Infinity Development (Holdings) Co Ltd and Another v. Bank of China and Others
Read the full judgment text of HCA 3202/2001 on BabelCite. This High Court CFI judgment was delivered on 19 July 2003.
1. This is the defendants' application to strike out the Writ of Summons together with the Statement of Claim endorsed thereon and to dismiss the action.
Cited by 15 cases
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HCA003202/2001 HCA3202/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO.3202 OF 2001 ---------------------
---------------------- Coram: Hon Chu J in Chambers Dates of Hearing: 21 and 22 February 2002 Date of Decision: 19 July 2003 ----------------------- D E C I S I O N ----------------------- 1.This is the defendants' application to strike out the Writ of Summons together with the Statement of Claim endorsed thereon and to dismiss the action. Background 2.The 1st plaintiff is a Hong Kong company owned and controlled by the 2nd plaintiff. The 1st defendant is a bank with operations in Hong Kong. The 2nd to 4th defendants are companies within the 1st defendant's group ("Bank of China group"). The 5th and 6th defendants are senior officers of the Hong Kong-Macau Regional Office of the 1st defendant. 3.In 1993, the 1st plaintiff and the 2nd to 4th defendants entered into a joint venture development project known as Dongguan Xin Zhong Yin Garden Project ("the Development") that involves eight lots of adjoining land in Dongguan ("the Land"). The land use right over the Land was originally acquired by a company called Gee Tai Holdings Co. Ltd ("Gee Tai"), which was owned as to 46% by the 2nd plaintiff and as to the remainder by the 2nd plaintiff's business associates. By a Deed dated 10 September 1993, the right to use the Land became vested in three companies known as Ontide Investments Ltd ("Ontide"), Life Tide Investments Ltd ("Life Tide") and Wholeglobe Development Ltd ("Wholeglobe") in return for the three companies agreeing to bear the costs of acquiring the Land. The plaintiffs each held one share in these three companies. 4.On 22 September 1993, the 1st plaintiff and the 2nd to 4th defendants entered into a shareholders agreement ("the Shareholders Agreement"). Applecrest Properties Limited ("Applecrest"), a BVI company and a corporate vehicle for the joint venture, was also a party to the Shareholders Agreement. 5.The material provisions under the Shareholders Agreement can be summarized as follows :
6.In compliance with the condition precedent in clause 2.1 of the Shareholders Agreement :
7.On 29 September 1993, the shareholders of Applecrest advanced shareholders loans totalling about HK$355 million to Applecrest. The money was in turn advanced to Ontide, Life Tide and Wholeglobe in settlement of the costs of acquiring the Land due to Gee Tai, as evidenced by a Deed dated 29 September 1993 and executed by Gee Tai, Ontide, Life Tide and Wholeglobe. 8.Also on 29 September 1993, Ontide, Life Tide and Wholeglobe executed mortgages over the Land in favour of the 2nd to 4th defendants as securities for the loans they advanced to Applecrest. 9.The development of the Land was undertaken by Dongguan Xin Zhong Yin Construction Company Limited, a wholly-owned subsidiary of Applecrest. The Development was financed by a series of notes issued by Applecrest on 16 January 1995, 15 January 1996 and 15 April 1996 for the respectively amounts of $70 million, $20 million and $60 million. These notes fell due on 15 April 1997 and were replaced by a series of 15 guaranteed notes each of $10 million, which fell due on 15 December 1998 in favour of the Bank of China, Macau Branch. Additionally, there was another loan of $90 million extended by National Commercial Bank to Applecrest on 23 September 1997. 10.At a meeting on 10 June 1997, attended by the 2nd plaintiff and another director of Applecrest, Mr Lam King Wai, it was reported that there was a shortage of funds for the development. 11.At a meeting on 23 September 1997, the shareholders of Applecrest agreed to dispose of half of their respective shareholdings in Applecrest to a perspective investor at a consideration to be agreed upon. The 1st plaintiff was authorized to negotiate for the sale and purchase of the shareholdings in Applecrest. Other terms were also agreed among the shareholders and they were set out in a memorandum ("the 23/9/1997 Memorandum"). 