Liming Capital Ltd v. Clsa Ltd
Read the full judgment text of HCA 2055/2008 on BabelCite. This High Court CFI judgment was delivered on 27 December 2017.
1. This is a civil litigation between two companies in the investment business. The plaintiff is described in the re-amended statement of claim (“ statement of claim ”) as:
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HCA 2055/2008 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE HIGH COURT ACTION NO 2055 OF 2008 ____________
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________________ J U D G M E N T ________________ INTRODUCTION 1.This is a civil litigation between two companies in the investment business. The plaintiff is described in the re-amended statement of claim (“statement of claim”) as:
The individual who actually carried on the plaintiff’s business is Mr Weber, a Swiss resident (“Weber”). 2.The defendant admits that it carries on the:
3.The plaintiff’s claim concerns the fee payable for services connected with the stock placement in mid-2007 of A-Max Holdings Ltd, a publicly listed company in Hong Kong (now Amax International Holdings Ltd) (“Amax”). The plaintiff says that the defendant owes it part of the fee whereas the defendant says that the fee has been paid in full. 4.Amax’s principal area of activity was investing in the gaming and entertainment industries. BACKGROUND 5.In mid-2007, Amax entered into an agreement with another party to lend money to finance a junket business in Macau (“the said loan”). Proceeds from a stock placement would be used for the purpose of financing the said loan. The placement exercise was announced by Amax in September 2007 (“the Amax placement”). The major events relevant to this action took place in late-2007. 6.Amax looked for a placement agent, and began negotiating with the defendant (through the introduction of Weber) for such role. The negotiations took place between Weber and a director of the defendant, Mr Wilson (“Wilson”). 7.The negotiations resulted in a placement agreement between the defendant and one of Amax’s subsidiaries (which will be called Amax below nonetheless for convenience), as well as an agreement between the plaintiff and the defendant regarding the fee to be paid by the defendant. The agreement is the main issue in this action (the plaintiff contends for a verbal agreement while the defendant contends for a written one; see below for more details). 8.On 10 January 2008, the defendant transferred about 151 million of the new shares to the plaintiff as payment (or, according to the plaintiff, part-payment) of the fee payable under the agreement (“the transferred shares”). 9.By a summary judgment (by consent) dated 4 November 2013 the defendant consented to judgment to be entered in the sum of about $3 million. The defendant says that this was the outstanding balance of the payment to which the plaintiff was entitled (the earlier payment having previously been wrongly calculated). ISSUES IN THIS ACTION 10.The agreement heavily relied on by the defendant, as the basis of its defence and counterclaim, is a written agreement dated 17 October 2007 between the parties herein. The fee payable to the plaintiff thereunder was in short “… 40% of [the defendant’s placing commission and brokerage less OMM fees]” (“the Oct 2007 written agreement”). 11.On the other hand, the plaintiff asserts that there was a prior verbal agreement, reached between Weber and Wilson, on about 8 October 2007, whereby the defendant was to pay to the plaintiff a fee calculated at 50% of the defendant’s net fee instead (“the Oct 2007 verbal agreement”). 12.The defendant denies the Oct 2007 verbal agreement whereas the plaintiff contends that the Oct 2007 written agreement:
13.Further, the plaintiff claims that the time for delivering the transferred shares should be earlier than 10 January 2008 (the date when the transferred shares were actually delivered). It claims in effect the loss suffered as a result of stock price drop between those dates and the actual transfer. 14.Thus, on the quantum of its claim, the plaintiff’s case is that:
15.The defendant also counterclaims that the plaintiff has breached a warranty given in the Oct 2007 written agreement; namely, the plaintiff cannot receive any sum other than that payable under the Oct 2007 written agreement (“the non-receipt warranty”). WITNESSES’ CREDIBILITY AND FINDINGS OF FACT 16.The plaintiff himself testified at trial. Wilson has left the defendant’s employment and was not called to testify (he used to be Director of Investment Bank, Head of Equity Syndicate). Instead, the defendant’s trial witnesses were:
