Dla Piper Hong Kong (A Firm) v. China Property Development (Holdings) Ltd and Another
Read the full judgment text of CACV 142/2009 on BabelCite. This Court of Appeal judgment was delivered on 12 January 2010.
1. The applicant, DLA Piper Hong Kong (a firm) (“DLA”), is the stakeholder in a stakeholder agreement contained in a letter in Chinese dated 16 November 2007. The parties to the stakeholder agreement are DLA as stakeholder and China Property Development (Holdings) Limited (“CPDH”) and Best China Holdings Limited (“Best China”) as the principals.
Cited by 7 cases · Cites 3 cases
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CACV 142/2009 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 142 OF 2009 (ON APPEAL FROM HCMP NO. 2377 OF 2008) ----------------------
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---------------------- Before: Hon Tang VP and Cheung JA in Court Date of Hearing: 12 January 2010 Date of Judgment: 12 January 2010 Date of Reasons for Judgment and Ruling on Costs: 19 January 2010 ------------------------------------------- REASONS FOR JUDGMENT -------------------------------------------- Hon Tang VP: 1.The applicant, DLA Piper Hong Kong (a firm) (“DLA”), is the stakeholder in a stakeholder agreement contained in a letter in Chinese dated 16 November 2007. The parties to the stakeholder agreement are DLA as stakeholder and China Property Development (Holdings) Limited (“CPDH”) and Best China Holdings Limited (“Best China”) as the principals. 2.The background to stakeholder agreement is a Sale and Purchase Agreement in Chinese also dated 16 November 2007 (the “SPA”) made between CPDH as vendor and Best China as purchaser of the entire issued share capital of a Hong Kong company. The consideration was the equivalent in US dollars of RMB 464,100,000. The parties have provided the court with an agreed translation of certain clauses in the stakeholder agreement and SPA. 3.Under the SPA the consideration was payable as follows:
4.As a result of the SPA, the stakeholder agreement was made. The stakeholder agreement recited that the consideration would be paid into an Escrow Account pursuant to clause 3.3 of the SPA. The stakeholder agreement went on to require SPA:
5.The other relevant terms which have been translated are:
6.It is common ground that the entire consideration, namely, the equivalent in USD of RMB 646,100,000 was paid into the Escrow Account in accordance with clause 3.3 of the SPA. It is also common ground that 90% of the money paid-in has been paid out to CPDH on completion in accordance with clause 3.2 of the SPA. 7.These proceedings are concerned with the remaining 10% of the consideration and interest thereon (“the Funds”), which under clause 3.3.2 of the SPA:
8.There is a dispute between Best China and CPDL over the existence of such Phase I contingent liabilities and if they exist whether or not they had been disclosed. Para. 23.2 of the SPA provides that all disputes arising out of the SPA should be referred to the Hong Kong International Arbitration Centre (“HKIAC”) for arbitration. 9.It is common ground that the DLA had not received any notice referred to in clause 3.6 of the SPA prior to the expiry of the guarantee period or at all. It is common ground that the guarantee period expired on 16 November 2008. It is CPDH’s case that it was entitled to be paid the funds on expiration of the guarantee period. 10.By letter dated 17 November 2008, Messrs. Arculli Fong & Ng (“AFN”), on behalf of Best China, threatened to sue DLA if DLA released the funds to CPDH. 11.On 26 November 2008, DLA issued an interpleader summons in HCMP 2377/2008 for an order that:
12.By an Inter-Partes Summons dated 30 January 2009, Best China applied for an order that the issues as to the CPDH and the Best China’s respective entitlement to the funds and whether the CPDH had acted in breach of the SPA be determined between the CPDH and the Best China by arbitration in accordance with clause 23 of the SPA. 13.Fung J, by his judgment of 26 May 2009, ordered that:
14.On 9 June 2009, Fung J granted leave to appeal. 15.The learned judge said in para. 54 of his judgment:
16.With respect, I agree with the learned judge that the relevant clauses are clauses 4, 6 and 7 of the stakeholder agreement. However, I am unable to agree that clause 6 qualified DLA’s action with “if at the time of the original notice under cl 3.6 of the SPA has been received”. Since it is common ground that no notice under clause 3.6 of the SPA had been received, the words in parenthesis in clause 6 should be ignored. In other words, clause 6 for the present purpose should read:
17.In my opinion, the stakeholder agreement provided for two triggering events. One is the receipt of a clause 3.6 notice, the other is the expiration of the guarantee period. 18.Mr. Tommy Lo, who appeared for the Best China, submitted that the stakeholder agreement is not exhaustive. He submitted that no payment should be made if on the expiry of the guarantee period, there was a dispute between CPLD and Best China over the Phase I contingent liabilities and Phase I contingent tax liabilities (“Phase I contingent liabilities”). He also submitted that any such dispute should be resolved by arbitration pursuant to clause 23 of the SPA. 19.Mr Lo relied on clause 5 of the stakeholder agreement which unfortunately has not been translated. Briefly stated, it provided that, in the event either CPDL or Best China should obtain a final determination by a court of competent jurisdiction that it was entitled to payment from the stakeheld amount, DLA should abide by that decision and pay the relevant party, the amount payable under that determination or the amount being stakeheld whichever is lower. Mr Lo contended that clause 5 supports his contention that no payment under clause 6 should be made even after the expiry of the guarantee period if any dispute over the Phase I contingent liabilities remained outstanding. 