Dragonrider Opportunity Fund Lp v. Lam Fung and Another
Read the full judgment text of CACV 71/2013 on BabelCite. This Court of Appeal judgment was delivered on 15 January 2014.
1. At the conclusion of the hearing, we dismissed these appeals from two judgments given by Deputy High Court Judge Le Pichon on 21 March 2013 and 10 September 2013 respectively. We now give our reasons.
Cited by 1 case · Cites 3 cases
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CACV 71/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 71 OF 2013 (ON APPEAL FROM HCA 752/2012) ______________ BETWEEN
______________ AND CACV 72/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 72 OF 2013 (ON APPEAL FROM HCMP 839/2012) ______________ BETWEEN
______________ AND CACV 202/2013 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO 202 OF 2013 (ON APPEAL FROM HCA 752/2012) ______________ BETWEEN
______________ (Heard Together)
______________________________ REASONS FOR JUDGMENT ______________________________ Hon Cheung CJHC: 1.At the conclusion of the hearing, we dismissed these appeals from two judgments given by Deputy High Court Judge Le Pichon on 21 March 2013 and 10 September 2013 respectively. We now give our reasons. The facts 2.The facts pertaining to the issues before us can be very briefly stated. Mr Lam Fung owned interests in a molybdenum mining business through a company called Fabulous Way Limited. He sought capital injections from investors with a view ultimately to securing a listing for that business. He therefore entered into an investment agreement dated 2 October 2007 with Dragonrider Opportunity Fund LP to sell 230,700 ordinary shares representing approximately 23.07% of the issued share capital of Fabulous Way to Dragonrider as “Investor”. The total consideration payable was US$52.63 million. Under the investment agreement, which was subsequently amended by a supplemental agreement dated 12 November 2007, Dragonrider was entitled to direct that any of the shares sold thereunder be transferred on completion to any nominee, assignee or other person (clause 5.2). 3.The sale and purchase of shares were duly completed and the 230,700 shares sold were (at the direction of the Dragonrider) registered in the names of Dragonrider and other investors nominated by Dragonrider to take up the shares :
4.Clause 16 of the investment agreement (as amended) provided for a put option whereby Mr Lam would be bound to purchase all or part of the sale shares on exercise of the put option by way of service of a put option notice :
5.Clause 5.7 of the investment agreement provided :
6.Both the investment agreement and the supplemental agreement are governed by Singapore law. It is common ground amongst the Singapore law experts that the combined effect of clauses 5.7 and 16 under Singapore law was that “the Investor Nominees and/or Other Investor”, that is, Angel Wise, Stark Moly, SIG and Addgood, to whom some of the sale shares were transferred at the direction of Dragonrider, were all entitled to exercise the put option in relation to their respective shares. 7.The listing attempt, however, failed, and on 3 and 30 December 2009 respectively, SIG and Stark Moly issued and served their respective put option notices to require Mr Lam to buy back the 32,876 shares and 87,669 shares in Fabulous Way which the two companies respectively held. In both cases, Mr Lam failed to buy back the shares within the 14‑day period stipulated in clause 16.2 of the investment agreement. SIG and Stark Moly therefore commenced proceedings seeking specific performance, and both obtained summary judgments against Mr Lam respectively (HCA 219/2011 and HCA 1581/2010). 8.In the meantime, on 30 March 2010, Dragronrider issued and served a put option notice on Mr Lam. It was issued by Dragonrider on behalf of itself and the other four investors. The put option notice read:
The litigations 9.Mr Lam again failed to buy back the shares pursuant to Dragonrider’s put option notice. This gave rise to HCA 752/2012. By her judgment dated 21 March 2013, the deputy judge ordered specific performance of clauses 16.1(b) and 16.2 of the investment agreement for the buying back of the Dragonrider and Addgood shares. As for the Angel Wise shares, for a complication which it is not necessary to go into, they were hived off from the main Order 86 application for specific performance and were heard by the deputy judge separately. By her judgment dated 10 September 2013, the deputy judge ordered specific performance in relation to those shares against Mr Lam as well. 10.There was another dispute between Dragonrider and Mr Lam and it also related to the investment agreement. On 12 October 2007, ten days after entering into the investment agreement, Mr Lam executed a share charge by way of a first fixed charge over Mr Lam’s remaining shareholding interest in Fabulous Way and some related assets in favour of Dragonrider to secure performance of his obligations under the investment agreement. Clause 5.4 of the share charge provided for the transfer of the charged portfolio into the name of Dragonrider or its nominees after the occurrence of “an event of default”, which was defined to include the default by Mr Lam in the due performance of the investment agreement. 