Chaintower Co Ltd and Others v. Snowbright Co Ltd and Others

HCMP011877/1983

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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Coram: Hon. Rhind, J.

Dates of Hearing: 23 to 27 January 1983

Date of Delivery: 28 February 1983

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JUDGMENT

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1. Hong Kong's real estate market enjoyed boon conditions in the summer of 1981. The most spectaculer transaction of all occurred when a consortium of well-known Hong Kong real estate companies paid a world record price of HK$2,800 million for the site on which stands the old wing of the Miramar Hotel, bounded on one side by Nathan Road - aptly known as "The Golden Mile" - and on the other by Kimberley Road in the tourist district of Tsim Sha Tsui, Kowloon.

2. The seller was Miramar Hotel & Investment Co. Ltd. ("Miramar Hotel & Investment"), one of the plaintiffs in the present action. Prime mover amongst the companies in the purchasing consortium was Carrian Investments Ltd. ("Carrian Investments"). Carrian Investments' idea was to buy this piece of land with a view to demolishing the hotel then standing on it, and re-developing the site as shop and office accommodation along the lines of the "The Landmark" building in Hong Kong's Central District.

3. Carrian Investments' initial share in the consortium was 60%. Included in that 60% is a 5% share attributable to China Underwriters Ltd. ("China Underwriters"), but for the purposes of the present action it is unnecessary to treat China Underwriters' share as at any stage separate from that of Carrian Investments.

4. Next largest participant in the consortium was The Hong Kong Land Co. Ltd. ("Hong Kong Land") with 25%. Hong Kong Land had been responsible for "The Landmark" development, and one of the reasons for bringing them into the present consortium was so they could manage the re-development project.

5. Besides being the seller, Miramar Hotel & Investment featured as a 7½% participant in the consortium.

6. Lastly, Sun King Fung Ltd. ("Sun King Fung") took the remaining 7½%.

7. The vehicle used by the members of the consortium for the purchase was Armatys Estates Ltd. ("Armatys"), a company which had previously never done any business. Reflecting the degree of participation by each member of the consortium, the beneficial ownership of the shares in Armatys was therefore at the outset held as follows:

8. Armatys in its turn wholly owned a subsidiary known as Beaux Estates Ltd. ("Beaux") which was another company previously uninvolved in any business.

9. Beaux was used to effect the actual purchase of the land, the purchase money having been advanced to it by Armatys, which in its turn had been lent the money by the participants in the consortium, each participant lending in proportion to its beneficial shareholding in Armatys.

10. The sale and purchase agreement between Miramar Hotel & Investment on the one side and Beaux on the other was dated the 4th August 1981. It is hereafter described as "the Sale and Purchase Agreement". Under that agreement $420 million, being 15% of the $2800 million purchase price, was paid to Miramar Hotel & Investment straight away. A further 18%, amounting to $504 million, fell to be paid six months later, namely on the 4th February 1982. That was duly paid. The outstanding 67%, namely $1,876 million did not become due till the 4th May 1983.

11. It was provided in the Sale and Purchase Agreement that the seller would in effect arrange the financing of this balance of $1,876 million by leaving it on mortgage at an interest rate of 1% above prime, with repayment over three years. During the three year mortgage period, $224 million was repayable at the end of thirteen months, a further $224 million six months later, and the balance seventeen months after that, which of course, coincided with the end of the three year mortgage period.

12. I have no doubt that as a matter of business reality it was from the outset contemplated by all of the companies participating in the consortium that they would all in due course enter into a formal joint venture agreement together to regulate their rights and obligations inter se.

13. This was not, however, done till some fifteen months later, on the 11th November 1982 ("the Miramar Joint Venture Agreement"). By then, the land market presented a very different picture. Gone was the euphoria of the summer of 1981, and in its stead was a much more sombre mood. I do not need go into the details. Anyone living in Hong Kong during that autumn of 1982 knows what it was like. Some fundamental questions about the political future of Hong Kong after 1997 had arisen, and it is no exaggeration to say the Colony was then racked with uncertainty about its future.

14. From the dizzy heights of $2,800 million in the summer of 1981, the value of the land had fallen to something probably closer to twenty-five percent of that figure. The magnitude of the tumble was reflected in a deal done by Sun King Fung a few days before the 11th November 1982. It was content to transfer its 7½% share in the consortium to Miramar Hotel & Investment for approximately one quarter of what it had paid. Further evidence of what had happened came when a professional valuation was made of the property on the 28th February 1983. That put a price-tag of $787 million on it. True, that was some four months later, but it shows a result consistent with the transaction between Sun King Fung and Miramar Hotel & Investment to which I have just referred.

15. Whether or not the decline in value of the land between the summer of 1981 and the autumn of 1982 was precisely 75% is of no real significance. What is significant is that there had been a massive reduction in the value of the land by the time the Miramar Joint Venture Agreement came to be signed on the 11th November 1982. Clearly, the whole project of purchasing and developing the land was looking decidedly less attractive by the 11th November 1982 than it had on the 4th August 1981, and as at the 11th November 1982, any Hong Kong businessman would obviously have been looking at the whole venture with a far from sanguine eye.

16. Between the land purchase on the 4th August 1981 and the formal joint venture agreement of the 11th November 1982, there were changes in the composition of the consortium.

17. There was firstly an increase in Hong Kong Land's participation from 25% to 35% and a corresponding decrease in that of Carrian Investments from 60% to 50% in March 1982. Miramar Hotel & Investment knew of that change almost as soon as it happened, but did not necessarily know why it had occurred. I will assume it did not know why it occurred, and whether it knew or not is not going to affect the outcome of the case. The state of knowledge of Miramar Hotel & Investment was an unexplored area in the case as it did not see fit to put any of its directors, or staff into the witness box.

