IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 463 OF 2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 2339 of 2007
Before: Hon Chung J in Chambers
Date of Hearing: 20 November 2008
Date of Handing Down Judgment: 16 December 2008
J U D G M E N T
1. These are the plaintiffs’ summonses taken out on 16 May 2008 pursuant to RHC Ord. 14.
2. The parties herein were also some of the parties in HCA 1944/2005 (“A1944/2005”). Arguments related to that action have been raised in this application; it will be referred to below when necessary.
3. These actions (commenced in March 2006 and November 2007) arise out of the sale by the plaintiffs of part of their shares in the3rd defendant, Advance Pharmaceutical Co. Ltd. (“AP”) to the 1st defendant, Asialand Ltd. (“Asialand”). The agreement was dated 17 September 2002 (“the said agreement”). The 2nd defendant (“Cheng”) was the guarantor under the said agreement.
4. Not only did Asialand purchase shares in AP from the plaintiffs, Asialand also entered into 2 other agreements with AP’s 2 othershareholders to do the same (on similar terms as the said agreement).
5. The first tranche of the share transfer from the plaintiffs was effected in September 2002. The remainder of the shares was orderedto be transferred to Asialand by the court in A1944/2005 in January 2007.
Para. (a) and (c) of the Summons
6. This part of the claim concerns the tax investigation conducted by the Inland Revenue Department (“IRD”) against AP and one of its subsidiaries, Loyal Advance Ltd (“Loyal”). Apparently the investigation was already known to the parties to the said agreement in September 2002.
7. Clause 8 of the said agreement provides (among other things):-
8. In brief, the prayer for relief seeks monetary judgment in the said sum of $10 million against Asialand and Cheng.
9. By the hearing of this application, the plaintiffs confirmed that the said sum had been fully repaid. This aspect of their claimtherefore only concerns the related costs of this action (including this application).
10. Essentially two lines of defence are raised in this application:-
11. In relation to sub-para. (b), I agree with the defence it is arguable the stake-holder was keeping the said sum as a principal,and not as the agent of Asialand: Bowstead & Reynolds on Agency (2006) 18th Ed., para. 9-026.
12. The gist of the plaintiffs’ argument is that there was an implied term:-
and Asialand has breached that term by failing to do so.
13. By reason of the matters set out above, whether such a term should be implied into the said agreement can only be resolved properlyafter trial.
14. In relation to sub-para. (a) above, it is common ground the stake-holder wrote to the IRD on 11 January 2008 to seek confirmationthat the tax audit of AP and Loyal had been completed and the IRD expressly so confirmed on 21 January 2008.
15. I agree with the defence it is also arguable if this part of the plaintiffs’ claim has been prematurely commenced in March 2006.
16. Because Asialand’s liability is arguable, the liability of Cheng as a guarantor is also arguable.
17. To conclude, I do not consider it appropriate to make a costs order in the plaintiffs’ favour in the context of this application. I decline the invitation of the defence to make a costs order in its favour (as if concluding this part of the action will be dismissedat the end). It is inappropriate, in the context of an Ord. 14 application, to attempt such kind of determination. It may be appropriateto do so if this were an Ord. 14A application (where I have jurisdiction (if and when appropriate) to make an order for or againstan applicant).
Para. (b) and (d) of the Summons
18. This part of the claim is founded on clause 11 which in gist provides:-
19. The plaintiffs allege that [Asialand] failed to cause AP (i) to issue financial reports or (ii) to declare or pay dividends (exceptfor the year ending 31 March 2004). This part of this application seeks interlocutory judgment against Asialand for breach of thesaid agreement.
20. The defence raised in this application is in short:-
21. There is evidence which (at least arguably) can support the above lines of defence.
22. Because Asialand’s liability is arguable, the liability of Cheng as a guarantor is also arguable.
Para (e) of the Summons
23. This is a claim for final judgment of $1.5 million to be entered against AP. The re-amended statement of claim pleads that:-
It is also pleaded the plaintiffs have entered into the said agreement but AP failed to pay the said sum.
24. The terms of a document dated 17 September 2002 expressly state that AP was to pay (besides another sum) $1.5 million. While themeaning of those terms is undisputed, the defence is essentially that there was no consideration in support of the promise to pay. It is alleged the document was executed before the execution of the said agreement.
25. This part of the plaintiffs’ case is plausible and prima facie sustainable: Toy Major Trading Co. Ltd. v. Plastic Toys Ltd., CACV 11/2007 cited in Hong Kong Civil Procedure 2008, para. 14/4/4. This is because, besides AP’s promise to pay $1.5 million, the said document also expressly provided for the paymentof a sum referrable to the dividends payable by AP.
26. It is trite law a mere assertion by the defendant is insufficient; the defendant’s affidavit must “condescend upon particulars”:Hong Kong Civil Procedure 2008, para. 14/4/4.