11.In view of Mr Lam’s failure to buy back the shares pursuant to the put option notice served by Dragonrider, the deputy judge decided, in her judgment dated 21 March 2013 given under HCMP 839/2012, that an event of default had occurred, and therefore Mr Lam was obliged to transfer the relevant shareholding in favour of Dragonrider (or Stark Moly for reasons which again I need not go into). It is common ground that the outcome of HCMP 839/2012 depended wholly on whether the deputy judge was right on her conclusion that Mr Lam had failed to honour Dragonrider’s put option notice. 12.Aggrieved by the deputy judge’s decisions, Mr Lam appealed – CACV 71/2013 and CACV 72/2013 relating to the judgment of 21 March 2013; and CACV 202/2013 in relation to the later judgment dated 10 September 2013. 13.Mr Tim Kwok, for Mr Lam, took various points (which he had run unsuccessfully before the deputy judge) in support of the three appeals, which may be conveniently referred to as the absence of authority point; severability point; and lack of subject matter point. I will deal with them in the following order. Severability and lack of subject matter 14.I will first deal with the severability point and lack of subject matter point together. Put very briefly, Mr Kwok’s argument is that on its true construction as a matter of Singapore law, the put option notice issued by Dragonrider was for the buy back of the “entire indivisible holding of 230,700 ordinary shares”. However, first, Dragonrider lacked authority from the other investors to issue the put option notice in so far as it purported to cover shares transferred into the names of these other investors. Secondly, in relation to the shares of SIG and of Stark Moly, these two companies had already exercised their respective put options by issuing prior put option notices for the buy back of their respective shares. By the time of Dragonrider’s put option notice, those shares had already been contracted to be bought back by Mr Lam from SIG and Stark Moly under the contracts concluded by these two companies’ respective put option notices. 15.Mr Kwok argued that since as a matter of Singapore law, the put option notice issued by Dragonrider was in relation to the entire indivisible block of 230,700 shares in Fabulous Way, it was simply invalid and of no effect. 16.I accept the legal analysis of Mr Lam’s expert (Mr Lim Tat) that once SIG and Stark Moly exercised their respective put options by serving their respective put option notices, binding contracts for the buy back of their respective shares were concluded between Mr Lam and each of the two companies respectively. Although Mr Lam failed to buy back the respective shares within 14 days, neither SIG nor Stark Moly accepted Mr Lam’s repudiatory breaches but insisted on specific performance of the respective contracts. They eventually sued Mr Lam to judgment for specific performance. In those circumstances, on a proper construction of the investment agreement (as amended) and the relevant put option notices, I have no doubt, as a matter of law, that Dragonrider could not subsequently issue a put option notice purporting to sell the same shares back to Mr Lam again. Such purported exercise of the put option in relation to those shares must be of no legal effect. 17.I therefore reject the suggestion that Dragonrider’s put option notice could somehow co‑exist with the put option notices of SIG and Stark Moly in so far as they covered the same shares. On the facts, I also reject the argument that Dragonrider’s subsequent put option notice had the legal effect of superseding and extinguishing the earlier put option notices of SIG and Stark Moly. 18.However, it does not follow that the put option notice of Dragonrider is ineffective and of no effect in its entirety. 19.Mr Kwok argued that under Singapore law, it is not open to treat Dragonrider’s put option notice as covering anything other than the “entire indivisible holding of 230,700 ordinary shares”. In this regard, Mr Kwok’s expert, Mr Lim, had this to say in his expert report (paragraph 21(k)) :
20.Dragonrider’s expert, Professor Tan, disagreed. In his supplemental opinion on Singapore law, he opined :
