Zheng Li Feng v. Super Worth International Ltd and Another
Read the full judgment text of HCA 1043/2012 on BabelCite. This High Court CFI judgment was delivered on 9 July 2018.
1. In this action, the Plaintiff’s claim is based on various agreements whereby the 1 st and 2 nd Defendants allegedly promised to “buy back” certain shares in a listed company, which had been purchased in the first place by the Plaintiff from the 2 nd Defendant (or her corporate vehicles which will be referred to below).
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HCA 1043/2012 [2018] HKCFI 1578 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1043 OF 2012 ________________
________________ Before: Deputy High Court Judge Richard Khaw SC in Court Date of Hearing: 10 and 11 April 2018 Date of Judgment: 9 July 2018 _____________________ D E C I S I O N _____________________ I. BACKGROUND 1.In this action, the Plaintiff’s claim is based on various agreements whereby the 1st and 2nd Defendants allegedly promised to “buy back” certain shares in a listed company, which had been purchased in the first place by the Plaintiff from the 2nd Defendant (or her corporate vehicles which will be referred to below). 2.The Plaintiff resides in Foshan, Guangdong. The 1st Defendant is a limited company incorporated in the British Virgin Islands. The 2nd Defendant is the majority shareholder of Natural Dairy (NZ) Holdings Ltd (Stock Code: 462) (“the Company”) listed on the Hong Kong Stock Exchange (“the HK Exchange”). The trading of the shares of the Company has however been suspended since September 2010. The 2nd Defendant holds the shares of the Company through corporate vehicles including the 1st Defendant and another 2 companies, namely, Earn Cheer Limited and Flying Max Limited. 3.The Plaintiff’s case is that shortly before 18 November 2010, the Plaintiff and the 2nd Defendant (acting both for herself and also on behalf of the 1st Defendant) orally agreed as follows:-
4.According to the Plaintiff’s case, on 18 November 2010, the Plaintiff and the 2nd Defendant had a meeting at the latter’s office and the 2nd Defendant produced a draft agreement for the intended “buy-back” of shares (which contained the provisions which had previously been orally agreed) on the following terms (“the First Agreement”):
5.As alleged by the Plaintiff, at the same meeting on 18 November 2010, prior to execution of the First Agreement, the 2nd Defendant indicated to the Plaintiff that the shares of the Company would resume trading in a few months’ time and she therefore requested to have 6 months (instead of 1 month) for the Guarantee Period, to which the Plaintiff agreed. It is the Plaintiff’s case that the parties then agreed to post-date the written agreement to 5 months later (ie 18 April 2011), so that the 1st Defendant would have a total of 6 months to buy back the shares from the Plaintiff, upon the Plaintiff’s acquisition of the same. With the other terms remaining unchanged, the parties then signed on the postdated First Agreement. 6.The Plaintiff has pleaded in the alternative that there was an oral agreement between the Plaintiff and the Defendants on the same terms. However, given that the First Agreement was made in writing, the alleged oral agreement does not seem to be of any great significance. 7.There is no dispute that upon signing the First Agreement on 18 November 2010, the Plaintiff issued and delivered to the 1st Defendant 2 cheques in the total sum of HK$40,000,000 for the acquisition of 24,000,000 shares of the Company. Two additional cheques were delivered by the Plaintiff for payment of the relevant stamp duty for the purchase of the Target Shares. All four cheques were dated 19 November 2010 (ie the day after the First Agreement was allegedly made). Hence, the transfer of shares to the Plaintiff was completed. On pleadings, it is admitted by the 1st and 2nd Defendants that on the photocopies of the first two cheques, there was a note written and signed by the 2nd Defendant that if the Target Shares could not be transferred to the Plaintiff under his name, the amount paid by the Plaintiff had to be refunded to him. 8.On the last day of the Guarantee Period (ie 18 May 2011), the shares of the Company still did not resume trading. The Plaintiff continued to hold the entire lot of the Target Shares. The Plaintiff claims that the 1st Defendant had failed to buy back any part of the Target Shares or pay for any part of the buy-back price of HK$60,000,000 (being 24,000,000 shares x HK$2.50) (“the Buy-back Price”). 9.According to the Plaintiff’s case, instead of proceeding to execute the buy-back transaction, the 2nd Defendant (on her own behalf and on behalf of the 1st Defendant) asked for more time. The 2nd Defendant proposed to pay the Buy-back Price by 2 instalments and to pay the Plaintiff an additional sum of HK$5,000,000 for his agreement to extend the time. As alleged by the Plaintiff, the parties then entered into a Supplemental Agreement dated 22 June 2011 (“the Supplemental Agreement”) on the following terms:-
10.The shares of the Company did not resume trading on or before September 2011 and such trading remained suspended up to the date of the trial. 11.The 1st Instalment in the sum of $20,000,000 has been paid by the Defendants to the Plaintiff. However, despite the letter of demand from the Plaintiff (through his then solicitors Messrs. Foo, Leung & Yeung) to the Defendants dated 17 October 2011, the 2nd Defendant failed to pay any part of the 2nd Instalment or the consideration for the extension of time of HK$5,000,000, which became due and payable on 30 September 2011. 12.The Plaintiff asks for, amongst others, specific performance (or damages in lieu or in addition to specific performance) of the Supplemental Agreement, interest on the sum of HK$45,000,000 as well as costs. 13.The Defendants do not dispute that the Plaintiff had in fact purchased the Target Shares at the price of HK$40,000,000 and had issued and delivered the cheques to the 1st Defendant. 14.However, the Defendants deny that there was any meeting on 18 November 2010. The Defendants do not agree that any draft agreement was provided to the Plaintiff on the same date or that the parties reached any oral agreement. 15.The Defendants contend that the First Agreement was in fact signed on 18 April 2011 (as opposed to 18 November 2010 as the Plaintiff contends). The First Agreement is, as alleged by the Defendants in their pleadings, unenforceable for the following reasons:
16.In relation to the Supplemental Agreement, the Defendants have failed to provide any explanation as to why and how this document came into existence. The Defendants however contend that the Supplemental Agreement is unenforceable against them because:-
