Great Pacific Investments Ltd v. 张华荣

CACV 206/2023, [2024] HKCA 1147

On appeal from [2023] HKCFI 1539

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 206 OF 2023

(ON APPEAL FROM HCA NO 13 OF 2022)

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J U D G M E N T

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Hon Kwan VP (giving the Judgment of the Court):

1.This is the defendant’s appeal against the decision of Deputy High Court Judge M K Liu on 5 June 2023. The judge dismissed the defendant’s appeal against the order of Master D To on 13 February 2023 granting liberty to the plaintiff to enter partial final judgment for RMB 55 million and further allowed the plaintiff’s application for final judgment entering judgment against the defendant in the total sum of RMB 162.2 million (which included the RMB 55 million) with interest. He awarded all costs to the plaintiff, which he assessed summarily on an indemnity basis. Reasons for his decision were handed down on 9 June 2023 (“Reasons”)[1].

2.This appeal is dealt with on paper by consent after it was adjourned on 6 September 2024 due to extreme weather conditions.

3.In summary, the plaintiff claims the outstanding sum due from the defendant under an agreement for the purchase of the plaintiff’s shares in the target company (“Main Agreement”) and the 3^rd Supplemental Agreement by which time for payment of the balance of consideration was further extended. The defendant has accepted all along that he owed the sum sought by the plaintiff but contended that he is entitled to more time to pay. The judge rejected his case on promissory estoppel. This is the only ground pursued by the defendant on appeal[2].

Background

4.The plaintiff, Great Pacific Investments Ltd, is a wholly-owned subsidiary of Yue Yuen Industrial (Holdings) Ltd (“Yue Yuen”), a company incorporated in Bermuda with its shares listed on the Hong Kong Stock Exchange. As of 31 December 2021, 51.11% of the shares of Yue Yuen are owned by Pou Chen Corporation (“Pou Chen”), a leading footwear manufacturer with its shares listed on the Taiwan Stock Exchange. Public shareholders and investors hold the remainder of the shares in Pou Chen. The Pou Chen group of companies is the largest branded athletic and casual footwear manufacturers in the world.

5.The defendant, Zhang Hua Rong, is a businessman based in Mainland China and is the founder and chairman of the Huajian group of companies, with its headquarters in Dongguan and is involved in the shoe-making business.

6.The background facts giving rise to this action are set out in the Reasons at §§3 to 20:

“3. The facts which are not in dispute are as follows:

(1) P and D incorporated Hua Jian Industrial Holding Co Ltd (‘Target Company’) in the British Virgin Islands. At the beginning, each of them held 50% of the Target Company’s shares.

(2) On 22 March 2019, P, D and the Target Company entered into the《股份交易协议》 (‘Main Agreement’) where D agreed to purchase P’s shares in the Target Company for the consideration of RMB 418,000,000.

(3) D made part payment in the sum of RMB 230,641,800. Accordingly, P transferred 27.59% of the Target Company’s shares to D.

(4) P and D entered into several supplemental agreements (‘Supplemental Agreements’) to extend time for D to make further payments. By the《股权交易协议之补充协议（三）》dated 31 March 2021 (‘3^rd Supplemental Agreement’), D agreed to pay P the balance of the consideration of RMB 167,200,000 together with interest thereon by 8 instalments between 30 October 2021 and 30 May 2022.

(5) In April 2021, D paid the then accrued interest in the sum of RMB 7,617,357. From October to December 2021, D made further payments of the consideration and interest in the total sum of RMB 10,643,573.

4. On 5 January 2022, P commenced these proceedings by issuing the writ of summons (‘the Original Writ’) herein. P claimed the first 3 instalments that had fallen due under the 3^rd Supplemental Agreement as 3 sums of debt, which add to RMB 55,000,000. Specific performance was claimed for the remainder.

5. As stipulated in the 3^rd Supplemental Agreement, RMB 20,000,000 fell due on 30 October 2021, RMB 20,000,000 fell due on 30 November 2021 and RMB 20,000,000 fell due on 30 December 2021. There is no dispute that before the commencement of these proceedings, D had made partial repayments of interest as well as RMB 5,000,000 as part of the 1^st instalment.

6. On 11 August 2022, the High Court Registry received D’s acknowledgment of service of the Writ (‘Original AS’). In the Original AS, D did not dispute and indicated that he would admit P’s claim.

