Ghazi Faidi v. Qantex Capital Markets Ltd and Others
Read the full judgment text of HCA 272/2018 on BabelCite. This High Court CFI judgment was delivered on 25 August 2023.
1. This is the hearing of the Plaintiff’s summons filed on 14 December 2022 (“ P’s Summons ”) for:
Cited by 6 cases · Cites 4 cases
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HCA 272/2018 & HCA 486/2018 [2023] HKCFI 2184 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 272 OF 2018 _________________ BETWEEN
_________________ AND IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 486 OF 2018 _________________ BETWEEN
_________________ (Consolidated by Order of Master Queenie Lau dated 2 October 2018)
_________________ D E C I S I O N _________________ A. INTRODUCTION 1.This is the hearing of the Plaintiff’s summons filed on 14 December 2022 (“P’s Summons”) for:
2.The Plaintiff was an employee of the 1st Defendant (“the Company”), a licensed financial institution engaged in the business of stock brokerage. 3.The 2nd Defendant (“D2”) and the 3rd Defendant (“D3”) are brothers and are together the majority shareholders, directors and responsible officers of the Company. 4.The two actions relate to the alleged entitlements of the Plaintiff under the second employment contract dated 3 April 2014 (“Employment Agreement”) which the Plaintiff (as employee) entered into with the Company (as employer). In the Employment Agreement, D2 and D3 signed as guarantors in relation to the terms set out in Schedule 2 thereof. 5.In this action, the Plaintiff claims, inter alia, for the payment of liquidated damages of US$1,000,000 less the part-payment of US$250,000 allegedly made pursuant to Schedule 2 of the Employment Agreement, and payment of his share of the legal costs in the sum of HK$296,515 incurred in relation to a share purchase transaction that fell through. 6.By a Consolidated Defence and Counterclaim filed on 12 February 2019 (“D&CC”), the Defendants deny the Plaintiff’s claims. The Company further counterclaims for (inter alia) the return of legal fees and the sum of US$250,000 paid to the Plaintiff allegedly by mistake, and 3 months’ wages in lieu of notice under the Employment Agreement. B. FACTUAL BACKGROUND 7.The relevant background facts are set out in paragraphs 9 to 22 of the O14A Decision (defined below). The pertinent aspects relevant to P’s Summons are repeated below for ease of reference. 8.By an employment agreement dated 13 July 2011, the Plaintiff commenced employment with the Company for a fixed term of 3 years (“Initial Employment Agreement”). 9.Shortly before the Initial Employment Agreement expired, the Plaintiff entered into a new employment agreement dated 3 April 2014 (i.e. the Employment Agreement defined above), for an initial term of 39 months, to be continued indefinitely upon the expiry of the initial term until terminated. 10.The Employment Agreement contains terms that provide the Plaintiff with incentive in the form of a sign-on bonus (“Sign-On Bonus”) for agreeing to continue his employment with the Company. In particular, Clause 7.1 provides as follows:
11.Schedule 2 of the Employment Agreement (“Schedule 2”) contains the following “details of … payment” referred to in Clause 7.1 in the form of two options at the election of the Plaintiff:
12.In July 2014, D2 and D3 entered into an agreement in relation to the transfer of the Company’s shares to the Plaintiff pursuant to Clauses 2(a)-(c) of Schedule 2 (“Shareholders Agreement”). On 17 October 2014, D3 transferred 5% of the shares in the Company (“Shares”) to the Plaintiff. 13.On 24 December 2014, the Plaintiff, D2 and D3 entered into a share purchase agreement (“SPA”) with CBD Investment (Cayman) Corporation (“CBD”) pursuant to which CBD agreed to purchase, and the Plaintiff, D2 and D3 agreed to sell 85% of the shares of the Company to CBD (“CBD Transaction”). 14.Clause 4.1(c) of the SPA provides that it is a condition precedent for the CBD Transaction that the Shareholders Agreement has been terminated on terms satisfactory to CBD acting reasonably (“SPA Condition Precedent”). 15.Pursuant to the SPA Conditions Precedent, on 4 December 2015, the Plaintiff, D2 and D3 entered into a Deed of Termination (“Deed of Termination”), under which the Shareholders Agreement would be terminated. Clauses 2 and 5 of the Deed of Termination provide as follows:
16.The parties to this consolidated action and CBD entered into a Supplemental Agreement dated 4 December 2015 (“Supplemental Agreement”), pursuant to which certain clauses of the SPA including on the timing for the payment of the ”Initial Cash Consideration” were amended from payment “on Completion” to “payable as soon as practicable after Completion, but… no later than [30] March 2016”. 17.On 28 January 2016, the Plaintiff transferred the Shares to CBD. D3 also transferred his shares in the Company to CBD, whereupon CBD became the majority shareholder of the Company. 18.However, CBD failed to pay the consideration under the SPA and the Supplemental Agreement whether by the extended payment deadline or at all. This led to the execution of an unwind deed dated 20 February 2017 (“Unwind Deed”) between D2, D3 and CBD. The Plaintiff did not sign the Unwind Deed at the time. 19.On 10 February 2017, the Plaintiff served a notice on the Company (“Notice”), with copies sent to D2 and D3 as guarantors, stating as follows-