II. ISSUES 17.In view of the above factual background and each party’s position, the issues in this case can be summarised as follows:
II(A): When was the First Agreement entered into? 18.On 6 April 2018 (ie about 2 working days prior to the commencement of the trial), solicitors then acting for the 1st and 2nd Defendants on record applied to cease to act. On 10 April 2018, shortly before the trial began, I granted the order sought. 19.Both the 1st and 2nd Defendants were absent at trial. There was no reason why the trial should not proceed in their absence. The Plaintiff was the only witness who provided oral testimony and his evidence was not challenged. The Plaintiff’s evidence has sufficiently dealt with the circumstances in which the First Agreement and the Supplemental Agreement were entered into between the parties and also the fact that the Defendants failed to perform their obligations set out therein. I have no hesitation in accepting the Plaintiff’s case in respect of the issues outlined above. 20.On the question regarding the date of the First Agreement, I find the Defendants’ case unbelievable. It is clear that the Plaintiff’s purchase of the Target Shares and the intended buy-back arrangement were closely connected and the two must be treated as a “package deal”. Otherwise, there is no reason for the First Agreement to state that the Plaintiff agreed to and shall purchase the Target Shares without mentioning at all that such purchase had in fact been completed (as alleged by the Defendants). Further, as mentioned above, the First Agreement emphasises that the buy-back arrangement was a “pre-condition” for the Plaintiff’s agreement to purchase the Target Shares. Had the purchase already been completed on its own before the signing of the First Agreement, the parties would not have considered it necessary to specify such a “pre-condition”. Further, as submitted by Mr Anthony Cheung (acting for the Plaintiff), it would make little commercial sense for the Plaintiff to agree to buy the Target Shares at the time when the trading of the Company had been suspended by the HK Exchange without the assurance provided by the buy-back arrangement. I agree. This is another reason why the Defendants’ case that the First Agreement was signed on 18 April 2011 (well after the Plaintiff’s purchase of the Target Shares) cannot be accepted. In any event, the Defendants have failed to adduce any evidence to establish their case. II(B): Lack of consideration/past consideration 21.Given my ruling above that the First Agreement was entered into in November 2010, the Defendants’ pleaded case on lack of consideration or past consideration will inevitably fall apart since it is clear that the First Agreement was supported by a valid consideration. In any event, the Defendants’ argument in this regard is wholly untenable. Even assuming that the Plaintiff’s purchase of the Target Shares had been completed before the First Agreement was signed by the parties, he still provided valid consideration by agreeing to sell such shares to the 1st Defendant. Further, there is no doubt that the parties all along treated the First Agreement as a valid and binding agreement; otherwise, it would not have been necessary for them to come up with the Supplemental Agreement which contained revised terms for the purpose of implementing the buy-back arrangement and also the Defendants’ promise to pay the Plaintiff a sum of HK$5,000,000 for the extension of time granted for the completion of the buy-back arrangement. In particular, it is stated in the Supplemental Agreement that the Defendants had failed to pay the buy-back price of HK$60,000,000 in accordance with the First Agreement and the parties therefore entered into a new set of arrangements (including the time extension granted). II(C): Validity and enforceability of the Supplemental Agreement 22.Since the Defendants’ argument on the validity and enforceability of the Supplemental Agreement turns primarily on the outcome of the above two issues, it has now become wholly academic and has no substance at all, given my rulings above. Further, as mentioned above, the Supplemental Agreement clearly sets out the reasons for such an additional agreement and also the obligations of each party with a view to implementing the unfinished buy-back arrangement. Further, the Defendants have already paid the 1st Instalment in the sum of HK$20,000,000 in accordance with the Supplemental Agreement. 23.Moreover, in view of the evidence provided by the Plaintiff, I am therefore satisfied that the 1st and 2nd Defendants were in breach of the Supplemental Agreement. II(D): Relief sought 24.Apart from the payment of the 1st Instalment in the sum of HK$20 million, the Defendants have failed to pay any part of the balance of the remaining HK$40,000,000 to buy back the Target Shares under the Supplemental Agreement. Further, they have also failed to pay the sum of HK$5,000,000 for the time extension granted under the Supplemental Agreement. The Plaintiff therefore asks for the following relief:-
25.Specific performance is not generally ordered in respect of contracts for shares in a listed company, which are readily available in the market as damages are considered to be an adequate remedy in these circumstances (see Chitty on Contracts, 32 Ed, Vol 1, §27‑010). However, I agree with Mr Cheung that although the Target Shares are shares of a listed company, the Company’s trading has been suspended and, as a result, such shares were not readily available in the market at the time when the parties entered into the First Agreement and the Supplemental Agreement. 26.Although specific performance was sought in both the Statement of Claim and the Plaintiff’s Opening Submissions, Mr Cheung in his closing submissions asked for damages in lieu, apparently because it was contemplated that it would be extremely difficult to compel the Defendants to perform the Supplemental Agreement, in view of the fact that their former solicitors did not manage to take instructions from them and that the Defendants did not attend the trial. III. ORDER 27.I therefore make the following order:-
28.For the avoidance of doubt, the 1st and 2nd Defendants shall be jointly and severally liable for what has been ordered above. The orders nisi shall become absolute upon the expiry of 14 days from the date of this judgment.
Mr Anthony Cheung, instructed by S.W. Tai & Co., for the Plaintiff The 1st Defendant was absent The 2nd Defendant was absent | |||||||||||||||||||
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