PENTA INVESTMENT ADVISERS LTD v. ALLIED WELI DEVELOPMENT LTD (formerly known as HENNABUN CAPITAL GROUP LTD)

HCA 1656/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1656 OF 2012

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J U D G M E N T

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1.  On 14 October 2014, I handed down my judgment on liability (“the Judgment”). I granted a declaration that the deed of guarantee dated 24 June 2011 (“the Deed”) was binding on the defendant (“Hennabun”) and enforceable against it by the plaintiff (“Penta”), and I directed that the amount due to Penta from Hennabun under the Deed, or by way of damages for repudiatory breach thereof, be assessed at a further hearing (“the quantum hearing”).

2.  The basic facts of this case were set out in the Judgment and I shall not repeat them here. 

3.  Subsequent to handing down of the Judgment, I gave directions to the parties for the quantum hearing, including the filing of witness statements by the parties.  Pursuant to those directions, Penta filed a witness statement of Vui Ling Leong dated 27 November 2014, and Hennabun filed a supplemental witness statement of William Pak dated 3 December 2014. 

4.  The quantum hearing took place on 12 January 2015. At the commencement of that hearing, I was informed by counsel that the parties agreed that the witness statements could be adduced as evidence without cross examination.  On that basis, the parties made submissions on the issue of quantum based on the uncontested evidence, in particular that of Vui Ling Leong. 

5.  Penta’s primary case is that it is entitled to be paid the sum of HK$210,366,448 by Hennabun, which sum represents the guarantee amount as calculated pursuant to clause 6 of the Deed. Penta’s alternative case is that the damages for Hennabun’s breach of the Deed should be assessed at HK$210,366,448.  

6.  On the other hand, Hennabun argues that it repudiated the Deed by refusing to comply with any of its obligations under the Deed as from 6 February 2012, and Penta’s decision to procure the disposal of the “Remaining Shares” amounted to an unequivocal election to accept the repudiation.  The consequence, according to Hennabun, is that Penta is not entitled to any remedy under the Deed, but is limited only to a remedy in damages (if any).  Hennabun further argues that, on the facts of the present case, Penta has suffered no loss whatsoever, and thus it is not entitled to any award of damages. 

7.  This is my judgment on the issue of quantum. 

Penta’s claim for amount due under the Deed

8.  To put Penta’s evidence on quantum in context, it is necessary first to refer to certain relevant provisions of the Deed. 

9.  Clause 5 of the Deed states as follows:-

“After the Confirmation Date, [Hennabun] can instruct [Penta] to dispose of the Remaining Shares either on the stock exchange maintained by The Stock Exchange of Hong Kong Limited or to a designated party or parties (including giving instructions on the price or price range at which to dispose), provided that [Hennabun] must ensure that [Penta] will have disposed of all the Remaining Shares by the 30^th day after the Confirmation Date (including that date) (the ‘Final Disposal Date’). [Penta] shall use its reasonable endeavours to follow the instructions given by [Hennabun] under this Clause.”

10.  Clause 6 of the Deed goes on to state as follows:-

“The guarantee amount (the ‘Guarantee Amount’) will be calculated using the following formula:-

(Disposal Shares*A) – B

where:-

A = placement price per Mascotte share under the Share Placement + HK$0.10

B = gross disposal proceeds (before deducting brokerage, stamp duty and other expenses in connection with the disposal) from disposing the Disposal Shares pursuant to Clause 5 of this Deed

provided that if, on or prior to the Final Disposal Date, Mascotte consolidates or sub-divides its shares, the above-mentioned formula shall if necessary be adjusted so that the economic benefit enuring to [Penta] pursuant to the guarantee of investment return under this Deed shall remain the same had no such consolidation or sub-division in fact occurred.”

11.  Clause 7 of the Deed provides that Hennabun shall pay the Guarantee Amount to Penta, or pursuant to payment instructions provided by Penta designating the funds and managed accounts advised by Penta, within 5 business days (excluding Saturdays and public holidays in Hong Kong) from the Final Disposal Date, provided that Hennabun will not have any payment obligation to Penta under this clause if the Guarantee Amount calculated pursuant to the formula in clause 6 is zero or negative. 

