Team Eight Group Ltd v. Lo Yuk Yee
Read the full judgment text of HCA 1933/2019 on BabelCite. This High Court CFI judgment was delivered on 20 April 2021.
1. There is before this court the Plaintiff’s application by summons dated 11 May 2020 (“ Summons ”) for summary judgment against the Defendant in terms of the minutes annexed to it (“ Minutes ”).
Cited by 3 cases · Cites 3 cases
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HCA 1933/2019 [2021] HKCFI 1010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1933 OF 2019 _________________ BETWEEN
_________________ Before: Hon Ng J in Chambers (open to public) Date of Hearing: 16 October 2020 Date of Judgment: 20 April 2021 ________________ J U D G M E N T ________________ Introduction 1.There is before this court the Plaintiff’s application by summons dated 11 May 2020 (“Summons”) for summary judgment against the Defendant in terms of the minutes annexed to it (“Minutes”). 2.In the Minutes, the Plaintiff seeks a declaration inter alia that
3.The Plaintiff also seeks an order for the return of the Deposit, damages in the sum of HK$502,000 or to be assessed and the dismissal of the Defendant’s Counterclaim.[1] 4.For reasons unexplained, the Minutes contain reliefs which go further than the prayer for relief in the Statement of Claim attached to the Writ of Summons. The prayer essentially seeks:
5.Since under RHC O 14 r 1 and O 86 r 1, a plaintiff can only seek summary judgment on a claim included in the Writ, for the present purpose, this court will concentrate on the Plaintiff’s claims in the prayer for relief. Background 6.The Plaintiff was and is a company incorporated in the BVI and registered in Hong Kong under Part 16 of the Companies Ordinance, Cap 622 (“CO”) as a non-Hong Kong company. 7.The Defendant was at the material time the sole legal and beneficial owner of the entire issued share capital of New Legend International Limited (“Company”). The Company was at the material time the registered owner of the property known as Office No 2203 on 22nd Floor of Tower 1, Admiralty Centre, No 18 Harcourt Road, Hong Kong (“Property”). The Property was the Company’s only asset. 8.Under Recital D and Clause 1 of the Provisional Agreement, the Defendant agreed to sell and assign and the Plaintiff agreed to purchase and take up an assignment of the entire issued share capital of the Company (“Sale Share”) and the right to all debts owed by the Company to the Defendant and her associates (“Sale Debt”). 9.The Provisional Agreement contained inter alia the following material terms.
10.It is not in dispute that
11.What is apparently in dispute is whether the Defendant had provided the Plaintiff with the Company’s audited financial statements in compliance with Rider (2)(a) of the Provisional Agreement. 12.According to the contemporaneous correspondence, what happened was as follows:
Deliberation 13.It is well-established that in an application for summary judgment, the burden is on the defendant to show a real or bona fide defence on the merits or that there are issues of fact or points of law which ought to be tried. In his executive summary, Mr Wong SC has succinctly set out five grounds for resisting summary judgment:
Ground 1 14.Mr Wong SC submits that, properly construed, Rider (2)(a) was arguably not a condition and the stipulated time for the performance thereof was arguably not of the essence. 15.With respect, this court does not agree. 16.In Chitty on Contracts (33rd ed) Vol 1 at para 13-040, the learned authors observed that:
17.It seems to this court that judging from the nature of the contract, the subject matter of the transaction and the circumstances of the case, Rider (2)(a) is clearly a condition in the sense that it is an essential stipulation of the Provisional Agreement which one party promises will be fulfilled, failing which the innocent party will be discharged from it. The reasons are these. 18.First, the transaction in question is for the sale and purchase of the entire issued share capital of the Company. Clause 4 of the Provisional Agreement expressly provides that completion should be conditional on the Plaintiff having completed the due diligence review on inter alia the business and financial aspects of the Company and is satisfied with the results. Clause 5 of the Provisional Agreement further provides that the Defendant shall deliver all documents relating to the Company to facilitate the carrying out of the due diligence review by the Plaintiff. 