LIEU TSENG VAN v. JIUZHOU DEVELOPMENT CO LTD

HCA 1645/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1645 OF 2009

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REASONS FOR JUDGMENT

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1. I gave my judgment on the seventh of this month. I now give my reasons.

2. The claims and counterclaims in this action arose out of the failure of a negotiation for the sale and purchase of 80% of the shares of a company called Super Cruise Limited (“Super Cruise”).  Super Cruise owns and controls a recreation club called Pine Valley Sports and Country Club (“Pine Valley”) in Doumen District of Zhuhai City, Guangdong Province.  The plaintiff (“Lieu”) is and was the owner of 98% of the shares of Super Cruise.  The defendant (“JZD”), a company listed in the Hong Kong Stock Exchange, was the potential purchaser.  The only asset of Super Cruise is Pine Valley.

3. For the purpose of the negotiation, JZD signed a confidentiality undertaking dated 8 August 2008 to Lieu and Super Cruise agreeing to keep confidential the documents and information provided for its consideration in the negotiation.  JZD also paid Lieu RMB26 million in Hong Kong dollars equivalent as earnest money for the negotiation.  The repayment of the earnest money is secured by a share charge executed by Lieu and his wife Madam Chen Siu Ling, the 2nd defendant by counterclaim (“Chen”) over 400 or 80% of the shares of Super Cruise and by a loan assignment executed by Van Shipping Company Limited (“Van Shipping”), a company owned and controlled by Lieu, in favour of JZD.

4. JZD claims that the earnest money has become repayable but is still outstanding.  It has thus exercised its rights under the share charge and the loan assignment.  It has also appointed receivers pursuant to the share charge over the charged shares.  Lieu on the other hand claims that JZD has breached the confidentiality undertaking.  He also denies that the earnest money is repayable or that the rights under the share charge and loan assignment exercisable.

5. Lieu claims against JZD in his re-amended statement of claim for damages for breach of the confidentiality undertaking, damages for wrongful enforcement of the share charge, forfeiture of the earnest money (which he described as a deposit) or set-off of the same against the damages payable by JZD, and a declaration that the share charge be discharged or set aside.

6. JZD in its re-re-amended defence and counterclaim prays for repayment by Lieu of the earnest money, a declaration that it is entitled to enforce the share charge, a further declaration that its appointment of receivers is valid and effective, an order requiring Lieu and Chen to deliver up the books, documents and company seal and chops of Super Cruise, damages for breach of the share charge, and an indemnity for all costs, expenses and charges incurred in enforcing the share charge and the loan assignment.

Background

7. Super Cruise has issued and allotted 500 shares. 490 shares are held by Lieu and 10 by Chen. 

8. Super Cruise is the sole beneficial owner of Pine Valley.  Pine Valley operates a recreation club in Doumen District, Zhuhai City.  It has a country club, a golf course, a gun club and shooting range, a hunting area and other facilities for recreation and leisure.  It is the only golf club in Zhuhai that also has a gun club and hunting area.

9. A Zhuhai Huafa Industrial Company Limited (珠海華發實業股份有限公司) (“Huafa”) was interested in acquiring all the interest in Pine Valley.  Lieu said they had some negotiations in 2006 which were later called off by Lieu.  Huafa approached Lieu again in July 2008.  Lieu said Huafa offered him RMB250 million for all the shares in Super Cruise.  Before that, Lieu had also negotiated with a property developer in Hong Kong for the sale and purchase of 70% shares of Super Cruise.  The developer had paid Lieu an earnest money of HK$15million which was secured by Lieu’s pledge of 350 shares of Super Cruise.  The negotiation with the developer did not bear fruit.  Lieu later used part of the earnest money paid to him by JZD to repay the earnest money with interest to the developer.

10. Whilst Huafa was negotiating with Lieu, JZD approached Lieu on 7 August 2008 with a view to purchase 80% of the Super Cruise shares from Lieu.  JZD signed the confidentiality undertaking on 8 August.  By the undertaking, JZD undertook and agreed that the information and documents concerning Super Cruise, its subsidiary Pine Valley and its business and clients to be provided to JZD for review and consideration of the purchase were the confidential information that JZD would safeguard and not disclose to 3rd parties.  JZD further undertook to indemnity Lieu and Super Cruise for all loss and damage that would flow from the breach of the undertaking.  The exceptions from the undertaking were disclosures required by law or the listing rules of stock exchanges and information already available in the public domain. 

11. After the execution of the undertaking, Lieu provided some 136 English documents and records and some 341 Chinese documents and records to JZD on 9 August for the due diligence enquiry on Super Cruise and Pine Valley.

The Framework Agreement and the share charge

12. The parties then negotiated a share transfer framework agreement (權益轉讓框架協議).  This agreement was signed on 27 August 2008 and modified by a supplemental agreement signed on 10 September 2008.  The framework agreement as modified by the supplemental agreement is hereinafter called “the Framework Agreement”. 

13. Pursuant to the Framework Agreement, JZD also paid Lieu HK$30 million which was equivalent to RMB26 million.  Of this sum, HK$14,122,500 was paid to Lieu personally.  The balance of HK$15,877,500 was paid on Lieu’s behalf to an investment company as his repayment of the earnest money of HK$15 million with interest to the Hong Kong property developer and for discharge of his pledge of 350 Super Cruise’s shares.  On the same day, Lieu and Chen also executed the share charge over 400 Super Cruise’s shares (“the charged shares”) and Lieu on behalf of Van Shipping also executed the loan assignment in favour of JZD to secure the repayment of the earnest money.

14. The relevant terms of the Framework Agreement are:

「权益转让框架协议…

九洲发展有限公司 (以下简称“甲方”) ， …

吕政范先生 (以下简称“乙方”) ，…

一、权益转让

甲方拟向乙方购买 Super Cruise 400股股份，即佔 Super Cruise全部已发行股份的80% (称“目标权益”)，乙方拟向甲方转让目标权益 (“权益转让”)。

二、价格及支付

2.1 受限于甲方的尽职调查结果及权益转让协议的谈判结果，Super Cruise的80%股权拟作价不超逾人民币2.0亿元 (“转让价格”) ；作价的基础为：

2.1.1 乙方保证在双方签署权益转让协议时，“万盛”、“Super Cruise”不存在任何未了结诉讼。

2.1.2 乙方保证结清“万盛”、“Super Cruise”所有对外责务（包括但不限于股东贷款）。否则，转让价格按本框架协议第五条的方式扣减。

2.1.3 Super Cruise唯一的资产为其对万盛的权益（股份）（以下简称“万盛权益”）。

2.2 为免存疑，实际转让价格将以权益转让协议所载价格为准。在权益转让成交时，如果Super Cruise或万盛，负有任何经审计的债务，转让价格应按本框架协议第五条作相应的削减，审计日及审计账目方式由双方再行商议决定，有关条款将载于权益转让协议内。

…

2.4 转让价格分两期支付，首期人民币二千六百万元等值港币 (“交易保证金”)，… 转让价格的第二期于目标权益交割当日支付。

…

三、交易保证金

3.1 作为保证乙方根据3.2.1、3.2.2或3.2.5条退还交易保证金 (若发生) 予甲方之担保，在本框架协议签署当日，(i) 乙方须与甲方同时签订一份股份抵押协议 (其格式载于补充协议附件一)(“股份抵押协议”)，将乙方及陈小玲持有的共80% Super Cruise股权 (“抵押股权”) 抵押予甲方；及 (ii) 乙方须交付一份由 Van Shipping Company, Limited 妥为签署的债权抵押契据 (其格式载于补充协议附件二)(债权抵押契据)。

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3.2 交易保证金的处理

3.2.1 如甲方于进行尽职调查期间发现 Super Cruise 或万盛存在重大问题，包括但不限于法律，会计财务、或业务及发展方面 (包括但不限于 (仅作为范例) 土地房屋业权不清晰、自有土地不可持续开发或持续开发须补缴相关费用 (但改变现有土地使用权证书规定的用途 (旅游综合用地) 除外)、任何现时或计划经营的业务未取得所有有权审批的政府机关批准及发出有效证照、公司存在重大或然负债、股权或股东贷款的拥有权存在问题或争议等)，甲方有权按本框架协议第7.2款之规定向乙方出具交易退出函。乙方须在收到交易退出函后不迟于2008年12月31日按甲方支付的原币种退还金部交易保证金 (若为港币，则依原甲方支付日汇率计算) 及按1年期贷款利率计算的利息。

3.2.2 如发生下述任何一种情形：

(i) 如果于进行尽职调查期间并无发现 Super Cruise 或万盛存在重大问题，但甲方仍按本框架协议第7.2款之规定向乙方出具交易退出函；或

(ii) 因不可归责于甲方的原因，权益转让未能取得香港联交所的批准 (如有需要)；

(iii) 因不可归责于甲方的原因，权益转让未能取得甲方股东大会的批准 (如有需要)；

则乙方须于上述情況發生後不迟于2008年12月31日按甲方支付的原币种向甲方退还全部的交易保证金 (若为港币，则依原甲方支付日汇率计算) 及按香港上海汇丰银行最优惠计算的利息。其余部份归乙方所有作为对乙方的补偿。

