Total Treasure Development Ltd and Another v. Rht Industries Ltd

HCA 1746/2024

[2026] HKCFI 53

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1746 OF 2024

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BETWEEN

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DECISION

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Introduction

1.The defendant (“D”)  appeals against the order of Master Kinsey Kang dated 8 July 2025, granting summary judgment to the 1^st plaintiff (“P1”)  and to the 2^nd plaintiff (“P2”)  in the sum of HK$8,265,000 and HK$16,530,000 respectively, plus interest and costs.

2.The appeal is by way of re-hearing pursuant to Order 58 of the RHC.

Background

3.P1 and P2 (“Ps”)  each entered into a Share Subscription Agreement with D dated November 2017 (the “Subscription Agreements”), under which Ps subscribed for certain new shares in D to be issued by D, at the price of HK$5,000,000 in the case of P1 and HK$10,000,000 in the case of P2.

4.Clause 5 of the Subscription Agreements provided:

(1)  Under clause 5.1, that D guaranteed certain specified minimum profit levels for the financial years ending 31 December 2017 and 31 December 2018 (the “Guaranteed Profit”); and

(2)  Under clause 5.2, that under certain specified circumstances, Ps had the right to request D to re-purchase the shares which Ps had bought at a price of: “Subscription Price x 1.1 x the number of years for the period from the date of the Subscriber has become a shareholder of [D] until the date the of repurchase of the shares of [D]” (the “Formula”).

5.The three sets of circumstance specified in clause 5.2 which would trigger Ps’ rights to request D to repurchase the shares were:

(1)  If the sum of the actual audited consolidated net profits after tax and any extraordinary or exceptional items of D for the financial years ending 31 December 2017 and 31 December 2018 fell below 70% of the Guaranteed Profit;

(2)  If D has not been listed on the Hong Kong Stock Exchange (“HKSE”)  within three years of the issuance of the shares to be issued (the “Subscription Shares”); or

(3)  If D has not been wholly acquired by a  company listed on the HKSE within three years of the issuance of the Subscription Shares

6.In January and 2018, Ps paid the purchases prices under the Subscription Agreements to D, and new shares in D were allotted to P1. In February 2018, new shares in D were allotted to P2.

7.On 30 May 2022, Ps issued letters (the “May 2022 Letters”)  to D indicating that: (i)  the audited consolidated net profits after tax in the fiscal years ended 31 December 2017 and 31 December 2018 were lower than 70% of the respective Guaranteed Profit under Clause 5.1; (ii)  D was not listed on the HKSE nor had it been wholly acquired by a company listed on the HKSE; and (iii)  Ps gave formal notice to require D to repurchase of the shares which had been sold to them, pursuant to clause 5.2 of the Subscription Agreements.

8.By letters dated 28 June 2022, D responded to Ps indicating that the actual wording of the Formula did not reflect the true intentions of the parties to the Subscription Agreements, which was rather that the repurchase price for the shares under clause 5 of was to be calculated as: “Subscription Price + Interest of 10% per annum for the period from the date of the Subscriber has become a shareholder of [D] until the date of the purchase of the shares of [D]” (“the Revised Formula”).  Ds offered to proceed with the repurchase of the shares on the basis of the Revised Formula (offering HK$7,165,000 in the case of P1 and HKD$14,330,000 in the case of P2).

9.Certain correspondence ensued, and by a letter dated 17 June 2024 Ps claimed that the correct repurchase prices should be HK$34,870,000 in the case of P1 and HK$69,740,000 in the case of P2, relying on a literal interpretation of the Formula and rejecting D’s proposed Revised Formula. 

10.By their Statement of Claim, Ps claimed against D pursuant to clause 5 of the Subscription Agreements, on the basis of the Formula on its literal wording.  By their Defence and Counterclaim, Ds inter alia pleaded common mistake and sought rectification of the clause 5 of the Subscription Agreement such that the Formula be replaced with the Revised Formula. By their amended Statement of Claim dated 4 March 2025, Ps added an alternative claim against D based on the Revised Formula.