12.  The following facts and matters appear from the witness statement of Vui Ling Leong:-

(1) Penta did not itself subscribe for any of the 550 million Mascotte shares pursuant to the Placing Commitment Letter dated 24 June 2011.  Instead, the shares were subscribed for by various “funds” managed by Penta, and were deposited into a number of custodian accounts maintained with Goldman Scahs International and UBS.

(2) The placement price per Mascotte share under the share placement was HK$0.404032.

(3) It follows that Amount A under clause 6 of the Deed shall be (HK$0.404032 + HK$0.10) = HK$0.504032.

(4) By a letter dated 10 January 2012, being the 180^th day after the completion of the share placement (ie the “Confirmation Date” as defined in clause 4 of the Deed), Penta informed Hennabun that:-

(a) the number of “Remaining Shares” (as defined in clause 4 of the Deed) still held in the “Designated Account” (as defined in clause 1 of the Deed) was 481,564,000, and

(b) it elected not to hold onto any of the 481,564,000 Remaining Shares.

Accordingly, those 481,564,000 Remaining Shares constituted the “Disposal Shares” for the purpose of clause 4 of the Deed.

(5) In the said letter of 10 January 2012 (as well as in a further letter dated 10 February 2012), Penta requested Hennabun to give instruction for the disposal of the Disposal Shares pursuant to clause 5 of the Deed.

(6) Hennabun did not give any instruction to Penta regarding the disposal of the Disposal Shares.  By letters dated 6 February 2012, 13 February 2012 and 28 February 2012 respectively, Hennabun denied that it was bound by the Deed.

(7) Given Hennabun’s refusal to give instruction for the disposal of the Disposal Shares, during the period from 17 February 2012 to 2 April 2012, Penta proceeded with the sale of the 481,564,000 Disposal Shares, which yielded a total gross consideration of HK$32,357,218.40 (“the Sale Proceeds”).

13.  The evidence of William Pak confirms that Penta was not the actual subscriber of the Mascotte shares. 

14.  Penta claims that, applying the formula in clause 6 of the Deed, the Guarantee Amount shall be:

  (481,564,000 x HK$0.504032) - HK$32,357,218.40

  = HK$210,366,448

15.  It may be noted that in the above calculation, Penta has treated the amount of the Sale Proceeds arising from the disposal of the Disposal Shares carried out by Penta during the period from 17 February 2012 to 2 April 2012 as Amount B in the formula set out in clause 6 of the Deed. 

16.  However:-

(1) “Amount B” is defined to mean the gross disposal proceeds from disposing the Disposal Shares “pursuant to Clause 5 of the Deed”; and

(2) clause 5 envisages that the Disposal Shares would be sold pursuant to instruction given by Hennabun within a period of 30 days after the Confirmation Date (ie 10 January 2012).

17.  As a matter of fact, the Disposal Shares were not sold pursuant to any instruction given by Hennabun.  Neither were they sold within the period of 30 days after the Confirmation Date. 

18.  Mr Charles Manzoni SC (for Penta) argues, nevertheless, that the amount of the Sale Proceeds should be treated as Amount B for the purpose of clause 6 of the Deed, because:-

(1) The word “can” in clause 5 of the Deed is “permissive”, in that it allows Hennabun, once notified of Penta’s wish not to retain all or part of the Remaining Shares, to provide instruction as to the manner of disposal of those shares, but does not mandate that Hennabun must do so.

(2) As a corollary of this, in the event that (as here) Hennabun decides not to give instruction, Penta is at liberty to dispose of the Remaining Shares in respect of which it has notified Hennabun of its election not to retain, with the effect that the shares so disposed of by Penta would constitute the Disposal Shares, and the gross proceeds from such disposal would constitute the Gross Disposal Proceeds for the purpose of clause 6 of the Deed.