…

3.2.4 如因甲方未遵守正式的权益转让协议 (“权益转让协议”) 的规定而导致转让未能完成，则全部交易保证金归乙方所有，乙方并继续保留所有的追索权。

3.2.5 如因乙方未遵守本框架协议或权益转让协议的规定而导致转让未能完成，则全部交易保证金须立即归还甲方，甲方并继续保留追索权。

3.3 抵押股份的处理

如出现3.2.1、 3.2.2或3.2.5条规定的情况，即乙方未能在2008年12月31日或之前退还属于甲方的交易保证金，则甲方有权按照股份抵押协议的规定对抵押股权自行处置及/或执行债权抵押契据。在此情况下，乙方须促使其及其联系人停止要求 Super Cruise偿还任何往来帐，在甲方要求时，乙方的联系人并须马上向甲方交付承诺函，承诺遵守上述规定，直至乙方收到甲方的书面批准为止。

四、权益转让的交割先决条件

权益转让协议将载有包括不限于以下的先决条件 (除下面第4.3项外，一方对另一方应满足的条件可给予全部或部分豁免遵守)；

4.1 甲方完成尽职调查，并在限定的时期对其结果，书面表示满意及接纳；

4.2 双方已签署 Super Cruise的股东协议；及

4.3 权益转让协议已获甲方股东大会和香港联交所的批准 (如适用)。

五、待清理债务

5.1 乙方在股份转让交割日前，应促使 Super Cruise及万盛清还所有对外欠款 (包括但不限于股东贷款)。但在交割时 Super Cruise及万盛如仍有任何对外欠款，其总额由双方共同认可的会计师事务所进行审计确定 (“待清理债务”)。

5.2 双方将根据待清理债务的经审计确定金额，相应降低转让价格，具体条款将载于权益转让协议内。 …

七、尽职调查

7.1 甲方应尽快完成对目标公司进行法律、会计财务和业务等方面的尽职调查，乙方为必要调查提供便利。甲方的尽职调查应于股份抵押协议项下的抵押股权手续完成后30个工作日内完成。

7.2 甲方在完成尽职调查后的当日，应向乙方出具对目标公司尽职调查结果满意确认函，或出具交易退出函，如甲方既不出具确认函又不出具退出函,甲方视为对尽职调查结果表示满意。

…

九、排他性 在本框架协议有效期内，乙方及其关联方不可与其它任何人就目标權益、万盛资产和股份的处置 (包括但不限于转让) 进行任何形式 (直接或间接) 的磋商、谈判或达成任何意向或安排。… 十一、有效期 本框架协议自股份抵押协议项下的抵押股权手续完成后即生效，有效期至2008年12月31日或权益转让签署之日 (以最早发生者为准)，除本框架协议中另有约定或法律另有规定外，任何一方不得擅自解除本框架协议。

…

十三、其它

13.1 本框架协议签署后，双方应尽快进行权益转让协议及股东协议的磋商，争取于2008年12月31日前完成权益转让协议的签署；

…

13.2 本框架协议的任何修订、修改或补充，须由双方签署书面文件；…」

15. I also append below the free translation of the relevant terms:

“Framework Agreement

…

Jiuzhou Development Company Limited (hereinbelow known as “Party A”), …

Mr Lieu Tsang Van (hereinbelow known as “Party B”), …

1. Subject matter of sale

Party A intend to purchase from Party B 400 shares in Super Cruise, which is the 80% of the issued shares (the “Subject shares”), Party B intends to sell the Subject shares to Party B (the “Sale and purchase”).

2. Price and payment

2.1 Subject to the result of due diligence conducted by Party A and the negotiation outcome of the sale and purchase agreement, the price for the 80% shares in Super Cruise shall not exceed RMB 2 billion dollars (“Sale and Purchase price”); the basis of fixing the price is:

2.1.1 Party B warrants that when the parties sign the sale and purchase agreement, “Pine Valley” (and) “Super Cruise” shall have no unfinished litigation.

2.1.2 Party B warrants that it will fully discharge all debts of “Pine Valley” (and) “Super Cruise” due to outsiders (including but not limited to shareholder loan). Otherwise, the sale and purchase price shall be deducted in accordance with the method in clause 5 of this framework agreement.

2.1.3 The only asset of Super Cruise is its rights of ownership over Pine Valley (shares) (hereinbelow called “Pine Valley rights of ownership).

2.2 For avoidance of doubt, the actual sale and purchase price shall be the price expressly provided in the sale and purchase agreement. On completion, should Super Cruise or Pine Valley is liable to any audited debts, the sale and purchase price shall be deducted in accordance with Clause 5 of this framework agreement, the day of audit and the format of accounts shall be negotiated and decided by parties and the relevant terms shall be incorporated in the Sale and Purchase Agreement.

…

2.4 The Sale and Purchase price shall be paid by two instalments, the first instalment shall be RMB 26 million or a equivalent sum in HK dollars (“Earnest money”), … the second instalment of the sale and purchase price shall be paid on the date of completion.

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3. Earnest money

3.1 As a security that Party B would return to Party A the Earnest money in accordance of clause 3.2.1, 3.2.2 or 3.2.5 (if so happened), on the date of execution of this framework agreement, (i) Party B shall enter into a share charge with Party A at the same time (in the prescribed format in attachment I of the supplemental agreement) (“Share Charge”), to charge the 80% shares in Super Cruise owned by Party B and Chan Siu Ling (陳少玲) to Party A; and (ii) Party B shall deliver a Loan assignment duly executed by Van Shipping Company, Limited (in the prescribed format in attachment 2 of the Loan Assignment)(Loan Assignment).

…

3.2 Handling of the Earnest money

3.2.1 Should Party A during due diligence discovers substantive problems in Super Cruise or Pine Valley, including but not limited to the aspects of legal, account and finance, or operational and development (including but not limited to (only serve as an example) unclear title for land and property, forbidding sustainable development on the free use land or relevant fee should be paid for such development (save and except the prescribed land use under the current land use certificate (mixed tourist land use)), any current or planned business projects failed to obtain approval or issued by relevant license by the responsible licensing government authorities, the company is liable to existing substantive contingent liabilities, ownership of shares or shareholder loan is under dispute etc), Party A shall have the right pursuant to clause 7.2 of this framework agreement to issue a notice of withdrawal. Party B shall, no later than 31.12.2008, return the full Earnest money paid in its original currency to Party A (if in HKD, exchange rate shall be the rate Party A advanced the Earnest money) with an interest at the rate calculated on the basis of a 1 year loan.

3.2.2 In the event that any of the following situations arises:

(i) If in the course of due diligence, no substantive problem was discovered in Super Cruise or Pine Valley but Party A still issue to Party B a notice of withdrawal under clause 7.2 of this framework agreement; or

(ii) for reasons not attributable to Party A, the sale and purchase was not approved by the Hong Kong Exchanges and Clearing Limited (if needed);

(iii) for reasons not attributable to Part A, the sale and purchase was not approved by the shareholder meeting (if needed);

Then Party B shall, no later than 31.12.2008, return the full Earnest money in its original currency to Party A (if in HKD, exchange rate shall be the rate Party A advanced the Earnest money) with an interest at the rate of the HSBC’s Best Lending Rate. …

3.2.4 If for the reason that Party A is not abiding the formal sale and purchase agreement (“Sale and Purchase Agreement”) and lead the failure of the transaction, then Party B shall be entitled to the whole sum of Earnest money and shall retain all actionable rights.

3.2.5 If for the reason that Party B is not abiding this framework agreement or the sale and purchase agreement and lead to the failure of the transaction, then the whole sum of Earnest money shall be returned to Party A immediately and Party A shall retain all actionable rights.

3.3 Handing of the charged shares

Shall the situations as prescribed under clauses 3.2.1, 3.2.2 or 3.2.5 arise, that Party B failed to return the Party A’s Earnest money on or before 31.12.2008, the Party A shall be entitled, pursuant to the provisions of the share charge, deal with the charged shares on its own motion and/or enforce the Loan Assignment. In the circumstances, Party B shall procure itself and its agent to stop demanding Super Cruise to repay any current debts, upon demand of Party A, agent of Party B shall immediate deliver an undertaking to Party A, undertake to be bound by the above provided regulation until Party B received from Party A a written approval.

4. Condition precedents for sale and purchase

The sale and purchase agreement shall provide but not limited to the following condition precedents (except Clause 4.3 below, one party shall waive the compliance of the whole or part of the conditions to be fulfilled by another party);

4.1 Party A completes the due diligence and within the prescribed period states in writing that it is satisfied with and accepts the result;

4.2 Both parties have signed the shareholders agreement of Super Cruise; and

4.3 The sale and purchase agreement has been approved by Party A’s shareholders at general meeting and Hong Kong Exchanges and Clearing Limited (if applicable).

5. Loans to be cleared

5.1 Before the completion date of sale and purchase, Party B shall procure Super Cruise and Pine Valley to clear all outstanding debt (including but not limited to shareholder loans). Should Super Cruise and Pine Valley be liable to any outstanding debt upon completion of sale and purchase, the total amount of such debt shall be audited and confirmed by an accountancy firm jointly approved by the parties (“Loans to be cleared”).

5.2 Both parties will reduce the price for the sale and purchase in accordance with the amount of the audited Loans to be cleared, detail provisions shall be prescribed in the sale and purchase agreement.

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7. Due diligence

7.1 Party A shall complete the due diligence in the aspects such as legal, accounting and finance and businesses to the targeted company as soon as possible. Party B shall facilitate the necessary inquiry. Party A shall complete the due diligence in 30 working days after the completion all procedures of the Share Charge as prescribed under the relevant section.

7.2 Party A shall issue to Party B a notice of satisfaction or notice of withdrawal regarding the due diligence to the targeted company at the date of the completion of the due diligence. Shall neither notice of satisfaction nor notice of withdrawal be issued by Party A, Party A shall be deemed satisfy with the result of the due diligence.