11.Ps’ summons dated 4 March 2025 sought summary judgment against D pursuant to a literal reading of the Formula (in the amounts of HK$35,915,000 and HKD$71,830,000); alternatively on the basis of the Revised Formula (in the amounts of HK$8,265,000 and HK$16,530,000).

12.By a decision and order dated 8 July 2025, Master Kinsey Kang took the view that the question of common mistake and rectification warranted further investigation at trial, and granted summary judgment to Ps in their alternative, lower quantum based on the Revised Formula. The Master considered that other lines of defence raised by D in its pleading and evidence were not reasonably arguable and did not raise triable issues.

13.Before me, Mr Gary C.C. Leung for Ps indicated that Ps’ case based on a literal reading of the Formula was no longer pursued for the purposes of either the Order 14 proceeding or the action in general; and that Ps maintained only their alternative claim with lower quantum based on the Revised Formula.

Principles on summary judgment

14.The hearing before me is a re-hearing de novo.

15.The principles applicable on an application for summary judgment include the following[1]:

(1)  If the application is properly constituted, the defendant must show that there are triable issues.  He or she must satisfy the court by credible evidence that there is a fair probability or reasonable grounds that a bona fide defence exists.  If the defendant raises credible, triable issues, the matter should go to trial.

(2)  Order 14 is for plain and obviously cases only where the defendant clearly has no defence.  The court will not conduct a mini-trial on affidavit, and where there are substantial disputes of fact which ought to be tried, leave to defend should be given.

(3)  However, mere assertion in the defendant’s affidavit does not, ipso facto, justify leave to defend.  The court will not take the defendant’s evidence at face value, but will test it against the affidavit evidence and contemporaneous documents, and any inherent improbability.

(4)  The defendant’s evidence must condescend to particulars, deal specifically with the plaintiff’s claim and affidavit, and state clearly and concisely what is the defence and what facts are relied on to support it.  Sufficient facts and particulars must be given to show that there is a triable issue.

Defence based on delay/time-bar

16.There is one line of defence raised by D that I consider to be reasonably arguable, and on this basis, I will allow the appeal and grant unconditional leave to defend.

17.Mr Arthur Yip for D argued that there is a triable issue whether Ps remained entitled to exercise their rights under clause 5.2 of the Subscription Agreements, at the time of the May 2022 Letters; given that the latest time when any entitlement was triggered under clause 5.2 was around 16 months earlier (ie within 3 years of the latest issuance of new shares to Ps).

18.Mr Yip argued that on true construction of clause 5, Ps were only entitled to exercise their rights under clause 5.2 at the point in time when the events specified in clause 5.2 occurred, or at most a reasonable time thereafter.  It was said that, inter alia:

(1)  this interpretation gained support from the contractual background and context as set out in D’s evidence, including that the Subscription Agreements were entered into in anticipation of D attempting to achieve a public listing;

(2)  any contrary intention would lead to commercial absurdity since Ps would be entitled to retain the Subscription Shares indefinitely and obtain a guaranteed return of 10% per annum from Ds whenever they later chose to exercise their right (on the basis of the Revised Formula);

(3)  the same result could be arrived at by way of an implied duty in law that any contractual right or discretion should be exercised reasonably and in good faith, citing Cheung Li On v Sun Life Hong Kong Ltd [2021] HKCFI 3784 at §111;

(4)  Ps were not entitled to exercise their rights under clause 5.2 after a delay of around 16 months, which was at least arguably not a reasonable time-frame.  The question of reasonableness was a matter of degree and not easily decided on a summary basis in the absence of discovery and cross-examination: Wing Siu Co Ltd v Goldquest International Ltd [2002] 4 HKC 420 at §29(2).

19.The learned Master considered that this line of defence was not reasonably arguably (though I note that it may not have been argued in precisely the same way below).  The Master reasoned, inter alia, that: 

(1)  There is nothing in clause 5.2 to suggest that Ps’ rights are restricted to the ascertainable time around which the non-fulfillment of the conditions therein took place, and if that were the contractual intention it would have been expressly so set out;

(2)  As to the implied duty to exercise a contractual right or discretion in good faith, this applied to an unqualified power, which was not the case here.  In any event, an implied duty to exercise a right in good faith does not mean such rights must be exercised within a reasonable time-frame;

(3)  D had failed to produce any factual or legal basis as to what would amount to a reasonable time frame and why exercising rights on 30 May 2022 would fall outside a reasonable time frame;

(4)  Further, when D replied to the May 2022 Letters on 28 June 2022, no objection on timing was made, and D offered to proceed with the share repurchases on the basis of the Revised Formula.