17.The approach adopted by the courts for assessing credibility has been set out in my earlier decisions. The relevant passages are repeated below to facilitate comprehension:
(Star Glory Investment Ltd v Kai Tuo (HK) Technology Co Ltd and Others, HCA 3523/2002 (13 August 2005), para 12). This approach appears to be similar to the court’s observations in Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corporation Ltd [2007] 3 HKLRD 439, para 135. The above will be adopted in this action. (a) The Oct 2007 verbal agreement 18.The first important matter requiring an assessment of credibility (especially that of Weber (because Wilson has not testified)) concerns the Oct 2007 verbal agreement. 19.The defendant, naturally, contends that Weber’s testimony about this is incredible and should not be accepted:
20.Despite the defendant’s skillful cross-examination, and forensic criticisms of Weber’s testimony (see above), I do not find any of the matters summarized above to justify an adverse finding to be made against Weber’s testimony relevant to this aspect. 21.As regards para 19(1) above, it is true the Amax placement, and the defendant’s role as an agent, was a sustained process. But that does not make it inherently unlikely for an agreement about an important term such as the amount of agent fee payable (and, for present purpose, how the agent fee was to be “split” between the plaintiff and the defendant) to be reached verbally. In fact, it is common experience, in many aspects of commerce, for substantial transactions to be agreed to verbally in the beginning, and then reduced into written form subsequently (agreeing to the sale price of valuable real properties is an obvious example). It is of course also common experience that detailed terms (such as jurisdiction clauses, non-competition clauses and the like) are agreed to in writing, but that is something far removed from verbally agreeing how to “split” the agent fee. 22.As regards para 19(2) to (5) above, the defendant specifically mentions:
23.It is true the initial drafts of the Oct 2007 written agreement did not mention any verbal agreement (para 22(a) above). But the fee “split” percentage stated therein was 50%, which is consistent with the plaintiff’s case. Bearing this in mind, the lack of a reference to a verbal agreement is not necessarily adverse to the plaintiff’s case. In fact, one may reasonably argue the initial drafts could be treated as written evidence of an essential term of the Oct 2007 verbal agreement. 24.In this connection, the email correspondence between Weber and Wilson from about 27 September to 5 October 2007 are consistent with Weber seeking a 50% “split” fee agreement. Wilson, on the other hand, did not counter-propose a less favourable “split” (such as 40% for Weber). 25.Whether the plaintiff’s name was mentioned at the initial stage of discussion concerning the agent fee agreement is of no moment (para 19(5) and 22(b) above). It is trite law:
An example of the above proposition is where one party has not been named in the contract, but there is an expressly agreed manner in which that party can be identified (using phrases as “to the direction of” or “as directed by” some known third party, such as one of the negotiating parties of the contract). See, for example, Fong Yee Lan v Yiu Yau Ping, CACV 128/1991 (28 January 1992). 26.In this action, the plaintiff’s case is that it was a term of the Oct 2007 verbal agreement a corporate vehicle would be nominated by Weber to enter into the agent fee agreement. That would amount to a stipulation of the mechanism for identifying a contracting party. 27.The 10 October 2007 email (para 22(c) above) does not cast doubt on the plaintiff’s case, nor does it take the defendant’s case further. It was in gist a progress-reporting email (“We have reached agreement with h&s. 6% of the placement to be sent their way …” (“h&s” was the earlier placement agent being replaced by the defendant)). There was a mere casual query as to when the agent fee agreement could be signed (“separately, when would we sign the agreement …?”). 28.Likewise, that Weber did not object to the non-receipt warranty in the negotiation (para 22(d) above) is neither here nor there. It is not the plaintiff’s case either the plaintiff or Weber would be entitled to receive additional payment from Amax, or its subsidiaries or associated companies (the plaintiff’s case is rather that it has not done so). 29.Wilson mentioned “drafts … being reviewed internally” (12 October 2007), “kick off our [that is, the parties’] signing authority process” (12 October 2007) and “trying to get DRC approval to sign it” (17 October 2007) (para 22(e) above). From an outsider’s point of view, these would look like Wilson’s report of what needed to be done within the defendant itself. They were not remarks which necessarily should require Weber’s comment. 30.As regards para 22(f) above:
