GOLDLION PROPERTIES LTD AND OTHERS v. REGENT NATIONAL ENTERPRISES LTD

CACV 23/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL HCMP 5273/2003

CIVIL APPEAL NO. 23 OF 2007

(ON APPEAL FROM HCMP NO. 5273 OF 2003)

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J U D G M E N T

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Hon Tang VP :

Introduction

1.  Mr Joseph Kin Ching Lo (“Mr Lo”) and Mr Derek Lai (“Mr Lai”), both partners of Deloitte Touche Tohmatsu (“Deloittes”), were the joint and several liquidators of Kimberly Hotel Holdings Ltd (“KHHL”), a BVI company, which was in liquidation as a result of winding up proceedings by Bank of China (Hong Kong) Limited (“BOC”), the successor to Bank of China, Hong Kong Branch, in the British Virgin Islands (“BVI”) under Claim No. BVIHCV2002/0184 (“the BOC winding up proceedings”).

2.  The defendant, Regent National Enterprises Limited (“the defendant”), is a Hong Kong company, and a wholly owned subsidiary of High Pressure Resources Ltd (“High Pressure”), a BVI company, which is in turn a wholly owned subsidiary of KHHL.

3.  The defendant is the owner of a property known as Kimberley Hotel at No.28 Kimberley Road and No.28 Kimberley Street, Kowloon, Hong Kong (“the Property”).

4.  On 15 October 2002, the liquidators removed the then existing directors of the defendant, including Mr Stephen Lau Hei-wing (“Mr Lau”), and appointed in their places, corporate directors under the control of Deloittes.  It appeared that Mr Lau was the ultimate beneficial owner of the defendant through his ownership of Far East Express Company Limited (“Far East”), a BVI Company, the holding company of KHHL.

5.  Until about December 2002, Radier Limited Company (“Radier”), another wholly owned subsidiary of KHHL, operated the business of a hotel at the Property under the name of “Kimberly Hotel”.

6.  By a Sale and Purchase Agreement dated 23 July 2003 (“the Agreement”), the defendant agreed to sell the Property to the 1^st plaintiff for $700 million.  Completion was to take place on or before 12 noon on 21 November 2003.  A deposit of HK$70 million was paid, the balance was to be paid on completion.  Time was of the essence of the Agreement ‘in every respect’.  The other plaintiffs are nominees of the 1^st plaintiff under the Agreement.

7.  Koo and Partners (“KP”) were the conveyancing solicitors for the defendant.  However, Clifford Chance (“CC”) were engaged to advise the defendant on 26 August 2003 as a result of a letter written by Siao, Wen & Leung (“SWL”) on Mr Lau’s behalf on that date.  Mr Campbell Korff (“Mr Korff”), a partner, had the conduct of the matter on behalf of CC.  CC were instructed to advise because of possible conflict of interest with BOC, whose solicitors were also KP.

8.  Clause 13.2 of the Agreement is important and provides:

“13.2     Notwithstanding the provisions in Clause 13.1 above, the parties hereto agreed that should the Vendor become unable or fail to complete the sale and purchase of the Property on the completion date due to any matter (including and without limitation to third party action) beyond the reasonable control of the Vendor and which in the reasonable opinion of the Vendor materially hinders, prevents or obstructs the completion of the sale and purchase of the Property, the Vendor shall, within 3 business days of the date fixed for completion, return all deposits and other monies paid by the Purchaser in connection with the purchase of the Property, together with all interests accrued thereon and the actual costs incurred by the Purchaser in connection with the purchase, as full and final settlement of the Purchaser’s claim herein and (conditional upon the receipt of such deposits, interests and costs) the Purchaser shall not take any further action to claim for damages or to enforce specific performance.  The Purchaser also agrees that (conditional upon such receipt as aforesaid) it shall have no claims against Deloitte Touche Tohmatsu, its partners, principals, directors, managers and staff, and in all cases, any successors or assignee, Bank of China (Hong Kong) Limited, their agent and solicitors by reason of the Vendor’s inability or failure to complete the sale hereunder for the reason aforesaid.”

9.  At 10:21 p.m. on 20 November 2003, KP, solicitors for the defendant, by fax to Johnson, Stokes & Master (“JSM”), the plaintiffs’ solicitors, purported to terminate the sale under clause 13.2.  The fax stated:

“We are instructed by our client that the following court proceedings have been commenced:

(1)     a petition for the winding-up of our client in the late afternoon of 19^th November 2003 under HCCW 1285/2003.  The presentation of the winding-up petition triggers, inter alia, the prohibition of disposition of the company’s assets under Section 182 of the Companies Ordinance; and

(2)     a Notice of Application in the High Court of Justice, British Virgin Islands, under Claim No. BVIHCV2002/0184 on 20^th November 2003.  The Applicant of the action has applied for a stay of the winding-up of Kimberley Hotel Holdings Limited, the company’s parent, and a stay of the sale of the Property (collectively, the ‘Proceedings’).

The Proceedings are, in our client’s reasonable opinion, beyond the reasonable control of our client and will materially hinder, prevent or obstruct the completion of the sale and purchase of the Property on the scheduled completion date.”

These two events will be referred to as the Waygood petition and the BVI application.

10.  It was Mr Lo’s evidence that the decisions relating to the termination were in fact made entirely by him and that Mr Lai and the five corporate directors played no part whatsoever in the decision to terminate.  [Day 2 page 115 line 14]

11.  The defendant also sought to rely on an ex parte injunction, granted by the BVI High Court (“the BVI injunction”) at about 5 a.m. Hong Kong time, on 21 November 1999, in the BVI winding up proceedings, restraining the liquidators and the defendant, inter alia, from completing the Agreement, pending the hearing of the BVI application.

12.  Deputy Judge Longley, after trial, held that the defendant was entitled to terminate the sale under clause 13.2 of the Agreement because of the BVI application but not the Waygood petition or the BVI injunction.  He dismissed the plaintiffs’ claim for specific performance.

13.  This is the plaintiffs’ appeal.

Background

14.  BOC was the mortgagee / chargee of the Property.  Under a debenture dated 6 June 1996 and a second mortgage dated 11 June 1997, which were entered into pursuant to a loan agreement dated 6 June 1996 as amended by a supplemental agreement dated 29 May 1997, under which BOC agreed to make available to the defendant a loan facility of US$200 million.  It appeared that the loan agreement was guaranteed by Mr Lau.  An issue at trial, which has been deferred, was whether BOC was obliged to release its right under the debenture and mortgage if the Agreement was otherwise specifically enforceable.

15.  By a share charge dated 29 May 1997 given by High Pressure and KHHL in favour of BOC (“the share charge”), all the shares in the issued capital of the defendant were charged to the BOC.  Under the share charge of 29 May 1997, High Pressure and KHHL were liable to pay to the BOC jointly and severally on demand the liability of the defendant arising out of the loan agreement of 6 June 1996, including all amendments and supplements thereto.

16.  On 2 October 2002, BOC petitioned in the BVI for the winding up of KHHL, on the ground that KHHL had failed to pay the BOC, the principal sum of US$265,788,819.79 under the share charge.

17.  Mr Lo and Mr Lai were appointed as provisional liquidators on 3 October 2002.  KHHL was ordered to be wound up on 25 November 2002.  On the same day, Mr Lo and Mr Lai were appointed liquidators by the BVI court.

18.  On 4 October 2002, BOC petitioned in Hong Kong for the winding up of Radier.  A winding up order was made on 4 December 2002.

19.  From around January 2003, the business of the Hotel had been carried on by the defendant through Fancy Kingdom Limited (“Fancy Kingdom”), its wholly owned subsidiary and appointed manager. The directors of Fancy Kingdom were Kerry Secretaries Limited and Kerry Management Limited, two of the defendant’s directors, appointed by the liquidators.

20.  In or about June 2003, the defendant through Messrs. Debenham Tie Leung Limited (“DTZ”), its appointed sole sales agent, offered the Property for sale by private tender.  According to Mr Lo:

“7      Instead of exercising its right to sell the Hotel under the Debenture and the Second Mortgage, BOC has asked the Defendant to sell the Hotel and apply the proceeds towards discharging the Defendant’s outstanding liability to BOC under the Facility.”  2^nd affirmation filed on 27 January 2004.

21.  On 16 July 2003, a Provisional Agreement for the Sale and Purchase of the Property was entered into between the defendant and the 1^st plaintiff as purchaser.

22.  Pursuant to the Provisional Agreement, the Agreement was entered into on 23 July 2003.

Waygood petition and BVI application

23.  The Waygood petition was presented in Hong Kong on 19 November 2003 by Waygood Investment Limited (“Waygood”) which alleged that the defendant was indebted to it in the sum of HK$49,037,812.42 “as a result of moneys advanced by the Petitioner to the Company via one Radier Limited”.

24.  The BVI application was filed on behalf of Mr Lau in the BOC winding up proceedings at 11:27 BVI time (23:27 Hong Kong time) on 19 November 2003 for leave to appeal against the winding up order out of time and a stay of the winding up order pending appeal including:

“… in particular the sale of the Company’s assets by the court appointed liquidators.”

