The New China Hong Kong Group Ltd (in Liquidation) and Another v. Aig Asian Infrastructure Fund Lp and Others
Read the full judgment text of HCCL 97/2000 on BabelCite. This HCCL judgment was delivered on 29 June 2007.
1. This litigation is set against the factual backdrop of the construction of a toll expressway in the Sichuan Province of the PRC.
Cited by 3 cases
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HCCL 97/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMMERCIAL ACTION NO. 97 OF 2000 ------------------------- BETWEEN
---------------------- Before : Hon Stone J in Court Dates of Hearing : 19, 20, 21, 23, 29 & 30 March 2007 Date of Judgment : 29 June 2007 ------------------------- J U D G M E N T ------------------------- Introduction 1.This litigation is set against the factual backdrop of the construction of a toll expressway in the Sichuan Province of the PRC. 2.As is the norm in the Commercial Court, the focus of controversy in this case is purely monetary : in outline, whether certain shares and funds which had been placed into an Escrow Account pending completion of the expressway properly have been paid out from that Account to the defendants herein, or whether, as now is contended to the contrary by the plaintiffs, the content of this Account should have been paid out to one or other of the plaintiffs. 3.The case is larded with detail, and at the outset the court was faced with the task of attempting to quarry the answer from the several thousand documents assembled for the purpose of trial; however, with the assistance of leading counsel, the bulk of such documentation so painstakingly (and doubtless expensively) assembled remained of little significance in the conduct of this case. The factual background 4.This dispute cannot be understood without reference to its genesis. 5.In the late 1980’s and early 1990’s, co-terminous with the rapid economic development the PRC was experiencing, and with the commensurate growth in the volume of highway traffic, the PRC Government planned the building of a road network linking over one hundred provincial capitals and major cites; specifically this involved, in substantial part, the construction by the turn of the Millennium of two north-south and two east-west trunk highways. 6.This case is about the building and financing of one of these east-west highways, namely a toll expressway linking Chengdu and Mianyang in Sichuan Province. 7.Whilst much of the planned highway infrastructure was to be paid for by money raised from domestic sources, the Chengdu-Mianyang Expressway (‘the Expressway’) was to be funded by foreign capital. 8.This led to a Joint Venture Agreement dated 18 March 1994, the parties to which were the Sichuan Highway Construction and Development General Corporation, (‘Party A’) and New China Hong Kong Highway (‘Party B’), which together agreed to form a Chinese-foreign Co-Operative Enterprise known as the ‘Sichuan Chengmian Expressway Co Ltd’, a co-operative joint venture for the purpose of constructing and managing the Expressway and its ancillary and servicing facilities. 9.Party A, the ‘Sichuan Highway Corporation’, is a limited liability company formed under the laws of the PRC in 1988; it is wholly owned and controlled by the Sichuan Department of Communications, a department of the Sichuan Provincial Government which, inter alia, regulates and supervises highway transportation matters within Sichuan. 10.Party B, New China Hong Kong Highway Ltd, henceforth referred to as ‘NCHK Highway’, is a company incorporated in the British Virgin Islands. NCHK Highway is an indirect wholly-owned subsidiary of the 1st plaintiff in this action, the New China Hong Kong Group Limited, presently in liquidation; I shall refer to the 1st plaintiff simply as the ‘NCHK Group’. 11.The 2nd plaintiff in this action, Evercheer Holdings Ltd (‘Evercheer’) is a wholly owned subsidiary of a publicly listed company in Hong Kong, Century City International Holdings Limited (‘Century City’). 12.On 10 March 1998, Century City incorporated Evercheer for the specific purpose of acquiring from NCHK Group its interest in NCHK Highway, and thereby its interest in the Expressway. This transaction was completed in April 1998. 13.In turn, in January 1999, in discharge of a monetary liability, Century City transferred its interest in Evercheer to a company known as Crux Assets, which is a wholly owned subsidiary of Shenyin Wanguo, a mainland financial institution. 14.The NCHK Group/Century City and the Century City/Shenyin Wanguo transactions contained within them indemnities to the respective purchasers for any loss incurred as the result of the distribution from the Escrow Account of that which was known as the ‘Escrow Shares’ and the ‘Escrow Money’. 15.The financial loss resulting from the substance of this dispute – that is, the allegedly wrongful distribution of the content of the Escrow Account – ultimately has fallen on Shenyin Wanguo, which by reason of its financial interest is, for all practical purposes, the driver of this litigation; that which essentially happened is that Century City and Crux Assets entered into a Settlement Agreement dated 19 May 2000 for the purpose of enabling Century City to take the necessary steps to recover that which has been distributed from the Escrow Account. 16.Evercheer, as 2nd plaintiff, sues in its own right as assignee of all the rights and causes of action accrued in favour of NCHK Highway, and NCHK Group, as 1st plaintiff, is nominal only; it sues by its attorney, Evercheer, pursuant to a power of attorney dated 23 January 1999, and as a trustee for Evercheer pursuant to a declaration of trust of the same date. 17.There are nine defendants to this action. At this trial they have been referred to in broad terms as ‘the Investors’. 18.For the purpose of raising foreign funds for the construction of the Expressway, NCHK Group – the force behind which was Mr TT Tsui, at that time a high-profile Hong Kong entrepreneur – in or around July 1994 arranged for the private placement of shares to be issued in NCHK Highway; Goldman Sachs (Asia) Ltd was engaged to act as placement agent, and a Placement Memorandum dated 15 October 1994 formally was issued for the purpose of inviting investors to subscribe for 4,759,291 newly issued shares. 19.The subscription price was fixed at US$25 per share, and a wholly owned subsidiary of NCHK Group was to subscribe for 1,160,000 shares at that price and also was to subscribe for 479,291 shares at par, which was US$0.1 per share. 20.On the same day as the issuance of the Placement Memorandum, that is, 15 October 1994, NCHK Group, NCHK Highway and another entity known as The New China Hong Kong Development Ltd, entered into a Subscription Agreement with AIG Asian Infrastructure Fund LP, The Asian Infrastructure Fund, Itochu Corporation and Manhattan Garments (International) Ltd, the 1st to 4th defendants respectively. 21.The 5th to 9th defendants are, I apprehend, subsidiaries of or related companies to the Investors to which title to the subscribed shares was transferred; thus, for example, on or about 16 February 1998 the 2nd defendant, AIF, transferred its 1.04 million shares in NCHK Highway to its associate company, Bantam Ventures Ltd, the 5th defendant herein. 22.In practical commercial terms, the Subscription Agreement was made in order to raise the necessary funds to enable the Expressway to be built : on the one hand it enabled NCHK Highway to raise funds for the purpose of contributing to part of the construction costs (one of its key responsibilities under the Joint Venture), and on the other it enabled these seasoned institutional Investors to invest in the Expressway project. 23.Under this Subscription Agreement, NCHK Highway not only offered for subscription by way of private placement a total of 4.28 million common shares of US$0.1 per share, but it further set out the parties’ rights and obligations in terms of the subscription of shares in NCHK Highway. 24.There is no necessity to condescend to detail as to the terms of this Subscription Agreement; this document is girt about with the usual commercial ‘boilerplate’, and for present purposes the only provision that requires some attention is that of Clause 7(2) thereof, which provides for the establishment of the Escrow Agreement, the release from which of shares and money provides the nub of this case. 25.Under Clause 7(2), the NCHK Group, which enjoyed the status of ‘Founding Member’ under this scheme, was to deposit both the Par Shares subscribed by it and also was to deposit 120,000 shares “other than the Par Shares” (ie. the 1.16 million ‘subscription price shares’ at US$25 per share) with the designated Escrow Agent on what was known as the ‘1st Funding Date’. 