Read the full judgment text of CACV 47/2017 on BabelCite. This Court of Appeal judgment was delivered on 1 March 2019 before Lam VP, Cheung JA, Barma JA.
Contract law – construction of contractual letter – debt restructuring proposal – secured indebtedness – personal guarantee – call option to acquire shares – whether Bank's obligation to accept Option 1 contingent on implementation of the 2002 DRP – whether implied term for equal treatment with other secured creditors should be implied – implied terms – relationship between construction and implication – 'business efficacy' and 'officious bystander' tests – measure of damages for loss of a call option right – market value method vs investment value method – burden of proving absence of available market. Material facts: Plaintiff was chairman and ultimate major shareholder of Century City International Holdings Limited (CC); Bank (then International Bank of Asia Limited) had advanced loans of about HK$228 million to group companies, guaranteed by CC, secured by 370.1 million Paliburg shares worth only about HK$22.2 million; group in financial difficulties; Bank threatened winding-up petition; on 16 October 2002 Letter, Bank agreed in principle to accept Option 1 of the 2002 DRP in return for Plaintiff's personal guarantee up to HK$37.1 million and a call option right (Cancellation Option) to acquire 444,120,000 Paliburg shares by purchasing the Restructured Loan for HK$37.01 million. Issues and holdings: (1) Whether the Bank's obligation to accept Option 1 was contingent on the 2002 DRP being approved and implemented – held: yes; the express terms of the Letter defined the relevant DRP specifically and narrowly as the 2002 DRP, and the obligation only arose upon its implementation; references to the 2002 DRP were not merely descriptive but constitutive of the obligation. (2) Whether a DRP Implied Condition for equal treatment of the Bank with other secured creditors should be implied – held: no; the term was neither necessary for business efficacy nor so obvious as to go without saying; in any event, on the proper construction of the express terms, the question did not arise because the Bank's obligation was already confined to the 2002 DRP. (3) Measure of damages for loss of the call option Right – held: the market value method was correct; the burden of showing absence of an available market lay on the Plaintiff, who failed to discharge it; both parties' experts agreed the market value as at 30 September 2004 was HK$51,719,000. Outcome: Bank's appeal allowed; judgment of Ng J in HCA 409/2005 set aside; Plaintiff's claim dismissed; Plaintiff's cross-appeal on quantum dismissed; Bank permitted to recover the judgment sum it had paid, with interest, in accordance with MKKWH v RKSH [2018] HKCA 932; costs to be agreed or determined by written submissions.
Legal issues: Construction of the Letter – whether the Bank's obligation to accept Option 1 was contingent on the 2002 DRP being approved and implemented · Whether a DRP Implied Condition should be implied requiring equal treatment of the Bank with other secured creditors · Measure of damages for loss of the Right (call option to acquire Paliburg shares)
Outcome: Appeal allowed; judgment below set aside; Plaintiff's claim dismissed. Cross-appeal on quantum dismissed. Bank to recover the judgment sum it had paid, with interest, pursuant to MKKWH v RKSH.
Cited by 42 cases · Cites 3 cases