厦門南中投資有限公司 v. CHONG MING YIU (莊明耀)

HCA1381/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1381 OF 2008

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REASONS  FOR  JUDGMENT

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1. On the date of hearing I have dismissed the defendant’s appeal and upheld Master Kwang’s decision in granting summary judgment to the plaintiff.  The followings are my reasons therefor.

Background

2. On 17 July 2006, the plaintiff and the defendant entered into a sales and purchase agreement of 16,666,667 shares of a Hong Kong company called Hong Kong China One (Group) Investment Limited.  Its consideration thereof was RMB125 million.  Pursuant to the Agreement and a subsequent Supplemental Agreements, the plaintiff had three respective payments totalling RMB7.2 million and a further sum of RMB4 million, making a total of RMB11.2 million by 1 September 2006.

3. On 9 December 2006, the parties signed a cancellation agreement terminating the Agreement and the Supplemental Agreement.  The parties further agreed that the sum of RMB11.2 million should be deemed to be a loan lent by the plaintiff to the defendant.  The term of the repayment is expressly provided in clause 2 thereof as follows :

「甲方應退還乙方已支付的股權轉讓款人民幣1120 萬元轉為甲方向乙方的借款，甲方用其在香港中長集團投資有限公司持有的16.667%的股權為甲方盡快歸還上述人民幣1120 萬元做擔保……」

4. In other words the defendant agreed that he should make repayment of the loan to the plaintiff “as soon as possible”.  The defendant also acknowledged in writing his receipt of the loan of this sum RMB11.2 million dated 9 December 2006.  

5. The plaintiff has, on two occasions, namely 19 March 2007 and 31 October 2007, demanded in writing from the defendant to repay the loan.  The defendant failed to repay any part thereof.  Further, the defendant had not there and then stated any defences as he has put forward in the present case. 

6. The Writ was issued on 22 July 2008.  In this Order 14 summons, the defendant had raised three defences and I shall deal with them hereinbelow.

7. The first defence is that the defendant alleged that there is an express or implied term in the Cancellation Agreement or the loan that the loan should only be repayable after the settlement agreement among the defendant and three other shareholders of a joint venture has been reached. 

8. However, the first problem is that there was no such express term in the Cancellation Agreement and the plaintiff denied that he has ever agreed to the alleged term of repayment. 

9. The second problem is that this alleged term of repayment cannot be implied into the contract as there was no necessity to have such an implied term.  The term is in fact inconsistent or even contradictory to an express term of the agreement between the parties and that is the loan has to be repaid as soon as possible and not upon the happening of a particular event. 

10. Thirdly, as submitted by Mr Simon Ho, counsel for the plaintiff, this alleged implied term of repayment is repugnant to common and business sense and therefore it is unbelievable under the circumstances. 

11. The defendant alleged that the loan would be paid by him to the plaintiff within 12 months as he anticipated that he could settle with the other shareholders within 6 to 12 months.  Be that as it may, the 12-month period expired by 8 December 2007, i.e. before the Writ was issued on 22 July 2008 and thus the loan would in any event become due and payable.  Accordingly the defendant’s allegation that “the loan was not yet due and payable” is totally unsustainable and unbelievable. 

12. In the second line of defence, the defendant alleged that the plaintiff had misrepresented to him that it was a very powerful enterprise in the PRC and would offer assistance to the defendant to procure the resolution or settlement of his disputes and litigation with the other shareholders, in particular the plaintiff would assist the defendant to procure the best deal with the other two shareholders or to obtain the best price of the shares in the buy-out transaction.  

13. However such an allegation of the defendant is seriously contradicted by his own evidence given in earlier legal proceedings involving the defendant and the other shareholders under HCA106/2005 and HCMP1355/2005.  In those proceedings the defendant deposed, in para. 8 of his 7^th affirmation, that :

“      I fully informed Nan Zhong of the situation of shareholders’ disputes and the pending litigations and the possibility that I might not be able to restore the proper order of the Company and the JV.  Nan Zhong fully understood the situation and asked me to use my best endeavour to procure the necessary arrangement and keep them informed of the progress.  Having fully considered the situation, Nan Zhong agreed to buy my shares of the Company according to the terms of the Agreement to Transfer Shares dated 17 July 2006.”

14. In other word, the defendant said in the affirmation to the effect that he himself was asked by the plaintiff to use his own best endeavour to procure the necessary arrangement and to keep the plaintiff informed of the progress.

15. In the third line of defence, the defendant alleged that the plaintiff had released the confidential information, namely the Sale and Purchase Agreement of shares between the plaintiff and the defendant to the other shareholders of the company. 

16. However, in the first place, the defendant can produce no evidence to support that allegation.  Secondly, the defendant can offer no credible reason as to why the plaintiff would have the motive to disclose that information which the defendant said that he “verily believes that the plaintiff and/or Tsoi had unlawful and ulterior motives”.  But he did not particularise what unlawful and ulterior motives were on the part of the plaintiff.  Thirdly, the plaintiff in the circumstances would obtain no benefit out of such alleged “unlawful disclosure” or “conspiracy”.  On the contrary, such a disclosure would only bring potential harm or prejudice to the plaintiff itself as this would no doubt delay the settlement between the defendant and the other two shareholders and would in turn delay ultimate repayment of the loan by the defendant to the plaintiff.

17. The allegation of release of confidential information also serves as a material base for the alleged tort of  “breach of confidence” and “conspiracy to injure” causing loss and damages to the defendant in his counterclaim.

18. The defendant’s alleged loss is premised upon a “loss of chance”.  However, the defendant’s case is defective in that he fails to provide the necessary causative links for establishing such “loss of chance”.  This “loss of chance” of the defendant can only be treated as potential loss as it has not yet arisen, and hence being incapable to set off the plaintiff’s claim for the repayment of the loan.

19. In any event the loss of chance counterclaim is only speculative in that the defendant just assumed that had the agreement between the plaintiff and the defendant not been discovered by the other two shareholders in August 2007, the other two shareholders would probably have settled their disputes and litigations with the defendant in the same terms under the so-called “preliminary framework of agreement” as put forward by the defendant.

20. There are two other deficiencies of the defendant’s quantification of his “loss” and its corresponding “supporting evidence”.  Firstly, the 1^st Valuation Report only assessed the net profit of the joint venture project at RMB7.1 million without taking into account the value of any outstanding liabilities owed by the PRC JV company to its creditors, including any outstanding liabilities owed to its shareholder creditors, which have specifically referred under Clause 3(5) of the Settlement Agreement dated 2 August 2008.  This 1^st Valuation Report was made by a Beijing accountant firm called CRC but it was not signed by anyone.

21. In respect of the 2^nd Valuation Report, it is likewise unsigned and is in a draft form only.

22. I accept the plaintiff’s submission that it is well established that the defendant cannot base upon a cross claim (even assuming that liability could be established) to set off or counterclaim against the defendant when the defendant in effect cannot provide the necessary evidence to substantiate his loss.  (Wong Ching Chi v Full Yue Bleaching & Dyeing Co. Ltd [1994] 3 HKC 660.)

Conclusion

23. For the aforesaid reasons, I have dismissed the defendant’s appeal with no order for the stay of the judgment entered for the plaintiff, together with costs to the plaintiff, to be taxed if not agreed.