Pony HK World Ltd v. Vand Petro Chemicals (Bvi) Co Ltd and Another
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CACV 270/2011 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 270 OF 2011 (ON APPEAL FROM HCA NO. 996 OF 2010) ________________________ BETWEEN
________________________ Before: Hon Kwan, Fok JJA and McWalters J in Court Date of Hearing: 11 October 2012 Date of Judgment: 30 October 2012 ________________________ J U D G M E N T ________________________ Hon Kwan JA: 1.This is the defendants’ appeal against the judgment of Reyes J on 30 November 2011. The judge held that the plaintiff, Pony HK World Limited (“Pony”), had validly exercised the put option in a share purchase agreement (“SPA”) for the sale by the 1st defendant, Vand Petroleum-Chemicals (BVI) Company Limited (“Vand”), to Pony of 370 million shares in Hans Energy Company Limited (“Hans”), a company listed on The Stock Exchange of Hong Kong. The 2nd defendant, Mr David An, was sued as the guarantor under the SPA of Vand’s performance of its contractual obligations. The defendants were adjudged to pay Pony the put option price of HK$510,708,649.03 with accrued interest from 13 July 2009, being the put closing date on which completion of the sale and purchase should have taken place. 2.The primary issue we are concerned with is whether Pony had validly exercised the put option in the SPA. The background 3.The relevant background matters, taken largely from the judgment below, may be summarised as follows. 4.Pony belongs to a group of companies the majority shareholder of which is the government of Dubai. Vand is wholly owned by Mr An, who is the majority shareholder of Hans. 5.On 5 September 2005, the National Development and Reform Commission (“NDRC”) of the People’s Republic of China (“PRC”) approved the construction of a petrochemical dock construction project in Humen port, Dongguan city (“the 2005 Approval”). The 2005 Approval recorded that the project was to be constructed, operated and managed by Dongguan Dongzhou International Petrochemical Storage Co. Ltd. (“Dongzhou”), a joint venture formed by Guangzhou Economic & Technology Development Zone Zhongsui Petrochemical Development Co. Ltd. (“Zhongsui”) (having 85% interest) and Dongguan Humen Port Holdings Limited (“Humen Port Holdings”) (having 15% interest). The total investment in the project and the respective contributions of Zhongsui and Humen Port Holdings in the investment were also recorded. 6.According to the joint expert report of the experts on PRC law, to apply for approvals in enterprises’ investment projects, the applications should follow the “level-by-level upward reporting procedure, and should not by-pass any level.” The administrative hierarchy in the PRC for present purpose, from the lowest level to the top, is made up of four levels: (1) Dongguan Humen Bay Management Committee (“Bay”); (2) Dongguan Municipal Development and Reform Bureau (“Municipal”); (3) Guangdong Province Development and Reform Commission (“Province”); and (4) NDRC or “National”. 7.On 8 March 2006, the Dongguan Municipal People’s Government issued a notice to Bay to inform the latter that regarding the shareholding of Humen Port Holdings in the project of Dongzhou, after discussion among the members of the Standing Committee of the municipal government and the vice mayor, it was agreed that Zhongsui should pay RMB 16 million to Humen Port Holdings and the latter would cease to have any shareholding in the project. 8.On 16 March 2006, the Dongguan Administration for Industry and Commerce issued a notice of pre-approval of enterprise name of Dongzhou, and listed the investors in Dongzhou as Zhongsui and Guangdong (Panyu) Petrochemical Storage & Transportation Limited (“Yuehai”). 92% of Yuehai is owned by a Hong Kong entity which is owned by a BVI company, which in turn is wholly owned by Hans. 9.According to the business licence issued by the Dongguan Administration for Industry and Commerce to Dongzhou, it is a sino-foreign joint venture established on 4 April 2006. By that time, 15% of its shareholding was vested in Yuehai rather than in Humen Port Holdings. 10.The SPA was entered into on 12 July 2007 between Vand as the vendor, Pony as the purchaser and Mr An as the guarantor, for the sale of 370 million shares in Hans. Completion took place on 13 July 2007. 