Toeca National Resources Bv v. Baron Capital Ltd and Another

CACV 55/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 55 OF 2013

(ON APPEAL FROM HCA NO. 1913 OF 2009)

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BETWEEN

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Hon Kwan JA:

1.This appeal was brought by Baron Capital Limited (“Baron”) and Wan Chuen Chung Joseph (“Wan”), who are the 1^st and 2^nd defendants, against the judgment of M Chan J handed down on 26 February 2013 after a 15-day trial of this action and another action ordered to be heard at the same time. Judgment was given in favour of the plaintiff, Toeca National Resources BV (“Toeca”), in the sum of $116,820,000 with interest.

2.The only grounds of appeal advanced by Baron and Wan revolve around the issue whether Toeca had complied with a contractual requirement to serve a notice in writing to Baron “as soon as practicable” after a specified event.  Baron and Wan denied liability to pay Toeca on the ground that the requirement to give notice had not been complied with.

The background

3.The relevant background matters, which are taken largely from the judgment below, may be stated as follows.

4.At all material times, Wan owned and controlled Baron, which was licensed to carry out regulated activities of dealing in securities and advising on corporate finance.  In June 2007, Hung Chen Richael (“Hung”) introduced Wan to the owner of a coal mine in Heilongjiang, China (“the Mine Seller”), and the Mine Seller retained the service of a company in the Baron group to assist in corporate restructuring to achieve an overseas listing status.  Later, the Mine Seller decided to sell the coal mine to Hung for RMB 140 million instead of pursuing the overseas listing.  Hung then procured the assistance and services of Wan and his companies to act as consultant in Hung’s acquisition of the mine and to introduce him to a listed company in Hong Kong into which the mine was to be injected.

5.In July or August 2007, Wan introduced Sino Resources Group Limited (“the Company”) to Hung as the listed company into which the coal mine was to be injected.  In September 2007, the Company agreed to acquire the mine at $700 million, and appointed Baron to act as its financial adviser in respect of the acquisition.  To raise funds for the acquisition, the Company appointed Baron in November 2007 as the placing agent to procure up to six independent placees to subscribe for up to 250 million newly issued shares in the Company, at not less than $0.99 per share.  This placing agreement lapsed in March 2008 without any placee having been found.  Another placing agreement was entered into between the Company and Baron in March 2008, by which Baron was to procure not less than six independent placees to subscribe for the new shares, at a reduced price of not less than $0.80 per share.

6.In February 2008, Baron made contact with a well known investor in the Netherlands, Marcel Boekhoorn (“Boekhoorn”).  Toeca is a private investment holding company wholly owned by Ramphastos Investments NV, of which Boekhoorn was at all material times the sole shareholder.  Boekhoorn and Philip van Wijngaarden (“Wijngaarden”), the legal affairs adviser of the group, met with Wan, William Majcher (“Majcher”) and Ringo Hui (“Hui”) of Baron in March 2008 to discuss Toeca’s potential investment in the Company.

7.Boekhoorn had not done business in Asia before, and had not known Hung before the meeting.  He was hesitant in taking a minority stake in a listed company without any form of protection or guarantee.  One of the issues discussed at the meeting was the provision of a buy-back option to protect Toeca’s proposed investment.  Toeca made clear to Wan it would only proceed with the placement if Wan personally provided downside protection in addition to Hung.

8.At that time, funds were urgently needed by the Company to complete the acquisition of the coal mine by the deadline of end of June 2008.  Toeca was the only substantial investor prepared to put funds into the Company and it was attractive to the Company, Hung and Wan as a credible European investor.

9.Eventually agreement was reached by which Toeca was to subscribe for 118 million shares in the Company at $0.99 per share.  The shares were placed to Toeca at $116,820,000 on 21 May 2008.

10.Five inter-related agreements were executed in respect of Toeca’s subscription for the 118 million shares, the salient terms of which may be summarised as follows:

(1) a Procurement Agreement dated 16 May 2008 between Hung and Toeca (“the Procurement Agreement”)

Hung granted a put option to Toeca entitling Toeca to require Hung to procure the placing of all or any portion of the 118 million shares subscribed by Toeca (“the Placed Shares”) at a minimum price of $0.99 per share.  The option would be exercisable about one year after subscription and be valid for three months, i.e. from 1 April 2009 to 30 June 2009.  Once exercised, Hung would have three months to arrange the placing.  Baron would be the placing agent or if it should fail to act as such, Hung was to appoint such other placing agent.  At the expiry of three months, Hung would be liable to pay $0.99 per share plus interest to Toeca.  If Hung should fail to pay, Toeca could terminate the Procurement Agreement forthwith.

(2) an undated Placing Agreement between Toeca, Baron and Wan (“the Placing Agreement”)

Baron agreed to purchase or procure placees to purchase such portion of the Placed Shares as notified by Toeca, and to fully underwrite the Placed Shares at no less than $0.99 per share.  Completion of the placing was to take place at such time as Baron and Toeca should agree, or in the absence of agreement, one month after the date of Baron’s receipt of the notice served by Toeca.  On completion, Baron would be liable to pay Toeca $0.99 per share plus interest.  Wan agreed to indemnify Toeca from all loss and damage arising from Baron’s failure to perform any of its obligations under the Placing Agreement.

The Placing Agreement was undated for the reason which appeared in the next agreement.

(3) a Supplemental Agreement dated 16 May 2008 between Toeca, Baron, Wan and Hung (“the Supplemental Agreement”)

It was declared that the Placing Agreement was conditional upon the termination of the Procurement Agreement and the parties acknowledged it was an essential condition of the Placing Agreement that the Placing Agreement would not take effect unless and until the Procurement Agreement had been terminated in accordance with its terms, and written notice was given to Baron “as soon as practicable” after Toeca had terminated the Procurement Agreement, whereupon the Placing Agreement would become effective within three business days.