26.It was further provided that the Escrow Agent should hold both such categories of shares, together with all dividends and other distributions paid in respect thereof, in accordance with the Escrow Agreement – to particular provisions of which I shortly refer. 27.In addition, NCHK Group as Founding Member agreed that “until termination of the Escrow Agreement” none of the shares so deposited thereunder, was to be pledged, charged, mortgaged or otherwise encumbered. 28.Under Clause 9 of the Subscription Agreement, representatives of the Investors were appointed to sit on the Board of NCHK Highway, and thus to take part in its affairs and in its operation, as well as, albeit indirectly, in the affairs of the Joint Venture itself, the terms of which subsequently were varied by two Supplemental Agreements : the 1st Supplemental Agreement dated 25 March 1996, and the 2nd Supplemental Agreement dated 6 August 1997. 29.Once more, the detailed provisions of these Supplemental Agreements are not of great import; suffice to say that by the 1st Supplemental Agreement the Joint Venture Agreement was varied in terms of extension to 8 November 1997 as the Completion Date for the construction of the Expressway, and there were changes in the provisions relating to toll income guarantees and vehicular traffic flows, whilst the 2nd Supplemental Agreement slightly altered the route of the Expressway, which now had a total length of 91.9 kilometres, and further extended the Completion Date to 31 December 1998. 30.These amendments are not in themselves controversial, and it is the plaintiffs’ case that at all material times the Investors were aware of these Supplemental Agreements and of their content, and that all parties had proceeded on the basis that the primary Joint Venture Agreement thus had been amended by the two Supplemental Agreements. The Escrow Agreement 31.The stage broadly thus set, I move to the terms of the Escrow Agreement dated 31 October 1994, the parties thereto being the NCHK Group, the Investors, and Messrs Victor Chu & Co., the Hong Kong firm of solicitors advising the NCHK Group. This firm was designated the ‘Escrow Agent’, and had prepared this particular document; I understand that Mr Victor Chu personally acted as counsel to the NCHK Group and to NCHK Highway, and also was a member of the NCHK Group. 32.As earlier outlined, the Escrow Agreement was set up specifically to hold shares deposited therein by the NCHK Group, the principal purpose of the Escrow Agreement being to constitute a form of ‘comfort’ or ‘earnest’ to the Investors by the NCHK Group that the Expressway would be completed in time and opened for toll collection in the manner anticipated by the Joint Venture and by NCHK Highway – into which such joint enterprise, of course, the Investors had been persuaded to inject substantial funds. 33.Clause 2 of the Escrow Agreement provided for the deposit with the Escrow Agent by NCHK Group or its relevant subsidiary “on the first Funding Date” (as therein defined) of share certificates representing 135,078 Par Shares and 120,000 Shares other than Par Shares, and that on each subsequent Funding Date, there should be deposited share certificates representing such number of Par Shares as shall be allotted to the Founding Member (NCHK Group), together with an undated stock transfer form executed by the Founding Member in favour of each of the Investors. 34.It is undisputed that in accordance with Clause 2 of the Escrow Agreement, the NCHK Group as Founding Member procured its subsidiary, NCHK Highway, to deposit with the Escrow Agent share certificates representing 599,291 of its shares in NCHK Highway – ‘the Escrow Shares’ – together with undated stock transfer forms duly executed in favour of the respective Investors. 35.It is Clause 6 of the Escrow Agreement, however, which is at the centre of argument in this case. 36.Clauses 5 and 6 concern the release by the Escrow Agent of “the Escrow Shares and all monies in the Escrow Account” upon receipt of written instructions from the Investors so to do : Clause 5 deals with such release to the Founding Member only (which eventuality did not occur and thus presently is of no application), whilst Clause 6, the key clause for present purposes, deals with the distribution of Escrow shares and moneys, upon relevant written instructions to the Escrow Agent so to do, “pro rata among all the Investors and the Founding Member” according to the number of Shares subscribed for under the Subscription Agreement. 37.I deal with Clause 6 in more detail later in this judgment, with particular reference to the various conditions stipulated therein which were to ‘trigger’ the practical operation of this clause (for example, that the Expressway indeed had been ‘completed’). 38.For present purposes, however, suffice to say that it is the distribution to the Investors which actually has taken place under the purported aegis of Clause 6 which provides the basis for the complaint as now mounted by the plaintiffs, who, in effect, wish to ‘claw back’ such wrongful distribution as is alleged to have been effected by the Escrow Agent. At this stage, therefore, it may be appropriate to outline the date and manner of such distribution as in fact has taken place. Distribution of the Escrow Shares and Escrow Monies 39.The Expressway, in the modified form as set out in the 2nd Supplemental Agreement, was open for traffic and toll collection on 21 December 1998, and it is the plaintiffs’ unequivocal case that this represented the relevant ‘Completion Date’, as defined. 40.The plaintiffs also contend that in light of this fact and other relevant matters, it was not open to the Investors to attempt wrongfully to obtain a distribution under the Escrow Agreement because the conditions specified in Clause 6 patently had not been satisfied. 41.Nevertheless, as a matter of history the Investors did seek to invoke Clause 6; in fact, they made two such attempts, and on the latter occasion the investors were successful in obtaining the requested distribution. Matters transpired as follows. 42.On 28 June 1999 a ‘Distribution Letter’ was sent Victor Chu & Co., the Escrow Agent, duly signed by the Investors, paragraph 3 of which read :
43.Subsequently, a second letter dated 5 July 1999 was sent to Victor Chu & Co. This course appears to have been taken out of an abundance of caution, and also at the specific suggestion of Victor Chu & Co., the Escrow Agent, which actually had furnished in draft a Notice upon which it would be prepared to act. The form of this subsequent ‘confirmation’ letter follows more closely the terms the ‘Clause 6 conditions’ which require to be satisfied before a distribution under this clause could be made; moreover, this second letter is signed by all the original Investors, in contradistinction to signature by the subsidiary share transferees. 44.Nothing apparently turns on this apparent duplication of effort, and paragraph 3 of this second letter of instruction of 5 July 1999 is in the following terms :
The letter concluded thus :
45.It is a matter of history that the Escrow Agent, Victor Chu & Co., took the view that, having received a Notice under Clause 6 of the Escrow Agreement signed by all the Investors, it was “obliged” to proceed with the distribution pursuant to Clause 6 : see, for example, that firm’s fax of 7 July 1999 to Evercheer and to Messrs Baker & McKenzie, the solicitors acting for Shenyin Wanguo Finance, the de facto purchaser of Evercheer’s interest in the Expressway. 46.By letters dated 8 July 1999 Victor Chu & Co. gave notice of the distribution to the Investors and to the Founding Member of shares and monies standing in the Escrow Account. 47.The number of shares attributable to the parties and distributable to the Founding Member and the Investors was calculated as follows :
48.As to monetary distribution, as at 8 July 1999 the Escrow Agent noted that the balance standing to the credit of the Escrow Account was US$2,437,144.18. 49.Accordingly, the amount distributable to each of the Investors and to the Founding Member pursuant to Clause 6 of the Escrow Agreement was calculated in terms of the respective attributable shareholdings, and produced the following pro rata calculation :
