Dynamic Century Group Ltd v. Cheung Siu Yuen Raymond

DCCJ4455/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4455 OF 2011

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Before: His Honour Judge Andrew Li in Court

Date of Hearing: 26 to 27 March 2014 & 1 April 2014

Date of Judgment: 20 October 2014

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JUDGMENT

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1.This is a claim brought by the plaintiff for breach of contract.

2.The issue I am asked to decide is whether the defendant has been in breach of the terms of an agreement entered between the plaintiff and the defendant on 3 March 2011 for the sale of shares in a company called Cypress International Investment Advisors Limited (“Cypress”) at the consideration of HK$2,923,000 (“the Agreement”).

BACKGROUND

3.The plaintiff is a company incorporated in the Virgin Islands with limited liability.

4.The defendant was and is the major shareholder of Cypress.  He owned 7,128,967 shares of the company.  He was also the director and responsible officer for the company.  

5.Cypress is a limited company incorporated in Hong Kong with an authorised capital of HK$10,000,000 divided into 10,000,000 ordinary share of HK$1 each.  Out of that, 7,428,198 shares have been issued and fully paid or credited as fully paid up.  Cypress is also licensed to carry on Types 4, 6 and 9 regulated activities as defined in the Securities and Futures Ordinance, Cap, 571 (“the SFO”). The plaintiff wished to purchase 6,685,379 ordinary shares from the defendant.

6.The following are the relevant terms of the Agreement to this dispute:-

“3.1 The Consideration is Hong Kong Dollars HK$2,923,000.00 and shall be paid by the Purchaser by way of cashier order(s) or solicitor’s cheque(s) to the Vendor according to the following manner:-

(i) The sum of HK$876,900.00 as initial refundable deposit and part payment of the Consideration shall be paid upon signing of this Agreement; …

………..

4.1 The respective obligations of the parties to effect Completion is conditional upon:-

(a) the due diligence investigation to be carried out pursuant to Clause 6.1 is reasonably satisfactory to the Purchaser and does not revealing any matter which would represent a material adverse change in the Licences, assets, liabilities, financial condition, legal position, contracts commitments or the business of the Company from that set out in the Accounts;

(b) all SFC’s consents and approvals being obtained from the transfer of the Sales Shares in the manner as contemplated under the terms and provisions of this Agreement; …..

4.2 The Vendor and the Purchaser shall use their respective reasonable endeavours to procure that the conditions in Clause 4.1 above (so far are applicable to it) are satisfied not later than the date specified in Clause 4.5 and no party is entitled to withdraw from this Agreement before that date.

4.3 Each of the parties hereto shall notify the other party forthwith once it is aware of the fulfilment of any of the conditions in Clause 4.1, and shall provide such evidence as may be reasonably requested by the other party in connection with the fulfilment of such conditions.

4.5 “If any of the Conditions have not been fulfilled (or waived) before the Long Stop Date [defined under Clause 1.1 as 30^th September 2011 or such other day as the parties hereto may agree in writing] not due to the default of the parties to this Agreement then all rights, obligations of the parties hereunder shall cease and determine, save and except pursuant to Clauses 11, 13 to 17 which provisions shall remain in full force and effect, and no party shall have any claim against the other save for claim (if any) in respect of such continuing provisions or any antecedent breach hereof. In which event, all money paid by the Purchaser to the Vendor shall be repaid forthwith to the Purchaser without interest within seven (7) Business Days after termination. After receipt of payment in full by the Purchaser as aforesaid, no party shall have any claim against the other save for claim (if any) in respect of any antecedent breach hereof. However, if the non-fulfillment of the Conditions were caused by the fault of the Vendor, Clause 10.2 shall applies. If the non-fulfillment of the Conditions were caused by the fault of the Purchaser, Clause 10.1 shall apply.