18. The reason for this transfer of a 10% share by Carrian Investments to Hong Kong Land was that it formed part of a deal between the two companies under which Hong Kong Land sold some flats to Carrian Investments. Hong Kong Land was not over-enthusiastic at the prospect of taking on this extra 10% share, but decided it was worth its while in order to sell its flats. Part of the purchase price for the flats was paid by Carrian Investments through the transfer of this 10%. This change in the composition of the consortium was, of course, reflected by a change in the beneficial ownership of the shareholding of Armatys.

19. Why Hong Kong Land was less than overjoyed to increase its stake in Armatys was that while ownership of shares in that company could confer great benefits, it could also, as the obverse side of the coin, bring on heavy burdens.

20. Theoretically, a 10% stake in Armatys meant not only an indirect 10% share in the land via Beaux but also the right to be paid 10% of the loans advanced to Armatys by the consortium. However, the entitlement to be repaid the loans in due course must have appeared somewhat illusory in a falling land-market, and throughout 1982 land prices were falling.

21. As against the mere hope of being repaid the loans to Armatys at some remote future time, a shareholder had to take into account the immediate reality of needing to dig into his pockets the whole time to fund Armatys so it could pass on the money to Beaux which still had to pay Miramar Hotel & Investment the balance of the purchase price of the land, while also needing money for the preposed redevelopment.

22. Thus, increased participation in the consortium was by no means an unmixed blessed, a circumstance of which I am sure Hong Kong Land was at all times acutely aware, and no doubt increasingly so as the land market deteriorated.

23. Next, Hong Kong Land agreed to take a further 15% share from Carrian Investments, so that Hong Kong Land's share would become 50% while Carrian Investments' share went down to 35%. Provision for such a transfer was first made in an agreement dated the 22nd June 1982 between Carrian companies on the one side, and Hong Kong Land subsidiaries on the other. That agreement is known as the "Miramar Purchase Agreement". The actual transfer did not take place till the 8th November 1982 under a supplemental agreement ("the Miramar Purchase Supplemental Agreement").

24. The Miramar Purchase Agreement together with the Miramar Purchase Supplemental Agreement own their origin to another agreement dated the 22nd June 1982, known as "the May Road Agreement" under which Hong Kong Land, through subsidiaries, sold flats to a joint venture company called Emlyn Investments Ltd. ("Emlyn") which was owned as to 50% by Hong Kong Land, and as to the other 50% by Carrian Investments.

25. The total amount payable under the May Road Agreement was $998 million so that the half share Carrian Investments had to find was $499 million. It was agreed Carrian Investments could pay that by four instalments, the first being of $50 million, the second $158.2 million, the third $95.4 million and the final instalment $95.4 million.

26. That second instalment of $158.2 million was to be satisfied by the transfer of 15% of the shares in Armatys which carried the corresponding right to be repaid 15% of the borrowings of Armatys at that stage, such 15% amounting to $158.2 million.

27. In considering whether to enter into the May Road Agreement, Hong Kong Land faced a dilemma. On the one hand, Hong Kong Land regarded the May Road Agreement as generally favourable from the commercial point of view, but, on the other hand, it did not really want to take on any greater degree of participation in the Miramar Hotel joint venture.

28. Hong Kong Land sought to resolve that dilemma by agreeing with Carrian Investments that Carrian Investments' parent company, Carrian Holdings would buy back 15% of the shareholding in Armatys together with the benefit of the loans to Armatys on the 1st December 1983, which, was the date Carrian Investments was due to pay the final instalment under the May Road Agreement. That way, on the 1st December 1983, Hong Kong Land would revert to a 35% holding in Armatys whilst Carrian companies would go back to 50%.

29. The May Road Agreement, and the Miramar Purchase Agreement together with the Miramar Purchase Supplemental Agreement are all carefully dovetailed, so as to make provision for Hong Kong Land to reduce its stake in Armatys to 35%.

30. For ease of exposition I have spoken somewhat loosely so far of the subsidiaries of Hong Kong Land and Carrian Investments. Now it will be necessary to specify who some of those subsidiaries are in an endeavour to make this case more intelligible, and to explain who the parties are.

31. Besides Carrian Investments, and Carrain Holdings, the other parties to the Miramar Purchase Agreement are:

32. S.C.L. was a wholly owned subsidiary of Carrian Investments, whilst Gwynedd and Welsh Pool were both wholly owned subsidiaries of Hong Kong Land.

33. For stamp duty reasons, Gwynedd was to receive the transfer of the Armatys shares whilst Welsh Pool was to take the benefit of the debts.

34. The parties to the Miramar Purchase Supplemental Agreement were expanded to include Hong Kong Land and Emlyn, but I do not see that anything turns on that pair being added at that stage: they could just as easily have been included in the line-up for the Miramar Purchase Agreement.

35. It is Clause 3 in the Miramar Purchase Agreement which deals with the buy-back. I need only set out paragraphs (A) and (B), which are as follows:

36. Relevant additions are made by Clause 4 of the Miramar Purchase Supplemental Agreement, which provides:-

37. Attention needs also be given to Caluse 6(C) which provides:-

38. From as far back as July 1982 Miramar Hotel & Investment was aware that Hong Kong Land was increasing its take in Armatys to 50% as the result of a transfer from Carrian Investments. It also knew before the 11th November 1982 that in future Hong Kong Land might want to out its stake back to 35% again. Mr. Gavriloff, a senior executive of Hong Kong Land informed Mr. Albert Young, Miramar Hotel & Investment's managing director of that in the few days before the 11th November 1982. What Mr. Gavriloff does not seem to have spelled out explicitly to Mr. Young on that occasion was that Carrian Holdings was due to buy-back 15% in Armatys on the 1st December 1983.