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9. Exclusivity

During the period of validity of this Framework Agreement, Party B and its related parties shall not consult, negotiate or reach any agreement or arrangement in any forms (directly or indirectly) with other parties regarding the targeted interests, assets of Pine Valley and the disposal of shares (including but not limited to transfer).

 

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11. Period of validity

This Framework Agreement shall take effect from the date of completion of the Share Charge to 31.12.2008 or the date of execution of the sale and purchase agreement (whichever is earlier). Unless otherwise agreed in this Framework Agreement or otherwise provided by law, no party shall be allowed to discharge this Framework Agreement.

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13. Miscellaneous

13.1 Parties shall as soon as possible commence negotiation of the sale and purchase agreement and shareholders agreement after the execution of this Framework Agreement with a target date for signing the sale and purchase agreement on or before 31.12.2008;

13.2   Any amendment, modification or supplement to this Framework Agreement shall be made in writing and signed by both parties; …”

16. I also append the relevant terms of the share charge below for reference:

“THIS DEED is dated the 10th day of September 2008

Interpretation

1.1 In this Deed (including the recitals hereto), except where the context otherwise requires:

…

“Charged Shares” means collectively, (i) all those 390 Shares in the capital of the Company beneficially owned by and registered in the name of Mr Lieu; and (ii) 10 Shares in the capital of the Company beneficially owned by and registered in the name of Ms Chen;

…

“Date of Satisfaction” means the date on which (i) Mr Lieu shall have duly performed and discharged all his repayment obligations under clause 3.2.1, 3.2.2 or 3.2.5 of the Letter of Intent; or …;

“Deposit” means the sum of RMB26,000,000 in HK Dollars equivalent paid by JZD to Mr Lieu pursuant to the Letter of Intent;

…

“Event of Default” means the events or circumstances mentioned in Clause 3.3 of the Letter of Intent;

…

“Letter of Intent” means the letter of intent dated 27 August 2008 made between Mr Lieu and JZD, as amended and supplemented by a supplemental agreement … on (10th) September 2008;

…

“Receiver” means the receiver or receivers appointed under Clause 9.1 and, …;

“Secured Debt” means the indebtedness, liabilities or obligations which the Chargors covenant to pay and discharge under Clause 2.1 or, where the context so admits, any part thereof;

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2. Covenant for Provisions

2.1 In consideration of JZD agreeing to enter into the Letter of Intent, the Chargors hereby jointly and severally covenant with JZD that they will pay and discharge to JZD on demand the Deposit and interest accrued on the Deposit in the occurrence of events or circumstances mentioned in Clause 3.2.1, 3.2.2 or 3.2.5 of the Letter of Intent.

3. Charing Provisions

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3.2 The Chargors shall deliver to JZD contemporaneously with the execution of this Deed the following:

(1) the share certificate(s) representing the Charged Shares and the undated instrument of transfer and bought/sold notes (substantially in the form of Schedule 2) in respect of the Charged Shares duly executed by the Chargors in blank;

(2) letters of resignation of all directors of the Company, duly signed but undated in the form of Schedule 3;

(3) undated resolution of all directors of the Company, in the form of Schedule 4, signed by all directors of the Company (accepting the resignations by Lieu and his wife as directors of the Company and approving the transfer of the charged shares to JZD or its nominee(s));

(4) Letter of authorization in the form of Schedule 5 signed by all directors of the Company (authorizing JZD to put into effect of the resolutions of the board of the Company as signed by Lieu and his wife and their resignations from the board); and

(5) irrevocable proxy in respect of the representation of the Chargors and nominee thereof at general meetings of the Company in form of Schedule 6;

(6) undertaking in the form of Schedule 7, signed by each of the companies or persons who are the associates of the Chargors and being creditors of the Company (undertaking not to demand repayment from the Company upon event of default save with consent of JZD);

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3.4 JZD shall be entitled to continue to hold any document delivered to it pursuant to Clauses 3.2 and 3.3 until the Date of Satisfaction.

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5. General Covenants and Undertakings

5.1 The Chargors hereby jointly and severally covenant with JZD that until the Date of Satisfaction, he/she will:

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(6) procure the registration of transfers of the Charged Securities and the entry of JZD or its nominee in the register of members of the Company as the holder of the Charged Securities and give all necessary assistance to JZD in arranging the registration of the transfer of the Charged Securities to JZD or its nominee in the books of the Company and the entry of JZD or its nominee in the register of members of the Company as the holder of the Charged Securities;

…

5.4 The Chargors hereby jointly and severally undertake with JZD that, forthwith on being required by notice from JZD or the Receiver so to do, the Chargors will at its own costs and expenses, execute and do all assurances, acts, deeds and things as JZD or the Receiver may require, and procure other interested parties so to do, for protecting or perfecting the security over all or any part of the Charged Securities or for facilitating the realization of all or any part of the Charged Securities and exercise of all powers, rights, remedies, authorities and discretions hereby vested in JZD or the Receiver. The Chargors shall, in particular, execute all transfers and assurances of all or any part of the Charged Securities whether to JZD or to its nominees or purchasers and give all notices, orders and directions which JZD or the Receiver may think expedient.

…

8. Enforcement of Security

8.1 Save where an Event of Default and/or any other event set forth below shall have been fully remedied to the satisfaction of JZD within 7 Business Days of a notice in writing given by JZD to the Chargors, JZD shall be entitled to declare all or any part of the security hereby created immediately enforceable;

(1) if any one or more of the Events of Default shall have occurred or is continuing; or

(2) if any of the Chargors has failed to pay any part of the Secured Debt when due or on demand; or

(3) if any of the Chargors is in default under any of the terms hereof, or of any other Security Documents to which any of the Chargors is a party; or

…

8.2 Upon the security hereby constituted becoming enforceable and at any time thereafter (whether or not any part of the Secured Debt remains unpaid or undischarged):

…

(2) the powers of appointing a receiver and the powers conferred on a mortgagee by this Deed or by enactment, statute or otherwise shall, to the extent not already exercisable, immediately arise and become exercisable;

…

9. Receiver

9.1 Upon the power of appointing a receiver becoming exercisable, JZD may appoint under seal or by writing under the hand of a duly authorized officer of JZD any one or more person or persons to be a receiver or receivers (jointly and severally where more than one person) of the Charged Securities or any part thereof and ….

9.2 The Receiver shall be the agent of the Chargors and the Chargors shall be solely responsible for his acts and remuneration as well as for any defaults committed by him …

…

14. Miscellaneous

14.1  Indulgence : Save as may be expressly provided herein to the contrary, time is of the essence of this Deed.  No failure or delay on the part of JZD to exercise any power, right or remedy under this Deed shall operate as a waiver thereof nor shall a waiver by JZD of any particular default by the Chargors affect or prejudice the power, right or remedy of JZD in respect of any other default or any subsequent default of the same or a different kind nor shall any single or partial exercise by JZD of any power, right or remedy hereunder preclude any other or further exercise thereof or the exercise of any other power, right or remedy. …”

The public announcement of the negotiation and the news article

17. Lieu’s first claim is for damages for breach of the confidentiality undertaking by JZD.  The first public announcement of the negotiation of the sale and purchase of 80% of the shares of Super Cruise by JZD was made on 10 September 2008 for compliance with the listing rules.  The announcement therefore came within the exceptions to the undertaking.  The contents of the announcement had also been approved by the son of Lieu, Mr Wayne Lieu, on behalf of Lieu before publication.

18. The announcement said that JZD had on 27 August 2008 entered into a letter of intent (which was a reference to the original framework agreement) with a 3rd party in relation to the possible acquisition of 80% of the issued share capital of a Hong Kong company.  The letter of intent was amended by a supplemental letter dated 10 September 2008 and became effective on that date.  The target company was the owner of a foreign owned enterprise in the mainland.  The foreign owned enterprise was principally engaged in the running of a golf club, gun club, hunting area, hotel and sports training in Zhuhai.  JZD had to pay the 3rd party RMB26 million earnest money pursuant to the letter of intent.  The 3rd party agreed to grant JZD an exclusive right of negotiation up to 31 December 2008 when the letter of intent would expire if no formal agreement was made between the parties.  The repayment of the earnest money was secured by certain pledge given by the 3rd party over some shares of the target company.  JZD would perform further due diligence review on the target company within 30 business days and to negotiate and sign a formal agreement on or before 31 December 2008.  Should a formal agreement be signed, the letter of intent provided that the price for the 80% shares of the target company would not exceed RMB200 million.

19. There were then 5 golf clubs in Zhuhai, but only Pine Valley had a gun club and hunting area as well.  Though the announcement made no mention of Lieu, Super Cruise or Pine Valley, its reference to a golf club in Zhuhai that also had a gun club and hunting area was a clear reference to the club ran by Pine Valley.  Lieu in oral evidence also agreed that Pine Valley was well known in Zhuhai even before 2008.  If someone in Zhuhai should mention about a Zhuhai golf club with gun club and hunting facilities, people there would know that the club was Pine Valley.  Lieu further agreed that his negotiation with Huafa for the sale and purchase of Pine Valley before he was introduced to JDZ was also known to the people of Zhuhai.

20. After the publication of the announcement on 10 September 2008, there was then a news article appearing on 16 September 2008 edition of Zhujiang Wan Bao reporting on the negotiation between JZD and Lieu on the sale and purchase of 80% shares of Super Cruise.  The article was written by a reporter Mr Hsu Fei and referred to Lieu as the owner of the shares of Super Cruise which was the parent company of Pine Valley.  It stated that the price for the possible sale was RMB200 million instead of not exceeding that sum as mentioned in the announcement.  It also alleged that the General Manager of JZD, Mr Huang Xin had provided some information to the reporter.  Huang was alleged to have told the reporter that there were tough negotiations by various competitors with Pine Valley and they started in the previous year.

