AIG (ASIA) DIRECT INVESTMENT FUND LTD. AND OTHERS v. NGAI WAI LUN, WILLIAM AND ANOTHER

HCCL31/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST NO.31 OF 1998

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J U D G M E N T

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1. In this case the Plaintiffs herein apply by Summons dated 6th March 1998, for summary judgment pursuant to the provisions of Order 86, RSC.

2. The relevant facts are in short compass, and need only to be stated in the broadest terms. On 6th December 1996 the Plaintiffs and the Defendants entered into a Share Acquisition Agreement whereby the Plaintiffs, as institutional investors, purchased all the shares in a company known as Joyce Link Holdings Ltd. ('Joyce') from the Defendants. I am told that Joyce was and is a holding company for approximately 10% of the issued share capital in one Infocom Communications Network Inc., a Philippines company carrying on business as a telecommunications paging service provider.

3. Be that as it may. The deal was a significant one in monetary terms, and in consideration for the purchase price of US$13 million, the Plaintiffs not only acquired 10% of Joyce but also options to resell Joyce to the Defendants. In fact, there are two broad categories of option, and the one with which this case is concerned is that known as the 'Additional Put Option' which is contained in Clauses 12(G) - (L) of the Agreement.

4. In fact, the precise point at issue is not the existence of this option, or indeed its meaning, but its purported exercise. The Plaintiffs' notice purporting to exercise the option was hand-delivered to the address stated in Clause 15 of the Agreement to be the Vendor's address for the giving of notices, namely, Flat A, 25/F Cavendish Height, 33 Perkins Road, Jardines Lookout, Hong Kong. In fact, the evidence is that the Plaintiffs' written notice of the intention to exercise the Additional Put Option was deposited in the letterbox of Flat 25A, such letterbox being situated in the lobby of that building. This was done on 4th December 1997, which date it is agreed, I think, was but one day before the final day of the option period.

5. In the event, the Defendants herein did not repurchase the shares on the specified date, namely, 5th January 1998, or at all, and accordingly proceedings were issued soon thereafter; the Statement of Claim dated 23rd February 1998 prays, inter alia, for specific performance of the Additional Put Option, and it is, of course, the summary application for this relief which is now before this Court for decision.

6. And it is on the present summary judgment application that the sole issue for debate has focused upon the correct construction to be accorded to Clause 15 of the Share Acquisition Agreement, which clause is intituled 'NOTICES', and in particular the meaning to be attributed to Clause 15A. In a nutshell, did what was done by way of service of the Notice meet the requirements of Clause 15A, or not?

7. Mr Carolan, appearing on behalf of the Plaintiffs, argues strongly that it does. The requirement of Clause 15A(i), namely, of "delivering it by hand" was met in this case by what was undoubtedly done by Mr Geoffrey Yau, the trainee solicitor of Richards Butler, the Plaintiffs' solicitors, who deposited the Notice in the relevant lobby letterbox.

8. Not so, countered Mr Chain, Counsel appearing on behalf of the Defendants. The fundamental misconception of the Plaintiffs in this case was that they were trying to construe Clause 15A(i) as if the same provided for notice to be given by leaving it at the relevant address - and it did not mean this at all. Clause 15A provided for three different modes of service, said Mr Chain, sub-clause (i) plainly required personal service, and there was and is nothing in the contract requiring it to be construed other than in its ordinary and natural meaning.

9. Moreover, said Mr Chain, when construing Clause 15A the Court did not need to decide whether personal service at some place other than the Cavendish Heights address would suffice. Indeed, this aspect of the case was but part and parcel of wider considerations. This was an Order 86 application, stressed Mr Chain; it was pointedly not an Order 14A application, as it could well have been, and it was in this form for very good reason. Unlike an Order 14A situation, any judgment in the Plaintiffs' favour, on this application, would be interlocutory and not final; nor would any determination at this juncture adverse to the Plaintiffs amount to res judicata or otherwise serve to preclude the construction issue being raised again at trial. At this stage, said Mr Chain, the issue was clearly arguable, and in this context, the burden upon his client was clearly less onerous. In his submission, the matter should go to trial.

10. For his part, Mr Carolan naturally accepted the conceptual distinctions between Order 14A and Order 86. He further drew my attention to the provisions of MN 14/3-4/11 (in the White Book) at page 161 and in particular to the commentary to the effect that :

"Where an issue of law is raised the Court may decide of its own motion if it is susceptible to summary determination under O.14A. Subject thereto leave to defend should be given where a difficult question of law is raised..."