39. Perhaps I will just add in at this point I found both Mr. Gavriloff, and his immediate boss, Mr. Goodman, who was Hong Kong Land's general manager for joint ventures, honest and reliable witnesses whose evidence I accepted.

40. Whether Miramar Hotel & Investment knew of the buy-back pro-vision is an unexplored issue. I will assume it did not know.

41. What Miramar Hotel & Investment did most certainly know, though, was that in the Miramar Joint Venture Agreement signed on the 11th November 1982 Hong Kong Land's subsidiary, Gwynedd, expressly reserved to itself the right to transfer the shares it held in Armatys to Carrian Holdings without the consent of any other shareholder in Armatys. That provision is to be found in Clause 10(2) of the Miramar Joint Venture Agreement. I will set out that provision in due course. Moreover, Gwynedd's right to transfer shares in Armatys to Carrian Holdings is set out in Article 33 of the Articles of Association of Armatys. That Article 33 exactly mirrors the provisions of Clause 10(2) I have just been referring to.

42. I have already mentioned how the May Road Agreement and the Miramar Purchase Agreement together with the Miramar Purchase Supplemental Agreement all dovetail. They in their turn interlock with the Miramar Joint Venture Agreement of the 11th November 1982 to form a cleverly orchestrated whole.

43. The point has now been reached where it is convenient to look at the Miramar Joint Venture Agreement itself.

44. For a start, it is necessary to see who the parties were to it.

45. Of the original participants in the consortium, only Hong Kong Land is a party. The only reason it is a party is because it is the manager of the project. Actual ownership of any shares in Armatys is not held by Hong Kong Land itself but by its subsidiary, Gwynedd. Hence Gwynedd is a party to the Miramar Joint Venture Agreement, and its shareholding in Armatys is, of course, 50%, following on the events I have described.

46. Likewise, Carrian Investments and Miramar Hotel & Investment (neither of which is a party) have their subsidiaries as shareholders of Armatys and hence parties to the Miramar Joint Venture Agreement.

47. Although neither Carrian Investments nor Miramar Hotel & Investment is a party to this agreement, each of them is indirectly involved by virtue of guaranteeing the obligations of its subsidiary under the agreement. Likewise, Hong Kong Land, which, as I have said is a party to the agreement, also guarantees its subsidiary. Those guarantees, which bear the same date as the agreement, dovetail, needless to say, with the agreement. I will deal more fully with those guarantees in due course.

48. Carrian Investments' subsidiary is S.C.L. which holds 35% of the Armatys shares.

49. By the time of this Miramar Joint Venture Agreement, 15% of the shareholding in Armatys was under the control of Miramar Hotel & Investment. This was made up firstly of the 7 1/2% stake held by Miramar Hotel & Investment in the consortium from the outset. That 7 1/2% was held by Miramar Hotel & Investment's subsidiary, Chaintower. Another 7 1/2% came Miramar Hotel and Investment's way a few days before the 11th November 1982. Mention was made earlier of how Miramar Hotel & Investment acquired Sun King Fung's 7 1/2% for something like a quarter of what it had cost Sun King Fung. Somewhat coyly, Miramar Hotel & Investment did not want it bruiting around that Sun King Fung had decided to pull out so instead of having the whole 15% put in the one subsidiary, it had 7 1/2% put in the name of Wise Maneon Investment Limited ("Wise Maneon") which was held by Sun King Fung as nominee for Miramar Hotel & Investment. Thus, Wise Maneon too became a party.

50. The remaining parties are Armatys and Beaux.

51. Some of the provisions of that Miramar Joint Venture Agreement which are relevant for present purposes can now be looked at.

52. There is the first recital which describes S.C.L., Gwynedd ("GWIL"), Chaintower (also known as "Miramar"), and Wise Maneon ("WM") as "the Shareholders", meaning of course the shareholders in Armatys.

53. Another recital which can be noted is number 9 relating to the guarantees I have already spoken of. Perhaps it will aid understanding if I set that recital out in full together with "the First Schedule" to which it refers.

54. Clause 1 describes the share capital of Armatys, and in paragraph (b) shows how the four Shareholders own shares in the percentages I have already mentioned. Paragraph (g) makes provision for Armatys to adopt new Articles of Association. Those new Articles of Association of course include the new Article 33 empowering Gwynedd to transfer shares to Carrian Holdings without any other shareholders' consent.

55. Recognition is given by Clause 2 that Beaux is the wholly owned subsidiary of Armatys.

56. One finds a declaration of the business of Armatys and Beaux in Clause 3. It is an important provision so I will set it out in full (Armatys is "the Company" and Beaux is "the Subsidiary"):-

57. In paragraph 4 are contained the provisions about Hong Kong Land's role as project manager.

58. How the whole venture is to be financed is described in Clause 5. It is an extraordinarily complex provision, running to approximately seven closely typed pages. A study of it reveals the high degree of sophistication of the lawyers involved in drawing up this agreement. It is what one would expect where the transaction relates to the most expensive piece of land in the world. Nothing is left to chance. All i's are dotted and all t's crossed.

59. I will not set Clause 5 out in full; it is far too long. Instead, I will refer to some of its more important feature. Parts of it need to be studied with a wet towel wrapped around one's head, as Mr. Grabiner, Q.C., so rightly said.

60. A crucial provision of Clause 5, and fortunately one of the easier to understand, is found in the first sentence of paragraph (2), which reads:

61. The "proportions set out in the First Schedule" reflect the shareholdings, namely, S.C.L. 35%, Gwynedd 50%, Chaintower 7½% and Wise Maneon 7½%.