50.Of the specific sum of US$839,450.79 attributable to the Founding Member, Evercheer was to receive all shares and monies attributable to the Founding Member, NCHK Group, other than an amount, characterized as the ‘Accrued Amount’ in the sum of approximately US$217,000, which, pursuant to a Deed of Indemnity dated 14 April 1998 between Evercheer, The New China Hong Kong Group Ltd and Century City International Ltd, was to go to the Founding Member. 51.The letters of 8 July 1999 from the Escrow Agent included the relevant payment instructions for payment of the designated amounts, and further letters of the Agent of the same date enclosed share certificates in terms of the respective numbers of shares distributable to the Investors and the Founding Member. 52.It is the plaintiffs’ case that the Escrow Agent wrongfully made this distribution of shares and monies pursuant to Clause 6, and contends that distribution should have been made to the Founding Member or its assignees alone under the provisions of Clause 5 of the Escrow Agreement. 53.Hence these proceedings. The evidence 54.In addition to the significant number of box files assembled for this case, some viva voce evidence was called, although in the circumstances this assumed the status of relative formality, and cross-examination thereon either was extremely limited or non-existent; it was expressly accepted on both sides that the absence of cross-examination was not to be taken as constituting implicit acceptance of the relevant witness statement. 55.As both leading counsel indicated, this case essentially was to be determined on points of law on the existing documents, the common stance being that no matters of primary fact were in dispute. 56.Against this simplified backdrop, the plaintiffs called two witnesses : Mr Tony Lee Man Chun, a director and CEO of Shenyin Wanguo (HK) Ltd, and a director of its subsidiaries, Crux Assets Ltd and Evercheer, and also Mr Ng Kwai Kai, an Executive Director of Century City International Holdings Ltd. 57.On behalf of the defendants, two witnesses were called into the witness box : Mr Andy Tse Po Shing, a financial analyst and adviser to the management of the 2nd defendant, AIF, and Mr Patrick Chow Kwok Choi, a General Manager of Manhattan Garments, the 4th defendant, who since the last quarter of 1996 had been assigned to oversee the investment of his employer in NCHK Highway. 58.In addition, the witness statement of a third witness Mr Jason So Kwan Cheung, whom was a director of the principal adviser to the 1st defendant, AIG, and who had been involved with the negotiation and administration of the investment of AIG in NCHK Highway, by agreement was tendered as his evidence in chief absent the necessity formally to call him. 59.As counsel anticipated, whilst the court has the evidence of these gentlemen before it, I have not found such evidence, which broadly takes the form of undisputed historical review glossed by arguendo, to be of particular assistance in deciding the issues as they have emerged in this case. 60.It is to these issues which I now turn. The issues for decision 61.Cases of this type generally are pleaded a good deal more widely than ultimately they are argued, particularly when, as here, the court at trial has had the considerable assistance of counsel in crystallising the real points at issue. 62.Although the matter was not advanced in this way, it seems to me convenient broadly to divide the debate in this case as follows :
(a) The Clause 6 issues 63.There is no doubt but that resolution of this dispute depends upon whether it is decided that, in giving notice pursuant to Clause 6 of the Escrow Agreement, and thereby in obtaining distribution from the Escrow Agent of shares and money thereunder, the Investors have acted legitimately. 64.If the answer to this is ‘no’, the plaintiffs must succeed; conversely, if the answer to this is ‘yes’, the plaintiffs will fail. 65.In this regard Mr Warren Chan SC, leading for the plaintiffs, commenced his closing submission with the observation that this case “begins and ends” with Clause 6. I agree with and accept this view. 66.Given that this is the position, I now set out Clause 6 of the Escrow Agreement in its entirety. It is drawn in the following terms :
67.As the highlighted parts of Clause 6 indicate, distribution under this clause both to the Investors and the Founding Member (in contradistinction to Clause 5, which provides solely for distribution to the Founding Member or its nominee) arises only when the written instructions sent to the Escrow Agent properly comply with the provisions of both (a) and (b); compliance with either one or the other will not suffice, the requirement being cumulative in order for such instructions legitimately to be given, and consequent upon which the Escrow Agent thereby is mandated to act. 68.Leading counsel recognized and accepted this, of course; where they differed was in their conclusion that the respective requirements of (a) and (b) in fact had been satisfied. 69.On behalf of the defendants Mr Paul Shieh SC maintained that indeed this represented the position, and accordingly said that the distribution by the Escrow Agent of the Escrow Shares and monies had been rightly effected, whilst Mr Warren Chan SC for the plaintiffs adopted an equally firm contrary stance, contending that even if it were to be assumed that Mr Shieh was right in his analysis in terms of (a), and that the Completion Date had not occurred on the date as stipulated – which factually was agreed to be 31 October 1997 (ie. three years from the first Funding Date of 31 October 1994) – nevertheless the defendants signally had failed in their submission that the requirements set out under (b) also had been satisfied. Thus, said Mr Chan, it followed that the distribution as in fact effected had been wrong, and that such distribution now should be rectified in his client’s favour by means of the return of the Escrow Shares and the Escrow Monies. 70.So confident was he of his position that in his final submission Mr Chan focused predominantly upon the element of compliance with (b), and for the purpose of argument he was prepared to proceed upon the assumption that Mr Shieh’s submissions in respect of the requirements under (a) were well-founded. 71.Such assumption, however, was not enough, he asserted; the dominant theme within his succinct closing address was that the word ‘and’ conjoining (a) and (b) within Clause 6 was the key to this particular lock, and that in the circumstances this was not a key which Mr Shieh was able successfully to turn because in the circumstances he could not possibly get home in light of the requirements of Clause 6(b). 72.This approach possessed forensic attraction; if correct, the defendants’ case clearly falls at this hurdle. It seems appropriate, therefore, to deal with this element of the argument at the outset. (1) Compliance with Clause 6(b) 73.The requirement within (b) itself is disjunctive : for compliance therewith there must be satisfaction either with condition 6(b)(i) or with condition 6(b)(ii). (i) Condition 6(b)(i) 74.Condition (b)(i) reflects the necessity for instructing the Escrow Agent in order to establish that “there is continuing a breach of the Joint Venture Agreement or of the Guarantee, which has not been cured by the Guarantor”, the ‘Guarantor’ within this scheme referring to the Guarantee issued by the Sichuan Provincial Trust and Investment Corporation (‘SPTIC’) to NCHK Highway. 75.This Guarantee, dated 18 March 1994, is before the court in the form of an attachment to the Share Placement Memorandum; pursuant to this Guarantee SPTIC had guaranteed specific obligations of Sichuan Highway under the Joint Venture Agreement to design and construct within budget the Expressway and its ancillary facilities, whereby full scale operation and toll collection of the Expressway could commence within 3 years of the Joint Venture (referred to as the ‘Co-operative Enterprise’) obtaining a business licence. 76.I turn first to the allegation of a continuing breach of the Guarantee remaining uncured by the Guarantor. 77.In this regard, it is the defendants’ primary contention that this state of affairs had come into being by reason of a letter of 23 April 1996 from the Guarantor, SPTIC, which, it is said, had constituted a repudiation of the Guarantor’s liability under the Guarantee. 78.This letter, dated 23 April 1996, is addressed to New China Hong Kong Highway and is headed ‘Declaration in relation to the guarantee given by Sichuan Provincial Trust and Investment Corporation in favour of The New China Hong Kong Highway Limited’. It reads :
