Deacons v. Distacom Communications Ltd and Others
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HCMP 519/2006 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO. 519 OF 2006 ____________
____________ BETWEEN
____________ Before: Hon. Reyes J in Chambers Date of Hearing: 8 March 2007 Date of Judgment: 12 March 2007 _______________ J U D G M E N T _______________ I. INTRODUCTION 1.Deacons holds US$5 million (the Amount) in escrow under the terms of an agreement dated 29 March 2005. The escrow agreement provides for payment of the Amount and accrued interest either to Distacom and Mocom (the Sellers) on the one hand or CGL on the other depending on certain events. The Sellers, CGL and Deacons are all parties to the escrow agreement. 2.Deacons now asks the Court to determine to whom it should pay the Amount and interest in light of what has happened. Deacon further asks the Court to determine who should pay its costs (and on what basis) in obtaining legal advice and bringing these proceedings. 3.There is also a preliminary issue. 4.Deacons says that the answers to its questions depend on a construction of the escrow agreement. For that reason, Deacons believes that it is possible to proceed by way of originating summons. 5.But CGL objects. CGL says that there are significant disputes over fact which require that this matter proceed by exchange of pleadings and witness statements, discovery and trial. CGL invites me so to direct. 6.At the hearing of the Originating Summons on 8 March 2007, I ruled against CGL on its preliminary issue. I then proceeded to answer Deacons’ questions. This Judgment sets out the reasons for the various rulings which I made on that day. II. BACKGROUND 7.The Sellers own 100% of Distacom India Holdings Limited (DIHL). DIHL holds 85% of Distacom Communications (India) Limited (DCIL). DCIL in turn owns 49% of Spice Communications Limited (Spice), an Indian company. DIHL thus has an indirect holding of 41.65% in Spice. 8.The remaining interests in Spice are directly or indirectly held by Asian Infrastructure (Mauritius) Inc. (AIM), PAII (Mauritius) Company Limited and Mcorp Global Private Limited. AIM and PAII are non-Indian companies, Mcorp an Indian entity. 9.By a Sale and Purchase Agreement (SPA) dated 29 March 2005 the Sellers agreed to sell their DIHL shares to CGL. 10.Clause 7.2 of the SPA provided that, “at any time on or before the Completion,” on the happening of one of several events, CGL could elect not to complete the sale. It would then give written notice to that effect. 11.Clause 8.1 of the SPA provided for completion to take place “on the date 90 days from the date of this [SPA], or such earlier date and place as the Parties may agree by giving not less than 5 business days notice to effect the Completion”. 12.Clause 8.5 of the SPA further provided that:-
13.By the escrow agreement Deacons was to hold the Amount pending completion of the SPA. 14.The escrow agreement stipulates how Deacons was to deal with the Amount. Its cl.4 provides as follows (in summary):-
15.Clause 1 of the escrow agreement defines the “Escrow Amount” as comprising the Amount plus accrued interest. 16.Clause 1 of the escrow agreement further defines the “Latest Date for Completion” as “the date falling 90 days from the date of this [Escrow] Agreement or such other date as mutually agreed to between the parties”. 17.Ninety days from 29 March 2005 (the date of the SPA and escrow agreement) was 27 June 2005. 18.By letter dated 18 September 2005 CGL notified Deacons that the DIHL share sale could not be completed. CGL’s letter stated:-
19.Since CGL’s letter did not correspond with any form prescribed by the escrow agreement, Deacons disregarded CGL’s instruction to refund the Amount and accrued interest. 20.The reference to Mcorp’s injunction in CGL’s letter concerned litigation in the New Delhi High Court between Mcorp as plaintiff and DIHL and DCIL (among others) as defendants. The parties to the litigation are certain direct or indirect shareholders in Spice. Those parties (including DIHL and DCIL) had previously entered into an agreement known as the “Spice.com Agreement” concerning (among other things) preemption rights in Spice shares. 21.The injunction was an interim one which Thakur J of the New Delhi High Court granted on 27 April 2005. Pending determination of Mcorp’s action, the injunction prevented the defendants to the action from transferring their shares or beneficial interests in Spice in contravention of cl.10 of the Spice.com Agreement (dealing with preemption rights). 