Hua Hui Investment (Holdings) Ltd v. Lifestyle Centre Holdings Ltd and Another

HCA 1301/2016

[2019] HKCFI 999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1301 OF 2016

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D E C I S I O N

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I.   BACKGROUND

1.This is the Plaintiff’s application by summons dated 24 October 2017 for summary judgment against the Defendants pursuant to Order 14 rule 1 of the Rules of the High Court (Cap 4A) for payment of the sum of RMB 40,000,000 (or its Hong Kong dollar equivalent at the time of payment), being part of the relief sought by the Plaintiff in its Statement of Claim. 

2.In short, the Plaintiff’s claim is based on an alleged breach of a written agreement dated 16 January 2011 made between the Plaintiff as the purchaser, the 1^st Defendant as the vendor and the 2^nd Defendant as the guarantor (“the Principal Agreement”), whereby the Plaintiff agreed to purchase and the 1^st Defendant agreed to sell 8,000 shares in Lifestyle Centre Leasing Property Investment & Management Company Limited (“the Company”).

3.The background relating to the business relationship between the parties is not straightforward and can be summarised as follows:-

(1)   Before the Principal Agreement was entered into, the 1^st Defendant (a limited company incorporated in Hong Kong) held 80% of the shares in the Company.  The remaining 20% shareholdings in the Company were held by 5 minority shareholders, one of whom was the 2^nd Defendant (a director and shareholder of the 1^st Defendant).

(2)   The Company, in turn, held a 20% minority interest in a real estate development project in Shanghai known as “Bridge 8” (八號橋) (“the Bridge 8 Project”).  The remaining 80% majority interest in the Bridge 8 Project was held by a US hedge fund known as AG Agile (BVI) Limited (“Agile”).

(3)   The Company and Agile held their respective interests in the Bridge 8 Project through a joint venture vehicle named AG Lifestyle (BVI) Limited (“AG Lifestyle”) within the Company holding 20% interest in the project and Agile holding 80%.

(4)   The relationship between (amongst others) the Company, Agile and the 2^nd Defendant in connection with the establishment and operation of AG Lifestyle was governed by a written joint venture deed dated 25 October 2007 (“the JV Deed”), where it was provided, inter alia, that:-

(a)   The business of AG Lifestyle was to acquire, hold, manage and develop properties in the PRC through long-term leases (Clause 2.1 of the JV Deed);

(b)   Agile was entitled to appoint up to 3 out of a maximum of 4 directors of AG Lifestyle and the Company was entitled to appoint 1 director (Clause 5.1 of the JV Deed);

(c)   Subject to certain exceptions as set out in Clause 6.2 of the JV Deed, the board shall be responsible for making decisions relating to the business of AG Lifestyle by a majority vote (Clause 6.1 of the JV Deed);

(d)   Pursuant to Clause 6.2 of the JV Deed, certain decisions shall not be made unless with the approval of both shareholders (i.e. the Company and Agile) of AG Lifestyle.  Clause 6.2 nevertheless expressly excludes the decision to dispose of the Bridge 8 Project or any part thereof;

(e)   It was the intention of the parties to the JV Deed to procure (inter alia) the disposition of projects with a view to generating cash available for distribution to shareholders, should the board of AG Lifestyle so determine on the basis of the market condition (Clause 10.1 of the JV Deed);

(f)   Where the board of AG Lifestyle determines to procure a disposition of any project, each shareholder shall execute such documents and forms, do such acts and things and take all steps as may be reasonably requested by the board and as are necessary or appropriate for the purpose of giving effect to such disposition (Clause 10.2 of the JV Deed);

(g)   Agile shall be entitled to first priority in receiving all distributions until it has recouped all its capital contribution with an annual internal rate of return of 15% (Clause 9.2.1 of the JV Deed).

(5)   The terms of the JV Deed were disclosed and made known to the Plaintiff prior to the execution of the Principal Agreement.

(6)   AG Lifestyle held indirectly (through a number of intermediate holding companies) a 100% interest in the following 3 PRC incorporated project companies[1] which held the leasing rights to the Bridge 8 Project, namely:-

(a)   Shanghai Bridge 8 Company Limited (上海八號橋房屋租賃有限公司) (“Bridge 8 PRC”), which held the leasing rights to Phase I of the Bridge 8 Project;

(b)   Shanghai Shangyi Leasing Company Limited (上海尚義房屋租賃有限公司) (“Shangyi PRC”), which held the leasing rights to Phase IIA of the Bridge 8 Project; and

(c)   Shanghai Shangle Leasing Company Limited (上海尚樂租賃有限公司) (“Shanglok PRC”), which held the leasing rights to Phase III of the Bridge 8 Project.

(7)   A fourth project company holding the operating rights to Phase IIB of the Bridge 8 Project (i.e. the remaining land use rights to the Bridge 8 Project) was Lifestyle Business Management Consulting (Shanghai) Limited (時尚生活商務管理諮詢（上海）有限公司) (“Lifestyle PRC”) (collectively, Bridge 8 PRC, Shangyi PRC, Shanglok PRC and Lifestyle PRC shall be defined as “the Project Companies”).

(8)   Lifestyle PRC was wholly owned by Lifestyle Centre Strategic Planning and Management Company Limited  (“Lifestyle HK”), a limited liability company incorporated in Hong Kong which was wholly owned by the 1^st Defendant until 7 December 2011 when, pursuant to the Principal Agreement (details of which will be set out below), 100% shareholding in Lifestyle HK was transferred to Lifestyle Centre Shanghai Investment Limited, a limited liability company incorporated in Samoa (“Lifestyle Samoa”) at a nominal consideration of HK$1 pending completion of the Principal Agreement.

(9)   In view of the Plaintiff’s interests in investing in the Bridge 8 Project, the parties entered into the Principal Agreement, whereby, subject to the satisfaction of certain conditions precedent as set out therein, the 1^st Defendant agreed to sell its 80% shareholdings in the Company (“the Sale Shares”) to the Plaintiff at a total consideration of RMB 48,000,000 (“the Consideration”), to be paid by the Plaintiff to the 1^st Defendant by instalments in the manner as set out in Clause 4A.1 of the Principal Agreement.

(10)   The Plaintiff paid to the 1^st Defendant a total sum of RMB 40,000,000 as partial payment of the consideration for the Sale Shares.

4.In view of the Plaintiff’s interest in investing in the Bridge 8 Project, the Plaintiff and the 1^st Defendant entered into a memorandum of understanding on 23 July 2010 which provided, amongst others, that:-

(1)   The Plaintiff would acquire the 1^st Defendant’s 80% of the shares in the Company at a price of RMB 48,000,000 (Clause 3.1.1).

(2)   The Company and its associated companies shall be debt‑free (Clause 3.1.4).

(3)   Whilst the 1^st Defendant was under a duty to ensure that Company and its associated companies shall be debt-free, the Plaintiff would provide a loan in the sum of RMB 15,000,000 to the 2^nd Defendant who would apply such loan to discharge any of the debts owed by the Company and its associated companies.

5.The Principal Agreement dated 16 January 2011 between the Plaintiff as purchaser, the 1^st Defendant as vendor and the 2^nd Defendant as guarantor, in relation to the sale and purchase of the 1^st Defendant’s 80% shares in the Company contained the following terms and conditions.

