Zee Margaret v. Wong Tseng Hon
Read the full judgment text of HCA 2190/2016 on BabelCite. This High Court CFI judgment was delivered on 14 January 2021.
1. The dispute in this action arose from a co-operation agreement made between the Plaintiff and the Defendant whereby the Plaintiff agreed to inject funds in the total sum of RMB 210 million for the purpose of investing in a property development project in Shenzhen by acquiring 50% of the shareholding in a PRC company which was controlled by the Defendant.
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HCA 2190/2016 [2021] HKCFI 59 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2190 OF 2016 ________________
________________ Before: Deputy High Court Judge Richard Khaw SC in Court Dates of Hearing: 20, 21, 22, and 23 August 2019 Date of Judgment: 14 January 2021 _______________ J U D G M E N T _______________ I. OVERVIEW 1.The dispute in this action arose from a co-operation agreement made between the Plaintiff and the Defendant whereby the Plaintiff agreed to inject funds in the total sum of RMB 210 million for the purpose of investing in a property development project in Shenzhen by acquiring 50% of the shareholding in a PRC company which was controlled by the Defendant. 2.At the time when the co-operation agreement was signed, the parties contemplated that the project would be completed soon and that the shares in the PRC company would be sold within 6 months so that the parties could then realise their anticipated profit. The co-operation agreement also contained provisions in respect of the Plaintiff’s rights/entitlements in the event that the shares were not sold within 6 months. According to those provisions, the Plaintiff could issue a written notice requesting the Defendant to repurchase her 50% shareholding for the price of RMB 210 million (i.e. the sum invested) and also pay her a fixed sum of RMB 65 million (less tax) as a guaranteed return. Alternatively, the Plaintiff could choose to wait until the Defendant managed to sell the shares before exercising her right to ask him to procure the repurchase of her shares at the price of RMB 210 million and receive either the 50% profit or the guaranteed return in the sum of RMB 65 million (whichever might be higher). If the Plaintiff opted for the latter, there would be some risks and uncertainties she had to face (which will be discussed below). 3.There is no dispute that (1) the shares were not sold within 6 months from the date when the co-operation agreement was signed and (2) the Plaintiff did not issue any written notice as stipulated under the co-operation agreement. 4.Subsequently, by way of a supplemental agreement, the Defendant undertook that he would “continue to endeavour to sell” the shares at “the best price available” and “share 50% of the proceeds, after deduction of expenses (including tax) with [the Plaintiff]”. Furthermore, under the supplemental agreement, the Defendant agreed to return RMB 50 million to the Plaintiff before the end of October 2008 but this would “not alter [the Plaintiff’s] entitlement to share in 50% of the proceed[s]”. 5.In addition, according to the supplemental agreement, the Defendant guaranteed that on or before 15 July 2009, the Plaintiff would have the entire capital contribution (i.e. RMB 210 million) returned to her “together with interest thereon from the date of payment to the date of repayment” but interest on the RMB 50 million (which shall be paid before the end of October 2008) would cease to accrue upon the Defendant’s payment of the same. The parties also agreed that the interest “would only be payable by July 2009 when [the Defendant] is unable to dispose of the said 100% shares for a profit more than interest at 5.25% p.a. on the capital contribution”. In other words, if the Defendant was unable to sell the shares by July 2009 or if the shares were sold at a price which could not cover the agreed interest (at 5.25% p.a.), the Plaintiff would be entitled to the agreed interest. It should be noted that the supplemental agreement no longer mentioned the guaranteed return in the sum of RMB 65 million (as originally stipulated in the co-operation agreement). One of the fundamental questions is whether the agreed interest and the guaranteed return (or the Plaintiff’s share of the profit, whichever is higher) would co-exist if the shares could not be sold by July 2009. 6.Notwithstanding the terms of the supplemental agreement, the Defendant failed to return RMB 50 million to the Plaintiff before the end of October 2008. Moreover, by 15 July 2009, the shares were not yet sold and only part of the capital contribution had been returned to the Plaintiff. In fact, by 28 December 2009, the Defendant had paid the Plaintiff a total sum of RMB 127,234,451, of which RMB 110 million was for the return of the capital contribution. Thereafter, the parties entered into various loan agreements in respect of, amongst others, the repayment of the remaining outstanding sum of the capital contribution. 7.The Plaintiff alleges that in or about March 2012, she became aware that the shares had been sold, albeit without knowing the details of the transaction. She then met the Defendant on a few occasions where she made demands for payment of the guaranteed return or the proceeds of the sale (whichever would be higher) on the basis of the terms of the co-operation agreement. In November 2015, the Plaintiff, through her then solicitors, issued a demand letter against the Defendant. 