SKYRUN LIGHT INDUSTRY (HONG KONG) CO LTD AND ANOTHER v. SWIFT RESOURCES LTD AND OTHERS

HCA 1278/2014

[2018] HKCFI 753

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1278 OF 2014

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J U D G M E N T

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1.  This case concerns contractual arrangements made between the parties in relation to their business co-operation in respect of a rubber plantation in Cambodia named the Rattanak Kiri Plantation (the “rubber plantation”). The 1^st plaintiff is a company incorporated in Hong Kong and the 2^nd plaintiff was at all material times a director of that Company. The 1^st defendant is also a company incorporated in Hong Kong and the 2^nd defendant was at all material times a director of that Company.

2.  The foundation of the parties’ contractual relationship was a Joint Acquisition Agreement dated 26 January 2010 entered into between the 1^st plaintiff and 1^st defendant.  Pursuant to this agreement, the 1^st plaintiff and 1^st defendant would each invest and pay US$9 million into the project.  This Agreement was subsequently varied as to the amounts to be invested, and it was further agreed that the 2^nd plaintiff would jointly manage the business of the rubber plantation.

3.  Thereafter various disputes arose between the plaintiffs and the defendants.  The plaintiffs alleged that the defendants had misrepresented the size of the rubber plantation as warranted under the Joint Acquisition Agreement, and that the rubber plantation had been initially purchased at a considerably smaller price than that represented by the defendants.  Furthermore, the defendants eventually demanded that the plaintiffs’ withdrawfrom the management of rubber plantation to facilitate the restructuring of the business for listing purposes. 

4.  After entering into the Joint Acquisition Agreement, the 1^st plaintiff and the 1^st defendant entered into further agreements dated 30 July 2010 and 27 June 2011 aimed, inter alia, at resolving the issues which had arisen.

5.  I note at this stage whilst there was considerable disagreement between the parties as to the management of the plantation and the parties’ respective obligations in relation to this venture, for the purposes of determining the issues in this case those matters are very much background matters.  The parties do not ask this Court to determine the rights and obligations of the parties arising from the agreements that were made prior to 8 August 2011, nor to specifically determine the rights and wrongs of the various disputes that had arisen between the parties before this date.  The parties do ask the Court to have regard to these matters but as noted as background only in determining the real crux of this case, which is the construction and effect of a written agreement made between the plaintiffs and the defendants and dated 8 August 2011 (“the August Agreement”).

6.  The plaintiffs’ pleaded position in relation to the August Agreement is that the same was to settle the disputes and to vary all relevant matters and terms under the Joint Acquisition Agreement, the 30 July 2010 Agreement, and the 27 June 2011 Agreement made between the parties.

7.  The defendants’ pleaded positon in relation to the August Agreement is that it provided for the plaintiffs to relinquish management control of the plantation and payment of US$12 million by the defendants conditional upon (i) the 1^st plaintiff fully repaying its share of investment in the rubber plantation as stipulated in the Joint Acquisition Agreement and (ii) that the rubber plantation business was to be first successfully listed.

8.  These “conditions” do not appear in the written document dated 8 August 2011.  In this context, it should be noted that on 13 June 2017 DHCJ Marlene Ng made an Unless Order in respect of the 2^nd defendant.  In subsequent breach of that Order the 2^nd defendant was debarred from giving oral evidence and the 1^st and 2^nd defendants were debarred from adducing the 2^nd defendant’s witness statement at trial.  As such, there is no evidence from the defendants as to the existence of the alleged oral conditions. 

9.  In conjunction with the August Agreement the parties entered into two other agreements, both dated 8 August 2011; the first being an undertaking which provided, inter alia, that the 1^st and 2^nd defendants jointly and severally unconditionally undertook payment of the sums under the August Agreement.  Furthermore, a guarantee which provided, inter alia, that in the event of default in any payment pursuant to the August Agreement, the 2^nd defendant guaranteed the payment of the sums said to be due under the August Agreement.