21. The news article also appeared in the internet portal of Zhuhai News Network on 16 September.  The news network is owned by Zhujiang Wan Bao.

Lieu’s complaint of breach of confidence

22. As a result of the news article in the newspaper and on the internet, Lieu on 17 September wrote a complaint letter to Huang of JZD.  Lieu said in the letter that enquiry by his staff with the newspaper revealed that the contents of the news article were provided by JZD, the article had been approved by JZD before publication and the reporter had perused the Framework Agreement.  Lieu complained that the Framework Agreement should have been kept confidential and not have been shown to the reporter.

23. He further said that the news article had caused worries amongst the staff of Pine Valley and induced many enquiries from suppliers, tour and other agents and the revenue department on the details of the Framework Agreement.  These caused him embarrassment and adverse effect. He asked JZD to clarify the erroneous reporting immediately.

24. After this, the issue of breach of confidence by JZD seemed to have gone to rest.  It was raised again by Lieu’s lawyers in a letter dated 20 February 2009.  The letter complained that JZD had leaked out to the media about the signing of the supplemental agreement (which amended the original framework agreement) and important information of the project.  The important information included the identities of the vendor, the target company and the price.  The letter also alleged that the disclosure led to other potential buyers undertaking interference actions to sabotage the deal between JZD and Lieu and causing serious damage to Lieu.

25. Lieu’s lawyers raised this issue again in a letter dated 17 April 2009 to JZD.  However, they raised it in connection with an allegation of insider dealing rather than Lieu’s loss or damage.

The disclosure in the news article

26. Both Huang and the reporter Hsu gave evidence on this matter.  Huang denied any breach of the confidentiality undertaking.  Both of them denied that Huang had provided any information to Hsu except a copy of the public announcement and the full title of the supplemental agreement.  My assessment of the credibility of Huang and Hsu on this issue is not entirely satisfactory. However, the important questions are the extent of the disclosure in the news article over and above that of the public announcement and whether Lieu has suffered therefrom.

27. Though the announcement did not name Pine Valley as the subject of the sale and purchase negotiation, the description therein of the business under negotiation has clearly identified to the people of Zhuhai that Pine Valley was it.  Hsu, being a reporter responsible for tourism and economic news of Zhuhai, would have known that Pine Valley was being discussed for the sale and purchase.  Hence, the naming of Pine Valley in the news article did not have the effect of a disclosure of something not already made known by the announcement.

28. The news article also mentioned that Pine Valley’s parent company was Super Cruise and the shares of Super Cruise were held by Lieu.  However, once the identity of Pine Valley is known from the announcement, the additional information of its parent and the shareholder of the parent is not of any sensitivity.  Such information was also available from the Zhuhai government upon payment of a fee. 

29. The further matters that have been disclosed in the news article but not in the announcement were the full title of the supplemental agreement and the quantity of the charged shares was at 80%.

30. The news article also carried some brief history of Pine Valley. It also contained some inaccurate information like JZD had been in the talks since the previous year, there were 3 competitors in the talks and price of the deal was at RMB200 million rather than not exceeding that sum. These inaccuracies might have added colours to the article, but they were not disclosures of confidential information. 

31. The article also contains an alleged confirmation by Pine Valley to the reporter of the proposed sale and purchase, but Lieu and Mr Wu Wei of Pine Valley both denied that Pine Valley had provided the confirmation.  This could have been another inaccuracy in the article.  The method and style of reporting in this article left much to be desired.

Lieu’s first claim for breach of confidence and decision thereon

32. Lieu pleaded his loss and damage from the breach of the confidentiality undertaking in paras 22 to 26 of his re-amended statement of claim.  He alleged that two potential purchasers had offered to purchase 70% of the interest in Pine Valley in about January 2009 on the basis of an agreed valuation of RMB266 million.  These purchasers however withdrew on learning of the price mentioned in the Framework Agreement.  Lieu did not say whether the purchasers were apprised of the “RMB200 million” price from the news article or the “not exceeding RMB200 million” price from the announcement.  He went on to allege that after the withdrawal of the 2 bidders, there was no one willing to offer anything better than RMB200 million for 80% of Pine Valley or Super Cruise. 

33. He further alleged that after the failure of his negotiation with JZD, he was unable to negotiate with Huafa for the sale of the entire interest in Pine Valley at RMB250 million.  He was also unable to negotiate with any purchaser for the Pine Valley at RMB300 million which was the price of a valuation of it as at 3 July 2009. 

34. If this claim should arise from the disclosure in the news article that the price for 80% of Super Cruise shares was at RMB200 million, then this claim must fail once it is accepted that the subject of negotiation referred to in the public announcement was Pine Valley.  The obvious reason is that this price information in the article had already been made public with Lieu’s consent in the announcement.  In fact the price of “RMB200 million” mentioned in the article was better than the price of “not exceeding RMB200 million” mentioned in the announcement. 

35. Furthermore, the mere fact of negotiation with 2 potential purchasers without the making of any agreement with them is too remote a ground to justify any damages.  Such claim is wholly speculative (see Halifax Building Society v Urquart-Dykes & Lord [1997] RPC 55 at 87, line 17-22 and Gosfield School Ltd v Birkett Long (a firm) [2006] PNLR 342 at paras 125-131).  I therefore dismiss this claim for loss and damage for breach of the confidentiality undertaking or Framework Agreement. 

Lieu’s second claim for breach of confidence and decision thereon

36. Lieu’s next claim for loss and damage from JZD’s breach of confidence is grounded on a claim by the Sanli Villagers’ Committee. The village committee claimed that the village was entitled to possession of some 200 mu land occupied by Pine Valley.  Lieu alleged that the village committee made this claim after learning of the proposed acquisition.  They used this claim to pressure Lieu for compensation.  Lieu pleaded that the villagers had on 14 March, 4 April and 1 May 2009 attempted to block access to Pine Valley thereby causing disruption to its business and frightened the staff, customers and potential purchasers.  Wu Wei of Pine Valley also gave evidence for Lieu that the villagers had indeed blocked the access to Pine Valley on those days. 

37. However, if the villagers’ actions were sparked off by the disclosure of negotiation of sale of Pine Valley in the news article published on 16 September 2008, one wonders why they would have waited for some 6 months before acting on 14 March 2009.  Further, the negotiation for the sale of Pine Valley to JZD had already been made known for the first time in the public announcement on 10 September.  There was nothing more in the article that would have encouraged the villagers to act if they had not been so encouraged by the announcement.  The fact that Lieu had been negotiating to sell Pine Valley to Huafa was also known in Zhuhai including the Sanli Village before JZD had come into the picture. 

38. In fact, Lieu’s case as unfolded at the trial was that Huafa was behind the villagers’ action.  Huafa was JZD’s competitor and did not want JZD to succeed in acquiring Pine Valley.  One Leung Ka Wing, who was in a close relationship with one Yuen Shiu Bor of Huafa, then instigated the villagers to act against Pine Valley to sabotage the proposed sale.  Lieu further admitted that Huafa would have learnt from the announcement that JZD was negotiating with Lieu for the purchase of Pine Valley.  Hence, any loss or damage flowed from the actions of the villagers would have been ultimately caused by the public announcement rather than the news article.  In the premises, there is no basis for Lieu to blame the news article for the villagers’ actions.  I therefore dismiss this second claim for damages for breach of confidence as well. 

Due diligence and title problems identified in it

39. The next issue between the parties is on the conduct of the due diligence and up to what time it should have been completed. This further leads to whether JZD was entitled to demand the return of the earnest money on 27 May 2009 under the Framework Agreement and on 3 June 2009 under the share charge.  It is therefore necessary to look into the correspondence on the due diligence. 

40. According to clause 7.1 of the Framework Agreement, the due diligence should be completed within 30 working days after 10 September. Mr Kwok, counsel for Lieu calculated that the due diligence should have been completed by 29 October.

41. JZD had raised some questions on the assets and liabilities of Super Cruise and Pine Valley on 13 August 2008 before signing the Framework Agreement.  Lieu had also provided some answers as supported by some documentation on 14 August.

42. JZD continued with the due diligence after the signing of the aforesaid agreements and security documents.  It pleaded in the re-re-amended counterclaim that there were 3 land title issues relating to 3 areas occupied and used by Pine Valley that it regarded as problematic.  The 3 matters are pleaded in paragraph 61 of the counterclaim as follows:

“61. So far as the land title problems are concerned, it was revealed during Due Diligence that:-

(1) The 200 acres (should be “mu”) of free use land (自有土地) was originally owned by Sanli Village committee and later resumed as national land and transferred to 斗門赤鼻島工貿公司 (“Doumen Company”), which was liable to pay compensation to Sanli Village committee for the lost (sic) of the resumed land. The land was subsequently injected by Doumen Company in Pine Valley in exchange for 10% equity interest. Pine Valley was unable to produce any documentation to show that Doumen Company had paid the requisite compensation to Sanli Village committee.

(2) The lease between Pine Valley and Sanli Village committee for the use of the mountain slope (出租山坡地) had already expired. Sanli Village committee had decided not to renew the lease with Pine Valley, thereby making it impossible for Pine Valley to continue to operate its business on the mountain slope.