Hung agreed notwithstanding the coming into effect of the Placing Agreement after termination of the Procurement Agreement, all his obligations and liabilities under the Procurement Agreement should not be discharged unless and until Baron and Wan had fully performed their obligations under the Placing Agreement.

(4) a Call Option Agreement dated 16 May 2008 between International Gold Profits Ltd (“IGPL”), Toeca and Wan

IGPL, which was a company of Hung, granted a call option to Toeca entitling Toeca to require IGPL to sell up to 47 million shares in the Company at $1.25 per share within two years of Toeca’s subscription of the Placed Shares.

(5) an undated Shortfall Guarantee between Hung, Mega Wealth Capital Ltd (“Mega Wealth”), Baron and Wan (“the Shortfall Guarantee”)

In consideration of Baron and Wan entering into the Placing Agreement, Hung and his company, Mega Wealth, agreed to pay Baron and/or Wan the amount of the shortfall if the Placed Shares were placed at less than $0.99 per share.  Hung was to deposit 100 million shares of the Company held by Mega Wealth with Baron as security.

11.Problems began to emerge in the subsequent months.  No substantial placee could be found other than Toeca.  From December 2008, disputes arose between Hung and the Mine Seller, who brought proceedings in China to seek the return of the coal mine.  Trading in the Company’s shares was suspended from 24 March 2009 to 15 May 2009, 17 to 20 July 2009, and from 28 July 2009 until 1 February 2011.

12.On 9 April 2009, Toeca exercised its option under the Procurement Agreement in respect of all its 118 million shares by serving a notice on Hung.  Hung failed to procure the placing of the shares and instructed his solicitors to deny liability, alleging that he had never signed the relevant agreements, or if he did so, he was induced to sign by false statements.

13.From April to July 2009, communications were exchanged between Toeca and Baron, with Toeca expressing its desire to recoup its investment and Baron providing advice and information on the efforts made by Wan to put pressure on Hung to comply with his obligations under the Procurement Agreement.  These communications are material as they formed part of the factual matrix in construing the requirement to serve the notice on Baron “as soon as practicable” after the termination of the Procurement Agreement and will be discussed further in detail.

14.The three-month period under the Procurement Agreement for Hung to arrange the placing of shares expired on 9 July 2009.  On 14 July 2009, Toeca terminated the Procurement Agreement with immediate effect by written notice served on Hung.  On the same day, Toeca’s solicitors Jones Day prepared the notice required under the Supplemental Agreement to be given to Baron to notify it of the termination of the Procurement Agreement.  Toeca withheld the sending of this notice to Baron, as it decided to give Hung a final opportunity to procure the placing of the shares.  Jones Day sent a letter before action to Hung’s solicitors on 17 July 2009 demanding Hung to complete the exercise of the option within 14 days thereof, failing which legal proceedings would be brought against him.

15.Nothing was heard from Hung until 31 July 2009, when he issued a writ without prior warning against Toeca, Baron and Wan, seeking inter alia a declaration that the Procurement Agreement and all the related agreements were invalid.  Toeca therefore served the notice under the Supplemental Agreement on Baron the same day, copied to Wan, requiring consummation of the Placing Agreement.  A copy of the termination notice sent to Hung was enclosed.  After Hui pointed out to Toeca that the notice backdating the Placing Agreement to 16 July 2009 was problematic, Toeca served a revised notice on Baron on 3 August 2009 dating the Placing Agreement to 7 August 2009.

16.As Baron did not purchase or procure the purchase of the Placed Shares pursuant to the Placing Agreement, Toeca brought this action against Baron and Wan in September 2009.

17.The only issue in this appeal is whether the notice sent to Baron, which was sent 16 days after the termination of the Procurement Agreement, was sent “as soon as practicable” after Toeca had terminated that agreement.

The judgment below

18.The relevant provision in clause 3 of the Supplemental Agreement read as follows:

“The parties hereby expressly agree that, as soon as practicable after Toeca has terminatedthe Procurement Agreement in accordance with the provisions thereof, Toeca shall serve a notice in writing to Baron setting out the event of termination and requiring for consummation of the Placing Agreement on a date (the “Effective Date”) which is not less than three (3) Business Days after the date of notice whereupon the Placing Agreement shall become effective as and from the Effective Date. Toeca shall be entitled to date the Placing Agreement with the Effective Date accordingly.”

19.After considering the statements of Scarman LJ in Dedman v British Building and Engineering Appliances Ltd [1974] 1 WLR 171 at 179 and Sir Hugh Griffiths in Owen v Crown House Engineering Ltd [1973] ICR 511 at 516, the judge held that “as soon as practicable” in clause 3 should not be construed to mean simply “as soon as possible” or that the notice should be served as soon as it was physically capable of being served[1].  “Practicable” should not be equated with “possible” but should be given greater flexibility, and, as in any case of construction, the factual matrix of the case must be considered[2].  The likely practical consequence of the course of action is relevant to the consideration of whether it would be “practicable”[3].

20.The judge had regard to the factual matrix, which included the following: (1) from the very earliest stage, Toeca had asked for and Baron had been agreeable to providing protection for downside exposure[4]; (2) the entire set of the Procurement Agreement, the Supplemental Agreement and the Placing Agreement related to shares in a company traded on the stock exchange, the price of which was likely to fluctuate[5]; (3) these agreements were structured in such a way to give effect to the proposal of Wan that the price protection guarantees from Baron and Wan were to be “behind” Hung, that Toeca would “go after Hung first” in case of Hung’s default[6]; and (4) the communications exchanged between Toeca and Baron from April to July 2009.