11.By clause 6.2C, an irrevocable put option was granted by Vand to Pony for Pony to sell and to require Vand to buy, all of the shares in Hans held by Pony following the completion of the SPA. The put option and other relevant provisions were inserted in the SPA to address Pony’s concerns of the discrepancy between the shareholding of Dongzhou as stated in the 2005 Approval (with 15% of the shares held by Humen Port Holdings) and the actual shareholding after April 2006 (with 15% of the shares held by Yuehai instead) and that approval should be obtained from NDRC to the change of the shareholding to Yuehai. 12.By clause 6.2A(ii), Vand “covenants with [Pony] that it shall procure [Hans] to carry out all reasonable steps … to obtain the necessary approval from, and to carry out the relevant filings with, [NDRC] in respect of the change in ownership of the petro-chemical dock construction project … as soon as possible…”. This covenant was backed up with the put option conferred by Vand in clause 6.2C. 13.Clause 6.2D provides for the events in which the put option may be exercised by Pony and the relevant event for our purpose is clause 6.2D(2) which reads as follows:
14.Clause 6.2E provides for the mechanism for the exercise of the put option as follows:
15.The put option price, as defined in clause 1.1, is the aggregate of the amount representing the consideration paid by Pony to Vand under the SPA and a premium of 12% per annum of the amount of the said consideration on a compound basis calculated annually from the completion date of the SPA up to and including the put closing date. 16.Under clause 6.2F, it is provided that the put option granted shall lapse automatically upon the expiry of two years from the completion date of 13 July 2007. 17.It was only on 14 November 2008 that Dongzhou submitted to Bay an application for approval of the change in its shareholding. NDRC approval to the change was given on 8 February 2010. 18.Before approval was obtained from NDRC, Pony had issued a put option notice on 6 July 2009 to exercise the put option. The relevant part of the notice tracked the wording of clause 6.2D(2) and is as follows:
19.Vand contended that Pony was not entitled to exercise the put option on a number of grounds: on the proper construction of clause 6.2A(ii), Vand’s obligation under this provision would only arise if approval from NDRC was necessary and, as a matter of PRC law, it was not necessary to obtain approval from NDRC for the change in identity of the shareholder of the 15% interest in Dongzhou; there was no failure on the part of Yuehai of any of its obligations under clause 6.2D(2), nor was there any breach of the covenants in the SPA as alleged; there had been no triggering event within clause 6.2D(2); the put option notice was not valid in that Pony had failed to comply with clause 8.3 to specify in reasonable detail the matter giving rise to the claim and the nature of the claim and, in particular, failed to specify in reasonable detail the triggering event or events which Pony relied on for the exercise of the put option. 20.Cl 8.3 provides as follows:
21.“Relevant Claim” is defined in clause 1.1 to mean “any claim under [the SPA].” The judge’s findings 22.Reyes J identified in paragraph 28 of the judgment six issues to be considered. He held in favour of Pony of all the issues except issue (2), which relates to two terms Pony sought to imply in the SPA. There is no respondent’s notice on the implied terms. Issue (6), which is whether Pony had validly exercised the put option, follows from the judge’s findings on the other issues. 23.The judge’s findings on the relevant issues were:
24.The judge also held it was not open to the defendants to take the point that the 12% per annum compound interest on which the put option price is based constitutes a penalty which should not be enforced (paragraph 177), as that issue had not been pleaded and there was no evidence in support of the penalty allegation. 25.Although the defendants challenged each of the above findings in this appeal, the submissions of their counsel, Mr Thomas, SC, focussed on two main grounds: (1) whether there was a triggering event within clause 6.2D(2); and (2) whether clause 8.3 should govern the validity of the put option notice. 26.I will deal with the issues raised in this appeal in the order as addressed in the written submissions on both sides. The construction of clause 6.2A(ii) 27.The judge held that by clause 6.2A(ii), the parties agreed to deem, or had agreed, that the obtaining of NDRC approval for the change in share ownership was necessary under PRC law. Mr Thomas submitted that the judge was in error and that the proper construction of the adjective “necessary” (in the phrase “to obtain the necessary approval from … [NDRC] in respect of the change in ownership”) could only have been descriptive of the intended subject-matter, namely, that to obtain the specified approval was “necessary” or needed to satisfy Pony’s concern. This was not the construction taken by the defendants before the judge (para 35 of the judgment). 