12.At a meeting on 11 November 1997, the Board of Applecrest noted that the construction of Phase I of Xin Zhong Yin Garden was expected to be completed by the end of 1997. The Board also agreed, at the 2nd plaintiff's proposal, to defer the sale of the flats to early 1998 so as to complement the financial plan of the 1st plaintiff. 13.The 2nd plaintiff conducted negotiations with a Kong Tai International Holdings Co. Ltd ("Kong Tai"), a company listed in Hong Kong, for the purpose of raising finance for Applecrest and the Development project. Eventually, a Memorandum of Agreement dated 3 February 1998 ("the MOA") was signed by the 2nd plaintiff on behalf of Applecrest, Winhill Investment Limited ("Winhill"), a subsidiary of Kong Tai and Yicko Securities Limited, the introduction agent. 14.The principal terms under the MOA are :
15.By a letter dated 4 February 1998 to Applecrest, Kong Tai confirmed that it did not view the purchase under the MOA as constituting a binding agreement, and that its lawyers also supported such a view. 16.By a press release dated 4 February 1998 ("Kong Tai's Press Release"), which appeared in the press on 5 February 1998, Kong Tai announced the signing of the MOA and its terms. The press release also stated that :
and :
17.By a press release dated 16 February 1998 ("the BOC Press Release"), the Hong Kong-Macau Regional Office of the 1st defendant stated, in relation to Kong Tai's Press Release that :
18.On 17 February 1998, the Board of Directors of Applecrest resolved that the proposed transaction referred to in the MOA be disapproved and that Applecrest would not enter into any final agreement regarding such transaction. 19.By a press release dated 17 February 1998, Kong Tai announced the termination of the acquisition referred to in the MOA. The release further stated at the time of entering into the MOA that Kong Tai was aware that the 2nd plaintiff's shares in Applecrest were non-voting shares. 20.On 8 September 1998, National Commercial Bank demanded repayment of banking facilities granted to Applecrest. Applecrest was unable to meet the demand. It was eventually compulsorily wound-up on 15 December 1999. 21.On 31 May 2000, the plaintiffs commenced HCA5491/2000 against the defendants herein and five other defendants ("the 1st Action"). On 30 November 2000, Chung J ordered that the Writ and the Statement of Claim be struck out and the action be dismissed. The Court of Appeal dismissed the plaintiffs' appeal on 12 June 2001. At the appeal hearing, the plaintiffs sought to adduce a Fresh Amended Statement of Claim ("FASOC"), but were disallowed. Quite a number of the paragraphs in the Statement of Claim and the FASOC are now being repeated in the Statement of Claim herein. 22.On 16 July 2001, the plaintiffs commenced the present proceedings. By a summons filed on 13 September 2001, the defendants moved to strike out the Writ and the Statement of Claim and to dismiss the action. The plaintiffs' claim 23.The plaintiffs' case, as appeared by the Statement of Claim and the affirmations filed in opposition to the present application, can be summarized as follows :
24.In short, the plaintiffs' claims are for :
The application 25.The defendants' application to strike out the claim is made on the following grounds :
Applicable principles 26.There is no controversy that the court's power to strike out should only be exercised in plain and obvious cases. The claim must be demonstrated to be plainly unsustainable, unarguably bad and impossible. As to the principles and considerations relevant to the exercise of the court's power, they are well-established and are set out in Hong Kong Civil Procedure 2002, Vol.1 paras18/19/7-18/19/21. 27.In Microsoft Corporation v. Electro-Wide Ltd [1997] FSR 580 at 593, Laddie LJ observed :
28.These observations are equally applicable when the credibility and probability of the claim are called in to question on a striking out application. In the present case, insofar as the defendants' application is made on the basis that the allegations in the Statement of Claim are incredible and implausible, it is, in my view, important to approach the matter from a commercial and common sense point of view and not to lose sight of the overall picture presented to the court. The 1st Action 29.Before considering the merits of the application, it is useful to look at the plaintiffs' case as presented in the 1st Action, both before Chung J and the Court of Appeal. It is relevant to the defendants' present contention that the plaintiffs' pleaded case herein is incredible. It is also relevant to the argument that the allegations of the True Agreement and the February 1998 Agreement are attempts to paper over the cracks in the plaintiffs' case in the 1st Action. 