Wong Yee Chuk v. Lo Po Wai, Harry and Others

HCMP 3363/2016, HCMP 3365/2016, HCMP 3366/2016 and
HCA 193/2018 (HEARD TOGETHER)
[2020] HKCFI 600

HCMP 3363/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANOUS PROCEEDINGS NO 3363 OF 2016

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANOUS PROCEEDINGS NO 3365 OF 2016

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANOUS PROCEEDINGS NO 3366 OF 2016

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 193 OF 2018

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Before: Hon Harris J in Chambers

Date of Written Submission by the 2^nd Respondent: 25 February 2020

Date of Written Submission by the Plaintiff: 25 February 2020

Date of Written Submission by the Petitioners: 27 February 2020

Date of Written Submission by the 1^st Respondent: 27 February 2020

Date of Decision: 16 April 2020

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D E C I S I O N

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The application

1.The 2^nd Respondent (“Pan”) has issued summonses in each of the above four proceedings seeking orders that the originating process and points of claim be struck out alternatively, the proceedings be stayed save for the purpose of giving effect to an agreement alleged to have been made to settle the proceedings on the following terms:

(i)  The Petitioner and Cheng Wai King Pat shall acquire the entire shares of Harsen Industries Limited and Harsen Engineering Limited for free in exchange for transferring the share under the name of the Petitioner in Harsen (China) Limited to the 1^st Respondent and 2^nd Respondent split in equal share free of any payment so that the same will be fully owned by the 1^st Respondent and 2^nd Respondent, pursuant to the settlement; and

(ii)  The Petitioner and Cheng Wai King Pat shall be fully responsible for all matters in Guangzhou Yibao Electric Equipment Co Ltd (廣州市宜保機電設備有限公司) and Dongguan Yanfan Electric Co (東莞市洋帆機電有限公司), Harsen International Ltd and Takada (China) Ltd, pursuant to the Settlement.

2.The applications were originally to be heard before me on 4 March 2020, but I directed with the agreement of the parties that the applications be dealt with in writing and that an e-bundle be prepared.  The e-bundle was not in compliance with my directions and there were also problems with the bundle of authorities.  I comment further on this at [26] at the end of this decision.  As a result I directed that paper bundles be filed.

Background

3.The three Petitions are all issued by Wong Yee Chuk and, in the case of HCMP 3365/2016 his Wife Cheng Wai King Pat, seeking orders pursuant to s725 of the Companies Ordinance, Cap 622, that his shares in the three relevant companies (with names all starting with “Harsen”) be bought by the other shareholders Lo Po Wai Harry and Pan Shi Liang.  The Harsen Group was established in mid-1997 by Mr Wong and Mr Lo when Harsen Industries Ltd was incorporated (the company in HCMP 3365/2016) to carry on business manufacturing and selling electrical products.

4.Mr Wong and his Wife own 50% of Harsen Industries and Mr Wong owns 40% of the other two companies, Harsen Engineering and Harsen China, with Mr Lo owning 40% of each company and Mr Pan owning the 20% of Harsen Engineering and Harsen China and 10% of Harsen Industries.  The relationship between the two camps began to break down in 2015 leading to issue of the Petitions in 2016.

5.The High Court Action is a derivative action brought by Hansen Industries at the instigation of Mr Lo and Mr Pan against Mr Wong seeking damages for establishing a competing business in breach of his fiduciary duties as a director and appropriating for his own use certain trademarks. The precise details of the claims in the respective proceedings do not matter.

6.On 17 December 2018 the parties conducted a mediation.  It was unsuccessful.  On 18 December 2018 Ernest Li & Co (solicitors for the Petitioners in the Miscellaneous Proceedings and the Defendant in the High Court Action) wrote to TKC Lawyers (solicitors for the 1^st Respondent in the three Miscellaneous Proceedings) and Fung Wong Ng & Lam (“Fung Wong”) (solicitors for the 2^nd Respondent in the Miscellaneous Proceedings and the Plaintiff in the High Court Action) with an offer of settlement.  It is necessary to quote largely in full the contents of the letter and the subsequent correspondence, which was exchanged between the three firms of solicitors (each firm receiving each letter).

“We refer to the mediation meeting on 17 December 2018. With a view to further exploring the room of reaching a full and final settlement of the captioned cases, we are instructed to say that our clients are prepared to set out the terms of offer in lieu of litigation so that the matter can be fully settled, particulars please see below:-

a. Our clients shall acquire the entire shares of Harsen Industries Ltd and Harsen Engineering Ltd for free in exchange for transferring the shares under the name of Mr Wong to your respective clients in Harsen China Ltd free of any payment so that the same will be fully owned by your clients respectively;

b. Our clients shall fully responsible for all matters in Guangzhou Yibao Electric Equipment Co Ltd (廣州市宜保機電設備有限公司) and Dongguan Yanfan Electric Co (東莞市洋帆機電有限公司), Harsen International Ltd and Takada (China) Ltd; and

c. Each party shall bear his/her own legal costs and disbursement.

We would like to hear from you in respect the aforesaid on or before 21 December 2018.”