25.  The BVI application was supported by Mr Lau’s affirmation which was affirmed in Hong Kong on 19 November 2003.  In his affirmation, he stated that he was a person aggrieved by the winding up order since he was the ultimate beneficial owner of KHHL:

“… and by extension its major asset, the Kimberly Hotel, which I hold through the Respondent, Regent National Enterprises Limited (the legal owner of the hotel) and Radier Limited Hotel (the hotel management company) … ”

26.  It appeared from his affirmation that he was born in PRC but had lived and worked in the USA and Hong Kong for 23 years.  That on 23 July 1999, he was detained by the Central Commission for Discipline Inspection (CCDI) to assist investigation and was only released 3½ years later on 30 January 2003.  He also claimed that in October 1997, a property, No. 117 Repulse Bay, which was then beneficially owned by him, was charged as security to the BOC in return for a loan up to HK$440 million for the redevelopment of the Repulse Bay property of which about HK$125 million was drawn thereunder.  He went on to say:

“13.   In May 1999, the loan plus interest thereon amounting to about HK$130 million granted by the Petition was due to be repaid. For reasons best known to the Petitioner, the Petitioner, through its solicitors, threatened to appoint receivers to take possession of Repulse Bay property. The Petitioner further proposed that it could release the mortgage forthwith on repayment of the outstanding loan.  It was then agreed between myself and a corporation, China Everbright Group that they would grant me a loan of USD20 million to repay the Petitioner’s loan and, after repayment, the Repulse Bay property would be charged to this corporation as security for the USD20 million loan. In effect, this meant this corporation would replace the Petitioner as the mortgagee of the Repulse Bay property. I notified the Petitioner accordingly.

Agreement with Petitioner

14.    At a meeting at the Petitioner office in Hong Kong in May 1999 convened for this purpose, attended by myself, my solicitor Anthony Leung, my financial controller, Ken Yiu, and Chu Ka Wing, the Deputy General Manager of the Petitioner, details of return of the Repulse Bay Property and the release of the mortgage were sorted out with the Petitioner and the Petitioner agreed to so release the mortgage on repayment of the HK$125 million plus interest due to the Petitioner. I had no reason to disbelieve Chu Ka Wing, a very senior officer of the Petitioner, but in addition, I had absolute trust in the Petitioner’s words. The relevant part of our conversation (in Cantonese) is set out hereunder:-

‘Chu: You repay this sum (US$20 million), we will surely release the mortgage of this property to you. Why complicate the matter to sign an agreement.

‘Lau: But if you refuse to release the property after I repay the money, what can I do?

‘Chu: I am in this capacity to do things and to negotiate with you. We being such a major reputable bank, have promised to release back to you, you should trust us. If we do not release, you can sue us all the way. We will certainly lose the case to you. Therefore, you do not have to worry.’

There are now shown to me and exhibited as ‘LHW4’ copies of (1) Affirmation of Leung Tat Kin, Anthony dated July 11, 2003 and (2) Affirmation of Yiu Ying Fai dated July 12, 2003 together with their English translation.

15.    In reliance on the said agreement and assurance, I caused or authorized the USD 20 million from the aforementioned corporation to be paid to the Petitioner on or about May 24, 1999.

Breach of Agreement

16.    In breach of the agreement referred to in paragraph 14 above, however, the Petitioner instead of applying the USD20 million to the Repulse Bay property mortgage account, applied the monies to the Regent National loan account, the loan facilities referred to in paragraph 11 above.”

27.  Mr Lau claimed that as a result of the BOC’s breach of agreement:

“24.   The total losses inflicted on me and my companies to date exceed HK$2.644 billion, as particularized below:-

(1)     The liquidation of the garment business (Synergy Group): (i) HK$684 million, i.e. HK$57 million x 12 (based on a like profit/earning ratio), (ii) disposal (fire sale) of the stock originally worth HK$300 million and (iii) HK$300 million being loss of goodwill/brand name ‘Synergy’, which was, prior to my detention, acclaimed the best supplier of the year by Walmart=HK$1.284 billion (in total).

(2)     Potential and aborted resale of the Hotel: I had also received an offer from an independent third party shortly before my detention in China to purchase the Hotel at HK$1.8 billion (the difference between that and the current market value i.e. about HK$700 million=HK$1.1 billion).

(3)     E-commerce business: I was made to lose the business opportunity (i.e. investment made by an independent investor referred to in paragraph 17 above), apart from the initial investment that was already made by me in the total sum of HK$10 million prior to my detention and had to be written off due to my absence ultimately.

(4)     Investment in real estate (including Shanghai, Nanjing and Changsa) which depreciated in value and were compulsorily resold/disposed of in my absence: HK$100 million (in total).

(1)     Quotas: HK$100 million.

(2)     Resale of my steel mill in my absence: HK$50 million.”

28.  Mr Lau did not say in his affirmation that KHHL was not indebted to BOC or that KHHL had a cross-claim in excess of the claim by BOC or at all.

29.  In para. 14 of Mr Lau’s affirmation he referred to and relied on an affirmation of Mr Leung Tat Kin, Anthony (“Mr Leung”), dated 11 July 2003, and an affirmation of Mr Yiu Ying-fai (“Mr Yiu”) dated 12 July 2003.  Mr Leung was a partner of SWL.  Mr Leung’s affirmation was affirmed in Hong Kong on 11 July 2003 and it referred to an affirmation of Mr Lau also affirmed on 11 July 2003.  The affirmation of Mr Lau dated 11 July 2003 has not been made available.  Although the BVI application was not made until 19 November 2003, it is likely Mr Lau had some such application in mind since about July 2003.  Mr Leung’s affirmation supported Mr Lau’s evidence relating to the meeting on 23 May 1999.

30.  Mr Yiu is a certified accountant, he made his affirmation on 12 July 2003 in Hong Kong.  Mr Yiu confirmed the truthfulness and accuracy of Mr Leung’s affirmation relating to the meeting.  Mr Leung’s and Mr Yiu’s affirmations were made in the BOC winding up proceedings.

BVI Injunction

31.  At 5 p.m BVI time on 20 November 2003 (5 a.m. Hong Kong time on 21 November 2003), Mr Lau obtained an ex parte injunction in the BVI winding up proceedings essentially to restrain the liquidators and the defendant from, inter alia, completion on 21 November 2003.

32.  The order was not formally served on the defendant.  By letters faxed between 11:44 and 11:46 on 21 November 2003 to BOC, CC and KP, but without enclosures, SWL stated:

“In essence, you, among others, are restrained from carrying out any acts in furtherance of the disposal of the Hotel pending the hearing of our application for leave to appeal.  Your attention is also drawn to the Penal Notice endorsed on the Court Order …”

33.  It appeared that the letter, the summons, affidavit and order were delivered to KP at 11:51 a.m. on 21 November 2003.

34.  There is no indication in any of these letters that there had been any earlier oral communication of the injunction.

Events leading to Termination

35.  As early as 14 August 2003, SWL wrote to Deloittes on behalf of Mr Lau, who was there described as the ultimate beneficial owner / shareholder of Synergy Finance Limited (“Synergy”), saying:

“It is our instructions that Messrs Joseph Lo and Derek Lai of your firm have been appointed the liquidators of the registered shareholders and directors of Regent National Enterprises Limited (‘the Company’) (please note that their purported appointment has been in dispute and our client will apply to set aside the same in due course, including but not limited to contesting the validity and bona fide of the winding up proceedings initiated by the Bank of China (‘BOC’), a creditor of the Company).

It is our instructions that:-

(1)     the Company is presently indebted to SFL. In the sum of at least HK$75 million (a copy of Reconciliation Statement of the current account with our client is enclosed); and

(2)     the Company, under the management of the liquidators and on the instructions and/or consent of BOC, has recently sought to resell the Kimberley Hotel at less than its market value, thereby prejudicing the interest of, among others, our client.”

36.  It was this letter which led to the involvement of CC and Mr Korff.

37.  CC replied on behalf of the liquidators by letter dated 26 August 2003, stating that the liquidators were the liquidators of KHHL and not of the defendant, and that Synergy did not appear to be a creditor of KHHL.

38.  On 19 and 22 September 2003, Mr C Y Leung of DTZ called Mr Adrian Fu of the 1^st plaintiff to ask if the 1^st plaintiff would sell the hotel back to BOC. The 1^st plaintiff was not willing to do so.

39.  On 24 October 2003, SWL made a statutory demand on behalf of Synergy on the defendant for the sum of $75,618,287.63.  On 25 October 2003, SWL made two statutory demands on behalf of Waygood and Mr Lau respectively on the defendant for the sum of HK$49,037,812.42 and HK$112,155,812.17 respectively.

40.  On 28 October 2003, CC wrote on behalf of the liquidators in relation to the three statutory demands that:

“According to the books and records of Regent National which are in the possession of the Liquidators, neither Synergy, Aood nor Mr Lau are creditors of Regent National. Unless Synergy, Waygood and Mr Lau are able to provide satisfactory evidence establishing that they are creditors of Regent National for the amounts demanded (in the sum of HK$75,618,287.63, HK$49,037,812.42 and HK$112,155,812.17 respectively), the management of Regent National do not consider that there is any basis to their demands for repayment from Regent National. Any petition for the winding-up of Regent National presented on the basis of such spurious claims against Regent National will be vigorously defended and your clients will be held responsible for any damages and/or costs incurred by Regent National and/or the Liquidators.”