8.In this action (which was commenced by a Writ of Summons dated 24 August 2016), although the Statement of Claim refers to the co-operation agreement, the supplemental agreement and the subsequent loan agreements made between the parties, the Plaintiff’s claim is premised upon the terms of the co-operation agreement only. It appears from her pleaded case that the Plaintiff has acknowledged receipt of the capital contribution. In essence, the Plaintiff seeks payment of the guaranteed return in the sum of RMB 65 million or 50% of the profit (which is higher) and an order for all necessary accounts and inquiries for the purpose of determining the amount of the profit. 9.One of the key issues in this case is whether the Plaintiff is still entitled to seek performance of the co-operation agreement, in view of the contents of the supplemental agreement and the subsequent loan agreements. This boils down to the interpretation of the relevant documents. II. FACTUAL BACKGROUND 10.Dingfeng Mansion (鼎豐大厦) (“the Building”) is located in Shenzhen. The Building was under construction in early 2008 when its beneficial owner, Shenzhen Yusheng Investment Development Company Limited (深圳豫盛投資發展有限公司) (“Yusheng”), ran into financial difficulties. Due to lack of funds, Yusheng was unable to bring the construction work to completion. 11.The Defendant is a businessman with investments in Hong Kong and Mainland China. In early 2008, the Defendant decided to purchase the Building with an intention to complete the project and resell the Building for a profit. Whilst he had around RMB 200 million in cash on hand, the Building’s asking price was more than twice that amount. Accordingly, he needed someone who was prepared to join him as a co-investor to make up for the shortfall. By his own admission, it was difficult to find a suitable investor. 12.It is not entirely clear how the Plaintiff came to know the Defendant. The Plaintiff’s late husband, an investor in the real estate market in Mainland China, was apparently acquainted with the Defendant. However, it appears that the Plaintiff and the Defendant jointly explored various business plans from 2007 to 2015 and had also travelled to Mainland China together to inspect various properties, including the Building. Sometime between March and April 2008, the Defendant informed the Plaintiff of his intention to acquire the Building and invited her to contribute to the investment. The Plaintiff accepted the offer. It is common ground that the Plaintiff was a mere financier to the acquisition and did not partake in any active steps towards the purchase, completion, or resale of the Building. The Co-operation Agreement 13.On 17 April 2008, the Plaintiff and the Defendant signed the co-operation agreement (“the Co-operation Agreement”). In essence, the Plaintiff and the Defendant agreed to indirectly acquire the Building by purchasing the entire shareholding of Yusheng through Shenzhen Jindingfeng Investment Company Limited (深圳市金鼎峰投資有限公司) (“JDF”), a corporate entity controlled by the Defendant. The Plaintiff would contribute a total sum of RMB 210 million as capital contribution (“the Capital Contribution”) to JDF. In return, the Plaintiff would become a 50% beneficial owner of JDF. The Capital Contribution would then be applied by JDF towards the acquisition of Yusheng. 14.Now, I turn to the terms of the Co-operation Agreement. 15.First, it is expressly stated in the preamble of the Co-operation Agreement that the parties intended to dispose of Yusheng’s shares within a short period of time, which, according to the terms of the Co-operation Agreement set out below, was 6 months. The preamble also provides that the Co-operation Agreement was based on the principle of equality and mutual benefit (“平等互利的原則”). 16.Under Clause 1, the Defendant shall procure 深圳貴明創業投資有限公司 (an entity under his control) (“Shenzhen Gui Ming”) and 陳建創 (“Chen”) to transfer the beneficial interest of 50% of the shares of JDF to the Plaintiff’s nominee, Lou Ru Yu (樓汝于) (“Lou”). The transfer would take place by way of nominee shareholding declarations made by Shenzhen Gui Ming, Shenzhen Gui Ming’s nominee (周小峰) (“Zhou”), and Chen to Lou, who would declare that Lou held beneficial ownership of the said 50% of JDF’s shares. 17.Clause 2 provides that in order for JDF to acquire 100% of Yusheng, the Plaintiff shall remit RMB 210 million under the name of JDF into a transaction deposit account specified by the Zhengzhou Property Rights Exchange Market. It further records that this sum would strictly be treated as transaction deposit (“交易保証金”). 18.According to Clause 3, other than the abovementioned RMB 210 million, all other amounts required for the purchase of Yusheng would be paid by the Defendant. 