7.On 21 December 2018 Fung Wong replied:

“We write further to our letter dated 19^th December 2018 and refer to your letter dated 18^th December 2018 marked ‘without prejudice’.

For the purpose to bring the above actions to an early end to save the Court’s time and parties’ costs, please be advised that your clients’ offer (i.e. terms a – c set out in your said letter dated 18^th December 2018) in lieu of litigation is accepted by our client.

In light of Harsen China Ltd (which holds the Mainland factory) will be transferred to our client and Mr. Lo after settlement, for avoidance of unnecessary doubt and for clarification purpose, kindly be advised that our client would look forward to take away only ‘Harsen’ trademark with other trademarks left with the other partners.

Please let us by return and at any event within the next 7 days the draft Summonses for the settlement for our consideration.

In the meantime, all rights of our client herein are expressly reserved.”

8.Ms Ip of Ernest Li then phoned Mr Tang of Fung Wong and,   Mr Tang says in [17] of his affirmation that the call was very brief, and Ms Ip told him (and I quote from [24] of his affirmation) “her client’s offer could only be accepted in terms a-c set out in the letter dated 18^th December 2018, which could be nothing more”.  Ms Ip has not filed any evidence to dispute what Mr Tang says.  As a consequence of this conversation Mr Tang wrote the 2^nd letter Fung Wong sent on 21 December 2018:

“We refer to our letter of even date and the tele-conversation immediately thereafter between your Ms. Ip and our Mr. Tang.

Please be confirmed that:-

For the purpose to bring the above actions to an early end to save the Court’s time and parties’ costs, please be advised that your clients’ offer (i.e. terms a – c set out in your said letter dated 18^th December 2018) in lieu of litigation is accepted by our client.

We further agree and confirm that your clients’ offer (i.e. only terms a – c set out in your said letter dated 18^th December 2018) which are no less and no more are the only terms agreed by the parties for prompt settlement so to bring the above actions to the end without hiccups.

Kindly let us by return and at any event within the next 7 days the draft Summonses for the settlement for our consideration.

In the meantime, all rights of our client herein are expressly reserved.”

9.A 3^rd letter from Fung Wong followed:

“We refer to the above matters AND our 2^nd letter of even date and the letter also of even date from Messrs. TKC Lawyers both unequivocally accepting your settlement offer exactly in the terms set out in your letter dated 18 December 2018, which will be no more and no less.

In light of consensual agreement from all parties in the terms proposed by your clients, for the purpose to save the court’s time and parties’ further unnecessary costs, please do let us have by return and at any event within the next 7 days the draft consent summons reflecting the said terms of settlement agreed by the parties for the parties’ perusal and agreement so to bring the above actions to the end and have the matters herein fully settled.

In the meantime, all rights of our client herein are expressly reserved.”

10.TKC Lawyers also wrote to Ernest Li on 21 December 2018:

“We refer to your letter of 18^th December 2018 (the ‘Letter’)

We are instructed to inform you that your clients’ offer as said out the Letter is acceptable to our client.

Please let us have the draft consent summons reflecting the terms of the settlement for our perusal.

Meanwhile, all our client’s rights and remedies are hereby reserved.”

11.Ernest Li did not immediately prepare summonses to bring the proceedings to a conclusion. Fung Wong wrote on 27 December 2018 enclosing a consent order for HCMP 3363/2016:

“We refer to the above matters, your letter dated 18^th December 2018, the letter dated 21^st December 2018 of TKC Lawyers and our three letters all dated 21^st December 2018.

Although the Mediation on 17^th December 2018 failed, the parties have thereafter reached settlement agreement that your client’s offer as set out in your letter dated 18^th December 2018 is accepted by our client by our three letters all dated 21^st December 2018 and Mr. Lo by the letter dated 21^st December of TKC Lawyers.

In the circumstances, we enclose our draft Consent Order for HCMP 3363/2016 for the parties’ consideration and comment. If this draft Consent Order is agreeable to the parties, we will adopt the terms thereof to the other actions with necessary amendments.

Please let us have your reply by return and at any event within the next 7 days for our further handling.”

“CONSENT ORDER

…

BY CONSENT, IT IS ORDERED that:-

1. All further proceedings herein be stayed upon the terms set out in the Schedule annexed hereto except for the purpose of carrying such terms into effect;

2. For the said purpose the Petitioner, the 1^st Respondent and the 2^nd Respondent have liberty to apply; and

3.   There be no order to costs of this action and costs of this application.”

“SCHEDULE

1. WONG YEE CHUK (黃宜祝) and CHENG WAI KING, PAT (鄭偉琼) or their nominee(s) shall acquire all the One Hundred (100) shares standing in the names of LO PO WAI, HARRY (羅保偉) and PAN SHI LIANG (潘世良) respectively in the Register of HARSEN INDUSTRIES LIMITED (凱訊實業有限公司) and all the Sixty Thousand (60,000) shares standing in the names of LO PO WAI, HARRY (羅保偉) and PAN SHI LIANG (潘世良) respectively in the Register of HARSEN ENGINEERING LIMITED (凱訊機電有限公司) for free in exchange for transferring the all the Eighty Thousand (80,000) shares standing in the name of WONG YEE CHUK (黃宜祝) in the Register of HARSEN (CHINA) LIMITED (凱訊(中國) 有限公司) to LO PO WAI, HARRY (羅保偉) or his nominee(s) and PAN SHI LIANG (潘世良) or his nominee(s) respectively free of any payment so that HARSEN (CHINA) LIMITED (凱訊(中國)有限公司) will be fully owned by LO PO WAI, HARRY (羅保偉) and PAN SHI LIANG (潘世良) respectively;