10.  Despite this plethora of agreements, Mr Hon, Counsel for the plaintiffs made clear in respect of the Joint Acquisition Agreement and the Agreements dated 30 July 2010 and 27 June 2011, that he was not in any way relying upon the contractual effect of these agreements in relation to the plaintiffs’ claims in this action.  Furthermore that although on one analysis it might be said that the 30 July 2010 and 27 June 2011 Agreements were incorporated into the August Agreement, Mr Hon has specifically disavowed any such interpretation.  Mr Hui, Counsel for the defendants also confirmed that it was not his position that the terms of any of the earlier agreements were incorporated into the August Agreement.

11.  In relation to the aforesaid undertaking and guarantee, both entered into on 8August 2011, Mr Hon submitted that if his clients’ claims in respect of the August Agreement should succeed, then the undertaking andguarantee would be immaterial.  He also accepted that if the claim in respect of the August Agreement failed, any claim made by the plaintiffs in relation to the undertaking or guarantee would correspondingly fail.

12.  The August Agreement was a “homemade agreement” prepared by the 2^nd plaintiff and is a fairly short document.  As such and being the crux of the determination of this case, it is appropriate to set out the relevant terms of that agreement (in English translation) as follows:

“ Party A: Skyrun Light Industrial (Hong Kong) Company Limited & Mr Guo Ming Fu (Identity Card No. P294738(6)

Party B: Swift Resources Limited and Madam Ma Muk Ying (Identity Card No. D504484(8)

….

For the sake of faster, better and more efficient proceedings of the project for cooperation and to conform to Party B’s request for public listing of the project, the Parties have reached this agreement after Parties’ serious consideration and amicable negotiation. Also, this agreement shall supplement and improve the original undertaking made by Party B to Party A dated 18^th January 2010, the agreement between Party A and Party B dated 30^th July 2010 and the memorandum relating to Guangtung Co. Ltd., the agreement between Party A and Party B dated 27^th June 2011 concerning the rubber plantation in Cambodia. If any part of this agreement is in conflict with the existing undertakings, agreements and memorandum,this agreement shall prevail:

1. Party A shall withdraw from the daily management of the processing factory of the rubber plantation, subject to conditions(specific conditions fully set out in Clause 3 of this supplemental agreement).

2. After Party B unconditionally accepts all conditions referred and set out by Party A in Clause 1 of this supplemental agreement, and upon Party B is wholly responsible for the daily management of the processing factory of the rubber plantation, Party B shall unconditionally undertake to bear all liabilities.

3. Specific conditions referred in Clause 1 of this agreement are set out as follows:

(a) Party B shall pay US$1.2 million to Party A’s designated bank account before 30^th December 2011 (striving to be earlier);

(b) Party B shall pay US$4 million to Party A’s designated bank account before 30^th June 2012 (striving to be earlier); Party B shall pay US$1.5 million to Party A’s designated bank account before 30^th September 2012 (striving to be earlier);

(c) Party B shall pay US$2.3 million to Party A’s designated bank account before 30^th December 2012 (striving to be earlier);

(d) Party B shall pay US$3 million to Party A’s designated bank account before 26^th October 2013 (striving to be earlier);

Regardless of any situation which may occur, Party B shall comply with the aforesaid deadlines to pay each installment of monies to Party A’s designated bank account, and shall not causeany delay in making payments by whatsoever reasons and means.  Otherwise, Party B shall unconditionally undertake to pay Party A interests accrued thereon at daily rate of 1 over 1,000 as agreed by Parties as a result of any delay in making the said payments.”

13.  Before analyzing this Agreement, I turn first to consider the alleged oral conditions advanced by Counsel for the defendants that the August Agreement would not be enforced before the successful listing of the Rubber Plantation, and that the August Agreement would not be enforced before the payment of the plaintiffs’ investment of US$9 million. 

14.  The 2^nd plaintiff Mr Guo Ming Fu gave evidence.  I found Mr Guo to be a careful and reliable witness.  The alleged pre-conditions to the August Agreement were put to Mr Guo and he denied the existence of such pre-conditions.  As noted there was no evidence from the defendants to contradict Mr Guo on these points, and I had no hesitation in accepting Mr Guo’s evidence.  As such I find that the pre-conditions contended for by the defendants in respect of the August Agreement did not exist.

15.  The guidelines applicable to considering the construction of a contract are well-established.  I have been referred to and have considered, inter alia, the decisions in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, Al Sanea v Saad Investments Co Ltd[2012] EWCA Civ 313, Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 and Arnold v Britton [2015] AC 1619.