20.On 7 July 2017, the Company made a payment of US$250,000 in two separate tranches to the Plaintiff. According to the Plaintiff, despite his demands, the Defendants have not paid him the balance of the Sign-On Bonus in the amount of US$750,000. 21.On 2 July 2017, the initial 39-month term of the Employment Contract was completed. On 3 October 2017, the Plaintiff’s employment came to an end. C. PLAINTIFF’S APPLICATION UNDER ORDER 14A RHC 22.By summons dated 16 July 2020, the Plaintiff applied to have 3 preliminary questions of law or construction to be finally determined, and judgment entered in its favour for the sum of US$750,000 plus interest (i.e. the Bonus Claim), pursuant to Order 14A rule 1 of the Rules of the High Court (“RHC”) and the inherent jurisdiction of the court (“O14A Application”). The 3 preliminary questions of law or construction are as follows:
23.The substantive hearing of the O14A Application took place on 16 March 2021 before Recorder Winnie Tam SC, and judgment was reserved. 24.On 7 April 2022, when the Recorder’s decision was still pending, the Plaintiff’s solicitors wrote to the Defendants’ solicitors stating that the Plaintiff had “now executed a counterpart of the Unwind Deed pursuant to clause 3.2 therein and agreed to be bound by its terms”. The letter further requested the Defendants’ assistance in “implementing the terms of the Unwind Deed, in particular, in transferring the [Shares] currently held by CBD back to [the Plaintiff]”. 25.The Defendants’ solicitors responded by letter dated 11 April 2022 asking for a copy of the counterpart of the Unwind Deed signed by the Plaintiff, and stating (inter alia) that the Plaintiff’s execution of the Unwind Deed and assertion of ownership of the Shares was “fundamentally and diametrically opposite to his position in these proceedings which was, inter alia, that CBD was holding the Shares on trust for him but that he served notice to the 2nd Defendant electing to receive cash consideration (purportedly in accordance with clause 2(d) or 2(e)(iii)(1) of Schedule 2 of the Employment Agreement) as an alternative to retaining ownership of the Shares”. 26.The Defendants’ solicitors also wrote on the same day to the learned Recorder to inform her of the aforesaid developments, and stating that: (i) given the “new and changed circumstances…..there are strong and exceptional reasons to re-open and re-hear all parties’ arguments as to the [O14A Application]”; (ii) the Defendants will be making a formal application to restore the [O14A Application] and seek the appropriate directions from the Court as to the filing an service of further submissions as early as practicable; and (iii) they are in the process of preparing such application (“Intended Application to Re-Open”), and asking the learned Recorder to withhold handing down her decision on the O14A Application in the meantime until the disposal of the Intended Application. 27.By letter dated 14 April 2022, the Plaintiff’s solicitors wrote to the learned Recorder stating (inter alia) that (i) the Plaintiff’s position remained unchanged, namely, that the Plaintiff is the beneficial owner of the Shares and CBD is holding the Shares on trust for the Plaintiff and CBD was willing and able to transfer the Shares back to the Plaintiff; and (ii) there was no reason to allow the Defendants to relitigate the issue. 28.It is not in dispute that the Intended Application to Re-Open was ultimately not made by the Defendants. 29.By the decision of the learned Recorder dated 15 June 2022 (“O14A Decision”)[2], the Order 14A Application was dismissed with costs against the Plaintiff. 30.It appears from the O14A Decision that the learned Recorder took the view that she did not have all the necessary facts and matters before her in order to determine the questions of construction on the Second and Third Questions, and thus she exercised her residual discretion in favour of not determining the First Question either (see §91). 31.In particular, the learned Recorder applied the 3-step test in Rockwin Enterprises Ltd v. Shui Yee Ltd [2003] 3 HKC 174 at [18] and found that because there was no assertion, evidence or admission before the Court as to whether “completion” within the meaning of clause 6 of the SPA had taken place, and if so, whether before or after the date of the Notice, the Court lacked the necessary factual basis to enable it to determine the Second and Third Question, and hence Step (2) of the Rockwin test was not satisfied i.e. the learned Recorder took the view that these questions were not suitable for determination under the O.14A procedure (see §§23, 24, 75, 77, 82). 