6.Under Clause 4 of the Principal Agreement, the Consideration was to be paid by the Plaintiff in 5 tranches:-

(1)   A deposit of RMB 1,000,000 (“1^st Instalment”) shall be paid before signing;

(2)   A further deposit of RMB 5,000,000 (“2^nd Instalment”) shall be paid before signing;

(3)   A further deposit of RMB 13,000,000 (“3rd Instalment”) shall be paid within 7 days of signing of the Principal Agreement, but in any event no later than 25 January 2011;

(4)   RMB 21,000,000 (“4th Instalment”) shall be paid within 7 days from the completion date, but in any event no later than 30 March 2011 provide that Completion can take place before that date; and

(5)   The remaining balance of RMB 8,000,000 shall be paid upon satisfaction of the conditions set out in clauses 6.1.1 and 6.1.2 of the Principal Agreement.

7.In accordance with Clause 1 of the Principal Agreement, the completion date was to be on the next business day following the fulfillment of the conditions contained in Schedule 3 to the Principal Agreement or such other date within 6 months from the date of the Principal Agreement or such other date as was agreed in writing by the parties (“the Completion Date”).

8.Completion should be conditional upon fulfillment of the conditions set out in Schedule 3 (Clauses 3.1 and 5.1).

9.Pursuant to Clause 3.3 of the Principal Agreement, the 1^st Defendant undertook that it would use all reasonable endeavours to procure that the conditions set out in Part 1 of Schedule 3 (“the Conditions Precedent”) are fulfilled on or prior to completion.

10.Clause 3.4 of the Principal Agreement provides that if the Conditions Precedent have not all been fulfilled for any reason not attributable to the default of either party by the Completion Date, the 1^st Defendant shall not be obliged to complete the sale and purchase of the Sale Shares.

11.Clause 3.5 of the Principal Agreement provides that as a condition of the 1^st Defendant entering into the Principal Agreement, the Plaintiff shall enter into the following loan agreements: (1) the Plaintiff was to lend RMB 15,000,000 to Lifestyle HK (“RMB 15m Loan Agreement”) and (2) the Plaintiff was to lend RMB 8,000,000 to the 2^nd Defendant (“RMB 8m Loan Agreement”).

12.In accordance with Clause 5.3, if completion did not take place on the Completion Date because the 1^st Defendant failed to comply with any of its obligations under Schedule 3, the Plaintiff might by notice to the 1st Defendant, inter alia, terminate the Principal Agreement.

13.Clause 5.6 of the Principal Agreement provides that to enable the Plaintiff to conduct a due diligence review of the Company and the Group Companies (as defined in the Principal Agreement, which include among others Lifestyle PRC, Lifestyle HK and the Project Companies) (“the Group Companies”), subject to prior reasonable notice, the Plaintiff must be given reasonable access to all books and records of the Company and the Group Companies; and the management of the Company and the Group Companies must make themselves available to answer such questions or give explanations in relation to such matters, as the Plaintiff might reasonably require.

14.Under Clause 7.6, the 1^st Defendant undertook that it would immediately disclose in writing to the Plaintiff any event or circumstances which might arise or become known to the 1^st Defendant which constituted a breach of or is materially inconsistent with any of the Warranties (as defined herein below) or which might make any of them inaccurate or misleading or which had or was likely to have an adverse effect on the financial position or business prospects of the Company or which was otherwise material to be known by a purchaser for value of the Sale Shares.

15.Clause 8 provides that if the 1^st Defendant disclosed any event or circumstance pursuant to clauses 7.6.3 and/or 7.7 which had or was likely to have a material adverse effect on the financial position or business of the Company and the Group Companies or if there was a material breach of any of the warranties as set out in Clause 7 and Schedule 2 of the Principal Agreement (“the Warranties”) or any other terms of the Principal Agreement by the 1st Defendant and in respect of which the 1^st Defendant failed to remedy the same on or before Completion, the Plaintiff would be entitled to rescind the Principal Agreement and the 1^st Defendant must forthwith refund the whole amount of the consideration to the Plaintiff within 7 days (Clause 8).

16.Clause 9.1 of the Principal Agreement provides that if the Principal Agreement is terminated for whatever reason, the 1^st Defendant shall refund to the Plaintiff any Consideration made by the Plaintiff thereunder within 14 days from the date of termination (Clause 9.1).

17.Under Clause 11.1, the 2^nd Defendant unconditionally and irrevocably guaranteed to the Plaintiff the due and punctual performance and observance by the 1^st Defendant of all its obligations, commitments, undertakings, warranties, indemnities and covenants under or pursuant to the Principal Agreement and agreed to indemnify the Plaintiff against all losses, damages, costs and expenses.

18.Clause 11.2 provides that if and whenever the 1^st Defendant should default for any reason whatsoever in the performance of any obligation or liability undertaken or expressed to be undertaken by it under or pursuant to this Agreement, the 2^nd Defendant must immediately upon demand unconditionally perform (or procure performance of) and satisfy (or procure the satisfaction of) the obligation or liability in regard to which such default had been made in the manner prescribed by the Principal Agreement and so that the same benefits would be conferred on the Plaintiff as it would have received if such obligation or liability had been duly performed and satisfied by the 1^st Defendant.  The 2^nd Defendant waived any rights which it might have to require the Plaintiff to proceed first against or claim payment from the 1^st Defendant to the intent that as between the Plaintiff and the 2^nd Defendant the latter would be liable as principal debtor as if it had entered all undertakings, agreements and other obligations jointly and severally with the 1^st Defendant.

19.Clause 11.7 of the Principal Agreement provides that as a separate and independent stipulation, the 2^nd Defendant agreed that any obligation expressed to be undertaken by the 1^st Defendant under the Principal Agreement which might not be enforceable against or recoverable from the 1^st Defendant by reason of any legal limitation, disability or incapacity or any other fact or circumstance would nevertheless be enforceable against or recoverable from the 2^nd Defendant as though the same had been incurred by the 2^nd Defendant and the 2^nd Defendant were sole or principal obligor in respect of such obligation and would be performed or paid by the 2^nd Defendant on demand.

20.Clause 13 stipulates that the 1^st Defendant must provide or procure to be provided to the Plaintiff all such information in its possession or under its control as the Plaintiff would reasonably require relating to the business and affairs of the Company and/or any member of the Group.

21.Clause 18 provides that except as otherwise expressly provided, time was of the essence of the Principal Agreement.

22.Clause 19 provides that no variation of the Principal Agreement would be valid unless in writing and signed by the parties.

23.The Warranties given by the 1^st Defendant to the Plaintiff as set out in Clause 7 and Schedule 2 to the Principal Agreement include:-

(1)   The 1^st Defendant shall complete the acquisition of 2,000 shares in the Company from the minority shareholders representing 20% of the issued share capital in the Company (“the Minority Shareholders”) (Clause 1.2 of Part 1 of Schedule 3);

(2)   The submission of a completion statement duly signed as correct by the 2^nd Defendant confirming that the Completion Net Current Assets, save and except the RMB 15 million loan, has been reduced to zero amount on Completion (Clause 1.3 of Part 1 of Schedule 3);

(3)   Save and except the RMB 15 million loan, all liabilities of the Company having been settled by the 1^st Defendant (not sourced from any asset within the Company) and the Company will be free of any liability upon Completion (Clause 1.7 of Part 1 of Schedule 3).

24.Pursuant to the Principal Agreement, between 8 April 2010 and 20 January 2012, the Plaintiff paid to the 1^st Defendant a total sum of RMB 40,000,000 as partial payment of the Consideration. By a Fund Receipt Summary dated 13 June 2012 signed by the 1^st Defendant confirmed that it had received from the Plaintiff a total sum of RMB 45,050,000 including the above RMB 40,000,000 and a loan of RBM 5,050,000 advanced by the Plaintiff to the 2^nd Defendant as required under the RMB 8m Loan Agreement.

