XCHRX CRULUN TRADING COMPANY LIMITED v. WONG TAI CHIU FREDERICK AND ANOTHER

1995, No A10017

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

____________

____________

____________

JUDGMENT

____________

The Plaintiff's Case

1. On 7 January 1995, the plaintiff entered into a written agreement with the defendants under which they sold shares to plaintiff. These were shares in a company then called Tung Wing Building Materials Limited. Later, this company changed its name to Grand Orient Building Materials Limited (Grand Orient Building). One of the terms of this agreement was that, in the event that any amounts due from the debtors of Grand Orient Building had not been recovered by 20 July 1995, the defendants would be liable, jointly and severally, to pay to plaintiff the amount that had not been recovered.

2. The plaintiff alleges that, on 20 July 1995, a sum of $7,491,564 was due by the debtors, and the defendants have failed to pay this. The plaintiff claims this sum, and now seeks judgment under Order 14.

The Defence

3. In the defence, the defendants allege that there was an employment contract entered between Grand Orient Building and the first defendant in which a clause provided that Grand Orient Building would co-operate fully with Mr Wong in providing him with "information, access, resources and support" within Grand Orient's capabilities for the purpose of enabling the first defendant to perform his duties and powers as an employee. The defendants say that there was a collateral agreement between the plaintiff and the first defendant that the plaintiff would use "its best or reasonable endeavour . . . to assist, procure or cause" Grand Orient Building to fulfil its obligation under that clause. The defence goes on to allege that "The plaintiff has further agreed to inject adequate fresh working capital and provide and arrange adequate banking facilities to fulfil" Grand Orient Building's obligations under the clause. Alternatively, the defence says, it was an implied term of the agreement that the plaintiff would do this.

4. The defendants say that the plaintiff, in breach of the collateral agreement or implied term, failed to fulfil its obligations, and, as a result, "the normal business activities of [Grand Orient Building], including but not limited to, debt collection activity, were seriously delayed and hampered and became stagnant".

5. It is also alleged that it was an implied term of the agreement that the plaintiff was obliged to fulfil its obligations before it was entitled to seek indemnity from the defendants in respect of the debts.

6. In further particulars, the defendants say that, in December 1994, Mr David Wong and Mr Raymond Ng, officers of Grand Orient Holdings Limited, a listed company, during negotiations for the purchase of the shares in Grand Orient Building, gave undertakings to the first defendant that they and Grand Orient Holdings "would give their best supports to" the first defendant in running Grand Orient Building, and "Moreover, Grand Orient [Holdings] would inject fresh working capital to the Company once the original banking facilities guaranteed by the first defendant was withdrawn". Further, it is said that, on 3 February 1995, Mr Raymond Ng said that "he would give his best support to the first defendant and Grand Orient [Holdings] would inject more working capital to the Company to make it grow."

7. In an affirmation in opposition to the plaintiff's application for summary judgment, the first defendant says that both Mr David Wong and Mr Raymond Ng, in the course of discussion and negotiations, said that "Grand Orient [Holdings] would give their best supports to me in running the company . . . Moreover, the Grand Orient [Holdings] would inject fresh working capital and provide fresh guarantee to the Company to replace the original guarantee. It is quite obvious that from the account and papers presented to them that once the original guarantee was withdrawn, fresh capital and guarantee had to be supplied to the Company to keep it running." The first defendant goes on to say how important these undertakings were. He says that had he known that the plaintiff or Grand Orient Holdings would not provide a fresh guarantee, he would not have entered into the agreement. He seeks to explain why this important matter was not mentioned in the agreement. He says that Messrs Ng and Wong presented "a very rosy picture of the Company which would expand into every sphere of operation" and "it was therefore not possible to say in definite term as to how much capital would be injected to the Company". He says "As a result of that, the agreement between the parties had not specifically mentioned about such matter. Indeed, at the time of signing of the agreement, I had no reason to doubt that the plaintiff or its parent company the Grand Orient would not provide fresh working capital to the company". The first defendant says that, on 3 February 1995, Mr Raymond Ng repeated that "he would give his best support to me and the Grand Orient would inject more working capital to the company to make it grow bigger and stronger".

8. On 15 March 1995, the first defendant wrote to Messrs Ng and Wong about the problems of Grand Orient Building, including lack of financial support. There is nothing in this document that indicates clearly that the first defendant thought that there was a legal obligation on the plaintiff or Grand Orient Holdings to inject capital into Grand Orient Building or provide a bank guarantee.

9. Before the agreement was executed, the solicitors for the defendants sought to include in the agreement a provision to the effect that the defendants would not be liable for the debtors in certain stated circumstances. This attempt did not succeed and the agreement was signed without such a clause.