(3) Pine Valley had not entered into any lease with the water authority (斗門區乾務鎮水利會) over the use of the land covering the reservoir (水庫出租地) located within the facilities operated by Pine Valley.”

43. The first problem relating to the 200 mu land was in fact not mentioned in the due diligence correspondence until after 31 December 2008.  The second problem of the mountain slope land owned by Sanli Village was first identified by JZD in a letter to Lieu dated 13 August 2008.  Regarding the third problem relating to the land over the reservoir, JZD’s lawyer Madam Zhang had on as early as 20 October proposed a draft lease for execution between Pine Valley and the water authority. 

44. JZD’s lawyers on 20 October requested the provision of certain documents for their consideration for the due diligence.  Super Cruise complied with the request by providing a number of documents on 23 October.

Extension of time for due diligence

45. 29 October came and went, but JZD did not issue any certificate of satisfaction with the due diligence or certificate of withdrawal pursuant to clause 7.2 of the Framework Agreement.  Nevertheless, nobody said anything about the deadline for completion of the due diligence.  Lieu also did not say that under clause 7.2, JZD was deemed to have been satisfied with the result of due diligence.  This was so because both sides knew that the due diligence was still continuing.  This was clearly demonstrated by the subsequent correspondence between the parties. 

46. Furthermore, if Lieu should rely on the deeming provision, that could force JZD to issue a notice of withdrawal under clause 7.2 by relying on clause 3.2.2(i) of the Framework Agreement.  In that event, Lieu would have to repay the earnest money with interest at the best lending rate of the Hong Kong Bank no later than 31 December 2008.  In the light of Lieu’s then financial condition as revealed in the due diligence of Super Cruise, he obviously did not have the funds to effect the repayment.

47. On 7 November, JZD’s lawyer Madam Zhang revised and re-circulated the draft lease regarding the reservoir land to all concerned. Then Wayne Lieu on 13 November sent an email on behalf of Lieu to one Mr Y K Poon, the then financial controller and company secretary of JZD. He said in the email “… on due diligence work progress, please confirm with your lawyers … and advise what are the outstanding items/issues requiring our attention in order to meet the requirement of Securities and Futures Commission (SFC).”  This clearly indicated that Lieu was contented with the continuation of the due diligence and was cooperating with it despite the passing of the deadline and the deeming provision in clause 7.2. 

48. JZD replied on 14 November and raised mainly a number of loans due to Super Cruise’s director and outsiders.  Wayne Lieu replied on 17 November by referring to clause 2.2 of the Framework Agreement which provided for the deduction of all outstanding loans from the purchase price.  JZD responded also on 17 November and said that the due diligence had not been completed because Lieu had not provided the various loan documentation and letters confirming the outstanding amounts.  The letter further said that the particulars of the documentation and outstanding debts had to be listed in the due diligence report and the sale and purchase agreement.  Hence, JZD repeated its request for the documentation.  JZD’s Hong Kong solicitors repeated in a letter dated 18 November the request for the loan documentation for the purpose of the due diligence.

49. Though the parties had mentioned about the loans again in subsequent correspondence, the provision of loan documentation did not seem to be an issue of real concern to JZD.  It was not mentioned in the defence and counterclaim at all.  I would therefore make no more mention about it. 

50. Since the due diligence exercise was still continuing with the collaboration of Lieu, the 30-working-day time limit for its completion under clause 7.1 must have been extended.  The extension must have applied to the date for JZD to issue a certificate of satisfaction or withdrawal or for JZD to be deemed to be satisfied with the due diligence under clause 7.2.  Lieu had also elected not to invoke the deeming effect in clause 7.2 on the passing of 31 December 2008.  The extension of the date under clause 7.2 would also mean the extension of the date for JZD to exercise its rights under clauses 3.2.1, 3.2.2 and 3.2.5.  The deadline of 31 December 2008 in clauses 3.2.1 and 3.2.2 for Lieu to repay the earnest money with interest was likewise extended.  The same applied to the payment deadline in clause 3.3 the default of which is an event of default under the share charge.

51. However, the extension of time could not have been indefinite.  I think when the due diligence should reasonably have been completed, it would then be open to Lieu to put JZD on election on what to do under clause 7.2 and to act accordingly within a reasonable time thereafter.  This time would also depend on whether Lieu was willing to allow the due diligence to continue.  If JZD should, when put to election, decide to issue a certificate of withdrawal and demand the earnest money back with interest, Lieu would have to make payment within a reasonable time after the demand so as to avoid an even to default under clause 3.3 and JZD’s exercise or rights under the share charge and the loan assignment.  JZD could also act under clauses 7.2, 3.2.1 or 3.2.2 at any time before it was put to election by Lieu (see Ng Chek Kwok v Kiu Wai Ming (1992) 1 HKLR 5).  (Since I take the view that the earnest money is not forfeitable by Lieu as I will explain below, JZD could also have asked for the money back even if it should fail to do so within a reasonable time after the completion of due diligence, expiry of the Framework Agreement or after it had been put to election by Lieu.)

52. On 19 November, Lieu wrote to Huang and responded to JZD’s suggestion of paying the smaller sum of RMB172 million for 80% shares of Super Cruise.  Lieu said that in the light of the amount offered, which was the result of the drastic downturn of the world economy, he offered to increase the shares to be sold from 80% to 90%.  Lieu further asked JZD to consult its lawyers on the existing situation of the leased mountain slope of Pine Valley and to accept the status quo rather than to request the Sanli Village Committee to sign a new lease.  He said that a new lease would alter the then favourable lease terms.  He ended the letter by requesting JZD to speed up the necessary procedure and close the deal before the end of the year. 

53. JZD’s lawyer, Madam Zhang circulated another draft lease of the reservoir land on 10 December to all concerned.

54. On 18 December, Wayne Lieu wrote to Y K Poon acknowledging receipt of a draft sale and purchase agreement.  He also said that he understood JZD’s lawyers had completed the due diligence to reach the final negotiation stage of negotiation for the sale and purchase agreement and he looked forward to the successful completion of the deal.  But he did not refer to clause 7.2 of the Framework Agreement or ask JZD to issue a certificate of satisfaction or assert that JZD’s satisfaction with the due diligence had been deemed.  He merely expressed his understanding that the due diligence had been completed and he hoped to have the sale and purchase agreement signed by 31 December 2008.  That was the target date provided in clause 13.1 of the Framework Agreement.

Completion of due diligence

55. If JZD’s purpose in conducting the due diligence was to verify all the assets and liabilities including debts of Super Cruise and Pine Valley, find out whether they had any legal or tax problem or risk of litigation and to get to know their management team, I think this exercise should have been completed sometime before 31 December 2008.  The pleaded first land title problem relating to the 200 mu land had not been mentioned in the correspondence until after December 2008.  The second and third pleaded land title problems were known to JZD before the end of October.

56. Regarding the reservoir land in the third pleaded problem, Pine Valley had entered into agreements of usage on 22 August 1996 and 17 March 1997 with a Doumen County Wushan Lianwei Project Management Department (斗門縣五山聯圍工程管理處).  But JZD took the view that this department did not have the right to lease the reservoir land to Pine Valley and it was the local water authority responsible for the reservoir that had such right.  JZD thus assisted Lieu to liaise with the water authority which promised to enter into a lease over the reservoir land with Pine Valley.  JZD’s lawyer Madam Zhang had also on 20 October 2008 circulated the draft lease for the reservoir land to all parties concerned.

57. Regarding the mountain slope land owned by Sanli Village in the second pleaded problem, JZD had prior to 19 November 2008 asked Lieu to procure a fresh lease between Pine Valley and the Sanli Village Committee which would have a term coterminous with the business period of the golf club.  This lease problem was first identified in JZD’s letter to Lieu and dated 13 August 2008.  Lieu’s position was that the golf course land had a 50-year lease and would be coterminous with the business period of the club. It was the land where the gun club stood that was rented from the villagers for a 10-year term (Lieu’s solicitors later said in a letter dated 17 April 2009 that there were 2,700 mu such land and all but 108 mu had lease term coterminous with the business period of Pine Valley whilst the lease for the 108 mu would expire in 2015 but had renewal provisions).  Hence, this problem was known to JZD even before the signing of the Framework Agreement. 

58. It turned out that JZD did not accept Pine Valley’s lease over the 108 mu land as satisfactory and insisted that Lieu should enter into a new lease with Sanli Village Committee for the mountain slope.  JZD also provided a draft lease to Lieu to lengthen the term for this 108 mu on the slope so that it would be coterminous with the neighbouring land.

59. Regarding the 200 mu free use land in the first pleaded problem, JZD all along knew that it was land resumed by Doumen County Government and injected into Pine Valley as capital contribution for a 10% interest in Pine Valley which interest the government later sold to Lieu.  This land had a land use certificate issued by the Doumen County Branch of the National Land and Resources Bureau.  JZD raised a problem about this land in its letter of 13 August.  That was not the same problem as now expressed in the counterclaim.  Lieu then addressed to that problem in his reply of 14 August.

60. However, the villagers of Sanli Village suddenly asserted a new claim by a letter to Pine Valley and dated 23 December 2008. They asserted that this land was occupied by Pine Valley illegally.  It is this issue that JZD now relies on in the counterclaim.  But this issue created by villagers did not appear to have any basis.  Lieu’s solicitors had by a letter dated 30 December 2008 to the villagers clarified the situation.  They made it clear that Pine Valley had a government land use certificate for the land. 