21.The judge summarised the effect of those exchanges in §115 of the judgment:

“So far as the factual matrix of this case is concerned, Wan insists that the structure of the agreements between Hung, Toeca, Baron Capital and Wan was that Toeca should go after Hung first, and that Wan and Baron Capital were to be behind Hung’s obligations. I accept Toeca’s evidence that after Toeca had exercised its option in April 2009 under the Procurement Agreement, Wan and Baron Capital had on various occasions persuaded Toeca to take action against Hung, and had assured Toeca that it was in Toeca’s best interests to enforce its rights under the put option against Hung as the primary target, rather than to pursue Wan and Baron Capital, as their interests were aligned with Toeca’s. Toeca relies on Wan’s e-mail to Wijngaarden of 10 July 2009, as well as an email from Majcher to Wijngaarden of 22 July 2009, in which Majcher assured Toeca that Hung would soon be in a position to settle the matter with Toeca, and that Wan was planning a conference call with Toeca to discuss the next steps regarding Hung. If the service of the Notice was put into practice on 14 July 2009, it might not only have adverse and disrupting effects on Hung’s settlement of Toeca’s claims made against him, but would trigger the liabilities of Baron Capital and Wan under the Placing Agreement, such that their interests might not be aligned with Toeca’s.”

22.The judge therefore reached this conclusion at §116 of the judgment:

“Against this background, and considering the Placing Agreement as part of the Procurement Agreement and Supplemental Agreement, I am satisfied that the Notice issued on 31 July 2008[7] (and replaced by the one on 3 August 2009) can be regarded as having been issued “as soon as practicable after Toeca has terminated the Procurement Agreement” on 14 July 2009, as these words would reasonably have been understood by a person having all the background knowledge reasonably available to the parties at the time of the contract. On 31 July 2009, Hung in fact issued these legal proceedings against Toeca, Baron Capital and Wan by HCA 1683 of 2009, and it became clear to Toeca that Hung would not be settling its claims, that interests could no longer be aligned in all practicalities, and the Notice was served on Baron Capital and Wan.”

Construction of “as soon as practicable”

23.On behalf of Baron and Wan, Mr Yu, SC[8] submitted that the judge misconstrued the meaning of “as soon as practicable”, which was not a test of reasonableness but a test of feasibility, and that the judge was wrong to rely on the statements in Dedman and Owen to conclude that “practicable” does not mean as soon as the notice was physically capable of being served.  Mr Yu pointed out that Dedman and Owen were decided in the context of a time limit for invoking the jurisdiction of the Industrial Tribunal under the Industrial Tribunals (Industrial Relations, etc) Regulations 1972.

24.The relevant statements in those cases quoted by the judge read as follows:

“The word ‘practicable’ is an ordinary English word of great flexibility: it takes its meaning from its context. But, whenever used, it is a call for the exercise of common sense, a warning that sound judgment will be impossible without compromise. Sometimes the context contemplates a situation rarely to be achieved, though much to be desired: the word then indicates one must be satisfied with less than perfection: see, for example, its use in section 5 of the Matrimonial Property Act 1970. Sometimes, as is submitted in the present case, what the context requires may have been possible, but may not for some reason have been ‘practicable’. Whatever its context, the quality of the word is that there are circumstances in which we must be content with less than 100%: and it calls for judgment to determine how much less.” (Dedman v British Building and Engineering Appliances Ltd, at 179G to H, per Scarman LJ)

“The first question then is this: if an employer, during the course of negotiations, asks an employee not to make an application for compensation for unfair dismissal while he, the employer, considers making an increased offer of severance pay, is it practicable in all the circumstances for the employee to ignore that request and put in his application? It is important not to equate ‘practicable’ with ‘possible’. When considering whether a course of action is possible, it is not permissible to consider the results of that course of action; if it can be done, it must be done. But when considering whether a course of action is practicable, it may be permissible to look at the end result. Like so many words in the English language ‘practicable’ will take considerable colour from the context in which it is used.” (Owen v Crown House Engineering Ltd, at 516B to D, per Sir Hugh Griffiths)

25.Sir Hugh Griffiths went on to say this in the same paragraph quoted by the judge:

“In the context of factory legislation, when considering whether a particular precaution is ‘practicable’, one is no doubt approaching very close to the concept of physical possibility …. Within the context of industrial relations where emphasis is rightly placed upon the vital importance of attempting to settle all differences by amicable negotiation, it is unrealistic to exclude the likely consequence of a course of action in considering whether or not it is practicable.” (at 516D to E)

26.Mr Yu contended that “practicable” in the present context should be construed to mean as requiring the notice to be served on Baron urgently and as soon as it was feasible to do so, in other words close to the concept of physical possibility.  This is because the giving of the notice required under the Supplemental Agreement was something entirely within the control of Toeca and well within its capability.  It was a simple, uncomplicated act of giving notice consequent upon Toeca’s own act of terminating the Procurement Agreement.  The risk of any fluctuation in share price was to be borne by Baron, not Toeca.  By the time Baron’s obligations under the Placing Agreement were triggered, there would have already been a three-month period in which Hung had failed to place the shares and Baron only had another month to attempt to sell or place those shares.  Hence, the requirement of serving the notice on Baron “as soon as practicable” should be construed in such a way to maximise the prospect that Baron would be able to perform its obligations and minimise its risk of loss.  So if Toeca intended to exercise its rights under the Placing Agreement, it must notify Baron at the earliest opportunity of the activation of the Placing Agreement.