19.Clause 4 deals with how Yusheng should be sold. It provides that JDF shall use its best endeavours to sell Yusheng at the highest price. If JDF is able to sell Yusheng within six months of the date of the Co-operation Agreement (i.e. the 6-Month Period), the Defendant shall re-purchase the Plaintiff’s beneficial interest in 50% shares in JDF at the re-purchase price of RMB 210 million plus 50% of the profit arising from the sale of Yusheng (“the 50% Profit”). As mentioned above, it is expressly stated that even if Yusheng was sold at a price less than what it had taken JDF to purchase Yusheng and complete the Building, this would not affect the Plaintiff’s right to recover the Capital Contribution of RMB 210 million in full. Clause 4 in its original version in Chinese is as follows:-
20.In accordance with Clause 4, the 6-Month Period began to run from 17 April 2008. Hence, the Defendant had until 17 October 2008 to dispose of all the shares of Yusheng. 21.Clauses 5 and 6 are perhaps two provisions of the Co-operation Agreement which warrant particular attention. Clauses 5 and 6 deal with the situation whereby Yusheng could not be sold within the 6-Month Period and provide as follows:-
22.Clause 5 provides that the Plaintiff may issue a written notice to the Defendant requesting him to re-purchase her beneficial interest in 50% shares in JDF within 3 working days at the re-purchase price of RMB 210 million plus the Guaranteed Return in the sum of RMB 65 million (minus tax). Alternatively, Clause 6 (also on the basis that Yusheng could not be resold in 6 months) provides that the Plaintiff may choose to continue to hold her beneficial interest in 50% in JDF until all shares in Yusheng were sold, at which time the Plaintiff may request the Defendant to procure the re-purchase of her beneficial interest in 50% shares in JDF at the price of RMB 210 million plus the Guaranteed Return or the 50% Profit, whichever is higher. 23.In other words, upon the expiry of the 6-Month Period (i.e. in October 2008), the Plaintiff had a choice between issuing a written notice prior to the realisation of Yusheng under Clause 5 or exercising her right to hold on to the 50% shares of JDF until the completion of sale of Yusheng pursuant to Clause 6. In the case of the former (i.e. under Clause 5), the Defendant, upon receiving the written notice, must then acquire her shareholding in JDF by paying her the Capital Contribution, plus the Guaranteed Return. In the case of the latter (i.e. under Clause 6), the Plaintiff may request the Defendant to procure (促使) the re-purchase of her shares in JDF at the price equal to the amount of the Capital Contribution and obtain either (a) the 50% Profit, or (b) the Guaranteed Return, whichever is higher. In the event that the Plaintiff decides to opt for Clause 6 by holding on to her 50% shares in JDF until the sale of Yusheng was completed, the Co-operation Agreement nonetheless does not contain any provision which deals with how long the Plaintiff should wait and what remedies she would be entitled to seek if Yusheng continued to remain unsold. 24.It must be pointed out that the Plaintiff’s claim is only predicated upon the alleged breach of Clause 6 of the Co-operation Agreement. 25.Clause 10 provides that the Defendant understood that the Plaintiff’s participation in the acquisition of Yusheng was completely based on her trust and reliance on the Defendant’s experience and judgment. 26.Further, according to Clause 11, if any of the terms in the Co-operation Agreement are incomplete or that any other documents under the terms of this agreement lack sufficient formalities or procedures, the Defendant shall accept and regard any such deficiencies as perfected or rectified and allow the Plaintiff to obtain the maximum benefit “最大利益” under this agreement and other relevant documents. 27.Finally, Clause 14 provides that in relation to matters not covered by this agreement, the Defendant and the Plaintiff may, after reaching a consensus by way of negotiation, sign a supplemental agreement bearing the same legal effect “具有同等法律效力” as the Co-operation Agreement. Events following the Co-operation Agreement 28.The following matters took place pursuant to the Co-operation Agreement:
29.Further, the Plaintiff and Lou entered into a separate nominee shareholding agreement, whereby Lou confirmed that she was not the true investor of JDF and did not enjoy any rights of a shareholder as such. All bonuses and dividends, as well as any other shareholding benefit obtained by Lou through Zhou and Chen, would be handed over to the Plaintiff. The Supplemental Agreement 30.In or about early October 2008, the Defendant informed the Plaintiff that the shares in Yusheng could not be sold before 17 October 2008 (i.e. the expiry of the 6-Month Period) and requested for additional time to look for a willing buyer. 31.The Plaintiff did not exercise her entitlement under Clause 5 of the Co-operation Agreement to issue a written notice demanding the Defendant to re-purchase her shares in JDF. While she was allowed to rely on Clause 6, she was not entitled to either the Guaranteed Return or the 50% Profit until completion of the sale of Yusheng. On 8 October 2008, the Plaintiff and the Defendant entered into the Supplemental Agreement. This agreement, which was written mainly in English, contains the following provisions: -