41.  At the same time, CC advised the liquidators that under section 182 of the Companies Ordinance, Cap. 32:

“It has been held in English case law that where a company has entered into an unconditional contract for the sale of property before the petition is presented which is specifically enforceable by the purchaser and the contract is duly completed in accordance with its terms after the petition has been presented, there is no disposition of company property which fall within the equivalent of section 182 in England. However, in the same case, it was stated that unless a contract is quite plainly specifically enforceable and there is no possible defence it may well be prudent to seek the approval of the court for the completion of the contract.”

42.  SWL wrote again on 12 November 2003:

“1.    Your assertion that ‘[a]ccording to the books and records of Regent National, neither Synergy, Waygood nor Mr. Lau are creditors of Regent National …’ or about the ‘spurious claims’ is totally baseless and ludicrous.

2.      As you may know, the winding up proceedings and the Orders (which gave rise to the purported appointment of the present ‘directors’ of your client) will be challenged.”

43.  CC responded by letter of 14 November 2003:

“1.     As stated in our 10 November 2003 letter, according to the books and records of Regent National, neither Synergy Finance Limited, Waygood investment Limited nor Mr Lau Hei Wing (together, the ‘Purported Creditors’) are creditors of Regent National for the sums demanded or otherwise. It is incumbent upon the Purported Creditors to prove their debts and unless that is done, the management of Regent National see no basis for the Purported Creditors’ demands for repayment.

2.      Your clients have neither grounds nor standing to lodge an appeal against the Order for the winding-up of Kimberley Hotel Holdings Ltd (‘KHHL’). Further, the liquidators of KHHL (the ‘Liquidators’) acted properly in appointing the current directors to Regent National and your clients have no basis for challenging the appointment of these directors.

Any petition for the winding-up of Regent National presented on the basis of the unfounded demands of the Purported Creditors and any other unmeritorious application(s) will be vigorously defended and your clients will be held responsible for any damages and/or costs incurred by Regent National and/or the Liquidators.”

44.  It appeared that CC was informed of the Waygood petition at about 5 p.m. on 19 November 2003 and the BVI application close to 1 p.m. on 20 November 2003.

45.  By letter dated 20 November 2003, which was faxed to CC at 18:43 without enclosures, and delivered by hand with enclosures at 18:44, Gallant Y. T. Ho & Co. (“GYTH”), solicitors then acting for BOC, wrote to CC stating that:

“To the best of our client’s information, knowledge and belief, the company is not indebted to Waygood and Waygood has no standing whatsoever to bring the petition for winding - up against the company.  However, because of s. 182 of the Companies Ordinance and taking into account the application made by Lau Hei Wing Stephen in the BVI Court, our client believes that it would be prudent for the company to inform the purchase of the situation and to give notice to the Purchase that an event described in (Clause 13.2) as occurred which materially hinders, prevents or obstructs the completion … which is scheduled to take place tomorrow …”

46.  There was a meeting between Mr Lo and Mr Korff and others from about 18:30 / 19:00 at the end of which Mr Lo decided that the sale should be terminated under clause 13.2.  At 22:21 KP by fax to JSM terminated the sale. 

Clause 13

47.  Clause 13 of the Agreement came under the rubric of “default of the vendor”.  Clause 13.1 gave the usual remedy to the purchaser in the event of default by the vendor.  Clause 13.2 gave the vendor the right to terminate the sale should it:

“… become unable or fail to complete the sale and purchase of the Property on the completion date due to any matter … beyond the reasonable control of the Vendor and which in the reasonable opinion of the Vendor materially hinders, prevents or obstructs the completion …”

48.  However, clause 13.3 gave the purchaser a right of pre-emption:

“If the Vendor, after having invoked the provisions of Clause 13.2, is in a position to offer the Property for sale in future …”

49.  The right of pre-emption would cease upon the expiration of 36 months from the date of the vendor invoking clause 13.2 or the release of the Property from mortgage / charge, whichever is the earlier.  Clause 13.4.

50.  It is important to note that clause 13.2 does not require that the matter relied on actually “materially hinders, prevents or obstructs the completion” but that in the reasonable opinion of the vendor, there was indeed a material impediment.  I will in due course consider the correct test for reasonableness.  However, in determining whether the opinion is reasonable it may assist to decide whether there was in fact a material impediment.

Interpretation of Clause 13.2

51.  Clause 13.2 covers both inability and failure to complete.  Mr Yu SC, who appears for the defendant in the appeal, but not below, submitted that if the vendor is unable to complete he does not have to first form an opinion that it was due to any matter beyond the vendor’s control which materially hinders, prevents or obstructs the completion.

52.  I agree with the learned judge that as a matter of simple grammatical construction, those words qualify both the words “unable” and “fail” to complete.

53.  Mr. Michael Thomas, SC, who appeared for the plaintiffs in the appeal, but not below, submitted that because clause 13.2 can only benefit the defendant and deprive the plaintiffs of his bargain, it should be strictly construed both on contra proferentem grounds and as a force majeure clause.

54.  Mr Thomas also submitted that the main purpose of the Agreement is to oblige the parties to complete the sale, and the clause should, as far as possible, be construed in a way that is consistent with and furthers that object.  Chitty on Contracts, 29^th edition, para. 14/007-8.  As an exemption (or self-exemption clause), the defendant bears the burden of proving that the case falls within its provisions, that the defendant must bring itself squarely within the clause.  Thus, all ambiguities should be resolved against it.  Chitty on Contracts, para. 14/009.

55.  Mr Yu did not dispute that the clause should as far as possible be construed in a way that is consistent with and furthers the object of the contract.  Or that the burden is on the defendant to prove that it was entitled to terminate the contract.  Mr Yu submitted clause 13.2 must be construed in its factual matrix and be given a commercially sensible construction.  Lord Steyn in Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749 at page 771.  He also submitted that the so-called “rules” of construction should “very much [be] a matter of last resort”.  Johnsey Estates Ltd v Webb and Ors [1990] 1 EGLR 80 at 82D per Millett J (as he then was).

56.  I believe clause 13.2 must be construed in its factual matrix, and be given a commercially sensible construction, and that the so-called rules of construction should very much be a matter of last resort.  I agree with Mr Yu that although the defendant was not itself in liquidation, it was a ‘distress asset disposition’.  I also agree that clause 13.2 was included to avoid protracted litigation if disputes should arise, for example, over the ability of the vendor to give good title due to (though not limited to) third party action.

57.  Mr Thomas submitted that even if a qualifying event had occurred which could materially impede completion, the defendant must also prove that it had taken all reasonable steps to avoid or mitigate it having that effect.

58.  He relied on Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323, in particular what Ralph Gibson LJ said at page 329:

“… the accepted construction of a force majeure clause of this nature, as to which there was no issue, requires that the party claiming its protection proves that there were no reasonable steps which it could have taken to avoid being prevented from performing its obligation by the incident or event said to be within the clause.”

59.  The force majeure clause in Channel Island Ferries Ltd provided:

“A party shall not be liable in the event of non-fulfilment of any obligation arising under this contract by reason of Act of God, disease, strikes, Lock-Outs, fire, and any accident or incident of any nature beyond the control of the relevant party.”

60.  I believe Channel Island Ferries Ltd turned on its own facts.  Parker LJ noted that the main submission advanced on behalf of Sealink was that they were prevented from fulfilling their obligations under the agreement by virtue of the agreement with the unions which, in its turn, was inevitable as a result of the unions’ attitude.  But that argument was rejected because there was no evidence as to what the unions might then have done:

“In order to succeed in the argument which was advanced, it would be necessary to have shown that had Sealink found alternative vessels and tendered them on bareboat charter, they would have been unable in effect to do so.  I can see no evidence, by inference or otherwise, that that was the position.”  See page 327.

61.  Channel Island Ferries Ltd decided no more than that in order to come within the force majeure clause, the defendant had to show the non-fulfilment of the obligation was due to strikes.  If the effect of the strikes could be avoided or mitigated by taking reasonable steps, it would not be the cause of the non-fulfilment.

62.  However, Mr Yu submitted that the vendor was under no obligation to take any reasonable step at all.

63.  Mr Yu placed considerable reliance on the The “Radauti” [1988] 2 Lloyd’s Rep 416 and Peter Dixon & Sons Ltd v Henderson, Craig & Co Ltd [1919] 2 KB 778.

64.  In The “Radauti”, the court was concerned with a claim for lay time while the vessel was waiting for a berth.  The owners relied on a force majeure clause, which excepted liability for:

“33   Force majeure: … or any other … hindrances happening without the fault of the Charterers ... delaying … discharging ... of the cargo …”

65.  Lloyd LJ said at page 420:

“Finally, Mr. Young relied on the fact that cl. 33 is headed ‘Force Majeure’.  This means, he says, that ‘hindrances happening without the fault of the charterers’ should be limited to hindrances which were unpredictable as well as unavoidable.  It is sufficient to say that I can see no justification for so limiting the ordinary meaning of the words by reference to the heading.  ‘Force Majeure’ is clearly used as an omnibus description for a variety of different causes.  The rubric does not affect the meaning of each individual cause.”