6.1 The Purchaser shall be entitled to carry out a due diligence review and investigation of the assets. Liabilities, financial condition, contracts, commitments, legal position and business of the Company upto the Completion Date. In order to facilitate such due diligence review, the Purchaser shall give to the Vendor a checklist of all such information relating to the Company and all books, title deeds, records, accounts and other documentation of the Company as the Purchaser may reasonably request. The Vendor shall make available and procure that the Company to make available to authorised representatives of the Purchaser within 14 days of the giving of the checklist which includes, among any other documents:-

(a) The books of account of the Company, including all accounts ledgers;

(b) the statutory books of the Company;

(c) all necessary accounting records, book, documents, register(s), correspondence of the Company as reasonably requested in audit procedure;

(d) copies of all licences, tenancy agreement, agreement, agencies or other such documents as affect the management and operation of the Company;

(e) copies of all banking facility documentation entered into by the Company; and copies of all guarantees and any security documents entered into by the Company.

8.4 The Vendor shall procure the Company to and the parties shall provide all such information and documents and execute all such application, documents and do such other things as may be requested for the approval by the SFC of the Purchaser or such other person(s) or company(ies) nominated by it under Clause 2.2 becoming a substantial shareholder of the Company. The Purchaser shall use its best endeavour to apply for approval from SFC as a substantial shareholder of the Company and in this connection shall promptly respond and reply to all enquiries of SFC and to supply all documents requested by SFC in connection with the application. The parties shall advise each other immediately of any circumstances that may lead to the refusal of the application.

8.6 The Purchaser hereby nominates Mr Lai Ping Wah Stanley to represent the Purchaser to give any instructions and decisions which are or may be reasonably required to give under the terms of this Agreement from time to time.

10.2 In the event of Vendor (other than due to the default of the Purchaser) fails to complete the sale of the Sale Shares in accordance with the terms and conditions herein contained, the Purchaser shall, without prejudice to any other rights and remedies (including the right to ask for specific performance) which the Purchaser may have in respect of such breach, be entitled to rescind this Agreement by notice in writing to the Vendor or the Vendor’s Solicitors to such effect and the Vendor shall refund all money paid by the Purchaser to the Vendor to the Purchaser within seven (7) days from the date of receipt of the said notice and the Purchaser shall also be entitled to recover from the Vendor such further damages as the Purchaser may sustain by reason by such failure on the part of the Vendor.

11.1 Time shall in every respect be of the essence in this Agreement.”

The plaintiff’s claim

7.On 3 March 2011, pursuant to Clause 3.1(i) of the Agreement, by way of deposit, the plaintiff paid the defendant a sum of HK$876,900 (“the Deposit”).

8.An application was made by the plaintiff and the defendant to the Securities and Futures Commission (“the SFC”) for the approval of the plaintiff to become the major shareholder of Cypress on 25 March 2011 (“the Application”).

9.The plaintiff alleges that the non-fulfilment of the condition under Clause 4.1(b) of the Agreement was due to the fault of the defendant.  The plaintiff claims that the acts of the defendant were the real reason why the approvals and consents of the SFC were not forthcoming. 

10.In an attempt to smooth over the process of the Application, by a letter dated 25 July 2011, the defendant informed the SFC that he was willing to:-

(a) resign from Cypress upon the SFC’s approval of the transfer of shares from the defendant to the plaintiff;

(b) surrender all his then existing responsible officer’s licences to the SFC upon the SFC’s approval of the plaintiff’s representatives to become responsible officers; and

(c) sell his remaining shares in and cease to be a shareholder of Cypress within 1 month from the occurrence of (a) and (b) above.

11.The necessary consents and approvals of the SFC as stipulated under Clause 4.1(b) of the Agreement had not been obtained before the Long Stop Date on 30 September 2011.

12.On 3 October 2011 & 14 October 2011, the plaintiff’s then solicitors wrote to the defendant’s then solicitors demanding the return of the Deposit pursuant to Clauses 4.5 and 10.2 of the Agreement.

13.On 16 November 2011, the plaintiff’s then solicitors again wrote to the defendant’s solicitors demanding the return of the Deposit.

14.Despite the above, the defendant failed to return the sum of HK$876,900 which becomes the subject of the present dispute.