79.On behalf of the defendants, Mr Shieh SC says that the allegation in this letter that the Guarantee had not become operative was based upon a false factual premise; quite simply it could not be in dispute but that the original JVA indeed had been approved by the relevant provincial authorities, and in any event the JVA as amended by the 1st Supplemental Agreement expressly was approved on 4 April 1996 at the direction of the Central Government. 80.Moreover, Mr Shieh submitted, the Guarantee by its express terms covered any variation of the JVA provided that the burden on the Guarantor is not made more onerous, and since also there could be no dispute but that the 1st Supplemental Agreement was entered into in order to relieve Sichuan Highway Corporation of certain obligations or to lessen the burden thereon (in particular the original obligation in the JVA for the Sichuan Highway Corporation to guarantee a particular level of toll revenue had been removed), it was clear that the Guarantee continued to cover the JVA, as amended by the 1st Supplemental Agreement. 81.If this analysis was correct, he continued, the April 1996 letter from the Guarantor wrongfully had repudiated its obligations under the Guarantee, and thus it followed that this letter clearly gave rise to a continuing breach of that Guarantee – and, since the Guarantor had not retracted this repudiatory stance, such continuing breach had not been cured by the Guarantor even by 1999, the year in which the Investors had served their Notice under the Escrow Agreement. 82.To this submission Mr Chan SC responded with two main points. 83.His first argument canvassed that which he maintained was the ‘qualified’ nature of the written instructions which had been received by the Escrow Agent. Mr Chan pointed out that, under Clause 6 of the Escrow Agreement, the Escrow Agent has to receive written instructions to the effect that “there is continuing a breach of the Joint Venture Agreement, or of the Guarantee, which has not been cured by the Guarantor…”, and that this rubric was not and could not be satisfied by the terms of the July 1999 Distribution Instructions, which simply stated that “there is in all probability a subsisting breath (sic) of the guarantee” (emphasis added). 84.Mr Chan submitted, in light of the terms of Clause 6, that such Instructions were required to contain an unqualified assertion that there was a continuing breach of the Guarantee remaining uncured by the Guarantor, and did not permit the giving of qualified instructions as exemplified by the words “in all probability”. He said that distribution under Clause 6 of the Escrow Agreement had had considerable impact upon the financial position of the parties thereto, and that it could not possibly have been the position that mere assertion of probability of breach would or could constitute a sufficient ‘trigger’ for any such distribution of the escrow shares/monies. 85.Mr Chan’s second principal argument was that if this first contention did not succeed, and if the July Distribution Instructions sufficed validly to trigger the invocation of Clause 6, and thus a consequent distribution, the defendants were unable to demonstrate that this letter of 23 April 1996 amounted to a wrongful repudiation of the Guarantee; his contention was that any such conclusion could not be established without “proper investigation” into whether the particular grounds advanced by SPTIC to justify its stance as to not being bound by the Guarantee could be demonstrated by cogent evidence to be true. 86.However, as matters currently stood, he said, the issue of the truth or otherwise of the underlying reasons for SPTIC deciding that it no longer was to be bound by the Guarantee could not properly be tested unless such issues specifically had been raised on the pleading – and thus far they had not been pleaded, far less proved. 87.In this context Mr Chan accepted, I think, the proposition that if in the letter of 23 April 1996 SPTIC wrongly had repudiated liability under the Guarantee, such purported repudiation thereby would constitute a breach of the Guarantee; and conversely, that if SPTIC correctly had repudiated its liability under the Guarantee that there would thus be no such continuing breach. However, he maintained that this begged the essential question as to whether the grounds relied on by SPTIC were, or were not, well founded – as to which, he said, as matters presently stood, the court was in no position to decide these issues absent their being raised on the pleadings and tried to conclusion. 88.Accordingly, this aspect of the argument effectively boiled down to the following adverse contentions : Mr Shieh maintained that in its letter of 23 April 1996 SPTIC obviously was acting on a false factual premise(s), and that the court presently was in a position to conclude that this letter represented a wrongful (and unrectified) repudiation by the Guarantor of its obligations under the Guarantee, whilst Mr Chan insisted that in terms of the breach of the Guarantee the written instruction was incompetent, and further that whether SPTIC was right or wrong in its assertions within that letter was not a matter which properly could be decided absent trial of these very issues, which demanded specific pleadings on the point and evidence to be adduced pursuant thereto. 89.Implicit within this debate also lay the narrow legal dispute as to which party bore the burden of proof on the issue of whether the purported SPTIC repudiation within the letter of 23 April 1996 was well-founded. 90.Mr Shieh maintained that this burden lay upon the plaintiffs, since in this litigation it is the plaintiffs which seek to impugn the distribution as effected from the Escrow Account, and therefore that it is incumbent upon the plaintiffs, as part of the exercise of establishing the wrongfulness of the distribution, to plead and to prove that this SPTIC letter did not represent a continuing breach of the Guarantee. To the contrary, Mr Chan says in this context that such burden must lie upon the defendants. 91.As to the burden of proof, I have concluded that Mr Chan is correct, and that the evidential burden lies upon the defendants on the issue of whether the letter of 23 April 1999 did or did not constitute a breach of the Guarantee – which in turn requires specific investigation into whether the grounds for such purported repudiation by SPTIC were, or were not, well founded. 92.Although in this litigation the plaintiffs bear the ultimate legal burden of impugning the distribution from the Escrow Account – the raison d’être of this case – nevertheless in so far as the defendants choose to rely upon the 1996 SPTIC letter as constituting a wrongful repudiation of the Guarantee – and thus, inter alia, as representing a valid ‘triggering event’ in terms of the distribution from the Escrow Account – in my view the evidential burden is upon the defendants to demonstrate that the letter of 23 April 1996 amounts to such a wrongful (and continuing) repudiation. 93.I do not consider that this burden is discharged simply by reliance upon the defendants’ own qualified representation, within the July 1999 Instruction Letter, to the effect that “in all probability” there was a subsisting breach of the guarantee, and in the circumstances it is difficult to comprehend that in itself this letter can suffice to place the burden on the plaintiffs to establish the contrary; this strikes me as a quintessential ‘bootstraps’ argument, which effectively would require the plaintiffs to prove a negative solely as the result of the defendants’ qualified assertion of a positive. 94.The decision which thus is required in relation to a continuing breach of the Guarantee is whether the defendants successfully have discharged this evidential burden? 95.In my view they have not. 96.Whilst I do not think that Mr Chan’s argument as to the qualified nature of the instructions received by the Escrow Agent in itself is dispositive of the ‘bedrock point’ as to continuing breach – albeit (and without expressing any opinion thereon) I appreciate that this particular argument may possess relevance within collateral ongoing litigation involving the Escrow Agent – nevertheless I consider well-founded his submission that this element of the case cannot properly be tested absent relevant pleading and proof of the issue of the validity of the reasons underlying the decision of the Guarantor, SPTIC, to the effect that it considered itself to be no longer bound by the Guarantee. 97.Nor do I think that this can be dismissed as a mere ‘technical pleading point’ of the type which it is well known holds no attraction in the Commercial Court. In my view Mr Chan was justified in his contention that in the absence of a plea regarding the two issues/reasons underlying the Guarantor’s assertion, he simply was not in a position to meet a case premised upon the alleged validity of such underlying issues. 98.It seems to me that if and in so far as the defendants wish to assert that the 1996 Letter is based on a false factual premise in terms of Central Government approval, and/or that the burden on the Guarantor is not made more onerous by means of any variation of the Guarantee, then in discharge of such evidential burden it behoves he who so asserts to plead and to prove specific facts to this effect rather than, as presently is the case, merely to contend for the desired result by means of inferential submission (which, upon the currently available information Mr Chan argues is “wrong anyway”) on the basis of such material as now is available, and in light of pleadings wherein the particular points have not been ventilated and wherein there is no direct evidence attaching specifically to this issue(s). 