2.   WONG YEE CHUK (黃宜祝) and CHENG WAI KING, PAT (鄭偉琼) shall fully responsible for all matters in Guangzhou Yibao Electric Equipment Co. Ltd. (廣州市宜保機電設備有限公司)and Dongguan Yanfan Electric Co. (東莞市洋帆機電有限公司), Harsen International Ltd and Takada (China) Ltd.”

12.On 8 January 2019 Ernest Li wrote sending an alternative form of consent summonses:

“We refer to the letter from Messrs. Fung, Wong, Ng & Lam dated 21^st December 2018 and the letter from TCK Lawyers dated 21^st December 2018.

We enclose the draft consent orders with a view to reaching a full and final settlements of the captioned proceedings, we would like to say that the terms of the said drafts are also covering matters arising from the legal actions other than in Hong Kong i.e. the legal proceedings in the Mainland China, property in Guangzhou, the stocks remained in the warehouse of NHEL bearing the trademarks of Harsen etc. as instructed.

We are instructed that it is in the interest of all parties that a global settlement can be reached so that there will not be any conflict or dispute or further matter concerning or arising from HIL, HEL and HCL wither their Mainland Sales Companies (‘Harsen Group’), if no consensus being reached for 4 cases, any out of court settlement is meaningless, the captioned proceedings have to be continued.

We are instructed to reserve our client’s right hereunder and nothing herein shall bind and intended to be bounded our client unless and until all the 4 consent orders were signed by the relevant parties.

We would like to hear from you on or before 20^th January 2019.”

“CONSENT ORDER

…

BY CONSENT, IT IS ORDERED THAT:

1. All further proceedings be stayed upon the terms set out in the schedule to this Order, except for the purpose of carrying those terms into effect;

2. There be no Order to costs of this proceedings and the costs of this application;

3. The Hearing of Case Management Conference on 28^th March 2019 at 9:30am before Honourable Mr Justice Harris be vacated; and

4.   Liberties to apply to carry the term of this consent order by the parties.”

13.The schedules to the Tomlin Orders varied for each proceeding:

(1)  HCMP 3363/2016:

“Following a mediation taking place, the Parties have agreed the following settlement terms upon the Consent Order in the HCMP 3365/2016 and HCMP 3366/2016 and HCA 193/2018 be signed simultaneously by the relevant parties:

1. The 1^st and 2^nd Respondents will respectively transfer the shareholding respectively registered under the name of the 1^st and 2^nd Respondents in the Harsen Engineering Ltd. (‘Company’) free of payment to the Petitioner solely upon signing of this Order and the solicitors for the Petitioner shall prepare the instrument of transfer and bought and sold note for the said transfer;

2. At the time of execution of the relevant instrument of transfer and bought and sold note as mentioned aforesaid, the 1^st Respondent shall at the same time execute the audited account of the Company for the year end on 31 December 2015 with the relevant papers for preparing the said audited account as provided by K. M. Lee and Co. (‘auditor’) so that the audited account for the year end on 31 December 2016, 2017 and 2018 can be done without further delay and to ensure the stamp duty of the said transfer can be done as soon as possible;

3. Any current account maintained in the books and ledgers of the Company owed to the 1^st and 2^nd Respondents shall be written off by the 1^st and 2^nd Respondents upon execution of the aforesaid documents;

4. The 1^st and 2^nd Respondents shall indemnify and keep indemnified the Company for the penalty imposed by the Inland Revenue Department (‘IRD’) in respect of the Company’s failure to file the audited account of the Company for the year end on 31 December 2015 and the years subsequently thereafter on time;

5. The 1^st Respondent shall pay the Company in the sum of HK$5,500.00 by the 1^st Respondent being the late charge imposed by the IRD and penalty under the summons of WKS 14537 of 2017;

6. The 1^st and 2^nd Respondents shall resign as the director of the Company upon signing this consent order;

7. Upon 14 days of signing this consent order, the 1^st Respondent shall accompany with the Petitioner to Bank of China Ltd. to amend the authorised signatories of the aforesaid account to the intent that these accounts shall be operated by the Petitioner only;

8. The 1^st and the 2^nd Respondents severally and jointly waive and abandon any claim, bonus demand, loss and damages or employee benefit in respect of any matter in relation to the Company in the past and in the future;

9. Parties agree not to disclose the fact or terms of this settlement to any third party other than their spouses, their professional legal advisors, auditors, insurers or accountants, or where the written consent of all the other Parties have been obtained (such consent not to be unreasonably withheld).  Nothing in this clause will apply where such disclosure is required by law, or is required to enforce this Tomlin Order.”

