Tang Chack Wing (By His Next Friend Tang Kit Yan Carrie) v. Yung Woon Kwai
Read the full judgment text of HCA 1837/2020 on BabelCite. This High Court CFI judgment was delivered on 22 May 2024.
1. Mr Tang Chack Wing (“ Mr Tang ”, the Plaintiff) and Mr Yung Woon Kwai (“ Mr WK Yung ”, the Defendant) have been working under the same roof of Chun Yip group of companies for over 40 years. As the evidence shows, together they worked very hard. And together they saw the growth and shared the success of the group. This is the trial of a dispute between them.
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HCA 1837/2020 [2024] HKCFI 1331 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1837 OF 2020 ______________
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____________________ JUDGMENT ____________________ A. Introduction 1.Mr Tang Chack Wing (“Mr Tang”, the Plaintiff) and Mr Yung Woon Kwai (“Mr WK Yung”, the Defendant) have been working under the same roof of Chun Yip group of companies for over 40 years. As the evidence shows, together they worked very hard. And together they saw the growth and shared the success of the group. This is the trial of a dispute between them. 2.In 2019, Mr Tang wished to retire and sold all his stake to Mr WK Yung. Now, Mr WK Yung argues that he is not obliged to pay because he has validly terminated the agreement. Mr Tang instead claims against Mr WK Yung for specific performance of the agreement and the outstanding purchase price under the agreement. This action turns on whether Mr WK Yung’s termination is valid. 3.The agreement between them was in Chinese, namely, “股份買賣合同” (“Agreement for Sale and Purchase of Shares”) (“ASP”). It was signed on 15 August 2019. In the ASP, Mr Tang sold all his shares in 4 companies in Chun Yip group of companies to Mr WK Yung at the price of HK$1 billion (HK$1,000,000,000). Mr WK Yung paid the first instalment of HK$10,000,000 but failed to pay the rest. Therefore the balance of the purchase price now Mr Tang claims against Mr WK Yung is HK$990,000,000. 4.The time went back to 1960s when Mr Yung Yui Kwai (“Mr YK Yung”), Mr WK Yung’s brother, set up a Chun Yip Polyethylene Products Co. for the manufacture of plastic products. Mr WK Yung joined the business in early 1970s. In 1979, they incorporated Chun Yip Plastics Limited (駿業塑膠有限公司) (“CY Plastics”) to take over the business of Chun Yip Polyeyethylene Products Co. 5.Mr Tang joined CY Plastic in around 1981. He was responsible for sales and marketing, as well as export and shipping logistics, of CY Plastics’ products. Mr WK Yung was responsible for the overall management of the manufacturing and production process in the Shenzhen factory. Mr YK Yung, being the founder, the then Chairman and Managing Director of Chun Yip group of companies (“CY Group”) oversaw all aspects of the business and the day-to-day operation. 6.Since 1980s, the business grew substantially. A number of companies were incorporated, each holding assets and operating a part of CY Group’s business. These companies include:
7.CY Shenzhen was a wholly owned subsidiary of CY Mauritius. CY Shenzhen owns a large-scale factory in Shenzhen which manufactures CY Plastics’ products. 8.Under the ASP, Mr Tang sold all his shares (the “Subject Shares”) in CY Plastics, CY Holding, CY Mauritius and Joinmark (the 4 companies collectively “the Subject Companies”) to Mr WK Yung. 9.Unfortunately, Mr Tang was recently certified by doctors as lacking the mental capacity to conduct the present legal proceedings and testify at this trial. By the order of Mr Justice Fung made at the pre-trial review on 17 August 2023, his daughter Ms Tang Kit Yan Carrie (“Ms Carrie Tang”) was appointed as his next friend to conduct and to continue the present proceedings. Ms Carrie Tang gave evidence for his father. B. Background leading to the ASP 10.Since 2009, there had been a legal feud between (a) Mr YK Yung of one side and (b) Mr WK Yung and Mr Tang of the other, which involved accusations of breach of fiduciary duties, mismanagement, misappropriation of company funds, attempts to disrupt and derail the business of CY Plastics and CY Holding and exclusion from management[1]. 11.The litigation between the two camps ended in 2019 with a settlement. They signed 3 settlement agreements on 15 August 2019 – the same date as the ASP. The settlement agreements split the companies, assets, and business of CY Group between the two camps. This is recorded in Recital (B) of the ASP. 12.Clause 2.1 of the ASP provided that signing of 2 of the said 3 settlement agreements (which concern the Subject Companies) was condition precedent to the sale and purchase of the Subject Shares. This is readily understandable because as recorded in Recital (D) and Clause 4.1 of the ASP, after completion of the said 2 settlement agreements with Mr YK Yung, Mr Tang and Mr WK Yung would become the only shareholders of the Subject Companies, each holding 50% shares of every company. The ASP is predicated upon this state of affairs. 13.Recital (B) of the ASP also recorded Mr Tang’s intention to retire from the company business (“賣方亦打算退出公司業務”). This intention would be realized as and when the sale of his shares to Mr WK Yung is completed. C. The ASP 14.I set out the material terms of the ASP in its original Chinese[2] below:
References to clause numbers below are to the clauses in the ASP. D. Mr WK Yung’s failure to pay 15.After the signing of the ASP, on 15 September 2019, pursuant to Clause 3.2, Mr WK Yung paid the first instalment of the consideration at HK$10,000,000 to Mr Tang. 16.On 15 August 2020, Mr WK Yung did not pay Mr Tang the second instalment of the purchase price in the sum of HK$190,000,000. 17.On 18 August 2020, Mr Tang’s then solicitors (Messrs Au, Thong & Tsang, “ATT”) sent a letter to Mr WK Yung, giving him a two-month grace period pursuant to Clause 3.3[3]. The letter further demanded that pursuant to the same clause, if Mr WK Yung still could not pay the said sum of HK$190,000,000 together with relevant interest within the grace period, i.e. before 15 October 2020, all instalments which had not yet been due under the ASP should be deemed to be immediately due and payable, and Mr Tang could forthwith demand in writing Mr WK Yung to pay the total outstanding amount and could apply to the court for successful judgment in respect of that amount. ATT also invited Mr WK Yung to contact them if he had any suggestion regarding payment of the said amount. 18.The said two-month grace period expired on 15 October 2020. Mr WK Yung did not pay the second instalment. 19.On 16 October 2020, ATT, on Mr Tang’s behalf, issued a letter before action to Mr WK Yung, demanding for payment within 7 days of the entire remaining balance of the purchase price of the Subject Share under the ASP, totalling HK$990,000,000. 20.Mr WK Yung did not pay either. E. Mr WK Yung’s First Termination 21.Instead, on 22 October 2020, Mr WK Yung’s solicitors (Messrs Hugill & Ip, “Hugill”) issued a letter in Chinese to ATT referring to the ASP (“Hugill’s Termination Letter”)[4]. At paragraph 1 of this letter, Hugill informed Mr Tang that because of the previous social incident and Coronavirus disease pandemic, the business of the Subject Companies has been seriously adversely affected; and that although Mr WK Yung had the intention to complete the ASP transaction, he could not reach a supplemental agreement which was acceptable to both parties. In that circumstance, as stated this letter, Mr WK Yung did not have the ability to complete the transaction and could only terminate the ASP. 22.Paragraph 2 of Hugill’s Termination Letter stated that Mr WK Yung thereby formally informed Mr Tang that the ASP was terminated. 23.Paragraph 3 of the same letter stated that Mr WK Yung expected to continue to operate the Subject Companies together with Mr Tang. 24.At this juncture, in my judgment, by his conduct, namely repeated failure to pay in accordance with Clause 3.2 and Clause 3.3, culminated in the issuance of Hugill’s Termination Letter, Mr WK Yung has committed a repudiatory breach of the ASP. 25.It is plain that Mr WK Yung’s non-payment of the purchase price deprives Mr Tang’s fundamental entitlement under the ASP. 26.Hugill’s Termination Letter attempted to explain why Mr WK Yung terminated the ASP: (1) poor business of the Subject Companies caused by the previous social incident and Coronavirus disease pandemic, (2) no supplemental agreement concluded between Mr WK Yung and Mr Tang and (3) Mr WK Yung’s inability to complete the transaction. Obviously, none of them entitles Mr WK Yung to terminate the ASP lawfully. There is nothing in the ASP which allows Mr WK Yung to rely on these reasons to terminate. Inability to pay a committed obligation is never a lawful reason for not paying. However, Mr WK Yung did not rely on these reasons in his pleading. 27.In paragraph 8 of the Amended Defence, Mr WK Yung averred that Mr Tang had breached Clause 4.2(A) and repudiated the ASP, by failing to actively engage in the operations of the businesses of the Subject Companies and/or failing to procure and ensure the normal daily operations of the businesses of the Subject Companies. Then in paragraph 9 of the Amended Defence, Mr WK Yung averred that he accepted Mr Tang’s repudiation and by Hugill’s Termination Letter, he terminated the ASP. 28.I find this plea unsustainable. 29.Firstly, the Termination Letter did not say what the plea says. In the letter, Mr WK Yung did not allege that Mr Tang had breached the ASP at all. As mentioned in paragraphs 20 and 26 above, it was Mr WK Yung who notified Mr Tang that he was unable to complete the transaction. His solicitors confirmed in writing that it was because of his inability to pay the outstanding price that he terminated the ASP. And it was the poor business, which was caused by the social incident and the pandemic in the last few years, that led to his inability to pay[5]. As said above, obviously, inability to complete was no lawful reason for him not completing. The Termination Letter was Mr WK Yung’s unilateral declaration that he would not honour his obligations under the ASP. In other words, Hugill’s Termination Letter squarely evinced Mr WK Yung’s intention not to be bound by the ASP. In contrast to his plea, Mr WK Yung did not lay the blame on Mr Tang in the letter. The reason for Mr WK Yung’s unilateral termination, as recorded in Hugill’s Termination Letter, has nothing to do with Mr Tang. 30.Secondly, and in any event, as to be explained in Section F below, in my judgment, Mr Tang did not breach Clause 4.2(A). F. No breach of Clause 4.2(A) 31.To recapitulate, Clause 4.2(A) reads: “在等待成交之際: (A)雙方應促使該等公司經營其日常業務猶如一般正營運中的事業，並會在經營上徵詢對方的意見”. (“Prior to the completion of the transaction, the seller and the buyer shall prompt or cause[6] the normal daily operations of the businesses of the Subject Companies and that the seller and buyer would consult with each other on the operations of the businesses of the Subject Companies ”). 32.Mr WK Yung’s allegation of Mr Tang’s breach of Clause 4.2(A) is pleaded in paragraph 8(1) to (4) of his Amended Defence:
33.None of these complaints infringes the express term of Clause 4.2(A):