99.This exercise simply has not been done, and thus I have formed the view that the defendants do not otherwise get home in this regard substantially by means of inference(s) culled from the available papers, notwithstanding the skill with which Mr Shieh SC invested his argument. 100.If this view is correct, there thus is no necessity to consider in detail the arguments also raised by Mr Chan to the effect that on the face of the currently available (and limited) information it is in any event clear that the original Joint Venture Agreement (as opposed to the original Agreement as amended by the 1st Supplemental Agreement) never was approved by the Central Government, and further that it is not possible blithely now to assert – as within the context of this argument the defendants seek to do – that the burden on the Guarantor was not made more onerous as the result of variations to the JVA when it is plain and obvious that there was, as Mr Chan put it, “at least one amendment which increased the burden of party A”. 101.Like arguments – both as to the defendants’ evidential burden and as to the veracity of the underlying issues – must also arise within the alternative limb of Clause 6(b)(i) in terms of the question of a continuing breach of the Joint Venture. 102.In my view, in face of the argument which has been mounted with reference to Joint Venture breach, it also is not possible on the present state of the evidence fairly to evaluate the respective strongly adverse contentions concerning toll rates, tax benefits and land use rights prayed in aid by the defendants under this head – indeed at one stage argument veered alarmingly towards the minutiae of the insufficiency of the number of remote-controlled cameras at the Moija substation on the Expressway – and absent appropriate evidence going to a formulated plea upon such issues nothing is to be gained by the court being drawn into a detailed debate in which no fair conclusion on the probabilities presently is possible, and wherein the court cannot in good conscience hold that the defendants’ particular contentions have been established to the requisite standard of proof. 103.This aspect epitomises a particular difficulty in this case, which has arisen by reason of the defendants’ attempt, primarily as a matter of necessary inference on the available papers, to uphold the veracity of allegations which, if established, would serve to produce the desired ‘fit’ within the rubric of Clause 6(b)(i), thereby facilitating the submission that there is an uncured and continuing breach of the Joint Venture and/or of the Guarantee, and thus in turn justifying the call on the Escrow Account and the distribution therefrom – and this despite the fact, as Mr Chan repeatedly has emphasised, that in the circumstances this represents an “unreal debate” in litigation in which not only are the entities directly relevant to these issues not before the court, but that there is not even direct evidence available upon such issues which, in the event, remain unpleaded. 104.It follows from the foregoing, therefore, that in my judgment Mr Chan SC must succeed in his submissions regarding non-compliance (or, perhaps more accurately, the fact of unproven compliance) with the terms of Clause 6(b)(i). I so hold. 105.Nevertheless, in light of the disjunctive structure of Clause 6(b), success under (b)(i) does not suffice for the plaintiffs’ purposes absent consideration of the additional requirement of Clause 6(b)(ii). (ii) Condition 6(b)(ii) 106.The condition within (b)(ii) requires Sichuan Highway or the Guarantor to have asserted in writing that neither has any liability under the JVA or the Guarantee to compensate the Co-Operative Enterprise for any losses incurred by reason of the failure of the Completion Date to occur on or prior to the third anniversary of the first Funding Date, other than for reasons specified in Clause 5.1(4) of the JVA (which relate to force majeure, war, and earthquake, and which have no relevance for present purposes.) 107.The argument under this head is in short compass. 108.In this regard the defendants pray in aid the SPTIC letter of 23 April 1996, which it is said constituted such an assertion in writing by the Guarantor. It is acknowledged that the ‘written assertion’ ground was not mentioned in either the June or July instructions to the Escrow Agent, but the Investors contend that the existence of this 1996 letter was not known to them, and that had it been known it would have been mentioned as a ground for demanding distribution from the Escrow Account; it is also said that if the defendants are not entitled to rely on the SPTIC letter in this action, the plaintiffs’ claim should be dismissed for circuity of action – an argument which, in part, underpins the pleaded Counterclaim, to which aspect I subsequently refer. 109.For his part Mr Chan maintains that he has difficulty with this submission, not least, he says, because he is unable fully to understand it. 110.In this connection Mr Chan makes three points : first, that underlying clause 6(b)(ii) is the fundamental assumption that the Completion Date has not occurred prior to the extended Completion Date of 31 December 1998, and he fails to understand, he says, how this can be said to be the case in a letter bearing the date of 23 April 1996, which was “long before” even the earliest (and undisputed) expiry date in 1997; second, he fails to grasp how in the circumstances the JV enterprise suffered any loss caused by the failure of the Completion Date – he maintains that on the evidence the JV never had suggested that it has suffered any loss – and third, and in any event, even were the SPTIC letter to have any relevance (which he maintains that it has not), on its face this states only that the Guarantor no longer had liability under the Guarantee, and does not contain the required assertion that the Sichuan Highway Corporation also had no liability thereunder. 111.I am bound to say that I consider justified Mr Chan’s characterization of the defendants’ argument under the head as ‘hopeless’; so far as I can see it does not begin to get off the ground, and accordingly this contention must fail also. I so hold. Conclusion on Clause 6(b) 112.It follows from the foregoing that in my view the plaintiffs’ approach is well-founded, and that – as Mr Chan SC has argued as his principal case – the defendant Investors’ case founders, and founders clearly, upon the shoals of Clause 6(b) of the Escrow Agreement, with the result that it is not possible for the defendants to demonstrate that there has been compliance with the stipulated requirements of this clause, whether within subclauses b(i) or b(ii), and thus further it follows that it is not possible to establish satisfaction of the conditions within both (a) and (b) of Clause 6. I so find. 113.If this conclusion be correct, it also follows that such a finding must be decisive in terms of the resolution of this case, which on this basis is to be resolved in the plaintiffs’ favour. I so hold. (2) Compliance with Clause 6(a) 114.In light of the conclusion reached under Clause 6(b), for purposes of disposition of this case strictly there is no need to go further and to sound to the merit of the argument in terms of the other ‘leg’ of Clause 6. Nevertheless, if the foregoing conclusion be in error, I should allude to my views upon the disputed issue of compliance with the terms of Clause 6(a) of the Escrow Agreement. 115.As Clause 6 (infra, para 66) indicates, the requirement under (a) is that “the Completion Date has not occurred on or prior to the anniversary of the first Funding Date, or such later date as is determined by Special Resolution of the shareholders” representing 90% of the issued share capital of the company – it being common ground that there was no such 90% resolution. 116.As defined in Clause 1 of the Escrow Agreement the ‘Completion Date’ hinges on two dates, and is to be determined by the later of these dates :