The defendant’s defence

15.In his Defence, the defendant relies on Clauses 10.1 and 10.3 of the Agreement which states the follows:-

“10.1 In the event the Purchaser (other than due to the default of the Vendor) fails to complete the purchase of the Sale Shares in accordance with the terms and conditions herein contained, the Vendor may forthwith determine this Agreement by giving notice of termination in writing to the Purchaser or the Purchaser’s Solicitors to such effect and the Vendor shall be entitled to forfeit 15% of the Consideration paid by the Purchaser to the Vendor absolutely as damages but not as penalty without prejudice to any other rights and remedies of the Vendor. Neither this Clause nor the exercise by the Vendor of any right of forfeiture shall preclude or be deemed to preclude the Vendor from taking other steps or remedies to enforce the Vendor’s rights whether hereunder or otherwise or prevent the Vendor from recovering any further damages which it may have suffered.

10.3 Subject to Clauses 10.1 or 10.2 herein, nothing contained in this Agreement shall be so construed as to prevent either party from bringing an action and obtaining a decree for specific performance either in lieu of the aforesaid damages or in addition thereto as the non-defaulting party may have sustained by reason of the neglect or refusal of the defaulting party to complete this sale and purchase at the time and in manner aforesaid.”

16.The defendant alleges that it was a pre-condition for the plaintiff as the purchaser and the defendant as the vendor to seek the consents and approvals from the SFC for the transfer of the shares (Clause 4.2) and the purchaser shall use their best endeavours to apply for approvals from the SFC as a substantial shareholder of Cypress (Clause 8.4).  In this respect, the defendant says that the plaintiff shall promptly respond and reply to all enquiries of the SFC and shall supply all documents requested by the SFC in connection with the application.

17.The defendant claims that as the plaintiff has submitted a business plan to the SFC in support of the application for the consent under Clause 4.1(b) of the Agreement, in doing so, it has impliedly assumed the contractual duty to respond and to reply to all enquiries to be made by the SFC.

18.The defendant further alleges that Clauses 4.1(b) and 8.4 of the Agreement “unequivocally and expressly” imposed a positive duty on the plaintiff to seek for the prior approval of the SFC for the transfer and assignment of the shares to the plaintiff and to respond and reply to all the enquiries made by the SFC. 

19.The defendant claims that in the course of the Application, the SFC raised several enquiries and other matters for clarification, including issues on the business plan proposed and endorsed by the plaintiff in respect of the future development of Cypress.  The defendant claims that the business plan had been revised several times for re-submission to the SFC but the plaintiff has still failed to procure the approval from the SFC. 

20.The defendant further claims that, in order to assist the SFC to process the application for approval before the Long Stop Date, a second telephone conference with the subject officer of the SFC by the name of Ms Ada Fu (“Ms Fu”), had been initiated by the SFC.  This second telephone conference was supposed to be held in the afternoon of 27 September 2011 with the defendant and the representatives of the plaintiff, namely, Mr Stanley Lai (“Lai”) and Mr Sam Lin (“Lin”) with a view to finalize the outstanding issues under the business plan (“the Telephone Conference”).

21.The defendant claims that, in breach of Clause 8.4 of the Agreement, the plaintiff refused to attend the Telephone Conference. 

22.The Telephone Conference never took place and no further telephone conference with the SFC ever took place before the Long Stop Date.  As a result, the defendant alleges that plaintiff could not procure the approval from the SFC before the Long Stop Date.

23.Hence, the defendant’s case is that it was the plaintiff who has been in breach of the terms and conditions of the Agreement, in particular the pre-condition of Clause 4.1 and innominate term of Clause 8.4 of the Agreement.  As such, the defendant claims that he was entitled to forfeit the Deposit paid by the plaintiff to the extent of HK$438,450 under Clause 10.1 of the Agreement and to hold the balance of the Deposit at HK$438,450 to set off the defendant’s counter-claim.   

24.The defendant further claims that he has suffered loss and damages in the sum of HK$2,046,100 being the balance of the consideration under the Agreement for the sale of the shares.  However, the defendant is willing to reduce the quantum of the counterclaim to a sum of HK$1 million in order for it to come under the jurisdiction of the District Court.