66.  Peter Dixon & Sons Ltd was concerned with a contract for the sale of wood pulp made in 1911.  Deliveries were made until the commencement of the First World War.  It was held that although the pulp would have been available at an increased price, but the position had been so changed by the war that the sellers although not “prevented” were hindered from carrying out the contract within the meaning of the force majeure clause, and were therefore entitled to suspend delivery.

67.  Mr Yu relied on this passage from the judgment of Bankes LJ at page 788:

“I ask myself is that evidence of a real hindrance of the delivery of these goods? It seems to me that there is but one answer to that question: that it is a real hindrance. It is said, ‘Oh, yes, it is all very well to say it is a real hindrance, but you could have got over that difficulty by making other arrangements; you did in some cases make other arrangements, and other people made other arrangements.’ But it appears to me that, when once the real hindrance is established, it is quite immaterial to suggest that the difficulty could have been overcome by paying this largely increased price; because the answer is this: The sellers were not prevented, because they could have made other arrangements; but they have established the fact that they were hindered, and it is no answer to say that they were not prevented, so long as they can say they have established the fact that they were hindered.”

68.  I believe both dicta have to be read in context.

69.  Mr Yu argued that provided the impediment was beyond the reasonable control of the vendor, the vendor was under no obligation to remove it.  Thus, he submitted that the defendant was not obliged to make a section 182 application.  But that cannot be right.  Supposing that the Waygood petition was presented 3 months before the day of completion, I cannot agree that the vendor would be under no obligation to seek a validation order under section 182.  The inability or failure to complete must be due to a matter which materially hinders prevents or obstructs completion.  An impediment which could reasonably be removed is not a material impediment.  Nor would it be beyond his reasonable control.

70.  On the other hand, I do not agree with Mr Thomas that on the happening of an event which was a material impediment to completion, the obligation to take reasonable steps to remove the impediment meant that time ceased to be of the essence.  The parties could have agreed that in the event of a material impediment beyond the vendor’s reasonable control, completion should be postponed, say, by an agreed period, but they have opted for clause 13.3 which expressly and specifically provided the purchaser with a right of pre-emption only.

71.  Although the defendant was obliged to take reasonable steps to avoid or mitigate the effect of the matters relied on, I must consider what those reasonable steps might entail.

72.  Mr Thomas submitted that clause 13.2 should be construed so that even if the BVI application had given rise to a potential title problem, completion was not hindered, prevented or obstructed, unless the defendant having been informed of it, objected and insisted on the objection.  Nor would the Waygood petition be a material impediment to completion, if the plaintiffs were prepared to accept title.  The plaintiffs had not insisted on an section 182 application prior to completion although JSM had in correspondence asked how the vendor proposed to give title having regard to section 182 and the Waygood petition.  It was a reasonable question to ask but one should not infer that the plaintiffs would have refused to complete.  Mr Thomas submitted that, insofar as the Waygood petition and the BVI application affected title, and it arose after 16 July 2003, the cut-off date for acceptance of title under clause 5.1(a) of the Agreement, the defendant was obliged to inform the plaintiffs and they would be entitled to a reasonable time to consider them, to raise requisitions, and in the light of the answers, to decide whether to accept a transfer of title.

73.  I agree.  In Active Keen Industries Ltd v Fok Chi-keong [1994] 1 HKLR 396, Litton JA (as he then was) said at 406:

“… The purchaser must be given reasonable time to consider the title of the vendor and his own position; the implied obligation of showing a good title would not have been discharged by disclosure on the day fixed for completion.”

74.  Mr Yu submitted that the point had not been taken at trial.  That is not so.  In para. 8(d) of his 2^nd affirmation Mr Yip said that no attempt had been made by the defendant to explore with the plaintiffs whether they would be prepared to complete the purchase of the Property.

75.  Furthermore, if the defendant was obliged to give a reasonable time to the plaintiffs to consider whether or not to complete, but had failed to do so, the burden would have been on the defendant to show that the plaintiffs would have refused to complete anyway.

76.  Since the plaintiffs had not been given an opportunity to decide whether or not to accept title notwithstanding the Waygood petition or the BVI application, I am of the view that the defendant was not entitled to invoke clause 13.2.

The test of reasonableness

77.  I go on to consider whether, on the assumption that the defendant was not obliged to give the plaintiffs an opportunity to accept title, the defendant was entitled to rely on clause 13.2.  That will largely depend on the reasonableness of the defendant’s opinion that there was a material impediment.  Although, at trial and on appeal, the emphasis had been on Mr Lo’s opinion, strictly speaking, it was the defendant’s opinion which mattered.

78.  Mr Yu submitted that the learned judge was wrong in not adopting the approach adopted by the Court in Final Appeal in Regal Success Venture Ltd v Jonlin Ltd & Anor [2000] 3 HKCFAR 364.

79.  The learned judge said:

“39.   While I accept Mr Tong’s submission that the court must consider whether the defendant’s opinion was bona fide and one within the range of possible reasonable opinions in all the circumstances, I do not accept his submission that on the analogy of Regal Success Venture Ltd v. Jonlin Ltd [2000] 3 HKCFAR 364, the court is bound to find the defendant’s opinion as reasonable unless it can quickly be seen to be absurd or ridiculous.  The situation in Regal Success was quite different to that in a case such as this.  That case involved a ‘solicitor’s satisfaction clause’ where both parties had nominated an independent solicitor who would act for both of them in order to avoid protracted litigation where legally uncertain points as to title arose.  The term ‘reasonable’ was not used in the Sale and Purchase Agreement.  The court was simply concerned with the basis upon which in those circumstances the opinion of the solicitor could be challenged.  In the present case, the court is dealing with the force majeure clause which specifically refers to ‘a reasonable opinion’ where the person relying upon the clause must prove that the circumstances referred to in the clause have arisen, in particular that he held the specified opinion and that it was reasonable.”

80.  Regal Success was concerned with the sale of shares in a company which was the owner of the property.  The Agreement provided that the vendor must prove the company had good title to the property to the satisfaction of S, the solicitor who acted for both parties in the transaction, and gave the purchaser an option to terminate if S was not satisfied that the vendor had the title.  There the clause relied on, was a ‘solicitors satisfaction clause’ the rationale of which is the avoidance of litigation.  Ribeiro PJ said (with the concurrence of the other members of the court) at page 371:

“… In the absence of ‘bad faith or unreasonable conduct’ on the part of the solicitors or the purchaser, the solicitors’ withholding of approval entitles the purchaser to terminate the contract, even if the grounds for the solicitors’ dissatisfaction with the title might ultimately be shown to have been invalid.”

81.  Ribeiro PJ went on to consider whether the solicitors’ opinion were invalidated by unreasonableness and concluded at page 377 that the appropriate approach to unreasonableness in the context required that the:

“… objection can quickly be seen to be absurd or ridiculous, …” page 377

82.  I do not believe the fact that clause 13.2 stipulated for reasonable opinion required a higher standard.  In Chin Chiu Cheng v Kan Fat Cotton Co. Ltd. [1999] 2 HKC 502, Godfrey JA thought that even where:

“12.   … no such words as ‘acting reasonably and in good faith’ appeared … they had necessarily to be implied.”

I believe I must apply the Regal Success test.

The Waygood petition

83.  The learned judge decided in favour of the plaintiffs on the Waygood petition.  He did so, essentially because it was not beyond the defendant’s reasonable control: the defendant could have obtained an injunction to restrain the petition.  The fact that he had not explicit advice from Mr Korff did not make his inaction reasonable.  Also, the defendant could have applied under section 182.  Moreover, the defendant should have offered the plaintiffs an opportunity to complete notwithstanding the Waygood petition.

84.  The learned judge said:

“79.   … Joseph Lo was a partner in Deloittes and an experienced liquidator.  It was no answer for him to rely upon the fact that he did not receive express advice from his solicitors that he should seek such an [injunction] when he knew such an option was open to the defendant and had received no advice to the contrary.

……

81.    As an alternative, bearing in mind that the burden lies on the defendant to show that the failure to complete was due to a matter beyond its reasonable control, it has failed to adduce any adequate evidence of the steps it took, bearing in mind the explicit threat of a winding-up petition, to prepare an application and secure an appointment before a judge to obtain a validation order prior to the noon deadline on 21 November 2003 and in particular why it ceased attempts to seek a validation order after 10:21 p.m. on 20 November 2003.  As a further alternative it has failed to show it took any steps to seek the agreement of the plaintiffs to completing the sale before the noon deadline but going through ‘the formality’ of obtaining a validation order thereafter.  In summary I find that the defendant has failed to show that the presentation of the petition was a matter beyond its reasonable control or that, even if it had been, the consequences were not within such control.”

85.  Mr Lo had said that the views expressed by CC in their letter of 10 November 2003 to SWL represented views which he had firmly formed in his own mind in relation to the Waygood claims, that it was “spurious, unfounded groundless”.  Mr Lo said that his decision up to and including the morning of 20 November 2003 was to complete.  He thought the best option was for the plaintiffs to accept the title without getting a section 182 order whatever.  Indeed Mr Lo had instructed KP to draft a letter to be sent to JSM as follows:

“… ‘Please be informed that our client has been served on it a winding up petition in the late afternoon on 19th of November. However, our client does not consider the petition is in any way justifiable. As such, they intend to proceed with the completion of the sale by the property tomorrow.’”

