) It is clear from the above minutes and transcript that the Board never discussed or mentioned about the question of resumption payments or super profit.
(b) Even Mr Razack and Mr Li themselves confirmed and accepted in evidence that during that period of time, the only dispute between the parties was about LDC’s right to apply for the issue of the CC and thus the time of payment of the Balance Sum. They confirmed that the questions of resumption payments or super profits were never mentioned.
(c) It is Mr Li’s even own evidence that even at the purported meeting on 27 May, there was no mentioning of the super profit and resumption payments.
(4) It is common ground that Mr Yip received the 1st draft of the A&I(3) from Marina on 29 May 2000, but he only responded on 31 May 2000 with his revised draft proposing to insert the full and final settlement wordings. If Mr Yip had already been told of the Collateral Agreement on 27 May 2000 right after the meeting as alleged, it defies common sense and logic that it would take him more than 2 days to come back with a revised draft. Mr Yip explained that he was surprised to find the date of payment of 31 May mentioned therein since he understood from Mr Li that the payment date should be 30 June 2000. Mr Li explained that perhaps that was because Mr Yip understood his instruction to pay the Balance Sum “immediately” to mean 30 June 2000 (which was the offer made by the defendants in their 25 May letter). This part of the evidence, even accepted, still does not in my view provide a good explanation as to why it would take two days to obtain a simple instruction on the correct date of payment.
(5) In light of all of the above, it is inherently improbable that Dr Lau would have gone to meet with Mr Li and also agreed to settle everything (contrary to the Board’s resolution), including the obligations to make resumption payments.
160. Third, I accept Mr Yu’s submissions that the defendants’ case on the Collateral Agreement and Amended Collateral Agreement is unreliable in light of the history of the defendants’ case as pleaded and presented:
(1) If there were in fact the 27 May 2000 meeting where the important oral agreement was reached, one would expect that this would be relied on and raised by the defendants at the first occasion when the litigation started in 2002. This however is not the case.
(2) The original defence put forward by the defendant in 2002 was based on the construction of the relevant written agreements only (ie, the Restructuring Agreement and the A&I(3)).
(3) It was only by way of amendment to the Defence in July 2010 (ie, some 8 years after the action had commenced) that the Collateral Agreement was specifically pleaded as a separate defence based on an oral agreement reached between Mr Li and Dr Lau.
(4) Further, it is also pertinent to note that in the Amended Defence and Counterclaim filed in July 2010, the date of this oral agreement for the full and final settlement of the 1st defendant’s payment obligations was pleaded to be “shortly before 25 May 2000”[24].
(5) It is only in 2011 in the Re-Amended Defence and Counterclaim that the defendants for the first time put in a case that the oral agreement was reached “on or around 27 May 2000”.
(6) It is also important to note that there was still no plea in any of these amended cases that there had been consensus reached under this oral agreement with regard to the date of payment of the Balance Sum.
(7) None of the defendants’ witnesses, including Ms Wong who has the conduct of the Defence, could offer any satisfactory explanations as to why, if there were in fact the 27 May meeting and the Collateral Agreement, these matters were only raised and pleaded in 2010, some 10 years after the alleged agreement had been raised.
(8) The defendants’ case on the Collateral Agreement is on this basis therefore also inherently unreliable.
161. Further, in addition to the above, I also do not find the relevant evidence of Mr Li and Mr Razack reliable for the following additional reasons.
162. A material aspect of their evidence is contradictory to each other: Mr Li said in evidence that the date of payment of the Balance Sum of 31 May 2000 was not mentioned at the meeting. He said he only agreed to pay immediately and did not ask for a specific date, since the sum of $1billion odd was not something that would cause any cash drain on the 2nd defendant, and they could pay it anytime. This is inconsistent with and contradicted by Mr Razack’s evidence that this date was specifically mentioned at the meeting and agreed upon by Mr Li.
163. Further, insofar as Mr Li is concerned, he did not generally give evidence in a straightforward manner. He tended not to answer even simple questions in a direct way. This is particularly so when he was confronted with some documentary evidence which on the face of it is inconsistent with his evidence and case. This to me renders his evidence less reliable. The following are some of the more notable examples:
(1) When he was asked when it was the first time he was required to recall the date of the purported meeting, he gave a long and convoluted answer, which did not actually tell when he did that.