28.I do not agree with his submission. The judge had regard to the factual matrix in arriving at his holding on the proper construction of this provision, which was inserted as a result of Pony receiving legal advice from their lawyers Clifford Chance that it was necessary under PRC law to obtain NDRC approval for the change in share ownership after the issue of the 2005 Approval. Before Clifford Chance’s proposed provision was circulated to Vand’s lawyers Fried Frank, the draft SPA contained a provision requiring Vand to indemnify Pony against any costs suffered by Pony as a result of the failure of Yuehai to obtain, “if required under applicable laws and regulations”, NDRC approval for the change in share ownership. It was only after Clifford Chance’s draft was sent to Fried Frank that the draft SPA incorporated a provision similar to clause 6.2A(ii). 29.Further, as pointed out by Mr Sussex, SC, who appeared for Pony in this appeal and at the trial, it can be seen from the Preliminary Legal Review Report of Clifford Chance dated 12 July 2007 that they had recommended to Pony there should be a put option in the SPA in case NDRC approval could not be obtained. Clifford Chance also recorded its understanding that the parties had agreed that Vand would grant a put option to Pony, exercisable during a specified period of time, in case of failure to obtain the requisite approval from NDRC and such failure was due to the fault of, or arising from an act or omission of Dongzhou or Vand. This became clause 6.2C and the consequential provisions in clauses 6.2D(2), 6.2E, 6.2F and 6.2G. In particular, the phrase in the earlier draft of Fried Frank, “if required under applicable laws and regulations”, was deleted. 30.Given this factual matrix, it is quite clear that a reasonable person reading clause 6.2A(ii) would understand “the necessary approval” to mean that the approval described in this provision was agreed by the parties to be necessary under PRC law. 31.Mr Thomas did not press his argument on this point, as he recognised that the valid exercise of the put option does not hinge on the question of proof that the obtaining of NDRC approval was necessary under PRC law, but on the occurrence of a triggering event in clause 6.2D(2). The construction of the put option 32.Mr Thomas submitted that as a matter of construction, the conditions for an effective exercise of the put option in clauses 6.2D and 6.2E would require the following:
33.On his construction, for there to be a triggering event, both the event in (3) and the causative factor that the event was at the fault of, or arising from an act or omission of Vand or Yuehai in (4), must occur within the window of the 30 business days prior to the service of the put option notice. 34.He cited the dictum of Lord Mustill in Axa Reinsurance (UK) plc v Field [1996] 1 WLR 1026 at 1035 G on what constitutes an event: “In ordinary speech, an event is something which happens at a particular time, at a particular place, in a particular way.” He submitted that a continuing state of affairs or ongoing inaction cannot be an event in ordinary language. 35.He emphasised that in the exercise of an option, the promisee must comply strictly with the conditions of the option (Hare v Nicoll [1966] 2 QB 130 at 141B, per Willmer LJ). He prayed in aid these words of Diplock LJ in United Dominions Trust (Commercial) Ltd v Eagle Aircraft Services Ltd [1968] 1 WLR 74 at 84D to F:
36.Mr Thomas made the point it is incumbent on Pony to plead and prove its case that the conditions for the exercise of the put option had been strictly complied with. Pony would need to identify and prove some qualifying factual occurrence of an actual event as the triggering event. And to show relevance of a proved event, this must be linked to some relevant aspect of the duties contractually undertaken by Vand or ascribed to Yuehai as Hans’ procured agent, and it must be demonstrated that the cause of the event was “at the fault of, or arising from an act or omission of [Vand] or Yuehai.” 37.Mr Sussex construed the conditions for the exercise of the put option in the SPA in a different way. The main difference between his construction and that of Mr Thomas is that for there to be a triggering event, only the event must occur within the window of 30 business days but not the causative factor giving rise to the event. In his submission, how the put option should be construed may be put in one of two possible ways but leading to the same answer. 