32.But notwithstanding the aforesaid, the Recorder did go on to consider and provide her analysis on all of the 3 Questions for the sake of completeness, and in deference to counsel’s arguments. In her analysis, the Recorder essentially acceded to all of the Plaintiff’s arguments on the 3 questions of construction, and rejected the Defendants’ contentions (see in particular, §§37-50, 79-80, 86-88). 33.There has been no appeal by the Plaintiff against the O14A Decision. 34.By P’s Summons, the Plaintiff now seeks summary judgment on the Bonus Claim, this time under Order 14 of the RHC, and also for an order to strike out the Bonus Counterclaim under Order 18 rule 19 of the RHC. D. THE PARTIES’ RESPECTIVE POSITIONS 35.The Plaintiff’s pleaded case in his Amended Statement of Claim filed on 14 December 2018 (“ASOC”) on the Bonus Claim is that:[3]
36.In the D&CC, the Defendants have pleaded the following defences to oppose the Bonus Claim:
37.In support of the Bonus Counterclaim, the Defendants’ pleaded case is that the US$250,000 was paid to the Plaintiff by the Company not for the purpose of settling any entitlement of the Plaintiff under Schedule 2, but under the mistaken belief that it was obliged to do so when in fact it was under no such obligation.[8] 38.It is common ground between the parties that the Bonus Claim and the Bonus Counterclaim are opposite sides of the same coin, such that if the Bonus Claim succeeds, the Bonus Counterclaim must fail and vice versa. 39.The Plaintiff contends that the Defendants’ 1st to 4th Pleaded Defences lack merit, and they have already been rejected by the learned Recorder in the O14A Decision. The Plaintiff accepts that the Defendants are not bound by the Recorder’s conclusions, nor are such conclusions binding on this Court. However, the Plaintiff submitted that the Recorder’s analyses are cogent and compelling and there is no reason for this Court to depart from them. 40.The Defendants contend that P’s Summons is an abuse of process in that the Plaintiff had, by the O14A Application, applied for pre-trial judgment but unsuccessfully, and P’s Summons does not seek to rely on any new event, evidence or argument to justify a repeat application for pre-trial judgment. On this basis, the Defendants ask the Court to dismiss P’s Summons, or alternatively, grant unconditional leave to defend. On the merits of this application for summary judgment, the Defendants rely primarily on the submissions which they had made before the Recorder, which they contend raise triable issues. E. ABUSE OF PROCESS E1. Legal principles 41.It is not disputed that the rules relating to res judicata in interlocutory matters are less stringent than those generally applicable. As accepted by the Defendants, the extent to which the doctrines of res judicata, issue estoppel and abuse of process apply to interlocutory decisions varies with (i) the nature of the original decision, and (ii) the nature of the second occasion where the doctrines might apply. 42.In Chu Hung Ching v Chan Kam Ming [2001] HKC 396 at 401E-402D, Mayo VP referred to the following part of the Alberta Court of Appeal’s Judgment in Pocklington Foods Inc v The Queen in right of Alberta (1995) 123 DLR (4th) 141 at 144:
43.Mayo VP went on to conclude at 402D-E:
44.In the case of Lau Sin v Wong Mary & Others [2018] HKLRD 202 at §33, Deputy High Court Judge Paul Lam SC (aftering considering various authorities) summarised the general principles applicable to the situation where the same interlocutory application was made again:
45.It can be seen from the aforesaid cases that the principle of res judicata is not applied to interlocutory applications strictly, and that whether there is any abuse of the process of the Court in raising the same issue in another interlocutory application should be considered on a case-by-case basis. 46.The parties confirmed to this Court at the hearing that they have no quarrel with the above principles. E2. Whether P’s Summons is an abuse of process? 47.Mr. Thomas Wong (counsel for the Plaintiff) submitted that there is no abuse of process by the Plaintiff in issuing P’s Summons. The main arguments raised by Mr. Wong in his written submissions and orally at the hearing before this Court are as follows:
48.Mr. Edward Alder (counsel for the Defendants) confirmed to the Court at the hearing that the Defendants are not relying on issue estoppel or res judicata estoppel in the strict sense to preclude the Plaintiff from issuing a second application for pre-trial judgment. His argument is that P’s Summons should be dismissed as being an abuse of process on the ground that it is essentially a “re-run” of the O14A Application, when the position before this Court is the same as it was before the Recorder, but only that this time the application for pre-trial judgment is made under Order 14 RHC as opposed to Order 14A RHC. Mr. Alder submitted that:
49.Applying the undisputed legal principles set out in Section E1 above, in determining whether P’s Summons constitutes an abuse of process, the Court shall consider all relevant circumstances and decide what may be just and reasonable, taking a holistic, rather than a dogmatic or mechanistic approach, and ultimately deciding whether it is in the interests of justice to allow P’s Summons to proceed notwithstanding the dismissal of the O14A Application. 50.After careful consideration of the parties’ respective submissions, I am of the view that P’ Summons ought not be considered to be an abuse of process. 51.First, it cannot be in dispute that the dismissal by the Recorder of the O14A Application was not by reason of the underlying merits of the Plaintiff’s Bonus Claim, but because she was of the view that the Court lacked the necessary factual basis (in relation to whether “completion” under the SPA had taken place when the Notice was served) to enable it to determine the Second and Third Questions as framed in the O14A Application. On such basis, the Recorder was of the view that Step (2) of the Rockwin test was not satisfied. 52.I agree with Mr. Wong’s submission that the perceived difficulty of the Recorder in determining the Second and Third Questions was due only to the way in which they were framed. Had such questions been framed differently (see §47(1) above), the Recorder would have been able to determine the questions. As the Recorder observed (at §70 of the O14A Decision), if the Plaintiff’s rights under Schedule 2 were exercised before completion of the SPA, then clause 2(d) applied, and if they were exercised after completion, then clause 2(e)(iii) could apply. 53.Hence, I agree with Mr. Wong that the O14A Application was defeated by reason of a technicality, in a sense that its dismissal was not related to the underlying merits of the Plaintiff’s Bonus Claim. Indeed, the learned Recorder acceded to the all of Plaintiff’s arguments on construction, including on the proper construction and applicability of Clauses 2(d) and 2(e)(iii) of Schedule 2. 54.Second, whilst it is true that the Plaintiff does not, for the purpose of P’s Summons, rely on any additional evidence which was not before the Recorder (including as regards whether “completion” had taken place[9]), the nature of the O14A Application and P’s Summons are not identical. As Mr. Wong submitted, whereas the question of whether completion had taken place when the Notice was served is not a relevant consideration for the purpose of P’s Summons and P’s Bonus Claim, it was arguably relevant for the purpose of the O14A Application, but solely by reason of how the Second and Third Questions were framed. 55.Third, I am of the view that although the Recorder was not strictly bound by how the Second and Third Questions were framed in that for example, she did have power under Order 14A RHC to: (i) combine the Second and Third Questions and reframe them in the alternative (see §47(1) above); or (ii) determine the Second Question in the affirmative on the assumption that completion under the SPA had not yet taken place by the time the Notice was issued, and to determine the Third Question in the affirmative assuming completion had taken place by the time the Notice was issued, and concluded that either way, the Plaintiff would have been entitled to Judgment on the Bonus Claim. But I also agree with Mr. Wong that although the Recorder had the power to do so, it was also open to her, in the exercise of her discretion, to decline to determine the questions by reason of how they were framed in the O14A Application. 56.As submitted by Mr. Wong, for the purpose of deciding whether there is an abuse of process, the question for this Court should not be whether the Plaintiff in fact had a viable appeal against the O14A Decision, but whether it was reasonable for the Plaintiffs to have taken the view that they did not have a viable appeal against the O14A Decision. 57.I am of the view that it cannot be said to be unreasonable for the Plaintiff to have taken the view that there was no viable appeal against the O14A Decision, on the basis that the exercise of discretion by the Recorder in declining to answer the questions by reason of the way they were framed is arguably not plainly wrong so as to justify intervention by the Court of Appeal. 58.Mr. Alder fairly accepted that it was indeed open for the Recorder to have declined to determine the 3 questions as framed in the O14A Application (and he went further to accept that the Recorder was correct in so declining). He further accepted that the decision not to determine the 3 questions was an exercise of the Recorder’s discretion which cannot be interfered with by the Court of Appeal unless it was shown to be plainly wrong. However, Mr. Alder went on to submit that the Recorder could, having declined to determine the 3 questions, nonetheless have granted judgment for the Plaintiff as if the application was an Order 14 RHC application for summary judgment. I am unable to agree with such submission.