25.By a supplemental agreement dated 22 June 2012, which was signed by the Plaintiff, the 1^st Defendant and the 2^nd Defendant (“the Supplemental Agreement”), the parties agreed to vary some of the terms of the Principal Agreement. 

26.It was expressly acknowledged by the Defendants in the Supplemental Agreement that the Plaintiff had paid to the 1^st Defendant RMB 40,000,000 as partial payment of the Consideration under the Principal Agreement.

27.The Supplemental Agreement contained the following key terms and conditions: 

(1)   Completion should take place within 3 business days upon the service of a written notice for completion by the Plaintiff on the 1^st Defendant provided that no such notice should be served by the Plaintiff within 10 months from the date of the Supplemental Agreement or a further extension of 2 months if so requested by the 1^st Defendant in writing (Clause 6);

(2)   The Plaintiff acknowledged that it has full knowledge that the Company is in the course of selling its interest in AG Lifestyle.  The Plaintiff warranted and undertook to allow the Company to continue to seek purchasers for the purchase of the aforesaid shareholding before Completion and shall raise no objection to the 1^st Defendant to utilise the sale proceeds thereof provided that they shall first be utilised for repayment of the Consideration for the Sale Shares received by the 1^st Defendant (Clause 8);

(3)   The Plaintiff undertook to pay the remaining balance of the advance in the sum of RMB 2,950,000 to the 2^nd Defendant under the RMB 8m Loan Agreement on the Completion of the Principal Agreement as varied by the Supplemental Agreement but was not obliged to do so if the Principal Agreement should have been lawfully terminated (Clause 9);

(4)   Except the change made in the Supplemental Agreement, all other terms and conditions of the Principal Agreement should remain valid and subsisting and be binding on the Plaintiff, the 1^st Defendant and the 2^nd Defendant (Clause 11(a)).

28.On 22 June 2012, the Plaintiff and the Defendants further agreed to vary the Principal Agreement by entering into a Supplemental Agreement to the RMB 8m Loan Agreement (“the RMB 8m Supplemental Agreement”) and a Cancellation Agreement of the RMB 15 m Loan Agreement (“the Cancellation Agreement”).

29.Clause 9 of the RMB 8m Supplemental Agreement provides that:-

(1)   The 2^nd Defendant had requested the Plaintiff to pay RMB 5,050,000 of the loan under the RMB 8m Loan Agreement.  The Plaintiff had paid this sum to the 2^nd Defendant up to 22 June 2012, with a remaining balance of RMB 2,950,000 unpaid;

(2)   The Plaintiff and the 2^nd Defendant had agreed to vary the terms of the RMB 8m Loan Agreement to the extent, inter alia, that the Plaintiff shall pay the remaining balance of RMB 2,950,000 to the 2^nd Defendant upon completion of the Principal Agreement.

30.The Cancellation Agreement was executed by the 2^nd Defendant on behalf of Lifestyle HK, by virtue of which the Plaintiff and Lifestyle HK agreed to the following:-

(1)   That the RMB 15m Loan Agreement would be terminated;

(2)   The Plaintiff was to be released and discharged from all the terms, conditions, obligations and liabilities whatsoever on the part of the Plaintiff in the RMB 15m Loan Agreement;

(3)   Lifestyle HK waived and disclaimed all its rights, claims and demands whatsoever against the Plaintiff for or on account of the RMB 15m Loan Agreement.

31.By a written guarantee dated 26 June 2012, the 2^nd Defendant guaranteed in favour of the Plaintiff the repayment of the consideration of RMB 40,000,000 under the Principal Agreement as varied by the Supplemental Agreement (“the Guarantee”).

32.Since 30 April 2014, 100% of the shareholdings in the Project Companies have been held in the hands of Shanghai Qiyu Business Consulting Company Limited (上海啟毓商務諮詢有限公司) (“Qiyu”).

33.The Sale Shares were not transferred from the 1^st Defendant to the Plaintiff.  Hence, the Principal Agreement was not completed in accordance with its terms and conditions.

34.On 16 July 2014, the Plaintiff commenced an action in the High Court of Hong Kong under HCA 1344/2014 against the Defendants for, inter alia, a decree of specific performance of the Principal Agreement (as varied by the Supplemental Agreement). 

35.Prior to the commencement of HCA 1344/2014, by 2 Memoranda of Understanding both dated 31 May 2013 (“the MOUs”), Ping An Trust Company Limited (平安信托有限責任公司) (“Ping An”), a member of the Ping An Insurance group, agreed to acquire a 90% interest in the Project Companies (“the Ping An Acquisition”).

36.Since 30 April 2014, 100% of the shareholdings in the Project Companies have been held in the hands of Shanghai Qiyu Business Consulting Company Limited (上海啟毓商務諮詢有限公司) (“Qiyu”).  In the respective written statements for the sale of shares in the Project Companies to Qiyu (“the Equity Transfers”), it was expressly stated that the 2^nd Defendant was its ultimate actual controller (最終實際控制人).  The 2^nd Defendant has also been stated as the director and legal representative of the Project Companies and their respective immediate holding companies (namely Bridge 8 HK, Double Dragon, Central Joy and Lifestyle HK) and the guarantor in the said agreements.

37.By letter dated 7 July 2015, the Plaintiff demanded the Defendants to reinstate forthwith the group structure as set out in the transaction chart (“the Chart”) as contained in Schedule 6 to the Principal Agreement (“the Alleged Agreed Group Structure”), by reverting back the shareholding of the Project Companies to their respective immediate holding companies (namely Bridge 8 HK, Double Dragon, Central Joy and Lifestyle HK).

38.By letter in reply dated 22 July 2015, the Plaintiff’s request was declined by the Defendants, which stated that the Equity Transfers relate to the parties’ agreements on the dealings with Ping An, with a view to salvaging the Group as a whole (which included the Company, the Project Companies and their respective immediate holding companies, ie Bridge 8 HK, Double Dragon, Central Joy and Lifestyle HK).

39.By letter dated 3 August 2015, the Plaintiff asked the Defendants to provide full particulars of the alleged salvage plan and agreement on the dealings with Ping An.

40.As the Defendants allegedly failed and refused to reinstate the Alleged Agreed Group Structure or to provide any information sought by the Plaintiff, by letter dated 29 April 2016, the Plaintiff accepted the alleged repudiation on the part of the Defendants and alternatively, elected to terminate the agreements pursuant to Clause 5.3.3 of the Principal Agreement.

41.On 17 May 2016, the Plaintiff commenced the present action against the Defendants.

42.By an Order of the Court dated 28 March 2017, the Plaintiff’s claim in HCA 1344/2014 was discontinued as the Plaintiff no longer intended to pursue specific performance.

The Plaintiff’s case

43.It is the Plaintiff’s case that the Defendants were in wrongful repudiatory breach of the Principal Agreement (as varied by the Supplemental Agreement) in failing to take steps to complete the sale and purchase of the Sale Shares.

44.Further, the Plaintiff alleges that the Ping An Acquisition and the Equity Transfers were done by the Defendants in breach of the Principal Agreement (as varied by the Supplemental Agreement) for the following reasons:-

(1)   Under the Principal Agreement, it was expressly agreed by the parties that the Chart showed what should be the group structure and the underlying assets immediately after the completion of the Principal Agreement.   In particular, it was agreed between the parties as shown in the Chart that the Alleged Agreed Group Structure should (among other things) be as follows:-

(a)   3 of the Project Companies, namely Bridge 8 PRC, Shangyi PRC and Shanglok PRC should continue to be wholly owned by their respective immediate holding companies, which in turn should be wholly owned by AG Lifestyle;

(b)   The Company should hold 20% of the shareholding in AG Lifestyle; and

(c)   Lifestyle PRC should be wholly owned by Lifestyle HK.