Assessment of the Defence

10. Assuming what the defendants say is true, and that their allegations constitute an obligation enforceable against the plaintiff, does this set up a defence to the action?

11. The obligation on the defendant is clear. If the debtors of Grand Orient Building did not pay their debts by 20 July 1995, the defendants were obliged to do so. Do the defendants allege anything that relieves them of this obligation? Although I am not impressed by the argument, I suppose it is possible to say that the obligations alleged to have been undertaken by the plaintiff are the counterpart of the defendants' obligations to pay the amount unpaid by the debtors. And, of course, there is also the allegation that there was an implied term that the plaintiff was obliged to fulfil its obligations before it was entitled to seek indemnity from the defendants in respect of the debts.

12. But the defendants also have to show that what they allege is capable of creating an obligation that is enforceable in law.

13. The first defendant says that the alleged obligation accepted by the plaintiff was not incorporated into the agreement because it was not possible, at that time, to say, with precision, what the obligation was. In this the first defendant is undoubtedly right. The alleged obligation was not sufficiently clear to be articulated at the time of the agreement. It is not sufficiently clear, in my view, to form an enforceable agreement now. How much capital was the plaintiff obliged to put into Grand Orient Building, and when was this to be done? The defendants' evidence is that it was Grand Orient Holdings that gave the undertaking, although there hints that it might have been Grand Orient Holdings or the plaintiff. If both Grand Orient Holdings and the plaintiff, or Grand Orient Holdings or the plaintiff, were obliged to pump money into Grand Orient Building, how much was each to put up? And what about the minority shareholder? Was the minority shareholder not to be required to advance money to Grand Orient Building? How much was the plaintiff or Grand Orient Holdings obliged to guarantee by way of bank facilities to Grand Orient Building, and on what terms?

14. If the first defendant concedes, as it does, that, when the agreement was entered into, it was not possible to articulate what the plaintiff was obliged to do, it is the same today, and the defendants could not, and have not been able to, frame a defence or claim in a manner that would render it enforceable.

15. In any event, what the defendants say is not credible. The only contemporaneous document produced is not consistent with the plaintiff having undertaken an obligation that is now alleged by the defendants. There is no statement in this document that indicates clearly that the first defendant thought that there was a legal obligation on the plaintiff or Grand Orient Holdings to inject capital into Grand Orient Building or provide a bank guarantee. It is, in my view, inconceivable that, when the first defendant is stating in strong terms the plight of Grand Orient Building, he would not have said, if he genuinely thought this, that the fault was that of the plaintiff or Grand Orient Holdings in that it had not fulfilled its obligations. If it were so that the plaintiff or Grand Orient Holdings had given an enforceable undertaking to provide funds or a bank guarantee, one would have expected the defendants to complain that this undertaking had not been fulfilled. There was no such complaint in any document until the defence was filed.

16. It is also not credible, in my judgment, that the defendants would have been content to rely on oral undertakings as to what was, admittedly, a very important obligation when a detailed written agreement was being negotiated between solicitors acting for both parties. In the context of the defendants having unsuccessfully attempted to get some relief from the clear obligation to pay if the debtors did not do so, to suggest that the plaintiff impliedly agreed that it would not be entitled to enforce the obligation if it did not fulfil some uncertain oral undertaking to provide some kind of financial assistance to Grand Orient Building is little short of impudent.

17. I venture to suggest that the truth of this matter is that the first defendant did think that the plaintiff or Grand Orient Holdings would provide some financial assistance to Grand Orient Building to enable it to be successful. The plaintiff had by far the major stake in Grand Orient Building, and had the most to lose if it failed. But this cannot constitute an enforceable obligation that enables the defendants to escape from a debt clearly undertaken by them.

18. In the result, I find that the defendants have not advanced any credible defence to the plaintiff's claim.

The Quantum

19. Mr Wong, for the defendants argues, and Mr Smith concedes, that the plaintiff cannot succeed in respect of its full claim. There is, at least, an argument that the amount owing by the debtors of Grand Orient Building was reduced to $5,969,249.14 before 20 July 1995. The defendants do not dispute this amount. Accordingly, the plaintiff is entitled to judgment in the sum of $5,969,249.14, and the defendants are entitled to unconditional leave to defend as to the balance of the plaintiff's claim.

Interest

20. The plaintiff is entitled to interest on the sum of $5,969,249.14 until judgment. I have not heard argument on this point. If the parties are unable to agree as to the appropriate rate of interest, they must bring the matter before me again. From the date of this judgment, the plaintiff is entitled to judgment at the judgment rate.

Costs

21. The plaintiff has succeeded substantially in its application. It seems to me that the plaintiff should have its costs. I make an order nisi accordingly.