16.  The plaintiffs case in respect of the August Agreement is a simpleone.  The August Agreement was entered into with a view to settle the disputesthat had arisen between the parties.  The defendants unconditionally accepted the conditions referred to in the Agreement. The plaintiffs withdrew from the daily management of the Rubber Plantation.  The sum of US$2,071,222.67 was paid to the plaintiffs pursuant to the Agreement, and thereafter and in breach of the August Agreement no further payments were made by the defendants.

17.  The defendants’ case with regard to the August Agreement is primarily that the same was subject to the preconditions examined hereinbefore,and which the Court has rejected as having been part of the August Agreement.  There was also initially a suggestion in the pleadings that there was no consideration for the defendants’ agreement, but that has not been actively pursued by Mr Hui, and indeed the unchallenged evidence is that upon entering into the Agreement the plaintiffs did in fact then withdraw from the management of the Plantation.  At trial, however, Mr Hui pursued a further argument submitting that the August Agreement merely created an option forthe defendants to effectively buy out the plaintiffs’ management of the RubberPlantation, such that clause 3 of the Agreement creates a right or a choice but not an obligation for the defendants to pay the plaintiffs US$12 million in accordance with the timetable therein.

18.  Mr Hon objected to Mr Hui advancing this option argument on the basis that the same had never been pleaded nor had appeared in any witness statement, and indeed the word “option” does not appear in the August Agreement.  Having considered Mr Hon’s objection, however, I decided that it would be appropriate to permit Mr Hui to advance this argument. The true construction and meaning of the August Agreement has always been an issue between the parties and I did not think that Mr Hui should be inhibited in advancing the construction of the contract that he seeks the Court to adopt. 

19.  Mr Guo’s unequivocal evidence was that the sum of US$2,071,222.67 admittedly paid by the defendants to the plaintiffs was paid in settlement of the first instalment under the Agreement and in partial settlement of the second instalment.  No evidence was forthcoming which in my view contradicted Mr Guo’s evidence and, as noted, I found him to be a careful and reliable witness.  I had no hesitation in accepting that the status of the payment of these monies was indeed in payment of instalments detailed in the August Agreement.

20.  Mr Hui has summarized his option argument as follows:

(i) Clause 3 of the August Agreement creates a right or a choice but not an obligation for the defendants to pay the plaintiffs US$12 million in accordance with the timetable therein.

(ii) It is up to the defendants to choose to pay in accordance with that timetable.  If the defendants do not adhere to the timetable they have to pay interest at a daily rate of 0.1%.

(iii) Unless and until the defendants satisfy the conditions in Clause 3 (ie when they pay all instalments in accordance with the timetable or when they pay all instalments not in accordance with the timetable but pay the requisite interest) the plaintiffs have no obligation whatever under the Agreement.

(iv) But if (and only if) Clause 3 is fully satisfied, then the plaintiff’s obligation under Clause 1 will be triggered and the plaintiffs will be obliged to withdraw from the management of the Rubber Plantation. 

21.  In support of these propositions, Mr Hui took the Court through the principles applicable to the construction of contracts, and the different types of conditions precedent that are found in certain contracts. 

22.  Having carefully considered Mr Hui’s various submissions, I readily conclude, with respect, that there is no “option” or “condition precedent”to be found in the August Agreement.  As noted the Agreement makes no specific mention of any option or condition precedent.  Indeed the same has never been pleaded by the defendants, and with respect the argument now advanced appears to be an afterthought by Counsel for the defendants. 

23.  The August Agreement although a homemade one and in some respects imprecise and poorly worded, is tolerably clear.  The plaintiffs are to withdraw from the daily management of the Rubber Plantation and the defendants are to pay US$12 million to the plaintiffs by instalments on certain defined dates.  Furthermore, as noted the Agreement expressly records that:

“ … regardless of any situation which may occur Party B shall comply with the aforesaid deadlines to pay each instalment of monies to Party A’s designated bank account and shall not cause any delay in making payments by whatsoever reasons or means.”

This is not the language of an option. There is no room to imply or infer the making of “a choice” by the defendants whether or not to comply with their contractual obligations once they had signed this contract.

