Tdc Capital Solution Ltd v. Wong Sung King Dorothy and Others

HCA 1598/2022

[2025] HKCFI 954

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1598 OF 2022

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D E C I S I O N

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INTRODUCTION

1.This is a consequential hearing following my decision dated 22 May 2024 in this action (“Decision”). The abbreviations used in the Decision will continue to be used below.

2.By the Decision, I struck out P’s SOC but gave it liberty to lodge and serve a Draft ASOC to address certain defects in its SOC.

3.P has subsequently lodged and served its Draft ASOC pursuant to my orders.  However, Ds contend that P’s claims cannot be salvaged by the amendments proposed in the Draft ASOC. 

4.The parties have therefore come before me for determination as to whether the proposed amendments ought to be allowed.

BACKGROUND

5.The background to the underlying dispute has been set out in §§2 – 22 of the Decision and will not be repeated in full here.

6.In gist, the dispute arose out of the written Service Agreement between the Original Intermediaries and Ds pursuant to which the former agreed to assist D1 to D3 in selling the shares in D4, D5 and others to an external buyer in return for the Service Fee.  The Service Agreement was later varied by the Supplemental Service Agreement whereby P assumed the rights and obligations of the Original Intermediaries.

7.For present purposes, the material terms in the Service Agreement are found in Clauses 1.1, 1.1.2 and 1.1.3.  As mentioned in §8 of the Decision, these clauses provide as follows:

a.  By Clause 1.1, the Original Intermediaries “undertook to complete various matters stipulated below” (“承诺完成以下事宜”) including, inter alia, to assist Ds such that Ds would receive a cooperation framework agreement and/or sign a framework agreement and/or sign an asset or share purchase agreement (ie the SPA) by 30 November 2016 on the basis that the terms of the sale should “satisfy the conditions stipulated below” (“满足以下条件”).

b.  In relation to the Southern Land, Clause 1.1.2 requires that the SPA shall expressly provide that the buyer (ie the Southern Land Conditions):

i.    shall use its best endeavours to assist the Target Companies in recovering from the local authority the “Southern Land”, namely 300 mu that had been resumed by the local authority and 400 mu for which no land premium had yet been paid (collectively 700 mu outside the Subject Land), including but not limited to providing information and the Target Companies’ chops, and sending representatives to assist in the negotiations between the Target Companies and the local authority;

ii.   confirms that any land premium paid on behalf of the Target Companies for the Southern Land or compensation payable therefor would belong to Ds;

iii.  shall use its best endeavours to assist D1 to D3 in setting up one or more project companies for the purposes of holding the grants approved by the local authorities over the Southern Land, and transferring the benefit of the land premium paid by the Target Companies to the new project company/companies; and

iv.  confirms that its interests to be acquired through the SPA shall be limited to the Subject Land.

c.  In relation to the School, Clause 1.1.3 requires that the SPA shall expressly provide that (ie the School Conditions):

i.    the buyer would assist Ds in their application to the local authorities to move the School from its then current location on the Subject Land to the Southern Land;

ii.   in the event that the School is moved to the Southern Land, the buyer shall provide all necessary assistance free of charge; and

iii.  in the event that the move to the Southern Land is not approved by the local authority, the buyer agrees to allow the School to remain in the Subject Land occupying no less than 40 mu by way of a 70-year lease at nominal rent, and the sale consideration and the reserve price would be correspondingly reduced to reflect the reduction of 40 mu buildable area.

8.However, the SPAs that were eventually entered into between Ds and the buyers (ie the Tahoe Companies) do not contain some of the key terms specified in the Conditions.  Despite having made a number of part payments for the Service Fee, Ds contend in the context of their strike out application that P is not entitled to payment of the balance of the Service Fee since there is a mismatch between the Conditions and performance under the Service Agreement and that the payment obligation had therefore not been triggered.  As such, the SOC discloses no reasonable cause of action and ought to be struck out.

THE DECISION

9.On 22 May 2024, I handed down my Decision on Ds’ strike out application.

10.As discussed in §§26 – 32 of the Decision, Ds submitted at the substantive strike out hearing on 8 January 2024, and I agreed, that on the basis of the claim as then pleaded in the SOC, there was a mismatch of the pleaded performance and the payment conditions.  There was also no explanation as to why the terms eventually found in the SPAs (which are materially different from the Conditions) nevertheless can be construed as having the effect of the Conditions.