27.Whether the phrase “as soon as practicable” in clause 3 of the Supplemental Agreement should be construed to mean feasible or physically possible is a question of law – to that extent I agree with Mr Yu.  But the question of whether Toeca had served the notice on Baron “as soon as practicable” is a mixed question of law and fact, as submitted by Mr Westbrook, SC[9] for Toeca, since the legal effect of “as soon as practicable” is to be construed against the relevant factual matrix.  It is a mixed question of law and fact, as it hinges not only on the interpretation of the meaning of “as soon as practicable” but also on its application to the facts of the case and within the factual matrix[10].

28.Nor do I agree with Mr Yu that the judge was wrong to take into consideration the valuable guidance in the passages quoted above in the cases of Dedman and Owen.  As submitted by Mr Westbrook, although those cases were decided in the context of the Industrial Tribunals (Industrial Relations, etc) Regulations, the observations made by Scarman LJ and Sir Hugh Griffiths, which emphasised that the word “practicable” is one of flexibility and would call for judgment and common sense in its interpretation, are of general application.

29.I would approach the question whether the notice was served by Toeca “as soon as practicable” in two stages.  I would first consider how “practicable” should be construed in the present context, whether it should mean as soon as feasible as contended by Mr Yu, or whether this term should be given greater flexibility as held by the judge.  Having come to a view on the first stage, I would then apply the proper interpretation and approach to the relevant factual matrix and arrive at an answer to the question if the notice was served by Toeca “as soon as practicable”.

The first stage – arriving at the interpretation of the term

30.I have already summarised Mr Yu’s arguments on this, which will not be repeated.  Further in support of his contention that “practicable” in the present context should be construed to mean “feasible”, Mr Yu referred us to two decisions of the National Industrial Relations Court also on the construction of the same provision in the Industrial Tribunals (Industrial Relations, etc) Regulations[11], Hammond v Haigh Castle Ltd [1973] ICR 148 and Singh v Post Office [1973] ICR 437.

31.In Hammond v Haigh Castle Ltd, the court said at 152D to F:

“We agree with the tribunal that in the context of the regulations the word ‘practicable’ bears its dictionary meaning of ‘capable of being carried out in action’ or ‘feasible’ … In the present context we do not consider that it is necessary or right to apply any absolute standard of practicability and, as the regulation expressly states, the test is practicability ‘in the circumstances’ which must include the circumstances surrounding the complaint and the complainant. Practicability in this context falls to be considered in the light of the general standards of ordinary people working in industry. Accordingly the question which members of tribunals have to ask themselves is: ‘Would a jury composed of ordinary men and women employed in industry consider that in all the circumstances it was practicable for the complaint to have been presented within the time limit?’ ”. (Emphasis supplied)

32.This was followed in Singh v Post Office.  At 440E, it was said that “practicable” in the circumstances in relation to the four-week time limit “involves a test of feasibility, not a test of desirability or convenience or anything of the sort.”

33.Owen v Crown House Engineering Ltd came after these two cases.  It considered the argument which found favour with the tribunal of giving “practicable” the meaning of “feasible” based on the dictionary meaning (at 514C).  After discussing how “practicable” should be construed in the context of the relevant provision at 516B to E, which I have set out earlier, the court then referred to Hammond and asked the question as posed in Hammond, namely, would a jury of ordinary men and women employed in the industry consider that in all the circumstances it was practicable for the complaint to have been presented within the time limit.  The court came to the view that the tribunal had paid insufficient attention to the particular circumstances of the case (that the presentation of the application was delayed at the specific request of the employers) in deciding whether or not it was practicable for the complaint to have been presented within the time limit, and had placed too much weight on the physical possibility of presenting the application (at 516F to H).

34.Dedman v British Building & Engineering Appliances Ltd was the last in time of the quartet of cases cited to us and it was a decision of the Court of Appeal.  Hammond, Singh and Owen were all cited to the court.  Lord Denning MR was of the opinion that the words “not practicable” should be given a liberal interpretation because a strict construction would give rise to much injustice which Parliament could not have intended (at 176E).  But “the principal thing is to emphasise, as the statute does, ‘the circumstances’ ” (at 177B).  Viewed in that light, there was no conflict between Hammond, Singh and Owen.

35.The statements in Hammond and Singh that practicability involves a test of feasibility should be understood in the context in which they were said, namely, that the statutory provision expressly provides for a test of practicality in the circumstances and viewed in the particular circumstances of the case under discussion, “practicable” could have the meaning of “feasible”.  I do not agree with Mr Yu these statements would provide support for the proposition that “practicable” in the present context should be construed in the same way.  Nor do I agree with him that “practicable” should be construed on the basis of its dictionary meaning (“capable of being put into practice, carried out in action, effected, accomplished or done; feasible”).  As Scarman LJ said in Dedman at 179G, the word “practicable” is of great flexibility and takes its meaning from its context.

36.I turn to other matters referred to by Mr Yu as lending support to his construction that the notice should be served by Toeca as soon as feasible.  An important theme urged by him was that the requirement of serving the notice “as soon as practicable” should be construed in such a way to maximise the prospect of Baron in performing its obligations under the Placing Agreement and minimising its risk of loss.  But this is only part of the factual matrix.  There are matters which pointed the other way, such as those considered by the judge in the judgment at §§99 to 103 that I have summarised earlier.  Of particular relevance is the way the agreements were structured in that the guarantees from Wan and Baron were to be “behind” Hung, that Toeca would go after Hung first and Baron and Wan were “only behind” in case of Hung’s default.  There was a practical need for Toeca to attempt to obtain performance from Hung, before it was to pursue its remedies against Baron and Wan.  Besides, it is not correct to say that the risk of fluctuation in share price was to be borne by Baron, as Hung and his company Mega Wealth had provided the Shortfall Guarantee that in the event the Placed Shares were placed at less than $0.99 per share, Hung and Mega Wealth had agreed to pay to Baron and Wan the shortfall.