(2)   Further, it was an implied term of the Principal Agreement by operation of law and/or necessitated by business efficacy that the Alleged Agreed Group Structure as shown in the Chart should be implemented and maintained after the making of the Principal Agreement until completion and that there should not be any or any material change to the structure pending completion of the Principal Agreement.

45.The Plaintiff also contends that the Defendants were in breach of the Warranties by procuring the Ping An Acquisition and the Equity Transfers without having disclosed or made known to the Plaintiff about these proposed transactions on the basis that they constituted a sale, arrangement or obligation affecting the assets of the Company and that they might materially and adversely affect the present or future value of the Company or might otherwise reasonably affect the willingness of the Plaintiff to complete the purchase of the Sale Shares.  

46.According to the Plaintiff, the Warranties were given to the Plaintiff by the 1^st Defendant as part of the Principal Agreement and that the 2^nd Defendant is deemed to have given the same under the Principal Agreement.  The Plaintiff relies on, inter alia, the following warranties as set out in Clause 7 and Schedule 2 to the Principal Agreement:-

(1)   There was not outstanding in connection with the business of the Company:-

(a)   any sale or purchase, option or similar agreement, arrangement or obligation affecting any of the assets of the Company or by which the Company was bound; or

(b)   any agreement or arrangement which involved or might involve obligations which by reason of their material nature or magnitude ought to be made known to the Plaintiff.

(2)   There were fully and accurately disclosed all matters which might materially and adversely affect the present or future value of the Company or which might otherwise reasonably affect the willingness of the Plaintiff to purchase the Sale Shares for the consideration and upon the terms as set out in the Principal Agreement.

(3)   Since the accounts date, ie 31 December 2010:-

(a)   There had been no deterioration either in turnover or in the financial or trading position or in the prospects of the Company compared with the same periods during each of the two preceding years and the 1^st Defendant was not aware of any matter or circumstance which has affected or is likely to affect adversely the volume or level of trading of the Company; and

(b)   There had not been any material change in the assets or liabilities (including contingent liabilities) of the Company as shown in the accounts except for change arising from routine payments and from routine supplies of goods or of services in the normal course of trading;

(4)   None of the parties to the JV Transaction Documents (as set out in Schedule 7 to the Principal Agreement), in particular the Company and/or the Defendants, had committed any breach of covenants, warranties, undertakings or obligations under the Principal Agreement and that no event of default had occurred.

47.It is also the Plaintiff’s case that the Defendants failed to provide to the Plaintiff all such information as sought by the Plaintiff by letter dated 3 August 2015, wherein the Plaintiff demanded from the Defendants the provision of full particulars of the dealings with Ping An (“the 2015 Request for Information”), and were thus in breach of the Principal Agreement (as varied by the Supplemental Agreement), in relation to, at least, Clause 5.6 thereof which provides that to enable the Plaintiff or its representatives to conduct a due diligence review of the Company and the Group Companies (as defined in the Principal Agreement, which include among others Lifestyle PRC, Lifestyle HK and the Project Companies) to the Plaintiff’s reasonable satisfaction, subject to prior reasonable notice, the Plaintiff must be given reasonable access to all books and records of the Company and the Group Companies; and that the management of the Company and the Group Companies must make themselves available to answer such questions or give explanations in relation to such matters, as the Plaintiff (or its authorized representatives) might reasonably require with prior reasonable notice.

The Defendants’ case

48.It is not in dispute that the Plaintiff did pay to the 1^st Defendant a total sum of RMB 40,000,000 as partial payment of the consideration for the Sale Shares is not disputed.   Neither is it disputed that completion of the Principal Agreement has not taken place.

49.The Defendants nevertheless deny that they were in any way in breach of the Principal Agreement (as varied by the Supplemental Agreement) for the following reasons.

50.Insofar as the alleged failure to complete the sale and purchase of the Sale Shares is concerned, it is the Defendants’ case that:-

(1)   The payment of RMB 40,000,000 as partial payment of the consideration for the Sale Shares was not made by the Plaintiff in compliance with the provisions of the Principal Agreement in that:-

(a)   Clause 4A.1.5 of the Principal Agreement provides that the 4^th Instalment, ie RMB 21,000,000 shall be paid within 7 days from the completion date, but in any event no later than 30 March 2011 provided that completion can take place before that date.

(b)   Clause 18 of the Principal Agreement provides that time is of the essence (except as otherwise expressly provided).

(c)   Notwithstanding the above, actual payment of the 4^th instalment was only made by the Plaintiff between April and August 2011 and thus, the 4^th instalment was paid late contrary to Clauses 4A.1.5 and 18 of the Principal Agreement.

(2)   In breach of Clauses 4A.1.4 and 18 of the Principal Agreement, the Plaintiff failed to advance loans in the respective amounts of RMB 15,000,000 and RMB 8,000,000 to the 1^st Defendant and the 2^nd Defendant respectively in accordance with the RMB 15m Loan Agreement and the RMB 8m Loan Agreement:-

(a)   Clause 3.5 of the Principal Agreement provides that as a condition of the 1^st Defendant entering into the Principal Agreement, the Plaintiff shall enter into 2 loan agreements, being a loan agreement for RMB 15,000,000 between the Plaintiff as lender and Lifestyle HK as borrower (ie RMB 15m Loan Agreement), and another loan agreement for RMB 8,000,000 between the Plaintiff as lender and the 2^nd Defendant as borrower (ie the RMB 8m Loan Agreement).

(b)   Clause 4A.1.4 of the Principal Agreement provides that the respective loans underlying the RMB 15m Loan Agreement and the RMB 8m Loan Agreement must be advanced no later than 10 March 2011 in any event.

(c)   Time is of the essence (except as otherwise expressly provided) (Clause 18 of the Principal Agreement).

(d)   The RMB 15m Loan Agreement and the RMB 8m Loan Agreement were entered into on 28 January 2011.

(e)   Nevertheless, in breach of Clauses 4A.1.4 and 18 of the Principal Agreement, the Plaintiff:-

(i)   failed to advance any loan under the RMB 15m Loan Agreement, which was eventually cancelled by virtue of a cancellation agreement dated 22 June 2012 entered into between the Plaintiff and Lifestyle HK;

(ii)   only advanced RMB 5,050,000 to the 2^nd Defendant pursuant to the RMB 8m Loan Agreement and in any event, such advancement was made late, ie after 10 March 2011.

(3)   Pursuant to Clause 3.1 of the Principal Agreement, the completion of the Principal Agreement and the sale and purchase of the Sale Shares shall be subject to the satisfaction of the Conditions Precedent as set out in part 1 of Schedule 3 to the Principal Agreement (each of which will be referred to as “CP”).  The 1^st Defendant was not obliged to complete the sale and purchase of the Sale Shares as the following Conditions Precedent were not satisfied:-

(a)   CP 1.3, which requires the submission of a completion statement confirming that the “Completion Net Current Assets”, save and except the RMB 15,000,000 loan under the RMB 15m Loan Agreement, has been reduced to zero on completion; and

(b)   CP 1.7, which requires that (save for the RMB 15,000,000 loan under the RMB 15m Loan Agreement) all liabilities of the Company have been settled by the 1^st Defendant using funds other than any asset within the Company and the Company would be free of any liability on completion.

(4)   The non-satisfaction of the above Conditions Precedent was, as alleged by the Defendants, due to the Plaintiff’s default in meeting the stipulated timeline for the payment of the consideration for the Sale Shares and for the advancement of the loans under the RMB 15m Loan Agreement and the RMB 8m Loan Agreement in breach of Clauses 4A.1 and 18 of the Principal Agreement, by virtue of which the 1^st Defendant did not have sufficient funds to fully discharge the Company’s liabilities or to reduce the Completion Net Current Assets to zero.