86.  With respect, I agree with the learned judge’s conclusion.  Insofar as may be necessary, if Mr Lo was of the opinion that the Waygood petition was a material impediment, he was unreasonable in the Regal Success sense.

The BVI application

87.  The learned judge was of the view that Mr Lo’s opinion that the BVI application was a material impediment was reasonable.

88.  The question here is whether Mr Lo’s opinion was objectively a reasonable one for a liquidator of a BVI company of ordinary professional skill and experience properly to entertain in the light of the facts known to him.  Mr Lo was a restructuring and insolvency specialist and as such he had managed, operated and disposed of numerous businesses and assets, covering a wide range of industries.  He had experience in liquidation in the BVI as well as in Hong Kong.  It was accepted that Mr Lo was not entitled to invoke the clause for extraneous considerations, such as his view of what might be expedient or safe for the liquidators’ personal protection: Regal Success 376H.

89.  The learned judge said:

“105. … The advice Joseph Lo had received from Campbell Korff was to the effect that the title he would transfer was potentially defeasible.  Even if there were elements of Campbell Korff’s advice that he might have queried as Mr Huggins suggests, it would have been unreasonable to disregard even a small possibility that Campbell Korff’s advice was correct bearing in mind the possible implications on the sale.”

90.  As I understand it, the application could only render the title potentially defeasible, if it might have led to the invalidation of the acts of the directors of the defendant.

91.  If we are concerned with a Hong Kong liquidation, I have no doubt that the setting aside of the winding up order would not affect the appointment of the directors, nor would it in any way invalidate the sale.  In other words, the defendant’s title was not potentially defeasible.

92.  That it is so, is plain:

“… If the third party has bought any property from an officer of the court before any appeal is heard, he will get a good title. Coke’s reasoning in Manning’s Case is unimpeachable:

‘If the sale of the term should be avoided, the vendee would lose his term, and his money, too, and thereupon great inconvenience would follow, that none would buy of the sheriff goods or chattels in such cases, and so execution of judgments ... would not be done.’”  Goff and Jones, The Law of Restitution, 7^th Edition, at para. 16-003.

93.  The directors were not officers of the court, but they were appointed by the liquidators, no doubt by exercising the shareholders’ rights, indirectly of KHHL.  The exercise of the liquidators’ rights would come under the principles stated in Goff and Jones.

94.  Mr Thomas also referred us to In re A.B. & Co. (No. 2) [1900] 2 QB 429.  In re A.B. & Co. was concerned with the remuneration of the official receiver who had been appointed interim receiver during the pendency of a bankruptcy petition which was ultimately dismissed without any receiving order having been made upon it.  It was held by the English Court of Appeal that the appointment continued to be valid until it was not set aside, and thus imparted validity to everything done under it, even though the bankruptcy petition was subsequently dismissed.

95.  In re Joseph Phillips Ltd [1964] 1 WLR 369, a decision of Buckley J, was also concerned with the remuneration of the official receiver who acted as the provisional liquidator of a company.  Buckley J said at page 375:

“… Once the winding up order was made the official receiver was bound, while the order stood, to proceed upon the footing that the order had been properly made. It was not for the official receiver to pre-judge the results of the appeal. The order having been made, it was the duty of the official receiver, if he thought that the continuance of the company’s business would adversely affect the interests of the creditors of the company, to discontinue the business, and that was what he did.”

96.  Mr Yu submitted that A.B. & Co. and Joseph Phillips Ltd were applicable to remuneration only.  I do not agree:

“… The petition being dismissed - … But it does not follow that all they have done is to be treated as if these had been no order sanctioning what they have done.”  Lindley MR said at 438:

‘Everything that was done by the officers of the Court under its order was good until that order was set aside; and, being good, of course the persons who carried it out were not wrong-doers.’  Collins LJ at 443”

97.  It is inconceivable that any reasonable professional liquidator would not be aware that he would be entitled to his remuneration as such, even if the order appointing him was subsequently set aside because the winding up order was set aside.  I am equally of the opinion that it is inconceivable that any reasonable professional liquidator would believe that, if he had carried on the business of the company, or had disposed of assets, or had entered into contracts, they could be impeached in the absence of any misconduct on his part.  So here, for example, it is inconceivable that the business of the defendant as well as the Hotel which had been run by directors “appointed” by the liquidators (by exercising shareholders’ rights) could be successfully challenged even if the BOC winding up was eventually discharged, and the liquidators removed.  I have no doubt that under Hong Kong law, even if the winding up order was set aside on appeal, that would not lead to the invalidation of the sale by the defendant.  Any opinion otherwise “can quickly be seen to be absurd or ridiculous”.

98.  However, the BOC order was made by a BVI court and the BVI application was made in the BVI.  So the question must be whether the opinion that the setting aside of the BOC winding up order in the BVI might lead to the invalidation of the Agreement is equally unreasonable.  In this context it is relevant to note that it was not Mr Lo’s evidence that he thought BVI law might be different from Hong Kong law.  In the absence of evidence to the contrary, I believe the court is entitled to proceed on the basis that BVI law on this aspect would be the same as English law.  This is what he said in cross-examination.

    “Q   You do not know. Right. Let me try and press on. In relation to the BVI application, did you have any reason to think that BVI law was any different to Hong Kong and English law?

    A    I think they would be similar, but honestly I can not guess.”

99.  I turn to consider whether Mr Lo’s opinion is reasonable.  Here, I must proceed on the basis that Mr Lo’s opinion was honestly held.  I am only concerned with the reasonableness of his opinion.  The test is the Regal Success test.  So I must ask whether looked at objectively, having regard to his attributes, his opinion that the setting aside of the BOC winding up order might invalidate the Agreement “can quickly be seen to be absurd or ridiculous”.  In my opinion, the answer is yes.

100.  The learned judge thought that Mr Lo’s opinion was reasonable because his opinion was based on the legal advice that he had received from Mr Korff.  If I am right that Mr Lo’s opinion “can quickly be seen to be absurd or ridiculous”, I do not believe it could be saved by Mr Korff’s advice.  Moreover, I am of the view that no reasonable liquidator would have acted on Mr Korff’s advice without query.

101.  The learned judge said:

“105. Although an experienced liquidator I do not consider that Joseph Lo’s opinion could be said to be unreasonable simply because he relied upon Mr Korff’s opinion without questioning the legal basis for it, or how likely it would be that the validity of the sale could be impeached. … The advice Joseph Lo had received from Campbell Korff was to the effect that the title he would transfer was potentially defeasible.  Even if there were elements of Campbell Korff’s advice that he might have queried as Mr Huggins suggests, it would have been unreasonable to disregard even a small possibility that Campbell Korff’s advice was correct bearing in mind the possible implications on the sale.

106.  I find that even a small possibility that the title to be passed to the plaintiffs was defeasible would be a material hindrance to the completion of the sale.”

102.  According to Mr Lo he received advice from Mr Korff at an evening meeting on 20 November 2003 after which the termination letter was faxed to JSM at 22:21.  The following passages from his evidence show Mr Lo’s state of mind at the time:

“A   Because it was quite a long meeting, so there were a lot of things discussed and a lot of scenario is analysed. As I said earlier, the thing that preoccupy me most was the litigation between Stephen Lau and Bank of China. And they were disputing, they were fighting, they were suing each other. This was at a level beyond my level, this was taking place above KHHL. So as the lawyers advised, it would potentially invalidate my appointment and hence the things that I have done. And the clause 13.2 was open to us. And you can see from Campbell Korff’s advice that he has pointed out that we can invoke 13.2 under that scenario, and to me I think that was a relatively safe, prudent way of terminating the sale, because the purchaser has the pre-emption right to buy the hotel anyhow. But if I chose to continue to complete the sale, and what if Stephen’s dispute wins --

……

A    Yes, his dispute with the Bank of China wins, that means that would potentially invalidate my appointment, that means I would have caused Regent National to do the wrong thing by parting with the hotel, which Regent National should not have done.”

103.  But it is important to note the terms and substance of Mr Korff’s advice.  That can be found in Mr Korff’s affidavit of the 29 December 2005, where he said:

“(d)   As the documents relating to the BVI Action were only received on the eve of the Scheduled Completion Date, there was insufficient time for the Defendant to seek BVI law advice on the merits and impact of the BVI Action. However, in order to assist the Defendant given the time constraints, I indicated that it seemed to me that as the BVI Action was an appeal against the Winding-up Order, if Mr. Lau was successful in overturning the Winding-up Order, it was likely that the Liquidators’ capacity to appoint the current management of the Defendant, and thus the current management’s capacity to enter into the S&P Agreement, would be challenged. I also noted that the BVI Action included an application to restrain the completion of the sale of the Hotel.

