DAVID MAURICE PYRAME NAVILLE v. CONNAUGHT FINANCE INVESTMENTS LTD AND ANOTHER

DCCJ 2755/2018

[2021] HKDC 486

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 2755 OF 2018

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BETWEEN

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DECISION

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1.  There are two applications by the plaintiff before the court.

2.  The first is an application for summary judgment under “Order 86, rule 1 of the Rules of the District Court” and “inherent jurisdiction of the District Court” (“the Application for Summary Judgment). The second is an application to amend the Writ of Summons (“the Application to Amend the Writ”).

Background

3.  This is a contractual dispute case. The plaintiff was and is a minority shareholder of the 1^st defendant (“the Company”), whereas the 2^nd defendant is the majority shareholder and director of the Company.

4.  The plaintiff’s case is that there was express agreement (“the Buy-back Agreement”) in July 2014 between him and the 2^nd defendant for the 2^nd defendant to buy back all the plaintiff’s shares of the Company at a consideration of HK$200,000 plus 3% interest, making a total of HK$206,000.

5.  There is no dispute that the Company paid HK$20,000 to the plaintiff on 23 July 2014.

6.  The plaintiff claimed that this was a partial payment pursuant to the Alleged Agreement and there was no further payment despite repeated chasers.

7.  The 2^nd defendant denied the existence of the Buy-back Agreement but claimed that although he “had hoped that it would be possible for the Company to pay the money invested back to the plaintiff”, he only offered that any payment made would be “dependant on cash coming in” so he was under no legal commitment to make payment and any payment, like the said HK$20,000, was only a “gesture of goodwill on ability to pay basis” (page 53 of the hearing bundle, paragraph 9 of the 2^nd defendant’s 2^nd Affidavit).

8.  The plaintiff commenced the current action on 22 June 2018 by way of a writ of summons alleging a breach of contract and claiming HK$186,000 as damages.

9.  There was an episode of default judgment being entered but was set aside by consent on a without prejudice basis for the plaintiff to take out a summary judgment. This is not important for the purpose of the current applications.  

10.  In any case, the plaintiff took out the Application for Summary Judgment on 12 May 2020, seeking specific performance of the Buy-back Agreement but also raises, as an alternative, summary judgment be entered with damages to be assessed. Accordingly, the application was taken out under Order 86 (and the inherent jurisdiction of the District Court) and not under Order 14.

11.  The 2^nd defendant took the position that Order 86 Rule 1 only provides summary judgment “in any action begun by writ indorsed with a claim for specific performance of an agreement” but as no such claim for specific performance was indorsed in the writ, the application was misconceived and should be dismissed.

The Application to Amend the Writ

12.  It was in response to this that the plaintiff took out the Application to Amend the which sought to add an alternative claim for specific performance of the Buy-back Agreement. But this was taken out on 9 February 2021, the day before the hearing.

13.  During the hearing, the plaintiff proposed to withdraw the Application to Amend the Writ and would only seek damages and not specific performance in the Application for Summary Judgment.

14.  As such, I have already made the order to grant leave for the Application to Amend the Writ be withdrawn with costs of application be to the 2^nd defendant summarily assessed at HK$800 to be payable forthwith.

The Application for Summary Judgment

15.  As a preliminary point, I would find that, under the circumstances, it must still be open to the court to exercise its “inherent jurisdiction” to enter Summary Judgment under Order 14 with damages to be assessed, which is the plaintiff’s alternative application (under paragraph 2 of the Application for Summary Judgment).

16.  The law is trite for such applications and needed not to be repeated in details here: suffice to say that the defendant would bear the burden to show that there are triable issues, that is, there is a real or bona fide defence, or a fair probability or reasonable grounds of the existence of such.

17.  The dispute between the parties is whether a legally binding agreement existed.

18.  As a preliminary observation, I would question the 2^nd defendant’s case. In particular, it is entirely unclear as to the reason for the alleged “goodwill gesture to pay back the plaintiff’s investment in the Company”. A company may pay a sum of money to a shareholder as dividends, or perhaps as a repayment of the shareholder’s loan. But this is not the case here. Another reason for the payment to a shareholder would be for the purpose of buying back his shares, which is the plaintiff’s case. Otherwise, I cannot see why there should be a “goodwill” payment to a shareholder, especially when this was for “paying back the shareholder’s investment”. Why would anyone pay a sum of money without, at the very least, a perceived agreement to get the shares back in return?

19.  Thus, the 2^nd defendant’s explanation of the payment already appears illogical and unsustainable even without looking at the email correspondence. Of course, looking at those simply make an even more “clear and obvious case” (Super Town Investments Ltd. V Ives Developments Ltd. & ors [HCA 86 of 2006])

20.  The email correspondence between the plaintiff and the 2^nd defendant is not disputed and is exhibited in the hearing bundle in pages 191 - 199. I would summarise as follows:-

a. On 16 July 2014, the 2^nd defendant wrote to the plaintiff to make an offer:

“can I suggest that I buy all of your shares…”

b. On the same day, the plaintiff replied:

“can you please confirm your proposal is to purchase my shares at the same price I invested in them, and the payment would happen this week?”

c. Again on the same day, the 2^nd defendant replied:

“I cannot pay you this week. But yes proposal is that I buy all your shares plus a three percent interest.”

d. On 17 July 2014, the plaintiff wrote:

“The proposal sounds good. I am agreeable to it, assuming there is settled asap. Can you settle partially this week, and in full by next week? What would be the timeline?”