(2)  HCMP 3365/2016:

“Following a mediation taking place, the Parties have agreed the following settlement terms upon the Consent Order in the HCMP 3363/2016 and HCMP 3366/2016 and HCA 193/2018 be signed simultaneously by the relevant parties:

1. The 1^st and 2^nd Respondents will respectively transfer the shareholding respectively registered under the name of the 1^st and 2^nd Respondents in the Harsen Industries Ltd. (‘Company’) free of payment to the 1^st Petitioner and 2^nd Petitioner for 80 shares to the 1^st Petitioner and 20 shares to the 2^nd Petitioner upon signing of this Order and the solicitors for the Petitioners shall prepare the instrument of transfer and bought and sold note for the said transfer;

2. At the time of execution of the relevant instrument of transfer and bought and sold note, the 1^st Respondent shall at the same time execute the audited account of the Company for the year end 31^st December 2015 with the relevant papers for preparing the audited account as provided by K. M. Lee and Co. (‘auditor’);

3. Any current account maintained in the books and ledger of the Company as at the 31^st day of December 2015 owed to the 1^st Respondent by the Company shall be written off by the 1^st Respondent upon execution of the aforesaid documents;

4. The 1^st Respondent shall sign the papers for the purpose of preparing the audited accounts of the Company at the time of signing the audited accounts for the year end on 31^st of December 2015 and from 1^st January 2016 to 31^st December 2017 issued by the auditor of the Company so to ensure the stamp duty of the said transfer can be done as soon as possible;

5. The 1^st and 2^nd Respondents and their related parties as well as the Petitioners respectively shall withdraw the legal proceedings brought by the parties in the Mainland China namely (1) 广东省广州市中级人民法院民事判决书(2018)粵01民終17815号), (2) 广东省广州市海珠区人民法院民事判决书(2018)粵0105民初2641号, (3) 广东省广州市中级人民法院民事判决书(2018)粵01民終17816号), (4) 广东省广州市海珠区人民法院民事判决书(2018)粵0105民初2642号, (5) 广东省广州市海珠区人民法院 (2018)粵0105执9307号, (6) 广东省广州市中级人民法院民事判决书(2018)粵01民終17357号), (7) 广东省广州市海珠区人民法院民事判决书(2017)粵0105民初7225号, (8) 佛山市南海區人民法院(2017)粵0605民初14732号, (9) 佛山市中级人民法院(2018)粵06民終9508号, (10) 佛山市南海區人民法院(2017)粵0605民初17014号, (11) 佛山市中级人民法院(2018)粵06 民終9497号, (12) 佛山市南海區人民法院(2018)粵06 民終9493号 and (13) 佛山市中级人民法院(2018)粵06 民終9493号within 14 days from the date of signing the consent order herein and to provide the Petitioners documents evidencing such withdrawal forthwith upon receiving such documents;

6. The Respondents and the Petitioners shall procure the Company and Foshan Nanhai Harsen Electric Co. Ltd. (‘NHEL’) to write off the account receivables respectively due to NHEL by HIL and Mainland Sales Companies namely Dongguan Yangfan Electric Co. (東莞市洋帆機電有限公司)and Guangzhou Yibao Electrical Equipment Co. Ltd. (廣州市宜保機電設備有限公司)and Guangzhou Yibao Electrical Equipment Co. Ltd. — Shanghai Branch (廣州市宜保機電設備有限公司—上海分公司) upon signing of this consent order. The actual amount shall be the figure entered into the audited account of HIL as at the end on 31^st of December 2015 for the Company prepared by K. M. Lee and Co and for Guangzhou Yibao Electrical Equipment Co. Ltd. (廣州市宜保機電設備有限公司)and Guangzhou Yibao Electrical Equipment Co. Ltd. — Shanghai Branch (廣州市宜保機電設備有限公司—上海分公司) shall be audited account of Guangzhou Yibao Electrical Equipment Co. Ltd. as at the end of 31 December 2015 and the years subsequent thereafter.

7. The 1^st and 2^nd Respondents shall indemnify and keep the Company indemnified for the late charge and penalty imposed by the Inland Revenue Department (‘IRD’) in respect of the Company’s failure to file the audited account of the Company for the year end on 31 December 2015 and the years subsequently thereafter on time and pay the Company in the sum of HK$666,463.00 by the 1^st Respondent and 2^nd Respondent for the sum of HK$333,231.50 being penalty purposed by IRD and penalty under the summons of WKS 14537 of 2017 upon signing of this Consent Order;

8. The 1^st Respondent shall resign as the director of the Company upon signing this consent order;

9. Upon 14 days of signing this consent order, the 1^st Respondent shall accompany with the Petitioners to Citibank, China Citic, Bank of East Asia Ltd, Bank of Communications Ltd. and Bank of China Ltd. to amend the authorised signatories of the aforesaid account to the intent that these accounts shall be operated by the 1^st Petitioner only;

10. The 1^st Respondent shall waive the right of claiming the sum of HK$241,680.00 being the alleged sum owed to 1^st Respondent by the Company in the purchase of vehicle bearing registration no. A252B2 and any other claim, damages and right arising from the said vehicle;

