Kwong Ian (Hong Kong) Construction and Real Estate Development Company Ltd v. Ip Pui Lam

HCA 2078/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2078 OF 2011

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J U D G M E N T

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The claim

1.The plaintiff’s claim in this action is against the defendant under an irrevocable deed of guarantee dated 2 August 2004 made between the defendant as the guarantor and the plaintiff (“the guarantee”). The plaintiff claims the sum of HK$4,758,597 together with interest as claimed.

Background

2.The plaintiff is and was at all material times a company incorporated in Hong Kong.

3.Brava Profits Limited (“Brava”) at all material times was a limited company registered and established in the British Virgin Islands. Brava was struck off the register on 1 May 2008.

4.At all material times, Brava’s shareholders and directors were the defendant and Hui Lai King (“Hui”) each of whom had a 50% shareholding in Brava.

5.The plaintiff and Brava set up EPMC International Limited (“EPMC International”) in October 1997 which at all material times was and is a limited company incorporated in Malaysia.  Brava held 9,000 shares (ie 60%) and the plaintiff held 6,000 shares (ie 40%) in EPMC International.

6.At all material times, the defendant and Hui were directors of EPMC International representing Brava together with other directors representing the plaintiff. There was also another director of Malaysian nationality.

7.In about 2000 after negotiations between the parties, it was agreed in principle that Brava would purchase all of the plaintiff’s shares in EPMC International.

8.The plaintiff and Brava entered into a written memorandum of intention for the acquisition of the plaintiff’s shares in EPMC International on 10 August 2000.  The defendant and Hui signed the memorandum on behalf of Brava.

9.On 16 August 2002 the plaintiff and Brava entered into a preliminary agreement for the sale and purchase of the plaintiff’s shares in EPMC International.  The defendant signed the preliminary agreement on behalf of Brava.

10.The plaintiff and Brava instructed their own solicitors to prepare the formal documents for the sale and purchase of the share.  The plaintiff was represented by solicitors Ellen Au & Co and Brava, the defendant and Hui were represented by their own solicitors, Li & Partners.

11.By a formal agreement for sale and purchase of shares dated 12 December 2003 made between the plaintiff, Brava, the defendant and Hui (“the SPA”) the plaintiff as the seller agreed to sell its 6,000 shares in EPMC International to Brava on the terms and conditions contained in the SPA.

12.The purchase price for the 6,000 shares in EPMC International was agreed at HK$9,115,397 (clause 3.01).

13.A total of HK$4,200,000 (“the first portion”) was payable by Brava to the plaintiff in three instalments on or before the completion date.  The first portion was payable in the manner and on the dates as set out at clause 3.02(i) to (iii).

14.The balance of HK$4,915,397 (“the second portion”) was payable in three instalments by 12 December 2006 in the manner and on the dates as set out at clause 3.02(v).

15.Clause 3.04 of the SPA provided that in order to ensure the payment by Brava to the plaintiff of the second portion, Brava was also obliged to provide charges in favour of the plaintiff on three properties and a guarantee by the defendant.  The three properties were a flat in Hong Kong belonging to Hui (“Hui’s Hong Kong property”), a flat belonging to the defendant in Shanghai (“the defendant’s Shanghai property”) and a flat belonging to Hui in Shanghai (“Hui’s Shanghai property”).

16.By clause 4 of the SPA it was provided that completion should take place on the completion date namely, 31 January 2004.

17.Clause 4(a) provided that the plaintiff should deliver the executed instrument of transfer in favour of Brava or its agent together with the share certificates for the shares purchased and other documents as set out therein.

18.The plaintiff was also required to arrange for the directors appointed by the plaintiff to resign their positions and to resign as employees as set out in clause 4(a)(ii) and (iii).

19.On completion Brava was obliged to deliver to the plaintiff the documents as set out in clause 4(b) which included charges on each of the three properties in favour of the plaintiff to be executed by the defendant and Hui and a deed of guarantee to be signed by the defendant.

20.It is clear from the SPA, and I so find, that on the completion date not only did Brava have to pay the first portion to the plaintiff, Brava also had to provide securities to secure the payment of the second portion.  The securities were to be a charge in favour of the plaintiff on each of the three properties and a deed of guarantee to be provided by the defendant.  

