CHINAVEST II-A, L.P. v. CHAN KUENG UN, ROY

CACV 145/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 145 OF 1998

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J U D G M E N T

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Godfrey, J.A. :

Introduction

1. This is an appeal from an order of Madam Justice Yuen made on 10 June 1998, whereby she dismissed an appeal by Roy Chan Kueng Un ("the defendant") from a judgment of Master Jones, given on 19 March 1998, against the defendant under Order 14 of the Rules of the High Court. The judgment, in favour of ChinaVest II-A, L.P. ("the plaintiff") was for US$3,700,000 together with interest and costs.

2. The only question of any difficulty which now arises on this appeal is whether the action is properly constituted. Other questions originally canvassed before us either do not now arise or present no difficulty.

The facts

3. On 23 April 1997, a number of parties, including the plaintiff, entered, as sellers, into an agreement, entitled "Share Transfer Agreement", with the defendant, as buyer, for the sale and purchase of certain shares. The sellers are a number of different companies incorporated in various parts of the world. They are ChinaVest II, L.P. a Delaware limited partnership, ChinaVest II-A, L.P. (the plaintiff itself), a Cayman Islands limited partnership, ChinaVest II-B, L.P., a Delaware limited partnership, TaiwanVest NV, a company incorporated in the Netherlands Antilles, Advent Asia/Pacific Fund, L.P., a Bermuda limited partnership, Advent International Investors L.P., a Delaware limited partnership, and Asia/Pacific Special Situations Fund, L.P., a Delaware limited partnership.

4. The shares the subject of the sale and purchase are 25,099,400 ordinary shares of a company called Lisgold Holdings Limited, a company incorporated in Hong Kong.

5. The interests of the various sellers are set out in Schedule 1 to the Share Transfer Agreement. Clause 1 of the Share Transfer Agreement contains definitions, including a definition of an expression to which I shall have to make further reference, the expression "Disbursement Agent". The "Disbursement Agent" is said to be ChinaVest II, L.P., the first of the sellers to which I have already referred. Clause 2 of the Share Transfer Agreement sets out the arrangements made as to the purchase and sale of the shares, including in particular arrangements for the payment of the purchase price and the consequences of any default on the part of the defendant.

6. So far as the arrangements for payment of the purchase price are concerned, these are contained in Clause 2.1 of the Share Transfer Agreement, which reads as follows :

"2.1 Payment & Purchase Price. Subject to the terms and conditions hereof, the Buyer agrees to purchase and the Sellers agree to sell the Sale Shares at the Closing for a total purchase price of Three Million Seven Hundred Thousand United States Dollars (US$3,700,000) (the 'Purchase Price'). The Purchase Price shall be paid as follows : (1) US$5,000, on or before July 31, 1997; (2) US$1,224,000, on or before March 31, 1998; (3) US$1,224,000 on or before October 31, 1998; and (4) US$1,247,000 on or before on March 31, 1999."

(Provision is then made for securing payment of the purchase price by a promissory note, but nothing turns on this.)

7. Clause 2.2 of the Share Transfer Agreement contains the provisions relating to default :

"2.2. Default. In case of (a) the Buyer's failure to pay when due any sums payable hereunder [and then other events are mentioned] the Disbursement Agent may, at its sole option acting on behalf the Sellers, declare all sums owing under this Agreement immediately due and payable. If any attorney is engaged by the Disbursement Agent or the Sellers to enforce any provision of this Agreement or the Promissory Note as a consequence of the Buyer's default in payment of the Purchase Price under this Agreement, then the Buyer shall pay such attorney's reasonable fees and other reasonable costs incurred by the Sellers or the Disbursement Agent acting on behalf of the Sellers."

(It should be noted, so far as the option is concerned, that all that is required in this connection is a declaration by the Disbursement Agent. Notice to the buyer is not required.)

8. On the same day, an agreement entitled "Disbursement Agreement" was made between the plaintiff ChinaVest II-A, L.P., in this Disbursement Agreement referred to as "Disbursement Agent", the other sellers being described in the Disbursement Agreement as "the Distributees".

9. In the original typescript of the Disbursement Agreement, the "Disbursement Agent" was named as ChinaVest II, L.P. but the plaintiff ChinaVest II-A, L.P. was substituted in its place by a manuscript amendment. This has caused considerable confusion, since the "Disbursement Agent" named in the Share Transfer Agreement was, as I have said, ChinaVest II, L.P. As a result, the "Disbursement Agent" mentioned in the one agreement is a different person from the "Disbursement Agent" mentioned in the other, something which was bound to cause, and has caused, difficulty.