e. On 27 July 2014, the 2^nd defendant wrote:

“Can you confirm receipt of $20k last week as partial payment to buy your shares back?”

f. On the same day, the plaintiff wrote:

“…Yes, I did receive 20,000 HKD on my account this week. Thank you for kicking off the shares repurchase process…”

g. On 2 August 2014, the plaintiff wrote:

“Shall we look at a schedule of repayment…say on a bi-weekly basis, or a certain amount per month. I think its in both of us interests to get this over the line so some kind of framework would be good…”

h. There is further correspondence to confirm the receipt of the HK$20,000, then on 3 August 2014, the 2^nd defendant wrote:

“…Will make monthly payments from now on.”

i. One month later on 3 September 2014, the plaintiff wrote (presumably after not receiving the promised monthly payment):

“Just to confirm, you are making a monthly settlement, are you?”

j. On the same day, the 2^nd defendant replied:

“I will if I get some cash in. I will keep you posted on progress.”

k. The plaintiff wrote on 29 September 2014 (presumably after not hearing any update nor received any further payment):

“Just to confirm, you are going to make a monthly settlement, are you? Like you said you would…When is it a good time for a call?”

21.  As such, from these series of correspondence, there is no doubt that the 2^nd defendant did make an offer to buy back the plaintiff’s shares which was accepted by the plaintiff on 17 July 2014 for the sum of what he paid, that is HK$200,000 (which is not disputed) plus 3 percent interest. Although the exact timeframe for repayment was not discussed at that stage, the 2^nd defendant has already acted upon the agreement by paying HK$20,000 as partial payment. The parties then agreed on payments on a monthly basis on 3 August 2014.

22.  The only matter not discussed or agreed upon is the amount to be paid monthly, but in any case the 2^nd defendant failed to pay any amount further.

23.  At no point during the discussion from 16 July to 3 August 2014 that the 2^nd defendant ever proposed that he had only hoped that it would be possible for the Company to pay the money invested back to the plaintiff, and had offered to the plaintiff that any payment made would be dependent on cash coming in and that the HK$20,000 paid was only a gesture of goodwill on ability to pay basis.

24.  Only when the 2^nd defendant failed to pay any sum at all despite the agreed “monthly payment” that he started to raise such matters on 3 September 2014.

25.  In fact, in a subsequent email between the 2^nd defendant and another shareholder dated as late as 13 September 2017, the 2^nd defendant admitted that:

“I had an agreement with David from some years ago which I will honor when I have sufficient cash to do so.”

26.  It was clear that the 2^nd defendant had not denied the existence of the Buy-back Agreement nor his legal obligation under it, but the reason for his continual “dishonouring” of this agreement was that he did not have sufficient cash.

27.  If the 2^nd defendant had only offered to pay the plaintiff as “a gesture of goodwill without legal obligation when there were sufficient funds”, he would have stated it here. He did not.

28.  The 2^nd defendant sought to argue that no contract was ever entered into because it was not “a concluded contract…which settles everything that is necessary to be settled and leaves nothing to be settled by agreement between the parties” (G. Scammell and Nephew, Limited v H.C. and J.G. Ouston [1941] H AC 251).

29.  However, each case turns on its facts. In the Scammell case, the parties were in discussion on the agreement for the purchase of a motor vehicle for the exchange of an old vehicle on top of a hire-purchase agreement. The terms were agreed but before the hire-purchase agreement was entered into, the purchaser refused to proceed. The court held that there was no concluded contract.

30.  Here, there was clear a process of offer and acceptance, and indeed, the agreement was already acted upon by a partial payment.

31.  Indeed, the agreement was not made by legal professionals but between two business associates over a series of correspondence, thus the court would need to consider the whole of the correspondence and must not “at one particular time draw a line”. (Thomas Hussey v John Horne-Payne and Anor [1879] 4 App Case 311 CHL).

32.  I have considered the whole of the correspondence and make my findings on how this agreement formed over the series of emails (see paragraphs 21 and 22 above).

33.  The only matter not agreed was the sum of monthly payment, but considering the entirety of the evidence in this case, the absence of this detail in the agreement does not mean that there was no contract and no legal obligation: the parties had agreed on the total sum to be paid and a monthly payment schedule, and the agreement had been acted upon by a partial payment.

34.  It might be very different if the 2^nd defendant was keeping up with monthly payments, but the plaintiff was claiming a breach by alleging that, perhaps, the monthly payment was unreasonably small and could not have been the original intentions of the parties. That would have made a completely different scenario and perhaps not a suitable case for summary judgment.

35.  Instead, the 2^nd defendant had agreed to make a monthly payment on 3 August 2014 but had failed to pay any sum at all after that. This was a clear breach of the Buy-back Agreement and there was no real or bona fide defence raised by the 2^nd defendant.

Order

36.  I would therefore order that summary judgment be entered against the 1^st and 2^nd defendants with damages to be assessed.

37.  The costs of this action up to and including the costs of the Application for Summary Judgment (but excluding the costs of the Application to Amend the Writ which was dealt with above) be to the plaintiff to be taxed if not agreed with certificate for counsel payable forthwith. If the parties cannot come to an agreement regarding costs, the plaintiff shall lodge and serve a summary bill of costs within 28 days of this judgment, and the defendants shall lodge and serve a list of objections (if any) within 28 days thereafter, and the costs will be assessed summarily on paper by the court.