11.Importantly for present purposes, Mr Chang SC, Counsel for P who appeared before me at the last hearing on 8 January 2024, advanced the following construction argument (ie P’s Construction) in opposition to Ds’ strike out application (as recorded in §33 of the Decision):

a.  What P was required to do under the Service Agreement was to obtain for Ds a written document with legal effect and the Conditions of which would be reflected and be consistent with Clauses 1.1.1 – 1.1.3.

b.  Given that:

i.    the Service Agreement preceded any agreement P was to obtain for Ds;

ii.   the contemplated sale involved not only a straightforward transfer of shares but also the need to apply for and obtain increased plot ratio, seek re-vesting of and compensation for the Southern Land, and cater for the move of the School,

all these were contingencies which were not part of P’s responsibilities and their outcomes could not be guaranteed by P.

c.  As such, as a matter of construction, P’s obligations are limited to providing a contractual framework consistent with Clauses 1.1.1 – 1.1.3.  This is reinforced by Clause 2.4 of the Service Agreement which provides that “any” final agreement reached between Ds and, inter alia, Tahoe would be treated as the result of the services rendered by the Original Intermediaries to which the obligation to fully pay the Service Fee shall apply.

d.  As far as the SPAs are concerned, whilst the 18/11/16 SPA contemplates a successful move to the Southern Land, it importantly makes clear that Tahoe was committed to exploring alternatives including allowing the School to operate within the Subject Land if such need should arise.  Indeed, this was what happened.  The Conditions are only “contingencies” beyond P’s control and not something which P has promised to deliver.  The 18/11/16 SPA has indeed provided the framework to cater for the contingencies that the Southern Land could not be obtained and that the School could not be moved there.

e.  As such, P has clearly performed its obligations under the Service Agreement and is entitled to full payment of the Service Fee.

12.Having considered P’s Construction carefully, I came to the view that I could not dismiss it as unarguable.  However, since P’s Construction had not been pleaded in the SOC but only in the Reply filed on 22 November 2023, I struck out the SOC but gave P an opportunity to amend its SOC to rectify its pleading defect (see Decision §§34 – 35, 41 – 47).  In particular, I specifically found in §§43 – 44 of the Decision that P’s Construction is not unarguable or bound to fail for the following reasons:

a.  Clear words are required before a clause is classified as a condition precedent (in the sense that the condition must be precisely fulfilled), since it may deprive a contractual party of a right for a trivial breach that bears little or no prejudice and loss on the other: Lewison on the Interpretation of Contracts (7^th Ed, 2020) at §16.14.

b.  Clause 1.1 of the Service Agreement provides that the conditions set out in Clauses 1.1.1 – 1.1.3 are to be satisfied or “滿足”.  It may be argued that those words do not call for strict and literal compliance.

c.  In light of the contextual matters set out in §33 of the Decision, it is not unarguable that Clauses 1.1.2 – 1.1.3 did not intend to operate as conditions precedent requiring strict and literal compliance before P would be entitled to the Service Fee.

d.  Indeed, it may be said that a literal and strict interpretation of the Conditions would be against Ds’ own interests as sellers as this would leave no room for negotiation with the potential buyers on those conditions, and thus making a successful sale more difficult.

13.It should also be mentioned that at the substantive strike out hearing on 8 January 2024, P advanced the Waiver Contention and the Estoppel Contention as an alternative to P’s Construction in opposition to Ds’ strike out application.  As recorded in §36 of the Decision, by those contentions, P submitted that even if the terms of the SPAs did not satisfy Clauses 1.1.2 – 1.1.3 of the Service Agreement:

a.  Ds had waived any alleged non-compliance since:

i.    these clauses operated solely for Ds’ benefits;

ii.   Ds being privy to the Service Agreement plainly knew that these terms existed and were for their benefit; and

iii.  Ds communicated its waiver to P by entering into various SPAs and the Supplemental Service Agreement and by making part payments of the Service.

(ie the Waiver Contention)

b.  Ds are estopped from insisting upon full compliance with Clauses 1.1.2 – 1.1.3 since:

i.    Ds made an unequivocal representation by conduct to P that Ds had waived Clauses 1.1.2 – 1.1.3 in entering into the 18/11/16 SPA, the 6/1/17 SPA and the Supplemental Service Agreement;

ii.   Ds’ payments to P as mentioned in §16 of the Decision further perpetuated the aforesaid representation;

iii.  P detrimentally relied on Ds’ representation, for eg, by procuring Tahoe to continue to perform the various SPAs and expending its connections and resources to achieve the above, and by abstaining from taking measures for the protection of its rights under the Service Agreement etc.