21.By the completion date of 31 January 2004, it is common ground, and I so find, that Brava had failed to pay the first portion of HK$4,200,000.  It had only paid the sum of HK$2,750,000.  Brava had also failed to deliver any of the securities to secure the payment of the second portion.  Brave had failed to deliver to the plaintiff any of the charges on the three properties.  Brava had also failed to provide the defendant’s deed of guarantee.

22.Further payments were made by Brava to the plaintiff and by June 2004 only the total sum of HK$3,321,698.11 had been paid to the plaintiff in partial payment of the first portion.  It is admitted by the defendant that from September 2003 to June 2004, Brava had paid the plaintiff the total sum of HK$3,321,698.11.

23.On 31 January 2004 Brava and the plaintiff entered into an agreement whereby it was agreed that Brava would repay to the plaintiff the total sum of HK$496,800 in instalments as set out therein for the salary of Li Suting (“the salary”) who was employed by EPMC International.

The guarantee

24.By a letter dated 20 May 2004 from the defendant to Lao Yuanhan (“Lao”), the general manager of the plaintiff, the defendant admitted that Brava had not made the payments as agreed by the SPA because of financial difficulties.  By that letter the defendant also said that Brava was sincere in proceeding with the SPA and that he would deal with the procedure in relation to the charge on the defendant’s Shanghai property and provide his personal guarantee.

25.It was agreed that the defendant would sign the guarantee on 2 August 2004.  On 30 July 2004 Lao sent a fax to the defendant in relation to the signing of the guarantee by the defendant.  In that fax Lao stated that the terms of the guarantee:

“shall be based on our previous agreement without change, except that the guaranteed amount is to be calculated with reference to the present actual figure.”

26.The calculation that was provided in the fax included the salary in the sum of HK$496,800.  Taking that into account and the amounts already paid for the purchase price of the shares, the outstanding sum owing to the plaintiff by Brava was Hk$6,290,498.89 as set out in the fax.

27.On 2 August 2004 the guarantee was signed by the plaintiff and the defendant as the guarantor.  The plaintiff was represented by solicitors Ellen Au & Co and the defendant was represented by his own solicitors Li & Partners.

Further agreements

28.There were further agreements entered into after the guarantee was provided to the plaintiff.

29.On 15 January 2005 the defendant and the plaintiff entered into an agreement to charge the defendant’s Shanghai property in favour of the plaintiff on the terms and conditions as set out therein.  The defendant was willing to charge the defendant’s Shanghai property agreement “to ensure the implementation of the [SPA]” as stated in the agreement.

30.Also on 15 January 2005 Hui and the plaintiff entered into an agreement to charge Hui’s Shanghai property in favour of the plaintiff on the terms and conditions as set out therein.  Hui was willing to charge Hui’s Shanghai property “to ensure the implementation of the [SPA]” as stated in the agreement.

31.By 21 December 2005 Brava had still not paid the first portion.  Also, it had not provided the security of the charges on the properties in favour of the plaintiff despite the agreements on 15 January 2005 to do so.

32.On 21 December 2005 a supplemental agreement (“the supplemental agreement”) was entered into between the plaintiff and Brava, the defendant and Hui whereby it was agreed that the outstanding amounts owing to the plaintiff for the purchase price of the shares including the salary be paid in kind instead of in cash in the manner and upon the terms as set out therein. 

33.It was recorded in the supplemental agreement that up to May 2005 the plaintiff had been paid HK$3,416,037.74 and that Hk$6,196,159.26 remained outstanding which included the salary but excluded interest on late payment.  To ensure payment of the outstanding balance to the plaintiff, it was agreed that payment to the plaintiff could be made in kind by transferring the defendant’s Shanghai property and Hui’s Shanghai property to the plaintiff on the terms and conditions contained therein.

34.By clause 1 of the supplemental agreement the parties agreed to continue with and to perform their obligations under the SPA.

35.By clause 3, the two Shanghai properties were agreed to be valued at RMB4,090,000.