59.In any event, even if the Recorder’s powers were as wide as contended for by Mr. Alder, the ultimate question is whether the Plaintiff was reasonable in taking the view that there is no viable appeal against the O14A Decision because the Recorder’s exercise of discretion was not plainly wrong. I consider that it is not unreasonable for the Plaintiff to have taken this view. The fact that another Judge may have come to a different conclusion is irrelevant. 60.Fourth, I also agree with Mr. Wong that this Court can take into account the merits of P’s Summons as part of the holistic review of the relevant circumstances to decide whether it is an abuse of process. This is not a case where the underlying merits of the Bonus Claim have been considered and rejected by one judge, and the Plaintiff is seeking a second determination before a different judge hoping for a different result. The Plaintiff is not mounting a collateral attack on the Recorder’s findings on the underlying merits of the Bonus Claim. To the contrary, the Plaintiff endorses the Recorder’s findings as being correct. Ultimately, the Court has to decide what may be just and reasonable, and whether allowing the Plaintiff to pursue P’s Summons would be in the interests of justice. 61.For the reasons I have set out in Section F below, I am of the clear view that the Defendants have no arguable defence to the Bonus Claim and the Bonus Counterclaim is also unarguable. Hence, it will not be just and reasonable nor would it be consistent with the underlying objectives in Order 1A r.1 RHC to preclude P’s Summons, and force the Plaintiff to pursue the Bonus Claim and defend the Bonus Counterclaim at a full trial, especially when such claims turn only on matters of legal construction of the relevant contractual documents. 62.Lastly, I also reject the Defendants’ contention that the Plaintiff has engaged in “judge shopping” by not fixing P’s Summons before the Recorder, hoping that a different judge would arrive at a better result for the Plaintiff. I do not consider that P’s Summons must necessarily be dealt with by the Recorder. In any event, P’s Summons was initially fixed before a Master in accordance with the usual procedure, and subsequently directed by the Master to be fixed for substantive hearing before a Judge.[10] The Notice of Hearing was issued on 14 February 2023 stating that P’s Summons had been fixed before Keith Yeung J. At no time prior to the Defendants’ Skeleton Submissions dated 14 August 2023 did the Defendants indicate their position that P’s Summons should be fixed before the Recorder. 63.For the above reasons, I find that P’s Summons is not an abuse of process and the Plaintiff should not be precluded from pursuing it. F. SUMMARY JUDGMENT AND STRIKING OUT 64.The approach of the Court in summary judgment applications is well-established:
See: Guanghua SS Holdings Limited v Lim Yew Cheng [2022] HKCFI 1052, §13 (per Ng J); Bhagwandas Kewaleram Murjani v Bank of India [1990] 1 HKLR 586 (CA), 589G-590H (per Hunter JA). 65.Pleadings may only be struck out in plain and obvious cases. Yet, plain is not the same as simple, and obvious is not the same as short. A manifestly misconceived claim with no prospect of success would also be deemed frivolous and an abuse of process, and may be struck out on those grounds: see Hong Kong Civil Procedure 2023, §§18/19/4, 18/19/7. 66.The parties’ respective pleaded cases on the Bonus Claim and the Bonus Counterclaim have been summarised in §§35 to 38 above. 67.For the reasons below, I do not consider that any of the Defendants’ pleaded defences to the Bonus Claim[11] are arguable, or raise any issues that should go to trial. For the same reasons, I also take the view that the Bonus Counterclaim is unarguable and should be struck out. 68.In providing my analyses below, I have (as invited to do so by counsel for both sides) considered the arguments advanced by the parties before the Recorder in the O14A Application, and also considered the reasoning provided by the Recorder in the O14A Decision, whilst bearing in mind that such reasoning is not binding on this Court. I have also considered the further submissions of the parties on the merits of the Bonus Claim and Bonus Counterclaim for the purpose of P’s Summons. F1. 1st Pleaded Defence – Clauses 2 and 5 of the Deed of Termination have superceded the Plaintiff’s right to claim for the Sign-On Bonus 69.Under the 1st Pleaded Defence, the Defendants’ case is that Clauses 2 and 5 of the Deed of Termination had the effect of superceding the Plaintiff’s right to claim for the Sign-On Bonus under Schedule 2. 