62. That is the provision which fixes the shareholders with the burden of each paying its proportion of the balance of the purchase price of the land under the Sale and Purchase Agreement. That balance amounts to $1,876 million. If Gwynedd is locked into having to pay 50% of that amount, it will need to find $938 million, whereas if it can transfer 15% of its shares to Carrian Holdings, as contemplated by the May Road Agreement, Miramar Purchase Agreement and the Miramar Purchase Supplemental Agreement the figure becomes $656.6 million, a difference of $281.4 million.

63. Whether, in the events which have happened, Miramar Hotel & Investment can get Gwynedd or its parent, Hong Kong Land, to pay that difference of $281.4 million is what this case is really all about.

64. Of particular significance for the purposes of that paragraph (2) are the words in brackets "(or in such other proportions as they may from time to time hold the shares in the Company following transfers duly made in accordance with sub-clause (8), or Clause 7 or 10)".

65. Clause 10 I have already touched upon; it is the one empowering Gwynedd to transfer shares to Carrian Holdings without the consent of other shareholders. Clause 7 is concerned with insolvency. I will set it out in full:

"7.

66. Sub-clause 8 of Clause 5 is concerned with the not unrelated topic of how if a shareholder or its guarantor defaults in advancing a loan to Armatys, then the other shareholders can take over the defaulter's shares or bring in a new investor.

67. Having moved out of sequence to deal with the important provision in brackets in Clause 5, paragraph (2), I will now deal with the other Clauses in numerical order.

68. Clause 6, which deals with charges over shares, is of no significance, and Clause 7 has already been set out in full.

69. Neither Clause 8, nor Clause 9 need looking at in detail. 'They are concerned with directors, management and administration.

70. Although the substance of Clause 10 has already been touched upon, it still needs to be set out in full. I now do that.

71. It is convenient at this point also to set out the relevant Articles of Armatys in full.

"32.    Subject to such of the restrictions of these Articles as may be applicable, any Member may transfer all or any of his shares by an instrument of transfer in the usual common form or in any other form which the Board may approve.

33.    No Member shall be entitled to transfer any shares in the Company save with the prior written consent of the holder or holders of not less than seventy-five per cent. (75%) of all the issued shares (other than the shares which are proposed to be transferred) of the Company, provided that no such consent shall be required for any transfer of shares from Gwynedd Investments Limited to Snowbright Company Limited or Carrian Holdings Limited or any subsidiary of Carrian Holdings Limited or for any transfer from Snow-bright Company Limited to Gwynedd Investments Limited.

34.    The instrument of transfer of a share shall be signed by or on behalf of the transferor and the transferee and the transferor shall be deemed to remain the holder of the share until the name of the transferee is entered in the Register in respect thereof. All instruments of transfer, when registered, may be retained by the Company.

35.    The Board shall not register any transfer of any share (except pursuant to the proviso to Article 33) unless the written consent referred to in Article 33 is produced to the Board with such transfer. The Board shall register any transfer in respect of which such written consent is so produced and shall register any transfer made pursuant to the proviso to Article 33."

72. No time needs be spent on Clause 11 and 12 which are entitled "Notices", and "The Completed Development" respectively.

73. Great reliance is placed by the plaintiffs on Clause 13(1). Clause 13 has the rubric "Miscellaneous" and its paragraph (1) reads:

74. Some reference was also made in argument to paragraph (8) which I set out, though I did not find it had any significance:

75. Having set out the relevant parts of the Miramar Joint Venture Agreement, the next task is to look at the interlocking guarantees. Each of Hong Kong Land, Carrian Investments, and Miramar Hotel & Investment gave a guarantee dated the 11th November 1982 in substantially identical terms.

76. It is only necessary to look at the guarantee given by Hong Kong Land: ("the Guarantee")

77. The Guarantee was expressed to be in favour of "the Covenantees" who were set out in a schedule as:

78. Carrian Investments

79. Miramar Hotel & Investment

80. S.C.L.

81. Chaintower

82. Wise Maneon

83. Armatys; and

84. Beaux

85. Recitals (C), (D) and (E) explain what the Guarantee is about and what the consideration is:

86. Clause 2 is headed "Performance Guarantee" and reads:

"         For the consideration referred to in Recital (E) hereto the Guarantor HEREBY IRREVOCABLY AND UNCONDITIONALLY COVENANTS AND UNDERTAKES with and to each Covenantee (and so at the covenants and undertakings to each Covenantee shall treated as separate and independent obligations):-

87. Under Clause 3, which is headed "Warranty, Further Covenant And Indemnity", it is only necessary to look at the first sentence of paragraph C.

88. The weeks leading up to the execution of the Miramar Joint Venture Agreement on the 11th November 1982 were not a happy time for Carrian Investments. It started to look as if this former idol of the stock market might have feet of clay.

89. Having announced an interim dividend at the beginning of October 1982, Carrian Investments sent shock waves through the stock market on the 26th October 1982 by announcing that the interim dividend would not be paid, but instead shareholders would receive a bonus issue. One does not need to know much about stocks and shares to realise that a bonus issue in those circumstances is a worthless piece of paper as the only result of such an exercise is a dilution of the company's equity. The company announced at the same time it was going to raise $500 million cash through an issue of preference shares.

90. Carrian Investments was experiencing a liquidity crisis. This did not come entirely as a surprise to Hong Kong Land as it had suspected as much since May 1982 (See Agreed Bundle of Correspondence, page 362). Moreover, Hong Kong Land itself being a property company would have good reason to be aware that Carrian Investments which was heavily involved in property deals would be likely to be experiencing a deteriorating financial position on a falling property market.

91. What was bad news for Carrian Investments was also bad news for all its associated companies like Carrain Holdings and S.C.L. They were all likely sink or swim together as a matter of economic reality, and this was common knowledge.

92. Financial colummists harped on the woes of Carrian companies (See Agreed Bundles of Correspondence at, for example, pages 782; 783; 784; 790; 798; 799; 800 and 801). At the time any observer with even a passing interest in financial matters could see that Carrian Investments and the companies in the so-called Carrian empire such as Carrian Holdings and S.C.L. were beginning to look a little shaky.