22.The Sellers were not parties to Mcorp’s action. Nor were they parties to the Spice.com agreement. 23.On 5 October 2005 CGL again gave notice to Deacons. This time CGL claimed to exercise a right under cl.7.2 of the SPA to rescind the sale transaction. CGL asked that the Amount and interest be remitted to its specified account. 24.CGL’s notice of 5 October 2005 enclosed an undated letter addressed to the Sellers and Deacons. The enclosure repeated the paragraphs quoted above from CGL’s 18 September 2005 notice. 25.By letter dated 6 October 2006 to CGL, Deacons pointed out that neither of CGL’s notices complied with the escrow agreement. The notices (Deacons wrote) had not been sent before 27 June 2005. Deacons noted that, in any event, the reasons specified for non-completion (Mcorp’s injunction and the subsequent sale of the DIHL shares to a third party) were not events listed in SPA cl.7.2 as entitling termination of the share sale. 26.By letter dated 26 October 2005 CGL reiterated its stance that the SPA had been terminated. 27.On 10 November 2005 the Sellers submitted a notice in the form prescribed by escrow agreement cl.4(i). The Sellers stated that CGL had failed to complete in accordance with the SPA otherwise than as a result of termination under cl.7.2. 28.On 11 November 2005 Deacons informed the parties that, pursuant to cl.8.2 of the escrow agreement, it would instruct Senior Counsel to advise how the Amount and accrued interest should be disposed. 29.Deacons instructed Mr. Gerard McCoy SC. By an Advice dated 4 January 2006, he concluded that CGL’s notices were invalid as the completion date of 27 June 2005 had long passed by the time CGL’s notices were sent. 30.On the other hand, Mr. McCoy took the view that the Sellers’ notice was within the terms of the escrow agreement. It followed (Mr. McCoy advised) that Deacons was bound to remit the Amount to the Sellers. 31.As far as interest was concerned, Mr. McCoy reasoned that CGL was entitled to any that had accrued, whether before or after the Sellers’ notice. Mr. McCoy relied on the common law principle that, absent a contrary indication, debts do not normally carry interest. 32.On 26 January 2006 the Sellers accepted Mr. McCoy’s conclusions. That acceptance, however, was expressly stated to be without prejudice to the Sellers’ right to argue (should the matter come before the Court) that they were entitled to interest from 10 November 2005. 33.CGL refused to accept Mr. McCoy’s advice. CGL suggested that, in reaching his conclusion, Mr. McCoy failed to take account of “discussions” between the parties both before and after 27 June 2005. 34.The discussions to which CGL was referring are alleged to have taken place at different times and places among Mr. Cole of Deacons, Mr. Gupta of CGL and Mr. Saran of the Sellers. 35.Mr. Gupta has sworn an affirmation in relation to those discussions as follows:-
36.According to Mr. Gupta, he was only told on 20 August 2005 that the Sellers intended to sell the DIHL shares to a third party (Deutsche Bank). 37.On 2 September 2005 Mr. Saran (Mr. Gupta says) told CGL that the Sellers’ board had finally decided to sell the DIHL shares to Deutsche Bank. 38.Finally, Mr. Gupta deposes that on 16 September 2005 he was told by Mr. Saran that the Sellers would not be refunding the Amount to CGL. 39.Mr. Gupta’s version of events is challenged by Deacons and the Sellers. In particular, Mr. Cole and Mr. Saran deny that there was any agreement with Mr. Gupta to extend the completion date under the SPA. 40.Given the disputes among the Sellers and CGL, Deacons took out this originating summons by way of an interpleader. III. DISCUSSION 41.I first consider whether proceedings should proceed as if commenced by writ. On this, it is my view that Deacons’ originating summons is an appropriate way of dealing with the issues here. 42.I then move from CGL’s preliminary issue to answer the individual questions raised by Deacons in this originating summons. A. Preliminary question: Whether writ procedure needed 43.CGL’s case is that there was a mutual agreement among the Sellers and CGL to extend the completion date indefinitely pending continuation of the New Delhi interim injunction. 44.As a result either of the injunction or the sale of the DIHL shares to Deutsche Bank, the Sellers (CGL says) could not have carried out the SPA. CGL claims to have been entitled in consequence to withdraw from the transaction under SPA cl.7.2. 