117.As to the issue of ‘Completion Date’ the plaintiffs say that although there was no formal resolution as stipulated within Clause 6(a), it is clear that the Completion Date as defined thereunder had been extended from the original Completion Date of 31 October 1997 to 31 December 1998, and that such extension had occurred by way of implied extension or alternatively by reason of waiver and/or estoppel. 118.The argument fundamentally is based upon ratification by the Investors of the 1st and 2nd Supplemental Agreements, to which earlier I have made brief reference (infra, at paras 28-30). 119.In short, the plaintiffs say that the 2nd Supplemental Agreement had re-routed the Expressway and had extended the date for completion to 31 December 1998 and thus, by conduct and consequently by necessary implication, the Investors (as shareholders of NCHK Highway, ‘Party B’ to the JVA) specifically had agreed and accepted that the Expressway could be completed on or before this later date. 120.The plaintiffs point out that the Escrow Agreement was made pursuant to the Subscription Agreement, and thus that the Escrow Agreement is not to be construed in isolation, but is to be read together with the Subscription Agreement and the JVA. They contend that by agreeing to extend the Completion Date under the JVA, the Investors well knew that NCHK Highway (and NCHK Group) could not complain unless Sichuan Highway Corporation (‘Party B’) failed to complete the Expressway by 31 December 1998, and thus that the Completion Date under the Escrow Agreement must have been implicitly extended. 121.The argument continues on the basis that the facts give rise to an estoppel and/or waiver, and that by ratifying the Supplemental Agreements the Investors and NCHK Highway had acted upon the common assumption that the Completion Date under the Escrow Agreement had been extended to 31 December 1998, and that had the position not been thus, the NCHK Group formally would have requested a special resolution as stipulated within Clause 6(a), and that in the circumstances the Investors could not have denied such request. 122.The third and concluding facet of the argument is that as a matter of fact ‘completion’ had taken place on 21 December 1998, the date upon which the expressway was open for traffic and toll collection, and that if, which is denied, the Parsons Brinkerhoff letter dated 17 December 1998 was insufficient to satisfy the contractual certification requirement within Clause 1 of the Escrow Agreement, any such failure to certify was solely due to the default of the Investors in failing to procure the Consulting Engineer so to certify. 123.The plaintiffs also point to the fact that within the period from 31 October 1997 (the original Completion Date) to 31 December 1998 there never was any suggestion by the Investors as to non-completion of the Expressway, and that had they taken the view, as now espoused, that the Completion Date remained at 31 October 1997, doubtless instructions accordingly would have been given to the Escrow Agent – yet the fact remained that none of the Investors had demanded distribution until after the Expressway was completed and had been opened for traffic on 21 December 1998, and only after the NCHK Group, on 7 January 1999, itself had requested distribution from the Escrow Account under Clause 5 thereof. 124.On behalf of the defendants, Mr Shieh SC mounted a point by point refutation. 125.He says that by no process of construction may the phrase “the third anniversary of the first Funding Date” within Clause 6 be interpreted to mean 31 December 1998, which would be an exercise tantamount to rewriting the contract, not construing it, and that in the present context it was important to note that Clause 6 itself contained a mechanism for an alteration of the deadline for Completion Date, namely the ‘90% resolution’ provision, and that at no time had the NCHK Group sought such a resolution. 126.Nor, he argued, could there reasonably be thought to be any ‘implied variation’ of the time provision within Clause 6, not least because the deadlines provided for in the JVA and in the Escrow Agreement had been different from the outset : in the JVA the deadline was 3 years after the establishment of the Co-operative Enterprise, that is, 20 June 1997, whereas in the Escrow Agreement the deadline was the 3rd anniversary of the 1st Funding Date, that is, 31 October 1997, and the fact remained that the deadline for completion of the Expressway under the JVA served a different purpose from the deadline for ‘Completion Date’ under the Escrow Agreement. 127.As to waiver, Mr Shieh maintained that there was no relevant election by the Investors which could be said to amount to a waiver of the requirement of a 90% resolution to amend Clause 6, whilst in terms of the estoppel argument, Mr Shieh contended that if the estoppel relied upon was one of estoppel by representation, there was no clear and unequivocal representation that could be invoked for this purpose; alternatively, if the estoppel was estoppel by convention, it was essential for the plaintiffs to establish that both they and the Investors had been labouring under the common impression that the deadline for the ‘Completion Date’ under the Escrow Agreement had been extended to 31 December 1998, and that factually there was no evidence from the plaintiffs by which this could be established. In fact, observed Mr Shieh, not only was there no proof of the requisite assumption on the part of the plaintiffs, such documentary evidence as there was went the other way; thus, he said, the plaintiffs had failed to make the case on requisite common or conventional assumption by the Investors and the NCHK Group. 128.Mr Shieh’s further argument was that even if the deadline had been varied to 31 December 1998, there could be no dispute but that there was no Parsons Brinkerhoff certificate in place by 31 December 1998; he said that even if the consulting engineers’ letter dated 12 April 1999 could be regarded as such a ‘certificate’ (which plainly it could not), clearly it was out of time, and thus prima facie that was the end of the matter, nor was there any analytical merit in the plaintiffs’ submission that the failure of Parsons Brinkerhoff to have given their certificate prior to 31 December 1998 was caused by breach of duty of AIG and AIF to take steps to ensure that this was done. 129.Finally, and very much as a ‘fall back’ position, Mr Shieh maintained that as a matter of fact the whole Expressway, as defined in the Placement Memorandum to include its “ancillary facilities” had not been completed by end 1998. 130.As to this final proposition, which encompassed allegedly inadequate and incomplete toll collection facilities and utilities, I take the like view as earlier was taken within the context of the ‘breach of JV’ argument within Clause 6(b); in the circumstances of this case, and in light of the evidence led, this court is in no position fairly to evaluate the competing submissions on this aspect, and in so far as may be necessary, I would decide this point on the failure of the defendants to discharge the relevant evidential burden. 131.The balance of the argument remaining under Clause 6(a), however, has provided pause for thought. 132.I bear in mind, of course, that in his closing submission Mr Chan was prepared to assume this element in the defendants’ favour, opting to rely instead (I assume that it was not intended to concede the point outright) upon the closing written submissions of the plaintiffs dealing with this subject. 133.For my part I confess that I do not find attractive the defendants’ argument as to the Completion Date. 134.It is as plain as a pikestaff that the date for ‘completion’ of the Expressway formally having been extended under the 2nd Supplemental Agreement to 31 December 1998, the mutual (and very obvious) intention of the parties involved on each side was that this should constitute the operative Completion Date. 135.Accordingly, at first blush the present submission strikes me as opportunistic and wholly without merit, and had this been the only point I would have been inclined to find that notwithstanding the absence of the relevant resolution, the stipulated deadline must by necessary implication have been regarded as thus changed, as indeed was recognized by the 2nd Supplemental Agreement; alternatively it seems to me that in the circumstances there would have been a strong argument in principle for holding that in such circumstances an estoppel by convention arose which served to preclude the defendants from taking this point, given that there seems to have been no doubt in anyone’s mind that the true operative Completion Date had become 31 December 1998. 136.I am, however, unconvinced that such a conclusion is open to this court in light of the two-pronged requirement within the definition of the term “Completion Date” within Clause 1 of the Escrow Agreement. 137.Under Clause 1 “Completion Date” cumulatively is defined as “the later of the date on which (a) the whole Expressway (as defined in the Placement Memorandum) shall have been completed and open for traffic and toll collection and (b) that the independent supervising engineers engaged by the Company [Messrs Parsons Brinkerhoff] pursuant to the JVA “shall have certified that the Expressway has been constructed in accordance with the standards described in Clause 5.1(1) of the Joint Venture Agreement”. 