(5)   At all material times, it was known to the Plaintiff that the Company and Lifestyle HK had substantial liabilities close to RMB 40,000,000 in 2010 and 2011.  It was the parties’ intention that the loans advanced under the RMB 15m Loan Agreement and the RMB 8m Loan Agreement were to be applied towards discharging the liabilities of the Company and Lifestyle HK.

(6)   Further, whilst it is accepted that the 1^st Defendant was contractually obliged under Clause 3.3 of the Principal Agreement to use reasonable endeavours to procure that each of the Conditions Precedent shall be fulfilled on or prior to completion, it is the Defendants’ case that the 1^st Defendant has discharged its obligation in this respect and that the completion of the Principal Agreement (as varied by the Supplemental Agreement) could not take place through no fault of the Defendants. 

51.As to the Plaintiff’s allegation concerning the failure to maintain the Alleged Agreed Group Structure as shown in the Chart in breach of the Principal Agreement and of the Warranties, it is the Defendants’ case that:-

(1)   There was never any agreement, express or implied, under the Principal Agreement that:-

(a)   The Chart shows what should have been the structure of the Group Companies at the time of completion of the Principal Agreement; or

(b)   The Chart was to be implemented or maintained after the Principal Agreement without any material change thereto pending completion of the same; or

(c)   The Group Companies should include Lifestyle PRC, Lifestyle HK and the Project Companies at the time of completion of the Principal Agreement.

(2)   The Chart only set out the proposed group structure at the time of completion of the Principal Agreement as anticipated by the parties at the time the Principal Agreement was entered into.

(3)   By virtue of the fact that the terms of the JV Deed had been fully disclosed to the Plaintiff prior to the execution of the Principal Agreement, it was known to the Plaintiff at all material times that the Company was only a minority shareholder of AG Lifestyle and thus had no control over the disposal of the Bridge 8 Project (or any part thereof) which were held by Bridge 8 PRC, Shangyi PRC and/or Shanglok PRC. 

(4)   Further, given the parties’ acknowledgement that the Company’s business was investment holding, consultancy and management services, it was anticipated and acknowledged by the parties at all material times that the Company could and might have to acquire or dispose of its projects from time to time in the ordinary course of business having regard to its financial condition, the prevailing business environment and the profitability of the relevant projects, particularly in view of the substantial liabilities close to RMB 40,000,000 owed by the Company and Lifestyle HK in 2010 and 2011, which were at all material times known to the Plaintiff.

(5)   At all material times, the Plaintiff was informed of the progress of the Ping An Acquisition, including but not limited to the following:-

(a)   The MOUs which documented the parties’ preliminary agreement for the sale of the Bridge 8 Project were disclosed to Mr Jim Lok (who has at all material times been the sole director of the Plaintiff) (“Mr Jim Lok”), Mr Joe Lau and Mr WM Tsui of the Plaintiff by email on 8 June 2013;

(b)   The Plaintiff was informed by the Defendants from time to time as to discussions and negotiations with potential purchasers of the Bridge 8 Project (which included Ping An). 

(6)   As such, the Defendants deny that the Ping An Acquisition was conducted without the knowledge, consent and/or approval of the Plaintiff or that it amounted to any breach of the Principal Agreement (as varied by the Supplemental Agreement).

(7)   Further or alternatively, the Defendants say that even if the Ping An Acquisition did amount to a breach of the Principal Agreement (as varied by the Supplemental Agreement), the Plaintiff has waived such breach or is otherwise estopped from relying on such breach in light of its knowledge of the Ping An Acquisition at all material times and its implicit consent by way of inaction on its part.

52.According to the Defendants, the Ping An Acquisition came about as follows:-

(1)   The Company and Agile was actively seeking a purchaser of the Bridge 8 Project from about 2012 onwards since Lifestyle HK was suffering from significant losses and encountering financial difficulties and Agile had then informed the Company that it had no intention to provide further financing to AG Lifestyle.

(2)   Since the execution of the Supplemental Agreement, Mr Jim Lok was from time to time informed and updated by the Defendants on the seeking of potential purchasers for the Bridge 8 Project and indeed Mr Jim Lok (acting on behalf of the Plaintiff) encouraged the Defendants to actively seek potential purchasers in that regard.

(3)   In around October 2012, Agile, the Company and the 2^nd Defendant entered into negotiations with Ping An for the sale of the Bridge 8 Project to Ping An.

(4)   On or about 31 May 2013, the parties reached preliminary agreement for the sale of the Bridge 8 Project which was documented in the MOUs.

(5)   After further negotiations, on 20 April 2014, Ping An, Lifestyle HK, Bridge 8 PRC, Shangyi PRC, Shanglok PRC and Shanghai Shangduli Property Management Limited (上海尚都里物業管理有限公司) (“Shangduli”) entered into a framework agreement (“Framework Agreement”) whereby it was agreed (inter alia) that:-

(a)   Ping An would advance RMB 231,000,000 (“the Ping An Loan”) through a trust structure (“the Trust Structure”) to a PRC incorporated borrower which would acquire the Project Companies (and with that, the control and interests over the Bridge 8 Project);

(b)   The Ping An Loan shall be repaid by rental income generated from the Bridge 8 Project and paid to the designated bank accounts controlled by Ping An;

(c)   Pending full repayment of the Ping An Loan, Ping An shall have the right to appoint a director and the chief financial officer to each of the Project Companies;

(d)   An option will be granted to Ping An to acquire 90% shareholding in each of the Project Companies for RMB 231,000,000 (“the Purchase Option”) within 24 months after establishment of the Trust Structure, so that in effect this gives Ping An the option to convert the Ping An Loan into equity in the Project Companies;

(e)   The Ping An Loan and the Purchase Option would be secured by inter alia share chares over 100% of the shares of the Project Companies and a personal guarantee by the 2^nd Defendant;

(f)   Upon exercise of the Purchase Option, the remaining 10% shareholding in each of the Project Companies shall be charged in favour of Ping An, and all distributable profits of the Project Companies shall be distributed to Ping An as security for the guarantee given in Clause 7.3 of the Framework Agreement as to the net cash inflow targets therein.

(6)   It was intended by the parties that Qiyu would be the borrower of the Ping An Loan.

(7)   Soon after the Framework Agreement was reached, Agile disposed of its entire shareholding in AG Lifestyle on 30 April 2014 when the Company, Agile, AG Lifestyle and the 2^nd Defendant entered into a deed of sale and purchase of Agile’s 80% shareholding in AG Lifestyle (“the AG SPA”).

(8)   Also on 30 April 2014, the Equity Transfers were effected whereby Qiyu acquired 100% shareholding in the Project Companies.

(9)   The proceeds of sale derived from the sale of interests in Bridge 8 PRC, Shangyi PRC and/or Shanglok PRC to Qiyu were paid to Agile to discharge the consideration under the AG SPA and pursuant to Agile’s entitlement to distributable proceeds under Clause 9.2.1 of the JV Deed.

53.Insofar as the alleged failure to provide information as requested by the Plaintiff, it is the Defendants’ case that:-

(1)   The only clause in the Principal Agreement which was pleaded by the Plaintiff and relates to the provision of information is Clause 5.6, which concerns provision of information for the purpose of facilitating the conduct of due diligence review on the part of the Plaintiff.

(2)   The Plaintiff has confirmed in Clause 3.1 of the Supplemental Agreement that as at 22 June 2012 it had completed the due diligence review and was satisfied with the result.