93. Far from dispelling the apprehension which Hong Kong Land, in common with everyone else, must have been feeling about Carrian companies at the time, a letter dated the 5th November 1982 from Mr. George Tan, the Chairman of Carrian Investments to Mr. Trevor Bedford, the Managing Director of Hong Kong Land spelt out that all was indeed not well with Carrian.

94. I set out the relevant parts of that letter:

"Most unfortunately, due to the uncertainty of the future of Hong Kong and particularly subsequent to the recent visit of the British Prime Minister to China, the property market in Hong Kong appeared collapsed and dead. The Overseas Chinese have no confidence to continue to invest, especially on the property side. Therefore, we are apparently facing the temporary cash tight problems resulting from non-receipt of payments amounting around HK$500 million:

In the circumstance that we were unable to get the receivables, we have to pay and meet our various commitments, including the HK$83 million to The Hong Kong Land Co. Limited. Other payments which were supposed to be automatically rolled over were met with refusal and we were forced to pay out cash of approximately HK$600 million.

At this time of distress, we have no intention to blame anybody or attempt to make any excuse but we need your support and help. Therefore, I have made the following suggestion to you:-

Trust that our proposals meet your favourable consideration."

95. Whether even at the time the Miramar Joint Venture Agreement was executed on the 11th November 1982 Carrian Holdings was solvent is not clear on the evidence. At the very least, there was a cloud hanging over the financial well-being of all Carrian companies at that stage. Nonetheless, the Miramar Joint Venture Agreement, which included the provision about Gwynedd being able to transfer shares to Carrian Holdings without other shareholders' consent, was duly executed on the 11th November 1982.

96. The early symptoms in October and November 1982 that the Carrian empire was ailing were proved all too correct by subsequent events. The illness has in fact proved terminal for both Carrian Investments and Carrian Holdings so that they are now under compulsery liquidation. However, that is perhaps jumping too far ahead in the story.

97. After entering into the Miramar Joint Venture Agreement and the Guarantee on the 11th November 1982, the next big date which loomed ahead for the interested parties was the 4th May 1983 when the Sale and Purchase Agreement in respect of the land was due for completion.

98. From as early as December 1982 Hong Kong Land began pondering the possibility whether it might be better to try to cut its losses by writing off the money it had so far invested in the Miramar joint venture scheme, and "walking away" from the scheme. The land market was still depressed, and the figures for the whole scheme looked horrendous (See Agreed Correspondence Bundle at page 941).

99. At the very least, Hong Kong Land wanted to unload on to Carrian Holdings 15% of the shareholding of Armatys and the obligations that went with it as soon as possible. The May Road Agreement, the Miramar Purchase Agreement and the Miramar Purchase Supplemental Agreement all contemplated that transfer taking place on the 1st December 1983, but already, in December 1982, Hong Kong Land began turning its thoughts to whether that transfer might be accelerated.

100. With no sign of any improvement in the property market, a reprieve was granted to Beaux by Miramar Hotel and Estates on the 16th April 1983 when the completion date under the Sale and Purchase Agreement was extended by one year to the 4th May 1984.

101. As the year 1983 progressed, Hong Kong Land disentangled itself from various joint ventures with companies in the Carrian group. Such disentanglement was to both Carrian's and Hong Kong Land's advantage. The Carrian companies were in no position to meet their commitments under the joint ventures. Hong Kong Land obviously did not wish to continue being involved with companies in such a position, while the Carrian group for its part thought its prospect of being "rescued" by banks would be enhanced if it could extricate itself from the joint ventures.

102. In July 1983, Carrian companies and Hong Kong Land began negotiating terms on which Hong Kong Land would buy out Carrian's interest under the May Road Agreement. By the end of August 1983, the details had been finalised, (See Agreed Bundle of Correspondence at pages 1233 to 1235). Basically, Hong Kong Land agreed to buy out Carrian Investments' stake in Emlyn for $31.5 million, while Carrian Holdings agreed to accept a transfer of 15% of the Armatys shares straight away rather than wait till the 1st December 1983. As part of the consideration for agreeing to that, Carrian Holdings had the accompanying obligation to buy the benefit of 15% of the debts owed by Armatys postponed from the 1st December 1983 till the 31st December 1986. By the 1st December 1983, the figure to be put on that 15% of the debts would be $183,835,742.17, plus a further amount for interest. As a further inducement for Carrian Holdings to agree to the accelerated share transfer, it was only required to pay interest at the modest rate of 6% on that sum of $183,835.17 between the 1st December 1983 and the 31st December 1986.

103. There is no doubt that by the end of August 1983, Carrian Holdings was in no position to pay its debts. That is in effect acknowledged, albeit somewhat euphemistically, in a recital of the agreement which actually sought to bring about the transfer of 15% of the Armatys shares to Carrian Holdings:

104. That agreement is dated the 3rd September 1983, and is made between Gwynedd, Welsh Pool and Carrian Holdings. The mechanics of the agreement were that Gwynedd sold 15% of the Armatys shares to Carrian Holdings with immediate effect, while Welsh Pool's assignment to Carrian Holdings of the benefit of the Armatys debt was not to be completed till the 31st December 1986.

105. Detailed provision was made in that agreement for the transfer of the shares, and for what was to happen about the directors in Armatys pending the completion of the assignment of the debt to Welsh Pool, but as nothing really turns on any of that I do not propose to go into it.

106. A further development in the Carrian saga occurred on the 11th September 1983 when the Chairman and Managing Director of Carrian Investments and Carrian Holding were arrested by officers of the Commercial Crime Bureau.