36.By clause 5, it was agreed that one property would be transferred by 15 February 2006 and the other property by 31 March 2006.  As a security for the transfer of the two Shanghai properties, Brava, the defendant and Hui agreed to supply to the plaintiff with two full sets of original documents for two pump trucks before 31 December 2005. The set of original documents for one of the two pump trucks was to be returned to Brava, the defendant and Hui upon transfer of the Shanghai properties to the plaintiff on the dates agreed.

37.Clause 6 of the supplemental agreement is important.  It provided that if Brava, the defendant and Hui failed to complete the transfer of the Shanghai properties by the dates agreed or failed to provide the two sets of original documents for the two pump trucks by the agreed date, the payment in kind would be ineffective.  It further provided that the plaintiff would claim against Brava, the defendant and Hui for the unpaid price for the purchase of the shares, the salary and interest on late payment including instituting legal proceedings.

38.The effect of clause 6 was that if the two Shanghai properties were not transferred to the plaintiff within the stipulated time or that the two sets of original documents for the two pump trucks were not provided in time, then there would be no payment in kind and the plaintiff was at liberty to claim for the unpaid balance of the purchase price for the shares and interest.

39.On 29 December 2005 the plaintiff was provided with two full sets of original documents for two pump trucks.

40.However, on 21 February 2006, the plaintiff and Brava, the defendant and Hui entered into another agreement described as a letter of undertaking (“the undertaking”).  The undertaking was signed by the defendant for himself, Brava and Hui.  

41.By the undertaking, the plaintiff agreed to return the two sets of documents for the two pump trucks to Brava, the defendant and Hui to enable Brava to sell the pump trucks and Brava, the defendant and Hui undertook to use the sale proceeds to pay tax and to discharge the bank mortgages on the two Shanghai properties.  

42.Brava, the defendant and Hui also undertook to retrieve the certificates of ownership of the two Shanghai properties, to discharge the charges on the Shanghai properties and to complete the procedures to transfer the two Shanghai properties to the plaintiff as set out in clause 4 of the undertaking.

43.Thereafter, in April 2006 the defendant’s Shanghai property was transferred to the plaintiff at the agreed price of RMB1,523,816 which was the equivalent of HK$1,437,562.26 at the then exchange rate.  This was used to reduce the outstanding amounts to the plaintiff.

44.By April 2006, the plaintiff had received a total of HK$4,853,600 as pleaded and particularized at paragraph 11 of the statement of claim.  The defendant admitted that the plaintiff had been paid that sum by April 2006.  

45.I am satisfied on the evidence that after the payment of HK$4,853,600 by April 2006, the plaintiff has not received any further payments of the outstanding sum.  This is not disputed.

46.As I have said, the plaintiff claims the sum of HK$4758,597 together with interest as claimed against the defendant under the guarantee.

47.The defendant denies that he is liable to the plaintiff on the guarantee.

The issues

48.The defendant has raised four grounds of defence in the amended defence:

(1)  That the plaintiff was obliged to first realize the defendant’s Shanghai property, Hui’s Shanghai property and Hui’s Hong Kong property and the pump truck before bringing proceedings against him and that he would only be liable for the shortfall after realization of the same (paragraphs 8(b) to 8(d), 17, 29 to 32 of the amended defence).

(2)  That the plaintiff was in repudiatory breach of the SPA by failing to provide the share transfer documents and the share certificates to Brava and that in about early 2008 the defendant, on behalf of Brava, accepted the plaintiff’s breach whereby the SPA was terminated (paragraphs 21 to 26 of the amended defence).

(3)  Further or alternatively, that if the SPA had not been terminated by the plaintiff’s breach, then the SPA was terminated by abandonment (paragraph 26A of the amended defence).

(4)  That the defendant’s obligation under the guarantee did not cover Brava’s liability to repay to the plaintiff the salary (paragraphs 8(a), 13A and 13B of the amended defence).

49.I heard evidence from Lin Jiangong (“Lin”) and Li Sihui (“Li”) who gave evidence on behalf of the plaintiff.

50.I also heard evidence from the defendant.