(2) When he was asked whether in early April 2000, there was a dispute between LDC and the defendants on whether LDC was right to apply for the issuance of the CC, he again did not answer that question directly, but insisted on telling at some length of what he described as the whole course of the incident in order to give a better answer. That was despite of the fact that the court had at various occasions during his course of evidence reminded him that he could simply give an answer first before providing any further explanations if necessary.
(3) When he was asked whether he knew Ms Angelina Lee well and that she was a member of the LDC Board, again Mr Li refrained from giving a straight and direct answer but went a long way to avoid the question before finally saying that he did not know whether she was a Board member.
(4) When he was asked whether he agreed that he told Marina over the phone on 10 April 2000 to convey the message to the Board that he wanted to meet the members as recorded by Marina on a telephone note, Mr Li gave a long answer criticising Marina as a staff of LDC before finally, at the court’s intervention, confirming that he could neither agree nor deny of what was recorded on the note.
(5) When he was asked whether the internal note of LDC dated 30 May about Mr Yip’s message that he wanted to meet the board members was a correct one, he gave a long answer before eventually saying that it was impossible.
(6) When asked whether he did ask through Dr Lau to speak to the members of the Board before 27 May, as the transcript of the Board meeting on 27 May recorded Dr Lau’s report of the same, similarly, Mr Li avoided giving a simple and direct answer before eventually saying that he could not recall.
164. As to Mr Razack, certain parts of his evidence are also difficult to accept as they are contradicted by undisputed evidence or on its own:
(1) He stated in paragraph 8 of his 2nd Witness Statement as to the reason for going to meet Mr Li after the Board meeting was to ensure that the defendants were serious about their offer as stated in their 25 May 2000 letter. The witness statement says as follows:
“Immediately after the Board meeting, Mr Lau and myself went to see Mr Li at the Cheung Kong Center (“Final Meeting”). We did so because Agrila/ Cheung Kong had for times (especially after the property market had crashed in 1998) been late with their payments to LDC under the joint venture and that we wanted to ensure that Agrila/ Cheung Kong was serious about the offer contained in Mr Yip’s letter of 25 May 2000 and that there would be no reneging on their part this time.”
(2) However, the 27 May 2000 Board Minutes recorded that the Board had already expressly rejected the defendants’ said offer as set out in the 25 May 2000 letter. The Board further resolved to make its own final offer to the defendants. There was therefore clearly no point in going to see Mr Li to ensure if the offer in their 25 May letter was a serious one as stated in the witness statement.
(3) He was unable to give any good explanations when he was asked of this inconsistency under cross‑examination.
(4) Further, when confronted under cross-examination with the transcript and minutes of the 27 May 2000 Board Meeting showing that the only offer of the Board was for the defendants to pay the Balance Sum by 5pm on 31 May 2000, Mr Razack changed his evidence as to the “purpose” of the visit from what had been stated in his witness statement and asserted yet another version. He said for the first time that the purpose of the visit to Mr Li after the Board meeting was to pay a sort of courtesy call to Mr Li, “in the spirit of good cooperation” and to “relay the Board’s decision” so as to “present case to him, rather than send a letter”. However, this notion of a courtesy call as the objective of meeting Mr Li was never set out in his witness statements. It is difficult to accept that if this were the true reason for seeing Mr Li, why it was not set out in the first place.
165. On other hand, I find credible the evidence of Dr Lau, Marina and Ellen, insofar as it supports the case that there was never the Collateral Agreement and the 27 May meeting between Dr Lau and Mr Li.
166. This is so as firstly, the said evidence is consistent with and supported by the contemporaneous documentary evidence and inherent probability as mentioned at paragraphs 152 to 159 above.
167. Further, Dr Lau’s evidence that it was only on 30 or 31 May that he was told by Angelina Lee that Mr Li had agreed is supported by and consistent with the following:
(1) His own diary which he marked on 29 May Angelina’s name and telephone number. This is consistent with his evidence that on 27 May after the Board meeting he asked Angelina to speak to Mr Li and that he reminded himself to call Angelina the following Monday (29 May) to find out the result.
(2) Mr Li’s own diary which shows an entry on 29 May at 12 noon of a meeting with Angelina Lee.
168. Further, it is telling to note that:
(1) The evidence of Marina and Ellen that they had never been told by either Mr Razack or Mr Yip of any agreement having been reached at the time of preparing A&I(3) was never challenged under cross‑examination. This is consistent with the fact that there was never the Collateral Agreement.