138.Subclause (b) clearly was included to obviate precisely the sort of dispute as now is occurring in this case in terms, inter alia, of completion of the Expressway to contractual standards. Thus, the drafters of the Escrow Agreement sensibly had decided to leave the potentially vexed issue of ‘completion’ of the Expressway to the consulting professionals on site responsible for overseeing precisely this issue, and accordingly saw fit specifically to include reference to such certification in a bid to prevent any such issue subsequently from becoming a problem. 139.The question therefore becomes whether there is in existence any such Parsons Brinkerhoff Certificate as is envisaged within the concept of ‘Completion Date’ as thus defined? 140.If not, given the twin-element definition of ‘Completion Date’, I cannot see how the two constituent elements therein can be satisfied, notwithstanding that purely in terms of time the parties collaterally have agreed – vide the 2nd Supplemental Agreement – to extend such date to 31 December 1998, and notwithstanding that if time alone had been the sole consideration I should have been minded to find the existence of an estoppel operating against the defendants. 141.However, I can see no answer to the problem that as a matter of fact there does not appear to be any ‘certificate’ from Parsons Brinkerhoff which complies with the contractually stipulated requirement pursuant to Clauses 1 and 6(a) of the Escrow Agreement. 142.True it is that there is a letter from Parsons Brinkerhoff dated 12 April 1999, addressed to the Emerging Markets Partnership for the attention of Mr Paul Applegarth, Acting Chairman of the Board of NCHK Highway, which “offers our opinion on the design and construction standards” of the Chengdu-Mianyang Expressway in the broad terms that the Expressway “has been substantially completed by December of 1998”, and that “currently all 91.9 Km of the CME has been authorized by the provincial government to open to traffic”. 143.This letter, which is signed by a Mr Wallace, Deputy Managing Director (Infrastructure) further states that in terms of the design and construction of the CME “we find that the design has generally complied with the required standards as specified in the Original Contract under Section 5.1 of Chapter 5”, and further that “we find the construction quality for the CME complies, in general, to the PRC standards and is in-line with other expressways that PBA has witnessed in other parts of the country.” 144.With respect, I am unable to see how this document, couched as it obviously is in carefully worded (indeed, clearly qualified) terms, and bearing the date of 12 April 1999, can be said to constitute the ‘certificate’ which is contemplated within the definition of ‘Completion Date’ appearing in the Escrow Agreement, and thus, even on the basis that the deadline for completion mutually had been extended to the end of December 1998, it seems to me that it remains open to the defendants validly to take, and to stand upon, this point, however unattractive it otherwise may appear. 145.The certification requirement within the definition in Clause 1 specifically was designed to meet not only the issue of timeous completion but also that of construction to appropriate standards, and until this was forthcoming I see no conceptual difficulty in recognising that the Completion Date within the 2nd Supplemental Agreement potentially may differ from such date as results from compliance with the definition within Clause 1 of the Escrow Agreement, and thus to enable the present argument to be mounted on behalf of the defendants. 146.If this be correct, then it follows that if the Clause 6(a) issue had remained ‘live’ – which for the purpose of the ultimate disposition of this case it has not, given my prior conclusions under Clause 6(b) – I should have been minded to hold in favour of the defendants on the issue of non-compliance with the provisions of Clause 6(a) of the Escrow Agreement, since I am also unable to be satisfied on the evidence that the plaintiffs can make good the alternative contention (which was but faintly adumbrated) that the defendants had a duty to ensure that Parsons Brinkerhoff in fact issue the relevant ‘Completion Date’ certificate, and that they had failed to discharge such duty. (b) Other issues 147.I have expressed the view earlier in this judgment that it is correct to approach this case solely from the viewpoint of the satisfaction, or otherwise, of the requirements within Clause 6 of the Escrow Agreement. 148.A review of counsels’ submissions reveals that there are a number of additional arguments variously relied upon by each side, and which have been advanced during the course of argument. 149.In my view none of these subsidiary arguments are worth powder and shot, and I briefly refer to them in order formally to dismiss such contentions. (i) Frustration/discharge of the Escrow Agreement 150.At the outset of the case the plaintiffs put forward the proposition that the occurrence of the Completion Date, as defined in the Escrow Agreement, clearly had become impossible and had become incapable of occurrence, alternatively that in the circumstances the Escrow Agreement was discharged or frustrated, and thus (I presume) that the Escrow Agreement was discharged and that the plaintiffs are entitled to all the shares and monies hitherto held in escrow. 151.This ‘frustration’ line of argument does not appear to have been proceeded with, and in any event I did not accept this fundamental proposition, which is rejected, as also is the concomitant proposition that the Escrow Agent’s authority, and thus the ability to make a distribution under Clause 6, was revoked upon the execution of the 2nd Supplemental Agreement. (ii) Clause 6 constituted a performance guarantee, alternatively a penalty 152.The plaintiffs’ case, as originally promulgated, was that on its true construction clause 6 of the Escrow Agreement was in essence a performance guarantee, or, more precisely, a conditional performance guarantee, and thus necessarily was discharged as the result of the variations made by the 1st and 2nd Supplemental Agreements. 153.This point was not really pursued, and in any event I do not think that it is correct. The Escrow Agreement was not a ‘guarantee’ in the true sense of securing performance of obligations towards the Investors; there was no underlying obligation to be ‘guaranteed’. In any event, it seems tolerably clear that the NCHK Group actively participated in the variations, and thus it is difficult to see why now it would be open to it to complain about such variations. 154.Nor did the Escrow Agreement constitute a ‘penalty’ in the sense in which this term is usually understood. It is established law that a sum of money which is agreed to be paid upon the occurrence of a particular eventuality falls to be classified as liquidated damages or a penalty only in circumstances where that eventuality constitutes a breach of contract between the contemplated payer and the contemplated payee; conversely, where a sum is agreed to be due upon the occurrence of an event other than a breach of the defendant’s contractual duty owed to the claimant, the law of penalties has no application: see, for example, Jervis v. Harris [1996] Ch 195, at 206, per Millett LJ. 155.In the instant case the Agreement was between NCHK Group and the Investors, and the breach potentially triggering distribution was a breach of the JVA, which is a contract between NCHK Highway and Sichuan Highway Corporation. 156.Accordingly, this argument is also rejected. (iii) ‘Good faith’ belief in breach of the Guarantee/JVA 157.A submission initially mounted by the defendants was that even if there was no continuing breach of the Guarantee or of the JVA, upon a proper construction of the Escrow Agreement all that was required to justify/activate distribution by the Escrow Agent was an appropriate notice issued in good faith. The argument here is that the Agreement simply called for a notice stating certain facts, and on the assumption that the facts so stated were believed in good faith to be correct, this therefore sufficed. 158.In this context it is pointed out that the notice did not require counter-signing by the NCHK Group, and that had the parties been concerned as to the accuracy of the matters stated in the notice, at that very least some provision should have been made for ‘vetting’ by the Group. 159.I am unsympathetic to this argument. In fact, it struck me as nonsense. I fail to see that ‘good faith error’ is an acceptable principle or basis upon which to justify distribution from the Escrow Account. Nor do I see how this ‘good faith’ argument sits well with the rest of the defendants’ case. 160.This submission is rejected. (iv) 2nd Plaintiffs’ locus standi 161.At first blush, this had the potential to be a significant point; however, by the end of the case clearly it had lost any such impetus as initially had been ascribed to the argument. 