51.Lin was the deputy general manager of the defendant.  He joined the plaintiff in 2001.  He retired and left the plaintiff in November 2008.  From 2002 he assisted Lao, the general manager, in handling the matters in relation to the sale and purchase of the shares in EPMC International by the plaintiff to Brava.

52.Li joined the plaintiff in 2007.  In 2009, after the retirement of Lin, Li assisted Lao in claiming the balance of the purchase price for the shares. Lao retired from the plaintiff in 2010 and Li became the general manager.

Issue (1)

53.As to issue (1),the defendant’s case is that the plaintiff was obliged to first realize the securities of the defendant’s Shanghai property, Hui’s Shanghai property, Hui’s Hong Kong property and the pump truck and that he would only be liable for the shortfall after the same had been realized.

54.There is no merit in this defence.

55.Under the SPA, by Clause 4(b) it was clearly provided that on completion Brava was to provide to the plaintiff documents in relation to the defendant’s Shanghai property, Hui’s Shanghai property and Hui’s Hong Kong property including charges in favour of the plaintiff on each of the properties.  These were never provided to the plaintiff by the completion date of 31 January 2004.

56.The plaintiff was never provided with the security of a charge on each of the defendant’s Shanghai property, Hui’s Shanghai property and Hui’s Hong Kong property at any time.  Despite the agreements dated 15 January 2005 to charge the defendant’s Shanghai property and Hui’s Shanghai property in favour of the plaintiff, I find that the charges were never created and hence, never provided to the plaintiff.  This is not disputed.

57.The defendant’s Shanghai property was later transferred to the plaintiff in April 2006 as I have said above.  The agreed price was used to reduce the outstanding sum owed by Brava to the plaintiff.  

58.The original documents for the pump trucks were also returned to Brava, the defendant and Hui under the agreement dated 21 February 2006.

59.It seems to me, and I so find, that Brava was in breach of the SPA by failing to deliver to the plaintiff the documents and the charges on the properties as required by clause 4(b) of the SPA either by the completion date or at any time thereafter.  Also, the original documents for the pump trucks were returned to Brava, pursuant to the agreement dated 21 February 2006.

60.The only security available to the plaintiff after the transfer of the defendant’s Shanghai property to the plaintiff was the guarantee.  There was no other security available to the plaintiff for the plaintiff to realise.

61.The guarantee clearly provided in clause 1 that if Brava failed to repay the debt in accordance with the SPA, the defendant as the guarantor “irrevocably and unconditionally undertakes to repay all the principal and interest of the Debt (“the Guaranteed Debt”) to [the plaintiff], with such obligation being continuous”.

62.By clause 4 it was provided that the guarantee “is a continuous guarantee, continuously and fully effective before the Guaranteed Debt is fully paid”.  It also provided that “... before the Guaranteed Debt is fully repaid, this Deed of Guarantee shall be irrevocable.”

63.Clause 5 of the guarantee also provided that the obligations of the defendant and the validity and enforceability of the guarantee shall not be affected by any of the following situations:

“(a) any time allowance or extension granted by [the plaintiff] in respect of [Brava’s] and/or [the defendant’s] debt obligations;

(b) any amendment of [the SPA]; and

(c)  ………………………………………………….”

64.Unless there is an express term in the contract requiring him to do so, there is no obligation on the part of a creditor to commence proceedings against the principal debtor or realise other securities that he may have before looking to the surety for payment under a guarantee (Andrews and Millett’s “Law of Guarantees” 6^th Edn, paragraph 7 – 009).

65.In China and South Sea Bank Ltd v Tan Soon Gin (alias George Tan) [1990]1 AC 536 the creditor made an advance to the debtor and the surety guaranteed repayment of the principal sum and interest.  As security for the loan, a company mortgaged to the creditor shares allegedly worth twice the sum claimed.  The debtor defaulted on the date for repayment, and although the shares were then still worth more than the loan the creditor did not exercise its power of sale under the mortgage.  After the shares became worthless the creditor demanded payment of the principal sum and interest from the surety and brought an action against him.