7. On the same day, D’s solicitor filed an affirmation, exhibiting a copy of D’s Form 16, where D admitted liability to pay RMB 59,172,192 to P and made a payment proposal.

8. On 23 August 2022, P filed its Form 16B rejecting D’s part admission.

9. On 2 September 2022, D’s notarised Form 16 admission (‘Form 16’) was filed. In his Form 16, D again admitted liability to pay RMB 59,172,192 and proposed to pay in instalments up to 30 September 2023.

10. On the same day, D filed a notarised affirmation in support of his application for payment according to his Form 16 proposal, where D admitted liability to pay RMB 55,000,000 plus interest thereon.

11. On 27 September 2022, P amended the writ of summons to include all the sums that fell due (‘the Amended Writ’). As per the Amended Writ, P is claiming for the total sum of RMB 167,200,000.

12. On 10 October 2022, the High Court Registry received D’s acknowledgment of service of the Amended Writ (‘the 2^nd AS’), in which D indicated that he would contest the claim as per the Amended Writ.

13. On 14 November 2022, D filed the Defence.

14. On 12 January 2023, P issued P’s Summons [for summary judgment].

15. On 10 February 2023, D’s counsel filed his skeleton submissions (‘D’s Call-over Skeleton’). At §3(c) of that skeleton, D’s counsel stated that D ‘does not intend to dispute the principal amount of the claim of RMB 55,000,000’.

16. On 13 February 2023, in the call-over hearing of P’s Summons, Master D To granted leave to P to enter partial final judgment against D for the sum of RMB 55,000,000 and interest.

17. On 7 March 2023, D filed his notarised 2^nd affirmation in opposition to P’s Summons (‘D’s 2^nd Affirmation’).

18. Subsequently, P filed and served the affirmation of Yang Hsiao-Tung (‘Yang’s Affirmation’) and 2^nd affirmation of Chau Chi Ming in reply (‘Chau’s 2^nd Affirmation’) (‘Reply Affirmations’).

19. On 4 April 2023, P issued a summons to re-fix the hearing of the remainder of P’s Summons (initially to be heard before a Master) to the hearing of D’s Appeal or a hearing before a Judge (‘Re-fixing Summons’).

20. On 18 April 2023, at the hearing of D’s Appeal and the Re-fixing Summons, Au-Yeung J directed that (a) D’s Appeal be heard together with the balance of the sum in P’s Summons before a Judge, and (b) the Reply Affirmations shall not be relied on for D’s Appeal, but they can be relied on for P’s application for summary judgment.”

The estoppel ground

7.This is how promissory estoppel was pleaded in the Defence at §15(3):

“There were clear and unambiguous representations made by Mr Yang Xiaodong[3], the Deputy General Manager of Pou Chen Group, the parent structure of the Plaintiff between January to July 2022 during which he, acting on behalf of the Plaintiff, agreed to revoke and/or suspend the current proceedings (i) during a Wechat conversation between Mr Yang and the Defendant in January 2022. It was represented that a new repayment plan was to be formulated by the Defendant in replacement of the 3^rd Supplemental Agreement; (ii) in and around July 2022 by way of Wechat conversation, Mr Yang represented that the Plaintiff would not ‘destroy’ the Defendant and that the Plaintiff would withhold the current proceedings as the Defendant had already demonstrated that despite the pandemic and the difficulties faced by the Target Company, the Defendant had provided supporting documents in respect of proposed alternative repayment plans to the Plaintiff; (iii) Mr Yang further represented that the remainder of the Consideration could be repaid later and there was no need for the Plaintiff to move forward with the current proceedings (the ‘representations’).” (Emphasis added)

8.The defendant deposed to this in similar terms in §27 of D’s 2^nd Affirmation[4]:

“During the period between January to July 2022, I further proposed to the Plaintiff another repayment schedule. By way of WeChat correspondence, Mr Yang Xiaodong, the Deputy General Manager of Pou Chen Group, the parent structure of the Plaintiff (‘Mr Yang’) who acted on behalf of the Plaintiff agreed to revoke and/or suspend the current proceedings by representing the following:

(a) On 6 January 2022, I represented to Mr Yang that I will formulate a new repayment plan in replacement of the 3^rd Supplemental Agreement. There is now produced and shown to me marked ‘ZHR-27’ a transcript of the WeChat conversation between me and Mr Yang on 6 January 2022.