38.The first way is what he termed the “legalistic” approach, which was his submission before Reyes J. This was accepted by the judge and was set out in paragraphs 140 to 148 of the judgment. 39.He submitted that in identifying a triggering event within clause 6.2D(2), one must have regard not only to clause 6.2D(2) but should read the provisions in clause 6.2 as a whole, as the exercise of the put option is linked to the covenant in clause 6.2A(ii). Clause 6.2A(ii) imposed an obligation on Vand to procure Hans to carry out all reasonable steps to obtain the necessary approval from, and to carry out the relevant filings with, NDRC in respect of the change in ownership as soon as possible. This is a definite act and in respect of which breach took place once and for all. As Dixon J had said in Larking v Great Western (Nepean) Gravel Limited (1940) 64 CLR 221 at 236 and 237:
40.Whilst a breach of clause 6.2A(ii) took place once and for all, that does not mean that the defendants were thereafter discharged from their obligations to carry out all reasonable steps to obtain the approval as soon as possible. The failure to take reasonable steps to obtain approval as required by clause 6.2A(ii) continues, although this failure to remedy the existing breach does not constitute a further breach. See Bell v Peter Browne & Co [1990] 2 QB 495 at 500G to 501A. 41.This legal analysis ties in with the language used in clause 6.2D(2), which referred to “the failure of Yuehai”. As the judge stated in paragraph 145, this indicates that the parties envisaged the possibility of a continuing failure to obtain the necessary approval. He made the point again in paragraph 148 that the reference to “omission” among the final words of clause 6.2D(2) reinforced the contention that “the failure of Yuehai” can involve a continuing state of affairs. Mr Sussex submitted further that where the triggering event is expressed as a “failure” in clause 6.2D(2), there is nothing in the ordinary use of language to exclude the possibility of a continuing failure. 42.Clause 6.2D(2) provides that “the failure of Yuehai to obtain the necessary approval” must be “at the fault of, or arising from an act or omission of [Vand] or Yuehai”. Where a breach under clause 6.2A(ii) had remained unremedied, and there was a continuing failure to obtain the approval, the causal link is established in that the failure to obtain the necessary approval had arisen from the continuing omission of [Vand] or Yuehai to remedy the existing breach, and Pony would be entitled to exercise the put option. 43.Furthermore, where there is a continuing omission to rectify a breach, there would come a point in time that the omission would be regarded as culpable failure or fault. As stated in Carr v J A Berriman Pty Ltd (1953) 89 CLR 327 at 349:
44.In this situation, fault would be established and Pony would also be entitled to exercise the option. 45.The other way of looking at how the put option may be exercised, which Mr Sussex argued only before us, is simpler. Clause 6.2D(2) speaks of “the failure of Yuehai to obtain the necessary approval” as the event and for this event to be a triggering event there must be a causal link of the event to the fault, act or omission of Vand or Yuehai. At the time of the exercise of the put option, there was continuing failure to obtain the necessary approval. There was causative fault, act or omission in that Vand or Yuehai had submitted the application for approval late; this was done only in November 2008, 16 months after the completion of the SPA in July 2007. On that basis, Pony would be entitled to exercise the put option. 46.Regardless of whether one adopts the “legalistic” approach or the simpler way, Mr Sussex submitted that as a matter of construction, there is no requirement in the contract that the causative fault, act or omission of Vand or Yuehai must be within the 30 business day window. I think that must be right. An example was given by Mr Thomas in the course of argument that the failure to obtain necessary approval was due to the payment of a bribe, so there would be the event and causative fault. When he was questioned by McWalters J what if the bribe was paid outside 30 business days and the decision not to approve the application was made within the period, Mr Thomas answered that the put option could be exercised as the decision was made within the 30 day period. But this cannot be right. If the logic of his construction is followed