The plaintiff’s reply

25.The plaintiff’s reply is simply that during the Application, the SFC raised numerous enquiries and issues with both the plaintiff and the defendant.  These included issues in relation to the business plans drafted and submitted by the plaintiff.  The plaintiff states that the business plans had been revised on numerous occasions for re-submissions to the SFC.  The plaintiff denies that the failure to procure the necessary consents and approvals from the SFC was caused by the plaintiff.  In this regard, the plaintiff particularly relies on the fact that both Lai and Lin (who are Taiwanese) were not familiar with the rules and practices of the SFC whilst the defendant, who had worked for more than 30 years in the financial industry in Hong Kong, had had abundant experience in dealing with the SFC.  As such, the plaintiff relied fully on the advice of the defendant in handling matters concerning the Application and the business plans submitted.  According to the plaintiff, while the business plan was drafted by Mr Henry Wang (“Wang”) of the plaintiff and submitted to the SFC, it was drafted fully in accordance with the advice of the defendant and was reviewed by the defendant.  This is the case with all the subsequent revisions and re-submissions.

26.In relation to the Telephone Conference with Ms Fu in the afternoon of 27 September 2011, the plaintiff says that its duty under Clause 8.4 of the Agreement was to use its best endeavours to apply for approval from the SFC and to promptly respond and reply to all SFC’s enquiries.  However, in view of the short notice given by Ms Fu for the Telephone Conference, it was not unreasonable that the plaintiff failed to attend the Telephone Conference at the time proposed. 

27.For the previous 2 conferences between the plaintiff, the defendant and the SFC that were held on 1 August 2011 and 19 September 2011, the plaintiff was given approximately 1.5 days advance notice of the proposed meetings. 

28.Regarding the Telephone Conference requested by Ms Fu, the plaintiff informed the defendant on 27 September 2011 that the earliest date that Lai and Lin of the plaintiff would be available would be in the afternoon on 29 September 2011. 

29.On 29 September 2011, which was the last day before the Long Stop Date, typhoon signal no.8 was hoisted and hence the Telephone Conference could not be held. 

30.Under those circumstances, the plaintiff says that its officers had used their best endeavours to hold the Telephone Conference and the failure of not holding it was not due to the fault of the plaintiff.

DISCUSSION

Issue to be Decided

31.In my judgment, the issue in this case is quite simple.  It boils down to the question of whether the plaintiff had, by failing to attend the Telephone Conference with Ms Fu on 27 September 2011, been in breach of Clauses 4.2 and 8.4 of the Agreement.  If so, the defendant would be entitled to keep the Deposit and counter-claim for damages.  If not, then there is no reason why the defendant should not return the Deposit to the plaintiff.

Events leading to the Long Stop Date

32.In my opinion, judging from the events leading up to the Long Stop Date, the party who was in breach of the Agreement was the defendant and not the plaintiff.  In my view, the allegation made by the defendant that it was the plaintiff who had failed to respond to Ms Fu’s request for the Telephone Conversation was merely an excuse for not repaying the Deposit to the plaintiff in accordance with the terms of the Agreement. 

33.My reasons are set out as follows.

34.First, I entirely accept the evidence given by the plaintiff’s sole witness Lin.  In my view, he is an honest and reliable witness who has tried his best to tell the court the truth in regard of his dealings with the defendant.  On the other hand, I find the defendant an evasive and not truthful witness.  He tried hard to make up all sorts of excuses in not repaying the Deposit to the plaintiff after it has become clear to both parties that it was not due to the fault of the plaintiff that the SFC would not grant its approvals for the transfer of shares before the Long Stop Date.

