Lam Lai Hung and Another v. Wang Chien Wei

DCCJ 4751/2019

[2020] HKDC 1034

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4751 OF 2019

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REASONS FOR DECISION

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1.This is an application for summary judgment.

2.At the end of the hearing, I have already given the order for judgment on liability be entered with damages to be assessed, and that the costs of and occasioned by the application (including the costs of the action to date) be to the 1^st and 2^nd plaintiffs agreed at HK$131,698.00 to be paid forthwith.

3.I will now provide the reasons for the decision.

Background

4.In summary, the 1^st and 2^nd plaintiffs and the defendant are three of the four shareholders of a company.

5.Two agreements are relevant in this case.

6.The Shareholder’s Agreement (“SHA”) dated 6 April 2017 and signed by all 4 shareholders, stated under clause 5 that (as I translate): “liability for debt: liability of partnership company should first be repaid by partnership company assets, if partnership company assets are insufficient for repayment, then the liability of debt should be paid in accordance with the proportion of shares.”

7.The 1^st and 2^nd plaintiffs wanted to quit the company and on 26 February 2018, a Shares Purchase Agreement (“SPA”) was signed by all 4 shareholders. By clauses 1 and 2 of the SPA, the defendant agreed to purchase all the shares of the 1^st and 2^nd plaintiffs at HK$2.75M and HK$1.65M respectively, according to a schedule for the first payments by 15 March 2018 and the final payments by 10 April 2018 to each plaintiff (clauses 3 to 6).

8.Clause 7 of the SPA stated that (as I translate): “3 working days after party C (the defendant) fully paid all share transfer sums to party A (1^st plaintiff) and party B (2^nd plaintiff), parties A, B and C shall attend the office of auditor Lee Chun Hung instructed to arrange for shares transfer procedure…”

9.Clause 11 stated (as I translate): “Parties A, B, C and D (the fourth shareholder) confirm that, once the sale and purchase transaction is competed in accordance with Clause 7 above, the SHA shall cease.”

10.Clause 12 stated (as I translate): “Time shall be of the essence.”

11.It is not in dispute that the defendant only paid the first payments to the 1^st and 2^nd plaintiffs but failed to pay the final payments in accordance with the terms of the SPA (paragraphs 9 and 10 of the Defence).

Legal principle

12.The legal principle is trite: it is for the defendant to show that there is an arguable defence or triable issue. The mere assertion in an affidavit may not be enough: the defendant must satisfy the court that the evidence is capable of being believed and on such basis, there is a fair or reasonable probability of a real or bona fide defence (Menfond Electronic v Wong Wang Tat Victor [2013] 2 HKC 259).

The Defence

13.In the Defence, the defendant already admitted that he “has not fully paid pursuant to the terms” of the SPA, but raised that he was setting off the loss of the company against the share sales price by referring to the shareholders’ liability in clause 5 of the SHA.

14.In the affirmation of the defendant, made some 6 months after the Defence, the defendant raised for the first time that there was also an “oral agreement” regarding this “setting off” arrangement: that at the time of the SPA, he had agreed to purchase all the shares of the 1^st and 2^nd plaintiffs, and that the 1^st and 2^nd plaintiffs “agreed to be continuing to be held responsible for the liabilities of the company until the completion of the SPA”. 

15.I find this evidence “not capable of being believed”.

16.Firstly, the alleged “oral agreement” was a bare assertion made for the first time some 6 months after the defence. One would have thought that if this was true, it would have been amongst the very first things mentioned in the defence.

17.Further, it went against the clearly expressed term of Clause 11 of the SPA. Clause 11 was clear: the SHA should cease upon completion of payment and transfer of shares by certain specified dates. The parties mentioned the SHA so its terms must have been considered. If there was any additional agreement that the 1^st and 2^nd plaintiffs should still be held liable for losses, one would expect that it should be stated in the clause: e.g. that the SHA should cease upon a) full payment and transfer of shares and b) paying up of the company’s loss in accordance with the proportion of the liability of the 1^st and 2^nd plaintiffs.

18.There were no such wordings nor any suggestion that there should be variation or addition to the terms of SPA. Any such must be proved strictly (Bank of India v Surtani [1994] 1 HKC 7).

19.More importantly, this “oral agreement” was entirely inconsistent with the WeChat messages produced by the plaintiffs which showed that there was never any mention of such “oral agreement” in the exchange of messages. Instead, the defendant had kept on postponing the final payments: repeatedly promising to pay after a few more days, or by a certain date, and obviously never having kept such promises.

20.One would expect that if there was such an “oral agreement”, the defendant would have refused further payment right away and stated something like: “Remember our agreement? I will not be paying the balance because the sum is set off against the loss of the company.”

21.Ms. Lau, counsel for the defendant, argued that the WeChat messages were not complete. But attacking the plaintiffs’ evidence would not help her case: even if we are disregarding all of the plaintiffs’ evidence, it is still for the defendant to provide his own credible evidence to show that “there is a fair or reasonable probability of a real or bona fide defence” beyond a mere bare assertion.

22.In the 6 months or so after his defence, the defendant has provided no such evidence, and has not even mentioned in his affirmation what form of supportive evidence that may exist e.g. missing WeChat conversations, telephone conversations, evidence form a witness (for example, the fourth shareholder who was present at the signing of the SPA) etc.

23.As such, the defence is clearly not credible and there is no fair or reasonable probability of a real or bona fide defence. On this basis, I would allow summary judgment to be entered.

Mr Michael Ng, instructed by S H Leung & Co, for the 1^st and 2^nd plaintiffs

Miss Karen YY Lau, instructed by Simon Ho & Co, for the defendant