11. The 1^st Respondent shall reimburse the sum of HK$313,900.00 to the Company being the consideration for the sale of 55 shares of Smooth Investment Co. Ltd. by the 1^st Respondent registered under the name of the 1^st Respondent on trust for the Company upon signing this consent order;

12. The 1^st and 2^nd Respondents shall pay to the 1^st Petitioner in the sum of HK$2.2 million representing the contribution by the 1^st and 2^nd Respondents for the purchase of property situate at 廣州市海珠區南華東路草芳圍2號B棟3層09, 10, 11 房 (‘Guangzhou Units’) i.e. 40% of the purchase price of the said Guangzhou Units forthwith at the same of signing this consent order and the 1^st Petitioner upon receiving aforesaid money shall fully abandon and waive his right, interest and benefit of and in the Guangzhou Units;

13. The 1^st and 2^nd Respondents severally and jointly waive and abandon any claim, bonus demand, loss and damages or employee benefit in respect of any matter in relation to the Company in the past and in the future;

14. The 1^st and 2^nd Respondents shall allow the Petitioners to take possession of the stock and products kept in the warehouse of NHEL as per the copy of the list herein free of payment within 14 days from the date of the signing this consent order;

15. Parties agree not to disclose the fact or terms of this settlement to any third party other than their spouses, their professional legal advisors, auditors, insurers or accountants, or where the written consent of all the other Parties have been obtained (such consent not to be unreasonably withheld).  Nothing in this clause will apply where such disclosure is required by law, or is required to enforce this Tomlin Order.”

(3)  HCMP 3366/2016:

“Following a mediation taking place, the Parties have agreed the following settlement terms upon the Consent Order in the HCMP 3363/2016 and HCMP 3365/2016 and HCA 193/2018 be signed simultaneously by the relevant parties:

1. Upon all legal proceedings in the Mainland China in respect of the Petitioner, Mainland Sales Companies NHEL and related parties of the 1^st and 2^nd Respondents have been completely withdrawn by the relevant parties, namely (1) 广东省广州市中级人民法院民事判决书(2018)粵01民終17815号), (2) 广东省广州市海珠区人民法院民事判决书(2018)粵0105民初2641号, (3) 广东省广州市中级人民法院民事判决书(2018)粵01民終17816号), (4) 广东省广州市海珠区人民法院民事判决书(2018)粵0105民初2642号, (5) 广东省广州市海珠区人民法院(2018)粵0105执9307号, (6) 广东省广州市中级人民法院民事判决书(2018)粵01民終17357号), (7) 广东省广州市海珠区人民法院民事判决书(2017)粵0105民初7225号, (8) 佛山市南海區人民法院(2017)粵0605民初14732号, (9) 佛山市中级人民法院(2018)粵06民終9508号, (10) 佛山市南海區人民法院(2017)粵0605民初17014号, (11) 佛山市中级人民法院(2018)粵06 民終9497号, (12) 佛山市南海區人民法院(2018)粵06 民終9493号 and (13) 佛山市中级人民法院(2018)粵06 民終9493号the Petitioner, will within 14 days from the date of the confirmation from the Respondents that the aforesaid legal proceedings have been completely withdrawn, transfer the shareholding registered under the name of the Petitioner in the Harsen (China) Ltd. (‘Company’) free of payment to the 1^st Respondent for 53,333 shares and the 2^nd Respondent for 26,667 shares by the Petitioner respectively upon signing this consent order and the solicitors for the Petitioner shall prepare the instrument of transfer and bought and sold note for the said transfer;

2. The 1^st and 2^nd Respondents shall indemnify and keep the Petitioner indemnified against the claim, demand, tax, levy, charges and penalty imposed by the tax authority in the Mainland China tax authority in respect of the taxation matter of the Company’s Mainland wholly owned subsidiary registered under the name of Foshan Nanhai Harsen Electric Co. Ltd. (‘NHEL’) since 1 January 2015;

3. The Petitioner shall resign as the director of HCL upon signing this consent order at the same time of signing the aforesaid instrument of transfer and bought and sold note;

4. The Petitioner shall resign as the legal representative and director of Foshan Nanhai Harsen Electric Co. Ltd. (‘NHEL’) at the same time of signing the aforesaid instrument of transfer and bought and sold note and the chop of the legal representative of NHEL will be cancelled forthwith;

5. The Petitioner and the 1^st and 2^nd Respondents shall respectively consent to procure NHEL to write off the outstanding amount owed to NEHL by HIL recorded in the audited account of HIL as at the year end on 31 December 2015 and the years subsequent thereafter;

6. The Petitioners shall resign as the authorised signatories of bank account of NHEL maintained with Agricultural Bank of China (‘ABC’) in the Mainland China within 14 days from the date of signing this consent order;

7. Apart from the taxation matter, the 1^st and 2^nd Respondents shall jointly and severally indemnify and keep the Petitioner indemnified against all losses and damages, liabilities and claim for all matters arising from NHEL since the 1 January 2015 including but not limited to the employee compensation, outgoings, business, operation, customs, insurance and books and records of NHEL;

8. Upon 14 days of signing aforesaid the instrument of transfer and bought and sold note, the 1^st Respondent shall accompany with the Petitioner to Bank of China Ltd. to amend the authorised signatories of the aforesaid account to the intent that these accounts shall be operated by 1^st Respondent only;