35.I would prefer the evidence given by Lin of the plaintiff over the evidence given by the defendant.  In particular, I accept the following evidence given by Lin:-

(i) all along the plaintiff was relying on the expertise of the defendant in the application process as the defendant had had over 30 years of experience in the financial industrial in Hong Kong;

(ii) during the negotiations, the defendant had assured Lai and Lin that the approval for the transfer of the major holding of the shares by SFC would normally only take about 2 to 3 months;

(iii) thus, the parties agreed that the consent of the SFC should be obtained within 6 months from the date of signing of the Agreement, ie before the Long Stop Date on 30 September 2011;

(iv) thereafter, all the obligations of the parties under the Agreement shall cease and no parties shall have any claims against the other.  In such event, all the money, including the Deposit paid by the plaintiff to the defendant, shall be repaid forthwith without interests within 7 business days after the termination (See Clause 4.5);

(v) before signing of the Agreement, the plaintiff solicitors found out from the SFC’s website that Cypress had been in breach of the capital requirements of the SFC and was publicly censored by the SFC on 20 September 2010;

(vi) as a result, the plaintiff’s solicitors required the defendant to confirm that Cypress had not been in breach of any other regulations of the SFC (see Clause 9.3);

(vii) after signing of the Agreement, the plaintiff’s solicitors found out that the defendant had been involved with several other investigations and was the subject matter of a bankruptcy proceedings in August 2009.  The defendant was also the subject matter of another bankruptcy proceedings in March 2012;

(viii) as both Lai and Lin of the plaintiff were full-time employees of other securities companies at the time of the Agreement, they relied heavily on the advice of the defendant in the Application;

(ix) in order not to let their own employers know that they were in the process of setting up their own company, Lai and Lin employed Wang from Taiwan to assist them in the Application;

(x) As Wang could only brief both Lai and Lin after their work each day and Lai often had to travel to the Mainland for his work, it would normally take them 2 to 3 days to respond to the SFC’s enquiries;

(xi) for more complicated questions raised by the SFC, sometimes it would take them as long as 1 to 2 weeks to respond;

(xii) generally speaking, they would consult the defendant after receiving any enquiry from the SFC and would follow his advice and as to how to respond;

(xiii) from the history of enquiries made by the SFC, except for the last 2 enquires towards the end of September 2011, the average respond time of the plaintiff was about 8.5 days;

(xiv) for the last 2 enquiries made at the end of September 2011, the responding time was 3 days only; and

(xv) in none of the enquiries made by the SFC, the plaintiff was required to respond to the SFC’s enquiries on the same day or within 1 or 2 days.

36.I further accept that the plaintiff’s request for the return of the Deposit was made in accordance with Clause 4.5 of the Agreement.  As stated, Clause 4.5 of the Agreement provides that if any of the Conditions have not been fulfilled before the Long Stop Date which is not due to the default of the parties to the Agreement, then no party shall have any claim against the other and the Deposit shall be returned within 7 days without interest.

37.I agree with the plaintiff’s submission that by the Long Stop Date:-

(1) the consents and approvals from the SFC for the transfer of the shares had not been obtained; and

(2) the plaintiff was not satisfied with the result of the due diligence investigations carried out against the defendant.

38.In my judgment, the blame for the failure in obtaining the consent of the SFC for the transfer of the shares could not be placed at the door of the plaintiff or its officers.  I accept the evidence of Lin that from the date of signing of the Agreement, both Lai and Lin had tried their very best to answer enquiries from the SFC in accordance with the directions and/or advice of the defendant.  Up to the end of September 2011, they had made written replies to the SFC on 9 separate occasions.  Further, on 1 August and 21 September 2011, 2 separate telephone conferences were held between the SFC and the defendant, Lai and Lin.  On those occasions, I accept that it was the defendant who had directly contacted the SFC rather than Lai and Lin themselves.  As such, the timing of the responses was very much dictated by the defendant who had direct contact with the SFC.  I also accept Lin’s evidence that the original belief among the parties was that the consent from the SFC would be forthcoming within 2 to 3 months from the date of the Application. However, on 27 June 2011, the SFC found the defendant had committed breaches of the securities and future regulations in that he had failed to declare his shares in the company and therefore might have placed himself in a conflict of interest position.  As a result, the SFC started an investigation against the defendant.