32.The Plaintiff denies that she ever proposed any of the terms of the Supplemental Agreement. According to the Plaintiff’s case, it was the Defendant who suggested the Supplemental Agreement and the subsequent loan agreements (details of which will be set out below). The Defendant’s case is that the Plaintiff initiated the idea of having the Supplemental Agreement. There is, however, no dispute that the Supplemental Agreement was drafted by a lawyer in the office of her law firm within a short period of time. 33.According to the Plaintiff’s evidence, prior to the making of the Supplemental Agreement, the Defendant wanted to stop the Plaintiff from exercising her right under Clause 5 of the Co-operation Agreement. Hence, the Plaintiff did not issue any written notice as required under Clause 5. She chose to wait and one of the purposes of the Supplemental Agreement, in particular, Clauses 2 and 4 therein, was to allow the parties to have an extension of time (from October 2008 to July 2009) to sell Yusheng. 34.Apparently, Clause 3 of the Supplemental Agreement allowed the Plaintiff to have the right to early repayment of part of the Capital Contribution (i.e. RMB 50 million) which did not exist in the Co-operation Agreement. Further, Clauses 4 and 5 of the Supplemental Agreement were intended to provide the Plaintiff with the right to the return of the entire Capital Contribution with guaranteed interest (from the date of payment to the date of repayment) which would become payable “by July 2009”) if, at that time, the Defendant was still unable to dispose of Yusheng for a profit more than 5.25% p.a. It should be noted that the concept of interest never appeared in the Co-operation Agreement. 35.In view of the above, one of the core issues in this case is whether the Plaintiff’s entitlement under Clause 6 of the Co-operation Agreement has remained intact notwithstanding the terms of the Supplemental Agreement. The Plaintiff contends that her entitlement under Clause 6 of the Co-operation Agreement (i.e. her right to the return of the Capital Contribution in full and the Guaranteed Return or the 50% Profit, whichever is higher) is not affected by the provisions under the Supplemental Agreement. This is denied by the Defendant. As mentioned above, whether the position of the Plaintiff or the Defendant should stand boils down to a question of interpretation of the relevant agreements. Events following the Supplemental Agreement 36.Despite Clause 3 of the Supplemental Agreement, the Defendant failed to return any of the RMB 50 million to the Plaintiff before the end of October 2008. By 15 July 2009, JDF continued to hold all of its shares in Yusheng and only part of the Capital Contribution had been returned to the Plaintiff. Whilst the Plaintiff asserts that the Defendant has contravened Clause 4 of the Supplemental Agreement, her case, as explained above, is entirely premised upon the alleged breach of Clause 6 of the Co-operation Agreement. 37.It should be noted that the following events took place after the Supplemental Agreement was signed by the parties:
38.By 28 December 2009, the Defendant had paid the Plaintiff a total of RMB 127,234,451.00. Of this amount, the parties agree that RMB 110 million was for the return of the Capital Contribution, whilst the remaining RMB 17,234,451 constituted interest. The 1st Loan Agreement 39.On 29 December 2009, the parties signed a Memorandum of Loan Agreement (“the 1st Loan Agreement”) in respect of the remaining balance of the Capital Contribution in the sum of RMB 100 million. According to the 1st Loan Agreement, the Defendant agreed to repay the Plaintiff the said balance on or before 28 December 2010, together with interest at HKD 500,000 per month, payable monthly (the “1st Loan Agreement”). 40.Pursuant to the 1st Loan Agreement, the Defendant made a total of 12 interest repayments totalling HKD 6 million. On 8 December 2010, the Defendant made a repayment for the amount of HKD 19,852,685 (equivalent to RMB 17 million). No other payments regarding the principal sum were made in relation to the 1st Loan Agreement. The 2nd Loan Agreement 41.On 24 December 2010, the parties entered into another Memorandum of Loan Agreement (“the 2nd Loan Agreement”) in respect of the remaining balance of RMB 83,000,000.00. From 4 March 2011 to 7 July 2011, this sum, together with interest at HKD 305,000 per month, was repaid by the Defendant to the Plaintiff by way of the following transfers: -
42.It is accepted by both parties that a total of HKD 1,839,822.00 of interest was repaid by the Defendant in relation to the 2nd Loan Agreement. The Ledger Confirmations 43.On 12 August 2011, the Plaintiff signed a Ledger Confirmation (確認函) (the “2011 Ledger Confirmation”) confirming her receipt of the repayments by the Defendant in the sum of RMB 227,234,451, being the Plaintiff’s Capital Contribution of RMB 210 million plus RMB 17,234,451 in interest accruing from 17 April 2008 to 28 December 2009. 44.On 5 March 2012, the Plaintiff and the Defendant signed another Ledger Confirmation (the “2012Ledger Confirmation”) together with a Confirmation Letter (the “Confirmation Letter”) confirming the Plaintiff’s receipt of the Defendant’s repayment of RMB 227,234,451. The 2012 Ledger Confirmation is almost identical in every respect to the 2011 Ledger Confirmation save and except for the addition of the following sentence:
45.A similar provision appears in paragraph 1 of the Confirmation Letter:
46.The abovementioned figure of RMB 227,234,451 does not include interest payments made pursuant to the 1st and 2nd Loan Agreements. In light of Tang’s evidence, both parties accept that RMB 23,814,178.41 of interest was paid by the Defendant to the Plaintiff. 47.According to the Defendant, an agreement was eventually reached in or around December 2009 for the sale of Yusheng by JDF. The actual completion of the sale took place on or about 25 August 2010. 48.The Plaintiff’s case is that she first became aware that JDF had disposed of all the shares of Yusheng in or around March 2012. Between March 2012 and September 2015, she allegedly met the Defendant on a regular basis and enquired about the status of the re-sale of the Building. The Defendant asked her to await further news. 49.Nearly 4 years later, on or about 14 September 2015, the Plaintiff confronted the Defendant about the matter and sought to exercise her rights pursuant to Clause 6 of the Co-operation Agreement. On 23 September 2015, the Defendant handed over to the Plaintiff a statement of account (the accuracy of which is not admitted by the Plaintiff) setting out the revenue and expenses of the sale of all the shares of Yusheng by JDF. The Defendant nevertheless refused to pay up the higher of the Guaranteed Return (less tax) or the 50% Profit. III. PARTIES’ POSITIONS Parties’ pleaded cases 50.As mentioned above, the Plaintiff’s Statement of Claim refers to the terms of the Co-operation Agreement and also the Supplemental Agreement. It also sets out the repayment arrangements made under the 1st Loan Agreement and the 2nd Loan Agreement. There is no mention in the Plaintiff’s pleaded case as to why the parties were required to enter into the Supplemental Agreement. Neither is there any averment on the relationship between the Co-operation Agreement and the Supplemental Agreement. 51.As mentioned above, the Plaintiff’s case is based only on her alleged right under Clause 6 of the Co-operation Agreement. While the Plaintiff has pleaded the alleged breach of the Supplemental Agreement on the part of the Defendant, her case has nothing to do with such breach. The Plaintiff complains that after she knew about (and also discussed with the Defendant) the sale of Yusheng, the Defendant failed to pay her the Guaranteed Return or the 50% Profit (which is higher) in accordance with Clause 6 of the Co-operation Agreement. Hence, the Plaintiff’s case is that her entitlement under Clause 6 of the Co-operation Agreement remains intact despite the Supplemental Agreement and the subsequent loan agreements. 52.The Defendant’s pleaded case (i.e. the Defence) has also referred to, amongst others, the Supplemental Agreement, the loan agreements (and the repayments made by the Defendant thereunder). In particular, the Defendant avers that:-
53.In his original Opening Submissions (filed before the trial initially scheduled to be heard by another judge who subsequently decided to recuse himself for reasons which do not concern the present discussion), the Defendant’s case was premised upon a defence of “release” in that the Defendant’s obligations under the Co-operation Agreement and the Supplemental Agreement have been “released upon full repayment of the RMB 210,000,000 with interest”. However, in the second round of the Opening Submissions (filed for this trial), the Defendant alleges that his responsibility under Clause 6 of the Co-operation Agreement has been “varied by parties’ agreement to treat the original contribution as a loan of RMB 210,000,000 from [the Plaintiff] to [the Defendant]”. Pleading point 54.The Plaintiff has taken a pleading point and complained that since neither “release” nor “variation” has been pleaded in the Defence, the Defendant should not be permitted to run any of these arguments. 55.I agree that the Defendant’s position(s) could have been pleaded more clearly in the Defence. However, as discussed above, both parties have pleaded the essential facts in relation to the Co-operation Agreement, the Supplemental Agreement, the 2 Loan Agreements and also the repayments made. Plainly, both parties have proceeded on the basis that the crux of the matter boils down to the proper construction of the relevant documents, in particular, the Co-operation Agreement and the Supplemental Agreement. 56.In fact, leading counsel for the Plaintiff, in his closing submissions, acknowledged that the Plaintiff’s case “turns largely on the proper interpretation of the [Co-operation Agreement] and the [Supplemental Agreement]”. It follows that the ultimate question is whether Clause 6 of the Co-operation Agreement can still be enforced by the Plaintiff or has been varied by subsequent documents. In the Reply, the Plaintiff has repeatedly stated that her entitlement to the Guaranteed Return (less tax) or the 50% Profit (whichever is higher) under the Co-operation Agreement has not been affected by the parties’ subsequent loan agreements in respect of the repayment of the Capital Contribution. Hence, the Plaintiff’s own case has addressed the question as to whether the underlying basis of her present claim (i.e. Clause 6 of the Co-operation Agreement) has been varied. 57.In the present case, the relevant question of interpretation can be determined primarily on the basis of the contents of the relevant documents. The Plaintiff has never alleged that in dealing with this issue, she has been in any way been prejudiced as a result of the above issue on pleading. 58.By reason of the matters analysed above, I am of the view that the Plaintiff’s pleading point has no substance, and I will now proceed to discuss the issue of interpretation. IV. ANALYSIS Legal principles 59.The general approach towards interpretation of contracts has been clearly set out by Lord Hoffmann in Jumbo King Ltd v Faithful Properties Ltd & Ors (1999) 2 HKCFAR 279, 296D-I:
60.Insofar as context is concerned, the general principles are reiterated in Fully Profit (Asia) Ltd v Secretary for Justice (2013) 16 HKCFAR 351, where Ma CJ stated at §15: –
Interpretation of the relevant agreements 61.It appears from the Co-operation Agreement that the parties were obviously quite optimistic about the prospect of the intended sale of Yusheng within 6 months (as stipulated in Clauses 4 and 5), i.e., that a sale would be reached by 17 October 2008. In fact, the parties must have also been confident about the profit which would be acquired by such intended sale. Otherwise, it would have been unlikely for the parties to agree on the Guaranteed Return in the sum of RMB 65,000,000 (as stipulated in Clauses 5 and 6). 62.If the Plaintiff opted for Clause 5 and issued a notice within 6 months, the Defendant would have no choice but had to buy back the Plaintiff’s 50% shares in JDF by paying RMB 210,000,000 (as the return of the Capital Contribution) and the Guaranteed Return in the sum of RMB 65,000,000. According to Clause 5, this buy-back process had to be completed within 3 working days from the date of the notice issued by the Plaintiff. It goes without saying that the Plaintiff would only exercise her right under Clause 5 if she was content to accept that her profit was limited to the sum of the Guaranteed Return (i.e. RMB 65,000,000) only. 63.Alternatively, if the Plaintiff was still hopeful about the intended sale of JDF (even though it did not materialise by 17 October 2008) and aimed to gain profit which might exceed the Guaranteed Return, she could invoke Clause 6 which might give her either the Guaranteed Return or the 50% Profit (whichever is higher). However, although it is possible that the Plaintiff’s exercise of the right under Clause 6 might provide her with a higher return on the investment, it contains some inherent risks and uncertainties:-
64.The risks and uncertainties arising from Clause 6 might explain why the parties agreed in Clause 14 of the Co-operation Agreement that a further or supplemental agreement might be required. According to Clause 14, the Co-operation Agreement and the subsequent supplemental agreement(s) shall each have the same legal effect. This, however, does not mean that the terms of the Co-operation Agreement could not be varied by way of the subsequent agreements and the question of variation is, at the end of the day, one of construction. 65.According to the Plaintiff’s own evidence, one of the reasons why the parties considered the need to have the Supplemental Agreement was that the Defendant did not want the Plaintiff to exercise her right under Clause 5 of the Co-operation Agreement. Under cross-examination, the Defendant said that he was not worried about the Plaintiff exercising her right at that time. 66.At the time when the Supplemental Agreement was drafted and signed (i.e. on 8 October 2008), it was still unclear when Yusheng would be sold. At that time (i.e. just more than one week before the expiry of the 6-month period as stipulated in the Co-operation Agreement), it is most likely (and it is the Plaintiff’s own evidence) that the parties did consider whether the Plaintiff should continue to exercise her rights under the Co-operation Agreement (including her right under Clause 5 of the Co-operation Agreement). Otherwise, the Plaintiff could have simply insisted on her entitlements under Clause 5 and it would have been unnecessary for the parties to enter into the Supplemental Agreement. As a matter of fact, the Plaintiff had never exercised her right under Clause 5 of the Co-operation Agreement. Her present claim, as discussed above, is based only on Clause 6 of the Co-operation Agreement. 67.The Plaintiff contends that the “main purpose of the [Supplemental Agreement] was to extend the 6-Month Period under Clause 4 of the Co-operation Agreement so as to give [the Defendant] nine more months (until 15 July 2009) to sell”. Further, it is submitted on behalf of the Plaintiff that she would still be entitled to issue a written notice under Clause 5 of the Co-operation Agreement after entering into the Supplemental Agreement. 68.I believe that the Plaintiff’s argument has failed to take into account the actual purpose, meaning and effect of the Supplemental Agreement. 69.No doubt, the parties at the time of the Supplemental Agreement realised it would take longer (than originally contemplated under the Co-operation Agreement) to complete the sale of Yusheng. Whilst a date (i.e. 15 July 2009) was specifically mentioned in the Supplemental Agreement, it is clear from the contents of the document that the parties were still uncertain about the prospect of the intended sale and when it would finally materialise. Hence, the Defendant only agreed he would “by 15 July 2009 … continue to endeavour to sell the said 100% shares [of JDF] for the best price available and share 50% of the proceeds after deduction of expenses”. 