66.The Privy Council held that the creditor held no duty to the surety to exercise its power of sale over the mortgaged securities and could decide in its own interest whether to sell and when to do so, and since the creditor had done no act injurious to the surety or inconsistent with his rights, nor failed to perform any act which it was under a duty to do, the surety had no arguable defence to the creditor’s claim under the guarantee.

67.As Lord Templeman said at page 545C – D:

“The creditor had three sources of repayment. The creditor could sue the debtor, sell the mortgage securities or sue the surety. All these remedies could be exercised at any time or times simultaneously or contemporaneously or successively or not at all.”

68.Lord Templeman also said at page 545F – G:

“The surety contracts to pay if the debtor does not pay and the surety is bound by his contract.”

69.The guarantee does not state that the plaintiff must realise other securities before proceeding against the defendant.  As I have said, apart from the guarantee, Brava, in breach of the SPA, did not provide the other securities to the plaintiff at any time.  There were no other securities for the plaintiff to realise before proceeding against the defendant as the guarantor.

70.There is no merit in the defence raised.  Issue (1) is resolved in favour of the plaintiff.  

Issue (2)

71.The defendant’s case is that the plaintiff was in repudiatory breach of the SPA by failing to deliver to Brava the share transfer documents and the share certificates for the EMPC International shares purchased by Brava under the SPA.

72.By paragraph 21 of the amended defence the defendant pleads that the plaintiff had received HK$200,000 and pursuant to Clause 2.02 of the SPA the plaintiff was by that time obliged to execute all documents in relation to the transfer of the shares.

73.By paragraph 22 of the amended defence, the plaintiff pleads that further or alternatively, by April 2006 the plaintiff had cumulatively received HK$4,200,000 and pursuant to the SPA the plaintiff was obliged to comply with its obligations under clauses 3.02(iv), 3.06, and 4(a)(i) to (iii) of the SPA.

74.I am satisfied that there is also no merit in this ground of defence.

75.Clause 2.02 of the SPA provided that:

“The purchase of all the Shares must be completed simultaneously (delivery versus payment), i.e. [the plaintiff] shall sign all the relevant documents in relation to the transfer of the Shares of [EPMC International] and [Brava] shall at the same time pay the down payment in cash or cashier’s order.”

76.Clause 3.02(iv) provided that:

“On or before 31^st January 2004, after [Brava] has complied with and fulfilled the terms in (i),(ii) and (iii) above by paying to [the plaintiff] the whole first payment i.e. four million and two hundred thousand Hong Kong Dollars (HK$4,200,000) as part of the consideration for the sale of the Shares, and upon [the plaintiff] confirming receipt of the above payments in the total sum of four million and two hundred thousand Hong Kong Dollars (HK$4,200,000), [the plaintiff] shall immediately sign the share transfer instrument to [Brava].”

77.Clause 3.06 provided that seven working days before the completion date each of the plaintiff and Brava should arrange for the documents set out therein to be delivered to the other party’s lawyer for review and approval.

78.Clause 4 provided for completion on 31 January 2004.  

79.As I have said above, clauses 3.01 and 3.02 of the SPA provided that the consideration payable for the shares be paid in two portions:

(a) the first portion in the total sum of HK$4,200,000 to be paid by 31 January 2004; and

(b) the second portion in the sum of HK$4,915,397 by 12 December 2006.

80.Clause 4 of the SPA clearly provided that on completion on 31 January 2004 the first portion should be paid in full to the plaintiff in the amount of HK$4,200,000.  As I have said, Brava was also obliged on completion to provide security to the plaintiff for the payment of the second portion.  Brava was obliged to provide the plaintiff with the documents including a charge in the plaintiff’s favour on each of the three properties and a deed of guarantee to be signed by the defendant as guarantor. 

81.On completion the plaintiff was obliged to provide Brava with the documents in relation to the transfer of the shares to Brava.  The documents to be delivered by the plaintiff on completion included the executed instruments of transfer in favour of Brava together with the share certificates for the shares in EPMC International.

82.The obligations of the plaintiff and of Brava on completion are, in my judgment, concurrent obligations.  Delivery versus payment means delivery against payment.  I find that on the proper construction of the SPA unless Brava was ready and willing to comply with its obligations on completion the plaintiff was not obliged to comply with its obligations.