45.CGL concludes from all this that it gave proper notice to Deacons pursuant to the terms of the escrow agreement within the extended period for completion alleged to have been mutually agreed among the parties. 46.However, I do not believe that the writ procedure is called for here. 47.The factual dispute among the parties is within a narrow compass. The only difference among them is whether it was mutually agreed by Mr. Cole and Mr. Saran on behalf the Sellers and Mr. Gupta on behalf of CGL to postpone the completion date. 48.I have set out in full the relevant passages from Mr. Gupta’s evidence as to what was allegedly said or done by the parties before and after 27 June 2005. CGL’s difficulty is that, even if Mr. Gupta’s evidence were wholly accepted, it would not make out a case of mutual agreement. 49.Mr. Gupta does not explicitly affirm that the parties agreed to a postponement of completion in a strict, contractually binding sense. 50.Mr. Gupta, for example, does not identify what consideration moved from CGL (at the request of the Sellers) in return for the Sellers’ alleged agreement to postpone the completion date at the request of CGL. 51.Mr. McLeish (appearing for CGL) faintly suggests that CGL promised not walk away from the agreement in consideration for the Sellers agreeing to an extension of the time for completion. But in actuality Mr. Gupta does not say this in his affirmation. 52.Nowhere does Mr. Gupta expressly state what if anything CGL promised in return for a postponement of completion by the Sellers. The language of Mr. Gupta’s affirmation is far more guarded. 53.The farthest that Mr. Gupta appears to suggest is that, on the basis of certain assurances by Mr. Saran and Mr. Cole, he subjectively understood (rightly or wrongly) that the Sellers would not insist on the stipulated date of 27 June 2005 pending the continuation of the injunction. 54.The best that could be said for CGL’s case is that the Sellers promised through Mr. Saran and Mr. Cole to forebear temporarily from exercising the Sellers’ strict legal rights under the escrow agreement and SPA. 55.But such forbearance could give rise at law to no more than a promissory estoppel. The promise to forebear would merely be suspensory. The Sellers could resume the exercise of their rights under the SPA or escrow agreement by giving reasonable notice to the Sellers of such an intention. On Mr. Gupta’s own evidence, the Sellers did precisely this on 20 August 2005. 56.Mr. McLeish submits that there would at least be a triable issue as to whether the notice on 20 August 2005 was reasonable. But I do not see how it could conceivably be argued otherwise. There is no suggestion in any of the affidavits filed that (if so minded) CGL was prevented from giving an appropriate notice to Deacons by (say) the following day (21 August 2005). 57.The upshot of this would be that, as at 18 September or 5 October 2005 when CGL’s notices were sent, the completion date of 27 June 2005 had long passed. Additionally, any promise by the Sellers to forebear from relying on the passing of such date would have long ceased to be effective. 58.It follows that pleadings, witness statements, discovery and a full-blown trial simply to establish what Mr. Gupta affirms would be of little point. CGL’s case would not be assisted. Even if Mr. Gupta were right, CGL’s notices would still fall outside the time limit in cl.4 of the escrow agreement. 59.I add that, even if I believed that the factual dispute here was material, I would still not have directed that the matter proceed as if begun by writ. 60.This is because the narrow difference among the parties can readily be stated as an issue. A short trial of that issue (in the sense of cross-examination and re-examination of Mr. Gupta, Mr. Cole and Mr. Saran on their affirmations) should be more than adequate to enable the Court to determine the disputed question. A mini-trial of the discrete issue would then have the virtue of saving significant time and cost. B. Deacons’s questions B.1 Whether CGL’s notice dated 5 October 2005 to Deacons was a valid notice under cl.4(ii) of the escrow agreement? 61.It follows from Section III.A above that, even taking account of the discussions being alleged by Mr. Gupta, CGL’s notice of 5 October 2005 was invalid. 62.I add that I do not think that the New Delhi injunction constituted an impediment to completion by the Sellers on 27 June 2005. This is because the injunction did not restrain the Sellers from transferring their shares in DIHL. Three points might be made in this connection. 