70.While the Defendant was given more time to sell Yusheng, one of the advantages to the Plaintiff was that RMB 50 million would be returned to her “before end of October 2008” according to Clause 3 of the Supplemental Agreement. Had the parties agreed, subsequent to the Supplemental Agreement, that the Plaintiff would still be entitled to rely on Clause 5 of the Co-operation Agreement (in that she could ask for the return of Capital Contribution in the sum of RMB 210,000,000 and the Guaranteed Return in the sum of RMB 65,000,000) by issuing a notice on or before 15 July 2009, this could have been easily specified in the Supplemental Agreement. However, the Supplemental Agreement did not contain anything to that effect. 71.Clause 3 (which required the Defendant to pay a sum of RMB 50 million “before end of October 2008” to the Plaintiff) and Clause 4 of the Supplemental Agreement (which were obviously intended to ensure the return of the Capital Contribution to the Plaintiff “on or before 15 July 2009”, i.e. the expiry of the extended period for the sale of JDF) did not mention the Guaranteed Return at all. In fact, in the Supplemental Agreement, there is no mention whatsoever of either Clause 5 or Clause 6 of the Co-operation Agreement or the Guaranteed Return. 72.Rather, apart from seeking to guarantee the return of the entire Capital Contribution on or before 15 July 2009, Clause 4 of the Supplemental Agreement also provides that interest would accrue on the Capital Contribution from the date of payment i.e. 17 April 2008 to the date of repayment although interest would “cease to accrue on the RMB 50 million upon repayment to Party B [i.e. the Plaintiff] by end of October 2008”. 73.Clause 5 of the Supplemental Agreement states that “[i]nterest being guaranteed would only be payable by July 2009 when Party A [i.e. the Defendant] is unable to dispose of the said 100% share for a profit more than interest at 5.25% p.a. on the capital contribution as abovementioned.” I must say that this clause is not well-drafted because the words “payable by July 2009” look a bit odd in view of the overall sentence structure and no specific date in July 2009 was specified. However, it is quite obvious that by Clause 5 of the Supplemental Agreement, the parties decided to take July 2009 as a cut-off date (which, according to the extended period as stipulated under Clause 2, should presumably be 15 July 2009). What Clause 5 means is that if Yusheng could not be sold by 15 July 2009 at a profit which would exceed the interest on the Capital Contribution which would accrue in accordance with Clause 4 of the Supplemental Agreement, interest would then be payable. Alternatively, if the intended sale could be completed by 15 July 2009 at a profit which would exceed the relevant interest, interest would not be payable as the parties would naturally be sharing the profit arising from the sale (as mentioned in Clause 2 of the Supplemental Agreement). In their closing submissions, the Plaintiff’s counsel sought to rely on Clauses 2 and 3 to say that the Plaintiff’s right to receive the 50% Profit would remain unaffected. But this argument has obviously ignored the meaning and effect of Clauses 4 and 5 of the Supplemental Agreement. 74.In view of the above, it is clear from Clause 5 of the Supplemental Agreement that subject to what would happen by 15 July 2009, either interest or profit would be payable but the two would not co-exist. During his closing submissions, the Plaintiff’s leading counsel was asked to explain the basis on which the Plaintiff could be entitled to both Guaranteed Return (or the 50% Profit whichever is high) and interest (which has already been paid). However, no satisfactory answer was provided in this regard. In any event, any allegation that the Plaintiff should be entitled to both Guaranteed Return (or the 50% Profit, whichever is high) and interest does not make any commercial sense in the circumstances of this case. 75.As discussed above, Clause 6 of the Co-operation Agreement failed to address what the parties should do if the Defendant continued to be unable to have Yusheng sold and also how long the Plaintiff should wait. By agreeing on the cut-off date and also the element of interest in the Supplemental Agreement, the parties managed to address the risks and uncertainties that Clause 6 of the Co-operation Agreement failed to deal with. In these circumstances, it is clear that the Supplemental Agreement had the effect of varying the Co-operation Agreement, at least in respect of Clauses 5 and 6 of the Co-operation Agreement. 76.One of the arguments that the Plaintiff’s leading counsel kept repeating in his closing submissions is that if the Plaintiff was not entitled to the Guaranteed Return or her share of the profits under Clause 6 of the Co-operation Agreement as a result of the Supplemental Agreement, it would be inconsistent with the Defendant’s evidence that the Supplemental Agreement was intended to provide the Plaintiff with “a better return” (更好嘅回報). However, this argument demonstrates a rather superficial view on the meaning of “a better return” and it is also inconsistent with the terms of the Supplemental Agreement. 