9. The 1^st and 2^nd Respondents shall be precluded or debarred from bring any action against any of the Mainland Sales Companies, namely Dongguan Yangfan Electric Co. (東莞市洋帆機電有限公司)and Guangzhou Yibao Electrical Equipment Co. Ltd. (廣州市宜保機電設備有限公司)and Guangzhou Yibao Electrical Equipment Co. Ltd. — Shanghai Branch (廣州市宜保機電設備有限公司—上海分公司) whatsoever in regard to their operation, business or transactions, record or books, tax issue and the dealing in the past and in the future;

10. The 1^st and 2^nd Respondents shall allow the Petitioner to take possession of the stock and products kept in the warehouse of NHEL as per the copy of the list herein free of payment within 14 days from the date of the signing this consent order;

11. Parties agree not to disclose the fact or terms of this settlement to any third party other than their spouses, their professional legal advisors, auditors, insurers or accountants, or where the written consent of all the other Parties have been obtained (such consent not to be unreasonably withheld).  Nothing in this clause will apply where such disclosure is required by law, or is required to enforce this Tomlin Order.”

14.On 8 January 2019 Fung Wong wrote to Ernest Li:

“We refer to our 2^nd letter dated 21^st December 2018 and your letter of even date purportedly marked ‘Without Prejudice save as to Costs’.

We will take instruction thereon from our client and revert soonest.

In the meantime, we observe that:-

(i) Our Mr. Tang was told in the tele-conversation initiated by your Madam Ip immediately after receiving our 1^st letter dated 21^st December 2018 that your client’s offer could ONLY be accepted in terms a – c set out in your said letter 18^th December 2018, which could be nothing more;

(ii) We immediately clarified and confirmed our stance by our said 2^nd letter dated 21^st December 2018 (which is an open letter) that:-

Please be confirmed that:-

For the purpose to bring the above actions to an early end to save the Court’s time and parties’ costs, please be advised that your clients’ 2018 in lieu of litigation is accepted by our client.

(iii) However, we notice some terms which are not necessary and ancillary to the implementation of terms a – c set out in your said letter 18^th December 2018 slipped into your Schedules to Tomlin Orders

In the meantime, all rights of our client herein are expressly reserved including but not limited to applying to court for necessary directions and/or hearings at the expenses of your clients.”

15.TKC Lawyers wrote to similar effect on 11 January 2019.

The Disagreement

16.Mr Wong in his affirmation in opposition describes Ernest Li’s letter of 18 December 2018 as preliminary terms and an invitation to explore further a settlement.  Mr Wong proceeds to argue that Ernest Li’s letter was brief, vague and plainly incomplete and it must have been obvious that various matters remained to be agreed.  He says in [38.1] to [38.6] of his affirmation:

“38.1 Further negotiation and agreement between Lo, Pan and I as to the precise proportions in which they would hold HCL post-Transfer, given that they hold different shareholdings in the three Harsen Group companies;

38.2 The signing of the audited accounts of the Harsen Group companies, which Lo had been hitherto unwilling to sign, so as to ensure that the instruments of the Transfer can be duly stamped, without which such instruments would remain inadmissible under section 15 of the Stamp Duty Ordinance (Cap. 117);

38.3 Resignation and/or change in directorship of the three Harsen Group companies;

38.4 Amendment of the bank signatories of the three Harsen Group companies;

38.5 Dealing with intra-group liabilities, including but not limited to the possibility of writing-off and/or waiving the account receivables due to NHEL by HIL and/or Mainland Sales Companies, and possession of the stock and products kept in NHEL’s warehouse, as well as liabilities as between the parties; and

38.6     Dealing with the late charges and penalties imposed by the Inland Revenue Department and/or foreign tax authorities, including but not limited to the possibility of indemnification by directors or former directors.”

17.Self-evidently the offer set out in Ernest Li’s letter of 18 December 2018 did not suggest that Mr Wong proposed that the major component of the dispute be settled on the basis proposed in the letter and that if they were agreed the remaining items of the sort described by Mr Wong could then be addressed with a view to a full and final settlement of all four proceedings.  It necessarily follows from Mr Wong’s own evidence (and assuming that it accurately summarises what he assumed on 18 December 2018) that the letter should have been couched in the kind of terms I have used in the previous sentence.  It seems to me that the issue is whether or not Fung Wong and TKC Lawyers must have appreciated that there would be some other matters that would need to be agreed before the entirety of the dispute could be resolved.

18.As I have already noted in [8] no evidence has been filed by Ms Ip.  The evidence filed by the Applicants tell me nothing material about the progress of the mediation (by which I intend no criticism) and other than for the evidence referred to in [8] & [17] of these reasons, does little more than exhibit correspondence and, indeed, it is the Applicant’s case that the correspondence contains a binding settlement agreement.  They do not rely on terms said to have been agreed orally.