70.On the other hand, the Plaintiff’s case is that Clauses 2 and 5 of the Deed of Termination only affects the Plaintiff’s rights as shareholder of the Company, otherwise, the clauses would have operated to terminate the Employment Agreement of the Plaintiff with the Company by mutual agreement.[12] 71.The 1st Pleaded Defence has been dealt with in detail by the Recorder in the O14A Decision §§37-50. I agree with the Recorder’s analyses which accord with my views. 72.As the Recorder rightly found, Clauses 2 and 5 of the Deed of Termination clearly only had the effect of terminating the Shareholders Agreement, not the Plaintiff’s right to the Sign-On Bonus under the Employment Agreement. 73.First, the “Background” section of the Deed of Termination makes it clear that the parties had only intended to terminate the Shareholders Agreement, which was a condition precedent under Clause 4.1(c) of the SPA: see O14A Decision §44. 74.Given the context and purpose for which the Deed of Termination was executed, Clause 2 thereof could not have been intended by the parties to have the effect of terminating or superceding any rights of the Plaintiff as employee under the Employment Agreement without even specifically referring to it: see O14A Decision §45. 75.Second, if one adopts the Defendants’ interpretation of Clauses 2 and 5 of the Deed of Termination, this would lead to the somewhat absurd result that the Plaintiff’s obligations as an employee of the Company would also have been superceded. This could not have been what the parties had intended: see O14A Decision §46. 76.To the contrary, Schedule 7 paragraph (g) of the SPA expressly prohibits the Company from making any change to the terms and conditions of employment of the Plaintiff: see O14A Decision §47. 77.Further, it is clearly shown from Clause 2(e)(i) and (iii) of Schedule 2 that the parties intended that the Plaintiff’s right to the Sign-On bonus would survive and continue to subsist during the period of the Third-Party Buyout, being an event which the parties had envisaged at the time the Employment Agreement was entered into: see O14A Decision §48. F2. 2nd Pleaded Defence – The Plaintiff cannot invoke Clause 2(d) of Schedule 2 because at the time the Notice was issued, the Shares had been transferred to CBD and the Plaintiff was not the legal owner of the Shares 78.Under the 2nd Pleaded Defence, the Defendants’ case is that the Plaintiff was not entitled to invoke Clause 2(d) of Schedule 2 because at the time the Notice was issued, the Shares had been transferred to CBD and the Plaintiff was not the legal owner of the Shares. This argument has no merit and has, in my view, been rightly rejected by the Recorder at O14A Decision §§79-80. 79.First, it is common ground that CBD never paid the consideration for the transfer of the Shares.[13] Hence, as the Recorder rightly found, the beneficial title to the Shares remains with the Plaintiff. Further, without having paid the consideration, there is no basis for CBD to retain the legal title of the Shares transferred, and it has been holding the Shares on constructive trust for the Plaintiff and is obliged to return the same to the Plaintiff: see O14A Decision §79. 80.Second, on proper construction of Clause 2(d) of Schedule 2, it is irrelevant that the legal title of the Shares had been transferred to CBD since the Plaintiff remained the beneficial owner of the Shares. Contrary to the Defendants’ pleaded case[14], nothing in Clause 2(d) suggests that legal title of the Shares must, as a “condition” of the agreement, also be vested in the Plaintiff at the time of the Notice, even if he only has the beneficial title and would be legally entitled to call for the transfer back of the Shares. I agree with the Recorder’s view that the Notice issued by the Plaintiff pursuant to Clause 2(d) is not made invalid only because he had yet to procure the return of the legal title of the Shares to him from CBD: see O14A Decision §80. F3. 3rd Pleaded Defence – The Plaintiff cannot invoke Clause 2(e)(iii) of Schedule 2 as the Plaintiff did not enter into the SPA by reason of any tag-along or drag-along rights 81.Under the 3rd Pleaded Defence, the Defendants’ case is that the Plaintiff cannot invoke Clause 2(e)(iii) of Schedule 2 as the Plaintiff did not enter into the SPA by reason of any tag-along or drag-along rights. This argument has no merit and has, in my view, been rightly rejected by the Recorder at O14A Decision §§86-88. 