107. On the 14th September 1983, the Secretary of Armatys gave notice of a board meeting for the 23rd September 1983 when one item on the agenda was "To approve the transfer of shares".

108. Mr. Young, who, through his interest in Wise Maneon and Chain-tower, is a director of Armatys, duly received his copy of that notice and agenda. As already mentioned, he is also managing director of Miramar Hotel & Investment.

109. Through the enquires of his solicitors, Mr. Young found out about the sale of the 15% of the Armatys shares to Carrian Holdings on the 3rd September 1983.

110. Mr. Young's solicitors, acting on behalf of the three plaintiffs in the present action, threatened to seek on injunction unless there was a postponement of the board meeting of the 23rd September 1983, as the plaintiffs objected to the transfer being registered.

111. The Secretary of Armatys went ahead on the 21st September 1983 and purported to register the transfer. Later that day, the plaintiffs went before a judge ex parte and got an interim injunction to forbid the board meeting due for the 23rd September 1983 from approving the transfer.

112. It was realistically conceded before me on behalf of the plaintiffs that, in view of the composition of the board, if the board meeting had been allowed to go ahead on the 23rd September 1983, the transfer would undoubtedly have been approved and registered.

113. From the mountains of documents and days of submissions shines forth the simple issue of whether that registration should be allowed to stand. Hinging on that simple issue is, of course, the serious consequence of whether Hong Kong Land is liable or not for seeing that $281.4 million gets channelled Miramar Hotel & Investment's way under the Sale and Purchase Agreement.

114. Having set out the facts, the point has now been reached to consider the grounds in law on which the plaintiffs hope to keep Gwynedd locked into a 50% holding of the shares in Armatys.

115. In essence, only two grounds are relied on. One of them relates to the technicalities of registering the transfer. That can swiftly be disposed of.

116. It was pointed out on behalf of the plaintiffs that there was a technical infringement of Article 35 when the transfer was entered in the Register on the 21st September 1983 without the requisite board meeting. Realistically, though, it was conceded that the board would have approved such registration, had it not been for the fact that it was prevented by the plaintiffs' injunction from considering this time at the meeting fixed for the 23rd September 1983.

117. Plainly, no court is going to allow any party to derive an advantage from an injunction, if the injunction was wrongfully granted in the first place. Nothing could be more inequitable than to allow a party to profit, in effect, from his own wrongful act.

118. Thus, it is only if the plaintiffs turn out to have been justified in obtaining the injunction of the 21st September 1983 that the court will take any step to rectify the Register of Armatys.

119. That no one shall be allowed to profit from his own wrong is one of those principles of the law so basic that no authority really need be cited, but, for the sake of completeness, I will just mention Bentley-Stevens v. Jones⁽¹⁾ as an illustration of how, when the circumstances are appropriate, the court will decline to rectify entries in a company's register, despite technical non-compliance with Articles.

120. It is, therefore, only if the plaintiffs were justified in obtaining their injunction of the 21st September 1983 that they have any prospect of preventing full effect being given to the registration of 15% of the shares in the name of Carrian Holdings.

121. This leads into the crucial second ground in law relied on by the plaintiffs, namely, in effect, that the contractual arrangements and the surrounding circumstances were such that a term should be implied in effect prohibiting the transfer to Carrian Holdings when it is insolvent.

122. How the implication was said to arise was, broadly speaking, as follows. By Clause 13 of the Miramar Joint Venture Agreement, the parties which, of course, include Gwynedd and Hong Kong Land undertake to ensure full effect is given to the provisions of that agreement, and to procure that Armatys and Beaux comply in all respects with its terms. One of the terms of the Miramar Joint Venture Agreement that Gwynedd and Hong Kong Land must therefore comply with is Clause 3 which declares that the business of Armatys is to advance funds to Beaux and to ensure that Beaux discharges its obligations under the Sale and Purchase Agreement. Under Clause 5, the shareholders in Armatys must lend Armatys the money payable under the Sale and Purchase Agreement in proportion to their shareholdings.

123. Putting those various clauses together, the plaintiffs say an implication should be spelt out that no shares should be transferred to Carrian Holdings at a time when it will be unable to fulfil its financial obligations under the Miramar Joint Venture Agreement, including an obligation to shoulder its share of the money to be advanced to Armatys for the purposes of the Sale and Purchase Agreement. By allowing such a transfer to go ahead, Gwynedd and Hong Kong Land would be acting at variance with their duty of ensuring that Beaux fulfils its obligations under the Sale and Purchase Agreement, as well as to redevelop.

124. The implications arising against Hong Kong Land are alleged to be fortified by the undertakings it gave to the Govenantees under the Guarantee.

125. Apart, I believe, from custom and usuage, every type of implied term known to the law of contract was preyed in aim on the plaintiffs' behalf. Despite the vast learning, ingenuity, and energy employed on the plaintiffs' behalf, an insuperable barrier always stood in their way.

126. Gwynedd has merely done the very thing which Clause 10 of the Miramar Joint Venture Agreement has expressly stated it can do, namely transferred shares to Carrian Holdings without the consent of any other shareholder.

127. An implied term cannot contradict an express term. Inconvenient though this      proposition must be to the plaintiffs with so much money at stake, there is simply nothing they can do to get around it. Trying to imply a term which contradicts an express term is one of those exercises in futility, like trying to square a circle.

128. Any implication sought by the plaintiffs to the effect that there exist limits to Gwynedd's right to transfer to Garrian Holdings simply founders on the undeniable fact that to impose such limits flies in the face of a provision which, without qualification, says Gwynedd can transfer to Carrian Holdings.

129. The plaintiffs' case is unarguable in my opinion, and the injunction should never have been granted.

130. Even if one could ignore the principle that an implied term cannot contradict an express term, and pretend that there could somehow exist scope for making implications in such circumstances, there is still no hope of the court upholding the particular implied term the plaintiffs urge here.