19.  I am unable to accept Mr Manzoni’s submission that the word “can” should be read in the “permissive” sense, such that Hennabun is given a choice of whether to give instruction to Penta to dispose of the Disposal Shares in accordance with clause 5 of Deed.  It seems to me that clauses 5 and 6 of the Deed are intended to lay down an agreed mechanism for the disposal of the Disposal Shares and, more importantly, the ascertainment of the amount payable by Hennabun to Penta under the Deed.  Hence, it would be unreasonable, and contrary to the commercial purpose of the Deed, to regard clause 5 as giving Hennabun a choice whether to give instruction to dispose of the Disposal Shares. 

20.  In my view, clause 5 of the Deed should be read as imposing a contractual obligation on Hennabun to give instruction for the disposal of the Disposal Shares in accordance with the provisions of that clause.  As it happened, Hennabun refused to do so, thereby committing a repudiatory breach of the Deed and entitling Penta to a claim for damages. 

21.  If I am wrong in my construction of clause 5 of the Deed (in other words, the word “can” confers on Hennabun a choice whether to give instruction for the disposal of the Disposal Shares), I would be attracted by Mr Manzoni’s submission mentioned in paragraph 18 above so that the agreed mechanism under clauses 5 and 6 may be carried into effect in the event that Hennabun fails or refuses to give instruction.  Such result may be achieved either by an implied term or upon the true construction of clauses 5 and 6 of the Deed.  However, given my construction of clause 5 of the Deed, I would rest my judgment on the basis that Penta is entitled to claim damages for Hennabun’s repudiatory breach of the Deed. 

Penta’s claim for damages

22.  In my view, Hennabun acted in breach of the Deed by refusing to give instruction for the disposal of the Disposal Shares. The breach occurred when Hennabun made it clear, by letter dated 6 February 2012, that it regarded the Deed as not binding on it. 

23.  Subject to Hennabun’s contention that the Deed is not binding on it (which I understand is an issue which Hennabun will pursue in its appeal to the Court of Appeal), Hennabun accepts that it acted in repudiatory breach of the Deed by refusing to comply with any of its obligations under the Deed as from 6 February 2012.  Even if I am wrong in my construction of clause 5 of the Deed and also wrong in my view that Hennabun breached the Deed by refusing to give instruction for the disposal of the Disposal Shares, as can be seen from paragraphs 9 and 13 of the skeleton submissions of Mr Adrian Bell SC (for Hennabun) dated 7 January 2015, Hennabun accepts that Penta is, in principle, entitled to a remedy in damages but argues that Penta should not be awarded any damages because the loss (if any) has been suffered by the investors and not by Penta. 

24.  I may add that the parties disagreed on whether Penta had accepted Hennabun’s repudiatory breach of the Deed.  It does not seem to me that the resolution of this issue has any consequence for the present purpose.  The reason is that the effect of an acceptance of repudiation is simply that the parties are discharged from further performance of their obligations under the contract which each has still to perform, and the innocent party may bring an action for damages: see Johnson v Agnew [1980] 367 at 392E-393E, per Lord Wilberforce.  It is important to appreciate that an acceptance of a repudiatory breach does not affect rights which have already accrued, including the right to claim damages for any breach of contract committed prior to the date of acceptance of the repudiation. 

25.  The measure of damages for a breach of contract is well established: the innocent party is to be placed, in so far as money can do so, in the same position as if the contract had been performed: see Johnson v Agnew [1980] 367 at 400H, per Lord Wilberforce.

26.  Had the Deed been duly performed by Hennabun, Penta would have been paid the amount calculated in accordance with the formula in clause 6 of the Deed.  Although Amount B in that formula can no longer be precisely ascertained now, assessment of damages is not an exact science.  I regard the amount of the Sale Proceeds as a reasonable estimate for Amount B. 

27.  In all, I assess the damages for Hennabun’s breach of the Deed at HK$210,366,448, and order Hennabun to pay to Penta the sum of HK$210,366,448 by way of damages, together with interest thereon for the period from 6 February 2012 to the date of this judgment at the interest rate of 2.5% per annum: see Waddington Ltd v Chan Chun Hoo Thomas and Others (No 2) [2014] 4 HKC 356. 

28.  I also make an order nisi that Penta shall have the costs of the quantum hearing (including the costs of preparation of the witness statement of Vui Ling Leong), to be taxed if not agree.