11. Mr Carolan invited me, in the circumstances, to exercise my discretion and to treat this application as an Order 14A determination; indeed, he went so far as to construct a question of law 'on the hoof', so to speak. Alternatively, he said, even if I was against him on that point, the Court was still left with the approach (albeit an approach that has been developed prior to the introduction of Order 14A) of the Court of Appeal in the well-known case of European Asian Bank v. Punjab & Sind Bank (No.2) [1983] 1 WLR 645 at 654, where it was open to the Court to summarily determine a difficult point of law without the necessity of the parties having to go to trial. Clearly, he said, if he was correct in his construction of Clause 15, considerable time and costs would be saved, and he invited the Court to follow his approach, to construe Clause 15 as he suggested, and to give his client the summary relief that was sought.

12. For the avoidance of doubt, and bearing in mind Mr Chain's objections to the alternative course proposed, I decline, in the exercise of my discretion, the invitation to reconstruct this application as an Order 14A application. Accordingly, I have considered the matter on 'normal' summary judgment principles.

13. And I confess that I have not found such consideration easy. Indeed, the more I look at this particular clause, Clause 15, in its entirety, including, as I think I must, paying attention to sub-clauses (ii) and (iii), the more difficulties I encounter in discerning its true meaning. So this is not a case where the answer effectively leaps up off the page, so to speak. To the contrary. A session with a wet towel wrapped around the head is probably called for.

14. However, I will say no more at this point, because after reflecting on all the circumstances of this case, I have come to the firm conclusion that I should permit this matter to go to trial and to order unconditional leave to defend. And although I recognize that I am likely to be the trial judge, I am mindful of the words of Litton V-P in Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225 at 230 to the effect that in these circumstances the less said the better to fetter the relevant decision at trial, and that the defendant should be able to set up his defences "untrammelled by the judge's preliminary observations on the strength or weakness of his case."

15. I am also buttressed in the view that I should not venture my conclusion as to the true meaning of Clause 15 at this stage by the fact that, as Mr Carolan accepted, even were I to be against his construction of Clause 15, the case may well go to trial anyway. As I have said, not only would the trial judge not be bound by any construction of Clause 15 adverse to Mr Carolan's clients, so that Mr Carolan would have another bite of the cherry, so to speak, but in any event, submitted Mr Carolan, his clients may well wish to pursue the issue of an implied term within Clause 15, given the possible absurdity of a construction which would exclude personal service on the individual at a place other than the stated address (not of course a matter which has been argued before me on this application), and, in addition, to pursue a claim that the Defendants actually had received the relevant notice (which I understand was served at several other places) before and not after the relevant option expiry deadline. It seems to me to be eminently appropriate in the circumstances, therefore, that in this case all relevant matters should be canvassed and determined at one and the same hearing.

16. Accordingly, in the exercise of my discretion, and not without some reflection on the totality of the evidence and on the arguments before me, I decline the Order 86 relief applied for, and order that the Defendants herein are to have unconditional leave to defend this action. I will now hear Counsel as to the form of the Order, including, if necessary, such directions as may be appropriate, and as to costs.

[Submissions from Counsel]

17. I have now had the advantage of hearing from both Counsel on the issue of costs and directions.

18. So far as costs are concerned, I sometimes think that costs orders are harder than substantive matters for decision, and certainly harder when it is late on a Friday afternoon, as it now is. In the event, I think that there are only two possible orders here, so I disagree with Mr Chain that he should have his costs. I think the only two alternatives, on analysis, are either the usual costs in the cause, which, of course, Mr Chain accepts is the normal order when unconditional leave to defend is given, or, alternatively, Defendants' costs in the cause. On reflection, I think this will all come out in the wash at trial. After some hesitation, I am going to order that the costs of and occasioned by this application be costs in the cause. It is a close run thing, but I think, at bottom, that this is the right order.

19. I turn now to the question of directions. There is no difficulty or dispute about this and it follows in normal course, but as a matter of good housekeeping let me deal with it now. The Statement of Claim has been filed, of course, and I understand the Defence in draft is ready. To allow for the normal topping and tailing and further consideration of Counsel, which inevitably happens, I will give the Defendants 14 days from today to file and serve their Defence. The Plaintiffs are to put in their Reply, if any, within 14 days thereafter. Discovery by list will follow within 14 days thereafter, and inspection within 7 days after that. I think that there is no necessity to make further directions at this stage; indeed, with responsible solicitors on each side, I dare say that accommodation can be reached between the parties if any variations to that broad structure need to be made.

20. It remains only to thank both Counsel for a stimulating and at times thought-provoking argument.