83.There is no dispute that Brava failed to pay the first portion of HK$4,200,000 by the completion date 31 January 2004.  Brava also failed to provide the securities required for the payment of the second portion and the other documents that it was obliged to deliver on completion.

84.On the evidence, the plaintiff did not deliver the instruments of transfer and the share certificates of the shares purchased under the SPA to Brava either on 31 January 2004 or at any time thereafter.  This is not disputed. The plaintiff was not obliged to do so as Brava was not ready and willing to comply with its obligation either on 31 January 2004 or at any time thereafter.  I so find.

85.I find that the plaintiff was not in breach of the SPA by failing to execute the documents in relation to the transfer of shares either by September 2003 as pleaded at paragraph 21 of the amended defence when it received HK$200,000 or by the completion date of 31 January 2004.

86.Although completion did not take place on 31 January 2004, it is clear on the evidence that the parties proceeded with the SPA as is evidenced by the guarantee provided to the plaintiff on 2 August 2004 and the further agreements entered into by the parties.

87.By April 2006 when the plaintiff had received the total sum of HK$4,850,000, which was more than the first portion of HK$4,200,000, the plaintiff was also not obliged at that time to deliver the instruments of transfer and the share certificates together with the other documents that it was obliged to deliver on completion.  Although the plaintiff had received HK$4,850,000, Brava was still not ready and willing to deliver all the securities to the plaintiff for the payment of the second portion that Brava was obliged to deliver to the plaintiff on completion.  It is clear that by that time the guarantee had been provided and the defendant’s Shanghai property had been transferred to the plaintiff, but the charges in favour of the plaintiff on Hui’s Shanghai property and on Hui’s Hong Kong property were never provided to the plaintiff at any time.

88.According to the land search in evidence, Hui’s Hong Kong property was transferred to a third party in 2006.

89.As regards Hui’s Shanghai property, this was also transferred to a third party in 2009.

90.I find that the plaintiff was not in breach of the SPA and that the SPA was not terminated by the plaintiff’s breach as alleged by the defendant.

91.Issue (2) is resolved in favour of the plaintiff.

Issue (3)

92.The defendant’s case is that if the SPA had not been terminated by the plaintiff’s breach, then the SPA was terminated by abandonment.

93.This is pleaded at paragraph 26A of the amended defence.  It is alleged that since March 2007 the plaintiff took no action with respect to the performance of the SPA.  In particular, it is alleged that the plaintiff did not contact or take action against Brava, the defendant and Hui with respect to the second portion and the salary.  It is also alleged that Brava did not pay the salary or any outstanding part of the second portion since April 2006 and since 2007 Brava did not chase the plaintiff for the performance of the SPA after the plaintiff received the first portion.

94.It is pleaded that:

“In the premises, both the Plaintiff and Brava by conduct indicated their intention not to perform the [SPA] anymore, and hence the [SPA] was terminated by abandonment.”

95.Chitty on Contracts 31^st edn, vol 1 at paragraph 22 – 027 states:

“It is open to the court to infer that the parties have mutually agreed to abandon their contract where the contract has been followed by a long period of delay or inactivity on both sides. The party seeking to establish abandonment of a contract must show that the other party so conducted himself as to entitle him to assume, and that he did assume, that the contract was agreed to be abandoned sub silentio.”

96.There is a dispute of fact as to what steps were taken by the plaintiff after April 2006.

97.The defendant gave evidence that since March 2007 neither Lin nor Lao ever contacted him about the outstanding amounts owing by Brava.  This is disputed by Lin.  

98.Lin gave evidence that he and Lao repeatedly called the defendant in 2007 and 2008 to ask the defendant to pay the outstanding amounts but the defendant ignored their calls and was evading them.  He said that the defendant occasionally picked up the phone but was evasive and adopted delaying tactics.  This was denied by the defendant who said that Lao and Lin did not contact him. 

99.I prefer the evidence of Lin to that of the defendant on this dispute of fact.  I accept Lin’s evidence and reject the defendant’s evidence.