39.I also accept that resulting from the investigation, the defendant had on 11 July 2011 voluntarily made the following undertaking to the SFC in order to smooth over the application process:-

(1) to resign from the position as managing director of Cypress;

(2) to surrender the “responsible officer” licence to the SFC;

(3) to sell his reminding 5.7% shares in Cypress and agree not to remain as shareholder of the company in future.

40.I accept the plaintiff’s submission that the above has completely changed the nature of the Application.  It is obvious that the SFC no longer treated this as an application for the transfer of the majority shareholding in Cypress; rather it was more like Lai and Lin were using the name of Cypress to apply for the various licences.  I accept this is one of the reasons why the SFC was more stringent in their investigations regarding the business plans subsequently submitted by the company.  I also consider that the defendant’s failure to declare his interest in Cypress and subsequent change of position in regard to shareholding was another main reason why the Application was so seriously delayed.  I find that such delay was not caused by the plaintiff but rather by the poor past record and performance of the defendant in the eyes of the SFC.

41.I further accept the plaintiff’s evidence that, due to the fact the SFC had by then treated the Application as a fresh application, when they examined the business plan submitted by Cypress on 15 September 2011, they decided that the company has to apply for a Type 1 Licence in addition to the other types of licences originally applied for.  However, after discussion among themselves, Lai and Lin did not want to delay the application process further and therefore decided to make changes to the business plan so as to meet the requirements of the SFC.  They informed the SFC, through the defendant, that Cypress would give up the application for the Type 1 Licence.  Hence, up to this stage, I do not consider the plaintiff had caused any delay in the Application or had tried anything less than their best endeavours in order to obtain the consent from the SFC.

42.I therefore reject the defendant’s submission that the delay was caused by the plaintiff.  Instead, I find the plaintiff was being pragmatic and practical when it gave up the Type 1 Licence application so as to facilitate the rest of the application in the hope that the SFC would grant their consent before the Long Stop Date.  I do not think the changing of the business plan by dropping Type 1 Licence was the cause of the delay.  It certainly was not the reason of why the plaintiff was not able to obtain the consent from the SFC by the Long Stop Date.

Telephone Conference scheduled on 27 September 2011

43.I reject the defendant’s contention that the failure in obtaining the consent from the SFC was caused by the failure of Lai and Lin in attending the proposed Telephone Conference suggested by Ms Fu to be held on 27 September 2011, which was 3 days before the Long Stop Date.  On this matter, I accept the evidence of Lin that, towards the second half of September 2011, there was still no positive response from the SFC in relation to the Application. Instead, each time after Lai and Lin of the plaintiff made written replies, the SFC would raise further queries.  By then the plaintiff began to get concern over the long drawn out process of the Application, which originally was expected to take no more than 2 to 3 months to complete.  Naturally, the defendant, who was keen to sell the major shareholding in Cypress, did not want to see the Long Stop Date pass without the plaintiff obtaining the approval from the SFC. Hence, he had, between 23 and 28 September 2011, issued a number of emails informing Lai and Lin of the plaintiff that the application had reached its final stage and was only pending one last telephone conference with SFC before the final approval would be given. 

44.On this matter, I find there was no truth in such contention at all.  There is no evidence to suggest that the SFC was going to approve the application pending only on some formalities which could be sorted out by one telephone conference at that time.  In my judgment, this was only the wishful thinking on the part of the defendant who was desperate to get Lai and Lin to hold the Telephone Conference with Ms Fu from the SFC[1].