21.Interpretation of documents is of course a matter for the court, not the experts. Dragonrider’s put option notice was served pursuant to the investment agreement (as amended). The latter formed the context of the notice. The first relevant matter to note about the agreement is that there is nothing in the investment agreement to require that the entire block of shares sold thereunder must be bought back as one block. In fact, the wording is to the contrary. The put option can be exercised repeatedly in relation to any quantity of shares. Moreover, the agreement provides for the sale shares to be registered in the names of different nominees or investors and it is worded in such a way that both the investors/nominees and Dragonrider (whether for itself or as agent for the investors/nominees) may exercise the put option in relation to some or all of the shares. 22.Commercially speaking, one cannot see any reason why the shares must be viewed as an indivisible block. It serves no commercial purpose. The whole purpose of the put option is to enable Dragonrider and the other investors to sell back the shares to Mr Lam in case events do not happen in the way they have hoped. 23.That being the case, it would really take a strong case in order to construe Dragonrider’s put option notice as covering the 230,700 shares as an “indivisible block”; in other words, an all‑or‑nothing sort of situation. For this would simply make little if any commercial sense. 24.Turning to the wording of the notice, the first thing to note is that there was nothing in that notice to say that either all the shares had to be bought back or none at all. The notice itself referred to all the shares, even though by the time of the issue of the notice, both Mr Lam and Dragonrider knew full well that two earlier put option notices had been issued. The evidence suggests that this was done deliberately to play safe, as it was not absolutely sure whether the earlier put option notices were effective – particularly when Mr Lam had failed to buy back the shares in question pursuant to those notices. However, importantly, the notice made it very clear, in footnote 1, that the 230,700 shares comprised 5 different blocks, registered in the names of 5 different companies (including Dragonrider). Given the known factual background of this case, there can be no doubt to anybody that Dragonrider’s notice was intended to require Mr Lam to buy back the 5 blocks of shares from the 5 companies respectively. 25.I see nothing in the expert evidence before me to suggest that under Singapore law, the put option notice served by Dragonrider is any different in substance from five separate notices issued and served by Dragonrider in relation to the 5 blocks of shares set out in footnote 1, or a notice which contained 5 different parts, with each part covering the buy back of one block of shares. The fact that Dragonrider has chosen to use a more economical way of exercising the put option by serving a composite put option notice cannot be a reason for rejecting the entire notice in favour of Mr Lam. 26.The fact that the 5 blocks of shares were detailed in a footnote rather than the body of the notice is merely a question of drafting style rather than one of substance. Viewed thus, the fact that for one reason or another the put option was not validly exercised in relation to one or more blocks of shares does not, by itself, affect the legal validity of the exercise of the put option in relation to the remaining blocks. In this sense, Dragonrider’s put option notice must be regarded as “severable”. 27.Mr Kwok argued that Mr Lam needed certainty under the put option to know precisely where he stood, given that a put option notice would lead immediately to a contract binding on him to buy back the shares covered. That need required the shares covered by the notice to be absolutely certain. This was achieved by requiring strict compliance with the put option (as a matter of Singapore law). I can follow the apparent logic of the argument. Where it breaks down is that the uncertainty here was brought about by the existence of two put option notices seeking to cover the same shares. That uncertainty was quite inevitable given that the investment agreement allowed both Dragonrider and the other investors to exercise the put option. It simply could not be removed by construing Dragonrider’s notice as capable of covering one indivisible block only. For even if Dragonrider were to serve five, instead of one, notices, Mr Lam would still have been left in the same uncertain position. 28.There is nothing in the Singaporean case of MacarthurCook Property Investment Ptd Ltd v Khai Wah Development Pte Ltd [2007] SGHC 93, a case heavily relied on by Mr Kwok, which bears any relevance to the present question of construction (under Singapore law). In particular, I do not think the case suggested at all that objective intent or the contextual approach is irrelevant to the proper interpretation of the investment agreement or Dragonrider’s put option notice. 