(b) Throughout the WeChat conversation, Mr Yang acknowledged that the global pandemic had indeed severely impacted the financial position of the Target Company and proposed a few repayments schedule for my consideration.

(c) In and around July 2022, Mr Yang represented that the Plaintiff would not ‘destroy’ the Defendant and that the Plaintiff would withhold the current proceedings as I had already demonstrated that despite the pandemic and the difficulties faced by the Target Company, I had provided supporting documents in respect of proposed alternative repayment plans to the Plaintiff. There is now produced and shown to me marked ‘ZHR-28’ a transcript of the telephone conversation between Mr Yang and myself on 8 July 2022.

(d) Mr Yang further represented that the Outstanding Sum could be repaid later and there was no need for the Plaintiff to move forward with the current proceedings.”

9.The judge found fundamental problems in the case on estoppel put forward by the defendant and held that it is unarguable for these reasons[5]:

(1) An estoppel can only be established if there is a clear and unequivocal promise that the plaintiff would not enforce its rights. An agreement to an informal standstill would not suffice. To show an arguable estoppel, the defendant has to demonstrate that the plaintiff had arguably bound itself in law not to demand or sue for the debt[6]. In the Defence, it has not been pleaded (a) what are the material facts in support of the allegation that Yang has the authority to make representations which would be binding upon the plaintiff; bearing in mind that the plaintiff is a separate legal entity, the mere fact that Yang is the Deputy General Manager of Pou Chen Group is clearly not sufficient; and (b) what is the true meaning of the representations allegedly made by Yang, in particular, there is no mention how much more time Yang had given the defendant to repay the debt.

(2) The defendant has failed to adduce sufficient evidence to show that arguably Yang had made any clear and unequivocal representation on behalf of the plaintiff to the defendant. In the transcripts of the two conversations exhibited by the defendant, Yang had repeatedly and clearly said that he did not have the authority to make a decision on the plaintiff’s behalf, that the case was handled by the legal department which in turn engaged external lawyers and he was in no position to decide. The defendant had also acknowledged in response he understood that Yang’s hands were tied. It is unbelievable that the defendant could genuinely believe that Yang had the authority to act on the plaintiff’s behalf to postpone or extinguish the plaintiff’s claim of over RMB 162 million through some casual oral discussions. Further, it is trite that an agent cannot authorise himself simply by representing to the third party that he has such authority.

(3) To establish promissory estoppel, it is necessary to show that the defendant, relying on the representations made by Yang, has acted to his own detriment. The only reliance identified by the defendant is the provision of some personal loans by him to the Target Company. The defendant owned 77.59% of the shares in the Target Company at the time. In accordance with common and commercial sense, he would have given financial support to the Target Company as its majority shareholder, irrespective of the alleged representations.

(4) Clause 19.1 of the Main Agreement provided that modification to the agreement would require the written consent of the parties[7]. The law should and does give effect to a contractual provision requiring specified formalities to be observed for a variation[8]. Without any written agreement between the parties, the defendant’s repayment obligations under the Main Agreement and the Supplemental Agreements cannot be varied.

(5) The effect of the alleged estoppel is suspensory and does not extinguish the plaintiff’s rights. The plaintiff could resile from its promise on giving reasonable notice to the defendant allowing him a reasonable opportunity to resume his position. The defendant is required to state his case with supporting materials as to what would have been reasonable notice in this situation but has not done so[9].

10.Mr Lawrence Cheung, who appeared for the defendant on appeal but not below, raised these arguments to support his contention that there are serious material factual disputes regarding the representations and this is not a clear case for summary judgment.

11.First, he submitted that on the evidence Yang had the requisite authority to make the representations on the plaintiff’s behalf and the judge had erred in concluding that it is unbelievable that the defendant could genuinely believe Yang had such authority. Mr Cheung pointed to the fact that Yang was not just the Vice President of the Public Affairs Department of Pou Chen, but was also appointed a co-director of the Target Company (with the defendant) after the making of the Main Agreement. Yang was copied into the correspondence between the plaintiff (and its parent companies) and the defendant.