131. Almost certainly fatal to any implied term contended for by the plaintiffs in the highly sophisticated and detailed Miramar Joint Venture Agreement and the Guarantee is the presumption that agreements, particularly commercial agreements, contain all the terms the parties intend to be included, so that if a point is not covered it is presumed the parties intended no provision should be made for that point: Aspdin v. Austin⁽²⁾; Luxor (Eastbourne) Ltd. v. Cooper⁽³⁾. The more detailed the agreement, the less scope for implied terms: Shell U.K. Ltd. v. Lostock Garages Ltd.⁽⁴⁾ and Codelfa Construction Pty. Ltd. v. State Rail Authority of New South Wales⁽⁵⁾ where Mason, J. of the High Court of Australia had this to say:-

"For obvious reasons the courts are slow to imply a term. In may cases, what the parties have actually agreed upon represents the totality of their willingness to agree; each may be prepared to take his chance in relation to an eventuality for which no provision is made. The more detailed and comprehensive the contract the less ground there is for supposing that the parties have failed to address their minds to the question at issue."

132. Agreements less appropriate for the implication of terms than those falling to be considered in the present case would be difficult to imagine.

133. In any event, I find it difficult to believe that the plaintiffs' lawyers could have actually overlooked the contingency of Carrian Holdings' insolvency when the agreements were drawn up. For many days before the Miramar Joint Venture Agreement and the Guarantee were executed it was public knowledge that Carrian Holdings through its association with Carrian Investments was experiencing financial difficulties. No great feat of lateral thinking was required by the plaintiffs' lawyers to hit upon the idea that perhaps one day Carrian Holdings might not be in a sound enough financial position to honour any obligations imposed by the Miramar Joint Venture Agreement. It should be remembered that the plaintiffs were part of a group of companies which already had $924 million in its pocket from the sale of the land, so they could afford lawyers capable of thinking of not unduly esoteric points like the one I have just mentioned about Carrian Holdings.

134. To me this looks like a straight-forward case of the term the plaintiffs now want implying being omitted from the Miramar Joint Venture Agreement not because it was overlooked but because the plaintiffs never intended it to be there.

135. Assuming the plaintiffs could somehow rebut the presumption that agreements embody all the provisions the parties intend to cover their situation, it then becomes necessary to look at the different types of terms which can be implied.

136. According to the text-books, implied terms can be divided into two broad categories, namely those implied by law, and those implied in fact from the presumed intention of the parties.

137. As an incident of a particular type of relationship the law will sometimes imply a term into a contract. This can happen even though the party against whom the term is to be implied might not have agreed to such a term if it had been put to him at the time the contract was made and even though the term cannot be formulated with any great precision. Lister v. Romford Ice and Cold Storare Co. Ltd.⁽⁶⁾ and Liverpool C.C. v. Irwin⁽⁷⁾ are examples of this principle at work. The law implies such terms for policy reasons.

138. For the plaintiffs it was argued that, as a necessary incident of the relationship of joint venturers, the court, as a matter of law, should imply a term to the effect that none of them should take any steps which might imperill the joint venture.

139. I was unable to discern any policy reason which might prompt the court to imply any such term.

140. If anything, policy reasons dictate that the courts should refrain from tinkering with the sort of complex commercial arrangements which existed amongst the parties before me.

141. In the context of implying incidents in a relationship, it was pointed out for the plaintiffs in the pleadings that there are duties of mutual trust, confidence and reliance upon duties of good faith and fidelity to each other to co-operate to carry out all of the incidents of the joint venture. I agree with all of that, and also with what was said in the American case of Meinhard v. Salmon⁽⁸⁾ to the effect that joint adventurers owe one another the duty of the finest loyalty. A case on similar facts in Hong Kong would have arrived at the same result through the application of the well known principle in Keech v. Sandford⁽⁹⁾. However, I could not see how any of this assisted the plaintiffs in the case before me. What the plaintiffs are asking of Gwynedd and Hong Kong Land is the equivalent of an act of altruism in surrendering an express right to transfer shares without consent, and the suggestion that duties such as loyalty, co-operation and the like extend as far as altruism is one I find novel. This comes back to the fundamental flaw of the plaintiffs' case which is that no implied term car contradict an express term.

142. Were it not for the express provisions of Clause 10 always standing in their way, the plaintiffs might, if anywhere, have been able to derive some assistance from the type of implication of law exemplified by Stirling v. Maitland⁽¹⁰⁾ and Southern Foundries Ltd. v. Shirlaw⁽¹¹⁾. The principle of those cases, which can be found in the head-note of Stirling v. Maitland⁽¹⁰⁾ is that, "If a party enters into an arrangement which can only take effect by the continuance of a certain existing state of circumstances there is an implied engagement on his part that he shall do nothing of his own motion to put an end to that state of circumstances under which alone the arrangement can be operative". In the Southern Foundries Ltd.⁽¹¹⁾ case, Lord Atkin added in relation to that passage, "That proposition in my opinion is well established law. Personally I should not so much base the law on an implied term, as on a positive rule of the law of contract that conduct of either promisee or promisee which can be said to amount to himself "of his own motion" bringing about the impossibility of performance is in itself a breach."

143. Unlike the sort of situation covered by Lister v. Romford Ice & Cold Storage Co. Ltd.⁽⁶⁾ and Liverpool C.C. v. Irwin⁽⁷⁾, I very much doubt whether the principle in Stirling v. Maitland⁽¹⁰⁾ and Southern Foundries v. Shirlaw⁽¹¹⁾ dispenses with the need for a precise formulation of the term which is to be implied, and I doubt too whether the court would insist on such a term being implied where it was clear that had such a term been suggested at the time the contract was made it would never have been agreed to.