(3)   As such, the purported reliance of the Plaintiff on Clause 5.6 is misplaced as the demand for particulars of the Ping An Acquisition was only made by the Plaintiff in or around July/August 2015 when the due diligence review had long been completed.

54.The Defendants also took issue in relation to the contractual basis (or the lack thereof) for the Plaintiff to seek a refund of RMB 40,000,000 from the Defendants.

55.The Defendants further counterclaims for damages on the basis that the Plaintiff was in wrongful repudiation of the Principal Agreement (as varied by the Supplemental Agreement) by purporting to terminate the Principal Agreement by way of a letter from the Plaintiff’s solicitors dated 29 April 2016 and also by commencing the present action.

II.   THE APPLICABLE PRINCIPLES

56.The relevant legal principles governing an application for summary judgment are well known and shall not be repeated here.  It is important to bear in mind that the burden rests on the defendant to show that there are triable issues.  He must satisfy the court that he has a real or bona fide defence or a fair probability or reasonable grounds that a bona fide defence exists.  The test is whether the defendant’s assertions are believable.  Unless it is obvious that the defence put forward by the defendant is frivolous and practically moonshine such that it is so incredible or contradicted by contemporaneous documents or objective facts, an application for summary judgment should not be allowed.  Further, in considering an application for summary judgment, the court should not embark on a mini trial on affidavits. 

III.   THE ISSUES

57.To recap what has been stated above regarding each party’s case, the fundamental question is whether the Defendants have shown any triable or credible defence in relation to the following issues:-

(1)   Whether the Defendants failed to complete the sale and purchase of the Sale Shares in breach of the Principal Agreement (“Issue 1”);

(2)   Whether the Defendants failed to maintain the Alleged Agreed Group Structure as shown in the Chart (“Issue 2”);

(3)   In association with Issue 2, whether the changes made to the Alleged Agreed Group Structure as depicted in the Chart rendered the Defendants in breach of the Warranties (“Issue 3”);

(4)   Whether the Defendants were in breach of the Principal Agreement by virtue of their failure to comply with the 2015 Request for Information (“Issue 4”); and

(5)   Whether there is any contractual basis of the Plaintiff’s claim for the repayment of RMB 40,000,000 (“Issue 5”).

IV.   DISCUSSION

Issue 1: Failure to complete sale and purchase of the Sale Shares

58.In relation to Issue 1, the Defendants’ arguments are as follows:-

(1)   The time and/or obligation for completion has not yet arisen since CP 1.3 and CP 1.7 have not yet been fulfilled by the Plaintiff due to its own default (“the CP Defence”);

(2)   The 1^st Defendant has discharged its obligation under Clause 3.3 of the Principal Agreement to use reasonable endeavours to procure the fulfilment of the Conditions Precedent (“the Reasonable Endeavours Defence”); and

(3)   By virtue of the prevention pricniple and the fact that the failure to fulfil CP 1.3 and CP 1.7 was a direct consequence of the Plaintiff’s own default, the Plaintiff cannot take advantage of its own wrong to assert any right arising as a consequence of the breach (“the Prevention Principle Defence”).  

59.It appears to me that the CP Defence is at least reasonably arguable, in view of the following circumstances and/or documents:-

(1)   CP 1.3 and CP 1.7 required the Company and Lifestyle HK’s liabilities and the consolidated net current assets to be reduced to zero, save for the RMB 15,000,000 loan which the Plaintiff was supposed to lend under the RMB 15m Loan Agreement.

(2)   In light of the audited financial statements disclosed, CP 1.3 and CP 1.7, prima facie, had not been satisfied.  Neither the Completion Net Current Assets nor the liabilities of the Company was reduced to zero at any point in time after the signing of the Principal Agreement in January 2011.  As at 31 December 2016, the net current liabilities of Lifestyle HK stood at over HK$18 million, whereas that of the Company stood at over HK$2.7 million.  The Completion Net Current Liabilities as at 31 December 2016 was over HK$21 million.

(3)   The MOU between the Plaintiff and the 1^st Defendant dated 23 July 2010 also tends to support the Defendants’ contention that it was the parties’ contemplation and intention to use the RMB 8,000,000 and RMB 15,000,000 loans to be advanced to discharge the then existing liabilities of the Company and Lifestyle HK (which amounted to close to RMB 40,000,000) such that the Group would be free of liabilities on completion.  According to the MOU, it was the mutual understanding and intention between the Plaintiff and the 1^st Defendant that the Plaintiff would pay a total of RMB 63,000,000 (part of which should be paid as loans) to the Defendants not only for the purchase of the Sale Shares, but also for reducing the liabilities of the Company and Lifestyle HK such that they would be free of liabilities on completion;

(4)   Clauses 3.5, 4A.1.4 and 18 of the Principal Agreement, taken together, arguably have made the execution of the RMB 15m Loan Agreement and the RMB 8m Loan Agreement by 10 March 2011 a condition of the 1^st Defendant entering into the Principal Agreement. 

(5)   The Defendants’ case that the 4^th i.e. contrary to Clause 4A.1.5 of the Principal Agreement can apparently be shown by the fund receipt summary dated 13 June 2012 produced by the Plaintiff.

(6)   The Plaintiff does not seem to dispute the fact that no loan was ever advanced under the RMB 15m and that only RMB 5,050,000 has been advanced to the 2^nd Defendant pursuant to the RMB 8m Loan Agreement.

60.The Plaintiff nevertheless counter-argues that even if there was a breach on its part in failing to advance the loan under the RMB 15m Loan Agreement, that breach has been waived under the Cancellation Agreement, whereby it was agreed between the Plaintiff and Lifestyle HK that the RMB 15m Loan Agreement was to be terminated and the Plaintiff was to be released and discharged from all the terms, conditions, obligations and liabilities whatsoever arising from the RMB 15m Loan Agreement.  It was further agreed by the parties to the Cancellation Agreement that Lifestyle HK thereby waived and disclaimed all its rights, claims and demands whatsoever against the Plaintiff for or on account of the RMB 15m Loan Agreement.

61.The Defendants submit that this counter-argument is flawed on 3 main bases:-

(1)   That the Cancellation Agreement was only signed by Lifestyle HK and not by the Defendants and thus, any waiver of rights therein could not and do not apply to the Defendants;

(2)   That there is no corresponding waiver in the Supplemental Agreement to which the Defendants are party; and

(3)   That, in any event, the prevention principle is a flexible concept that can be applied and manifested in different ways, depending on the precise circumstances of the case, in order to give substantive effect to its underlying aim, i.e. to deny the contract-breaker the advantages that it seeks to assert: Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §§96-100.

62.I accept that the Defendants' submissions raise at least triable issues.  Without factual findings of breach and the actual consequences flowing therefrom having first been made by the Court, it is difficult to resolve determinatively any issues of waiver and the applicability of the prevention principle in such circumstances.

63.As to the Reasonable Endeavours Defence, there is a dispute on whether “reasonable endeavours” means “best endeavours”. However, apart from this semantic point, the nature and extent of an obligation to use reasonable endeavours would have to depend on the circumstances of each individual case (see Electricity Generation Corporation v Woodside Energy Ltd (2012-13) 251 CLR 640 §§60-62.   

64.In view of the matters set out in paragraph 59 above, there is therefore a triable issue that the 1^st Defendant has discharged its obligation under Clause 3.3 of the Principal Agreement in the circumstances of the case.

65.The Defendants also rely on the Prevention Principle Defence to argue that the non-fulfilment of the Conditions Precedent was caused by the Plaintiff’s own default.  