12.As pointed out by the judge, the plaintiff’s immediate parent company Yue Yuen is a substantial listed company with public shareholders and independent non-executive directors. Yang has never been a director or employee of the plaintiff. The fact that Yang was appointed a co-director of the Target Company is immaterial. It is not alleged that he had actual authority to make the representations. He would not have apparent authority to do so unless the plaintiff represented he had such authority. It is difficult to conceive of circumstances in which an alleged agent can acquire apparent authority simply by representing himself as having the authority[10]. There is no mention in the defence or D’s 2^nd Affirmation that the plaintiff had made any such representation of authority to the defendant.

13.Besides, the defendant’s alleged reliance on Yang’s alleged authority was plainly irrational[11], in light of these clear statements of Yang to him in the transcripts of the two conversations: that the case was given to the legal department which had engaged external lawyers to handle; that Yang was in no position to decide; that Yang suggested there would be greater confidence to persuade the board, the legal and finance departments if the defendant agreed to make a part payment before end of January 2022; that it was necessary to have a new proposal to persuade the board, the legal and finance departments; that legal documents were required to go through the legal department; that he could not say whether the management and the legal department would accept the defendant’s proposal. As noted by the judge, the defendant acknowledged to Yang that he understood the meaning of what Yang had said, that there is a board of directors and legal department.

14.There is no basis to challenge the judge’s assessment that for a seasoned businessman like the defendant, it is unbelievable that he could genuinely believe that Yang had the authority to act on the plaintiff’s behalf to postpone or extinguish the plaintiff’s claim of over RMB 162 million through some casual oral discussions.

15.Second, Mr Cheung submitted that the two conversations in the transcripts did not constitute the only communications between Yang and the defendant. The action should go to trial so that the contents and the complete conversations could be fully ventilated in the cross-examination of Yang, with the benefit of discovery of all remaining telephone and WeChat records. It is important that the defendant should be given the opportunity of having his evidence tested at trial to give the wider context to the conversations he had with Yang as relied on by him. Mr Cheung cited Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1 at §57 for the statements that in a promissory estoppel, “the meaning of the words or conduct constituting the promise or assurance has to be understood in the light of the parties’ particular relationship and especially in the light of the legal rights or powers exercisable, and known to be exercisable, by the promisor” and “one should put in focus ‘not simply the actions of the promisor but the proper interpretation to be placed on those actions given the shared background and knowledge of the parties’.”

16.These submissions are misconceived.

17.In resisting summary judgment, the burden is on the defendant to show a bona fide defence and to condescend upon particulars. If it is the defendant’s contention that he had other material conversations with Yang apart from the conversations on 6 January 2022 and 8 July 2022 contained in the transcripts, it is incumbent on him to adduce evidence of such conversations. In D’s 2^nd Affirmation at §27, he deposed to only two conversations and produced transcripts of these conversations. Nowhere did he mention there were any other material conversations. It is not permissible to ask for the action to go trial in order to fish for evidence.

18.The statements of Ribeiro PJ in Luo Xing Juan were made in the context of the relationship of a cohabiting couple and thus it was emphasized that their words and conduct had to be understood in the light of their relationship. Ribeiro PJ also said at §59 that the meaning of the promise conveyed by the promisor’s words or conduct must be clear and unequivocal and must make clear that the promisor is promising not to enforce the relevant legal rights or powers. This message “must be conveyed with a clarity similar to that needed to vary a contract”.

19.Third, Mr Cheung asked the court to take a close examination of the transcripts of the two conversations. In support of his contention that the judge should not have concluded there was no clear and unequivocal representation by Yang to withhold the present proceedings, he singled out various utterances of Yang[12]. He submitted that that Yang had said he would come up with ideas to have the litigation withdrawn, that Yang would either withhold or withdraw the litigation the next day without mentioning any condition such as a new payment plan from the defendant. He pointed out that these conversations were in January and July 2022 and although the writ was issued the day before the first conversation, the defendant only filed the acknowledgment of service in August 2022. No steps in the proceedings were taken by the plaintiff during the period of these conversations and the application for summary judgment was not taken out until January 2023. This supported the defendant’s contention that the plaintiff did withhold pursuing this action.