162.The defendants say that the Escrow Agreement contains a ‘non assignment’ clause (Clause 10), and that the “elaborate and contrived documentation” represented by the Power of Attorney, Declaration of Trust and Deed of Indemnity entered into between the NCHK Group and Evercheer was “plainly devised” to circumvent this prohibition. 163.The manner in which the locus point ultimately was put by Mr Shieh in closing was that the 1st plaintiff, NCHK Group, has authorized this action and is bound by the result herein, and that “for present purposes we say no more about Evercheer’s title to sue other than to put it to proof”. 164.In my view the Commercial Court ought to be astute not to find that an action fails for deficiency in locus or for want of a party, particularly in face of (if I may say so) a faint submission of this type, and for the avoidance of doubt I am not prepared in this case to find that the 2nd plaintiff has no locus standi. The defendants’ counterclaim 165.This is the final piece of the ‘jigsaw’ represented by the various lines of argument advanced in this case. 166.In essence, the defendants’ counterclaim (which is only maintained against the NCHK Group) is by way of a claim for breach of warranty(ies) contained in the Subscription Agreement, more particularly of the representations and warranties of NCHK Highway, NCHK Group and NCHK Development regarding knowledge that all necessary approvals (eg from Central Government in terms of ‘guaranteed toll income’) were valid and in full force. 167.This counterclaim purportedly sounds in damages, calculated by reference to the difference between that which the Investors would have received by way of income (had the relevant warranty been true) and that which the Investors actually received. 168.I am minded to accept the plaintiffs’ arguments in this regard : first, at the time of the Placement Agreement and/or the Subscription Agreement there had been no representation by NCHK Group that approval for toll income guarantee had already been issued or obtained, and hence there could not have been any breach of clause 6(1)(h) of the Subscription Agreement as alleged; and second, that it is clear that one of the key reasons for making the 1st Supplemental Agreement was precisely because the PRC Government did not approve the intended toll income guarantee, and furthermore that the Investors had ratified the making of the 1st Supplemental Agreement – hence since around early 1996 they had known that there would not be any toll income guarantee, but nevertheless chose to proceed with the investment project. 169.As to quantum, it seems to me that the plaintiffs’ submission is correct that even if (which is denied) the NCHK Group could be shown to have acted in breach of warranties contained within clause 6 of the Subscription Agreement, the defendants manifestly had failed to establish the existence of any consequential loss or damage. 170.In this context it is argued that the calculations of such loss are based on calculations done by Goldman Sachs within the Placement Memorandum, and that it was clearly stated within that Memorandum that no assurance was given as to the projections contained therein; further and in any event it is submitted that loss of future toll income depended very much upon traffic projections, a matter which clearly lay in the realm of expert evidence – as to which no such evidence had been called or even canvassed, whilst Mr Andy Tse, who had purported to deal with the counterclaim, was but a factual witness, whose evidence going to the quantum of the defendants’ counterclaim thus was no more than inadmissible opinion evidence based upon highly questionable assumptions. 171.I think that this argument must be correct. True it is that if and in so far as the defendants otherwise appeared to have a viable counterclaim, this court may have been persuaded further to investigate the consequential issue of quantum, and if necessary to make further directions in terms thereof, with particular regard to whether additional material was required, but in my view the counterclaim as presently constituted does not justify such further attention. 172.The additional argument arising in context of the counterclaim is that which has been termed the ‘circuity of action’ point. This is premised upon the factual omission of the June/July instructions to the Escrow Agent directly to mention the ‘written assertion’ ground, and the allegation that such omission was referable to the alleged failure of the NCHK Group to disclose the 1996 SPTIC letter to the Investors. 173.Thus, say the defendants, if the court was to be of the view that there had been non-completion by the relevant deadline, and if the Investors’ other arguments as to breach of the Guarantee/JVA were rejected, but that this ‘written assertion’ ground, if cited in the June/July instructions, would have been effective in triggering the distribution under Clause 6(b)(ii) of the Escrow Agreement, then it is contended that the plaintiffs’ claim is barred by circuity of action because the failure to mention that letter was caused by the contractual breach (of Clause 6(4) of the Subscription Agreement) on the part of the NCHK Group in not notifying the Investors of its existence prior to the 4th Funding Date. 174.I hope that I have understood and expressed this argument correctly. In any event I do not think that it is well-founded; in fact, in the circumstances it strikes me as rather a stretch. It seems tolerably clear on the evidence that the Investors were well aware of the withdrawal of the Guarantee from as early as 8 June 1996, and thus is it difficult to see how a case can be mounted on the basis that the SPTIC letter was withheld from them. 175.Moreover, I do not understand why the SPTIC letter in question should be invested with the importance now attributed to it, given that Clause 6(b)(ii) of the Escrow Agreement requires a written assertion by Sichuan Highway Corporation or the Guarantor that neither is liable, and the SPTIC letter makes no assertion as to any SHC liability to compensate the JV, a fact which in itself seems to put an end to this particular argument. 176.It follows from the foregoing, therefore, that in my view the defendants’ counterclaim has not been made out, and accordingly is dismissed. 177.I so hold. Form of the Order 178.It follows from the foregoing that in my judgment the plaintiffs’ claim in this action is to succeed, and the defendants’ counterclaim must be dismissed. 179.At the conclusion of the trial, Mr Yuen SC handed up a proposed form of Order representing, he said, the detailed relief sought by the plaintiffs should this action succeed. 180.This draft took the form of declaratory relief, together with consequential orders that the shares and monies hitherto in the Escrow Account be repaid to the 2nd plaintiff herein, namely Evercheer, and that each of the defendants do render an account in terms of monies received in the form of dividends or otherwise in relation to the Escrow Shares. He also sought interest and costs. 181.In light of the content of this judgment it seems to me that the content of Order thus proposed is unexceptional, but Mr Shieh SC asked that this final aspect of the matter be stood down to allow for such further representations as might turn out to be necessary, depending always upon the result and upon the form of the judgment; in this context I apprehend that it may be argued that whilst, in the event of a favourable judgment, the Escrow Shares should go to the plaintiffs, this did not necessarily mean that all the Escrow Monies also should follow, and that such monies as were subject to pro rata distribution may depend upon the court’s view as to the ‘Completion Date’. 182.For his part Mr Chan SC did not demur that the precise form of the relief should await the judgment, and in the circumstances I am minded to follow the course suggested by leading counsel. 183.Accordingly, in the absence of agreement between the parties on a specific form of order to be entered consequent upon this judgment (and for my part I would welcome any such agreement), I will hear such further submissions as may be necessary on a date to be appointed. 184.Finally, I wish to express my thanks to counsel for the manner in which they have conducted a complex dispute which, absent intelligent and careful handling, had the potential to become far more time-consuming (and certainly more impenetrable) than ultimately proved to be the case.
Mr Warren Chan SC, Mr Rimsky Yuen SC and Mr M C Law, instructed by Messrs Fred Kan & Co., for the plaintiffs Mr Paul Shieh SC and Mr Godfrey Lam, instructed by Messrs Wilkinson & Grist, for the defendants Appeal by the defendants to Court of Appeal allowed. Please refer to CACV24/2008 dated 12 February 2009 |
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