(ie the Estoppel Contention)

14.I ruled that as the Waiver Contention and the Estoppel Contention had not been pleaded in the SOC but only in the Reply, they could not salvage a defective SOC where complete causes of action had not been pleaded.  However, given that I found that P’s claims were not bound to fail on its contractual interpretation contention, I did not have to rule on whether the Waiver Contention and the Estoppel Contention were bound to fail (see Decision §§37 – 40, 45).

THE DRAFT ASOC

15.In the Draft ASOC lodged and served after the Decision, P has introduced a number of new paragraphs to Section C of the pleading entitled “Performance of the Relevant Services” to further elaborate on how and why P has fully performed and discharged its obligations under the Service Agreement.

16.It is evident from the Draft ASOC that the pleas at the new §28A (“Construction Plea”), §29A (“Waiver Plea”) and §29B (“Estoppel Plea”) substantially mirror the pleas of P’s Construction, the Waiver Contention and the Estoppel Contention respectively as pleaded in P’s Reply.

17.Ds now oppose these amendments proposed by P on the basis that they are bound to fail and/or are time-barred by s35(3) of the Limitation Ordinance (Cap 347).  In respect of the Construction Plea, Ds also contend that it is not sufficiently particularised.

THE CONSTRUCTION PLEA

18.In relation to the Construction Plea, I do not agree that it lacks particulars.

19.Paragraph 28A of the Draft ASOC begins with a clear statement that on the true construction of the Service Agreement set in its proper context and background, the Original Intermediaries and P have fully discharged their obligations under the Service Agreement, and strict and legal compliance with the Conditions was not required for them to be “satisfied” under Clause 1.1 thereof.

20.Paragraph 28A.1 then goes on to plead the context and background relied upon, including, inter alia, that:

a.  The Sale was subject to various contingencies which were not part of the responsibilities of the Original Intermediaries or P and their outcomes were not guaranteed by the Original Intermediaries or P under the Service Agreement.

b.  Instead the relevant services under the Service Agreement were confined to the Original Intermediaries and P assisting Ds to obtain a framework agreement or an asset or share acquisition agreement from an intended purchaser which satisfied the Conditions and complete the legal approval procedures required and obtain payment of the deposit by certain stipulated dates.

c.  It was wholly up to Ds to decide whether to enter into and execute the same and thereafter vary the terms thereof with the intended purchaser.

21.In relation to Ds’ criticism that P has not pleaded what amounted to the satisfaction of the Conditions, P has sufficiently pleaded in §28A.2 of the Draft ASOC that the Original Intermediaries and P procured and obtained for Ds the 18/11/16 SPA (whether by itself or subsequently varied) pursuant to which a contractual framework was set up with the intended purchaser to give effect to and satisfy the Conditions.

22.Indeed, in relation to the mismatch between P’s performance and the Conditions, P has provided particulars in §28A.2(a) and (b) of the Draft ASOC of the manner in which the various SPAs created a contractual framework to cater for the contingencies and to thereby give effect to and satisfy the Conditions.

23.I therefore agree with P’s submission that a party reading the Construction Plea would know the construction of Clause 1.1 of the Service Agreement which it contends, the factual basis of such construction and its case on how the Conditions were satisfied even though the Conditions were not strictly complied with.

24.Indeed, as I noted in §16 above, this Construction Plea in §28A of the Draft ASOC mirrors the plea of P’s Construction in the Reply.  In other words, P has merely transposed the relevant plea in the Reply to the Draft ASOC.  In coming to my Decision that P’s Construction could not be dismissed as unarguable, I necessarily had no difficulty in understanding the plea in the Reply which now forms the new §28A of the Draft ASOC.

25.As regards Ds’ contention that the Construction Plea is bound to fail, this ought to be rejected also on the basis that I had already ruled in the Decision that P’s Construction was not bound to fail.  The Construction Plea in §28A of the Draft ASOC merely pleads out P’s Construction as found in the Reply.  There are no new changes to the plea which will cause me to come to a different conclusion from the one I reached in the Decision.

26.As regards Ds’ time-bar contention, the relevant questions for present purposes are whether the proposed amendments seek to add or substitute a new cause of action and if so, whether the new cause of action arises out of the same or substantially the same facts as are already in issue in the existing claim (see Shenzhen Futaihong Precision Industry Co ltd v BYD Company Ltd [2019] 2 HKC 175 at §74).