34.For the above reasons, Mr WK Yung’s complaint of Mr Tang’s breach of Clause 4.2(A) is a non-starter. G. Clause 4.2(A) – an innominate term 35.If I am held to be wrong, that indeed Mr Tang was in dereliction of his duties (that he should have done as what Mr WK Yung pleaded but he did not) and breached Clause 4.2(A), I would hold, as the Plaintiff’s counsel submitted, that Clause 4.2(A) is not a condition (strictly so called), the breach of which entitled Mr WK Yung to terminate the ASP. In my view, it is an innominate term of the ASP and Mr Tang’s breach of it does not deprive Mr WK Yung of substantially the whole benefit of the contract. 36.Regarding the ascertainment of whether a clause is a condition or an innominate term, I refer to the succinct summary of Gross LJ in the English Court of Appeal in Ark Shipping v Silverburn Shipping [2019] 2 CLC 57 at §46:
This approach is followed recently by Deputy High Court Judge Man SC in Pui Ying Middle School of Hong Kong v Hong Kong Council of the Church of Christ in China [2021] HKCFI 692 at §255. 37.The “innominate term” is so described simply because there are contractual terms where they can neither be classified as “condition” (the breach of which amounts to repudiation of the contract) nor as “warranty” (the breach of which does not entitle the non-defaulting party to treat the contract as repudiated). This nature was very well explained by Diplock L.J. (As Lord Diplock then was) long before it was so named, in Hongkong Fir Shipping Co Ltd v Kawasaki Kisen Kaisha Ltd [1962] 2 QB 26 at 70:
38.So, in determining the legal consequence of an innominate term, the Court should look at the consequence of the breach and see whether it has taken away the non-defaulting party substantially the whole benefit which he should obtain from the contract. 39.In the present case, I find Clause 4.2(A) neither a condition nor a warranty. The first observation is Clause 4.2(A) was not expressed to be a condition or a warranty in the ASP. Whilst this is not decisive, this is a relevant consideration and indeed the starting point of the analysis. Had the parties wished to make the position plain, they could have used the language of condition (or warranty, as the case may be). They have not done so. Further, it would not have been the parties’ original intention at the time of the ASP to treat every breach of Clause 4.2(A) of one party as repudiation which entitles the other party to terminate the ASP[13]. Taking one of Mr WK Yung’s complaints in paragraph 8(3) of the Amended Defence (see paragraph 32 above) as illustration, assuming it is correct to say that Mr Tang breached Clause 4.2(A) because it was very difficult to contact him, in my view, such a breach would not have deprived Mr WK Yung of substantially the whole benefit which it was intended that he should obtain from the ASP[14]. Still further, assuming that there was an objective bystander, if we ask him to take one step backward and observe what happened, and put to him the question whether the parties intended Clause 4.2(A) to be a condition or a warranty, in my view, following Ark Shipping referred to in paragraph 36 above, the answer of the objective bystander would be he could not tell because a breach of Clause 4.2(A) might result in trivial, minor or very grave consequences. Since it cannot be definite that Clause 4.2(A) was intended to be a condition or only a warranty, it will be innominate. 40.Then the next step will be to consider whether the alleged breaches of Mr Tang, assuming established, entitled Mr WK Yung to treat those breaches as repudiation and terminate the ASP. 41.As explained in the passage in Hongkong Fir Shipping referred to in paragraph 37 above, the exercise is to examine the extent of the breaches. The test is recapitulated in Pui Ying Middle School of Hong Kong at §257:
42.At the trial, I can see no evidence adduced by Mr WK Yung showing what substantial benefit that he should have obtained from the purchase of the Subject Shares has been deprived of by reason of the alleged breaches. Coupled with the reasons explained in paragraph 33(3) to (9) above, even assuming that those matters pleaded in paragraph 8(1) to (4) of the Amended Defence did amount to breach of Clause 4.2(A), I find it to be unlikely that the alleged breaches have deprived him of substantially the whole benefit of the ASP. 43.Therefore, if I am held to be wrong, that the complaints laid in paragraph 8(1) to (4) of the Amended Defence are indeed breaches of Clause 4.2(A), nonetheless it would not entitle Mr WK Yung to treat Mr Tang’s breach as repudiation and terminate the ASP. 44.For the above reasons, Mr WK Yung’s attempt to terminate the ASP by Hugill’s Termination Letter on 22 October 2020 failed. To the contrary, the letter evinces his intention not to perform the ASP and complete the purchase. Apart from the non-payment of the price due, it also constituted his repudiation of the ASP. 45.It follows, in my judgment, that unless and until Mr Tang accepts Mr WK Yung’s repudiation (by Mr WK Yung’s wrongful failure to pay and by his unlawful termination of the ASP by issuance of Hugill’s Termination Letter) and terminate the ASP (or in other words, for so long as the ASP is subsisting), Mr WK Yung’s obligation to pay the balance of the purchase price of the Subject Share remains continuing. It is a continual breach. In my view, this formed the major context of the events that followed. H. Mr Tang’s 2 Winding Up Petitions 46.On 29 October 2020, Mr Tang commenced the present proceedings against Mr WK Yung for the remaining unpaid purchase price of his shares in the Subject Companies and specific performance of the ASP. 47.Negotiations between the parties ensued, but they did not bear fruit. 48.On 28 April 2021, Mr Tang, through his former solicitors ATT, lodged 2 winding up petitions (collectively “the Petitions”) against CY Holding and CY Plastics respectively (under HCCW 167/2021 and HCCW 168/2021, collectively “the Winding Up Proceedings”). The contents of the 2 Petitions are basically identical. I shall briefly describe below the contents of the Petitions, since they constitutes the context upon which Mr WK Yung went for a second bite of the cherry and terminated the ASP for the second time. 49.Section 177(1)(f) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance[15] was cited in the Petitions as the basis for winding up of two of the Subject Companies by the Court. 50.In summary, the Petitions recited (1) the basic information of the company, (2) the background leading to the ASP, (3) Mr WK Yung’s failure to comply with the ASP to pay, (4) Mr Tang’s commencement of the present proceedings and (5) Mr WK Yung’s defence in the present proceedings (i.e. the Clause 4.2(A) defence discussed above). Then, with nothing more, the Petitions conclude:
51.In other words, all that Mr Tang relied on in asking the Court to wind up CY Holding and CY Plastics on just and equitable ground was the unresolved dispute in the present proceedings. No other issues were raised. 52.It is incumbent for me to express the view that I have grave doubt as to whether, as a matter of law, the Court would order to wind up a company on just and equitable ground solely (and no other) on the basis that there is an ongoing litigation concerning an unperformed share purchase agreement between its shareholders (who are also directors). 53.Therefore, it is also incumbent for me to express the view that the Petitions have no real prospect of success. It is apparently obvious that given the contents of the Petitions, the prospect of CY Holding and CY Plastics being wound up was distantly remote. I. Mr WK Yung’s Second Termination 54.Whilst Mr WK Yung was still in a state of continuous breach because of his continual failure to pay the balance of the purchase, seemingly he saw the Petitions, added with some lately alleged Mr Tang’s dilatory incidents, as another opportunity to get away from the ASP. On 9 July 2021, Mr WK Yung issued another letter from Hugill (“Hugill’s 2nd Termination Letter”), basing on a newly formulated implied term and again Clause 4.2(A). 55.Mr WK Yung’s case in this respect can be found in paragraphs 11 and 12 of the Amended Defence:
56.As to the Implied Terms alleged to have been breached by Mr Tang, Mr WK Yung’s formulation is pleaded in paragraph 5 of the Amended Defence:
57.I shall first deal with the alleged breach of the alleged Implied Terms, then the alleged further breach of Clause 4.2(A) [17]. J. The Alleged Implied Terms 58.First, I shall deal with whether there is such implication as alleged by Mr WK Yung and if so, what are the contents of the terms. 59.Mr WK Yung pleaded that the alleged Implied Terms are implied out of the necessity to give the Agreement business efficacy and/or to represent the obvious intention of the parties. There are no particulars pleaded in support of the implication. In the Defendant’s opening submissions[18], it is said since the Subject Shares are the very subject matter of the ASP, it goes without saying that Mr Tang cannot destroy the Subject Shares’ value pending completion, or venture to put an end to a state of affairs where the Subject Shares can be transferred to Mr WK Yung[19]. The Defendant’s closing submissions add nothing further. 60.My first observation is the alleged Implied Terms go much wider than what the Defendant submitted and relied upon. As mentioned in the preceding paragraph, the purpose of the implication is to prevent destruction of the subject matter of the ASP, i.e. the Subject Shares, so that they could be transferred from Mr Tang to Mr WK Yung on completion. The scope of the Defendant’s suggested implication is much wider than the prevention of destruction. As can be seen from paragraph 5 of the Amended Defence referred to in paragraph 56 above, it covers not only destruction but doing anything which may diminish or negatively affecting the value and economic substance of the Subject Shares. 61.Secondly, the scope of the alleged Implied Terms is not only wide but also unreasonable (see Footnote 19 above). The value diminished can be trivial or insignificant. The negative effect can be small. The cause of diminution can be faultless on the part of Mr Tang during the normal course of conducting business. The alleged Implied Terms as formulated by the Defendant are so wide that Mr Tang can be allegedly caught with a breach for doing something petty or blameless. I have grave doubt if this is what the parties would have intended. As such, in my view, such implication cannot be “goes without saying”. 62.Thirdly, as discussed above, Clause 4.2(A) requires the parties to keep the normal daily operations of the businesses of the Subject Companies. The scope and nature of this clause, described by the Defendant’s counsel as the Normal Operations Clause or “operating as usual”, is the same as, similar to, or largely overlapped with the second part of the alleged Implied Terms, the essence of which is to prevent the operation of the Subject Companies as a going concern from being adversely affected. I therefore consider that this part of the alleged Implied Terms has been displaced by Clause 4.2(A) which is an express term of the ASP. 63.Fourthly, the wording of the alleged Implied Terms in the Amended Defence is not clearly formulated. Words like “procure or suffer anything to be done, which would have the effect of …” are not capable of clear expression or delineation. The meaning of the phrase “economic substance” cannot be defined with sufficient precision. For clarity, I prefer the straightforward formulation in the Defendant’s written submissions (see Footnote 16 above). 