20.It is noted that clause 5 is not confined to a determination over Phase I contingent liabilities. Nor has there been any such determination. So it has no direct relevance. 21.Mr Lo submitted that it is an implied term of the stakeholder agreement that no payment should be made under clause 6 unless there was no outstanding dispute over Phase I contingent liabilities. But I can see no basis for the implication of such a term. It is not necessary to give the stakeholder agreement business efficacy. Mr Lo also submitted that given the guarantee period of only one year, a dispute could not be resolved in time to prevent payment under clause 6. That is not a reason for an implied term. The parties could have agreed a longer guarantee period. Indeed, it was open to them to agree explicitly that the funds should not be paid to CPDH even after the guarantee period except with the express agreement of Best China that there was no outstanding dispute. 22.Fung J has correctly stated the principles relating to interpleader relief. He said:
23.The learned judge had also referred to the judgment of Millett LJ (as he then was) in Manzanilla Ltd v Corton Property and Investment Ltd & Ors CHANI 95/1014/B (CA) (unrep., 13 November 1996) and in para. 25 of the judgment cited the propositions regarding the position of a stakeholder which Millett LJ said emerged from the authorities. Only the fourth of Lord Millett’s seven propositions is relevant, namely that:
24.Sometimes the event could only be discovered by analysing the bilateral agreement between the two principals. But this is not such a case, Clause 1.2 of the stakeholder agreement instructed DLA to transfer and deal with the Funds “only in accordance with the following clauses of this letter”. Mr Lo did not dispute that a stakeholder agreement could be a self-contained agreement. Indeed the judgment of Robert Walker LJ and Laddie J in Gribbon v Lutton & Anor [2002] QB 902 show that a stakeholder agreement may be enforceable even in the absence of a bilateral agreement between the principals. 25.Here, the question is who was entitled to be paid the Funds under the stakeholder agreement? On my interpretation of clause 6, upon the expiry of the guarantee period, the deposit should be paid to CPDH. Best China has no claim (prima facie or at all) to the Funds under the stakeholder agreement. This is a case where had the parties asked for a summary determination pursuant to O. 17 r. 5(2), I would have been prepared to say that under the stakeholder agreement, DLA was liable to pay the Funds to CPDH and that Best China has no claim to the Funds against DLA or CPDH under the stakeholder agreement. 26.CPDH invited the court to make an order dismissing the interpleader summons. Neither DLA nor Best China contended otherwise. Accordingly, we dismissed the interpleader summons. 27.Mr Lo submitted that we should in any event stay the matter for arbitration. It is true that any dispute under the SPA should be referred to arbitration, but CPDH has not made a claim under the SPA. Its claim against DLA was made under the stakeholder agreement which provides expressly in its penultimate paragraph that:
28.It follows that I should also dismiss Best China’s summons for a stay for arbitration. Costs 29.I turn to costs. 30.Mr Paul Shieh, SC, referred to clause to O. 17 r. 8 which provides:
31.Mr Shieh compared the position of a stakeholder to a trustee and referred us to the judgment of Kekewich J in Re Buckton [1907] 2 Ch 406 where when dealing with cost of a trustee who has applied to the court for direction his lordship said at page 414:
32.A stakeholder is not a trustee. Its position is governed by the stakeholding contract. I am of the view that Best China has no prima facie claim against DLA. Whilst it was eminently sensible for DLA to seek the protection of the court by an interpleader summons, I believe between DLA and CPDH, costs should follow the event. 33.The real dispute is whether DLA should be indemnified by Best China in respect of any costs which it may be held liable to pay to CPDH. 34.Mr Lo submitted that DLA should have ignored its claim. I do not agree. Best China must take the consequence of its unsuccessful claim. I believe the appropriate order is that CPDH should have the costs of the interpleader summons and the appeal therefrom against both DLA and Best China. Best China should indemnify DLA in respect of the costs which DLA has been ordered to pay the CPDH. CPDH is to have the cost of the summons to stay for arbitration and the appeal therefrom against Best China. I order accordingly. Hon Cheung JA: 35.I agree.
Ms. Lisa K. Y. Wong, SC, instructed by Messrs Richards Butler, for the 1st Claimant/Appellant. Mr. Paul Shieh, SC, instructed by Messrs DLA Piper Hong Kong, for the Applicant/1st Respondent. Mr. Tommy Lo, instructed by Messrs King & Wood, for the 2nd Claimant/2nd Respondent. Application to Court of Final Appeal for a stay of the court orders dismissed. Please refer to FAMP2/2010 dated 29 January 2010 |
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