10. Under the Disbursement Agreement, the "Disbursement Agent" (from time to time in the Disbursement Agreement referred to alternatively as the "Distribution Agent") was appointed to facilitate the disbursement to the sellers of the purchase price payable by the defendant for the shares sold to him under the Share Transfer Agreement. The date for the first payment due from the defendant under the Share Transfer Agreement, it will be recalled, was 31 July 1997, when the first instalment of US$5,000 was due to be paid. It is common ground that no such sum was paid.

11. On 1 August 1997, an instrument headed "Authorisation" was entered into by ChinaVest II, L.P. and ChinaVest II-A, L.P., the plaintiff. It recited (correctly) that ChinaVest II, L.P., referred to in the Authorisation as "CV2", was the "Disbursement Agent" under the Share Transfer Agreement and at the first instalment under that agreement had become due and payable. It referred to the defendant's default.

12. Clause 1 reads as follows :-

"1. CV2 hereby exercises its option under the Transfer Agreement to declare all sums thereunder due and owing."

Clause 2 reads as follows :-

"2. CV2 hereby authorises ChinaVest II-A, L.P., a Cayman Islands limited partnership ('CV2-A') to exercise all rights CV2 may have under the Transfer Agreement, including without limitation, the right to declare all sums owing thereunder due and payable, to serve any appropriate notice(s) of default, to retain counsel of its choosing, to initiate legal action on behalf of CV2 and the other sellers under the Transfer Agreement and to otherwise take such steps as are necessary or appropriate to enforce the terms of the Transfer Agreement and seek recovery of all amounts owing under the Transfer Agreement."

13. On the same day, 1 August 1997, on notepaper headed "ChinaVest" and subscribed "ChinaVest Limited" a letter was written by the plaintiff ChinaVest II-A, L.P. to the defendant which read as follows :-

"On behalf of ChinaVest II-A LP, the Disbursement Agent, I advise you that the payment of US$5,000 which was due on 31 July 1997 under the terms of the Promissory Note dated 23 April 1997 was not received."

14. On 5 August 1997, Messrs. Simmons & Simmons, Solicitors, wrote to the defendant under the caption "Lisgold Holdings Limited" in the following terms :-

"We are instructed by our clients, ChinaVest II-A, L.P. ('China Vest'), that you have defaulted in the first instalment of US$5,000 due to be paid by you under the terms of a Share Transfer Agreement and Promissory Note, both dated 23 April 1997, relating to shares in the above company ('the default'). Clause 2.2 of the Share Transfer Agreement and the provisions of the Promissory Note give ChinaVest the right to declare all sums owing thereunder, ie. US$3.7 million, immediately due and payable, and ChinaVest hereby makes such declaration.

We write to inform you that unless full payment of the said outstanding US$3,700,000 is received by us or our clients by Friday, 8 August 1997, legal proceedings will be instituted against you forthwith for the recovery of the said sums together with interest and costs without further notice. We reserve our right to seek any other and/or alternative relief in respect of the default."

15. Nothing was forthcoming, and by a writ dated 15 August 1997 the present proceedings were instituted by the plaintiff ChinaVest II-A, L.P. Paragraph 2 of the Statement of Claim, indorsed on the writ, states that the plaintiff acted "in a representative capacity as the authorised agent for the sellers." The plaintiff followed up its writ with an application for summary judgment under Order 14 and, as I have said, the master made an order in the plaintiff's favour which was upheld by the judge. The defendant now appeals. He takes two points.

The first point

16. The first point in the case is whether or not all the money due from the defendant under the Share Transfer Agreement has in fact become immediately due and payable. This depends on whether the "Disbursement Agent" named in the Share Transfer Agreement, ChinaVest II, L.P., has exercised the option given to it under Clause 2.2 of the Share Transfer Agreement to declare all sums owing under the agreement to be immediately due and payable.

17. In my judgment, it clearly has. Clause 1 of the Authorisation says so. I repeat :-

"1. CV2 hereby exercises its option under the Transfer Agreement to declare all sums thereunder due and owing."

18. The letter of 5 August 1997 from Simmons & Simmons to the defendant notifies the defendant of that election, although it is admittedly unclear who it is that the solicitors are saying had made the declaration. Given, however, the arrangement made by the defendant with the sellers by the Share Transfer Agreement, there is no substance at all in the suggestion that, somehow, the defendant was entitled to have clarified to him, before accepting the validity of the claim made against him, precisely which of the two companies, ChinaVest II, L.P. or ChinaVest II-A, L.P. was the party who had made the necessary declaration.

