Perfect Favour Investments Ltd. v. John H. Soo and Anotehr

HCA021815/1998

1998, HCA 21815

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

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Coram: The Hon. Mr. Justice Ribeiro in Chambers

Date of Hearing: 20 July 1999

Date of Judgment: 20 July 1999

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J U D G M E N T

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1. I have before me an application by the Plaintiff for summary judgment for the return of certain monies allegedly paid by them to the Defendants by way of deposit in relation to the proposed, but abortive, purchase of shares owned by the Defendants.

2. The Plaintiff is a private company incorporated in the British Virgin Islands, whose two directors are Thomas Ip Fook Chuen and his wife Rita Fu. Thomas Ip is an architect who has, on the evidence, also had extensive experience in commercial property dealings. Rita Fu is also well experienced in business matters and is apparently involved in the management of a substantial company in Canada.

3. It appears uncontroversial that in early 1998, Mr. and Mrs. Ip, had available for investment, the sum of about RMB 11 million representing the profits of a successful project in Shenzhen. As Thomas Ip was an architect involved in an ongoing property project in Beijing known as the "Beijing Great Mall of China" project being developed by a PRC Company known as the Xinfeng Real Estate Development Company Limited, he became interested in acquiring some interest in the development itself. To this end, he approached the Defendants who are the Chairman and Vice-Chairman of Xinfeng respectively. The first Defendant is also its managing director.

4. The Defendants together own 85% of a company called Sparkway Associates Limited which in turn owns 100% of the shares in Goodview Holdings Limited. Goodview owns a majority interest in Xinfeng and so, indirectly, in the Mall development.

5. Although, as Mr. Alan Leong SC (who appears for the Defendants) points out, there is a suggestion by Thomas Ip that his approach was from the outset made with a view to acquiring shares held by the Defendants in one or more companies holding an indirect interest in the Mall development, Mr. Patrick Fung SC (who appears for the Plaintiff) accepted in argument that the evidence, indeed, the evidence of Thomas Ip himself, tended to show that initially, in say, March 1998, there was a generalised interest in some undefined form of participation or investment in the Mall project and that it was only in about June 1998 that the parties began to focus on the Plaintiff's possible acquisition of a 12% interest in Goodview from the Defendants.

6. It is in any event clear that in March 1998, before any details of any investment had been worked out, Thomas Ip caused Shenzhen Nan You Real Estate Company Limited (a company evidently controlled by him and his wife) to remit a total of RMB 11 million to Xinfeng. This was done in three instalments and, in a letter dated 13th March 1998 addressed to the Company but individually addressed to the two Defendants, Thomas Ip referred to the remittances, stating:

"As per our oral agreement, an earnest money of RMB 11 million, will be transferred to your Company but shall be refundable subject to the success of further negotiation on the J.V. partnership and the satisfactory conclusions of all relevant government approvals regarding the phase I and phase II development of the above project [by which he meant the Mall project]."

7. It is apparent and uncontroversial that negotiations took place which led to the preparation, in June 1998, of a draft agreement for the purchase by the Plaintiff of the abovementioned 12% interest in Goodview from the Defendants for the price of RMB 14 million.

8. The first draft which has been exhibited (prepared by the Plaintiff on about 18th June 1998) envisages completion of the sale taking place at the offices of the Plaintiff's solicitors in Hong Kong when, inter alia, the Plaintiff was to pay the RMB 14 million price to the Defendants.

9. In the second draft which also was prepared by the Plaintiff's solicitors and stamped with the date 13th July 1998. The abovementioned provision was changed to provide that on completion,

"the Purchaser [that is the Plaintiff] will pay the price (or the remaining balance thereof after deducting the deposits of RMB 11 million already paid) to the existing shareholders."

Two points should be stressed. First, in this draft (as in the original draft), the deposit of RMB 11 million is said to have already been paid to the Defendants. Secondly, in the second draft, it is provided that at completion in Hong Kong, the Plaintiff would render sufficient performance by tendering in Hong Kong, not the whole price but, at its option, the balance of RMB 3 million outstanding.