30.The case of the plaintiffs as pleaded in the Statement of Claim in the 1st Action is that by September 1997, it was apparent that Applecrest was in financial difficulties. As a result of the Shareholders' Agreement as modified (which was contained in or evidenced by the 23/9/1997 Memorandum), the 2nd plaintiff commenced negotiations with Kong Tai. The negotiations were said to have culminated in the signing of the MOA. In particularly, it was pleaded in paragraph 12 of the Statement of Claim in the 1st Action that the 2nd plaintiff had obtained approval by phone from Tsang immediately before he signed the MOA on behalf of Applecrest. 31.The nature of the plaintiffs' claim in the 1st Action, as summarized in Chung J's judgment, is :
32.It can be readily seen that in the 1st Action, there was no reference to either the True Agreement or the February 1998 Agreement in the Statement of Claim. The True Agreement first featured in the FASOC, sought to be introduced at the appeal, but was rejected by the Court of Appeal : paragraph 6 of the judgment in CACV1069/2000 (unreported). 33.Paragraphs 41 and 42 of the FASOC further pleaded that upon receipt of the draft MOA, the other shareholders had confirmed that the terms therein were acceptable to them, and the same confirmation was given by the directors of Applecrest. It was pleaded that the 2nd plaintiff signed the MOA pursuant to the agreement of the shareholders and with the full blessing of the Board. 34.Clearly the plaintiffs in the 1st Action placed great reliance on the agreement reached in the shareholders meeting on 23 September 1997. Even in the FASOC, it was pleaded in paragraph 58 that the refusal to proceed with the MOA amounted to a breach of the 23 September 1997 agreement as varied by the agreement pleaded in paragraph 41 (i.e. confirmation that the terms of the MOA are acceptable). By contrast, this meeting and the agreement reached thereat as well as the 23/9/1997 Memorandum were not pleaded at all in the present Statement of Claim. 35.It is also apparent that the February 1998 Agreement pleaded herein is not quite the same as the agreement referred to in paragraphs 41 and 42 of the FASOC in the 1st Action. The specific terms of the MOA were said to have been agreed shortly before February 1998 whereas previously the agreement was put on the basis of a confirmation, made after the draft MOA was prepared, to the effect that the terms of the MOA were acceptable. The difference has also to be viewed against the averment in the previous Statement of Claim that the oral approval of Tsang was specifically obtained by the 2nd plaintiff over phone immediately prior to his signing the MOA. 36.I shall return to deal with these differences in the basis of the previous and present claim. The True Agreement 37.The primary ground relied upon by the plaintiffs in contending the True Agreement is incredible is that it was never documented or reflected in writing despite the very elaborate legal documentation drawn up by solicitors and executed in connection with the Development. 38.I had in the "Background" section of this Decision set out the various legal documents that had been executed in connection with the Development. It is indeed true that neither the fact of the True Agreement nor the terms of the True Agreement as pleaded was referred to or mentioned in any of these documents. It is also not in dispute that the loan documentation relating to the banking facilities extended by the banks in the Bank of China group to the 2nd plaintiff's group of companies contains no reference to the True Agreement or any of the pleaded terms. 39.Even after the BOC Press Release, when the relationship between the parties had obviously turned sour, there was no mention of the True Agreement or its pleaded terms in the correspondence exchanged, including the letters of demand written by the plaintiffs' solicitors, Messrs Ince & Co. and Messrs Wai & Co., on 27 May 1998 and 10 May 2000 respectively. It is to be noted that the letter from Messrs Wai & Co. was addressed to all the defendants in the 1st Action and on the instructions of both plaintiffs. As pointed out above, the True Agreement only came to be mentioned and for the first time in the FASOC in the 1st Action. That was May 2001, eight years after it was said to be orally agreed, more than three years after the parties had fallen out and one year after the 1st Action was instituted. 