77.As discussed above, by way of the Supplemental Agreement, the Plaintiff was entitled to an early part-repayment of the Capital Contribution in the sum of RMB 50 million by the end of October 2008 and also interest which would be payable if Yusheng was not sold at a certain price by 15 July 2009. Obviously, these benefits, which the Plaintiff was not entitled to under Clause 6 of the Co-operation Agreement, provided her with the incentives to enter into the Supplemental Agreement. Further, as mentioned above, the Supplemental Agreement addressed the risks and uncertainties which were inherent in Clause 6 of the Co-operation Agreement. In the absence of the Supplemental Agreement, the Plaintiff would be put in a deadlock if she simply insisted upon exercising her rights under Clause 6 (when Yusheng remained unsold) without trying to find alternative solutions. The meaning of “a better return” should therefore be assessed with reference to the commercial realities regarding the parties’ positions under both the Co-operation Agreement and the Supplemental Agreement. 78.Finally, it should be pointed out that the Plaintiff does not dispute that the Supplemental Agreement was supported by consideration. 79.In view of the above, given that Yusheng eventually could not be sold by 15 July 2009 and the parties subsequently entered into further agreements on interest, I have come to the conclusion that as a result of (and also by operation of) the Supplemental Agreement, the Plaintiff is not entitled to claim either the Guaranteed Return or her share of the profit under Clause 6 of the Co-operation Agreement because it has been varied and superseded by the Supplemental Agreement. Credibility of witnesses 80.The issue of credibility does not play any significant role in the resolution of the present dispute which turns on the interpretation of the relevant agreements. However, given the detailed submissions provided by both the Plaintiff’s and the Defendant’s counsel in their closing submissions, I wish to say a few words on this topic. 81.The Plaintiff’s counsel has discussed rather extensively why the Defendant is not a credible witness. A few examples were raised in the Plaintiff’s closing submissions and they included that (1) the Defendant gave inconsistent evidence on when he first met the Plaintiff; (2) the Plaintiff complained that the Defendant, under cross-examination, tried to “shirk his responsibilities” by saying that the Plaintiff was more involved in the preparation of the Co-operation Agreement and also in the suggestion of the wording of the terms thereof; (3) the Plaintiff complained that the Defendant was coy about whether he requested the Plaintiff to enter into the Supplemental Agreement and (4) the Defendant’s evidence on whether he was capable of repaying RMB 50 million by the end of October 2008 as stipulated under the Supplemental Agreement is not believable. 82.I do not find this part of the Plaintiff’s analysis very helpful to her claim. Obviously, the question of when the Defendant first met the Plaintiff is irrelevant to the issue in this case. I agree with the Defendant that it is not necessary to ascertain who suggested the wording of the Co-operation Agreement or gave instructions for the drafting of the same since there is no dispute that the parties agreed to such terms. The same should also apply to the preparation and drafting of the Supplemental Agreement. Further, notwithstanding the dispute as to who initiated the idea of having the Supplemental Agreement, it seems clear (as discussed above) that it was at the material time in the interests of both parties to enter into that agreement, in view of the risks and uncertainties then faced by the parties. It is also noted that neither parties relied on the principle of contra proferentem in trying to construe any of the agreements. Finally, the Defendant’s financial ability to repay RMB 50 million should not affect the issue of interpretation of the agreements. In any event, the fact that he had defaulted in repaying the same has nothing to do with the Plaintiff’s claim which is not predicated upon any breach of the Supplemental Agreement. 83.While I believe that both the Plaintiff and the Defendant have tried their best to tell the truth, they appeared at times over-cautious (and sometimes not forthcoming) in giving their answers during cross-examination when they were asked about what they might have regarded as sensitive issues such as their financial positions, their role and involvement in the preparation of the Co-operation Agreement and the Supplemental Agreement. There are, however, two matters arising from the Plaintiff’s evidence that I should highlight here:-
V. CONCLUSION 84.By reason of the above analysis, I order that the Plaintiff’s action herein be dismissed. I also make an order nisi that costs of this action be paid by the Plaintiff to the Defendant with a certificate for two counsel, to be taxed if not agreed.
Mr Hectar Pun SC leading Mr Anson Wong and Mr Joey Chan, instructed by JCC Cheung & Co, for the Plaintiff Ms Audrey Eu SC leading Mr Brian Wong, instructed by Joseph C.T. Lee & Co, for the Defendant |
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