45.Another reason why I find the defendant’s assertion that the SFC’s approval was at its final stage at or around 27 September 2011 could not be true is that the defendant had on 2 separate occasions, namely, on 23 and 25 September 2011 met with Lai and Lin of the plaintiff to discuss the extension of the deadline of the Agreement.  In fact, as late as on 26 September 2011, the defendant had asked for a meeting with Lai and Lin again.  However, after confirming with Lai and Lin, Wang informed the defendant that they would not be available from the morning of 27 to 29 September 2011 due to other business commitments.  This can be seen from the email from Wang to the defendant confirming that Lin would only be available for the meeting in the afternoon of 29 September 2011 and he would be inviting Lai to join them at the meeting[2]. In my judgment, this clearly indicates that the defendant was fully aware that both Lai and Lin would not be available on 27 and 28 September due to their own business commitments.  As such, he knew well that it would not be possible for the defendant to hold the Telephone Conference with Ms Fu on 27 September 2011.  The defendant was well aware that the earliest date that Lai and Lin would be available for such a conference would be in the afternoon of 29 September.  However, as events turned out, there was a typhoon hitting Hong Kong during those few days and the No 8 typhoon signal was hoisted on 29 September almost throughout the day.  Therefore, the Telephone Conference could not have taken place on that day anyway.  30 September 2011 was the Long Stop Date and no telephone conversation took place between Ms Fu, Lai, Lin and the defendant on that day. 

46.I do not accept the defendant’s submission that had Lai and Lin attended Telephone Conference on 27 September 2011, the SFC’s final approval would be given.  It is clear from an email from Ms Fu of the SFC at 3:40 pm on 27 September to the defendant and Lai that there were still serious issues to be resolved.  This is contrary to the defendant assertion that the SFC investigation process was at its final stages at or around that day.  I accept the evidence of Lin that any response to the questions raised by the SFC would usually take a few days to prepare.  If the SFC has further questions in relation to the responses, it might take further time for the defendant, Lai and Lin to reply.  I further accept that on 27 September 2011, Wang had already telephoned the defendant and informed him that both Lai and Lin would not be available between 27 and 29 September due to their other business commitments. The telephone conversation was then confirmed by the email sent by Wang to the defendant on the same day confirming that the earliest the meeting could take place will be in the afternoon of 29 September.  At that time, obviously both Lai and Lin were not expecting Ms Fu would request a Telephone Conference in the afternoon of 27 September.  Therefore, this is no question that Lai and Lin were trying to avoid having a Telephone Conference with Ms Fu on 27 September as the defendant knew all along that they would not be available on those two days.  Further, the fact that there was a typhoon No 8 being hoisted on 29 September 2011 was something beyond the control of any of the parties involved in the case.

47.In relation to the email sent by Ms Fu of the SFC on 27 September 2011, I note that Ms Fu has stated at the end of the email that she would like to propose “a quick conversation call” between the defendant Lai and Lin and herself at any time after 3:47 pm on that day “to further discuss and clarify”[3]. In my judgment, this falls far short of the defendant’s suggestion that the proposed Telephone Conference between the parties would be a final step prior to the obtaining of the approval from the SFC.

48.The defendant suggests that both Lai and Lin were trying to avoid the defendant and also trying to avoid attending the Telephone Conference with Ms Fu on 27 September 2011.  He says this can be seen in the email written by the defendant in the afternoon of 28 September 2011[4]. In this email, the defendant mentioned to Lin (with copy to Lai and Wang) that from the various telephone conversations he had with Ms Fu of SFC the day before, Ms Fu was made aware that the contract was going to expire on 30 September 2011, therefore, the Telephone Conference with her was of “critical importance”.  The defendant also pointed out that as the application was in the final stage of the approval, it was of “upmost importance for (Lai and Lin) to attend the telephone conference meeting” and “the deal is expected to obtain SFC’s official approval”.  The defendant concluded by saying in the email that he had “full confidence that the above approval can be obtained in 1 or 2 days after this telephone conference meeting (i.e. on or before 30 September) and once above is done”.

49.As to why he held such “full confidence” when Ms Fu’s email only wanted a quick conversation call to further discuss and clarify matters, the defendant was not able to explain in his evidence.

50.Under cross-examination, the defendant accepted that even if Lai and Lin of the plaintiff agreed to attend the Telephone Conference with Ms Fu on 27 September, there was no guarantee that the SFC would give the final consent within those 3 working days before the deadline. His answer is “nobody would know, it is possible that they (ie SFC) would grant the approval or they would ask for further information”.  He accepted that the SFC “might or might not approve the Application” after the proposed Telephone Conference meeting on 27 September 2011. 