(e)     Further, if the Defendant proceeded to complete the sale of the Hotel on notice of the BVI Action in circumstances where there was a provision in the S&P Agreement (Clause 13.2) giving the Defendant an ability to terminate in the present circumstances and Mr. Lau was successful with the BVI Action, it seemed to me that the BVI Court might have little sympathy with the Defendant and Mr. Lo in the event that Mr. Lau subsequently sued for damages. Mr. Lo asked me whether I thought it was open to him to invoke Clause 13.2 and terminate the S&P Agreement. I advised Mr. Lo that the Petition, the BVI Action and the fact that by that time there was less than 12 hours before the appointed date for completion (time being of the essence of the S&P Agreement) were, taken together, circumstances which it seemed to me were within the range of circumstances in which the Defendant might invoke Clause 13.2. I noted further that should Mr. Lo choose to invoke Clause 13.2, the 1st Plaintiff had a right of pre-emption in respect of a subsequent sale of the Hotel pursuant to Clause 13.3 of the S&P Agreement.”

104.  But as Mr Thomas has submitted, although Mr Korff said:

“It was likely … the current management’s capacity to enter into the S & P agreement, would be challenged.”

Mr Korff did not say how or in what manner it might be successfully challenged.  Mr Korff’s advice that the matters identified by him “were, taken together, circumstances which it seemed to me were within the range of circumstances in which the defendant might invoke clause 13.2” is vague.  Having regard to the vagueness of Mr Korff’s advice, I can understand why counsel might be content not to cross-examine him.

105.  The plaintiffs had not sought to cross-examine Mr Korff but I do not agree that absent cross-examination, the plaintiffs could not challenge the correctness or reasonableness of Mr Korff’s advice.  Or that it was unreasonable for Mr Lo to have acted on such advice.

106.  Here I believe it is legitimate to approach the reasonableness of Mr Lo relying on Mr Korff’s advice by asking whether a vendor “intending to see the transaction through to completion in terms of their own bargain”, per Litton PJ in Mexon Holdings Ltd v Silver Bay International Ltd [2000] 3 HKCFAR 109 at 117, would have been prepared to accept Mr Korff’s advice without query.  As the learned judge acknowledged Mr Huggins did make the point that there were elements of Mr Korff’s advice that Mr Lo should have queried.  I do not believe a reasonable liquidator would have relied on Mr Korff’s advice without query and terminated the sale.

New Points on Appeal?

107.  Mr Yu submitted that it was never put to Mr Lo that the setting aside of the winding up order would not have had retrospective effect, and would not have impugned validity of the sale.  Mr Yu referred us to Flywin Co Ltd v. Strong & Associates Ltd [2002] 5 HKCFAR 356.  He submitted that the argument is not open to the plaintiffs on appeal when they cannot be said that there is no reasonable possibility that the state of evidence relevant to the point would have been materially more favourable to the defendant.

108.  Mr Yu also relied on Ying Ho Co Ltd and Ors v The Secretary for Justice [2004] 7 HKCFAR 333, where Ribeiro PJ said:

“158.  In [Flywin Co Ltd], this Court made it clear that it will decline any invitation to deal with the facts of a case on a basis which may cause unfairness to the other party.”

109.  But the proceedings was by way of originating summons and the parties might have proceeded without any oral evidence at all.  As it is, only Mr Lo gave oral evidence.  That was essentially because it was part of the plaintiffs’ case that the reasons given for termination were not genuine.  It was suggested to Mr Lo that the termination notice was issued for the benefit of BOC.  On this issue, which goes to the genuineness of the reasons relied on by Mr Lo, the learned judge has found in favour of the defendant.  It is a finding which rightly has not been challenged on appeal.

110.  I have to ask myself, had no oral evidence been given at all, could the points now taken by Mr Thomas be permitted to be taken.  I believe so.  First, they were points which had been taken below.  Secondly, in any event, they are points which are opened to be taken now, even for the first time.  I do not believe that unreasonableness in the Regal Success sense need to be put to a witness orally.  What is important is that he should be aware of the case being made against him and that he should have the opportunity to respond.

111.  Mr Thomas in his reply provided us with extracts from the plaintiffs’ opening which showed clearly that it was the plaintiffs’ case that:

“47.   Reason and logic should have told JL and D that any later successful appeal or stay of the KHHL winding up could not invalidate the actions of the D’s directors in entering and completing the SPA; and certainly at that time did not materially hinder or prevent or obstruct the Defendant from completing even if the prospect made JL (who was not a director of D) personally uncomfortable.”

112.  Indeed, the same point had been made in the 2^nd affirmation of Mr James Yip, made on behalf of the plaintiffs on 23 February 2004:

“9(b) Even if the Appeal were made and were to be allowed by the Court having the competent jurisdiction in the British Virgin Islands, this would not affect the validity of any act or thing done by the then directors of the Defendant prior to the setting aside of the order for the winding up of Kimberley Hotel Holdings Limited and for the appointment of liquidators of such company.”

113.  In the 3^rd affirmation of Mr Lo, which was affirmed on 17 October 2006 at para. 32, he said replying to para. 9 that:

“… the position adopted by Mr Yip in that affirmation is somewhat different from the position adopted by the Plaintiffs prior to and shortly after the termination of the Agreement,”

114.  Moreover, Mr Lo was examined-in-chief by Mr Tong, SC, counsel then acting for the defendant.  Mr Tong had not taken the opportunity to ask Mr Lo any question on the matters so clearly raised by Mr Huggins in his opening.  Mr Lo was asked more than once by Mr Huggins in cross-examination why he thought that the BVI application impacted upon the defendant’s ability to complete.

The BVI injunction

115.  I have had the advantage of reading Stone J’s judgment in draft.  The BVI injunction perhaps raises more difficult issues.  I agree that the critical issue is whether Mr Lo was aware of the BVI injunction before noon on 21 November 2003.  The learned judge held that it had not been proved to his satisfaction that Mr Lo was aware of the injunction before noon on 21 November 2003.  He said:

“54.   It was apparent that one of the documents which had helped him draw the inference that he had learnt of the injunction before noon was a letter dated 22 November 2003 from Clifford Chance, the defendant’s solicitors, to Siao, Wen & Leung, Stephen Lau’s solicitors in which a reference had been made to a call between a Miss Chan of Siao, Wen & Leung and Mr Campbell Korff of Clifford Chance at approximately 10:00 a.m. on 21 November 2003.  Joseph Lo said in evidence that the letter suggested that Campbell Korff had been informed of the injunction around or shortly after 10:00 a.m.  I am satisfied that this was a mistaken inference from that letter and that the call being referred to cannot have related to the injunction.”

116.  Mr Yu submitted that the learned judge has misread the letter (a mistake engendered by counsel), and that the call must have related to the injunction.  Mr Yu further submitted that it is inconceivable that his solicitors in Hong Kong would not have been informed CC.  One might also say that having regard to the importance of the BVI injunction, it was surprising that there was no written communication of it prior to 11:45 a.m. to CC nor was it “served” prior to 11:45 a.m.

117.  Having regard to the misreading of the letter by the learned judge, Mr Yu submitted that we should accept Mr Lo’s evidence that he had been informed of the injunction before noon on 21 November 2003.  Mr Yu submitted that no question of credibility arose in this case, because the learned judge accepted Mr Lo’s evidence.

118.  I agree with Mr Yu to the extent that I believe the letter was inconclusive on whether there was an earlier oral communication of the BVI injunction.  So the learned judge erred when he said it could not have related to the injunction.  I also agree with Mr Yu that Mr Lo’s honesty is not in issue.  The issue is the reliability of his recollection.

119.  In Mr Lo’s 3^rd affirmation affirmed on 17 October 2006 he said:

“30.   Sometime prior to 12.00 noon on 21 November 2003, I was informed by CC and KP that an injunction had been granted by the BVI High Court restraining the Defendant and Mr Lai and me, as the liquidators of KHHL, from carrying out any acts in furtherance of the Agreement including the completion of the sale and conveyance of the hotel.…It appears from the seal of the Registry of the BVI High Court affixed to the order for the injunction that the order was sealed at 5.00pm on 20 November 2003 BVI time (ie. 5.00am on 21 November 2003 Hong Kong time.)

When I heard of the injunction, I felt reinforced in my decision the previous evening not to proceed with the completion of the sale. The injunction clearly forbade Mr Lai and I, as liquidators and officers of the BVI Court, from proceeding with the sale of the Hotel. If the Agreement had not been terminated on 20 November 2003, the Defendant would nevertheless not have been able to complete the sale on 21 November 2003 due to the injunction.”

120.  In Mr Lo’s 1^st affirmation which was affirmed on 27 January 2004, he had said:

“20.   On 21 November 2003, the Defendant was served with (the BVI injunction), restraining the Defendant from carrying out any acts in furtherance of the S&P Agreement.  The Defendant brought the Interim Injunction Order to the attention of the 1^st Plaintiff on the same day that the Interim Injunction Order was served on it.  A copy of the letter from Koo and Partners to the 1^st Plaintiff’s solicitors, attaching a copy of the Interim Injunction Order, appears at Tab 21 of YSK-1 of Mr Yip’s Affirmation.  This reinforced the Defendant’s decision to issue the notice pursuant to Clause 13.2 of the S&P Agreement.”

It may be noted that KP’s letter was received by JSM after 1 p.m. on 21 November 2003.