20.Mr Leung, for Ps, essentially adopted this reasoning before me.

21.I have given the matter careful consideration, and I consider it somewhat finely balanced.  Ultimately, I take the view that D’s complaint on timing raises a triable issue and should not be resolved against D on a summary basis.  In particular:

(1)  I think it reasonably arguable that there is an implied term for the exercise of Ps’ rights under clause 5.2 of the Subscription Agreements at or around or within a reasonable time from the time at which Ps’ entitlements thereunder arose; and that a converse position entails commercial absurdity. 

(2)  I consider that this question, and the question what is a reasonable time, is fact-sensitive and may depend on more detailed evidence as to the commercial context and the circumstances of Ps’ delay in exercising its rights[2]. The matter can also be said to be one which warrants further investigation at trial: EasyAir Ltd v Opal Telecom Ltd [2009] EWHC 339 (Ch)  at §15(vi).

(3)  I take into account the point referred to at §19(4)  above, but on balance am not persuaded that it is of sufficient strength to enable the alleged defence to be resolved summarily and deprive D of the opportunity to ventilate it more fully through a non-summary process.

22.Mr Leung argued that the alleged “time-bar” point is not pleaded and was not raised in D’s evidence; but rather was raised by way of “ambush” in D’s Skeleton Argument before the Master, such that Ps did not have a chance to file evidence on the question of reasonable timing.

23.It is correct that the defence is not pleaded in the Defence and Counterclaim, and nor is it pleaded in the draft Amended Defence and Counterclaim which D sought leave to file: see below.  However, there is some reference to D’s alleged defence based on timing in its affidavit of Chan Chi Keung Rudy at §§13 to 16[3].

24.On the question whether a defendant may in Order 14 proceedings rely on an unpleaded defence, I refer to the analysis of Au-Yeung J in Wu Yuan Hong v China Zenith Chemical Group Ltd [2025] 1 HKLRD 119 at §§24 to 27.  On the facts of this case, I consider that is in the interests of justice that D’s alleged defence, which is referenced to some extent in its evidence and was argued at the hearing below, be considered for the purposes of this application even though it is not pleaded.

25.For the above reasons I consider that defence based on delay raises a triable issue, and I accordingly will grant unconditional leave to defend.

D’s other alleged defences

26.Given the above, it is unnecessary to deal with D’s other alleged defences.  I would, however, comment that certain of them are not, in my view, reasonably arguable.

27.First, D argued that since there was a triable issue on the question of common mistake (ie as to meaning and wording of the Formula), there was also a triable issue whether or not Ps were pursuing the action in good faith, which impacts on the question whether specific performance should be granted.

28.However, Ps claim for monies due and outstanding under the Subscription Agreements, rather than specific performance.  Ps have now conceded that the claim is pursued on the basis of the Alternative Formula. I do not think that it is arguable by initially pursing their claim on the basis of a literal reading of the Formula Ps acted in bad faith such that there is now a defence to Ps’ claim on the Alternative Formula. 

29.Second, D argued that Ps were in reality seeking specific performance, but the remedy of specific performance is not pleaded, nor has it been shown that damages was inadequate remedy. However, I consider that Ps’ claim is for monies due and owing under the Subscription Agreements.

30.Third, D’s Skeleton Argument referred to an alleged defence based on a settlement agreement, which was rejected by the Master.  In my view, D did not seriously pursue the argument that the inter partes discussions relied upon amounted to a concluded settlement agreement.

31.Fourth, D asserted that Ps had failed to mitigate their losses. However, I do not consider that such a defence is available where Ps’ claim is for sums due and owing under a contract rather than for damages. When I put this point to Mr. Yip during submissions, he was not able to persuade me otherwise.