through, the causative fault, being the payment of the bribe, was outside the period so the event of the decision to refuse approval or the failure to obtain approval should not qualify as a triggering event. This demonstrates the oddity of his proposition that both the event and the causative factor must occur within the 30 day period to give rise to a triggering event. Unless I am constrained by the wording of the contractual terms to adopt that construction, this is not a course that commends itself to me. 47.I agree with Mr Sussex on his analysis of the construction of the put option. I do not accept Mr Thomas’ submission that even if there were a breach of clause 6.2A(ii), there was no continuing necessity for Vand to remedy the situation by acting positively to obtain the necessary approval and the subsequent inaction did not give rise to a triggering event. Was there a triggering event 48.The judge held there was a triggering event within the previous 30 business days of the exercise of the put option and his reasoning and findings appeared in these crucial paragraphs of the judgment:
49.Mr Thomas mounted a sustained attack against the judge’s findings. His arguments may be summarised as follows:
50.In my judgment, the submission of Mr Thomas was premised on an erroneous reading of the crucial paragraphs of the judgment which I have set out. 51.The triggering event the judge had found on the evidence was that by June 2009, due to the continuing omission of Vand to remedy the failure to obtain NDRC approval, its lack of activity had led a reasonable person to conclude that it would not be possible to obtain the approval by 13 July 2009. Mr Thomas sought to elevate the judge’s reference to four weeks in para 154 as being what was held to be the triggering event. The judge did not find that the delay was for about four weeks or that there was a triggering event only because of the four-week delay. 52.The four week period was merely an example given by the judge of Vand and Dongzhou’s dilatoriness. The reference to Dongzhou’s response of 23 June 2009 in paras 154 and 170 must be understood in that light. The judge had not misunderstood that the letter of 23 June 2009 was not an application to Province. It is clear from paras 125 and 134 that he understood the letter was in the nature of an explanation or submission. 53.In arriving at the conclusion there was a triggering event, the judge had held on the evidence Vand was in breach of clause 6.2A(ii). The application was submitted 16 months after the completion of the SPA. Dongzhou did nothing substantive in relation to the application between July 2007 and November 2008 (para 129) and there is no good explanation for the late application (para 131). In the first four months of 2009, Dongzhou did little (if anything) concrete in respect of the application (para 132). The judge was of the view if Dongzhou had pressed harder, it should certainly have found out much earlier than April 2009 that its application had been misplaced by the authorities (para 132). Following approval by the Dongguan Municipal Transport Department on 22 May 2009, the judge noted it was unclear why Dongzhou waited a month until 23 June 2009 before making a submission to Province (para 134). Given that Pony’s representatives had been pressing verbally for news about the progress of the application, the judge held that Dongzhou should have proceeded with greater alacrity with the application (para 135). I do not think his conclusion on the evidence that there was a breach of clause 6.2A(ii) could be faulted. In any event, I am not satisfied there is any valid basis for this court to interfere with his findings of fact. I will deal with the attack on the judge’s evaluation of the evidence separately. 54.I have already set out the legal analysis on what would give rise to a triggering event which was accepted by the judge. Following that analysis, for the reasons set out in paragraphs 152 to 156 and 170, he found that there was a triggering event as, having breached clause 6.2A(ii), Vand failed to take appropriate prompt measures to remedy the position over a period of time. By June 2009, Vand had, by its lack of activity, behaved in such a way as to lead a reasonable person to conclude that it would not be possible to obtain the approval by July 2009. There being a continuing omission to act promptly in June 2009, there was a triggering event within clause 6.2D(2). 55.This is a conclusion the judge was entitled to reach on the evidence, having correctly directed himself on the law. He was entitled to reject the contention there was nothing more Vand could do to procure an approval having breached clause 6.2A(ii). 