64.Lastly, the ASP is all about Mr Tang selling the Subject Shares to Mr WK Yung. I accept the Defendant’s counsel’s submissions that it goes without saying that Mr Tang should not do anything to destroy the value of the Subject Shares which he is going to sell to Mr WK Yung. 65.For the above reasons, I am prepared to hold that there is an implied term of the ASP, but its contents are limited to the extent that Mr Tang will not do anything to destroy the value of the Subject Shares (“No Destruction Implied Term”). 66.Consequently, I reject the implication of the other parts of the Implied Terms alleged by the Defendant, namely, that the Plaintiff will not do anything to diminish the value of the Subject Shares; that the Plaintiff will not do anything to adversely affect the ability of the Subject Companies to operate as a going concern. With this conclusion, there is no need to look into the question of whether Mr Tang has breached these two parts of the alleged Implied Terms (which I find not in existence). 67.I then go on to decide whether Mr Tang has breached the No Destruction Implied Term. K. No breach of No Destruction Implied Term 68.In my judgment, there is no such breach. 69.In so far as the No Destruction Implied Term is concerned, the Defendant’s case is:
70.Destruction is permanent. The starting point is commencement of the Winding Up proceedings would not per se destroy the Subject Shares. It is only when an order for winding up is made then the Subject Shares (together with the value that they carry) can be destroyed. 71.The Defendant’s counsel submitted[21] that pursuant to section 182 of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32[22], in a winding up by the Court, a transfer of the shares made after commencement of the winding up will be void; therefore, the Plaintiff created a situation where he could no longer validly transfer those parts of the Subject Shares (which were caught under the Winding Up Proceedings) to the Defendant. 72.It is correct for the Defendant’s counsel to say that after Mr Tang commenced the Winding Up Proceedings, he could not transfer his shares in CY Holding and CY Plastics to the Mr WK Yung. But this inability is not necessarily permanent. It depends on whether, at the end after the trial of the Winding Up Proceedings, the Petitions succeed or not, or in other words, whether winding up order would be granted against the two companies. Other than the Petitions being dismissed, if they were withdrawn, Mr Tang’s ability to transfer the shares to Mr WK Yung could also be restored. 73.Moreover, the submission of the Defendant’s counsel has ignored the important fact that at the time when Mr Tang issued the Petitions on 28 April 2021, his obligation to transfer the Subject Shares to Mr WK Yung has not yet arisen. Clause 3.3 expressly stated that it is not necessary for Mr Tang to transfer the Subject Shares to Mr WK Yung before he received the outstanding purchase price, the related interest and the legal costs in relation to his application to the court for judgment of the outstanding purchase price (“為免歧義，雙方確認，在賣方仍未全數收到上述的作價、相關利息及相關的訟費前，賣方並不須要將出售股份轉名予買方”)[23]. It is incontrovertible that at the time when the Petitions were issued, Mr WK Yung has not yet paid Mr Tang the outstanding purchase price of HK$990,000,000. As such, Mr Tang has not yet been obliged to transfer the Subject Shares to Mr WK Yung. 74.Therefore, Mr Tang’s inability to transfer after the commencement of the Winding Up Proceedings does not assist Mr WK Yung’s case[24]. 75.The Defendant’s counsel also relied on the remark of Hartmann J (as His Lordship then was) in Re Essentially Yours (HK) Ltd, unreported, HCCW 378/2000, 29 December 2000 at the first complete paragraph of page 12 of the judgment:
76.This reliance does not assist the Defendant either. As is clear from the beginning of the above cited passage, the share will only be worthless and destroyed “if this petition for winding up is successful”. This is in line with the view expressed in paragraph 70 above: that commencement of the Winding Up proceedings would not destroy the shares of the two companies; and that it is only when an order for winding up is made that those shares (together with the value that they carry) can be destroyed. 77.For completeness, I should mention that on 8 September 2021, with leave of the Court, the Plaintiff withdrew the Petitions and discontinued the Winding Up Proceedings. Throughout the period between the commencement and the discontinuance of the Winding Up Proceedings, Mr WK Yung did not pay or did not ever indicate[25] that he intended to pay the outstanding purchase price. As such, Mr Tang’s obligation to transfer the Subject Shares to him did not arise. 78.For the above reasons, I conclude that Mr Tang’s commencement of the Winding Up Proceedings by issuance of the Petitions does not amount to a breach of the No Destruction Implied Term. 79.However, I do consider that Mr Tang’s act of commencing the Winding Up Proceedings amounted to a breach of Clause 4.2(A), although such breach did not constitute repudiation. This finding will be discussed in the following section. L. Mr Tang’s Breach of Clause 4.2(A) by Lodging the Petitions and its Consequence 80.As explained in paragraph 33, particularly 33(1), above, the requirement of Mr Tang and Mr WK Yung under, Clause 4.2(A), particularly its first part (i.e. “雙方應促使該等公司經營其日常業務猶如一般正營運中的事業”), is to keep the normal business operation of the Subject Companies. 81.It must be correct that lodging a winding up petition against a company is a serious threat against a company. As the Defendant’s counsel described, the existence of a winding up petition, a fact which is known to the public, could be disturbing and would cause serious concern to the Subject Companies in running their business. As Yuen J (as Her Ladyship then was) described in Wong Tin Chee & ors v Wong To Yick & anor [2001] 2 HKLRD 683 at page 688, the first complete paragraph, the threat of a pending winding-up order hanging over the head of a company is like the sword of Damocles. Mr Tang’s filing of the Petitions put the two companies into an extremely precarious situation. 