31.As regards para 19(6) and 22(g) above, whether Weber was already in Hong Kong on 8 October 2007 (the date of the Oct 2007 verbal agreement) requires some analysis of the related detailed facts. 32.The defendant considers it to be unlike for Weber to be in Hong Kong on that day because of the following. In an email dated 7 October 2007 (a Sunday) from Weber to Wilson, Weber indicated in effect he should be back to Hong Kong on Monday night (8 October 2007) or Tuesday (9 October 2007). This email is consistent with:
33.The plaintiff’s reply to the above criticisms is essentially this. The date and time shown in the 7 October 2007 email may be Swiss time or California time. Irrespective of which of the two places, and even bearing in mind the time difference between these places and Hong Kong, and the duration of the flight to Hong Kong (para 32(a) above), Weber could well have returned to Hong Kong by evening of Monday 8 October 2007 (at around 6pm to 8pm) (for example, a flight from California departing on the morning of 7 October 2007, and a flight from Switzerland on the evening of 7 October 2007). There is therefore nothing inherently unbelievable in Weber’s testimony about the Oct 2007 verbal agreement. 34.By reason of the conclusion reached in para 20 above, I consider that there is sufficient evidential basis to find the parties have made the Oct 2007 verbal agreement as regards the agent fee “split” ratio. (b) The Oct 2007 written agreement 35.The issues raised by the defendant related to this aspect are:
36.Both of the above would have to be considered in the light of the plaintiff’s case regarding economic duress. This part of the plaintiff’s case is as follows. 37.By September 2007, Amax has already engaged a placement agent. Despite this, Weber recommended the defendant to Amax for the Amax placement. Negotiations concerning the Amax placement, and the defendant’s role as a placement agent, was then carried out among Amax, Weber and the defendant during September and October. At the same time, Weber and Wilson (who acted for the defendant) were also discussing the agent fee “split” for the Amax placement. 38.Weber testified Wilson called him by telephone in Hong Kong on about 8 October 2007. Wilson informed him the defendant had given final approval for:
This was the evidential basis for the Oct 2007 verbal agreement. 39.After the above telephone conversation, Weber performed various work as a consultant to assist the defendant to become the placement agent for the Amax placement, such as arranging the defendant to replace the earlier placement agent (especially the terms for the earlier placement agent’s withdrawal), arranging for compliance with the relevant regulations, arranging for a better brokerage fee to be paid to the defendant, and ceasing negotiations with other potential placement agents. 40.The relationship between Weber and Wilson apparently deteriorated in mid-October 2007 as a result of Wilson objecting to Weber obtaining additional payment (called “success fee”) from Amax. 41.17 October 2007 was the date scheduled for the signing of several documents:
42.It may be imagined (and Weber’s testimony is consistent with) there being frequent contacts among the parties concerned (that is, Amax, Weber and the defendant) during the period leading up to the execution of the above documents on 17 October 2007. 43.Weber testified that up until the morning of 17 October 2007, and despite the above contacts, and amendments to various terms, the agent fee “split” remained at 50% and there was no indication of any need for change. About half an hour before Weber was to meet Wilson, Wilson telephoned him and said a committee meeting had just decided to reduce the “split” to 40%. 44.Weber and Wilson met shortly later at somewhere near the place for executing the above documents. Weber objected to the “split” change, to which Wilson said if Weber did not agree, the defendant “would simply walk away” from the Amax placement. Weber felt that he had no choice but to sign the Oct 2007 written agreement:
45.Weber said he signed the Oct 2007 written agreement under protest and felt being forced into doing so. 46.For reasons similar to those set out in para 19 to 33 above, I accept the above factual account to be truthful and reliable. 47.There seems to be a divergence in legal thinking as to whether duress results from:
Chitty, para 8-003 to 8-009. The modern legal thinking tends to lean towards duress constituted by a “deflection” of the victim’s will. 48.Looked at in this manner, two other questions require consideration:
Thus, it was said:
R v Her Majesty’s Attorney-General for England and Wales [2003] UKPC 22, para 16 quoted in Chitty, para 8-008. See also Adam Opel GmbH v Mitras Automotive (UK) Ltd [2007] EWHC 3252, para 25 and 26. 49.In this action, the legitimacy of Wilson’s pressure or threat should be looked at in this way:
Such being the case, there was no legitimate basis to support Wilson’s pressure or threat, which was exerted at a critical time, and which involved a menacing consequence. 50.In such light, it can be inferred that the pressure or threat was intended to put Weber under duress. And, as things turned out, it achieved what was intended. 51.The defendant contends that only Amax would suffer if the Amax placement fell through. This contention ignores the plaintiff’s loss by way of (i) an immediate loss of a portion of the agent fee, as well as the loss of credibility in the eyes of Amax, and (ii) the longer term loss of the plaintiff’s reputation as a deal maker in the refinancing business. To put the consequence as a mere delay of the Amax placement would be to over-simplify and/or understate the situation. 52.The defendant’s second argument is that the plaintiff (through Weber) has had ample opportunity on 17 October 2007 to consider the defendant’s 40% “split” proposal. This has no merit. The plaintiff’s position in the Amax placement has to be borne in mind; it was not one of the principal parties (as Amax was). Because of its role in the Amax placement (as one of the consultants), any hiccup in the exercise would reflect extremely badly on the plaintiff’s reliability and credibility (para 44(d) and 51 above). 53.The defendant’s third argument is that it was legally entitled to refuse to enter into the Oct 2007 written agreement, but this argument conveniently ignores the fact that it has earlier entered into the Oct 2007 verbal agreement, as well as Weber/the plaintiff having carried on with the preparation of the Amax placement based on this fact (para 39 above). The defendant’s threatened refusal to take part further, except on the reduced agent fee “split” it dictated, would at least amount to unconscionable conduct. 54.The defendant’s fourth argument is the lack of instant protest by Weber or the plaintiff. But Weber’s testimony is to the contrary. What the defendant in fact means is probably that there is no independent evidence (either documentary or from third parties) to support Weber’s assertion. This has been taken into account when assessing the credibility of Weber, but I do not find his credibility to be significantly affected by this having also considered the whole of the evidence before the court. 55.Finally, the defendant argues that the plaintiff has affirmed the Oct 2007 written agreement by commencing this action after the lapse of more than a year. I do not find a mere lapse of time to commence legal action is an act of affirmation. 56.There are certain parts of Taylor’s testimony which assert, for example, that the defendant’s internal meeting minutes were incomplete and/or inaccurate, and the reasons for the defendant reducing the agent fee “split” payable to the plaintiff. Taylor’s testimony should not be given much weight: insofar as it is not based on, or supported by, contemporaneous records, it concerns events which took place long ago, and it is unlikely the witness can have a clear and/or accurate memory; insofar as it is inconsistent with contemporaneous records, for the same reason the records should prevail. 57.Having reached the above conclusion, it follows that the Oct 2007 written agreement (insofar as it purports to reduce the plaintiff’s agent fee “split” from 50% to 40%) is of no legal effect; such being the case, it also follows that the Oct 2007 written agreement cannot supersede the Oct 2007 verbal agreement. 58.The plaintiff also argues that, irrespective of whether there was duress, the Oct 2007 written agreement was not binding for want of consideration. Although it is strictly unnecessary to consider this argument, I shall do so for completeness. 59.In short, I do not agree with this argument. Compared to the Oct 2007 verbal agreement, the terms of the Oct 2007 written agreement were more in number, in kind and in complexity. The defendant correctly relies on clauses such as the confidentiality provisions as an example of new obligations having been agreed upon. These additional obligations, especially those on the defendant’s part, would constitute the necessary consideration in support. (c) Non-receipt warranty 60.The non-receipt warranty was a term of the Oct 2007 written agreement:
61.The defendant complains that:
Even though Ms Yeung refused to pay the plaintiff’s share (despite an agreement to do so) after she obtained payment from Mr Ng, the plaintiff was able to obtain judgment against Ms Yeung to recover the sum. 62.This dispute bores down to whether the non-receipt warranty is wide enough to cover payment made by an individual who is said to be in control of Amax. To support its complaint, the defendant argues that the purpose underlying the non-receipt warranty was to ensure that the capital raised by the Amax placement would be used for investment, and not payment to other parties (such as the plaintiff). This would preserve the attractiveness of the Amax placement. 63.I agree with the plaintiff that the language chosen by the drafter of the Oct 2007 written agreement does not expressly cover individuals connected to Amax; this, coupled with the background leading to the Oct 2007 written agreement, shows that there was no intention to include such individuals. 64.Here it is important to bear in mind Mr Ng (and his relationship with Amax) was already known to the defendant even before the Oct 2007 written agreement was finalized. Further, the possibility of payment from Mr Ng to Weber was a matter discussed among the defendant’s directors (in a meeting held on 17 October 2007). 65.In coming to this conclusion, I have not taken into account the defendant’s email of 21 December 2007 where Tam asked Wilson:
DEFENDANT’S PAYMENT OBLIGATIONS 66.The discussion under this heading proceeds on the basis the agreement between the parties was for the agent fee to be “split” between them equally. 67.Another term of the Oct 2007 written agreement provides:
(“the fee payment term”) But the fee payment term has been changed; the plaintiff would be paid by way of the transferred shares instead of a monetary sum. At issue is what that change should involve. 68.This part of the plaintiff’s case has been so put in its closing submissions:
(“the share transfer variation”) 69.In short, the plaintiff argues in its closing submissions the fee payment term has been superseded by the share transfer variation so that the defendant was obliged to:
70.The reasons put forth in support of the last-mentioned argument are:
71.In determining this issue, it seems necessary to first examine the issue of what the parties intended should be the share price under the share transfer variation. This aspect has not been expressly discussed (or agreed upon) between the parties at the time. 72.Both parties must have vast experience in and good knowledge of the stock market (and the volatility of share price) because they have been operators in finance and investment for quite some time before November 2007. For this reason, it is unlikely for them to agree to a share price which would only be known in future; that would be an unnecessary risk (arising out of share price fluctuations) for both sides. 73.On the other hand, the background leading to the share transfer variation was the Amax placement. At the time of the share transfer variation (24 November 2007), a share price was already made known; namely, the share placement price (as stated above, the defendant has all along used that as the basis of calculation). 74.With the above background in mind, it can be inferred that the parties must have intended that the share transfer variation would imply a share transfer which was to be calculated based on the share placement price. 75.Having dealt with the share price under the share transfer variation, the next issue is when the obligation on the defendant’s part to transfer the shares should arise. 76.The plaintiff’s stance before this action was commenced, as reflected by the correspondence from about mid- to late-December 2007, appears to be the same as the defendant’s. Both parties communicated seemingly on the basis the 14-business day period stipulated in the fee payment term was still applicable. 77.However, the plaintiff did not agree with the defendant as regards the number of shares to be transferred at the end of that stipulated period (see, for example, Weber’s emails of 21 December 2007, 00:52, 21 December 2007, 16:55, 22 December 2007, 7:33pm, 3 January 2008, 07:44 and 3 January 2008, 18:31). 78.The plaintiff’s earlier stance (para 76 and 77 above) is incomprehensible. If the share transfer variation should mean simply that (i) the share price was the placement price, and (ii) the latest delivery date was 14-business days after placement, the plaintiff should not be complaining about the number of transferred shares even if they were delivered later. Whatever the delivery date might have been, the number of transferred shares should remain exactly the same. 79.In this connection, the plaintiff submits:
In view of the comments of the learned authors in Chitty, para 13-129 (and the authorities cited therein in support), I accept as a correct statement of the law that subsequent acts are inadmissible to interpret a written agreement. With this in mind, the plaintiff’s earlier stance (para 76 and 77 above) should not be taken into account. 80.For the reasons put forth by the plaintiff (summarized in para 70 above), and when those reasons are considered together with the conclusion that the share transfer was to be based on the placement price (para 74 above), I agree with the plaintiff that the defendant’s obligation to transfer the shares to the plaintiff should arise immediately when the defendant was in a position to transfer them (rather than any later date, be it 7 January or 10 January 2008). This appears to have happened on 13 December 2007. To conclude otherwise would effectively mean that the plaintiff was willing to accept the full risk of the price fluctuations between the placement date and the date when the transferred shares were actually delivered. I do not see any basis to justify such a construction of the share transfer variation. LOSS AND DAMAGES 81.Because the defendant has not transferred the Amax shares on time (the quantity of which were calculated based on the placement price), and has delayed in delivering to the plaintiff a quantity of shares only on 10 January 2008 (which quantity was not agreed to by the plaintiff after mid-December 2007), it is necessary to examine whether loss has been caused to the plaintiff, and if so, what the quantum of loss should be. 82.It is undisputed the plaintiff only sold the transferred shares in July 2008, about 6 months after their delivery. Further, it seems Weber was quite optimistic about the Amax share price in mid-December 2007. In his email of 12 December 2007, Weber wrote:
83.Based on the above, the defendant contends that, in any event, no loss has been caused to the plaintiff. 84.I do not agree with the above contention. It is a contention premised on an assumption that, even if the transferred shares had been delivered to the plaintiff as agreed (that is, upon the defendant being able to effect a transfer), the plaintiff would still have waited until much later (say, July 2008) before selling the transferred shares. Because stock price fluctuations, which are well known to stock traders, would result in vastly different trading strategies being adopted by stock traders, that assumption has no valid basis. The evidence shows that the price of the transferred shares (when delivered) was lower than the placement price. It is far from certain whether the plaintiff would still have decided to postpone the sale if the transferred shares had in fact been delivered on, say, 13 December 2007. 85.For the above reason, I consider that no weight should be given to the plaintiff’s decision to sell the transferred shares in July 2008 (rather than much earlier (for example, on or shortly after 10 January 2008)). 86.The defendant also complains that the delay in delivering the transferred shares was caused by the plaintiff. But that was only because the parties disagreed over the number of shares to be transferred (para 77 above). In view of the conclusion reached in para 80 above, the plaintiff was entitled to refuse to accept the number of shares offered by the defendant. 87.Accordingly, the loss caused to the plaintiff by the delay is in effect the price difference between the value of the transferred shares at placement price and the proceeds obtainable from the sale of those shares on 10 January 2008. CONCLUSION 88.To conclude:
The parties are to attempt to agree to the judgment sum referred to in sub-para (a)(1) above within 21 days, failing which, they are at liberty to lodge their respective draft judgment sum for approval by the court. OTHER MATTERS 89.The parties’ written submissions also mentioned various other points. These have not been expressly set out or dealt with above. This is so only because of the need to balance between the length of the judgment and its comprehension. It does not mean those other points are thought to be irrelevant (or have been overlooked). To avoid doubt, those other points have also been considered. COSTS ORDER NISI 90.There is no apparent reason to depart from the usual rule that costs should follow the event. There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this action (claim and counterclaim) be paid by the defendant to the plaintiff to be taxed if not agreed.
Mr Nigel Kat SC, instructed by Tanner De Witt, for the plaintiff Mr Charles Manzoni SC leading Mr Thomas Wong, instructed by Allen & Overy, for the defendant |
Cases cited in this judgment
Further hearings and rulings under HCA 2055/2008