56.I do not agree with Mr Thomas that the defendants were unduly disadvantaged by the lack of pleading of the triggering event as alleged. As mentioned earlier, Mr Thomas had erroneously sought to elevate the judge’s reference to four weeks’ delay as the triggering event. The letter of 23 June 2009 was pleaded in the Re-Re-Amended Defence as one of the steps taken by Vand in the application to obtain approval from NDRC. The defendants could not have been taken by surprise by this document. 57.In the Answers to Request for Further and Better Particulars of the Amended Statement of Claim, it was pleaded as follows:
58.I am inclined to think that the case of Pony on the triggering event has been adequately pleaded. Causation 59.Mr Thomas submitted that having correctly directed himself that an omission by Vand can trigger the option if “as a direct result” of that omission there is failure to obtain the NDRC approval (para 153), the judge did not consider if causation was established. In particular, he did not consider whether the primary cause for the failure to obtain approval was not any shortcoming of Vand but the way in which the PRC authorities were handling the application. 60.For the reasons given earlier, I have rejected Mr Thomas’ contention that the judge had found a four-week delay as the triggering event. Insofar as his arguments were directed that it could not be established any fault, act or omission within the four-week period had caused the failure to obtain approval, I would reject this submission as well. 61.As submitted by Mr Sussex, Mr Thomas appeared to elide the concepts of causation and fault. There can clearly be a triggering event even if the defendants’ omission that led to the failure to obtain approval was not caused by “any shortcoming” of Vand, insofar as that word suggests fault. I agree with Mr Sussex that given the judge’s identification of the triggering event by reference to the omissions of Vand which gave rise to the failure to obtain the NDRC approval, that is sufficient for the purpose of clause 6.2D(2). Further, as pointed out by Mr Sussex, the judge was aware of the manner in which the PRC authorities were handling the application and had referred to this in paras 122 to 128. The judge noted for instance the original application to Bay was mislaid and this was only discovered by Dongzhou in late April 2009. He took the view that Dongzhou should certainly have found out much earlier the application had been misplaced if it had pressed harder for information. Whilst the judge did not expressly apportion the cause of the length of time the approval took between Vand’s omission and the manner in which the officials handled the application, it does not follow he has not had it in mind. Validity of the put option notice 62.Mr Thomas argued it is reasonable to suppose that with its important consequence of reversing the transaction for the sale of the shares, the put option notice should comply with clause 8.3 and spell out the facts giving rise to the option “in reasonable detail”, so that Vand could readily ascertain (a) whether a qualifying triggering event had occurred; and (b) if so, whether the put option notice was timely. He pointed out that the judge made no finding if the put option notice had set out the facts giving rise to the option in reasonable detail in compliance with clause 8.3 but merely held that clause 8.3 does not apply. He contended that the put option notice served on 5 July 2009 manifestly failed to specify “in reasonable detail the matter which gives rise to the claim and the nature of the claim”, as it refers only to a breach of clause 6.2A(ii) without stating the facts that constituted the breach and did not specify the fault, or act or omission of Vand or Yuehai or the significance of such fault, act or omission. 63.Clause 8 is headed “Limits and exclusions”, and contains provisions in clauses 8.1 to 8.9 dealing with “aggregate limit”, “thresholds”, “notice to the Vendor” (clause 8.3), “commencement of proceedings”, “change in law etc”, “acts of purchaser etc”, “purchaser’s knowledge”, “mitigation” and “no duplication of recovery.” Mr Thomas submitted that these provisions are of a general nature and should apply to situations of various kinds contemplated in the SPA. Apart from clause 8.3, he placed particular reliance on clause 8.10 which is headed “Paramount provisions” and provides as follows:
64.Mr Thomas submitted that reading clauses 8.3 and 8.10 together, it is clear that clause 8.3 is an overriding provision which applies to clause 6.2E. 65.The judge dealt with the arguments on this issue in paragraphs 172 to 174 of the judgment, which read as follows:
66.Mr Thomas criticised the judge’s reasoning as terse and inadequate. The judge did not refer to clause 8.10. He submitted that the judge was wrong in saying that the provisions in clauses 6.2C, D and E are self-contained and exhaustive in relation to the exercise of the put option, as clause 12.7, which relates to the service of any notice required to be given under the SPA, would clearly govern the method of service of the put option notice. And no sensible distinction could be drawn between a claim for the performance of the obligations under clause 6.2E and “any claim under this Agreement” in clause 8.3, as each invokes a term of the SPA as the basis for a claim and the aggregate limit of liability under clause 8.1 is the same. 67.I do not agree with his submissions. 68.Provisions of a general nature in clause 8 should only apply insofar as specific provisions have not been made elsewhere, notwithstanding clause 8.10. Provision was made in clauses 6.2D and 6.2E for matters that should be specified in the put option notice. On the face of these clauses, it does not appear that the provision made therein in this respect is somehow incomplete, so one should not cast around for other provisions in the SPA to see if, apart from these clauses, provision is made elsewhere in the agreement for other matters that should also be stated in the put option notice. Where no provision is made in clause 6.2 for a particular matter relating to the exercise of a put option, one could then look at other parts of the SPA to see if provision is made elsewhere, as in the case of the service of a notice under clause 12.7. 69.The purpose of the put option notice is to notify the vendor that a triggering event had occurred within 30 business days prior to the exercise of the put option. The vendor is also to be told the put closing date by which he would be obliged to pay the put option price. Insofar as notice of the triggering event was given in this put option notice, it was mentioned that “as a result of the failure of Yuehai to obtain the necessary approval from or to carry out the necessary filing with, [NDRC] for the change in ownership of the petro-chemical dock construction project … [Vand] is in breach of its covenant in clause 6.2(A)(ii) of the SPA. Such failure arises from the fault of, or an act or omission of, [Vand] or Yuehai. Owing to the occurrence of the event set out in clause 6.2(D)(2) of the SPA, the Put Option Notice is being served on you.” This would be adequate notice to Vand as Vand was expected to know there was failure of Yuehai to obtain the necessary approval and it was alleged that such failure arose from the fault, act or omission of Vand or Yuehai. I fail to see why the validity of the put option notice should depend on supplying the kind of further details mentioned by Mr Thomas. If Vand should think the information given in the notice are insufficient for it to be told whether a triggering event had indeed occurred, it could always seek further details from Pony after the notice was served. When Vand responded to Pony’s exercise of the put option in July 2009, it had not sought any further details from Pony. 70.Other provisions in clause 8 clearly do not apply to the put option. Mr Sussex mentioned clause 8.2, which provides that neither the vendor nor the guarantor shall be liable in respect of a “Relevant Claim” unless the vendor’s liability in respect of any one claim exceeds HK$100,000 and the aggregate liability of the vendor in respect of all Relevant Claims exceeds HK$1 million. Another example is clause 8.1, which provides for aggregate limit. I do not agree with Mr Thomas that the limit of aggregate liability provided in this clause is the same as the put option price. The limit under clause 8.1 is the consideration under the SPA plus a premium of 12% per annum of the consideration on a compound basis calculated annually from the completion date (i.e. 13 July 2007) “until the date upon which a notice pursuant to Clause 8.3 is served on the Vendor by the Purchaser”. The put option price is defined in clause 1.1 to mean the aggregate of the consideration under the SPA plus a premium of 12% per annum of the consideration on a compound basis calculated annually from the completion date “up to and including the Put Closing Date”. Under clause 6.2E, the put closing date shall not be less than five business days from the date of the put option notice. The aggregate limit of liability is different in the two situations. 