82.The parties’ dispute turns on how the following words in parentheses in Clause 2(e) should be interpreted: “if any transaction occurs by which the shareholders of the Company (including yourself whether by way of drag-along or tag-along rights…) agrees to surrender, transfer … their interest in the shares of the Company to … the Third-Party Buyout” (emphases added). 83.The Defendants argue that the words in parentheses limit and define the circumstances in which the right to serve a notice is available to the Plaintiff. They submit that the reference to “whether by way of drag-along or tag-along rights” means that the Plaintiff has no right under Clause 2(e)(iii) if has joined the Third-Party Buyout on any other basis other than as defined. 84.On the other hand, the Plaintiff contends that there is nothing in Clause 2(e) that could suggest that the Plaintiff has to have entered into the SPA by reason of exercising tag-along rights or by other shareholders having exercised on him drag-along rights before he was entitled to the give notice under the clause. 85.I agree with the Recorder’s analyses that on the proper construction of Clause 2(e), it can be invoked even where (not only if) the Plaintiff participates in the Third-Party Buyout by reason of tag-along or drag-along rights. If it were intended to exclude the Plaintiff as a shareholder from agreeing to a Third-Party Buyout other than by exercising tag-along rights or having been dragged along, such exclusion would have been made clear: see O14A Decision §86. 86.As the Recorder rightly observed, the aforesaid construction is further supported Schedule 2 Clause 2(e)(iii)(2), where the “express intention that the formula in the preceding paragraph preserves a right by [the Plaintiff] to receive a total sign-on bonus of US$1,000,000 within the Term, …” is stated “for the avoidance of doubt and in the event of any dispute”: see O14A Decision §88. F4. 4th Pleaded Defence – The Notice was not a valid notice under Clause 2(e)(iii) of Schedule 2 as it did not contain any election by the Plaintiff to forgo future earn-out rights 87.As regards the 4th Pleaded Defence i.e. that the Notice was not a valid notice under Clause 2(e)(iii) of Schedule 2 as it did not contain any election by the Plaintiff to forgo future earn-out rights, it has also been dealt with by the Recorder at O14A Decision §89. I agree with the Recorder that such contention has no merit. 88.First, it is plain that Clause 2(e) contains no requirement that the Notice has to specify the forgoing of earn-out rights. 89.Second, there are 2 options for the Plaintiff under Clause 2(e) i.e. either (i) to retain the future earn-out rights as a shareholder within the Third-Party Buyout, or (ii) to elect to forgo the future earn-out rights and receive the cash payment (calculated in accordance with sub-clause 1) in return. The statement by the Plaintiff in the Notice that “it is my decision to elect to receive a cash payment calculated in accordance with sub-clause 1” already made it clear that the Plaintiff elected to forgo the future earn-out rights. 90.For completeness, the Defendants have also pleaded[15], that the Plaintiff is not entitled to invoke Clause 2(e)(iii) since “CBD holds the Shares by reason of the Plaintiff ’s refusal to enter into the Unwind Deed”. I also reject this argument. It is irrelevant that CBD was holding the legal title of the Shares due to the Plaintiff’s refusal to sign the Unwind Deed. Nothing in Clause 2(e)(iii) suggests that legal title of the Shares must be vested in the Plaintiff at the time of the Notice. The analyses at §§79 and 80 above in relation to Clause 2(d) applies equally to Clause 2(e)(iii). 91.For the above reasons, none of the Defendants’ pleaded defences on the Bonus Claim have any merit or raise any triable issues. For the same reasons, the Bonus Counterclaim is also unarguable and bound to fail and thus ought to be struck out. G. OTHER POINTS RAISED BY THE DEFENDANTS 92.The Defendants raised the following fuether points in opposition to P’s Summons which are dealt with below. 93.First, it is alleged that there has been a “change of position” on the part of the Plaintiff in that he has, in 2022, allegedly signed the Unwind Deed. 94.Mr. Alder contends that there is no evidence as to the Plaintiff’s intention in signing the Unwind Deed and that the Plaintiff has also not provided any evidence of CBD’s consent to such late signing or the signed counterpart. Mr. Alder contends that in signing the Unwind Deed, the Plaintiff appears to be taking a different position than the position taken before the Recorder, and the “natural inference” from the Plaintiff’s belated signing was that he intended and intends to keep the Shares. He argues that this weakens the Plaintiff’s application for summary judgment. 