100.Lin also gave evidence that despite the transfer of the defendant’s Shanghai property to the plaintiff in April 2006, possession and the keys to the property were not handed over to the plaintiff until April 2008.  By a letter dated 17 March 2008 the plaintiff wrote to the defendant stating that despite repeated demands by the plaintiff, the defendant had failed to deliver up possession of the defendant’s Shanghai property and asked the defendant to deliver up the same around 30 April 2008.  Lin gave evidence that the said letter was sent to the defendant’s office address in Shanghai.  However, the letter was not delivered but returned to the plaintiff.

101.Lin gave evidence that he and a Ms Zhang of the plaintiff were then sent by Lao to Shanghai to obtain the possession of the defendant’s Shanghai property.  Lin and Zhang went to Shanghai on 21 April 2008.  Lin said that the defendant sent a woman to hand over the keys to the property and the utility bills. I believe Lin and accept his evidence.  The defendant accepted that the keys of the defendant’s Shanghai property were handed over to the plaintiff in about March 2008.

102.I would observe that the defence of abandonment was not raised until the defendant filed and served his amended defence on 8 October 2013.  That was the first time that the defendant ever raised the defence of abandonment.

103.Li gave evidence that in 2009 he instructed lawyers in the Mainland to commence an action in the Shanghai Municipal Luwan People’s Court (“the Mainland action”) to claim damages against Hui for her breach of the agreement dated 15 January 2005. By that agreement Hui had agreed to charge Hui’s Shanghai property in favour of the plaintiff but she failed or refused to do so in breach of the said agreement.  Instead, Hui had transferred Hui’s Shanghai property to a third party. 

104.The documentary evidence shows that the plaintiff failed in its claim in the Mainland action against Hui.  The plaintiff appealed to the Shanghai Municipal Second Intermediate People’s Court but by a judgment dated 20 December 2012 that court dismissed the plaintiff’s appeal for the reasons given in the judgment.

105.The plaintiff commenced this action against the defendant on 7 December 2011 to claim against him as guarantor under the guarantee.

106.There is no merit in the suggestion that the plaintiff has abandoned its claim for the outstanding amounts.

107.As Brava was struck off the register in May 2008, it was not possible for the plaintiff to bring proceedings against Brava for the outstanding amounts.

108.The fact that the plaintiff chased the defendant for the possession of the defendant’s Shanghai property and obtained possession of the same in April 2008, brought proceedings in 2009 in the Mainland action against Hui and brought these proceeding in December 2011 against the defendant clearly shows that the plaintiff did not abandon the claims against Brava and the defendant as guarantor as alleged.  I so find.

109.There is no documentary evidence at all supporting the defendant’s case that Brava ever considered that the plaintiff’s claims for the outstanding amounts were abandoned.  I would also observe that the plea of abandonment was only raised for the first time in the amended defence dated 8 October 2013.

110.I reject the defence of abandonment.  There is also no merit in this defence.

111.Issue (3) is also resolved in favour of the plaintiff.

Issue (4)

112.The defendant’s case is that his obligations under the guarantee did not cover Brava’s liability to repay the salary to the plaintiff (paragraph 8(aa) of the amended defence).

113.By paragraphs 13A and 13B of the amended defence the defendant avers that the amount of HK$6,290,498.98 appearing on the guarantee was erroneous as it included the salary and that the figure should be HK$5,793,698.89.  He plelads that the guarantee should be rectified so that the figure of HK$6,290,498.89 should be read as HK$5,793,698.89.  In other words, the defendant’s case is that the salary of $496,800 should be deducted from the figure of HK$6,290,498.89 in the guarantee.

114.There is no counterclaim asking for an order for rectification of the guarantee.

115.It is plain that the defendant was represented by his own solicitors when the SPA and the guarantee were entered into.  The defendant had the benefit of legal advice from his own solicitors before he signed the SPA and the guarantee.

116.The guarantee clearly stipulated in recital (1) that the debt was HK$6,290,498.89.  That figure was the same figure as the outstanding sum set out in the letter faxed to the defendant by Lao of the plaintiff on 30 July 2004, a few days before the date of the guarantee of 2 August 2004.  The outstanding sum in the said letter clearly included the salary of $496,800.  After taking into account the amounts paid by that date, the outstanding sum was HK$6,290,498.89 which is the same sum as the debt in the guarantee.