27.In the context of a statement of claim that has been struck out because it is defectively pleaded and the plaintiff is given an opportunity to file a fresh statement of claim, P has drawn my attention to the decision of Burrell J in Li Tin Sang v Poon Bun Chak (unrep, HCA 9296/2000, 11 Apr 2003) and in particular §§8 – 9 as follows:

“The basis of Mr Kenneth Kwok, SC’s submission on behalf of the defence is that as the original Statement of Claim was struck out as disclosing no cause of action any subsequent pleading which discloses a cause of action must, by definition, be a new cause of action.  I do not regard this as a sound argument.  “New” should be construed as meaning a different cause of action, not in the sense that hitherto it did not exist.  The cause of action in the Amended Statement of Claim did not suddenly appear from nowhere, it existed before albeit it had been defectively pleaded.  The fact that new averments are made in the Amended Statement of Claim does not mean it is a new claim.  If the underlying basis of the claim remains substantially the same then the likelihood is that it will not be a new claim…

In my view, in the present case, the amended claim is entirely recognizable as the original (defectively pleaded) claim which has been clarified.  Further, it remedies the defects to which Woolley DJ had pointed. The relief sought is the same save in one respect.  Of seven forms of relief originally claimed, only the first is amended.  Originally it was “damages for breach of contract and/or procurement of breach of trust”.  The amended version is simply “damages for breach of contract”.  Far from a new or different claim, submits Mr Michael Bunting, SC for the plaintiff, it is a “slimming down” of the same claim, albeit more particularized.  I agree.”

28.Burrell’s decision was upheld by the Court of Appeal (unrep, CACV 119/2003, 12 Nov 2003) where Rogers VP held at §13 that:

“…There was a cause of action which was pleaded. It was a cause of action in contract, as indeed, was referred to by Deputy Judge Woolley in paragraph 6 of his decision. The fact is that it was defectively pleaded. It was not a matter that the action was commenced in respect of something which did not constitute a cause of action, it was a situation where there was a defect in the pleading, which was recognised by the Deputy Judge as being curable.”

29.In the present case, it is clear that the new amendments in the Draft ASOC do not raise any new cause of action.  The cause of action remains one of breach of contract.  The Construction Plea is corrective and merely pleads further facts upon which P’s action is based.  There is therefore no merit to Ds’ time-bar contention.

30.In the circumstances, I allow the amendments proposed by P in relation to the Construction Plea.

THE WAIVER PLEA AND THE ESTOPPEL PLEA

31.In respect of the Waiver Plea and the Estoppel Plea, the primary position of P is that they are not causes of action and should properly be pleaded in the Reply.  However, since I ruled in the Decision that P’s Construction had not been properly pleaded in the SOC and that the pleas of waiver/estoppel in the Reply could not be used to salvage a defectively pleaded SOC, Mr Dawes SC (Counsel for P) has helpfully informed me during the hearing that P has inserted the Waiver Plea and the Estoppel Plea in the Draft ASOC out of an abundance of caution even if P does not necessarily need them in the ASOC.

32.In view of my ruling above allowing P’s proposed amendments in respect of the Construction Plea and Mr Dawes’ indication, it is not necessary for me to specifically rule on Ds’ opposition to the Waiver Plea and the Estoppel Plea that they are bound to fail and/or are time-barred.

DISPOSITION

33.For the above reasons, I allow all the amendments proposed by P in the Draft ASOC save and except the Waiver Plea at §29A and the Estoppel Plea at §29B.

34.I therefore make the following orders:

a.  P do have leave to file the Amended Statement of Claim as per the Draft ASOC (save and except §§29A and 29B thereof) within 7 days from the date of this Decision.

b.  Ds do have leave to file an Amended Defence within 28 days thereafter.

c.  P do have leave to file an Amended Reply within 28 days thereafter.

35.As for costs, I do not see any reason to depart from the usual order that the costs of and occasioned by the amendment of the SOC be to Ds, and I so order. 

36.As for the costs of the hearing (including all preparation and incidental costs in dealing with Ds’ grounds of opposition), P has asked for such costs with certificate for 2 counsel.  In this regard, P has submitted a statement of costs for summary assessment totalling HK$971,960.  In reply, Ds have lodged written submissions contending that even if I were to allow P’s amendments, P should only be awarded costs to the tune of HK$477,320.  Ds further submit that if P is successful only on part of its amendments, the costs of the hearing should be further apportioned.

37.In view of my ruling above that I have only allowed part of P’s amendments, I will only allow 50% of P’s costs of the hearing with certificate for 2 counsel.  Having carefully considered Ds’ costs submissions and adopting a broad brush approach, I order Ds to pay P the costs of the hearing on 20 December 2024 summarily assessed at HK$390,000.

38.I thank all Counsel for their assistance.

Mr Victor Dawes SC and Mr Cedric Yeung, instructed by DLA Piper Hong Kong, for the Plaintiff.

Mr Bernard Man SC and Mr Jonathan Fung, instructed by Gallant, for the 1^st to 5^th Defendants.