63.First, the Sellers, not being parties to Mcorp’s action, were not bound by the injunction. By its express terms, the injunction was only directed at the defendants to Mcorp’s action. 64.Second, the injunction merely restrained the parties to Mcorp’s action from transferring their interests in Spice otherwise than in accordance with cl.10 of the Spice.com agreement. Given that the Sellers were not parties to the Spice.com agreement, nothing in cl.10 of that contract prevented them from transferring their indirect interest in Spice. 65.Third, as far as I can see, the injunction does not fall within any of the circumstances listed in SPA cl.7.2 which entitle CGL to refuse to complete. 66.Thus, regardless of whether the completion date was postponed, the injunction was not a valid ground for CGL treating the SPA as rescinded. B.2 Whether the Sellers’ notice dated 10 November 2005 to Deacons was a valid notice under cl.4(i) of the escrow agreement? 67.It follows from Sections III.A and B.1 above that the Sellers’ notice of 10 November 2005 was valid. B.3 Subject to the Court’s determination in relation to B.1 and B.2 above, whether Deacons should pay the Amount (namely, US$5 million) to the Sellers or to CGL? 68.It follows from Sections III A, B.1 and B.2 above, that the Amount is payable to the Sellers. B.4 Subject to the Court’s determination in relation to B.1 and B.2 above, whether Deacons should pay the interest accrued on the Amount to the Sellers or to CGL? 69.There is no dispute among the parties that interest accrued up to the date of the Sellers’ notice (10 November 2005) is payable to CGL. 70.There is, however, a dispute over interest accruing from 10 November 2005. 71.Citing President of India v. La Pintada Cia Navegacion SA [1985] AC 104, Mr. McCoy advised that (in the absence of express agreement) as a general rule debts do not carry interest at common law. He thought that, there being no express agreement that the Sellers were to receive interest accruing from the date of their notice, “on balance” CGL was entitled to such interest. 72.I do not think Mr. McCoy’s conclusion is right. 73.The Amount was not immediately paid to the Sellers as stipulated by cl.4(i) of the escrow agreement simply because CGL challenged the validity of the Sellers’ notice. Had CGL not challenged the Sellers’ notice, the Sellers would immediately have received the Amount and enjoyed the interest accruing thereon from 10 November 2005. 74.In those premises, whatever the correct disposition of interest up to 10 November 2005, the instruction in cl.4(i) that the Amount should “immediately” be paid to the Sellers suggests that interest (if any) accruing from 10 November 2005 (through (say) delay in transferring the Amount) should be paid to the Sellers. 75.There is an even clearer indication of an intention that any interest accruing after a valid notice from the Sellers should be paid to them. SPA cl.8.5(a) expressly states that, where CGL fails to complete in time, “the Escrow Amount under the Escrow Agreement shall be paid and forfeited to the Sellers”. 76.Recall that the definition of “Escrow Amount” in the escrow agreement includes both the Amount and interest accrued. Accordingly, it would appear that the parties envisaged at the time of executing the SPA and escrow agreement, that the Amount and interest accruing from the time of the Sellers’ valid notice should be paid to the Sellers. 77.It is true that cl.4(i) of the escrow agreement says that Deacons “shall immediately pay to the Sellers ... the Escrow Amount less the interest, which [Deacons] shall immediately pay to [CGL]”. But such provision is consistent with a conclusion that interest post 10 November 2005 should be attributed to the Sellers. 78.In the normal course of events, where there is no delay in transferring the Amount to the Sellers, the only relevant interest would be that which has accrued up to the date of the Sellers’ notice. The deductible interest mentioned in cl.4(i) must therefore refer to the interest accrued up to the time of the Sellers’ valid notice. 79.Consequently, I would answer B.4 as follows:-