61. This issue was, from the standpoint of the Doumen Branch of National Land and Resources Bureau, also a non-issue.  The bureau issued a letter dated 12 February 2009 to the People’s Government of Doumen confirming that Pine Valley had a land use certificate for this land and the villager’s claim for compensation should be addressed to the local county government. 

62. This issue was in fact not mentioned by JZD in the correspondence on the due diligence until shortly before 11 March when JZD mentioned it to Lieu.  Lieu’s solicitors then explained the situation in a letter dated 11 March to JZD.  JZD’s solicitors replied by a letter dated 12 March and only made a general and unparticularised allegation on Pine Valley’s acquisition of this land.  The problem on this 200 mu land thus arose after JZD had completed the due diligence.  It was also without basis.

63. JZD thus had before 31 December 2008 learnt of the then existing problems of the lands occupied by Pine Valley.  The due diligence should have been completed insofar as land titles were concerned. This was so regardless of whether JZD was happy with such titles.  In this action, JZD is only relying on land title problems allegedly discovered in the due diligence and not any other problem. 

Rectification of title problems

64. JZD was obviously keen to complete the sale and purchase.  That was why it did not issue a certificate of withdrawal under clause 7.2 despite the discovery of the title problems.  But it required a good due diligence report to show to the shareholders to secure their approval for the purchase.  A good due diligence report would require the rectification of the land title problems.  The rectification required Pine Valley to enter into a lease for the reservoir land with the local water authority and another lease of the appropriate term for the 108 mu of land on the mountain slope.

65. JZD in fact provided assistance to Lieu and Pine Valley in securing these 2 leases.  JZD had liaised with the water authority and provided several drafts of the lease for the reservoir land.  Mr Wu Wai of Pine Valley also had meetings with the water authority on this matter.  One of the meetings took place on 19 December wherein Mr Wu discussed the draft lease with the water authority.  He advised JZD’s lawyer Madam Zhang about this meeting by an email of the same date.  JZD also provided a draft lease for the 108 mu land on the slope.  Its lawyer also accompanied Lieu’s staff to attend a meeting with the Sanli Village Committee.  But the villagers were not cooperative.  Rumour has it that they were on the side of Huafa and assisted Huafa to sabotage JZD’s negotiation with Lieu.

Extension of the Framework Agreement

66. 31 December 2008 came and went.  Nobody referred to the expiry of the Framework Agreement under its clause 11.  Lieu also did not return the earnest money under clause 3.2.1 or 3.2.2 because JZD did not issue any certificate of withdrawal under clause 7.2 and then ask him to repay it under clause 3.2.1 or 3.2.2.  There was then also no allegation under clause 3.2.5 that Lieu had breached the Framework Agreement resulting in the transfer not taking place.  Hence, JZD also could not exercise any right under the share charge and the loan assignment. 

67. On the other hand, Lieu also did not put JZD to election on what to do under clause 7.2 despite the due diligence should have been completed.  The obvious reason is that JZD, if asked to make the election under clause 7.2, might have no choice but to elect to withdraw and demand the earnest money back as Lieu knew that JZD was not satisfied with the land titles and no good due diligence report could be produced.  In that event, Lieu would have to face the difficulty of raising the money to repay JZD. 

68. Despite the passing of 31 December 2008, the parties just continued with the negotiation of the terms of sale and purchase within the scope of the Framework Agreement.  They also worked together to try to rectify and make good the land titles.  Both sides wanted to accomplish the sale and purchase of the 80% shares of Super Cruise.

69. In the correspondence, the due diligence then seemed to have assumed an extended meaning and significance of not only to verify the nature and effect of the land titles, but also to rectify the problems with a view to produce a good due diligence report.  The time for completing the due diligence and the life of the Framework Agreement were both extended by the conduct of the parties.

70. On 12 January 2009, Wayne Lieu sent an email to return to Y K Poon the draft sale and purchase agreement with revisions.

71. On 14 January 2009, Wayne Lieu sent another email to Y K Poon advising him that Lieu’s lawyers would also take part in the negotiation of the sale and purchase agreement.  This yet again shows that the parties continued to conduct vis-à-vis one another on the basis of the Framework Agreement.

72. Wu Wei sent a further email to Madam Zhang on 17 January 2009 advising her of another meeting between him and the water authority on 16 January in which both sides agreed on the terms of the lease for the reservoir land.

Lieu fixed time to expire on 9 February 2009

73. However, Lieu became impatient on 23 January 2009.  He wrote to Huang on that day and complained that JZD’s lawyers had taken an intolerable amount of time to conduct the due diligence even though the Framework Agreement required it to be completed within 30 working days.  He said he was not prepared to entertain anymore request form JZD’s lawyers.  He also said that the exclusivity in (clause 9 of) the Framework Agreement had expired and other parties interested in Pine Valley had appeared.  He asked JZD to sign the sale and purchase agreement before 9 February 2009 failing which he would regard JZD as having abandoned the project.  I think this can be regarded as Lieu’s notice to fix 9 February 2009 as the new limit of validity of the Framework Agreement.  That would in effect also be the new deadline for completion of the due diligence under clause 7.1 and JZD’s election under clause 7.2.  

74. Huang replied on 10 February 2009.  He denied of having delayed the due diligence.  He instead said that JZD had pushed back the due diligence to give Lieu time to rectify the title problems on the mountain slope and the reservoir land.  He also said that the agreement on price and rectification of the title problems were the prerequisites for signing the sale and purchase agreement.  He then referred to the differences between the parties on the terms of the sale and purchase agreement and suggested to suspend the negotiation until after the new lease for the reservoir land had been signed.  He imposed a deadline on 28 February 2009 for Lieu’s rectification of the title problems and urged Lieu to negotiate and sign the sale and purchase agreement as soon as possible.

75. JZD did not act pursuant to clause 7.2 on or before 9 February.  It considered that the due diligence had not been completed as it was aiming at producing a good due diligence report.  However, this view was farfetched as Lieu had made it quite clear in his letter of 23 January that he was not going to entertain anymore request.  Hence, JZD could not insist that Lieu should do anything to improve the result of JZD’s due diligence.  It was then for JZD to decide whether to go ahead with the deal.  JZD could issue a certificate under clause 7.2 to withdraw from the transaction and ask for the earnest money back.

Lieu’s offer to resume negotiation

76. Lieu’s solicitors responded to Huang’s letter on 20 February.  They referred to the expiry of the 30 working days for completion of the due diligence and asserted that JZD’s satisfaction with the due diligence had been deemed by the expiry date.  They also said the Framework Agreement had ended on 31 December 2008 and there was no more exclusivity for JZD in the negotiation for the sale of the Super Cruise’s shares.  They concluded by saying that if JZD intended to acquire the Super Cruise’s shares according to the Framework agreement, Lieu was prepared to negotiate with JZD and to sign the sale and purchase agreement within a few weeks.  This letter completely ignored the extension of time for completing the due diligence and the lengthening of the life of the Framework Agreement.  It however contained an offer to resume negotiation per the Framework Agreement.

77. This offer must have embodied a term that if the negotiation be resumed, then JZD should not ask for the return of the earnest money in the meantime and the time for JZD to issue a certificate of withdrawal under clause 7.2 be extended until the conclusion of the negotiation. Otherwise, it would be open to JZD to demand the money back whilst negotiation was going on.  The money then could not be applied as the 1st instalment payment under clause 2.4 of the Framework Agreement should the negotiation be successful. 

78. It appears that despite Lieu’s letter of 23 January, he was still desirous of negotiating with JZD and cooperating with them to improve the land titles for a good due diligence report.  His solicitors by a letter dated 11 March advised JZD of two matters.  They first provided JZD with a copy of the letter dated 12 February from the Doumen Branch of the National Land and Resources Bureau which stated that Pine Valley had a land use certificate for 200 mu lands.  They then advised JZD that the water authority had signed the new lease for the reservoir land and had given it to Pine Valley.  They then repeated the offer to JZD to resume negotiation in accordance with the Framework Agreement but non-exclusively. 

79. As I have pointed out above, the offer to resume negotiation embodied a term extending the time under clause 7.2 for JZD to withdraw from the negotiation and it could not demand Lieu to return the earnest money in the meantime.  The assertion by Lieu’s solicitors of non-exclusivity in negotiation did not affect the terms of the sale and purchase agreement to be negotiated.  It was no more than a threat to JZD to quickly resume the negotiation.

80. On 12 March, the solicitors of JZD replied to the letter of 20 February from Lieu’s solicitors.  They complained that Lieu still had not presented the new lease for the reservoir land to the relevant government department for execution.  They also complained that Lieu had not diligently negotiated with Sanli Village for the lease proposed by JZD for the mountain slope which failure led to the villagers’ refusal to renew the lease of that land for Pine Valley. They said that if these problems were not rectified, JZD could not be satisfied with the due diligence.  They also referred to the previous cooperation of the parties for solving the title problems.  They said that it was contrary to the actual circumstances and the spirit of cooperation for JZD to have issued a notice of dissatisfaction with the due diligence and to withdraw.

81. They also referred to the cooperation on the due diligence and negotiation on the terms of the sale and purchase agreement in January 2009 and asserted that there was no more deadline for the due diligence.  They blamed Lieu for the deadlock on negotiation for the sale and purchase agreement.  They however did not take up the offer to resume negotiation, but appeared to consider that the Framework Agreement was still in force.

Resumption of negotiation

82. On 2 April, JZD wrote to Lieu and suggested that parties should meet as soon as possible to discuss the sale and purchase and implement the same.  That was really taking up Lieu’s offer to resume negotiation.  Lieu replied on 7 April that the parties could negotiate to resolve the difference.  He further suggested that the parties could leave the negotiation of the terms of the sale and purchase agreement to their solicitors and they should negotiate on the agreement of cooperation.  That was a suggestion to start negotiating for the shareholders agreement as referred to in clause 13.1 of the Framework Agreement.