40.Quite apart from the fact the True Agreement did not feature in any of the contemporaneous documents nor in the 1st Action until late in the day, the conduct of the plaintiffs does not support the existence of such an agreement. 41.A major aspect of the True Agreement is that the banks in the Bank of China group would refrain from terminating and/or enforcing recovery of the banking facilities extended to the 2nd plaintiff's group of companies and that the 1st defendant would, at the 2nd plaintiff's request, purchase his interest in the Development at 75% of the market value. 42.Despite that, after the proposed sale to Kong Tai was called off, the 2nd plaintiff wrote to the 2nd defendant on 28 February 1998 offering to sell his shares in Applecrest on the terms in the MOA. Then in another letter dated 18 March 1998, the 2nd plaintiff on behalf of the 1st plaintiff put forward several proposals. One of these was for the 1st plaintiff's shares in Applecrest to be bought out on the terms offered by Kong Tai. Alternatively, the 1st plaintiff would unilaterally sell its Applecrest shares to Kong Tai. Even at the general meeting of Applecrest on 6 May 1998, the plaintiffs were putting forward five proposals that included buying out the plaintiffs' interest at a price not less than that offered by Kong Tai. Alternatively, if the other shareholders should refuse to sell to Kong Tai and would not buy-out the plaintiffs' interest, then the 1st plaintiff would sell its shares to Kong Tai. The proposals, however, did not include a request or offer to buy-out the plaintiffs' interest at 75% of the prevailing market, let alone a reference to the True Agreement. 43.In Messrs Ince & Co.'s letter dated 27 May 1998, the 2nd to 4th defendants were requested to jointly purchase the 1st plaintiff's shares in Applecrest at a price to be valued under the Shareholders Agreement. The 2nd to 4th defendants were alternatively asked to give consent to the 2nd plaintiff selling all his shares to Kong Tai at a price to be valued under clause 14 of the Shareholders Agreement. 44.These requests or proposals made by the plaintiffs are clearly contrary to the pleaded terms of the True Agreement. If indeed there were the True Agreement, it is difficult to understand why the plaintiffs and their solicitors would have made these requests and proposals, but did not refer to the True Agreement. There is no reason why the plaintiffs did not resort to the True Agreement and its terms. 45.More significant, the term under the True Agreement that the 1st defendant would, at the 2nd plaintiff's request, purchase his interest in the Development at 75% of the prevailing market value is irreconcilable with the written term of the Shareholders Agreement. Plainly, the 2nd plaintiff would only wish to divest of his interest in the Development when the Development was not successful or profitable. Under the Shareholders Agreement, however, the 1st plaintiff was to buy back the 1st defendant's investment in the event the Development fails. The 1st plaintiff had further agreed to indemnify the 1st defendant for the difference between its investment and the returns therefrom. Indeed at the 6 May 1998 general meeting, the 1st plaintiff had requested that it be released from this indemnity. 46.For the plaintiffs, it is submitted that given the inequality in the contractual relationship between the plaintiffs on the one hand and the 2nd to 4th defendants on the other hand under the Shareholders Agreement, there was no commercial reason for the plaintiffs to have entered into the Shareholders Agreement but for the existence of the True Agreement. This submission however overlooks the fact that the plaintiffs' investments in the Development, including the acquisition of the land use right over the Land, were substantially financed by the BOC Group. Effectively, the BOC Group acted as a financier to the construction of the Development. The so-called unequal terms or one-sided arrangement under the Shareholders Agreement has to be viewed from this perspective. Insofar as the plaintiffs argue that the written documents only regulate part of the activities of the parties, the question remains as to why the True Agreement was not or could not be incorporated or reflected in the Shareholders Agreement. 