(2) Marina and Ellen had also not been put the case of the Amended Collateral Agreement. As submitted by Mr Yu, the starting point to the defendants’ case of a Collateral Agreement was that it settled all of their payment obligations under the Restructuring Agreement[25]. This was a theme that the defendants stressed in opening. The carving out of the super profit and leasing payment obligations from the Collateral Agreement is the defendants’ case to explain why apparently the A&I(3) did not provide for a settlement of all the defendants’ payments obligations under the Restructuring Agreement. Thus, the defendants’ pleaded case on the alleged Amended Collateral Agreement[26]. With the effective abandonment of the case of an Amended Collateral Agreement by failing to put the case to Marina and Ellen and cross-examine them on this, the flaw in the primary position that the Collateral Agreement in fact settled all the payment obligations under the Restructuring Agreement is further exposed.
169. Finally, I also generally find Dr Lau, Marina and Ellen as reliable witnesses as they gave evidence in a forthcoming and straightforward manner.
170. For all the above reasons, I would accept and prefer the evidence of LDC’s witnesses to that of the defendants’ witnesses insofar as they are in conflict.
Findings and determination of issues 3, 4 and 5
171. In the circumstances, I would find and hold that:
(1) There was no meeting between Mr Li, Dr Lau and Mr Razack at Mr Li’s office on 27 May 2000 as alleged or at all.
(2) There was never the Collateral Agreement or the Amended Collateral Agreement.
(3) Other than the payment of the Balance Sum and the waiving of the default interest, there was no agreement to settle all the defendants’ payment obligations (including the resumption payments) under the Restructuring Agreement.
172. Moreover, even if there were the Collateral Agreement or the Amended Collateral Agreement, I would have concluded that:
(1) On a proper construction, the agreement did not intend to settle the resumption payments obligation, since it is common ground (as borne out by the evidence of all the witnesses on both sides) that (a) the only dispute between the parties at that time was about the issue of the CC, the payment of the Balance Sum, the interest and the undertaking to build the footbridge, and (b) the resumption payments obligation was never mentioned by any parties all along. Taking these in context and as the background, it could not have been the objective intention of the parties to settle also the resumption payment obligation.
(2) If the agreement were indeed to also settle that payment obligations, Dr Lau did not have the actual authority to enter into it on behalf of LDC. This is because (a) as a matter of law, only the Board has the authority to bind LDC and Mr Li clearly knew about this in light of the evidence (which I accept) of his various requests to meet the Board members to discuss the matter, and (b) it is the common evidence of Dr Lau and Mr Razack that Dr Lau did not have any authority to negotiate or settle on any other terms other than what had been resolved by the Board on 27 May, which did not include any settlement of the resumption payment obligations. Whether Dr Lau did say to Mr Li that he had authority at the meeting is neither here nor there insofar as to whether Dr Lau had actual authority to do so is concerned.
173. I therefore conclude and hold that the defendants are obliged under the Restructuring Agreement to pay all the resumption payments in relation to the Development.
Issue 7: The Counterclaim
174. It also follows from my above conclusion on the defendants’ continuing liability to pay the resumption payments that there was no mistaken payment by the defendants for the resumption payment in August 2001. The counterclaim must also fail.
E. CONCLUSION
175. For all the above reasons, I allow URA’s claim and reject all the defences raised by the defendants. I also dismiss the counterclaim.
176. I therefore give judgment in favour of URA in that:
(1) The defendants shall pay URA the sum of $3,263,160.30.
(2) There is a declaration that the 1st defendant is liable to reimburse and pay to URA all Land Costs including resumption payments referable to the Development.
(3) URA is entitled to interest on any such sums from March 2001 until today at 1% above the prime rate as from time to time quoted by Hongkong and Shanghai Bank, and thereafter at judgment rate until payment.
177. I further make an order nisi that costs of this action be to URA to be taxed if not agreed, with certificate for two counsel. This order shall become absolute 14 days from today unless any of the parties applies to vary it by summons.