27. The evidence adduced by the defence is inadequate. Apart from asserting that the said document was executed afterwards, no explanationhas been given regarding the reasons why, and the circumstances under which, the said document was executed. Nor was there explanationas to why AP promised to pay the said sums.
Para. (f) of the Summons
28. This is also a claim against AP for the sums of $333,333.33, $275,000 and $400,000 (total $1,008,333.33) (collectively “the said 3 sums”). It arises as follows.
29. As stated above, the IRD conducted a tax investigation against AP and Loyal. The plaintiffs and the other vendors of AP’s sharestogether deposited with the IRD a sum to meet any liability on AP’s part for tax and penalties assessment. Subsequently, the IRDrefunded part of the said sum to AP after deducting the tax and penalties imposed against AP. It is common ground the said 3 sumswere the part of the refund earlier advanced by the plaintiffs.
30. The sums of $333,333.33 and $275,000 were paid to the IRD before the execution of the said agreement. In relation to those sums,the defence relies on clause 4 of the said agreement which stipulated:-
31. Because those 2 sums were in the nature of loans advanced by the plaintiffs in AP’s favour, the defence contends that the plaintiffsshould be taken to have waived those 2 sums.
32. Whether the above contention is valid depends on how the word “loan” in clause 4 should be construed. The plaintiffs arguethat the word should not cover:-
On the other hand, the defence argues that word should cover any payment in the nature of a loan as between the plaintiffs and AP.
33. It is settled that:-
(Marble Holding Ltd. v. Yatin Development Ltd.  4 HKLRD 950, para. 20 quoting Jumbo King Ltd. v. Faithful Properties Ltd. and Others (1999) 2 HKCFAR 279, 296).
34. It is not proper to conduct a minute examination of the factual details in an Ord. 14 application: Hong Kong Civil Procedure, para. 14/4/9 (especially at p. 191).
35. With that approach in mind, this is a line of defence which is arguable.
36. The sum of $400,000 was admittedly paid after the execution of the said agreement, and hence clause 4 has no application. In relationto this sum, the defence relies on AP’s counterclaim in the sum of $1,413,719.64 ($760,719.64 + $653,000); alternatively, $961,022.70($326,022.70 + $635,000).
37. Whether the counterclaim can be relied on depends on whether it is barred under the doctrine of issue estoppel. The plaintiffs’argument is that the counterclaim has already been determined in their favour in A1944/2005. The defence argues that there is noissue estoppel.
38. AP’s counterclaim consists of the following:-
Details relating to the above sums have been set out in a report compiled by Messrs. Deloitte.
39. Because of the issue raised, it is necessary to summarize the judgment dated 31 January 2007 handed down in A1944/2005 (“the Jan 07 judgment”).
40. Asialand, AP, Lam and one New Rainbow Overseas Incorporated were also the parties in A1944/2005. According to the Jan 07 judgment,AP sued to recover overpaid dividends while Asialand sued to recover overpaid purchase price. The cause of action relied on wasfraudulent or reckless misrepresentation.
41. The Jan 07 judgment concerned an application to strike out (among other things) the part of the claim based on fraudulent or recklessmisrepresentation. The deputy judge was not satisfied that there was a representation relating to the correctness or accuracy ofthe accounts, or that any representation was made to Asialand. The part of the Jan 07 judgment which the plaintiffs emphasise is:-
The reference to “pay the same out of their own pockets” refers to the sum of $635,000 paid by each of the other 2 vendors ofthe shares. “Mr Lam” therein refers to the 1st plaintiff herein.
42. I agree with the plaintiffs the part of the Jan 07 judgment quoted above shows that the court has in effect decided against AP’scounterclaim. The basis of the determination was not only about the lack of misrepresentation or the identity of the representee,but also that the representee did not rely on any representation.
Para. (g) of the Summons
43. This is a claim against Loyal for $190,000. The defence concedes liability for $137,750 (in its opposing affirmation, and confirmedby counsel during the hearing). The plaintiffs are willing to abandon the difference ($52,250).
44. In view of the matters set out above, final judgment will be entered in the plaintiffs’ favour in relation to:-
There will be unconditional leave to defend the remainder of the plaintiffs’ claim.
45. The paragraph numbering of the 2 summonses differs slightly. The paragraph numbers set out above refer to those in the summonstaken out in HCA 463/2006; but the relief sought in the summons taken out in HCA 2339/2007 is essentially the same. This judgmentapplies equally to the latter summons subject to appropriate modifications to the paragraph numbers therein.
46. In view of the partial success, it is inappropriate to make any costs order nisi pursuant to Ord 42 r 5B(6). The parties are invited to lodge with court and serve their respective written submissions on costswithin 7 days from the date of handing down of judgment.
Ms Audrey Eu, SC leading Mr Simon Yip, instructed by Messrs Lau, Kwong & Hung, for the Plaintiffs in both actions
Mr Paul Shieh, SC leading Ms Lina Chan, instructed by Messrs S. K. Lam, Alfred Chan & Co., for the Defendants in both actions