66.The prevention principle as explained by the Court of Final Appeal in Kensland Realty (supra) at §§91-100 is that a party cannot take advantage of his own wrong to assert any right arising as a consequence of the breach, where (1) the relevant party’s wrong involved its breach of the contract in respect of an obligation owed to the other party, and (2) the contractual right or benefits which the relevant party is seeking to assert arises as a direct consequence of that party’s prior breach.

67.Given my conclusion on the CP Defence and on the Reasonable Endeavours Defence above, I take the view that the Defendants’ submission that the Prevention Principle Defence is at least arguable.

Issue 2:  Failure to main the Alleged Agreed Group Structure as per the Chart

68.In respect of Issue 2, the Defendants’ line of defence is three‑fold:-

(1)   There is no express term which renders the disposal of the Project Companies a breach of the Principal Agreement (as varied by the Supplemental Agreement) (“the Lack of Express Term Defence”).

(2)   Having regard to the context in which the Principal Agreement was entered into, there is no room for implying any term into the Principal Agreement to the effect that the disposal of the Project Companies would constitute a breach thereof (“the Lack of Implied Term Defence”).

(3)   Even if there had been a breach, the Plaintiff had waived such breach or is otherwise estopped from complaining about the disposal of the Project Companies (“the Waiver/Estoppel Defence”).

69.Insofar as the Lack of Express Term Defence is concerned, the relevant clause in the Principal Agreement that deals with Schedule 6 to the Principal Agreement in which the Chart is contained falls within Preamble E but Preamble E comes before the operative words of the Principal Agreement “It is hereby agreed … ”.  Hence, there is a question as to whether Preamble E carries the effect of compelling the Defendants to do the acts as alleged by the Plaintiff.

70.In this regard, the Plaintiff referred me to Aspdin v Austin (1844) 5 QB 671 and Mackenzie v Childers (1889) 43 Ch D 265 in support of the proposition that where words of recital or reference manifest a clear intention that the parties should do certain acts, the courts may from these infer a covenant to do such acts, just as if the instrument had contained an express agreement to that effect.

71.However, in the present case, Preamble E only provides “A transaction chart showing the proposed Group structure together with the underlying assets immediately after the Completion of the sale and purchase of the Sale Shares under this Agreement is attached as Schedule 6.”  The word “proposed” seems to suggest that the Group structure had not yet been fixed or fully agreed as at the time when the Principal Agreement was made.  Hence, it is unlikely for Preamble E to be taken as manifesting a clear intention on what the parties shall do.

72.Further, I am not in a position to say that the Lack of Implied Term Defence has no substance in view of the following circumstances:-

(1)   Prior to the execution of the Principal Agreement, the Plaintiff was aware of the terms of the JV Deed, including but not limited to the following terms:-

(a)   The fact that the Company had only a 20% interest in the Bridge 8 Project, whereas Agile had 80% interest and thus control over the Bridge 8 Project;

(b)   Agile had control over the board of AG Lifestyle as it was entitled to appoint up to 3 out of a maximum of 4 directors of AG Lifestyle and the Company was entitled to appoint 1 director (Clause 5.1 of the JV Deed);

(c)   It was the intention of the parties to the JV Deed to procure,  inter alia, the disposition of projects with a view to generating cash available for distribution to shareholders, when the board of AG Lifestyle would determine that the market condition so warrants (Clause 10.1 of the JV Deed);

(d)   Agile shall be entitled to first priority in receiving all distributions until it had recouped all its capital contribution with an annual internal rate of return of 15% (Clause 9.2.1 of the JV Deed).

(2)   The Plaintiff had knowledge of the above before it entered into the Principal Agreement, in light of the following contemporaneous documentary records:-

(a)   Pursuant to Clause 13.1.6 of the JV Deed, Agile’s approval was required in respect of any change of control of the Company.  Approval from Agile in respect of the Plaintiff’s acquisition of the Sale Shares was obtained and documented in a Deed of Undertaking dated 17 December 2010.  It was expressly provided under Clause 1.1 of the Deed of Undertaking that approval by Agile was conditional upon the Plaintiff signing a letter of acknowledgment in a specified form, in which the Plaintiff expressly agreed to, inter alia, use its best endeavours to procure the Company at all times to perform its obligations under the JV Deed;

(b)   According to Schedule 7 of the Principal Agreement, the JV Deed was one of the documents disclosed to the Plaintiff;

(3)   Further, it is trite that a term will not be implied if there are already express provisions in the contract on the same subject matter and the proposed implied term is inconsistent with such express provisions: Chitty on Contracts, 33^rd ed, Vol I, §14-026.  Here, two clauses appear to be relevant:-

(a)   Clause 7.8 of the Principal Agreement expressly provides for the eventuality where the value of any asset of the Company had been diminished by reason of any breach of warranty, in which case Clause 7.8 expressly provides for a price adjustment mechanism of the Sale Shares;

(b)   Similarly, Clause 8 of the Principal Agreement provides for the situation where the 1^st Defendant had disclosed any event or circumstance which had or was likely to have a material adverse effect on the financial position or business of the Company or if there was a material breach of any of the Warranties, the Plaintiff would be entitled to rescind the Principal Agreement (without prejudice to any other right or remedy which may be available to it);

(4)   As such, express provisions had been made to cater for the situation where the underlying assets (of which the Project Companies form part) may be disposed of which may thereby reduce the value of the Company’s assets or lead to a material adverse effect on its financial position.  Arguably therefore, there is no basis to imply a term to prohibit changes to be made to the Alleged Agreed Group Structure as set out in the Chart.

73.Waiver or equitable estoppel arises where the following 3 elements are established:-

(1)   There is a clear and unequivocal representation (by words or conduct) by the person said to have waived the rights that the representor’s legal rights will not be insisted upon;

(2)   There is reliance on the representation; and

(3)   It would be inequitable for the representor to go back on the representation.

74.In light of the following contemporaneous evidence or records which arguably demonstrate that the Plaintiff did have knowledge of and/or had in fact consented to the intended disposal of the Project Companies throughout, I find that there are triable issues in respect of the Waiver/Estoppel Defence:-

(1)   It is the Plaintiff’s own evidence through Mr Jim Lok’s express acknowledgement in his 2^nd affirmation that at the time of the making of the Supplemental Agreement (i.e. on or about 22 June 2012), the Plaintiff knew that “the Defendants had no means to repay the said RMB 40,000,000 to the Plaintiff and so the Plaintiff had no objection to the sale by the Company of its interest of and in the 20% shareholding in AG Lifestyle …”;

(2)   Clause 8 of the Supplemental Agreement expressly provides that:-

“The Purchaser [the Plaintiff] hereby acknowledges that the Purchaser [the Plaintiff] have full knowledge that the Company is now in the course of selling its interests of and in the 20% shareholding in AG Lifestyle BVI Limited [AG Lifestyle]. The Purchaser [the Plaintiff] warrants and undertakes to allow the Company to continue to seek purchaser(s) for the purchase of the aforesaid shareholding before Completion and shall raise no objection to the Vendor [the 1^st Defendant] to utilize the sale proceeds thereof Provided that any sale proceeds aforesaid shall first be utilized for repayment of the Consideration for the Sale Shares received by the Vendor [the 1^st Defendant] at the material time.”

(3)   The letter dated 7 December 2013 from the 2^nd Defendant to Mr Jim Lok also seems to lend support to the Waiver/Estoppel Defence.  In the letter, the 2^nd Defendant provided further updates on the progress of the negotiations with Ping An in relation to the Ping An Acquisition and the status of Lifestyle HK as follows:-

(a)   As at 31 October 2013, the net liability of Lifestyle HK was about RMB 31,000,000 and it was in discussions with Ping An to dispose of Lifestyle PRC.  However, even after the disposal, the net liabilities of Lifestyle HK would still amount to about RMB 15,000,000;

(b)   Given the 2^nd Defendant’s experience and reputation in the real estate business, the purchaser may be willing to increase the purchase price if the 2^nd Defendant were to remain as CEO to oversee the Bridge 8 Project for 5 years.