178. Lastly, I thank counsel for their assistance in this matter.
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(Thomas Au)
Judge of the Court of First Instance
High Court
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Mr Benjamin Yu SC, leading Ms Elizabeth Cheung, instructed by Mayer Brown JSM, for the plaintiff
Mr Charles Manzoni SC leading Mr Norman Nip, instructed by Wilkinson & Grist, for the 1st to 2nd defendants
Appendix
[The breakdown attached to the Memorandum of Agreement]
|
HK$
|
| Guoco Sale |
2,566,960,000 |
| Other units |
11,890,983,000 |
| Interest on sale proceed |
705,933 |
| Rent & interest |
41,600,000 |
| Total Sale Proceed |
14,500,248,933 |
|
|
| Less: Reimbursable Costs |
|
|
|
| Reimbursable Construction Cost |
4,077,132,231 |
| Land Costs |
3,251,069,360 |
| Pre-Agreement Expenses |
1,065,762 |
| Consultancy Fee |
149,445,330 |
| Legal Expenses |
1,000,000 |
| Insurance Premia |
1,364,280 |
| Government Fee |
15,173,379 |
| Government Rent |
19,736,601 |
| Advertising & Promotional |
7,416,801 |
| Bank Fee & Charges |
6,985,914 |
| Up-Front Payment & Interest |
486,559,305 |
| Interest On Advance Payments |
2,588,381,908 |
|
10,605,330,871 |
| Net Profit |
3,894,918,062 |
|
|
| 50% shared by LDC |
1,947,459,031 |
|
|
| Say |
1,947,460,000 |
|
|
| 40% thereon |
778,984,000 |
| 60% thereon |
1,168,476,000 |
|
1,947,460,000 |
[1] See for example clauses 3.04, 25.01, 26.02 and 26.04.
[2] See clause 2.01 of the Heads of Agreement.
[3] See further: s 15 of LDCO.
[4] See also the Guarantee contemporaneously executed by the 2nd defendant in respect of the liabilities of the 1st defendant on 15 January 1989.
[5] Various other agreements were entered in by the parties between 15 February 1989 and 19 July 1997 including a Funding Agreement dated 2.5.1989, a Deed of Assignment dated 9.5.1989, Letter of Agreement dated 28.6.1989, Supplemental Heads of Agreement dated 13.2.1991 and Agreement dated 19.9.1995 but nothing in the present dispute turns on these agreements.
[6] See clause 1.01.
[7] See Attachment 2 to the Reimbursable Cost Schedule dated June 1997 at Trial Bundle [C3/534]. It is common ground that the Reimbursable Cost Schedule was used by the parties for the purpose of arriving at the calculations set out in the Memorandum of Agreement.
[8] There is a question of whether Mr Yip’s assistant, Ms Amy Wong, was present at this telephone conference. I would deal with this part of the evidence later in this judgment.
[9] See Re-Amended Defence and Counterclaim, paragraph10, and Amended Reply, paragraph 5.
[10] In Rainy Sky v Kookmin Bank [2011] 1 WLR 2900, Lord Clarke of Stone‑cum‑Ebony JSC says at paragraph 21 that “If there are two possible constructions, the court is entitled to prefer the construction which is consistent with business common sense and to reject the other”.
[11] For the definition of “Guaranteed Profit”, clause 1.01 provided: “the sum of HK$1,947,460,000.00 to be received by [LDC] pursuant to Clause 2.04 hereof (as quantified in a Memorandum of Agreement dated 19th July 1997)…”
[12] See: [1982] QB 84 at 108.
[13] See also the authorities cited therein.
[14] See Trial Bundle B3/569.
[15] Evidence given on 10 Jan 2013 at around 12:45 pm.
[16] Under cross-examination, on 17 Jan 2013 at around 11:57 am.
[17] 18 Jan 2013 at around 4:33 pm.
[18] See paragraph 19A of the Re-Amended Defence and Counterclaim.
[19] The defendants sought to argue at trial that in any event, the defendants were entitled to rely on the apparent authority of Dr Lau to enter into the said agreement. Mr Yu objected to this being raised, as this was not pleaded by the defendants. This was particularly so as the plaintiff had by way of the Reply expressly raised the issue that there was no actual authority on Dr Lau to enter into the alleged oral agreement. Mr Manzoni fairly did not contend that the defendants needed not to plead ostensible authority with all the necessary particulars, but sought to ask for leave of the court to file a Re-Joiner for that purpose. I refused the application at trial on the basis that it was too late and was not supported by any good explanations. Further, I also agreed that this would cause unfairness to the plaintiff and might well delay the trial.
[20] Under cross-examination, in particular with reference to what he said in his witness statement as to the date of the meeting, Mr Yip said he could not recall the exact date of this meeting, although it should be around that period of time.
[21] See Trial Bundle C3/582.
[22] See Trial Bundle C2/584.
[23] See paragraphs 143(6) and (7) above.
[24] See paragraph 19A of the Amended Defence and Counterclaim.
[25] See: Re-Amended Defence and Counterclaim, paragraph 19A(1).
[26] See: Re-Amended Defence and Counterclaim, paragraph 19A(2).
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