47.The plaintiffs also rely heavily on the fact that Tsang did not come forward and had made no affirmation supporting the defendants' account of events. It is said that Tsang had confirmed to the 2nd plaintiff as to what the 2nd plaintiff deposed to in his affirmation, but Tsang declined to give an affirmation since he was a former employee of the 1st defendant. In my view, it is speculative to infer that Tsang did not give evidence because there was truth in the plaintiffs' version. What the 2nd plaintiff said about Tsang in his affirmation is hearsay. 48.With regard to the pleaded terms of the True Agreement, they are unspecific and vague. It is for instance unclear as to what is meant by the duty not to prejudice or jeopardize the interests of the 2nd plaintiff's group. The reference to the prevailing market value is also odd having regard to the restrictions on transfer imposed by clause 14 of the Shareholders Agreement. 49.The True Agreement carries with it an air of unrealism. Its existence is difficult to reconcile with the other objective evidence, the Shareholders Agreement. The True Agreement is incredible and the claim based upon it is frivolous and should be struck out. February 1998 Agreement 50.Similar to the True Agreement, the February 1998 Agreement did not feature in the 1st Action. This plea is in stark contrast to what was pleaded in the Statement of Claim in the 1st Action as well as the FASOC. In the Statement of Claim in the 1st Action, the plaintiffs' case was put on the basis that the representatives of the 2nd to 4th defendants were kept fully informed of the negotiations carried out between the 2nd plaintiff and Kong Tai. Even in the FASOC, the plaintiffs' case was only that there was a confirmation that the terms of the MOA were acceptable. By contrast, the plaintiffs now put their case on the basis of an agreement reached in late January or early February 1998 between Applecrest and its shareholders on primarily similar terms as the MOA. 51.The February 1998 Agreement, however, is incompatible with the express terms of the MOA which provided that the completion of the transaction was conditional upon the execution of the final agreement to be approved by, inter alia, the Board of Applecrest. If there was the February 1998 Agreement, what is the necessity or reason for subjecting the completion to the approval of the final agreement by the Board of Applecrest. 52.On the other hand, even Kong Tai accepted that there was no binding agreement arising out of the MOA and it would appear from the correspondence from Applecrest to Messrs Gallant YT Ho & Co. and between the 1st plaintiff and the 2nd defendant that prior to the signing of the MOA, the arrangements with Kong Tai had been changing and were not yet finalised. 53.The plaintiffs, however, argue that the February 1998 Agreement is at least possible. It is said that it is important to look at the parties' course of conduct since June 1997 when it was noted that there was shortage of fund for the Development. Specifically, it is said that the parties were fully aware of the negotiations with Kong Tai, that the defendants' representatives had also participated in the negotiations and that there was no attempt to stop the deal even after Kong Tai had made its press announcements. The plaintiffs contend that the course of conduct and events shows that the February 1998 Agreement is not an invention of the 2nd plaintiff. 54.In my view, these submissions do not address the objections. The February 1998 Agreement has the effect of putting the plaintiffs' case on a very different basis. The fact that the negotiations were carried out with knowledge of all parties and with the agreement of the Board and shareholders of Applecrest does not necessarily mean that by not proceeding with the deal, the 2nd to 4th defendants are guilty of a breach giving rise to a cause of action by the plaintiffs. A breach can only arise if there were the February 1998 Agreement. The fact that the shareholders had agreed to raise finance and were aware of negotiations with Kong Tai is neither here nor there. They do not necessarily prove the existence of the February 1998 Agreement. The fact that no step was taken to stop the deal is also irrelevant. It is common ground that the deal contained in the MOA is subject to the final approval of the Board of Applecrest. Hence, it is not a question of taking step to stop the deal, but a matter of giving approval to the deal. 55.Given the fundamental shift in the basis of the plaintiffs' case in