10. There is no evidence of any objection to this wording on the part of the Defendants who apparently did not progress the drafting any further at that stage.

11. This inactivity led to the preparation of the agreement which is the subject-matter of this action. There is a dispute between the parties as to why this agreement (which I shall call "the August Agreement") was entered into.

12. It is the Plaintiff's case that in the light of the lack of progress in concluding the contract, drafts of which had been exchanged in June and July as mentioned above, it wanted a binding interim agreement which would put a deadline on deciding whether the Plaintiff was to be allowed to purchase the Goodview shares. I might mention that this is the view taken by the Plaintiff notwithstanding contrary advice from their own solicitors.

13. According to the Defendants, they only signed the August Agreement because they were pressed to do so by Thomas Ip who needed to have something apparently binding to show to Rita Fu who was evidently unhappy at the delays. In other words, it is the Defendants' case that the August Agreement was not intended to have legal effect but was intended to be a sham document to be used only to pacify Thomas Ip's disgruntled wife and co-director in the Plaintiff.

14. In any event, on 18th August 1998, on the Defendants' instructions to their American attorneys (namely Messrs. Preston Gates & Ellis) such attorneys faxed to the Plaintiff's solicitors (namely, Messrs. Tang, Wong & Cheung) a first draft of what was to become the August Agreement.

15. This was a short document taking up only one and a half sides. After reciting that the Defendants owned 85% of Sparkway, that Sparkway owned all of Goodview, that a restructuring of the ownership of Goodview was intended and that the Plaintiff desired to buy 12% of Goodview on the terms of the agreement, it proceeded to provide, inter alia, (a) in Clause 1, that the Defendants "hereby agree to sell to the Purchaser 12% of the total outstanding shares of Goodview now held by Sparkway for a purchase price of RMB 14 million;" (b) in Clause 2, that "The Purchaser has already paid a deposit of RMB 11 million and agrees to pay the remaining balance of RMB 3 million to the selling shareholders at completion", and (c) in Clause 6 that "In the event the completion does not take place within two months from the date of this Agreement, then subject to the return of the deposits in the sum of RMB 11 million to the Purchaser plus interest to be calculated at the rate paid by the Bank of China on RMB deposits from the date each deposit was made to the date of repayment, this Agreement shall lapse and no party thereto shall have any claim against the others."

16. It is significant to note that this draft, prepared by the Defendants' lawyers on instructions, acknowledges quite clearly that the RMB 11 million deposit had already been paid. Although Mr. Leong SC has sought to argue the contrary, it is an acknowledgment of payment of the deposit for the purpose of the sale of the shares forming the subject-matter of the agreement and not of payment to any third party.

17. On the same day, namely 18th August 1998, Tang, Wong & Cheung advised the Plaintiff not to sign this draft on the basis that it was over-simplified. Nevertheless, on instructions from the Plaintiff, they returned the draft to Preston Gates & Ellis with amendments to Clause 2 inserting the requirement that the RMB 11 million was "not to be released to the selling shareholders until completion." This draft left untouched the aforesaid acknowledgment.

18. The final version of the August Agreement, also dated 18th August 1998, was duly signed. Only one minor change was made to Clause 2. Instead of providing that the deposit should not be released to the sellers until completion, it now states that the deposit "is not to be utilized by the selling shareholders until completion". In other words, the Defendants acknowledge payment to them of a large part of the purchase price against their undertaking that they are not to use the money paid unless and until the sale is completed. Again, it is noteworthy that these final changes were effected by the Defendants' lawyers and that they did nothing to remove such acknowledgment.