37.Even if some degree of urgency was envisaged in respect of the service of the notice, I do not agree with Mr Yu that “as soon as practicable” in this context should be interpreted to mean “as soon as feasible” or “as soon as physically possible”, without regard to the likely practical consequences of the course of action.  I agree with the judge that “practicable” in the present context should be given greater flexibility and it calls for the exercise of common sense and judgment in evaluating the circumstances to determine whether the requirement of “as soon as practicable” was met in this situation.

38.Mr Yu submitted that that would be investigating into the subjective perception of Toeca and such investigations would only be relevant in the case of “reasonably practicable” but not “practicable”, citing the statements of Ormrod LJ in Porter v Bandridge Ltd [1978] ICR 943 at 953B, which were as follows:

“But the deliberate addition of the word ‘reasonably’ must indicate that there must be some subjective investigation to decide whether it was or was not reasonably practicable for a man to do a particular act. State of mind must be a relevant consideration.”

39.The above statements of Ormrod LJ must be understood in the proper context. Earlier on in his judgment, Ormrod LJ traced the legislative development of the provision governing the time limit to commence proceedings complaining of unfair dismissal and highlighted the difference between “practicable” and “reasonably practicable” in the old and new legislative provisions.  After mentioning Dedman v British Building & Engineering Appliances Ltd, which had influenced the legislative change, he discussed the relevance of lack of knowledge in determining whether it was “practicable” for a man to do something.  It was in that context that he made the statements quoted above, making the point that with the addition of the word “reasonably”, state of mind must be a relevant consideration.  He was not saying that state of mind must be irrelevant if the test was “practicable”, and had only expressed himself tentatively in the preceding sentence when he said “lack of knowledge may well be nothing to the point in determining whether it was ‘practicable’ for a man to do something”.  I think it is apparent from what Scarman LJ said in Dedman in the two paragraphs at 179H to 180C following from the general guidance he gave on the construction of the word “practicable” mentioned earlier that state of mind cannot be regarded as irrelevant, and as Scarman LJ said at 180B, “it would be necessary to pay regard to his circumstances and the course of events”.

The proper appellate approach regarding the second stage

40.Before embarking on the second stage, it is appropriate to set out the proper approach to be adopted by the appeal court where the court is concerned with a mixed question of law and fact which involves the evaluation by the trial judge of the effect of a number of factors in arriving at a conclusion.

41.Mr Yu pointed out that we are not concerned with a primary finding of fact so we should not be constrained by the limited basis on which the appeal court could intervene in a challenge against a primary finding of fact.  He submitted that insofar as the judge had considered the factual matrix, being the totality of the evidence in particular the correspondence between Toeca and Baron from April to July 2009, the judge would not have enjoyed any advantage over the appeal court.  He took us at some length to the evidence and the communications exchanged that was summarised in §115 of the judgment.  His submission was tantamount to asking this court to undertake a de novo evaluation.

42.In my view, this court should be guided by the approach in the following helpful statements of Neuberger J (as he then was) in the Court of Appeal in Todd v Adams [2002] CLC 1050 at 1064H to 1065H:

“60. Having determined the factual incidents of the relationship, the first instance tribunal has to proceed to the second stage, which involves deciding whether all those facts, taken together, lead to the conclusion that there was a contract of service. Whether one characterises that conclusion as an inference, as a conclusion of law, or (which I doubt) as a finding of secondary fact, it seems to me that the essential point is that it would be a conclusion arrived at by a proper evaluation of the effect of the various factual incidents of the relationship. In principle, it is plainly easier for an appellate court to be persuaded to interfere with a conclusion reached by the tribunal at this second stage, than it is in relation to its decision at the first stage. That is because, in relation to the second stage, an appellate court is not being asked to interfere with a tribunal’s primary findings of fact.

61. Nonetheless, where there is a challenge to a first instance tribunal’s conclusion at the second stage, namely, whether or not there is a contract of service, I do not consider that an appellate court faces a black or white choice, as it would on a point of law such as an issue of contractual or statutory interpretation, between holding that the tribunal was right or wrong. The first instance decision may fall within a grey area, a sort of margin of appreciation, where an appellate court may, indeed should, conclude that the tribunal reached a conclusion which it was entitled to reach and with which the appellate court should not interfere. After all, the exercise on which the tribunal is engaged in a case such as this is weighing up various factors, some of which point one way and some of which point the other, and reaching a conclusion as to the side on which the balance ultimately comes down. In my judgment, in such a case, an appellate court should not interfere unless the first instance tribunal has misdirected itself on the law (either expressly or impliedly), has taken into account a factor which it ought not to have taken into account, has failed to take into account a factor which it ought to have taken into account, or has reached a conclusion which, in light of the primary facts, it could not properly have reached.

