EASTERN CULTURE INTERNATIONAL LTD v. STAR RAISE HOLDINGS LTD AND ANOTHER

HCA 1928/2017

[2019] HKCFI 2398

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1928 OF 2017

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REASONS FOR JUDGMENT

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1.  On 16 September 2019 I heard counsel for the parties on the plaintiff’s application for summary judgment. At the conclusion of the hearing I granted the summary judgment request and, made an order in terms of the plaintiff’s summons. I set out below in brief my reasons for so doing.

Undisputed facts

2.  The plaintiff company made an agreement in writing with the 1^st defendant by which the 1st defendant agreed to sell certain shares to the plaintiff for a consideration of HK$30,000,000.  The shares were beneficially owned by the 2^nd defendant who signed the agreement for sale and purchase as guarantor of the obligations of the 1st defendant.

3.  The written agreement was made on 4 November 2016 (“the Agreement”), and made provision for the plaintiff to pay a refundable deposit of HK$10,000,000 (“the Deposit”).  Completion of the sale transaction was conditional upon a ‘due diligence’ review by the plaintiff by which the plaintiff, as purchaser, was to be satisfied about such due diligence enquiries “in its sole and absolute discretion” as provided in clause 3 of the Agreement.  Clause 4.2 of the Agreement provided that the Deposit was to be held in escrow, and was to be “… entirely refundable to the Purchaser upon the Purchaser’s written request prior to the Completion”.  The refund of the Deposit was to be made within five business days.

4.  The plaintiff paid the Deposit on or about 4 November 2016.  The parties undertook the due diligence exercise, but on 31 May 2017 the plaintiff, being dissatisfied with the results of the due diligence, exercised its rights under clause 4.2.1 of the Agreement and sought the refund of the Deposit.  The 1st defendant has not made that refund.

The plaintiff’s claim

5.  The plaintiff issued a writ on 16 August 2017 by which it sought the return of the Deposit, with interest at a (contractual) rate of 12% per annum from 8 June 2017 to the date of payment.

The defendants’ defence

6.  The defendants’ amended defence was filed on 14 November 2018.  This was a complete re-draft of the Defence which had been filed on 30 October 2017.  The defendants contend that the plaintiff had expressed satisfaction with the due diligence exercise by late November 2016, but failed to confirm the date for Completion of the sale and purchase. That position persisted, it is said, through to April 2016, by which time, it is alleged, the plaintiff’s conduct demonstrated an intention not to be bound by the terms of the contract.  This constituted a repudiation of the Agreement on the part of the plaintiff which was accepted by the 1st defendant “in or around April 2016”.  The acceptance of the repudiation meant that the Deposit was forfeited to the 1st defendant.

The implied terms

7.  The basis for the plaintiff’s alleged conduct described above amounting to a repudiatory breach lies in two terms which the defendants contend are to be implied into the Agreement, namely that the plaintiff should complete at a reasonable time once the ‘due diligence’ provisions had been complied with, and that the 1^st defendant was entitled to forfeit the Deposit if the plaintiff failed so to complete.

8.  Mr Billy Ma, who appeared on behalf of the plaintiff at the hearing, submitted that these alleged implied terms could not properly be implied into the contract firstly because the terms were not ‘necessary’ to make the contract commercially effective, and secondly because they would, if implied, contradict certain of the express terms.

9.  I agree with those submissions.  The Agreement imposed no relevant time obligations on the plaintiff purchaser, other than in relation to the making of a Deposit payment.  The Agreement was entirely ‘functional’without the implication of further time obligations.  Further, the Agreement provided for the Deposit to be refundable simply on the request of the plaintiff. The alleged implied term, in seeking to make the Deposit potentially the subject of forfeiture, runs entirely contrary to this provision.

10.  Accordingly I do not accept that the terms relied on are in fact to be implied into this Agreement.

Repudiation

11.  The defendants’ defence based on a repudiation by the plaintiff relies entirely on the alleged implied terms which, I hold, are not properly to be implied into the Agreement.  The case on repudiation founders also on the fact that neither of the defendants has (as Ms Lee, counsel for the defendants, fairly acknowledged) communicated the purported acceptance of the alleged repudiation to the plaintiff.  This in itself is fatal to any defence based on an alleged repudiation.

Determination

12.  The principles relevant to summary judgment applications are well known, and there was no dispute before me that the defendants carry a burden of showing a defence on the merits, or at least triable issues that would call for the matter to go forward to a trial.

13.  The defendants point out, correctly, that pre-trial preparation is reasonably well advanced, and that the trial may be expected to take place in the not too distant future.  (I note in parentheses that the summary judgment application has taken over nine months since the issue of the summons).  Nevertheless, the matter should not be allowed to proceed to trial unless issues are shown which merit or require a trial for their fair determination.  That is not the case here.  The defendants have raised various peripheral issues surrounding the transaction, but have not identified a triable issue, nor have they shown a defence having any prospect of success.

14.  Accordingly, an order was made in terms of the plaintiff’s summons, and judgment given for the plaintiff.

15.  The defendants do not oppose the requested order for costs, but the plaintiff asks that a certificate for counsel be included.  The order requested, as so modified, is made.