121.  On the question whether Mr Lo was informed of the BVI injunction before noon, his first affirmation was equivocal.  Mr Lo did not say he was informed of the BVI injunction before noon.  He said:

“22.   On 21 November 2003, the defendant was served with (the BVI injunction).” (my emphasis)

The only “service” of the injunction was the letter of 21 November 2003 which was faxed to CC at 11:45 a.m.  Since the letter from SWL to CC relating to the injunction and documents supporting the injunction was not faxed to CC until 11:45 a.m., they might not have been seen by Mr Korff until after 12 o’ clock.

122.  Mr Lo said that he made the 3^rd affirmation because “somebody asked me”.  No doubt, it was appreciated, and rightly so, the time at which he was first informed of the BVI injunction was important.

123.  In his oral evidence, Mr Lo said he relied on, inter alia, the letter for his recollection.  There was this exchange between Mr Huggins and Mr Lo on Day 3 at page 176:

“Q     All you know is that there was a telephone call which may or may not have said anything about the injunction?

A       The letter was quite apparent, if you read that letter.”

He was there referring to the letter of 22 November 2003 from CC to SWL where it was written:

“We refer to the telephone conversation between your Miss Chan and our Mr Campbell Korff at approximately 10 a.m. yesterday.  We also refer to your letter of yesterday, received shortly after the aforesaid telephone conversation, attaching, amongst other documents, an Order of the High Court of Justice of the British Virgin Islands (the ‘Order’).”

The “letter of yesterday” was the letter which was faxed at 11:45 a.m. on 21 November 2003.  So, if that letter was indeed received shortly “after the aforesaid telephone conversation”, then the telephone conversation was unlikely to have taken place “at approximately 10 a.m.”.  I note, however, that in SWL’s letter to CC faxed at 12:24 on 21 November 2003, there was a reference to a telephone conversation between Mr Korff and “our Miss Chan this morning”.  The letter went on to say: “We write to record your advice that the sale has been postponed until the resolution of the proceedings in the BVI court.”  There was no reference to any oral communication of the BVI injunction.

124.  Moreover, it does not much matter whether the letter of 22 November 2003 was indeed “apparent”.  What is important is that Mr Lo’s recollection probably depended to an important extent on this letter.  When one looks at the rest of his evidence on this issue, it is quite clear that he had little independent recollection as to the time when he first learned of the BVI injunction.

125.  He said:

“I just cannot remember what I did on 21^st November.”

He said he was probably playing golf and if he was playing golf he would have been in the Mainland.  He said he “need to check with Mr Datwani, I need to check with Glen, and after checking with them I came up with this best of memory”.  Day 3 T169.  Datwani was a solicitor with KP and Glen Ho was Mr Lo’s assistant at Deloittes.  He remembered speaking to Mr Datwani and Glen Ho, probably within one hour of each other.  He said that was probably late in the morning.

126.  There was this further exchange in cross-examination:

“Q     So, you see, again, it is the use of the word probably, I am trying to lift the veil from.  Is this pure speculation?

A       It is the best memory I can recall.

Q      Is it really memory or is it just speculation?

A       I think it is memory.”  Day 3 T168

127.  Having regard to the importance of this issue, it is remarkable that no evidence was either forthcoming from Datwani nor Glen Ho.  Furthermore, since Mr Lo was asked to deal specifically with this in his 3^rd affirmation, it is remarkable that he had to rely on the letter of 22 November 2003 to jog his memory.  If Mr Korff had been told about the BVI injunction at approximately 10 o’clock, one would think he would have made a note of that conversation.  If, as one is supposed to infer, Mr Korff had informed Datwani or Glen Ho of the BVI injunction one might also have expected Mr Korff to have a record of that.  If such documents existed, one would have thought that Mr Lo might have been shown them, and they would have been disclosed.  If there was no written record, one would have thought that Mr Korff would have been asked if he had any independent recollection and if so say so in an affidavit.  Mr Korff’s affidavit made no reference to the BVI injunction.  Nor to any notice or advice that he might have given the liquidators on it.  Moreover, if Mr Korff had been informed at about 10 a.m., it is also difficult to understand why no attempt was made between 10 a.m. and noon to reinforce the defendant’s position by giving a further “notice” under clause 13.2.

128.  Further, in para. 30 of Mr Lo’s 3^rd affirmation, he said he “was informed by CC and KP that an injunction had been granted …”.  Although he said his affirmation was drafted for him, it is remarkable that he had not said he was informed by both Datwani and Glen Ho, and that both or at least one of them informed him prior to noon.

129.  Also, by the time of Mr Lo’s 3^rd affirmation, Mr Lau was already back in control of the defendant, it is also surprising that if there was indeed a conversation about the BVI injunction at about 10 am, nobody from SWL provided any evidence regarding it.

130.  So on such an important issue, the burden being on the defendant, I am of the view that the learned judge was entitled to conclude that he was not satisfied that Mr Lo had been informed of the BVI injunction prior to noon.  I have read the evidence with some care.  On the basis of such evidence, I can readily understand why the learned judge held that it had not been proved to his satisfaction that Mr Lo was aware of the injunction before noon on 21 November 2003.  Thus I do not believe I am entitled to interfere with his conclusion.  Furthermore, on the evidence, I too would not have been prepared to act on Mr Lo’s recollection, in particular, having regard to the unexplained paucity of evidence.

Other submission on BVI injunction

131.  Mr Yu also submitted that because of the injunction, the defendant was not in a position to complete, that being the case, whether Mr Lo was aware of the injunction before noon was irrelevant.  I do not agree.  Nor would I assume, that completion would not have taken place earlier than noon which was the deadline for completion.  Conveyancers normally would not run the danger of leaving everything to the last minute when time was of the essence.

132.  I reject Mr Yu’s submission that the BVI injunction resulted in the discharge of the Agreement by frustration.  Frustration normally only applies to unforeseen supervening events resulting in a radical change in the nature and character of the performance required of a party: National Carriers Ltd v. Panalpina (Northern) Ltd [1981] AC 675, 700.  Here, the parties had provided for third party actions by clause 13.2.  So the defendant’s case must succeed or fail on clause 13.2.

133.  Furthermore, as Mr Thomas submitted, action by Mr Lau was clearly foreseeable.  According to Mr Lau he had protested to BOC and the liquidators and demanded that they stopped the sale.  It was not the defendant’s case that Mr Lau’s objection to the sale was not foreseeable.

134.  Nor can the BVI injunction be relied upon as giving rise to a supervening legal prohibition that prevented performance by RN, because the Agreement is neither governed by BVI law nor requires any acts to be performed in BVI.  As stated in Dicey, Morris & Collins, The Conflict of Laws (14th edn), Vol.2, §32-145:

“It would not matter whether the person liable to perform would, by doing so, infringe the laws of the foreign country in which he is resident or carries on business, or of which he is a national, if the law of that country is neither the governing law of the contract nor the lex loci solutionis.”

135.  Performance of the Agreement by the defendant was not rendered legally impossible, and was not excused by reason of the interim injunction: Fox v. Henderson Investment [1999] 2 Ll. R. 303.

136.  Furthermore, the BVI court has not been shown to have jurisdiction over RN or its directors. None of them was properly sued in any proceedings brought in BVI. There is no evidence that the injunction was ever served on the defendant or the directors of RN, though copies were faxed upon solicitors acting for them in other capacities before noon. There is no evidence that any of them was told of it before noon, or saw the injunction order before noon.

137.  Moreover, although Mr Lo as the liquidator and the partner of Deloittes might in fact have been the directing mind of the defendant, the defendant did have five corporate directors.  One could see that, for example, the Agreement was signed by a Mr Lam Kai-cheung, for and on behalf of Kerry Secretaries Limited.  There is no evidence that the defendant had formed any opinion, reasonable or otherwise, that it was unable to complete because of the BVI injunction.  I agree with the learned judge:

“… there was nothing as a matter of law preventing the directors of the defendant company themselves authorizing the completion of the sale”.

Mr Lau benefited

138.  Lastly, Mr Thomas submitted that the defendant cannot be permitted to rely upon clause 13.2 where the matters relied upon have been wrongfully engineered by its ultimate beneficial owner in order to benefit the defendant and ultimately himself.

139.  It appears that Mr Lau is now back in control of the defendant.  It seems his debts have been restructured.

140.  But this is a new point and Mr Yu must be right that Ying Ho is authority that we should not allow this point to be taken.

Disposition

141.  To conclude, I would allow the appeal and declare:

“… that the Defendant was not entitled to and did not validly invoke Clause 13.2 of the Sale and Purchase Agreement dated 23 July 2003”.

Hon Stone J:

142.  I have read in draft, and respectfully agree with, the judgment of the Vice President.

143.   The issue which gave me some concern in this appeal is that which has been referred to as the ‘BVI injunction’, and it is on this matter I should like to add a few words of my own.

144.  This injunction was obtained from the BVI court by Mr Lau at about 5 p.m. on 20 November 2003 BVI time – which equates to 5 a.m. on 20 November 2003 Hong Kong time – wherein Mr Lo, the BVI court-appointed liquidator, was by interim order restrained, whether by himself or his servants or agents or otherwise, from carrying out any acts in furtherance of the Agreement between the plaintiffs and the defendant for the sale of the property.