(4)   The various threads of SMS messages exchanged between the 2^nd Defendant and Mr Jim Lok between 11 October 2012 and 28 March 2014 also (at least on the face of them) raise questions as to whether the Plaintiff was all along aware of the Defendants’ efforts in searching for a purchaser for the disposal of the Bridge 8 Project and indeed of the Ping An Acquisition long before it was completed.  I set out below some of these SMS messages insofar as they are relevant as follows:-

Sender	Date (Time)	Message
2nd Defendant	11.10.2012 (14:29)	… 八號橋有人在談，但最快也要幾個月才會落實和收到錢。
Mr Jim Lok	11.10.2012 (14:35)	好呢，理解！在困難時大家互相支持，希望早日大家走出困境… 也希望早日把八號橋出讓…
**
2nd Defendant	25.4.2013 (20:01)	駱生，…平安收購八號橋事情已落實，將爭取盡快完成交易
Mr Jim Lok	25.4.2013 (21:09)	好，我剛到香港，你如來香港的話，我們見面。駱。
2nd Defendant	25.4.2013 (21:36)	好的。
**
2nd Defendant	28.3.2014 (20:57)	明白，我已讓律師約你律師一起談如何完成交易，另外，平安的交易可能很快就能完成了，供你知曉。
Mr Jim Lok	28.3.2014 (21:01)	他們能完成當然是好事，但我這裡無法拖了，我當你是兄弟，我希望永遠是這樣，不要搞成我不想看到的結果！因為大家都不容易！

(5)   Insofar as the Plaintiff disputes the authenticity of these contemporaneous documentary records (not least that of the SMS messages) and/or its knowledge of the same, on the basis that Mr Jim Lok has no recollection of any of these text messages, these are matters which can only be resolved at trial after cross-examination.  

Issue 3:  Unauthorised changes made to the Alleged Agreed Group Structure

75.Issue 3 concerns the same underlying complaint, ie allegedly unauthorized changes made to the Alleged Agreed Group Structure as set out in the Chart, as Issue 2.  In the circumstances, my views above in respect of Issue 2 will equally apply to Issue 2 insofar as they are relevant.

Issue 4:  Failure to provide information as requested

76.The only provision in the Principal Agreement pleaded and relied upon by the Plaintiff in the Amended Statement of Claim which relates to the provision of infomration is Clause 5.6, which provides inter alia that to enable the Plaintiff or its representatives to conduct a due diligence review of the Company and the Group Companies to the Plaintiff’s reasonable satisfaction, subject to prior reasonable notice, the Plaintiff must be given reasonable access to all books and records of the Company and the Group Companies; and that the management of the Company and the Group Companies must make themselves available to answer such questions or give explanations in relation to such matters, as the Plaintiff (or its authorized representatives) might reasonably require with prior reasonable notice.

77.Clause 5.6 of the Principal Agreement appears to target at the provision of information and access to the Company’s books and records for a rather limited purpose, i.e. to facilitate the proper carrying out of a due diligence review of the Company and the Group Companies by the Plaintiff, which by virtue of Clause 3.1 of the Supplemental Agreement, the Plaintiff has confirmed that as at 22 June 2012, it had already completed the relevant due diligence review and was satisfied with the result thereof.

78.In the premises, the question on the parties’ intention in respect of Clause 5.6 gives rise to a triable issue as to whether the Defendants were in breach of the Principal Agreement for failing to comply with the 2015 Request for Information.  

Issue 5: Basis of the refund of of RMB 40,000,000

79.The Plaintiff has emphasised that it would not make commercial sense for the Defendants to on the one hand refuse to complete the sale and purchase of the Sale Shares under the Principal Agreement (as varied by the Supplemental Agreement) but, on the other hand, keep the sum of RMB 40,000,000. 

80.The Defendants submit that the above argument of the Plaintiff may have over-simplified the issues as discussed above.  Further, there is a question regarding the basis upon which such a refund is sought. 

81.In this regard, the Defendants have pointed out that unjust enrichment, which has not been pleaded, is not a ground upon which the Plaintiff relies in seeking the refund.  Further, the Defendants submit that there is no contractual basis on which the Plaintiff’s alleged entitlement to the RMB 40,000,000 refund may properly be grounded.

82.The Defendants complain that the Plaintiff has not made clear its basis for its asserted legal entitlement for seeking the refund of RMB 40,000,000 in its Amended Statement of Claim.  It was only at §45 of Mr Jim Lok’s 1^st Affirmation that the Plaintiff’s basis for seeking such a refund was set out as follows:-

“… Under Clause 9.1 of the Principal Agreement, if the Principal Agreement is terminated for whatever reason, the 1^st Defendant should refund to the Plaintiff any Consideration including but not limited to the Deposits made by the Plaintiff thereunder within 14 Business Day from the date of termination. Notwithstanding the termination of the Agreements, the Defendants have failed to make any refund or payment of the said sum of RMB 40,000,000 or any part thereof to the Plaintiff.”

83.Clause 9.1 of the Principal Agreement was not pleaded in the Amended Statement of Claim.

84.Quite apart from the above pleading point, there is at least a triable issue that Clause 9 of the Principal Agreement which provides for “Vendor’s/Purchaser’s Liability upon Termination” is superseded by Clause 10 of the Supplemental Agreement which also provides for what happens when the Principal Agreement is terminated in the event that interests in the Bridge 8 Project were to be disposed of.

85.Specifically, Clause 10 of the Supplemental Agreement provides for a new mode of termination which did not exist under the Principal Agreement, i.e. termination where the interests in the Bridge 8 Project are disposed of, as follows:-

(1)   Clause 10.1 provides for the situation where the 1^st Defendant has sufficient funds to pay off the Plaintiff, in which event, the 1^st Defendant can elect to terminate the Principal Agreement.

(2)   Clause 10.4 deals with the situation where the 1^st Defendant proceeded to sell but the proceeds are insufficient to cover the outstanding loan and the RMB 40,000,000, in which event, the Plaintiff would have the right to terminate the Princpal Agreement.

(3)   Clause 10.5 provides that if either the Plaintiff or the 1^st Defendant terminates in accordance with Clauses 10.1 or 10.4, the Principal Agreement as varied by the Supplemental Agreement would come to an end.

86.Notably, there is no provision within the Supplemental Agreement for the financial consequences of termination pursuant to Clause 10.4, less still is there any express provision which entitles the Plaintiff to the refund of RMB 40,000,000.

87.Even assuming that the Plaintiff has a valid contractual basis to seek the refund, the above issues raise the question as to whether the Plaintiff is entitled to such refund.

V.   CONCLUSION

88.By reason of the above matters coupled with the complexities and intricacies of the transactions involved, I believe that this is not an appropriate case for summary judgment.  Further, I note that most of the allegations raised by the Defendants in this application have been pleaded in their Defence and Counterclaim.  In the circumstances, there is no reason why this application should not be dismissed. 

89.I therefore order that the Plaintiff’s application for summary judgment (by summons dated 24 October 2017) be dismissed.  I also make a cost order nisi that costs of and occasioned by the application be paid forthwith by the Plaintiff to the Defendants, with a certificate for two counsel, such costs to be taxed if not agreed.   

Mr Kenny Lin and Ms Mabel Tsui, instructed by Foo, Leung & Yeung, for the Plaintiff

Ms Eva Sit and Mr Val Chow, instructed by To, Lam & Co., for the Defendants.