71.I agree with the judge that clause 8.3 does not apply to a put option notice served under a different provision. The judge’s evaluation of the evidence 72.The complaint here is that the judge failed to attach significant weight to the Chronology prepared by Ms Wang Min, the administration manager of Dongzhou who was unable to come to Hong Kong to give evidence and the Chronology was produced under a hearsay notice. Mr Thomas said the judge was required to have regard to the circumstances set out in section 49(2) of the Evidence Ordinance, Cap 8 in assessing the weight to be given to this hearsay evidence. 73.There is nothing in this ground of appeal. The judge noted that the Chronology contained multiple hearsay evidence. He was entitled not to attach significant weight to it. In any event, he did not totally disregard the Chronology. He had considered it and referred to its contents in paras 121 to 127, 132 to 133 and 156. He had assessed the situation “even if one were to accept the chronology as reliable evidence” (para 132) and reached his finding that Vand was in breach of clause 6.2A(ii). We have been taken through the Chronology in some detail by Mr Thomas. I do not think the judge had overlooked or misunderstood the hearsay evidence of Wang Min and the appropriate weight to be given to a particular piece of evidence is a matter for the trial judge. PRC law as to the need to seek approval of a change in shareholding 74.I propose to deal with this ground shortly. The judge’s determination on the issue of the PRC law was unnecessary in view of his determination on the construction of clause 6.2A(ii). He was entitled not to accept the evidence of the parties’ experts on PRC law in the entirety and to reach his own conclusion as the result of his consideration of the expert evidence before him “in light of common sense and the balance of probabilities” (para 59). Although he used the phrase “I believe” in stating his conclusion it was necessary as a matter of PRC law to seek NDRC approval for the change of shareholding (para 105), it is quite clear from his reasoning in the foregoing part of the judgment that he had arrived at a firm conclusion. I see no valid basis to disturb his finding on this issue. The relevance of the two-year period 75.The judge had rejected Pony’s contention there should be an implied term that it was feasible for Vand to, and Vand would, carry out all steps to be carried out pursuant to clause 6.2A(ii) within two years from 13 July 2007 (paras 26, 109 and 110). Mr Thomas submitted that in view of this, the judge should not have held Vand had any duty to remedy the situation before 13 July 2009. 76.That was not the effect of the holding in para 152 of the judgment. There is no inconsistency in the judge’s findings on different issues. Penalty 77.The defendants contended that the provision for 12% compound interest plainly constitutes a penalty and should not be enforced. They argued that this could not be a genuine pre-estimate of the loss sustained by Pony while Vand withholds repayment of the sum due. 78.The argument about penalty was raised for the first time before the judge in the closing submission of the defendants’ counsel. The judge refused to entertain this as the issue had not been pleaded and there was no evidence in support of the penalty allegation. The judge is clearly correct. I reject Mr Thomas’ submission that the court could take judicial notice on the 12% compound interest as being on its face inequitable. I agree with Mr Sussex whether this was a genuine pre-estimate of loss could and should have been dealt with in evidence. It is pertinent to bear in mind that the SPA was entered into in June 2007, before the global financial crisis had altered the financial environment for investors. Conclusion and costs 79.For the above reasons, I would dismiss this appeal. There would be an order nisi that the defendants do pay the plaintiff’s costs of this appeal, with a certificate for two counsel. Hon Fok JA: 80.I agree with the judgment of Kwan JA. Hon McWalters J: 81.I agree with the judgment of Kwan JA.
Mr Charles Sussex SC and Ms Queenie Lau, instructed by Herbert Smith Freehills, for the plaintiff (respondent) Mr Michael Thomas SC, Mr Warren Chan SC and Mr Liu Man Kin, instructed by Orrick, Herrington & Sutcliffe, for the defendants (appellants) Please refer to FACV4/2013 for the relevant appeal(s) to the Court of Final Appeal. |
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Further hearings and rulings under CACV 270/2011