the 1st Action and the inconsistencies between the previously pleaded case and the one pleaded herein, there must be grave doubt as to the credibility of the February 1998 Agreement. In the absence of explanations as to its late introduction, the inevitable conclusion is that it is a belated attempt to bolster the plaintiffs' case that had previously been struck out. 56.Further, the February 1998 Agreement would fundamentally alter the basis of the Shareholders Agreement and the variation is required by clause 26 to be in writing and signed by the parties. At any rate, it is difficult to understand and there is no explanation as to why an important agreement such as this was not reduced into or recorded in writing. 57.The claim based on the February 1998 Agreement is accordingly bad and ought to be struck out. Breach of Shareholders Agreement and procuring breach of contract 58.The plaintiffs' case of breach of the Shareholders Agreement is formulated on the basis of a breach of clauses 7.2, 9.5 and 16.1. In respect of clauses 7.2 and 9.5, the plaintiffs' complaint is that the defendants failed or refused to proceed with the MOA despite that this was for the benefit of Applecrest and dispute the February 1998 Agreement. 59.In the first place, it is to be noted that the plaintiffs' case of breach of Shareholders Agreement in the 1st Action was formulated differently. There, the plaintiffs were suing upon the 23/9/1997 Memorandum and the plaintiffs' case then was that the Shareholders Agreement had been modified by the Agreement reached on 23 September 1997, and that there was a breach of the Shareholders Agreement as modified. Further, the terms as recorded in the 23/9/1997 Memorandum were very different from the transaction proposed under the MOA. In particular, under the 23/9/1997 Memorandum, the new investor would subscribe for shares in Applecrest and give a counter-guarantee for bank borrowing. More importantly, the investors were to pay for the shares subscribed in cash and listed shares acceptable to the shareholders of Applecrest. This is material because Applecrest was in need of funds to finance the Development. 60.By contrast, the deal proposed under the MOA would not provide Applecrest with the necessary cash and capital for financing the Development. In its press release, Kong Tai had announced that it did not anticipate having any further significant capital commitment in the near future. There is uncertainty as to whether Kong Tai would exercise the option under the MOA. 61.This is relevant to the plaintiffs' plea that the deal with Kong Tai was for the true benefit of Applecrest. This point has already been the subject matter of comment by Chung J in the 1st Action. In his judgment handed down on 30 November 2000 at pp.10-11, Chung J stated :
62.Similarly, Rogers VP in the judgment on appeal from Chung J's judgment held at paragraph 22 that :
63.Plainly, it cannot be said that because the MOA or the proposed deal with Kong Tai was for the benefit of and in the interest of Applecrest that not proceeding with it amounts to a breach of the Shareholders Agreement. 64.The plea in paragraph 37 of the Statement of Claim that the defendants acted in bad faith is a bare assertion that is not substantiated on the materials before the Court. If it were the plaintiffs' case that the lack of bona fides lies in the fact the defendants acted merely in accordance with the wishes of the 1st defendant, it cannot be right. The 2nd to 4th defendants are companies within the Bank of China group. Although they are shareholders of Appelcrest, they remain entitled to have regard to their own corporate interests in making decisions relating to Applecrest. 65.Indeed Rogers VP had in his judgment on the appeal in the 1st Action concluded that there was no basis for a plea of bad faith on the part of the present 2nd to 4th defendants : at paragraph 28. His Lordship also rejected the argument that the directors of Applecrest who represented the defendants acted improperly, negligently or not in the interests of Appelcrest : at paragraphs 32-34. 66.Further, by reason of clauses 11.2 and 11.4 of the Shareholders Agreement, the Board of Applecrest had absolute discretion with regard to decisions on all maters concerning the Development, and the 1st plaintiff expressly waives all claims for loss and damage against the 2nd to 4th defendants in connection thereto. The 1st plaintiff has therefore no entitlement to seek relief against the 2nd to 4th defendants in respect of any alleged loss and damage resulting from the Board's decision not to proceed with the MOA or the deal with Kong Tai. 67.It is further difficult to see how there has been a breach of clause 9.5. The claim based on breach of clauses 7.2(b) and/or 9.5 is unsustainable. 