62. I derive support for this view from the approval by Lord Hoffmann in Designers Guild Ltd v Russell Williams (Textiles) Ltd [2001] FSR 113 at p 112, of what Buxton LJ said in Norowzian v Arks Ltd (No 2) [2000] FSR 363 at p 370:

‘[W]here it is not suggested that the judge has made an error of principle, a party should not come to the Court of Appeal simply in the hope that the impression formed by the judges in the court … will be different from that of the trial judge. …’

63. In that passage, Buxton LJ was referring to what Robert Walker LJ said in Pro Sieben Media AG v Carlton UK Television Ltd [1999] 1 WLR 605 at pp 612-613, namely:

‘There is another general point which should be mentioned, that is the approach which this court should take on appeal against a judge’s ruling, after a full trial, on an issue of fair dealing. It is an issue on which the judge had come to a judgmental conclusion after taking into account a number of factors. In such a case the correct approach for an appellate tribunal was described as follows by Hoffmann LJ in Re Grayan Building Services Ltd [1995] Ch 241, 254 …

‘The judge is deciding a question of mixed fact and law in that he is applying the standard laid down by the courts [in that case – conduct appropriate to a person fit to be a director] to the facts of the case. It is in principle no different from the decision as to whether someone has been negligent or whether a patented invention was obvious: see Benmax v Austin Motor Co Ltd [1955] AC 370. On the other hand, the standards applied by the law in different contexts vary a great deal in precision and generally speaking, the vaguer the standard and the greater the number of factors which the court has to weigh up in deciding whether or not the standards have been met, the more reluctant an appellate court will be to interfere with the trial judge’s decision.’

… That is the right approach on this appeal. The judge’s conclusions, especially on fair dealing, should not be disturbed unless they proceeded from some error of principle or are clearly unsustainable.’

64. In my judgment, those observations apply to this appeal, where, in circumstances where the findings on the primary facts are (unsurprisingly) not challenged, a ‘number of factors’ had to be ‘weigh[ed] up’ by the judge, in order to decide whether or not a particular arrangement constituted a contract of service. …”

43.Statements to similar effect are found in Todd v Adams at §129, per Mance LJ (as he then was); Assicurazioni Generali SpA v Arab Insurance Group [2003] 1 WLR 577 at 580 to 581 §§14 to 17, per Clarke LJ (as he then was); Datec Electronic Holdings Ltd v UPS Ltd [2007] 1 WLR 1325 (HL) at §46, per Lord Mance.

44.I will approach the judge’s evaluation of the factual matrix in arriving at the conclusion if the notice was served “as soon as practicable” in the same way.  I would not interfere with the judge’s conclusion on this mixed question of law and fact unless I am satisfied that the judge has misdirected herself on the law, or has taken into account a factor which she should not have taken into account, or has failed to take into account a factor which she should have taken into account, or that her conclusion is one which she could not properly have reached in the light of the primary facts.  I bear in mind that the evaluation of the factual matrix calls for the exercise of common sense and judgment and there are no precise standards to be applied in this particular context.  I should be cautious in differing from the judge’s evaluation as her conclusion falls within a margin of appreciation.

The second stage – applying the interpretation to the factual matrix

45.Mr Yu mounted a vigorous attack on the summary of the effect of the communications in §115 of the judgment and the conclusion reached in §116.  He drew our attention that on the 9^th day of trial the judge had ruled inadmissible the oral evidence given by Wijngaarden on the 8^th day of trial on his discussions with Majcher relating to the alleged requests of Baron to Toeca to withhold action to activate the Placing Agreement or the Supplemental Agreement, as that had not been pleaded by Toeca or mentioned in the witness statement of Toeca’s witnesses.  So he submitted that the court would be confined to looking at the written communications adduced in evidence as part of the factual matrix.

46.Wijngaarden’s witness statement, which formed part of his admissible evidence, contained this explanation why Toeca decided to send a letter to Hung on 17 July 2009 giving him a final 14 days to comply with his obligation to pay Toeca for the Placed Shares:

“132. Baron Capital and Mr Wan did not want Toeca to activate the Placing Agreement. From the moment Toeca exercised the Option, Baron Capital and Mr Wan tried on various occasions to persuade Toeca to commence legal proceedings against Mr Hung and the Company to recover its investment (see, for example, paragraph 92 above) rather than to call on Baron Capital and Mr Wan to meet their obligations under the Placing Agreement to purchase the Placing Shares from Toeca.

133. Baron Capital and Mr Wan continued to assure Toeca that Mr Hung would be prepared to settle with Toeca (see paragraphs 98 to 100 and 106 above). Even after the termination of the Procurement Agreement, and as late as 22 July 2009, Baron Capital made representations to Toeca that they were confident that Mr Hung would meet his obligations to Toeca to pay for the Placing Shares (see paragraph 111 above). Relying on these representations and assurances, Toeca decided to give Mr Hung a final 14 days to comply with his obligations to pay Toeca for the Placing Shares.

134. Toeca instructed Jones Day to send Mr Hung a letter before action immediately after the termination of the Procurement Agreement in a final effort to demand Mr Hung to comply with his obligations under the Procurement Agreement. In the circumstances explained above and because of this demand letter, Toeca decided to wait until the expiry of the 14 days deadline provided in Jones Day’s letter to see if Mr Hung would comply with Jones Day’s demands. If Mr Hung paid Toeca for the Placing Shares, it would not have been necessary for Toeca to call on Baron Capital and Mr Wan’s obligations under the Placing Agreement.”

47.The above evidence was open to the judge to accept, even if it was not expressly referred to in the judgment.  I reject Mr Yu’s contention that there was no evidence to support the finding in §115 of the judgment that the judge “accept[s] Toeca’s evidence that after Toeca had exercised its option in April 2009 under the Procurement Agreement, Wan and Baron Capital had on various occasions persuaded Toeca to take action against Hung, and had assured Toeca that it was in Toeca’s best interests to enforce its rights under the put option against Hung as the primary target, rather than to pursue Wan and Baron Capital, as their interests were aligned with Toeca’s.”

