Ho Wing Hung v. Intell Motor Trading Ltd
Read the full judgment text of HCA 183/2016 on BabelCite. This High Court CFI judgment was delivered on 17 April 2019.
1. This plaintiff claims against the defendant in this action for breach of an agreement for the sale and purchase of the entire shareholding of a Hong Kong incorporated company known as Elcentro Enterprises Limited (坤雄企業有限公司) (“Elcentro”).
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HCA 183/2016 [2019] HKCFI 1013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 183 OF 2016 ________________________
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________________________ J U D G M E N T ________________________ A. Introduction 1.This plaintiff claims against the defendant in this action for breach of an agreement for the sale and purchase of the entire shareholding of a Hong Kong incorporated company known as Elcentro Enterprises Limited (坤雄企業有限公司) (“Elcentro”). 2.The defendant, a Hong Kong incorporated company said to be carrying on the business of trading in Mainland Hong Kong cross-border vehicle permits, had all along been legally represented and attended the pre-trial review through counsel on 21 August 2018. No indication was given by the defendant’s counsel at that hearing that it would be unrepresented at the trial. 3.On 28 September 2018, the defendant’s solicitors ceased to act, and no replacement solicitors have been appointed. Moreover, no leave was sought for any of the defendant’s directors to appear on its behalf, nor did any representative of the defendant appear on the first day of trial. In the circumstances, the court proceeded in the absence of the defendant. B. The plaintiff’s case 4.From the pleadings and the undisputed contemporaneous documents, the following matters are not in serious dispute. 5.On 7 January 2013, the plaintiff and the defendant entered into a one-page written agreement in Chinese entitled 現貨交易合同 (Sale and Purchase Agreement of commodity goods) (the “Sale and Purchase Agreement”), whereby the plaintiff agreed to purchase and the defendant agreed to sell the entire shareholding of Elcentro, at a purchase price of HK$1,600,000. It was expressly stated in the agreement that Elcentro was the holder of a Mainland Hong Kong cross-border vehicle permit, namely, plate no 粵ZE001港 (the “Permit”). 6.It is helpful to set out the precise wording of the main provisions of the Sale and Purchase Agreement as follows:
7.Pursuant to the Sale and Purchase Agreement, in the period between 7 January and 18 March 2013, the plaintiff paid by cheques in favour of the defendant sums totalling HK$623,000, which included a commission of HK$23,000 to the defendant. 8.On 18 March 2013:
9.On 19 March 2013, the plaintiff, as borrower, entered into a (somewhat peculiar) tripartite agreement in Chinese entitled 委託貸款合同 (Agreement for the entrusting of a loan) with one 鍾想娣 (“Madam Zhong”) as the principal and Nanyue Bank as the agent (the “Tripartite Loan Agreement”), whereby it was agreed that Madam Zhong would entrust Nanyue Bank to lend the sum of RMB 1,180,410 to the plaintiff for a term of 60 months with interest at 9.6% per annum. The sum of RMB 1,180,410 was the equivalent of HK$1,470,000 at the time. 10.On 25 March 2013, on the defendant’s instructions, the plaintiff remitted the loan proceeds of RMB 1,180,410 to one 王娟 (“Madam Wang”) whom the plaintiff understood to be the defendant’s nominee. 11.On 24 April 2013, Elcentro increased its nominal share capital from 100 shares of HK$10 each (the “Original Shares”) to 200 shares of HK$10 each and allotted the 100 new shares (the “New Shares”) to Dragon Max Corporation Limited (“Dragon Max”), a company wholly-owned by the plaintiff. On the same day, Intell Finance and Mortgage Limited (“Intell Finance”), in its capacity as a corporate director of Elcentro, filed with the Companies Registry a Notification of Increase in Nominal Share Capital and Return of Allotments showing the increase in nominal capital and allotment. 12.I observe here that the increase in share capital and allotment of the New Shares to Dragon Max does not appear to have been provided for in, or contemplated by, the Sale and Purchase Agreement, which simply provided for the acquisition by the plaintiff of the entire shareholding of Elcentro from the defendant. I will return to the significance of this later. 13.Other than the allotment of the New Shares (which are no longer registered to Dragon Max—see below), neither the plaintiff nor Dragon Max ever received the Original Shares. The plaintiff claims, therefore, that notwithstanding the payment of the full purchase price to the defendant, he never received the transfer of the entire shareholding of Elcentro from the defendant as agreed in the Sale and Purchase Agreement. C. The defendant’s case 14.In its pleaded defence, the defendant contended, however, as follows. 15.In addition to the documents mentioned above, on 19 March 2013 the plaintiff executed the following additional documents:
I pause here to note that the Alleged Documents above have been discovered by the defendant and purports to bear the signatures of the relevant parties. Significantly, however, the plaintiff denies ever having executed any of these documents. 16.Pursuant to the terms of the Alleged Mortgage Agreement, the plaintiff agreed that 50% of the shares of Elcentro were to be held by Madam Zhong’s nominee, which Madam Zhong appointed to be Intell Finance for that purpose. Hence, Intell Finance held the Original Shares on behalf of Madam Zhong. 17.Pursuant to the Rental Agreements, the defendant leased the Permit to Mr Chen. However, in around June 2015, Mr Chen informed the defendant that his vehicle together with the Permit had been detained by his creditor in Shenzhen and therefore could not be returned to Hong Kong. Further, in or around August 2015, Mr Chen asked whether he could renew the lease of the Permit at a reduced rent. The plaintiff refused, demanded the immediate return of the Permit and stopped paying instalments under the Tripartite Loan Agreement after the last instalment on 20 October 2015. 18.As a result of the plaintiff’s default in the Tripartite Loan Agreement, Madam Zhong enforced her security by exercising the power ofsale under the Alleged Mortgage Agreement. From documents discovered by the defendant, it appears that:
D. Evidence and findings 19.The plaintiff filed two witness statements made by himself and gave evidence at the trial. The defendant filed witness statements from one 周世匡 (“Mr Chow”) and one 黃偉傑, both of whom were said to be employees of the defendant. Neither of the defendant’s witnesses appeared at the trial. 20.I observe in passing that from the contemporaneous documents before the court, there is likely to be more to the story than is advanced or admitted to by the plaintiff. For instance, the Loan Referral Agreement did refer to the loan to be obtained by the defendant as a “按揭貸款” [mortgage loan], although the plaintiff now denies ever having executed the Alleged Mortgage Agreement. That said, given that the plaintiff has denied executing any of the Alleged Documents, the burden is on the defendant to prove the same. Since the defendant has chosen not to appear at the trial or adduce any evidence without explanation, it has plainly failed to discharge that burden. It follows that the alleged effect and consequences of the Alleged Documents, insofar as they concern the plaintiff, must also be disregarded. 21.Moreover, whether or not the plaintiff has defaulted in repaying any instalments under the Tripartite Loan Agreement is irrelevant,as that agreement is solely between the plaintiff, Nanyue Bank and MadamZhong and does not impact upon the defendant’s obligations to the plaintiff. As far as the defendant is concerned, he has received payment in full under the Sale and Purchase Agreement. 22.I am therefore satisfied that the defendant has acted in breach of the Sale and Purchase Agreement in refusing and/or failing to transfer the entire shareholding of Elcentro to the plaintiff. E. Reliefs sought and specific performance 23.In his Re-Amended Statement of Claim, the plaintiff seeks, amongst other things, the following reliefs: (1) an order that the defendant shall transfer the plaintiff all the shares of Elcentro; (2) an order that the defendant shall return and deliver up the Permit “which belongs to” Elcentro to the plaintiff; (3) an order that the defendant shall return the related documents of the Permit; and (4) damages to be assessed, comprising the value of the shareholding of Elcentro and “loss of profit for renting out [the Permit] by the plaintiff when [the Permit] was not in use by the plaintiff”. 24.At the trial, I pointed out to Mr Ryan Law, counsel for the plaintiff, that the Permit belongs to Elcentro and not the plaintiff, and therefore, the plaintiff has no entitlement (at least on the plaintiff’s case as pleaded) to the delivery up of the Permit. By the same token, the plaintiff is not entitled to any damages for the loss of use of the Permit. Although the plaintiff personally entered into the Rental Agreements with the defendant, the defendant was expressly acting as Mr Chen’s agent in the agreements. In any event, no claim has been pleaded by the plaintiff for the breach of those agreements. 25.Mr Law then indicated to the court that the only relief he would be pursuing was for specific performance of the Sale and Purchase Agreement. In particular, he seeks the following orders:
26.It is well established that specific performance is a discretionary remedy. At the trial, I had some initial reservations as to whether specific performance would be appropriate given that the defendant is not a registered shareholder of Elcentro (indeed, it does not appear that it ever was a registered shareholder), and hence, there is likely to be difficulty enforcing any order of specific performance against the defendant. 27.Mr Law submitted, however, that:
28.Mr Law also cited to me a number of authorities to support the proposition that an order of specific performance can be made against a party who has it in his power to compel another person to convey the property in question: see eg Coles (Trustees of the Ward Green Working Mens Club) v Samuel Smith Old Brewery (Tadcaster) [2007] EWCA Civ 1461 (CA); Jones v Lipman [1962] 1 WLR 832. 29.Having considered Mr Law’s submissions, I agree that the plaintiff is entitled in principle to an order for specific performance. It is for the defendant to demonstrate any impossibility or hardship in complying in specifically performing the contract, which it has chosen not to do. 30.There is another potential hurdle, however. On the date of the of the Sale and Purchase Agreement (ie 7 January 2013), Elcentro only had a nominal share capital of 100 shares, all of which were registered to Intell Finance. As mentioned above, on 24 April 2013, some three monthsafter the Sale and Purchase Agreement, Elcentro increased its share capitaland allotted the New Shares to Dragon Max, which had not been providedfor or contemplated in the Sale and Purchase Agreement. The New Shareshave since been transferred from Dragon Max to Madam Chen and then to Madam Wang. On the plaintiff’s case, the transfer to Madam Chen must be null and void, if indeed, he never executed the Alleged Blank Transfer Documents. The question that arises is whether any order for specific performance should relate only to the Original Shares or would include the New Shares. 31.After some deliberation, I am satisfied that I should make an order for specific performance against the defendant for the transfer of the entire shareholding of Elcentro, that is, both the Original and the New Shares,for the following reasons:
F. Conclusion 32.In the circumstances, I give judgment to the plaintiff and make the orders sought by the plaintiff in paragraph 25 above. 33.There is no reason why costs should not follow the event. The plaintiff shall have the costs of the action, to be taxed if not agreed. 34.Last but not least, I thank Mr Law for his assistance.
Mr Ryan Law, instructed by Au Thong & Tsang, for the plaintiff The defendant was not represented and did not appear | |||||||||||||||||||||||||