68.As to the breach of clause 16.1, the plaintiffs' pleaded case is that the 2nd to 4th defendants had failed to procure the 1st defendant not to divulge to the public confidential information on the Development. The subject matter of the plaintiffs' complaint is the BOC Press Release. It is not altogether clear from the pleading as to what is the confidential information that was said to have been divulged by the press release. If it were relating to the 1st plaintiff's shareholding in Applecrest, it is evident from Kong Tai's subsequent press release that Kong Tai already knew that the 1st plaintiff's shares carry no voting power. Further, given that Kong Tai already knew about it, even if there were a breach of clause 16.1, the plaintiffs would either suffer no loss or the loss would be nominal. 69.The plaintiffs had pleaded that the disclosure had caused difficulties to the plaintiffs in terms of raising finance to fund the Development, and Applecrest was compulsorily wound up by the court. It is said that the plaintiffs had thereby sustained loss. Despite this averment, there is no solid basis for linking the said loss to the alleged breach of clause 16.1, having regard to the background of the case, including the financial position of Applecrest since June 1997, the terms of the proposed deal with Kong Tai and the press release of Kong Tai on 18 February 1998. 70.In fact, the plaintiffs' present claim for breach of the Shareholders Agreement is in substance the same as that in the 1st Action. The only difference, as Mr Wong SC points out, lies in the introduction of the February 1998 Agreement. It is said that the February 1998 Agreement either stands on its own or amounts to a variation of the Shareholders Agreement. I have, for reasons given, considered that the February 1998 Agreement is incredible. That aside, it is to be noted that in the 1st Action, the plaintiffs' case is that the Shareholders Agreement had been modified by the agreement made on 23 September 1997, and the modified agreement was contained or evidenced by the 23/9/1997 Memorandum. As pointed out previously, the terms of the 23/9/1997 Memorandum are very different from the pleaded terms of the February 1997 Agreement. 71.Quite apart from the fact that the present claim in breach of the Shareholders Agreement is unsustainable, the shift in the plaintiffs' case must be viewed with great circumspection. The credibility of the February 1997 Agreement is further called in doubt. 72.Given that no cause of action has been made out on the claim for breach of the Shareholders Agreement, the claim in procuring a breach of contract must also fail. Conspiracy 73.The plaintiffs' claim in conspiracy is a conspiracy to injure by unlawful means. If the plaintiffs cannot make out a case of breach of contract by the 2nd, 3rd and 4th defendants or of procurement of breach of contract by the 1st defendant, then it must follow that the plea of conspiracy by unlawful means cannot stand. 74.The plea in conspiracy is further defective in that there is no justifiable basis for the allegation that the 1st, 5th and 6th defendants acted with the intention of injuring the plaintiffs. Additionally, any loss would be that of the plaintiffs. The 2nd plaintiff's loss in value of the investment in the 1st plaintiff is not a recognizable damage that will afford a personal right to sue. It is a duplication of the 1st plaintiff's alleged loss and is not maintainable : Prudential Assurance v. Newman (No.2) [1982] Ch 204 at 222E-224D; Johnson v. Gore Wood & Co. [2001] 2 WLR 72. 75.As to the 2nd Plaintiff's alleged loss in the form of being exposed to the liability for the borrowing to finance the 1st plaintiff's shareholder's loan to Applecrest, there is no basis for linking such exposure to the alleged wrongful acts of the 1st, 5th and 6th defendants in issuing the press release of 16 February 1998. 76.There is in short no sustainable cause of action in conspiracy. The $12 million and $15 million loans 77.The two loans from CSS Bank to the 1st plaintiff in September and November 1996 were not mentioned in the 1st Action. They were, however, raised by the plaintiffs in proceedings brought by CSS Bank against the plaintiffs and other companies of the 2nd plaintiff for recovery of loans advanced by CSS Bank (HCA 5 of 2001). 