19.Mr Wong has filed a lengthy affirmation intended to demonstrate that the correspondence did not give rise to a concluded settlement agreement.  He explains the background to the Hong Kong proceedings and also that there is a series of associated proceedings in the Mainland.  He explains that on 17 December 2018 a mediation took place “with a view to settling the Actions amicably”[1].  “Actions” are defined in [3.2] of Mr Wong’s affirmation to include all proceedings including the HCMP actions and the High Court Action.  On a fair reading of [3] and [28]–[30] of his affirmation, Mr Wong does not suggest that the mediation was to discuss settlement of the Mainland proceedings and it is unclear from his evidence what discussions, if any, had taken place concerning them.  This is an illustration, albeit a minor one, of the unsatisfactory nature of his evidence as I assume, reading the affirmation as a whole, that it probably was discussed and Mr Wong probably intended to resolve that dispute as well; and as can be seen in [13(2)] above the schedule to the consent summons for HCMP 3365/2016 provides for this.

20.Accepting, as I do, that Mr Wong probably did not understand Ernest Li’s letter to contain all the matters that would need to be agreed in order to settle his disputes with Mr Lo and Mr Pan, it is quite obvious that Ms Ip did not draft the letter of 18 December 2018 properly.  The letter should have made it clear that it was an attempt to agree the major terms and that if that were successful the Parties could then deal with the other matters, which are recorded in the schedule to the draft Consent Order Ernest Li sent to Fung Wong and TKC Lawyers on 8 January 2019, which are referred to in [13] above.  Mr Wong’s affirmation, which as it has Ms Ip’s reference on it.  I assume was drafted by her, reads like an attempt, a disingenuous one, on Ms Ip’s part to excuse her mistake.  It would have been better if Mr Wong has been advised, and the affirmation reflected the advice, that the letter of 18 December 2018 was unsatisfactory, but that it must have been clear to Fung Wong and TKC Lawyers given the extent of the disputes between the Parties that the terms of the letter were not comprehensive and that by simply replying “our client accepts your offer” they would not create a binding agreement that would bring the four sets of proceedings to an end.

21.Reading between the lines of the correspondence between the Parties, it seems to me that Mr Tang at Fung Wong, probably guessing that Ms Ip had made a mistake, was keen to move things along quickly hoping to leverage the mistake to secure a settlement of the proceedings on terms that were more attractive than expected.  It seems to me that an experienced litigation lawyer would have appreciated that given the breadth of the disputes between the parties it was unlikely the contents of the 18 December was intended to be all that had to be agreed before the four proceedings could be concluded.

22.In Raymond Bieber v Teathers Limited [2] HH Pelling QC sitting as an additional judge in the Chancery Division provides a convenient summary of the relevant principles in [14]:

“i) Whether the parties have reached a concluded agreement is to be determined objectively by considering the whole course of the parties’ negotiations. Once the parties have to all outward appearances agreed in the same terms concerning the same subject matter, a contract will have been formed and that is so even though it is understood that a formal agreement will be entered into that records or even adds to the terms agreed. However, where it is understood that a formal agreement will be entered into, whether the parties intended to be bound immediately or only when a formal agreement has been executed depends on an objective appraisal of their words and conduct—see Air Studios (Lyndhurst) Limited v. Lombard North Central Plc [2012] EWHC 3162 (QB) [2013] 1 Lloyds Rep. 63 per Males J at [5] following RTS Ltd v. Molkerei Alois Muller GmbH & Co AG [2010] UKSC 14 [2010] 1 WLR 753 per Lord Clarke at [45] and Pagnan SpA v. Feed Products Limited [1987] 2 Lloyds Rep 601 per Lloyd LJ at 619;

ii) Generally the subjective state of mind of a party to negotiations and thus any subjective reservations that have not been communicated to the other party to an alleged agreement are irrelevant and evidence of their existence is inadmissible—see RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [45]. This is so because subjective reservations do not prevent the formation of a binding contract—see Air Studios (Lyndhurst) Limited v. Lombard North Central Plc (ante) per Males J at [5]. At most subjective belief may be relevant and thus is admissible to demonstrate that objectively a particular term has been agreed where the consensus depends on oral exchanges or conduct—see Carmichael v. National Power Plc [1999] 1 WLR 2041 cited by Lord Hoffmann in Chartbrook Limited v. Persimmon Homes limited [2009] UKHL 38 [2009] 1 AC 1101 at [64]–[65];

iii) If, on an objective appraisal of the parties’ words and conduct, the parties intended to conclude a legally binding agreement, the fact that certain terms of economic or other significance had not been agreed does not prevent it being concluded that the parties had concluded a binding agreement. The only requirement is that the parties shall have agreed all the terms necessary for there to be an enforceable contract—see Pagnan SpA v. Feed Products Limited (ante) per Lloyd LJ at 619 (proposition 6) and RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [45]. In the context of settlement agreements, this may mean that the failure to agree terms concerning confidentiality and other allied matters will not prevent a court from concluding that the parties have objectively entered into a binding settlement agreement—see by way of illustrative example AB v. CD Limited [2013] EWHC 1376 (TCC) per Edwards-Stuart J at [31];