B.5 Subject to the Court’s determination in relation to B.4 above, what is the amount of interest which Deacons should pay to the Sellers or to CGL? 80.At the hearing on 7 March 2007, I told the parties that I would leave it to them to calculate the precise amounts of interest payable to the Sellers or CGL. B.6 Whether CGL’s obligation to bear and pay “all the reasonable costs, charges and expenses” incurred by Deacons under cl.6 of the escrow agreement includes the costs of Deacons obtaining Senior Counsel’s advice dated 4 January 2006? 81.Clause 8.2 of the escrow agreement entitles Deacons to engage a professional advisor (including Senior Counsel) to advise in relation to any dispute among the parties. 82.Clause 6 of the escrow agreement provides that CGL is liable to reimburse Deacons for the reasonable costs of performing its duties as escrow agent. Such costs include those of any professional advisor engaged by Deacons pursuant to cl.8.2. 83.It has not been suggested that the fee ($75,000) for Mr. McCoy’s Advice was unreasonable. 84.In the circumstances, I would answer “Yes” to B.6. CGL is liable to reimburse Deacons for the entire of Mr. McCoy’s fee. B.7 Whether (under cl.6 of the escrow agreement or otherwise) CGL is responsible to bear and pay the costs of these proceedings? 85.CGL is liable to bear Deacons’ costs on an indemnity basis. 86.This conclusion accords with cl.8.1 of the escrow agreement. By that term, CGL and the Sellers “jointly and severally agree to indemnify [Deacons] against all costs arising ... other than those attributable to [Deacons’] own failure”. 87.The conclusion is also consistent with normal principles for awarding costs in interpleader actions. 88.Mr. McLeish submitted that Deacons should not be entitled to an indemnity because it was not wholly neutral. Deacons sided with the Sellers against CGL (Mr. McLeish contends) because in his affidavit Mr. Cole stated an opinion that interest accruing post 10 November 2005 was attributable to the Sellers, not CGL. 89.I do not think that Mr. Cole showed any partiality by expressing his personal view on the disposition of interest. As Mr. Kat (appearing for Deacons) pointed out, one must look at the totality of what Deacons has presented to the Court, as opposed to an opinion expressed by Mr. Cole in his personal capacity in direct response to allegations made about him by Mr. Gupta. 90.Looking at the evidence and submissions advanced by it as a whole, Deacons seems to me to have been scrupulously fair and even-handed in its presentation of the different contentions here. B.8 Subject to the Court’s determination in relation B.3 to B.7 above, whether Deacons has a right to set-off “all the reasonable costs, charges and expenses” incurred by Deacons under cl.6 of the escrow agreement and the costs of these proceedings against the Amount and/or the interest accrued on the Amount? 91.Deacons accepts that it is not entitled to set-off any of its costs against the Amount. The Amount is thus to be paid in full to the Sellers. 92.In light of cl.8.1 of the escrow agreement, Deacons claims to set off its costs on an indemnity basis against the interest attributable to CGL and (where the latter interest is insufficient) the Sellers. 93.In my view, contrary to the argument of Mr. Manzoni (appearing for the Sellers), Deacons must be right. Deacons’ right of set-off is a corollary of the joint and several liability of CGL and the Sellers to indemnify Deacons for performing its duties under the escrow agreement. IV. CONCLUSION 94.The Amount is payable to the Sellers. 95.Interest up to 10 November 2005 is attributable to CGL. From 10 November 2005 interest is attributable to the Sellers. 96.Deacons is entitled to its costs (including the costs of engaging Mr. McCoy) on an indemnity basis. 97.Deacons may set-off its costs against the following:-
98.On 7 March 2007 I ordered that the monies paid in by CGL be paid out to Deacons. 99.In the event that the monies paid-in by CGL and the interest attributable to either party is insufficient to meet Deacons’ costs, Deacons may seek to recover the balance from:-
by reason of their joint and several liability stipulated in cl.8.1 of the escrow agreement. 100.The Sellers have prevailed against CGL. Since costs usually follow the event, CGL must be liable for the Sellers’ costs of the originating summons proceedings. CGL’s liability for the Sellers’ costs is to be on a party and party basis. 101.Where any of Deacons’ costs are set-off against interest attributable to the Sellers or are recovered against the Sellers personally, the Sellers may claim full reimbursement of such costs against CGL. 102.All costs are to be taxed, if not agreed.
Mr. Nigel Kat instructed by Messrs Deacons, for the Plaintiff Mr. Charles Manzoni instructed by Messrs Richards Butler, for the 1st & 2nd Defendants Mr. Robin McLeish instructed by Messrs Victor Chu & Co., for the 3rd Defendant |
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