82.As such, it would be difficult to say the normal business operation of the Subject Companies would not be affected by the Petitions. A validation order has to be applied for, so as to continue normal business transactions like selling products or making payments. I would not describe this situation of the two companies as “operating as normal”. 83.In the above circumstance, therefore, I find that Mr Tang, by lodging the Petitions, has breached Clause 4.2(A). 84.However, I would not find that the breach constituted a repudiation and entitled Mr WK Yung to terminate the ASP, for the reasons that (1) as discussed in Section G above, Clause 4.2(A) is an innominate term, and (2) the consequence of Mr Tang’s breach did not deprive Mr WK Yung substantially the whole benefit which he should obtain from the ASP. 85.Looking at the consequence of the breach, the Defendant’s counsel submitted[26] the Petitions had the following deleterious effects on the Subject Companies:
86.I agree with the Plaintiff’s counsel that the consequence of the Petitions did not deprive the Defendant substantially the whole of the benefits that he would have obtained from the ASP:
87.As submitted by the Plaintiff’s counsel, Ms Patricia Yung alleged during cross-examination that the impacts of the Petitions were indeed substantial because there were other complaints. However, she did not name who those customers or suppliers were and did not produce any documentary evidence to prove the existence of these complaints. Moreover, she agreed that any downturn in performance of the Subject Companies[33] might be due to the poor economic climate caused by the pandemic. 88.For the above reasons, the only conclusion that this Court can reach is that the Plaintiff’s breach of Clause 4.2(A) by his lodging of the Petitions does not carry the consequence of depriving the Defendant of substantially the whole benefit of the ASP that he should obtain from it, i.e. the Subject Shares. 89.For completeness, I should mention that as referred to in paragraph 55 above, the Defendant also pleaded that there was unreasonably delay in the Plaintiff approving the audit documents of the Companies, and that he had also unreasonably delayed the approval of certain written resolutions regarding the conversion of CY Mauritius from a Category 2 company into an Authorised Company, which was necessitated by the legislative changes in the Republic of Mauritius. These 2 complaints are in the same nature of those complaints made by the Defendant in respect of his first unlawful termination, as discussed in sections E & F above. There is no dispute that Mr Tang did sign the requisite documentation, albeit allegedly belatedly (which, in my view, is necessary for me to make a finding). For the same reasons as explained in section F above, there is no breach of Clause 4.2(A) on Mr Tang’s part in respect of the matters complained in paragraphs 11 and 12 of the Amended Defence. If I am held to be wrong, following the analysis in section G above, I do not consider the consequence has any substantial or material adverse effect on the business of the Subject Shares such that Mr WK Yung would be substantially deprived of the whole benefit that he should obtain from the ASP had he proceeded to pay and complete it. M. Alleged Renunciation by the 15 April 2021 Email 90.The Defendant relied heavily[34] on an email issued by Ms Carrie Tang to Ms Patricia Yung on 15 April 2021 (“the 15.4.2021 Email”) to say that this email evinced Mr Tang’s clear intention not to be bound by the terms of the ASP. 91.In essence, the Defendant said:
92.I disagree. 93.As is trite for determining whether a statement by a party evinces an intention not to perform the contract, such statement must be objectively clear and absolute, see Philipp Doodt v Huang Shihu [2020] HKCFI 241 at §43 per Deputy High Court Judge Blair, citing Ipson Renovation Ltd v IO of Connie Towers, unreported, HCCT 26/2014, 16 December 2016 at §45:
94.In addition, in my view, in understanding what a document means, particularly in the present case an email written by someone who is not a lawyer, one must consider the context of that email and should not look at the face of isolated sentences only. 95.As the Defendant’s counsel correctly mentioned (see paragraph 91 above), the 15.4.2021 Email was written by Ms Carrie Tang, expressly on Mr Tang’s behalf, in the context of the futile, unfruitful negotiation with Mr WK Yung for a supplemental agreement of the ASP. In addition, it is very important to note, and the Defendant’s counsel did not mention, that, as mentioned in the email itself[37], the 15.4.2021 Email was also written against the backcloth of Mr WK Yung’s fundamental breach of his own obligation, i.e. his failure to pay under the ASP. It follows that at that particular juncture, the obligation of Mr Tang to transfer the Subject Shares to Mr WK Yung has not arisen. The other relevant context that the Court should take into account in understanding the meaning of the 15.4.2021 Email is, as recited in Recital (B) of the ASP and mentioned in paragraph 13 above, the purpose of Mr Tang’s sale of all his shares in the Subject Companies is to retire. 96.In my judgment, it is reasonably clear to a reasonable man with the knowledge of the above context that what was said in the 15.4.2021 Email was essentially:
97.As such, if the Court put to the reasonable man who has just read the 15.4.2021 Email with the knowledge of the above context, the rhetorical question that whether Mr Tang, by the 15.4.2021 Email, did mean that he would not complete the ASP and transfer the Subject Shares to Mr WK Yung even if Mr Yung now came back and told Mr Tang, “I now pay you” and did pay Mr Tang the balance of the purchase price in accordance with the ASP, in my view, the reasonable man’s answer will certainly be that Mr Tang will proceed with completion of the ASP and transfer the Subject Shares to Mr WK Yung. 98.I therefore do not consider that by the 15.4.2024 Email, Mr Tang has evinced an intention not to perform the ASP by transferring the Subject Shares to Mr WK Yung if Mr Yung paid him the balance of the purchase price together with interests thereon and legal costs in accordance with the ASP. 99.I should add that the reference to commencing winding up proceedings does not alter the above analysis and conclusion because, as I have held above, lodging the Petitions did not per se constitute repudiation of the ASP. N. Conclusion and Disposal of the Plaintiff’s claim 100.For the above reasons, all the arguments raised by the Defendant in defence failed. Mr WK Yung breached the ASP by his failure to pay. Mr Tang succeeded in his claim. Mr Tang asks for payment of the balance of the purchase price, i.e. HK$990,000,000. This order can only be made in specific performance of the ASP. After Mr WK Yung complies with the order to pay, in accordance with the ASP, Mr Tang shall have to transfer the Subject Shares to Mr WK Yung. 101.Mr WK Yung’s counterclaim for return of the first instalment of the purchase price of the Subject Shares, i.e. HK$10,000,000 is accordingly dismissed. 102.I therefore order that judgment be entered for the Plaintiff against the Defendant in the following terms:
103.Costs should follow the event. I make an order nisi (which shall become absolute after 14 days of this Judgment unless an application for variation is made) that the Defendant shall pay costs of this action, with certificate for two counsel, to the Plaintiff, the amount of which is to be taxed if not agreed. 104.I express my gratefulness towards the parties’ counsel for their able assistance.
Mr Richard Leung and Mr Tommy Cheung, instructed by Messrs Cheung & Choy, for the Plaintiff Mr John Hui and Mr Alex Yeung, instructed by Messrs Hugill & Ip, for the Defendant [1] Paragraph 10 of 1st Affirmation of Mr WK Yung and paragraph 8 of his witness statement, and paragraph 7 of 2nd Affirmation of Mr Tang [2] There is no certified English translation of the ASP produced by the parties. Office English translation of some clauses is agreed between the parties and set out in the Agreed Facts dated 26 October 2023. [3] According to Clause 3.3, if Mr WK Yung could not pay an instalment, he should give Mr Tang a written notice 7 days before the stipulated date for payment of an instalment. Mr WK Yung did not do so with his non-payment of the second instalment. However, Mr Tang did not take issue with Mr WK Yung’s failure to give the 7-day advance notice in accordance with Clause 3.3. [4] Originally, this letter was not included in the trial bundles. At the trial, upon the Court’s enquiry, both parties consented to produce it and included it in the trial bundles, notwithstanding it was marked “無損權益-沒有法律約束力 以合約的簽訂為依據”. This letter does not contain any contents of settlement negotiation. Instead, it clearly indicated Mr Tang’s intention to formally terminate the ASP with immediate effect. Therefore, I consider that the marking of “無損權益-沒有法律約束力 以合約的簽訂為依據” does not affect the analysis of this letter basing on the contents of the letter. [5] The written and oral evidence of Mr WK Yung, Ms Carrie Tang (Mr Tang’s daughter) and Ms Patricia Yung (Mr WK Yung’s daughter) is that Mr WK Yung had tried to sell a property in Repulse Bay beneficially owned by him and his family jointly and use the sale proceeds for part payment of the purchase price of the Subject Shares. However, as Ms Patricia Yung explained further, at first no one wanted to purchase the property. Also, both Patricia Yung and Mr WK Yung explained further that there was a development project in Shenzhen which as they expected would bring them enough revenue for completing the payment, but the sale of the development depended on a lot of external uncontrollable factors which appeared not to have been materialized. See paragraphs 5.1 & 5.2 of the supplemental witness statement of Mr WK Yung (“翁煥貴之補充證人陳述書”) dated 5 August 2022, paragraph 20 of the witness statement of Ms Carrie Tang and the WhatsApp communications between Ms Carrie Tang and Ms Patricia Yung adduced before the Court. [6] This translation is taken from paragraph 2(vi) of the Agreed Facts, except that I have substituted “procure and ensure” with “prompt or cause”. This is because firstly I do not find accurate in the present context to adopt “procure and ensure” as the correct translation of “促使”. “Procure and ensure” looks to me carrying a requirement of guarantee, meaning “確保”, which I do not consider to be present here. Secondly, the phrase “確保” has been used in Clause 4.2(C) and Clause 4.2(D). If it was intended for Clause 4.2(A) to carry the same meaning “確保”, instead of “促使”, should also be used in Clause 4.2(A) as in Clause 4.2(C) and Clause 4.2(D). Therefore, I consider “prompt” or “cause” are better translation for “促使”. [7] The second part of the clause, namely “並會在經營上徵詢對方的意見” is more specific, requiring Mr Tang and Mr WK Yung to consult each other’s views in the business operation. Mr WK Yung did not specifically complain against Mr Tang in respect of this part of the clause. [8] Paragraph 11(e) of the Defendant’s opening submissions and paragraph 52 of the Defendant’s closing submissions [9] Paragraph 