48.There was also clear evidence to that effect in the written communications.  Nor do I agree with Mr Yu that on a fair reading of all the exchanges, Toeca was not accepting that it should act in concert with Baron and Wan, even though at a later stage Toeca had made clear to Baron and Wan that it would go after them if Hung did not perform as they were next in line.  They were clearly acting together for the purpose of putting pressure on Hung to pay up.  It is apparent from the exchanges there were indications that Hung’s financial position was improving in July 2009 with the share price rising, the Company completing its issuance of 178 million shares to a new investor and the resolution in its favour of the litigation over the coal mine.  And it is pertinent to note the repeated assurances from Wan and Majcher that Hung was in a good financial position to repay Toeca if compelled to do so.

49.I do not propose to set out all the written exchanges, which both sides had taken the judge to, except to mention these pertinent ones:

(1) email from Majcher to Wijngaarden on 28 April 2009

By this message, Majcher provided “open source” information to Toeca urging Toeca to engage a “more aggressive lawyer” to force the Company to freeze all of the shares and cash held by Hung.  Majcher stated “at the very least our goal should be to regain control of the pubco and whatever cash is remaining so we can control our exit strategy.  I am happy to quarterback all this as our interests are definitely aligned and we will also pursue other means so we are pushing together from several directions.  I also will come over in May to work out a clear agreement and strategy so we can both exit this situation in the best possible terms.”

(2) email from Wijngaarden to Majcher on 29 April 2009

Whilst stating that Toeca would engage an “independent lawyer” instead of the lawyer recommended by Majcher, Wijngaarden also wrote: “Right now our interests are fully aligned, but that might change.  I hope you understand our position.  Having said that, we will pursue the strategy you suggested and we highly appreciate your advice and support.  I will send you a draft of our letter to the board [of the Company].”

(3) email from Wijngaarden to Majcher on 12 May 2009

Wijngaarden informed Majcher of the advice from Toeca’s lawyers not to pursue the action against the Company for misrepresentation as suggested by Majcher until they had “clear evidence”.  He also wrote if Majcher and Wan “are convinced of the course of action [Majcher] suggested, [Wan] and Baron should be able to pursue that route” and asked to be posted on any development on that score.

(4) email from Wijngaarden to Majcher on 26 May 2009

Wijngaarden noted the good news that an investor named Gao had subscribed for 178 million shares in the Company at $0.338 per share.  He stated that Toeca’s lawyers strongly advised against suing the Company for misrepresentation so “unfortunately, [Toeca] will therefore be forced to take steps against Baron and Joe Wan in person if Hung doesn’t perform, as they are next in line.”  He went on to request information of various kinds from Majcher.

(5) email from Majcher to Wijngaarden on 26 May 2009

Majcher informed Wijngaarden that Hung approached Wan a week ago with a view to work out Hung’s obligation to Toeca and Wan advised Hung that he would take no action until such time as Hung placed the money in escrow.  He also mentioned that Baron and Wan had retained solicitors to protect their interests against the Company and Hung as they “now have [Toeca’s] claim to potentially deal with”.

(6) email from Majcher to Wijngaarden on 28 May 2009

Majcher provided information of a meeting between Hung and Wan to resolve Hung’s liability to Toeca and of Gao who was likely to be fronting for a much larger investor.  He conveyed the message that it was Wan’s belief “a very large deal will be announced in June and that Hung’s game plan is to get the share price up to a $1.00 and arrange a cross or block trade with the new investor”.  He thought it clear the new investor was supporting the current share price and there was clearly a game plan and going forward strategy.

(7) email from Wijngaarden to Wan on 3 July 2009

Wijngaarden copied to Wan the letter of Toeca’s solicitors to Hung warning of legal action, stated that Hung would formally be in breach of the Procurement Agreement on 9 July 2009 if he should fail to pay and asked Wan to increase pressure on Hung from his side as well.

(8) email from Majcher to Wijngaarden on 8 July 2009

Majcher informed Wijngaarden that Wan was meeting his solicitors as Wan wanted “to do everything properly in regards to having Hung and [the Company] fulfill their obligation to [Toeca]”.

(9) email from Wan to Wijngaarden on 10 July 2009

Wan expressed his view “it is in Toeca’s best interest to continue to enforce its rights under the put option against Hung as the primary target” and this “stands a better chance of recovering the HK$116,820,000 and interest”.  He gave information that the Company had recently completed its issuance of 178 million shares to the new investor Gao and had generated over $60 million in cash.  Further, the share price had more than doubled since the announcement of the new share issue and “that should therefore provide sufficient comfort that Hung is in a good financial position to repay the HK$116,820,000 plus interest to Toeca if he is compelled to do so”.  He ended by saying “it is obviously in [their interests] to co-ordinate and exchange information in the action taken against Hung” and if there was anything he could assist Toeca in pursuing Hung as the primary target, Toeca was welcome to contact him.

(10) email from Majcher to Wijngaarden on 22 July 2009

Majcher provided information that the Company “has effectively closed on the coal mine” and the decision of the Heilongjiang People’s Court “is in [the Company’s] favour”.  He expressed his view that “once the above is resolved, … Hung will have approximately 600 million shares under his control plus the profit producing mine as [the Company’s] asset” and “once Hung is told by the court that his contract with [Toeca] is valid he will quickly settle”, as “once the share price rises when the final legal challenge is resolved, Hung … can sell some of his shares at the higher price to settle [Toeca’s] claim”.  Wan would be meeting his solicitors to plan a conference call with [Toeca] and their respective lawyers “to discuss next steps regarding Hung”.  He agreed with Wan that the developments that week “are strongly in our favour”.

50.Mr Yu submitted that it was wrong for the judge to take into account the last email on 22 July 2009, as this was after Toeca had despatched its letter to Hung on 14 July to terminate the Procurement Agreement.  I agree with Mr Westbrook this email was relevant to the ongoing issue of whether it remained not practicable for Toeca to serve the notice on Baron until 31 July 2009.