83. JZD replied on the same day and agreed to negotiate the terms of sale and purchase.  The parties eventually met on 16 April.  This meeting was conducted per the Framework Agreement.  Hence, it was on the basis that the Framework Agreement was in force.  The time for JZD to issue a certificate of withdrawal under clause 7.2 was thus extended.  The time for JZD to act under clause 3.2.1 and 3.2.2 was likewise extended.  The earnest money was still kept by Lieu and would be used as the 1st instalment payment under clause 2.4 in the event of a successful negotiation. 

84. On 5 May, JZD’s solicitors wrote again and said that Lieu had not responded to JZD’s proposal conveyed in the meeting of 16 April.  They suggested a final meeting on 7 May for an agreement to be made failing which the negotiation would be treated as a failure.  Lieu’s solicitors replied on 6 May and suggested flexibility in the negotiation from both sides. They further suggested a postponement of the meeting so that JZD could consider a term for provision of security by Lieu for his performance of the sale and purchase agreement.

85. There were then some further correspondence, but the meeting eventually did not take place.

JZD’s demand for return of earnest money and the notice of revocation by Lieu and Chen

86. On 27 May, JZD issued a demand letter to Lieu. JZD said that Lieu had not complied with the Framework Agreement to supply the information on all aspects of the business of Super Cruise to complete the sale and purchase.  JZD said it still had doubts about the substantive problems of Super Cruise in the aspects of finance, legal, operational or development.  They therefore demanded Lieu to return the Hong Kong dollar equivalent of the earnest money of RMB26 million within 5 working days.  This demand was made in terms of clause 3.2.1 which indicated JZD’s dissatisfaction with the result of the due diligence on Super Cruise. It was in effect a notice of withdrawal under clause 7.2 and a demand under clause 3.2.1 for return of the earnest money.

87. Lieu did not comply with the letter of demand. His solicitors responded on 2 June by sending JZD’s solicitors a notice of revocation.  The notice alleged that JZD had breached the Framework Agreement and the confidentiality undertaking.  It alleged that JZD had breached the Framework Agreement in failing to complete the due diligence within 30 working days from 10 September and failing to issue any certificate under clause 7.2 of the Framework Agreement.  It also alleged the breach by JZD of the confidentiality undertaking.  It also asserted that the Framework Agreement had expired on 1 January 2009.  It then alleged that JZD’s breaches had caused enormous loss and damage to Lieu which far exceeded the earnest money.  Hence, the earnest money was set-off by part of the loss and damage.  The share charge was therefore no longer effective.  All the documents and resolutions signed by Lieu and Chen and delivered under clause 3.2 of the share charge were also purportedly revoked.

88. JZD’s solicitors replied on 2 June and denied the allegation of breach by JZD. 

89. Lieu did not return the earnest money.  JZD took that as an event stipulated in clause 3.3 of the Framework Agreement.  I have already mentioned that the time for JZD to act under clause 3.2.1 or 3.2.2 had been extended to beyond December 2008 and resumed in April 2009.  The time for repayment under clause 3.3 therefore must have been extended to a reasonable time after the demand.  Lieu never complained that 5-working day period was too short.  His solicitors merely said that he was not obliged to return the money as it had been set off.

JZD exercised the rights under the share charge

90. An event within the scope of clause 3.3 was an event of default under the share charge.  Y K Poon of JZD wrote on 3 June 2009 pursuant to clause 2.1 and 8.1 of the share charge and demanded Lieu to repay the earnest money with interest within 7 working days, failing which, JZD would enforce the share charge without further notice.  JZD appointed receivers over the charged shares of Super Cruise on 20 July 2009.

Lieu’s arguments for forfeiture of the earnest money

91. Mr Kwok, counsel for Lieu, maintained that the time for the due diligence and the life of the Framework Agreement had not been extended.  He submitted that after the expiry of the Framework Agreement after 31 December 2008, JZD had nothing to rely on to demand the return of the deposit.  Hence, JZD could not have demanded the return of the same in May 2009.  Mr Kwok made this argument on the ground that there was no written variation of the terms of the Framework Agreement under its clause 13.2.  This is a narrow view.  I take the view that if the parties had in fact varied the terms of the agreement by their conduct but did not record the variation in writing, this clause could not have stopped the variation from taking effect.

92. Mr Kwok, having submitted that JZD could not have demanded the return of the earnest money after 31 December 2008, further submitted that Lieu was not obliged to return the money to JZD and could keep it indefinitely.  He said there was practically no difference from the money having been a deposit that had been forfeited by Lieu.

93. Mr Kwok further argued that the earnest money was indeed a deposit and forfeitable when JZD did not issue a notice to withdraw from the negotiation or to complete the sale and purchase of the 80% shares of Super Cruise at RMB200 million or to sign a sale and purchase agreement by 31 December 2008.

94. He reached this conclusion by construing clauses 2.1 and 2.2 as provisions defining two different purchase prices.  He submitted that the price defined in clause 2.1 is called “the transfer price” and is fixed at RMB200 million subject to deduction of debts according to clause 5 and nothing else.  The price defined in clause 2.2 is called “the actual transfer price” and should be the price as stated in the sale and purchase agreement.  He then took the Framework Agreement as a binding sale and purchase agreement of the 80% shares at “the transfer price” of RMB200 million less the deduction of debts according to clause 5 unless the parties should sign the sale and purchase agreement by 31 December 2008.

95. Counsel then submitted that since JZD had failed to issue a notice to withdraw or to complete the sale and purchase of the 80% shares at the “the transfer price” of RMB200 million or to sign a sale and purchase agreement by 31 December 2008, JZD had thereby breached the binding Framework Agreement resulting in the forfeiture by Lieu of the deposit of RMB26 million.

96. I am of the view that this submission is based on an erroneous interpretation and twisted construction of clauses 2.1 and 2.2.  Clause 2.1 provides that the transfer price should not exceed RMB200 million. The actual figure would be subject to or dependent upon the result of the due diligence by JZD and the result of the parties’ negotiation for the sale and purchase agreement.  No doubt, clauses 2.1.1 to 2.1.3 further provided that the basis for fixing the price under clause 2.1 should be the absence of any unfinished litigation, complete discharge of all debts and that the only asset of Super Cruise being Pine Valley.  But this is not to say that the price was fixed at RMB200 million and only subject to deduction of debts as provided in clause 2.1.2 or 5.  It is also gravely wrong to suggest that the result of the due diligence will have no effect on the amount of price but will only affect JZD’s decision to buy or not.  Counsel also ignored the provision in clause 2.1 of the mechanism of negotiation for the transfer price. 

97. The straightforward and correct interpretation of clauses 2.1 and 2.2 is that there would be one transfer price to be determined by the result of the due diligence and negotiation of parties and such price would be on the basis of no debt due to outsiders, no pending litigation and Pine Valley being Super Cruise’s only asset.  I therefore reject counsel’s submission that the Framework Agreement is in itself a binding sale and purchase agreement with the price fixed at RMB200 million.  The Framework Agreement is not a binding agreement for the sale and purchase of the shares.

Is the earnest money a forfeitable deposit?

98. Separate and independent from the above argument, I also consider the question of whether the earnest money is in the nature of a deposit liable to be forfeited within the terms of the Framework Agreement.  The only forfeiture provision in the Framework Agreement against JZD is clause 3.2.4 which is contingent on JZD’s failure to abide by the sale and purchase agreement.  But the parties failed to arrive at such an agreement and this clause cannot apply. 

99. The earnest money was paid by JZD to show its sincerity in entering into the negotiation for the sale and purchase.  If the negotiation did not bear fruit, it is prima facie refundable to JZD (see Chitty on Contracts, 30^th edn, para 29-064).  The fact that the share charge described the money as a deposit does not alter the nature of this money as that is defined by the Framework Agreement and not by the share charge.

100. Miss Chan, SC for JZD also referred me to Chillingworth v Esche [1924] 1 Ch 97.  That is a case where a purchaser agreed to buy certain freehold land subject to contract and paid £240 as a deposit and part payment of the purchase price.  The parties negotiated for a proper contract.  The vendor then signed the contract but the purchaser did not.  The purchaser then asked for the return of the deposit.  The Court of Appeal held in favour of the purchaser.  Pollock MR said at pp 106-107:

“Mr Luxmoore says that the result of such a finding is that the money paid on deposit is recoverable, on the ground that there never was a contract, and I think that prima facie he is right, and that the deposit is recoverable and ought to be repaid to the plaintiffs. This 240l, was paid ‘as deposit and in part payment of the said purchase money’. It is clear that the purchase money might never become payable, so the character of part payment was lost. But then it is said that it had the character of a deposit, and never lost that character, and therefore the vendor is entitled to retain it. … It is said here that this 2401, was a guarantee that the purchasers meant business, and as, through their action, business did not result, the deposit should be forfeited, on the ground that the purchasers should have executed the contract tendered to them. It is, however, no part of the business of this Court to concern itself with the question why the negotiations in this case came to an end and whether any one is to blame in the matter, but the duty of the Court is to note that as no contract was entered into the deposit would prima facie be returnable. What ground is there then for saying that the purchasers who were entitled to break off negotiations have thereby lost the deposit? It is said that they could not seriously enter into these negotiations and then break them off without reason, but that is not for us to consider. That they were entitled not to complete the purchase seems clear, and I do not accept the view that the purchasers were paying the deposit as a guarantee or earnest of good faith that they would complete the purchase, because they could have revoked what had up to that time been agreed upon at any moment. It seems to me that when once the negotiations came to an end the rights of the parties were gone, and the purchasers were entitled to receive their money back.”