(In these circumstances, it is not at all surprising that the master gave judgment for the plaintiff under Order 14. There is plainly no defence to the action, if the action was properly constituted. If any further proof were needed of the absence of any genuine defence, it can be found in the defendant's advancing of a plethora of different and spurious defences in the courts below in an attempt to stave off the plaintiff's application for summary judgment.)

The second point

19. The second point, however, is whether in fact the action is properly constituted. The plaintiff originally argued that it was entitled to bring these proceedings in its own name as the agent of the sellers. Had the matter rested there, I would have found it difficult to conclude that this action was properly constituted. The law is clear; proceedings taken by an agent have to be taken in the name of the principal, not the agent : see, for example, Jones v. Gurney [1913] WN 72.

20. But before us, Mr. Whitehead, for the plaintiff, eventually struck out on another tack, referring us to Order 15 rule 12(1), which provides for representative proceedings. Order 15 rule 12(1) provides that :-

"Where numerous persons have the same interest in any proceedings, ..... the proceedings may be begun, and, unless the Court otherwise orders, continued, by or against any one or more of them as representing all or as representing all except one or more of them."

21. These proceedings, said Mr. Whitehead, are such proceedings. He referred to paragraph 2 of the Statement of Claim which, both in its original and amended form, refers to the representative capacity of the plaintiff, although that pleading muddies the waters by adding a reference to the plaintiff acting as "the authorised agent of the sellers", which would, in my judgment, not be sufficient to justify these proceedings being brought in the sole name of the plaintiff, for the reason I have given.

22. The number of sellers is not in any real sense numerous; but apparently, all the sellers are content that the action should have been brought by the plaintiff as one of the sellers representing them all. Mr. Whitehead confirms that all the sellers are behind the plaintiff in its prosecution of this action against the defendant.

23. In the circumstances, I am of the opinion that this action is properly constituted, but I would order, as this court has power to do, that all the sellers be added as plaintiffs in the proceedings. I do not think it satisfactory to leave this as a representative action, when a number of the sellers are incorporated in various places outside the jurisdiction.

24. I would therefore order, before upholding the Order 14 judgment, that all the sellers be joined as plaintiffs in the action.

The result

25. What is the result?

26. In my judgment, the result is that the action will then, beyond any doubt, be properly constituted. It is open to the court to put right matters of this sort, in the interests of justice, during the course of the hearing of Order 14 proceedings.

27. There being no genuine ground of defence to the claim, I would regard it in the interests of justice that the Order 14 judgment should be allowed to stand.

Costs

28. The history of this case is unusual and the proceedings, under Order 14, although ultimately successful, were framed confusingly because of the nature of the plaintiff's original and erroneous argument based on its right to sue under the Share Transfer Agreement in its own name as an agent for others. Fortuitously, we have now decided that it did have the right to sue in a representative capacity, but only for itself and for the other sellers. I think in those circumstances that the plaintiff should have no order as to the costs below.

29. Similar considerations apply to the costs of the appeal. It was not until this afternoon that Mr. Whitehead drew to our attention the provisions of Order 15 rule 12 of the Rules of the High Court. Previously, the plaintiff had relied on the plaintiff's alleged right to sue in its own name as agent. In those circumstances, although the plaintiff has succeeded on the appeal in upholding the order below, it should have no costs of this appeal either. There is no good reason why we should give the defendant, who has never had any defence to the action, any costs at all.

30. In the result, in the exercise of our discretion as to costs in this unusual case, I propose we make no order for the costs of the plaintiff or of the defendant, either below or in this appeal.

Liu, J.A. :

31. It is reasonably clear that under Clause 2.2 of the Share Transfer Agreement, the option was duly exercised and a declaration made as to the defendant's accrued liability. A notification of the exercise of the option and the making of the declaration of money due by a party other than China Vest II was, nevertheless, a good notification. Default on the part of the defendant was not made good and thereupon the defendant was sued. There is no merit in the defendant's resistance to the demand for the amount claimed. Objections, though eloquently mounted, are primarily procedural and technical. In order to enable this court to do justice in an indefensible claim plagued by formal objections, I wholly agree with the mechanics proposed by My Lord, Godfrey, JA, for the speedy resolution of this appeal. It has, however, to be recognised that the nature and form of the proceedings could be more neatly recast. But I am persuaded that the matter could be so disposed of as proposed without any real prejudice to the defendant. All the claimants are, so this court is told, ready and willing to be joined as plaintiffs. Re-service could, without injustice, be dispensed with. I agree that subject to incidence of costs, this matter should now be brought to an end by a dismissal of the appeal and the orders proposed to be made.

Leong, J.A. :

32. I agree to the orders proposed by my Lord, Godfrey J.A. and I also agree that the order for the judgment shall be allowed to stand. I have nothing to add.