117.It is clear, and I so find, that the defendant must have known that the outstanding sum of HK$6,290,498.89 included the salary and that he agreed to guarantee the repayment to the plaintiff of the debt in the outstanding sum of HK$6,290,498.89 with interest to the plaintiff by clause 1 of the guarantee.

118.In his written proposal to the plaintiff by his letter dated 13 November 2006 the defendant admitted that the outstanding sum at that time was HK$4,758,597.  This included the salary.

119.By his letter dated 13 November 2006 the defendant wrote to Lao of the plaintiff as follows:

“About Payment of the Price for Sale and Purchase of Shares

My company’s development in the recent two years has been affected by state policies and market conditions and our cash flow and production encountered many difficulties. In respect of resolving the sale and purchase with your company, unexpected events have also happened, making my company very passive.

Regarding your company’s support and tolerance towards my company, I am very grateful but also feel ashamed.  In order to swiftly resolve the remaining HK$4,758,597, I propose the following arrangement… ”

120.The defendant then set out his proposals in the said letter for the plaintiff to accept.  The plaintiff did not accept his proposals.  However, by the said letter the defendant clearly admitted that the outstanding sum at that time was HK$4,758,597.  This is the same sum that the plaintiff says remains outstanding.

121.Also, in her letter of undertaking dated 30 November 2006 signed by Hui, Hui also admitted that as of 30 November 2006 the same sum of HK$4,758,597 remains payable by Brava to the plaintiff.

122.By paragraph 14 of the statement of claim, it is pleaded that the outstanding principal sum as at 31 October 2011 was HK$4,758,597.  Brava had paid the total of HK$4,853,600 as pleaded at paragraph 11 of the statement of claim.  The outstanding sum was therefore HK$4,758,597 (HK$9,612,197 – HK$4,853,600) which included the salary.

123.There is no merit in the allegation that the guarantee should be rectified as alleged.  I would also observe that this allegation was also only made for the first time in the amended defence dated 8 October 2013.

124.Issue (4) is also resolved in favour of the plaintiff.

125.Although the plaintiff has granted indulgence to Brava in making late payments for the partial payments of the purchase price for the shares, by clause 5 of the guarantee it was agreed that the obligations of the defendant as guarantor and the validity and enforceability of the guarantee should not be affected by, inter alia, any time allowance or extension granted by the plaintiff in respect of Brava and/or the defendant’s debt obligations.

126.I am satisfied that the plaintiff is entitled to judgment against the defendant as guarantor.  I am satisfied that the plaintiff is entitled to the total outstanding principal in the said sum of HK$4,758,597.

127.I am also satisfied that the plaintiff is entitled to accrued interest as of 31 October 2011 in the total sum of HK$2,132,781.32 as pleaded and particularized at paragraph 14 of the statement of claim.  This is in accordance with the provisions for the payment of interest at 6% per annum for the late payment of the second portion as set out in clause 3.02(v) of the SPA.

128.As pleaded at paragraph 14 of the statement of claim, the total accrued interest as at 31 October 2011 is made up as follows:

129.As set out at paragraph 10 of the statement of claim, after the defendant transferred the defendant’s Shanghai property to the plaintiff in April 2006 at the agreed price which was equivalent to HK$1,437,562.26, it was used to partially set off the second portion and the salary of which HK$1,280,762.26 was used to pay off the first portion and the salary and HK$156,800 was used to partially pay off the first instalment of the second portion.

130.I give judgment to the plaintiff against the defendant for:

(1)  HK$4,758,587 being the outstanding principal sum owing to the plaintiff;

(2)  HK$2,132.781.32 being the accrued interest as at 31 October 2011; and

(3)  further interest on the said sum of HK$4,758,597 at the rate of 6% per annum from 1 November 2011 until judgment.

131.I also make an order nisi that the defendant do pay the plaintiff its costs of the action, such costs to be taxed if not agreed.

Mr George Hui, instructed by Gallant YT Ho & Co, for the plaintiff

Ip Pui Lam, the defendant, appeared in person