145.  The relevant facts, as established on the evidence before the judge at the hearing below, was that at about 11.45 a.m. on 21 November 2003 Messrs Siao, Wen & Leung had faxed a copy of the ex parte summons, affidavit and BVI injunction order to Clifford Chance, and at 11.46 a.m. to Koo and Partners.

146.  There also had been a telephone conversation between Ms Chan, a solicitor at Siao, Wen & Leung and Campbell Korff of Clifford Chance at about 10 a.m. on 21 November 2003 at which Mr Korff had informed Ms Chan that the sale had been postponed until the resolution of the BVI proceedings.

147.  In his judgment in the court below, Deputy Judge Longley correctly found (at paragraph 48) that this BVI injunction was not discharged until 17 December 2003 (BVI time), and this that it was in effect at the time of the deadline for completion, namely at noon on 21 November 2003.

148.  The learned judge also held, first (at paragraph 54) that the telephone call between Ms Chan and Mr Korff “cannot have related to the injunction”, and second (at paragraph 55) that “while it is not impossible that Joseph Lo was informed [of the injunction] before 12 noon on 21 November 2003, the defendant has failed to show that it was probable”; in turn this led him to the conclusion (at paragraph 56) that “the defendant has failed to show that prior to the deadline for completion Joseph Lo had formed any opinion about the BVI injunction.”

149.  The judge then proceeded (at paragraph 57) to observe that even had he adopted a different view as to the construction of Clause 13.2, nevertheless he would not have been satisfied that this was a case where the defendant had shown that the BVI injunction rendered the defendant ‘unable’ to complete.

150.  In terms of this injunction it seems to me that three questions require to be answered: first, as a matter of construction does the existence and content of the BVI injunction fall within the terms of Clause 13.2?; second, was Mr Lo aware of the injunction prior to the time fixed for completion?; and third, if he was so aware, in the circumstances could it be said that he had formed the necessary ‘reasonable opinion’ as to its impact upon completion?

151.  As to the first question, in terms of the language of Clause 13.2, in my view the BVI injunction was a “matter” which “materially hinders, prevents or obstructs the completion of the sale and purchase of the Property…”

152.  As I read it, the object of Clause 13.2 was to avoid protracted litigation in the event that legally uncertain points as to title may arise – although it must be said that this case amply demonstrates that the clause signally has failed in this endeavour – and to enable the property to be put back onto the market within a short time, whereby the liquidators could realize the property for the benefit of the creditors and with the plaintiffs having an inbuilt right of redemption.

153.  The liquidator, in this instance Mr Lo, is an officer of the BVI court which appointed him, and I accept the submission of Mr Yu SC that this clause, which vests in him the power to decide, is in substance no different from the situation in Regal Success Venture Ltd v. Jonlin Ltd (2000) 3 HKCFAR 364, and further that the opinion should not be regarded as unreasonable unless it quickly may be seen to be absurd or ridiculous.

154.  In my judgment it would be odd indeed if an order restraining completion emanating from the very court from which this particular liquidator derived his authority and powers is to be categorized as outwith the reach of the terminology within Clause 13.2, and if this be correct the first question must be answered in the affirmative. 

155.  This is not a point that is susceptible to extended debate; if this conclusion be incorrect, clearly the analysis ends at this stage.

156.  Taking the third question next, if and in so far as he had been aware of the injunction prior to completion, I do not see why Mr Lo would not also have been entitled to rely upon a view that the effect of the BVI injunction indeed fell within the terms of Clause 13.2, and thus formed an additional reason not to complete, notwithstanding that when the decision not to complete formally had been communicated to those acting for the purchaser, such view had been based upon other grounds.

157.  Nor could the formation of any such opinion arising from the BVI injunction – which in evidence Mr Lo said had “reinforced” the view to which earlier he had come during his conference in the evening of 20 November with Mr Korff – legitimately be regarded as ‘absurd or ridiculous’, which is the formulation accepted by both sides as determining the reasonableness of any opinion not to complete, although I recognize that the position would be different if Mr Lo had learned of the BVI injunction only after the deadline for completion; in this scenario, it seems to me that Clause 13.2 could not be prayed in aid, since the inability or failure to complete must be ‘due to’ the matter in question, and thus post-completion knowledge of the BVI injunction would not fall within this rubric, and there would be no scope for invocation of the principle that a party terminating a contract upon an invalid ground subsequently may also rely upon a good ground of which hitherto he had been unaware.

158.  Accordingly, I would also respond to the third question in the affirmative.

159.  The key issue, therefore, lies in the answer to the second question: on the evidence, can it be said that Mr Lo in fact was aware of the injunction prior to the time fixed for completion?

160.  As to this, the decision of the learned judge was made on the basis of the burden of proof, Deputy Judge Longley having concluded (at paragraph 56) that on the evidence before him Mr Lo had failed to discharge the burden of demonstrating that prior to completion he had formed any opinion about the BVI injunction.

161.  This aspect of the case has given me pause.  The reluctance of an appellate court to interfere with the findings of fact is well-established, although notwithstanding this cautionary principle I have to say that I would be minded to differ from the conclusion of the learned judge to the effect that the telephone conversation at about 10 a.m. on the morning of 21 November 2003 between Ms Chan and Mr Korff contained no reference to the BVI injunction.

162.  Since Mr Lau’s lawyers had sought the injunction for the sole purpose of stopping completion of the sale, it strikes me as an overwhelming commercial probability, and that an inference fairly could be drawn therefrom, that upon thus obtaining the injunction his solicitors in Hong Kong immediately would have informed Clifford Chance and Koo and Partners of this fact; it follows that in my view the learned judge was in error in holding (at paragraph 54) that the telephone call referred to in the letter of 22 November 2003 from Clifford Chance could not have related to the injunction, and thus on that basis to have dismissed as “mistaken” the inference drawn by Mr Lo.

163.  I appreciate, of course, that Mr Korff’s evidence had made no reference to the BVI injunction, nor to any advice that he may have tendered in this regard, but such absence of reference by Mr Korff (who was not cross-examined) does not invalidate the probability that the existence of the BVI injunction indeed was communicated in that telephone call.

164.  Be that as it may.  Whilst upon this aspect I respectfully would differ from the view taken by the learned judge, in itself this represents no more than part of the relevant factual matrix.

165.  I have considered at length the approach of the judge to the evidence of Mr Lo that he knew of the existence of the BVI injunction before the time fixed for completion, in terms both of his affirmation evidence and in terms of his cross-examination thereon.

166.  As to this, the Deputy Judge Longley states (at paragraph 53) that in his view Mr Lo did not have any direct recollection of the time when he was first informed of the injunction, that he was relying upon inference from the documents, that “eventually he said that he was probably playing golf”, and that he did recall that it was his assistant, Glen Ho, “who had called him to inform him of the injunction and that it was ‘probably late in the morning’”; thereafter (at paragraph 86) the judge concludes in the following terms:

“Bearing in mind that on the facts it was the opinion of Joseph Lo that was relevant for ascertaining the opinion of the defendant, the defendant has failed to show that prior to the deadline for completion Joseph Lo had formed any opinion about the BVI injunction.  This therefore is decisive in so far as the BVI injunction is concerned…”

167.   I confess that at first blush I was a little nonplussed by the view taken by the judge toward that which seemed, at least on the face of the affidavit, to be cogent evidence from Mr Lo that prior to noon on 21 November 3220 he had been apprised of the fact and content of the BVI injunction, although it is true that such knowledge, and hence Mr Lo’s reaction thereto as having ‘reinforced’ his pre-existing decision on the matter, was against the background of the prior decision, taken with the advice of Mr Korff of Clifford Chance, not to proceed with the completion of the sale and purchase of the hotel.

168.  However, upon re-reading the evidence, and in particular the transcript of the proceedings below, I have now come to the view, albeit somewhat reluctantly, that, as the Vice President has illustrated in his judgment, there was sufficient material before the learned judge which entitled him to arrive at the view that in all the circumstances he could not be satisfied that Mr Lo had been informed of the BVI injunction prior to noon on 21 November 2003, and thus that the defendant had failed to discharge the burden of establishing to the contrary.

169.  If this analysis be correct, as upon reflection I am minded to think that it is, it is not open to an appellate court to disturb the finding of the ‘seeing and hearing’ judge, however tempting it may have been so to do in this case.

170.  It follows therefore, given that I further agree with the Vice President, for the reasons that he adumbrates, that the ‘Waygood petition’ and the ‘BVI application’ do not suffice to justify the invocation of Clause 13.2, that this appeal must be allowed, and that declaratory relief be granted in terms of that proposed by Tang VP at paragraph 141 of his judgment.

171.  For my part I would also make an order nisi that costs of this appeal should follow the event. 

Hon Barma J:

172.  I have had the advantage of reading the judgment of Tang VP in draft.  I respectfully agree with it and with the order which he proposes, and do not think that there is anything that I can usefully add.

Hon Tang VP:

173.  The court unanimously allows the appeal and declares that the defendant was not entitled to and did not validly invoke clause 13.2 of the Sale and Purchase Agreement dated 23 July 2003.

174.  We also make an order nisi that the plaintiffs are to have the costs of the appeal, and to be taxed, unless agreed.