144. Stirling v. Maitland⁽¹⁰⁾, Southern Foundries Ltd. v. Shirlaw⁽¹¹⁾ and the case of Mackay v. Dick⁽¹²⁾ which was cited in the same context were not cases where there appears to have been any problem of how the term to be implied should be formulated, or where there was any likelihood of the defendant having disagreed with the term if it had been proposed to him at the time the contract was made.

145. In the case before me, there is a difficulty experienced by the plaintiffs in formulating the term they say should be implied, and I have no doubt that neither Gwynedd, nor Hong Kong Land would for one moment have agreed at the time of the execution of the Miramar Joint Venture Agreement to the inclusion of a term along the lines which the plaintiffs now prepose.

146. That difficulty of formulation and the fact of the likelihood of refusal by the opposite party to have agreed to any such term would I think be fatal to any attempt by the plaintiffs to derive any benefit from cases like Stirling v. Maitland⁽¹⁰⁾ or Southerr Foundries v. Shirlaw⁽¹¹⁾.

147. I cannot help wondering if those two cases I have just mentioned really do exhibit any different characteristics from the next category of implied terms, which is those implied in fact on the basis of the presumed intention of the parties. I would have thought that Stirling v. Maitland⁽¹⁰⁾, Southern Foundries v. Shirlaw⁽¹¹⁾, as well as Mackay v. Dick⁽¹²⁾ were all cases where the terms sought to be implied by the plaintiffs could be implied as a matter of fact on the basis of the presumed intention of the parties.

148. This leads into the topic of terms implied in fact. As such term are based on the presumed intention of the parties, there is clearly no scope for any such implication where the evidence indicates the term would in fact not have been agreed to had it been suggested before the contract was made. It is incumbent upon the plaintiffs to prove that Hong Kong Land or Gwynedd would have agreed to such a term: Luxor (Eastbourne) Ltd. v. Cooper⁽³⁾ and Shell U.K. Ltd. v. Lostock Garages Ltd.⁽⁴⁾

149. There is no doubt in my mind that neither Gwynedd nor Hong Kong Land would have agreed to any proposal from the plaintiffs at the time of the execution of the Miramar Joint Venture Agreement and the Guarantee that a transfer of shares to Carrian Holdings could not take place if it turned out Carrian Holdings was insolvent.

150. Had the plaintiffs dared to insist upon such a provision at the time, I do not doubt that Gwynedd and Hong Kong Land would simply have refused to enter into the Miramar Joint Venture Agreement and the Guarantee. I do not think the plaintiffs would have been so foolhardy as to suggest such a provision in case it scared off Hong Kong Land and Gwynedd from executing the agreements at all at a time when everyone was very edgy about Hong Kong's future.

151. Since the May Road Agreement and the Miramar Purchase Agreement on the 22nd June 1982, Gwynedd and Hong Kong Land had carefully planned their affairs on the basis that the 50% holding in Armatys was a temporary state of affairs which would last till the 1st December 1983 at the latest.

152. As Carrian Holdings' financial difficulties started coming to light in the run up to the execution of the documents on the 11th November 1982, Gwynedd and Hong Kong Land would, if anything, have been more, not less, keen to keep an unqualified entitlement for Gwynedd to transfer Armatys shares to Carrian Holdings. I find it an irresistible inference that they must have foreseen there could be a continuation of difficult times ahead for the property market, so there would be no reason to want to lock themselves into a 50% share of the obligations of Armatys in such circumstances. Certainly, they, like anyone else, could see as a matter of common sense that the financial difficulties of the Carrian empire could only have an adverse effect on the property market.

153. Besides it being obvious that neither Gwynedd nor Hong Kong Land would have agreed to the sort of term the plaintiffs now want to see implied, I do not think such a term could pass the test of reasonableness. I do not see anything reasonable in passing on all the risks of Carrian Holdings' failure to Gwynedd and Hong Kong Land. The financial difficulties of Carrian Holdings were as obvious to the plaintiffs as to anyone else at the time the documents were executed on the 11th November 1982, but the plaintiffs were prepared to allow then to be executed in the form they took. I can see nothing reasonable in such circumstances in now requiring that Gwynedd and Hong Kong Land alone should be saddled with the consequences of Carrian Holdings difficulties. In this context, I bear in mind the famous words of Bowen L.J. from "The Mobrcock":⁽¹³⁾

"In business transactions such as this, what the law desires to effect by the implication is to give such business efficacy to the transaction as must have been intended at all events by both parties who are business men; not to impose on one side all the perils of the transaction, or to emancipate one side from all the chances of failure, but to make each party promise in law as much, at all events, as it must have been in the contemplation of both parties that he should be responsible for in respect of those perils or chances."

154. In view of the foregoing, the plaintiffs' claim stands dismissed and the interim injunction is discharged.

(1)    (1974) 1 W.L.R. 638

(2)    (1844) 5 Q.B. 671

(3)    (1941) A.C. 108, 137

(4)    (1976) 1 W.L.R. 1187, 1200

(5)     Vol. 56 A.L.J.R. 459

(6)    (1957) A.C. 555

(7)    (1977) A.C. 239

(8)     (1928) 164 N.E. 545

(9)    (1726) Sel. Ch. Cas. 61

(10)    (1864) 5 B & S 840

(11)    (1940) A.C. 701

(12)    (1881) 5 A.C. 251

(13)    (1889) Vol. XIV P.D. 64, 68

Representation:

Mr. Donald Rattee, Q.C. with Mr. Robert G. Kotewall (Lovell, White & King) for plaintiffs

Mr. Raymond Leung (K.C. Yung & Co.) for 1st defendant

Mr. Anthony Grabiner, Q.C. with Mr. Robert Ribeiro (Slaughter and May) for 3rd, 4th and 5th defendants

No appearance for 2nd defendant