51.The position was fairly summarised in §142 of Toeca’s closing submission before the judge:

“It is apparent from the above communications that Wan/Baron Capital were impressing upon Toeca that they could assist Toeca to press Hung to perform his obligations, and that it would be in both their interests in resolving the matter for Toeca to co-ordinate with Wan/Baron Capital to put pressure on Hung. Wan/Baron Capital were impliedly persuading Toeca not to trigger the Placing Agreement, and to achieve this, Wan and Majcher continued to give comfort and assurances to Wijngaarden that there were good prospects that Hung would settle his obligations to Toeca very soon.”

52.The judge was right to have regard to the ongoing co-ordination and concerted efforts of Toeca, Baron and Wan to put pressure on Hung to fulfil his obligations under the Procurement Agreement and to come to the view that a person having knowledge of all the relevant factual matrix would have considered that if the notice were served immediately on 14 July 2009 with the termination of the Procurement Agreement, the interests of Toeca and Baron would no longer be aligned and might jeopardise the ongoing co-ordination between Toeca, Baron and Wan of putting pressure on Hung to pay up.  It was on 31 July 2009 that it became clear to Toeca that Hung would not be settling its claims, such that the interests of Toeca, Baron and Wan could not be aligned in all practicalities, that it served the notice on Baron and Wan.  The judge therefore concluded that the notice served on 31 July 2009 was served “as soon as practicable” applying the proper interpretation of “practicable”.

53.Adopting the approach for the appeal court as mentioned earlier, it does not appear to me that the judge had misdirected herself on the law or the evidence, or that she had taken into account a factor she should not have done, or had failed to take into account a factor she should have.  The conclusion she arrived at is one she could properly have reached in the light of the factors she had evaluated, and is not outside the bounds within which reasonable disagreement is possible.  For all these reasons, it is not right to interfere with the judge’s conclusion and this appeal must be dismissed.

Time of the essence provision

54.It was argued by Baron and Wan in the court below that time was of the essence of the Supplemental Agreement as recital D of this agreement stated that it “shall form part of the Procurement Agreement and the Placing Agreement” and there are provisions in the Procurement Agreement (clause 14.1) and the Placing Agreement (clause 10.1) providing that “any date or period mentioned in this Agreement may be extended by agreement between the parties hereto failing which, with regard to any such date or period, time shall be of the essence of this Agreement”.  It was contended that time was of the essence in respect of Toeca’s obligation in clause 3 of the Supplemental Agreement to serve the notice “as soon as practicable” by virtue of the express provisions and impliedly by virtue of the subject matter of the Placing Agreement being shares in the Company the price of which was liable to fluctuate.

55.The judge assumed but without deciding that time was of the essence and on that basis construed “as soon as practicable” and concluded that there was no breach of the obligation to serve the notice “as soon as practicable” [12].

56.Toeca raised in a respondent’s notice that if it should be held the judge was wrong in finding that the notice was served “as soon as practicable”, the judgment should still be affirmed on the basis that time was not of the essence of clause 3 of the Supplemental Agreement whether expressly or impliedly.  If time was not of the essence of clause 3, even if there was a breach of the obligation to serve the notice “as soon as practicable”, it was not such a breach as would entitle Baron and Wan to refuse to perform their obligations under the Supplemental Agreement and Placing Agreement.  It was at best a breach of a term entitling Baron and Wan to claim damages if any but no damages were claimed in this action.

57.As I have arrived at the view that the judge’s conclusion Toeca did serve the notice “as soon as practicable” should be upheld, the issue raised in the respondent’s notice does not arise.  I would not therefore address the arguments advanced on this issue.

Conclusion and costs

58.I would dismiss the appeal for the reasons given above.  Costs of the appeal should follow the event.  I would order Toeca’s costs of the appeal be borne by Baron and Wan, with a certificate for two counsel.

Hon Chu JA:

59.I agree for the reasons given by Kwan JA that the appeal should be dismissed with costs with a certificate for two counsel.

Hon McWalters J:

60.I agree.

(Susan Kwan) Justice of Appeal

(Carlye Chu) Justice of Appeal

(Ian McWalters) Judge of the Court of First Instance

Mr Benjamin Yu SC & Ms Eva Sit, instructed by Baker & McKenzie, for the 1^st & 2^nd Defendants (1^st & 2^nd Appellants)

Mr Simon Westbrook SC & Ms Janet Ho, instructed by Jones Day, for the Plaintiff (Respondent)

[1] The judgment, §§108 to 110

[2] The judgment, §113

[3] The judgment, §114

[4] The judgment, §§99 to 102

[5] The judgment, §103

[6] The judgment, §103

[7] This is a clerical error, the correct date should be 31 July 2009.

[8] Appearing with Ms Eva Sit

[9] Appearing with Ms Janet Ho

[10] See also the decisions of the Court of Appeal in refusing the application for stay of execution by Baron and Wan: Reasons for Decision of Yuen JA on 16 August 2013, §8; decision of Cheung JA and Andrew Chung J on 29 October 2013, [2013] 5 HKLRD 178, §11.

[11] This is Rule 2 of the Schedule to the Industrial Tribunals (Industrial Relations, etc) Regulations 1972 and it reads: “(1) In relation to proceedings on complaints under section 106 of the 1971 Act [i.e. Industrial Relations Act], a tribunal shall not entertain such a complaint unless it is presented before the end of the period of four weeks beginning – (a) in the case of a complaint relating to dismissal, with the effective date of termination, … unless the tribunal is satisfied that in the circumstances it was not practicable for the complaint to be presented before the end of that period.” [Emphasis supplied]

[12] The judgment, §§105, 106 and 116