The same reasoning applies here.  I therefore hold that the earnest money is not a deposit liable to forfeiture and Lieu could not have forfeited it.

Has JZD pleaded a proper demand?

101. Mr Kwok also takes the point that JZD’s cause of action is “total failure of consideration” (see paras 12-10 to 12-15, Goff & Jones, The Law of Unjust Enrichment, 8th edn).  He then submitted that JZD had not pleaded any cause of action in the counterclaim for the return of the money.  He further submitted that JZD could not have pleaded a cause of action in reliance of the Framework Agreement as that had already expired after 31 December 2008.  I have already given my reasons on why the Framework Agreement had not expired after 31 December 2008.  I take the view that JZD can rely on the agreement in seeking the return of the money. 

102. Regarding the cause of action for JZD’s demand of the money, I referred to it as for “money had and received” (see paras 1-29 and 2-41 of Goff & Jones) in the course of counsel’s submissions.  However in pleading claims of unjust enrichment, the claimant needs only state the nature of the claim and the facts on which he relies (see para 1-30 of Goff & Jones).  JZD has referred to the earnest money in the re-amended defence and counterclaim.  JZD denied that Lieu had any right to forfeit it.  JZD pleaded in alternative that Lieu had waived the right to forfeit it.  JZD further pleaded the demands for repayment by the letters of 27 May and 3 June 2009.  Hence, the nature of the claim and the facts in support of it are pleaded.  I therefore hold that Mr Kwok’s pleading point also fails.

Election by Lieu, estoppel and extension of time

103. JZD has pleaded that the parties have by conduct extended the time limits under clauses 3.2.1 and 3.2.2 to a reasonable time after completion of the due diligence.  JZD pleaded further or alternatively that Lieu had elected to treat the due diligence as continuing and waived his right to insist on JZD issuing a notice of satisfaction or notice of withdrawal by the expiry of 30 working days from 10 September and/or estopped from asserting that JZD was obliged by such deadline.

104. On election and waiver, Ms Chan, SC, for JZD referred to the “Kanchenjunga” [1990] 1 Lloyd’s Rep 391 at 399 where Lord Goff said:

“In the context of a contract, the principle of election applies when a state of affairs comes into existence in which one party becomes entitled to exercise a right, and has to choose whether to exercise the right or not. His election has generally to be an informed choice, made with knowledge of the facts giving rise to the right. His election once made is final; it is not dependent upon reliance on it by the other party.”

Ms Chan thus submitted that Lieu has made the election to treat the due diligence as continuing.  I agree that the facts as summarized above indeed show that Lieu has so elected.

105. Mr Kwok, however, submitted extensively on the criteria of promissory estoppel and that such estoppel can only be used as a shield and not a sword.  I think a careful reading of the re-amended defence and counterclaim shows that JZD pleaded the estoppel more as an assertion that Lieu should not be allowed to renege from his election and agreement by conduct to continue with the due diligence despite expiry of time than as a plea of promissory estoppel.

106. Mr Kwok also referred to Lieu’s letter dated 23 January and his solicitors’ letter dated 20 February.  I have already said that Lieu’s letter of 23 January should have fixed 9 February as the new deadline for the due diligence and limit of validity of the Framework Agreement.  That new deadline and time limit was however overtaken by Lieu’s subsequent resumption of negotiation within the scope of the Framework Agreement that created further extension of time for JZD to make its election under clause 7.2.  Lieu had done nothing to bring that extension to an end.

107. Regarding the letter by Lieu’s solicitors of 20 February, I have already opined that it was written in ignorance of the previous extension of time for the due diligence and the life of the Framework Agreement.  The stance taken in that letter is misconceived though it repeated Lieu’s offer to resume negotiation.

108. Mr Kwok’s main argument is against extension of time.  He argued strenuously that the due diligence had to be completed by 29 October 2008 and the Framework Agreement expired after 31 December 2008.  His reason was that there was no variation in writing of the Framework Agreement made under its clause 13.2.  This argument permeated his written submissions extensively.  However I disagree with it and have ruled against it above.

Demand for return of earnest money under cl. 3.2.2(i)

109. Even if I am wrong on my conclusion that time for the due diligence and/or expiry of the Framework Agreement had been extended and that JZD should have been deemed to be satisfied with the due diligence, I still hold that JZD was entitled to issue a demand for the return of the earnest money under clause 3.2.2(i) of the Framework Agreement at any time after the negotiation or resumed negotiation had failed.  This is so as the earnest money is not forfeitable and must be repaid upon demand. 

110. I also hold that the demand on 27 May 2009 could have been such a demand though the grounds stated are those in clause 3.2.1.  Once the earnest money is not forfeitable and returnable upon demand, then the demand must be met despite the wrong ground has been alleged.  The reason being that no ground need be made and the demand cannot be invalidated by a wrong ground. 

111. However, if the demand should have been made under clause 3.2.2(i), then the amount of interest payable would be at the best lending rate of the Hong Kong Bank as provided in clause 3.2.2.

Judgment

112. My review of the correspondence above clearly shows an extension of time by the conduct of the parties.  I therefore hold that JZD was entitled to make the demand on 27 May under clause 3.2.1 or alternatively 3.2.2(i) of the Framework Agreement and on 3 June under clauses 2.1 and 8.1 of the share charge.  The failure by Lieu to return the money justified JZD’s exercise of its rights under clauses 2.1, 8.1(1) and (2) of the share charge as against Lieu and Chen. 

113. When I gave judgment on the seventh of April, I overlooked the liability of Chen under her covenant in clause 2.1 of the share charge.  I do correct my slip and order that Chen is jointly and severally liable with Lieu to pay JZD the Hong Kong dollar equivalent of RMB26 million with interest at judgment rate from the date of writ to the seventh of this month.  The order for delivery up of documents and damages to be assessed should also be addressed to Chen as well.

114. Furthermore, Lieu and Chen were not entitled to issue the notice of revocation to JZD on 2 June to revoke the signed documents delivered under clause 3.2 of the share charge as the earnest money was still outstanding.  The purported revocation therefore amounted to a breach by Lieu and Chen of clauses 3.4 and 5.4 of the share charge.  That amounted to a default by them of clause 8.1(3) of the share charge which also justified JZD’s exercise of the rights in the share charge against them.  For the same reasons, I hold that JZD is entitled to enforce the Loan Assignment against Van Shipping. 

115. In consequence of these decisions.  I would dismiss Lieu’s claim for discharge or setting aside of the share charge, for damages for enforcement of the share charge or set-off of the earnest money.

116. Regarding the question of interest on the earnest money, clause 3.2.1 provided that the earnest money be repaid with interest at the rate of a one year loan.  This provision is unclear.  I did not give effect to it.  I ordered the judgment rate from the date of writ 23 July 2009) on the seventh of this month.  I would now order that interest be payable on the earnest money from 27 May 2009 to the seventh of this month at the best lending rate of the Hong Kong bank.  This is in line with clause 3.2.2 and lower than the judgment rate.  I use this lower rate in order to be fair to Lieu and Chen as I suspect that there was a slip of hand in the drafting of the supplemental agreement dated 10 September 2008 which restricted the best lending rate of the Hong Kong Bank to clause 3.2.2 only when the intention was to apply it to clause 3.2.1 as well.

117. On the question of costs, the Loan Assignment provided that Van Shipping should pay costs on the indemnity scale and there is no reason to depart from that.

118. I repeat below the judgment I gave on 7 June with corrections indicated above:

(1)  I declare that the earnest money is not liable to forfeiture and has not been forfeited.

(2)  I order Lieu Tseng Van, Chen Siu Ling and Van Shipping Company Limited to pay Jiuzhou Development Company Limited (“JZD”) the Hong Kong dollars equivalent of RMB26 million with interest at the best lending rate of the Hong Kong bank from 27 May 2009 to 7 June 2012.

(3)  I declare that JZD is entitled to enforce the share charge and the Loan Assignment.

(4)  I further declare that the appointment of the receivers on 20 July 2009 by JZD is valid and effective.

(5)  I order that Lieu and Chen do forthwith deliver all the books, financial records, ledgers, bank statements, contracts and statutory records including minutes books, share certificates, director and member registers, company chops and seals belonging to Super Cruise Limited to the receivers.

(6)  I order Lieu and Chen to pay JZD damages for breach of the share charge to be assessed.

(7)  I order that Lieu and Chen Siu Ling do indemnify JZD with all the costs, expenses and charges incurred by JZD and the receivers in enforcing the share charge to be assessed.

(8)  I order Van Shipping to pay JZD damages for breach of the Loan Assignment to be assessed.

(9)  I also order Van Shipping to indemnify the JZD with all the costs, expenses and charges incurred by JZD in enforcing the Loan Assignment to be assessed.

(10)  I dismiss Lieu’s claim for damages for breach of the confidentiality undertaking and/or the Framework Agreement; and/or for enforcement of the share charge.

(11)  I also dismiss any claim for set off by Lieu.

(12)  I also make a costs order nisi that Lieu, Chen and Van Shipping do pay JZD the costs of this action including the counterclaim.  The costs as payable by Van Shipping should be assessed on indemnity basis as provided in the Loan Assignment.  I also certify the matter fit for leading and junior counsel.