95.I am of the view that the alleged signing of the Unwind Deed does not affect the merits of the Bonus Claim at all. The Unwind Deed is concerned with reversing the CBD Transaction, rather than affecting the Plaintiff’s right to the Sign-On Bonus under Schedule 2. This is evident from the “Background” section of the Unwind Deed. 96.Whether the Plaintiff has signed the Unwind Deed or not cannot affect the validity of the Notice and the Plaintiff’s entitlement to the Sign-On Bonus, or somehow “weaken” the Plaintiff’s application for summary judgment. The Plaintiff’s case is that CBD has been holding the Shares on trust for him all along (see §79 above) and CBD is willing and able to return the Shares to the Plaintiff or anyone else upon the Plaijntiff’s instructions.[16] The Plaintiff’s execution of the Unwind Deed in 2022 only goes to show that the Plaintiff was still able to demand CBD to transfer the legal title of the Shares back to him and is consistent with the Plaintiff’s pleaded case. 97.Second, insofar as the Defendants argue that the question of whether “completion” had taken place when the Notice was served had not been adequately addressed in the Plaintiff’s evidence, and is a matter for trial, I reject this argument. 98.Whether completion under the SPA had taken place when the Notice was issued is irrelevant to the Plaintiff’s Bonus Claim. If completion had taken place, then the Plaintiff was entitled to invoke Clause 2(d) of Schedule 2. If completion had not taken place, the Plaintiff was entitled to invoke Clause 2(e) of Schedule 2. Either way, the Plaintiff is entitled to the Sign-On Bonus. 99.In fact, the Defendants had not pleaded that the Bonus Claim should be dismissed because either the SPA had completed or had not yet completed at the time the Notice was served. Indeed, the Defendants have not themselves filed any affirmation evidence on this issue. Nor have they provided any response to the statement in the Plaintiff’s 2nd Affirmation that the Plaintiff has been advised by his lawyers and believe that “completion” of the SPA had taken place by the time the Notice was issued (see §48(3) above). 100.For completeness, I also do not consider that the Notice is defective or rendered invalid just because it stated that the Plaintiff was writing to “notify [the Company] under clause 2(d) and (e)(iii) of Schedule 2 of my decision to receive [the Sign-On Bonus]” (emphasis added), albeit that only one of the two provisions could apply depending on whether completion had taken place. The mistaken use of the word “and” as opposed to “or” cannot change the substance, effect or purpose of the Notice, which was to inform the Defendants of the Plaintiff’s election to receive the Sign-On Bonus of US$1,000,000. 101.Third, insofar as the Defendants argue they have a good defence and bona fide counterclaim by reason of the new pleas in the draft Amended Defence and Counterclaim (which was not pursued in Mr. Alder’s written or oral submissions before this Court), I reject this argument. The new pleas are substantially identical to the assertions contained in the D3’s 1st Affirmation[17] filed in opposition to the O14A Application. 102.As rightly observed by the Recorder, these assertions concern the parties alleged “subjective intentions” and “changing mentality”, which are irrelevant to the construction exercise: see O14A Decision §74. 103.In any case, Mr. Alder has not provided any submissions to this Court as to how such new pleas may affect the arguability of the Defendants’ pleaded defences. H. DISPOSITION 104.For the reasons above, I make the following orders:
105.The order nisi set out in §104(2) above shall become absolute unless an application to vary the same is made within the next 14 days.
Mr. Thomas Wong, instructed by Eversheds Sutherland, for the Plaintiff Mr. Edward Alder, instructed by Tanner De Witt, for the Defendants [1] As pleaded in §§27 and 38 and prayer (3) of the Consolidated Defence and Counterclaim filed on 12 February 2019. [3] ASOC §§22-28 [4] D&CC §14(6), §22(2). [5] D&CC §22(3). [6] D&CC§22(4)(a). [7] D&CC §22(4)(d). [8] D&CC §27, §38. [9] Save for the statement in the Plaintiff’s 2nd Affirmation: see §48(3) above. [10] See Order of Master Hui dated 6 January 2023. [11] See §36 above for a summary of the 1st to 4th Pleaded Defences. [12] Reply and Defence to Counterclaim §7. [13] Amended Statement of Claim §18; D&CC §17. [14] D&CC §22(3). [15] D&CC §22(4)(b). [16] ASOC §21; Reply and Defence to Counterclaim §8. [17] See in particular §§14-22 and 25. | ||||||||||||||||||||||||||||||||||
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