51.In my opinion, one significant matter which should not be ignored in this case is the fact that the defendant had, by 26 September 2011 (which was 4 days before the Long Stop Date), made a request to the plaintiff to extend the deadline of the Agreement.  However, from the evidence, the plaintiff was only willing to do so with a significant reduction of the purchase price[5]. In any event, the discussion of the extension of the deadline of the Agreement never produced any real result and the Agreement was never extended beyond the original Long Stop Date of 30 September 2011.  In my view, this proposed extension of the deadline of the Agreement demonstrates that the defendant himself did not believe that the final approval from the SFC would be forthcoming before the Long Stop Date and it certainly was not depending on the proposed Telephone Conference to be held with Ms Fu on 27 September 2011.

52.In respect of the proposed extension of the Agreement, I further accept the evidence given by Lin under cross-examination that he personally had not suggested the reduced balance of the consideration to HK$600,000 and HK$300,000 in exchange for an extension of 1 month and 2 months of the deadline of the Agreement respectively.  By this time, it is abundantly clear to the plaintiff that they were not getting what they had originally bargained for under the Agreement.  Instead of getting a direct transfer of the business of Cypress allowed by the rules of the SFC, they were effectively asked to apply for new licences under their own names.  Further, judging the email from Ms Fu on 27 September 2011, it is clear that the SFC was also not keen to grant the Type 4 Licence to Cypress.  Thus, the value of having Cypress as a “going concern” had been greatly diminished by this time.  Hence, I am not surprised that the plaintiff would ask for a significant reduction of the price in exchange of the extension of the Agreement asked by the defendant.  However, I consider that the amount of reduction is not relevant in this case as no agreement for extension had ever been reached between the plaintiff and the defendant. 

53.Based on the above reasons, I do not accept the defendant’s contention that it was due to the failure of Lai and Lin in responding to the enquiries of SFC, in particular the proposed Telephone Conference with Ms Fu on 27 September 2011, which had caused the failure in obtaining the necessary consent or approval from the SFC.  Instead, I find that Lai and Lin had used their best endeavours to obtain the consent or approval from the SFC in accordance with Clause 4.2 of the Agreement.  This has been amply demonstrated by the cooperation on the part of Lai and Lin in responding to the enquiries made by the SFC throughout the Application.  While it is unfortunate that the Application was not approved by the SFC by the Long Stop Date, in my judgment, such failure was not due to the fault on the part of the plaintiff or any of its officers.

CONCLUSION

54.In the aforesaid premises, I conclude that the failure to obtain the approval from the SFC for the transfer of the shares was not due to the fault of the plaintiff.  I am satisfied that the plaintiff had used their best endeavours to ensure that the conditions stated in Clause 4.1 of the Agreement would be satisfied.  In my judgment, the cause of the delay in the Application was more to do with the previous breaches and non-compliance of the SFC’s regulations on the part of the defendant.  This explains the unusual numbers of enquiries and questions raised by the SFC which the plaintiff had tried to deal with as much as they could until they saw the final approval was not going to come within the last few days before the 30 September 2011 deadline.  Given the above, I find the defendant has been in breach of the Agreement when he refuses to return the Deposit of HK$876,900.00 as stipulated under Clause 4.5 of the Agreement to the plaintiff.

55.Therefore, I would enter judgment in favour of the plaintiff in the said sum of HK$876,900.00 plus interest from the date when the defendant was supposed to return the Deposit without interest from 7 days after termination of the Agreement, ie on 7 October 2011.  Such interest will be calculated at the rate of 1% above the best lending rate until the date of judgment and thereafter at judgment rate. 

56.I would also dismiss the defendant’s counterclaim as it contains no merits at all.

57.Costs will follow the event.  The plaintiff is entitled to the costs of this action, including all costs incurred at the earlier part of the proceedings when the plaintiff was represented by solicitors, such costs to be taxed if not agreed.

The plaintiff represented by Mr Lin Wen Pin, the director of the plaintiff.

The defendant appeared in person.