78.Both loans had been fully repaid with interest by the 1st plaintiff. In the case of the $15 million loan, it was effected by setting off the deposit charged by the 1st plaintiff in favour of CSS Bank. 79.The evidence before the court shows that Phase I of the Development had been completed in 1998, but the sale of the units was deferred to accommodate the fund raising exercise of the plaintiffs. The plaintiffs' present claim is that the units are now being offered for sale to the public, and the1st plaintiff therefore claims against the1st defendant the payment of the two sums of $12 million and $15 million. 80.Mr Tang SC submits that the plaintiffs' allegations as to the reasons and purposes underlying the two loans from CSS Bank are implausible. No doubt, very serious allegations had been made against the 1st defendant and CSS Bank, and there are considerable disputes between the parties as to the facts. For my part, I am not prepared to say on affirmations that it is plain and obvious case that the plaintiffs' assertions that the loans were for servicing a loan to Yin Tai Paper Mill and to replenish a trust account held by CSS Bank are implausible and unbelievable. That, however, does not dispose of the defendants' striking out application. The court must still consider whether there is a credible basis for claiming a payment of the two sums from the 1st defendant, irrespective of the reasons and purposes of the two loans. 81.In this regard, I note firstly that the plaintiffs did not claim a set-off against CSS Bank in the debt action brought by CSS Bank. This is peculiar given that it is the plaintiffs' case that both the 1st defendant and CSS Bank are liable to repay the two sums to the plaintiffs, and that the debt action instituted by CSS Bank against the plaintiffs was in 2001. By then, the units of Phase I of the Development were already offered to the public for sale and the alleged duty of CSS Bank and the 1st defendant to repay would have arisen. 82.Secondly, in the CSS Bank proceedings, the plaintiffs defend the claim on the basis of an agreement alleged to have been made on 11 August 1998 between the 2nd plaintiff and the Bank of China group. According to the plaintiffs, this agreement provided that after taking into account what was used by members of the Bank of China group, the pledged properties would be sold to cover the shortfall. Any further shortfall after the sales would be secured by the plaintiffs' interest in the Development. Thus, on the plaintiffs' case in the CSS Bank proceedings, any agreement between the plaintiffs and the 1st defendant and CSS Bank on the repayment of the two sums would have been superseded by this August 1998 agreement. The two sums would have already been taken into account in working out the accounts. 83.Further, it is illogical for the 1st plaintiff to repay the two loans in full and with interest to CSS Bank, and in the case of the $15 million loan by setting off against deposit charged in favour of CSS Bank, if it had been agreed that the two sums were to be repaid by CSS Bank and/or the 1st defendant upon the sale of the units of Phase I of the Development. 84.Looking at the situation as a whole and considering in particular the plaintiffs' account in a round, the 1st plaintiff's claim that the 1st defendant is liable to repay the two sums of $12 million and $15 million does not strike one as being probable and credible. The claim for $12 million and $15 million should be struck out. Conclusion 85.For the reasons above, I accept that the Statement of Claim is liable to be struck out. Accordingly, I grant the defendants' application. There will be an order that the Writ of Summons together with the Statement of Claim endorsed thereon be struck out, and that the plaintiffs' action against the defendants be dismissed, and that the defendants be at liberty to enter judgment for their costs of this action. There will further be an order nisi that the costs of this application be to the defendants against the plaintiffs, to be taxed if not agreed, together with a certificate for two counsel.
Representation: Mr Ronny Wong, SC and Mr Alan Ng, instructed by Messrs Peter K.S. Chan & Co., for the Plaintiffs Mr Robert Tang, SC and Mr Godfrey Lam, instructed by Messrs Deacons, for the Defendants |
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