D’s summonses

32.There were also before me two summonses issued by D dated 23 October 2025:

(1)  D’s summons seeking leave to adduce fresh evidence comprising the Affirmation of Jim Ka Wai, together with exhibited documents (“D’s Fresh Evidence Summons”); and

(2)  D’s summons seeking leave to amend the Defence and Counterclaim (“D’s Amendment Summons”).

33.D’s new affirmation was said to be relevant to three issues: (i) the parties’ common intention that the formula actually agreed in clause 5 was the Alternative Formula; (ii)  evidence relating to an alleged failure by Ps to mitigate losses; and (iii)  alleged legal impediments to the granting of summary judgment in this case.

34.It was common ground that D needed to satisfy the conditions in Ladd v Marshall namely that fresh evidence may be received on appeal on “special grounds” if: (i)  the evidence could not have been obtained with reasonable diligence for use at the hearing below; (ii)  the evidence is such that, if given, would probably have an important influence on the result of the case, though it need not be decisive and (iii)  the evidence is such as is presumably to be believed.

35.I decline D’s application for leave to adduce fresh evidence because:

(1)  the second condition in Ladd v Marshall is not fulfilled; I do not consider that the new evidence significantly affects my analysis in the Order 14 application or supports arguable defences;

(2)  in respect of items (i)  and (iii)  referred to at §33 above, I do not think that the first condition in Ladd v Marshall is fulfilled; and

(3)  in any event, the application was made too late and too close to the hearing date before me without sufficient explanation.

36.By D’s Amendment Summons, D seeks to amend the Defence and Counterclaim to:

(1)  plead an implied term that any share repurchase could only be done in accordance with the Companies Ordinance (Cap. 622), Sub-division 6, Division 4, Part 4, which could no longer be done since D has insufficient distributable profit and capital to fund the share repurchase;

(2)  plead that the Formula as set out in clause 5 of the Subscription Agreements was unenforceable since it was a penalty clause;

(3)  add details to D’s complaint that Ps failed to mitigate their losses; and

(4)  plead that Ps were not acting in good faith in pursuing the share repurchase in accordance with the literal reading of the Formula.

37.I note that the draft amended Defence and Counterclaim does not clearly include the delay/time-bar point which is referred to above.  In these circumstances, I have decided not to dispose of D’s Amendment Summons in this Decision but rather to invite the parties to make further representations on the handling of D’s Amendment Summons in light of my Decision (for example D may wish to submit a revised version of its proposed Amended Defence and Counterclaim).

Disposition

38.I will make the following orders and directions:

(1)  D’s appeal from the Order of Master Kinsey Kang dated 8 July 2025 is allowed, and D is granted unconditional leave to defend the proceedings;

(2)  D’s Fresh Evidence Summons is Dismissed;

(3)  Within 10 days, D is to lodge brief written or letter submissions with proposed directions on how to deal with D’s Amendment Summons in light of §37 above.  Ps may respond within 7 days thereafter, and D may reply within 3 days thereafter.

Costs

39.In respect of Ps’ summons seeking summary judgment, I consider that the arguments were rather finely balanced, and also that D relied on a number of lines of defence which were not reasonably arguable.

40.In the circumstances I think that the fairest order for the hearing before the Master and on the appeal before me, is costs in the cause of the action.

41.I will therefore make costs orders nisi as follows:

(1)  The costs of P’s summons dated 4 March 2025 seeking summary judgment and the costs of D’s appeal by Notice of Appeal dated 21 July 2025 be in the cause of these proceedings; and

(2)  D is to pay P’s costs of Fresh Evidence Summons, to be summarily assessed if not agreed (with P’s Skeleton Bill of Costs to be lodged within 7 days, and D’s List of Objections if any within 7 days thereafter).

42.The said costs orders nisi will become absolute unless an application to vary is made by letter or written submission by either party within 10 days herefrom. If such an application is made, the other party will have a right of response by letter within 7 days thereafter, with the applying party having a right of reply within a further 3 days thereafter.

Mr Gary C.C. Leung (Solicitor Advocate), of Messrs Withers, for the 1^st and 2^nd Plaintiffs 

Mr Arthur Yip, instructed by Messrs Liu & Co., for the Defendant