19(a) of the Defendant’s opening submissions [10] The Phrase “as he did before” is vague. It would be difficult to ascertain the reference time – “as he did” immediately before the ASP was signed, or “as he did” on the latest date when Mr Tang did the marketing work himself without any delegation. In my view, this exercise seems futile. [11] Even so, I would consider the consultation which is required of them, being the top management of the Subject Companies, should only be those matters which are significance to the businesses of the Subject Companies, and not those relatively insignificant or minor. Certainly Mr Tang would not expect himself to be consulted by Mr WK Yung on selection of office supplies. [12] The Defendant argued that although Mr Tang was going to retire, he was still required to work until his retirement. This argument is neither here nor there. The crux of the question is still whether there are works which Clause 4.2(A) requires Mr Tang to do but he has failed to do. [13] See the last paragraph at 69, Hongkong Fir Shipping. [14] Mr WK Yung did not show to the Court what loss he has suffered as a result of the alleged breach of Clause 4.2(A) by Mr Tang. [15] Section 177(1)(f) reads, “A company may be wound up by the court if – (f) the court is of opinion that it is just and equitable that the company should be wound up.” [16] The wording of the alleged Implied Terms is formulated differently in the Defendant’s written submissions, see paragraph 21(b) of the Defendant’s opening submissions and paragraph 9 of the Defendant’s closing submission (i.e. that Mr Tang “will not do anything to diminish and/or destroy the value of the Subject Shares, or adversely affect the ability of the Joint Companies to operate as a going concern”), nonetheless the meaning is basically the same. [17] In the Defendant’s closing submissions, the Defendant’s counsel for the Defendant approach the matter slightly different. In the closing submissions, they characterized the Plaintiff’s conduct as renunciation of the ASP, and put it as the Defendant’s principal case, and the repudiatory breach of the alleged Implied Terms and Clause 4.2(A) as the alternative. My analysis will instead follow the sequence of the Defendant’s pleading. [18] Paragraph 22 of the Defendant’s opening submissions. [19] In making this proposition the Defendant’s counsel for the Defendant relied on Chitty on Contracts (34th ed 2021) at §16-027. However, the same §16-027 in Chitty on Contracts added the following proviso which the Defendant’s counsel did not mention:
[20] Paragraph 23 of the Defendant’s opening submissions and paragraph 47 (iv) of the Defendant’s closing submissions [21] Paragraph 23(a) of the Defendant’s opening submissions and paragraph 47 (iv)(n) of the Defendant’s closing submissions [22] Section 182, the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap. 32 reads as follows:
[23] Clause 3.3 further provided that Mr Tang’s obligation to transfer shall only arise 2 working days after he received from Mr WK Yung the outstanding purchase price and interest thereon and the related legal costs (“但賣方 … 須於全數收到上述的作價、相關利息及相關的訟費後的二個工作天內將出售股份轉名予買方。”). [24] The only requirement of Mr Tang under Clause 3.3 before his obligation to transfer arises is not to dispose of or sell in any way the Subject Shares (“賣方並不可以任何方式處置出售股份”). Issuance of the Petitions does not, in my view, amount to disposing of or sell the shares of the two subject companies under the Winding Up Petitions. [25] Actually, Mr Tang has not been paying and has not ever indicated that he is ready, willing and able to pay until now. [26] Paragraph 24 of the Defendant’s opening submissions and paragraph 30 of the Defendant’s closing submissions [27] Paragraph 49 of Mr WK Yung’s witness statement [28] This was recorded in emails from Hang Seng Bank Limited to Ms Alice Yip of CY Group. There was no other documents showing further details adduced to the Court. [29] As submitted by the Plaintiff’s counsel, Ms Patricia Yung agreed during cross-examination that whilst a few cheques or inward transfers (i.e. payments to the companies) could not be deposited or received, at the end arrangements were made and such cheques or inward transfers could be deposited or received, e.g. into another account. This shows that when the Subject Companies faced this problem at the material time, even before the validation orders, there was/were way(s) out. [30] This was in fact the case. Validation orders were applied for and granted on 4 June 2021, without substantive objection from the Plaintiff. [31] Paragraph 70(3) of the Plaintiff’s closing submissions [32] In an email from Mitsubishi to Ms Patricia Yung, the relevant part of what was said in the meeting is as follows:
[33] The parties did not adduce any finance or accounting reports of the Subject Companies showing how their businesses have been performing during the relevant years, particularly before and after the Petitions. [34] Paragraph 25(b) of the Defendant’s opening submissions and paragraphs 17-25, 46, 47(i) & 48 of the Defendant’s closing submissions. It should be noted that this argument is not pleaded in the Amended Defence. The 15 April 2021 was not featured in the Defendant’s pleading. [35] Paragraph 46 of the Defendant’s closing submissions [36] Paragraphs 47(i)(d)&(e) of the Defendant’s closing submissions [37] A lesser relevant fact is that the 15.4.2021 Email was written in reply to Ms Patricia Yung’s email chasing Mr Tang to sign the approval of the written resolutions regarding the conversion of CY Mauritius from a Category 2 company into an Authorised Company, as mentioned in paragraph 89 above. The email reads as follows:
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