iv) Where the parties wish to ensure that a contract otherwise capable of being made orally is only made in a formal document the parties may ensure that is so by expressly stipulating that their negotiations will take place ‘subject to contract’. Where there is such a stipulation then there is no binding agreement until a formal written agreement has been duly executed—see Winn v. Bull (1877) 7 Ch.D 29 per Sir George Jessel MR at 32;

v) It is not essential that there be an express stipulation that the negotiations are to be conducted ‘subject to contract’ if that was nevertheless the mutual understanding of the parties—see Winn v. Bull (ante) per Sir George Jessel MR at 32, Whitehead Mann Ltd v. Cheverny Consulting Ltd [2006] EWCA Civ 1303 [2007] 1 All E.R. (Comm.) 124 per Sir Andrew Morritt C at [42], RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [46] to [49] and Investec Bank (UK) Limited v.Zulman [2010] EWCA Civ 561 per Longmore LJ at [17];

vi) Whilst negotiations being conducted ‘subject to contract’ are most commonly encountered in transactions concerning land, the rule is capable of applying to any contractual negotiation—see RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [48];

vii) Whether there was a mutual understanding that negotiations would proceed on a ‘subject to contract’ basis is a question of fact in each case: ‘… where as here, solicitors are involved on both sides, formal written agreements are to be produced and arrangements made for their execution the normal inference will be that the parties are not bound unless and until both of them sign the agreement. In a sense this case is an a fortiori case in that on any view there are at least three agreements to be executed and the respective parties are not the same’

—see Whitehead Mann Ltd v. Cheverny Consulting Ltd (ante) per Sir Andrew Morritt C at 45; but

viii)     Even if the parties have initially agreed to proceed ‘subject to contract’ it is open to them subsequently to agree either expressly or by necessary implication to remove that qualification or waive that stipulation—see the authorities noted at footnote 582 in Chitty On Contracts, 31^st Ed., Vol.1     Para.2−121; however, whether the parties have so agreed is a question of fact that needs to be approached with care since the Court should ‘…not impose contracts on the parties which they have not reached…’—see RTS Ltd v. Molkerei Alois Muller GmbH & Co AG (ante) per Lord Clarke at [55].”

23.In my view considering the whole course of the Parties’ negotiations they had not reached a concluded agreement to settle the four sets of proceedings when Fung Wong and TKC Lawyers replied to Ernest Li’s letter of 18 December 2018.  It seems to me clear that it would have been appreciated by an objective, fair minded solicitor advising both Mr Lo and Mr Pan that it was likely that Ernest Li and their client intended that having agreed the major terms set out in Ernest Li’s letter of 18 December 2018 that the Parties proceed to deal with the mechanics of transferring control of the Companies and ending mutual business dealings including ending the Mainland proceedings.

24.I, therefore, will dismiss the summons in each Action and make a costs order nisi that the Applicants pay the costs of the applications with a certificate for counsel, save that the costs of Mr Wong’s affirmation be disallowed to reflect what I consider to be the disingenuous way it has been framed.  I would not expect Ernest Li to charge for its preparation.

25.I would express the hope that having progressed a substantial way towards resolving their differences the Parties can conclude the process rather than waste money on further legal proceedings.

E-bundles

26.The use of e-bundles has a number of potential advantages.  It reduces consumption of paper and the quantity of files the court has to store.  They are readily portable and if they are prepared properly they are easy to work with as bookmarks and hyperlinks allow documents to be located quickly.  If they are not properly prepared they become frustratingly difficult to work with very quickly.  In the present case either no effort to comply with the detailed directions for their preparation was made or those preparing the e-bundles were incompetent and incapable of doing so.  Elementary mistakes included the pdf files not having the same page numbering as the paper bundles, which contained the references used by counsel in their submissions.  Even the file numbers did not coincide accurately.  Nothing was bookmarked and unsurprisingly nothing was hyperlinked.  Counsel were not much better as the index to the bundles of authorities did not contain bookmarks making finding authorities difficult.  Not only must lawyers comply with the directions that are made they must use the bundles themselves to ensure that they understand how they work in order to ensure that they are user friendly.  Solicitors and counsel need to bear in mind that when directed to use e-bundles separate pdf files need to be prepared for various different types of documents.  As one is not preparing physical files it does not matter if some of the pdf files are short.  What is important is that they are easy to work with.  For example, preparing one pdf file containing all the pleadings, summons orders and affirmations without any regard to how the file is to be used is not helpful.  The reader may want to have open both the petition and the affirmations at the same time.

27.One might have thought by now that most lawyers were capable of preparing e-bundles and would probably themselves find them convenient and have mastered the best way of compiling them, although given the standard of preparation of many paper bundles it is perhaps not surprising that this is not yet proving to be the case.

Mr Jason Yu and Ms Tinny Chan, instructed by Ernest Li & Co,  for the petitioners (in HCMP 3363, 3365, 3366/2016) and the defendant  (in HCA 193/2018)

Mr Edward Lun, instructed by TKC Lawyers, for the 1^st respondent  (in HCMP 3363, 3365, 3366/2016)

Mr Kaiser Leung, instructed by Fung Wong Ng & Lam LLP Solicitors,  for the 2^nd respondent (in HCMP 3363, 3365, 3366/2016) and the plaintiff (in HCA 193/2018)