19. Subsequent to the execution of the August Agreement, correspondence took place between Tang, Wong & Cheung and Preston Gates & Ellis spanning the period 25th September 1998 to 8th December 1998. Throughout this time, the parties were working towards finalisation of the share purchase. It is of considerable significance in my view that during this period, and indeed, at all times since the August Agreement was concluded, there was never any suggestion by the Defendants that the RMB 11 million deposit had not duly been paid. Indeed, as Mr. Fung SC pointed out, on 16th October 1998, worried at the lack of progress and doubting the genuineness of the Defendants' intention to proceed with the sale, Tang, Wong & Cheung wrote reminding the Defendants of the two month time limit under the August Agreement and warning that on expiry of such time limit, they had instructions to require return of the deposit with interest as provided by the August Agreement. In their response, Preston Gates & Ellis made no suggestion that the deposit had not been paid but instead expressed optimism that the transaction could proceed to fruition.

20. It was only 8 December 1998 that, for the first time, the Defendants suggested that the deposit had not been paid to them but that it stood in a Xinfeng account and was not available to them. Moreover, they sought to contend that the true obligation was to tender the full purchase price in Hong Kong and not merely the unpaid balance, at the Plaintiff's option.

21. It is in these circumstances that the Plaintiff seeks summary judgment for the return of the deposit with interest. Mr. Fung SC accepts that the Defendants have sought to raise disputes of fact, in particular as to whether the RMB 11 million deposit was in fact paid but submits that on the incontrovertible evidence, this is so transparently a late concoction that it should not be treated as giving rise to any bona fide Order 14 defence. I respectfully agree. It is to my mind inconceivable that the Defendants and their attorneys would have conducted themselves in the manner clearly demonstrated by the contemporaneous documents if there was any substance whatsoever in the contention that, all along, they had not been paid the RMB 11 million deposit. They have constantly, until December, acknowledged payment and plainly treated the funds paid into the Xinfeng account as available to themselves as individuals for the purposes of the share sale contemplated under the August Agreement. I therefore reject as wholly incredible and untenable, the purported defence based on the contention that the deposit had not been paid.

22. The next defence sought to be relied upon by Mr. Leong SC is one of uncertainty or incompleteness of the August Agreement. It is said that it is merely an agreement to agree and as such is unenforceable. I respectfully disagree. The object and purpose of the August Agreement is in my judgment, plain and certain. It is to place an agreed time limit on the process of negotiation and to provide that in the event that sale could not be achieved within 2 months, the deal could be called off with the return of the deposit. The main share sale agreement then under negotiation was of course itself uncertain. However, in my view, there was nothing uncertain about the August Agreement and in particular, its requirement for repayment to the RMB 11 million deposit on expiry of the deadline imposed by Clause 6.

23. Mr. Leong SC also suggested that I should grant leave to defend on the basis that he may wish to seek rectification of the August Agreement to make it clear that the deposit had not been paid and that the price needed to be paid in full in Hong Kong in convertible currency. No plea for rectification has been pleaded or previously raised in terms, although Mr. Leong SC points out that the facts that he relies on have been canvassed in the evidence. In any event, in the light of my views on the wholly incredible basis of the allegations concerning non-payment of the deposit, it is my judgment that no case demonstrating any real prospects of a counterclaim for rectification succeeding has been made out. I therefore reject this also as a reason for giving leave to defend. Neither do I find, with respect, that any of the matters prayed in aid by Mr. Leong SC as possibly constituting "other reasons for trial" are sufficient to stave off judgment in the present case.

24. I would only add that in holding as I have, I am of course fully aware of the pitfalls of rejecting allegations of fact raised to dispute a plaintiff's claim. I bear in mind the Court of Appeal's often repeated caveats that this is an approach to be adopted only in exceptional cases where the Defendant's defence is obviously untenable and deserving of epithets like "frivolous" or "practically moonshine". It is my judgment that the present case is one which does indeed fall within such category.

25. I therefore order judgment in favour of the Plaintiff and will hear counsel as to the terms of the order as to costs.

Representation:

Mr. Patrick Fung SC, James Cheng instructed by M/s Tang, Wong & Cheung for Plaintiff

Mr. Alan Leong instructed by M/s Edmund Cheung & Co. for Defendants.