FULL YING HOLDINGS LTD v. ACTIVE ACCESS HOLDINGS LTD AND OTHERS

HCA 2122/2020

[2022] HKCFI 911

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2122 OF 2020

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J U D G M E N T

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A. INTRODUCTION AND BACKGROUND FACTS

1.  By summons of 3 August 2021 (“the Summons”), the Plaintiff applied for summary judgment against the Defendants.

2.  The background facts are undisputed.  The Plaintiff, 1^st Defendant and 2^nd Defendant are companies incorporated in the Republic of Seychelles.  The 3^rd Defendant is the sole shareholder of the 1^st Defendant, and the 4^th Defendant is the sole shareholder of the 2^nd Defendant.

3.  By an agreement of 28 April 2017 (“the Agreement”), the Plaintiff agreed to buy, and the 1^st and 2^nd Defendants agreed to sell, shares in Leading Talents Holdings Limited (“the Company”), a company incorporated in the Republic of Seychelles, for a total of $12.5m (“the Shares”).  The 3^rd and 4^th Defendants, together with the 1^st and 2^nd Defendants, were named as “Guarantors” under the Agreement.

4.  It was the intention of the parties, as provided for in the Agreement, that WFH Group Limited, a Cayman Islands company, was to be the listing vehicle of the group of companies comprising the Company and its subsidiaries.  Under cl.5.05 of the Agreement, the entire equity of the Company was to be swapped into the listing vehicle in exchange for shares of the listing vehicle.

5.  Cl.5.02 of the Agreement contained an undertaking by the Guarantors that if the listing as set out in Recital (E) (“the Listing”) failed to be completed on or before 31 May 2018, the 1^st and 2^nd Defendants were to repurchase the Shares at the original consideration together with interest (“the Repurchase Obligations”).

6.  The Plaintiff completed its purchase of the Shares on 28 April 2017 and paid the consideration to the 1^st and 2^nd Defendants.

7.  However, the intended Listing did not happen on or before 31 May 2018.

8.  The Plaintiffs have asked that the Defendants perform their Repurchase Obligations.  However, to date, the Defendants have only paid a number of payments in varying amounts and at various times during 2020, totalling $4.6m.

B.  THE DEFENDANTS’ DEFENCE

9.  The Defendants’ defences are based on the fact that the Agreement contained no express provision for the time and manner of performance of the Repurchase Obligations.

10.  The Plaintiff’s case is that whilst cl.5.02 of the Agreement did not make express provision for the time for performing the Repurchase Obligations, there was an implied term in the Agreement that the obligations should be performed forthwith, or alternatively within a reasonable time.

B1.  1st defence: no fixed time for repayment

11.  It is the Defendants’ position that the Agreement contained no express provisions as to when and how the Repurchase Obligations were to be performed; there was in fact no concrete agreement between the parties as to when the Repurchase Obligations should be completed, and in fact, the parties had a “common intention” that there would be “flexibility” in performing the same.  This was why the Defendants had made a number of payments, totalling $4.8m, in performance of the Repurchase Obligations; accordingly, they were not in breach.

12.  I do not find this to be a credible defence.

(1)  On an application for summary judgment, it is for the defendant to condescend to particulars.  All that the affirmation of Lee Chu (for the Defendants) said on this point was that “It was a common intention between the parties that the parties would have more flexibility to perform and complete the repurchase scheme.  The Plaintiff has never made the time being [sic] essence of the repurchase scheme.”  A “common intention” suggests that there was some agreement between the parties as to the performance of the Repurchase Obligations.  However, the Defendants have given no particulars as to what the parties’ agreement was supposed to be, why repayments did not start to be made until January 2020 (some one and a half years after the intended Listing fell through), why payments were made at irregular intervals and for differing amounts, and so on.  Counsel for the Defendant, Mr Timothy Lam, was not able to be any more specific: he submitted that there might have been an agreement subsequent to the Agreement, or there might have been discussions and part payments as time went on.

(2)  Mr Lam also submitted that the Plaintiff’s acceptance of payment by instalments was consistent with such a common intention.  However, the exchanges of text messages which were contemporaneous with the payments show that the Plaintiff was pressing for payment and the Defendants were making payments of varying amounts from time to time in response to such pressure; they do not indicate an agreed course of flexible payments.

(3)  Mr Lam submitted that the text messages ought to be the subject of cross examination at trial, as messages such as “Stick to the original plan” were suggestive that the Plaintiff’s claim was not as straightforward as it might appear from the Statement of Claim.  However, the Defendant has not put forward any evidence as to what this “original plan” might have been.

B2.  2nd defence: defective Statement of Claim

13.  The Defendants do not have any further factual defence to the Plaintiff’s claim that the Repurchase Obligations should have been performed forthwith (upon the failure of the Listing), or alternatively within a reasonable time.

14.  The Plaintiff’s claim in this regard is not based on an express term of the Agreement, but, as indicated above, on an implied term in the Agreement that the obligations should be performed forthwith, or alternatively within a reasonable time.

15.  However, the implied term contended for was not pleaded in the Statement of Claim, and only in the Reply.

16.  Mr Lam submitted, rightly in my view, that the Statement of Claim was defective in this regard.  As Chu JA said in Tan Khay Chuen & another v Ko Ping Shun Benson, unreported, CACV 238/2015, 8 July 2016 at [23]:

“It is trite that in an application for summary judgment, the statement of claim must be good and complete in itself; any defect or omission cannot be corrected or supplemented by the affidavit supporting the application…”

17.  Mr Patrick Siu, counsel for the Plaintiff, submitted that the defect could be cured by amendment and judgment could be granted straight away, relying on Hong Kong Civil Procedure 2022 note 14/1/6.  However, in view of the fact that the amendment could not be said to be merely a clerical one, and Mr Lam’s submission that as a matter of fairness, the Defendants should be given an opportunity to consider the amended statement of claim, supplemental verifying affidavit and amended summons, whilst I granted leave to the Plaintiff to make the necessary amendments and to file and serve all three documents on the Defendants, I adjourned the summons to enable the Defendants to consider their position and file further evidence if necessary.

18.  No further affirmation has been filed by the Defendants despite their obtaining an extension of time to do so.

C.  DISPOSITION

19.  In the circumstances, I agree that the Defendants have not put forward any bona fide defence to the Plaintiff’s claim.

20.  I grant:

(1)  an order against each of the 1^st and 2^nd Defendants for specific performance in terms of paragraph 1 of the Summons and the minutes of order referred to therein;

(2)  an order that each of the 3^rd and 4^th Defendants pay to the Plaintiff damages for breach of clause 5.02 of the Agreement, to be assessed;

(3)  liberty to apply.

21.  I further make an order nisi that the costs and occasioned by the action and the Summons, including reserved costs, be paid by the Defendants to the Plaintiffs, to be taxed if not agreed.  Whilst the Plaintiff’s Statement of Claim was defective, the Defendants had sought an adjournment of the Summons on the basis that they might want to adduce substantive evidence on the issue of time for performance of their obligations.  As events have transpired, they have not done so.