19.Mr Wong SC argues that the provision of the documents identified under Rider (2)(a) was not a condition because it was only a means to an end ie to facilitate the due diligence exercise. But there is no explanation as to why that in itself should disqualify Rider (2)(a) as a condition. Ultimately, almost every clause in the Provisional Agreement can be seen as a means to an end ie completion of the sale and purchase. Taking Mr Wong SC’s argument to its logical conclusion, none of the terms in the Provisional Agreement can qualify as a condition save for the one concerning with completion. The fallacy of the argument is self-evident. 20.In this court’s view, the provision of the Company’s audited accounts to the Plaintiff is an important part of the Defendant’s obligations under the Provisional Agreement. Anyone familiar with corporate transactions should know that audited financial statements are fundamental documents indicating the financial health (or ill-health) of a company. It is difficult to imagine anyone spending HK$200 million to buy a company without gauging its financial health. It is equally difficult to see how the due diligence review can be completed or how the Plaintiff can be satisfied with the results unless the audited financial statements of the Company are available for review. 21.Second, the importance of Rider (2)(a) to the parties is highlighted by the fact that it was specifically inserted into the Provisional Agreement under Clause 24 ie “Remarks” as an additional term to the printed clauses in the Agent’s standard form agreement. The learned editors of Lewison, The Interpretation of Contracts (6th ed) para 9.10 helpfully summarise the legal position as follows:
22.While Mr Li SC does not go so far as to suggest that Rider (2)(a) prevails over Clause 5, he submits and this court agrees that it is a separate and distinct term to be fulfilled by the Defendant in additional to Clause 5. 23.On the other hand, Mr Wong SC keeps emphasising that there is a “rectification” mechanism under Clause 5 which Rider (2)(a) must be read subject to and suggests that this is also a reason why Rider (2)(a) is arguably not a condition. No authority has been cited in support of this contention. With respect, this argument is a complete non sequitur. The “rectification” mechanism only imposes an obligation on the part of the Defendant to rectify if any irregularity is discovered. It does not explain why Rider(2)(a) should be read subject to Clause 5 when there is no provision to that effect; nor does it explain why the existence of a “rectification” mechanism means Rider(2)(a) should not be construed as a condition. 24.Third, whether a time limit is of the essence of a contractual provision is a question of interpretation of the provision in the context of the specific contract as a whole. In the present case, in substance though not in form, the transaction in question is for the sale and purchase of a landed property. It is well-established by high authorities that time was of the essence of a provisional sale and purchase agreement notwithstanding the absence of an express provision to that effect: Sun Lee Kyoung SIL v Jia Weili [2010] 2 HKC 117 at [21], [22] and [38] per Recorder P Fung SC:
25.Mr Wong SC submits that these conveyancing cases cited by Mr Li SC are irrelevant for the present purpose. This court does not agree. In this court’s view, these conveyancing cases are applicable to the present case by analogy. 26.Like Recorder P Fung SC, this court is bound by the authorities referred to by the learned Recorder. This court has also taken into account (i) the nature of the transaction which was the sale and purchase of a company with only 1 asset ie a highly valuable commercial property, (ii) the volatility of the property market in Hong Kong generally, and (iii) the relatively short timeframe between the date of the Provisional Agreement and the Completion date during which the Defendant not only had to prove and the Plaintiff had to be satisfied with the Company’s title to the Property in the usual manner but further, the Defendant had to facilitate and the Plaintiff had to conduct a due diligence review on various aspects of the Company and be satisfied with the results. 