24.  If I am wrong about this and that somehow there is an option or choice contained within the August Agreement to the benefit of the defendants, then the defendants have exercised the option by, as I have found, paying the 1^st instalment and part of the 2^nd instalment, in total US$2,710,222.67.  Furthermore, the undisputed evidence is that the plaintiffs did withdraw from the management of the rubber plantation after the signing of the August Agreement.  There is in my view no merit in the defendants’ contention thatany option arose under the August Agreement and, if it did, then the said option has been exercised and the plaintiffs have correspondingly relinquished their management rights over the plantation. 

25.  The defendants having failed to establish the alleged oral pre-conditions to the August Agreement, and having failed to establish that the August Agreement contained any option, the defendants’ defences in this matter fail, and I find that the plaintiffs have proven their case and the 1^st and 2^nd defendants are liable to the 1^st and 2^nd plaintiffs under the August Agreement in the sum of US$9,928,776,33 being the unpaid balance of the primary sum of US$12 million together with contractual interest.  I note that although the interest here is substantial, it has never been the defendants’ case that such interest was in any way a penalty or was otherwise unenforceable.

26.  As noted the 2^nd defendant entered into a personal guarantee dated 8 August 2011 whereby she unconditionally guaranteed the payments to be made by the defendants under the August Agreement.  Mr Hon on behalf of the plaintiffs has submitted that should his clients’ claim under the August Agreement succeed, that this guarantee is immaterial.  However, he has through an abundance of caution still relied upon the same, and the claim under the guarantee has never been abandoned.  In these circumstances I find that if, for whatever reason, any payment due under the August Agreement is not made to the plaintiffs, that the 2^nd defendant remains liable for the same under her guarantee dated 8 August 2011. 

27.  The undertaking entered into by the 1^st and 2^nd defendants and also dated 8 August 2011 does not in view of the joint and several liability of the 1^st and 2^nd defendants under the August Agreement, add anything further.  However, the claims under the said undertaking have never been abandoned and I find that the undertakings given by the 1^st and 2^nd defendants are valid and subsisting, and if the sums payable under the August Agreement are not made to the plaintiffs, that the undertaking entered into by the 1^st and 2^nd defendants is enforceable.

28.  The 2^nd plaintiff gave evidence as to the methodology and the calculation of the contractual interest due under the August Agreement.  In the amended Statement of Claim the plaintiffs have pleaded that the total outstanding principal is US$9,928,777.33 [US$12,000,000 − US$2,071,222.67].  Interest on the instalments under the August Agreement is then calculated as at 19 November 2014, being the date prior to the date of the last payment made by the defendants, at US$7,989,992 in total US$17,918,769.33 and thereafter accruing at the rate of US$9,928.78 per day. 

29.  In their pleaded case the defendants made a general denial of the interest due but this was on the basis that the defendants had no liability to the plaintiffs.  At trial Counsel for the defendants did not seek to challenge or contradict the plaintiffs’ calculation of interest.

30.  In these circumstances, I accept the plaintiffs’ calculation of the contractual interest on the sums due under the August Agreement.

Disposition and costs

31.  In the premises, there will be judgment for the plaintiffs.  The Court makes the following Orders:

(i) The 1^st and 2^nd defendants are jointly and severally liable under the August Agreement to pay to the plaintiffs the sum of US$17,918,769.33.

(ii) The 1^st and 2^nd defendants are jointly and severally liable to pay to the plaintiffs interest at the rate of US$9,928.78 per day from 20 November 2014 on the said sum of US$17,918,769.33 until the date of judgment, and thereafter at the prevailing judgement rate. 

(iii) If the said sums or any part thereof payable under the August Agreement are not made to the plaintiffs, the said guarantee entered into by the 2^nd defendant and dated 8 August 2011 may be enforced against the 2^nd defendant in respect of the same.

(iv) If the sums or any part thereof payable under the August Agreement are not made to the plaintiffs, the same may be enforced pursuant to the undertaking made by the 1^st and 2^nd defendants and dated 8 August 2011. 

(v) There will be an order nisi that costs of this action be paid by the defendants to the plaintiffs forthwith to be taxed if not agreed.