20.The utterances of Yang relied on were taken out of context. Read properly as a whole, Yang did not agree to be bound unconditionally to withdraw or withhold these proceedings indefinitely or to defer payment indefinitely. To the contrary, Yang had told the defendant very clearly he did not know if the proceedings could be withdrawn. He also stressed repeatedly there must be a new supplemental agreement to replace the existing agreements. Although he had said he would think of ways to push for what the defendant urged him to do, he could not say whether the board or the legal department would accept the proposals. He emphasized more than once it was necessary to have a new contract and repayment proposal before the proceedings could be withdrawn. The purport of the discussions is clear beyond peradventure.

21.The alleged representations as pleaded and repeated in D’s 2^nd Affirmation plainly do not satisfy the requirement that they must be clear and unequivocal, and do not reach the level of clarity similar to that needed to vary a contract. Nothing said in the two conversations as appeared from the transcripts are sufficient to make clear that the plaintiff had promised not to enforce its rights to seek payment under the Main Agreement and Supplemental Agreements.

22.Although the plaintiff only applied for summary judgment in January 2023, it had taken further steps in the action after the July conversation. On 23 August 2022, the plaintiff rejected the defendant’s part admission and proposed terms of payment by filing Form 16B. On 27 September 2022, it amended the writ to include all sums that had fallen due by then, namely, the total sum of RMB 167.2 million. The fact that the summons for summary judgment was only issued in January 2023 does not provide support for the defendant’s case that there was a representation to withhold proceedings.

23.The fact remains there is no contemporaneous record supporting the alleged representations apart from the transcripts. Given the context of a dispute between commercial parties which had signed legal agreements and supplemental agreements on each occasion that the time for payment was extended, it is simply not believable that the plaintiff would agree orally to be bound by an indefinite postponement of the payment date despite express provisions in the agreements.

24.Fourth, Mr Cheung submitted that the judge erred in finding there was no detrimental reliance to found estoppel. He argued that the judge second-guessed the defendant’s motives in granting a personal loan of RMB 13.9 million to the Target Company, when the defendant has stated in D’s 2^nd Affirmation at §30 that he had procured personal loans to the Target Company “in reliance of the terms of the Agreements that the Target Company may also redeem all of the Plaintiff’s shares and under the assumption that [he] would have more time to repay the Outstanding Sum [to the plaintiff][13].”

25.There is no merit in this contention.

26.Proof of reliance requires not merely proof of some act or forbearance on the part of the representee, but also proof of a causal link between the representation and the act or forbearance[14]. It is not necessary to show that the promise was the only factor which induced the representee to act or that it was the single most important factor, but the promise must have a material influence on the conduct of the representee. The defence of promissory estoppel would fail where the representee would not have acted any differently from what he otherwise would have done[15].

27.We agree entirely with the judge as a matter of common sense and commercial sense, since the defendant held 77.59% of the shares in the Target Company, he had every incentive to shore up the Target Company in times of financial distress, irrespective of the alleged representations to revoke, suspend or withhold the present proceedings. In other words, he would not have acted any differently.

28.Lastly, as pointed out by Mr Jason Yu for the plaintiff[16], Mr Cheung did not address these two points in the Reasons that are against the defendant: the no oral modification clause in clause 19.1 of the Main Agreement; and that promissory estoppel is suspensory in effect which may be terminated by reasonable notice. Mr Yu submitted that reasonable notice must have been given by the plaintiff to the defendant that the plaintiff would continue to prosecute this action, as the defendant had filed a Form 16 on 11 August 2022 with a repayment proposal and this was rejected by the plaintiff in its Form 16B filed on 23 August 2023. Hence, all suspensory estoppel must have ended by then. We are inclined to agree.

29.The judge is clearly right to hold that the case of promissory estoppel is unarguable. His decision in entering summary judgment in the total sum of RMB 162.2 million with interest is plainly correct.

30.As we have rejected the estoppel ground, there is no need to deal with the ground of appeal that the judge erred in upholding the order of Master D To granting liberty to the plaintiff to enter partial final judgment for RMB 55 million.

31.We therefore dismiss the defendant’s appeal with costs to the plaintiff. We decline to grant a certificate for two counsel.

Mr Jason Yu and Charlie Liu, instructed by W K To & Co, for the Plaintiff (Respondent)

Mr Lawrence Cheung, instructed by LCP, for the Defendant (Appellant)