27.As this court concludes earlier, the provision of the Company’s audited accounts is an important means to facilitate the due diligence review and hence the completion of the sale and purchase. While cases like Sun Lee Kyoung SIL v Jia Weili, Wong Wai Chi Ann v Cheung Kwok Fung Wilson and Kwan Siu Man v Yaacov Ozer were concerned with the time for payment of initial deposit, signing of formal agreement and completion, this court cannot see any special circumstances which suggest that, in the present case, time is not of the essence of the Provisional Agreement, or more precisely, time is not of the essence of the Defendant’s obligation under Rider (2)(a) of the Provisional Agreement. 28.For the above reasons, Ground 1 is rejected. Ground 2 29.The gist of Mr Wong SC’s argument on waiver/ estoppel is that in breach of Clause 5, the Plaintiff has failed to (i) raise complaints and/or to inform the Defendant of the irregularities concerning the 1st batch of financial statements sent to it on 12 August 2019 and/or (ii) confirm in writing whether it was satisfied with the due diligence review since 26 August 2019 ie 14 days after delivery of the due diligence documents. If the Plaintiff had complied with Clause 5 and complained to the Defendant, the Defendant could have rectified the problem with the 1st batch of financial statements. The Plaintiff’s silence had deprived the Defendant of the opportunity to rectify the irregularity. In the absence of any timely complaint about the 1st batch of financial statements, the Defendant was led to believe that the Plaintiff was able to conduct its due diligence review on the basis of the documents provided and that there were no irregularities with regard to them. The same argument applies if the Plaintiff had confirmed whether it was satisfied with the due diligence review. 30.In this court’s view, the argument is wholly disingenuous. 31.First, as a matter of construction of Clause 5, the Plaintiff’s only duty is to “carry out the due diligence review and confirm in writing to the Vendor or the Vendor’s solicitors whether he is satisfied with the results of such due diligence review within 14 days after the date of delivery of all documents by the Vendor.” Since the Defendant had failed to deliver all due diligence documents, in particular, the 3 years of audited accounts, to the Plaintiff, its duty to confirm to the Defendant or her solicitors its (dis)satisfaction with the results of the due diligence review did not arise. 32.The next part of Clause 5 only imposes a positive duty on the Defendant to rectify any irregularity if it is discovered that such exists. There is no express duty on the part of the Plaintiff as such to discover and disclose any irregularity to the Defendant. Apart from a bare assertion in his skeleton submissions, no reason has been given and no authority has been cited as to how or why such a duty should be implied. 33.In any event, even if the Plaintiff were obliged to discover and disclose the problem with the 1st batch of financial statements to the Defendant, no time limit was imposed as to when it should have done so. On the undisputed facts of the case, L&C had complained to FWT twice, on 24 and 30 September 2019. FWT’s response to the complaint on 24 September 2019 was to insist that the Rider (2)(a) documents had already been sent to L&C on 12 August 2019. Their response to the complaint on 30 September 2019 was to send inter alia the 2nd batch of financial statements to L&C. 34.In these circumstances, there is no basis for the Defendant to accuse the Plaintiff of being late in raising the complaint about her own failure to provide Rider (2)(a) documents to the Plaintiff. There is equally no basis for the Defendant to allege that she had been deprived of the opportunity to rectify the problem with the Rider (2)(a) documents - she had been given 2 opportunities to do so but still failed to rectify the same. 35.Second, while the Defendant asserts that she has been misled by the Plaintiff’s failure to complain about the Rider (2)(a) documents timeously, it is difficult to see how that can be established on the evidence. The 1st and 2nd batches of financial statements were the Company’s documents to which the Defendant and her solicitors no doubt had access. They were on their face clearly and unmistakably “unaudited” financial statements. The Defendant’s obligation under Rider (2)(a) was also clear and unmistakable - it was to deliver “audited” financial statements. The Defendant’s assertion that she was led to believe that the Plaintiff was able to conduct its due diligence review on the basis of the “unaudited” financial statements is simply unbelievable. 