29.For these reasons, I see no merit in the argument on severability and lack of subject matter. In my view, the deputy judge was entirely correct in holding that Dragonrider’s put option notice was good in relation to Dragonrider’s own shares, as well as the shares in the names of Addgood and Angel Wise. Absence of authority 30.That leaves the absence of authority point. Mr Kwok questioned the authority of Dragonrider to issue its put option notice on behalf of the other four investors. For the reasons given above, in so far as Mr Kwok’s point relates to the authority from SIG and Stark Moly, it is wholly irrelevant. In any event, for the reasons given in the judgment below, there is sufficient evidence to demonstrate the authority of Dragonrider to issue the put option notice on behalf of SIG and Stark Moly respectively (in so far as authority is concerned). 31.In relation to Angel Wise which is in liquidation, there is a board resolution dated 1 March 2010 from Angel Wise authorising Dragonrider to exercise the put option on its behalf and to complete the transaction and/or to enforce the exercise of the put option as it deems fit without further reference or consultation with Angel Wise. There is also a letter dated 23 April 2013 from Stephenson Harwood, solicitors then acting for Angel Wise’s liquidators, confirming Dragonrider’s authority to pursue any enforceable interest that Angel Wise has in the put option on behalf of Angel Wise in these proceedings. Finally, there is also a letter dated 15 May 2013 from Reed Smith Richards Butler, solicitors for Stark Moly, confirming that Stark Moly consents to Dragonrider’s pursuit of its claims against Mr Lam to enforce its rights in relation to the Angel Wise shares (which have been charged to Stark Moly). 32.The burden is on Mr Lam to raise a triable issue. In relation to Angel Wise, Mr Lam has failed to raise any triable issue on this authority point. 33.As regards Addgood, unlike the question of authority raised in relation to Angel Wise and Stark Moly, Mr Lam never took any point on authority in the draft defence or his opposing affirmation in relation to Addgood. The first time it was mentioned was at a directions hearing before Master Kwang in which Mr Kwok orally raised doubts about Dragonrider’s authority from Addgood to issue the put option notice. But it was not followed by any amendment to the draft defence, nor was there any evidence filed by Mr Lam on the point. 34.The deputy judge was absolutely right in observing in her judgment (paragraph 24), that it is incumbent on the defendant to show that there is a triable issue or an arguable defence by affidavit or otherwise, and the defendant’s affidavit must “condescend upon particulars”, stating clearly and concisely what the defence is and what facts are relied on to support it. She concluded, on the facts, that whilst Mr Lam did “condescend upon particulars” in relation to authority from Stark Moly and Angle Wise, he obviously failed to do so in relation to Addgood (and SIG). She found it was too late for Mr Kwok to raise the absence of authority point in relation to Addgood before her. I entirely agree with that approach. There is simply nothing to back the bare suggestion by Mr Kwok that Addgood may not have authorised Dragonrider to issue the put option notice in so far as its shares are concerned. This is particularly so when despite the lapse of 4 years, we have heard nothing from Addgood or others (apart from Mr Lam himself) to doubt the authority of Dragonrider to issue the put option notice regarding the Addgood shares. According to Mr Kwok, his client has not even bothered to write to Addgood to find out the true position. 35.There is no merit in this argument of Mr Kwok either. An event of default 36.For these reasons, an event of default has indeed occurred and the deputy judge was therefore right in giving judgment for Dragonrider in relation to the share charge. Disposition 37.For these reasons, the appeals were dismissed with costs on an indemnity basis as per clause 12.1 in the investment agreement (as amended) and clause 16.1 in the share charge respectively – we saw nothing to persuade us not to exercise our discretion to award indemnity costs in accordance with the contractual provisions. Hon Barma JA: 38.I agree. Hon McWalters J: 39.I agree with the judgment of Cheung CJHC.
Ms Catrina Lam, instructed by Squire Sanders, for Dragonrider Opportunity Fund LP Mr Tim Kwok, instructed by Kenneth C C Man & Co, for Mr Lam Fung Reed Smith Richards Butler, for Stark Moly Limited |
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