36.For the above reasons, Ground 2 is rejected. Ground 3 37.In rejecting Grounds 1 and 2, this court has concluded that Rider (2)(a) is a condition and that time for its performance is of the essence. On the evidence, there was undoubtedly a breach by the Defendant for failing to provide the Company’s “Latest 3 years audited financial statements” on or before 17 August 2019. This breach of a condition of the Provisional Agreement entitled the Plaintiff to treat itself as discharged from further performance of the Provisional Agreement[4] . By the letter dated 9 October 2019 from L&C to FWT, the Plaintiff had elected to do so. 38.In these circumstances, the Plaintiff’s claim for a declaration that the Defendant has renounced the Provisional Agreement is academic; so is Ground 3. Whether or not the Defendant has, by word or conduct, evinced an intention not to perform the Provisional Agreement ie whether she has renounced the Provisional Agreement[5], the Provisional Agreement had indeed been terminated by reason of her actual breach of Rider (2)(a). It is thus unnecessary to dwell on the parties’ lengthy submissions on renunciation. Ground 4 39.Ground 4 is wholly unmeritorious. What it boils down to is the Defendant’s bare assertion that the 1st batch of financial statements provided to the Plaintiff on 12 August 2019, albeit expressly stated to be “unaudited”, were in fact prepared at a level comparable to “audited” financial statements prepared in accordance with Hong Kong standard. Since Rider (2)(a) makes no mention of the standard upon which the financial statements are to be audited or what must be contained in such audited financial statements, all that the Defendant was required to do is to provide financial statements which were “in substance” prepared at a level comparable to a formal audit. 40.This argument ignores the simple fact that Rider (2)(a) expressly requires the provision of audited financial statements whereas what had been provided to the Plaintiff were all unaudited financial statements. How unaudited accounts can be equated with audited accounts is beyond comprehension. The argument simply seeks to put words into Rider (2)(a) which were not there. 41.Ground 4 is also rejected. Ground 5 42.As this court sees it, this Ground only goes towards the Plaintiff’s claim for damages. In the prayer for relief, the Plaintiff is claiming unquantified damages without specifying the basis of the claim. It is true that in the 1st affirmation of Kwok Wai Ming at para 16, the Plaintiff has indicated that it is claiming HK$502,000 on a “wasted expenditure” basis, the sum representing the legal costs billed by L&C in connection with the Provisional Agreement. But as stated at the beginning of this Judgment, this court will only focus on what the Plaintiff claims in the prayer for relief. As far as damages are concerned, the claim is for unquantified damages ie damages to be assessed. In these circumstances, Ground 5 is irrelevant to the present application for summary judgment. Disposition and costs order nisi 43.In the premises, the Plaintiff is entitled to summary judgment in the following terms and this court shall so order[6]:
44.There shall be an order nisi that costs of the Action including costs of and occasioned by the Summons be to the Plaintiff, to be taxed if not agreed, and paid by the Defendant forthwith. Certificate for 2 counsel.
Mr C Y Li, SC and Ms Chantel Lin, instructed by Law & Co, for the Plaintiff Mr Anson Wong, SC and Mr Terrence Tai, instructed by Fan Wong & Tso, for the Defendant [1] The Defendant’s Counterclaim is for inter alia a declaration that (i) the Provisional Agreement was validly terminated by the Defendant on 14 October 2019 by reason of the Plaintiff’s repudiation, (ii) the Defendant is entitled to forfeit the Deposit, and (iii) the Defendant is not liable to pay any service fee or damages to the Agent. [2] This was also acknowledged in a Note to Appendix 1. [3] [2004] 1 AC 715 [4] Chitty on Contracts (33rd ed) Vol 1 para 13-025. [5] Chitty on Contracts (33rd ed) Vol 1 para 24-018. [6] Whether the Plaintiff is or is not liable to pay any service fee or damages to the Agent is a matter between the two. Since the Agent is not a party to this Action and will not be bound by any declaration against it, this court is not prepared to grant any declaration concerning the Plaintiff’s liability or otherwise towards the Agent. | |||||||||||||||
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