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Castle Global Ltd v Ip Tai Hoi Paul

Judgment Cited authorities 5 Cited in Precedent Map Related
Vincent
Judgment Date22 October 2021
Neutral Citation[2021] HKCA 1540
Year2021
Judgement NumberCACV255/2020
Subject MatterCivil Appeal
CourtCourt of Appeal (Hong Kong)
CACV255/2020 CASTLE GLOBAL LTD v. IP TAI HOI PAUL

CACV 255/2020

[2021] HKCA 1540

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 255 OF 2020

(ON APPEAL FROM HCMP NO 645 OF 2019)

_______________

IN THE MATTER of a Provisional Agreement dated 11 January 2019 for Sale and Purchase of the Entire Issued Share Capital of Kingstate Inc Limited

_______________

BETWEEN
CASTLE GLOBAL LIMITED Plaintiff

and
IP TAI HOI PAUL (葉泰海) Defendant

_______________

Before: Hon Kwan VP, Cheung and Au JJA in Court

Date of Hearing: 9 February 2021 (remote hearing)

Date of Judgment: 22 October 2021

_______________

J U D G M E N T

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Hon Au JA (giving the Judgment of the Court):

A. INTRODUCTION

1. This is the defendant’s appeal against the judgment of Recorder Yvonne Cheng SC (“the Recorder”) dated 15 June 2020 (“the Judgment”).

2. By way of the Judgment, the Recorder allowed the plaintiff’s claim against the defendant for his breach of a provisional sale and purchase agreement in relation to the plaintiff’s purchase of all the shares in the defendant’s company which in turn owned a landed property. The Recorder ordered the defendant to refund the plaintiff’s deposit and further pay an equivalent sum as the agreed compensation provided in clause 16(b) of that agreement.

B. BACKGROUD

3. The undisputed background leading to this appeal has been summarized by the Recorder at [4] - [16] of the Judgment. We will only highlight the following that are relevant to this appeal.

4. By way of a provisional agreement dated 11 January 2019 (“the Agreement”), the plaintiff agreed to acquire the defendant’s entire issued share capital in Kingstate Inc Limited (“the Company”) with a view to purchase its only asset, a property at Unit C on the 21st Floor of Tower 3, Grand Austin and car parking space number 2‑64 on Basement 2 Floor, Grand Austin[1]. It is not in dispute that all the terms of the Agreement remained valid and in full force as there was no subsequent formal agreement executed by the parties.

5. As stated at [8] of the Judgment, the relevant clauses of the Agreement are these:

“Clause 2

…

(c) Completion … shall take place … on 11-4-2019….

Clause 4

Completion is condition upon the following.

(a) the Purchaser having completed his due diligence investigation on the business, financial, legal and all other aspects of the Company and reasonably satisfied with the results thereof;

(b) all the representations, undertakings and warranties given by the Vendor under this Agreement and the Formal Agreement are and shall remain true, accurate, correct in all material respects up to the Completion.

If any of the foregoing conditions is not reasonably fulfilled (or waived by the Purchaser) on or before the Completion Date, the Purchaser shall be entitled by not less than 7 business days’ prior written notice to cancel the transaction under this Agreement whereupon the Vendor shall return all the deposit paid to the Purchaser forthwith and neither party shall be entitled to claim against other party for any reliefs.

Clause 5

To facilitate the carrying out of the due diligence investigation by the Purchaser, the Vendor hereby undertakes to deliver to the Purchaser or the Purchaser’s solicitors all documents relating to the Company for the past 7 years in his possession within 30 days from the date of this Agreement. The Purchaser shall carry out the due diligence investigation and confirm in writing to the Vendor or the Vendor’s solicitors whether he is reasonably satisfied with the results of such due diligence investigation within 14 days after the date of delivery of all documents by the Vendor or the date of delivery of such further documents reasonably requested by the Purchaser. If the Vendor does not receive the Purchaser’s confirmation in writing on or before the aforesaid deadline, the Purchaser shall be deemed to be reasonably satisfied with the results of the due diligence investigation. If the Purchaser discovers during the reasonably due diligence investigation period that there is any material problem, the Vendor shall use his reasonable endeavour to remedy the same as soon as possible before the Completion Date.

Clause 8

Upon completion and upon payment of the Balance of Purchase Price by the Purchaser, the Vendor shall:

…

(k) deliver to the Purchaser all the audited accounts of the Company for up to the past seven (7) financial years to the end of the latest financial year and the management account of the Company as at the Completion Date which must be certified as true and correct by the director of the Company. The aforesaid audited accounts shall be delivered to the Purchaser for verification within one month after the date of this Agreement and the draft of the said management account as at the Completion Date shall be delivered to the Purchaser for verification not less than 5 days prior to the Completion Date. The Vendor shall be responsible for the costs and expenses incurred for the preparation of the audited accounts and management account;

…

Clause 16

(a) Should the Purchaser fail to complete the purchase in accordance with the terms of this Agreement, the Vendor shall be entitled to forfeit the deposits paid absolutely as liquidated damages and terminate this Agreement and then sell the Sale Share and the Shareholder's Loan to anyone he thinks fit and the Vendor shall not take any action to claim against the Purchaser for any further liabilities and/or damages nor for specific performance of this Agreement.

(b) Should the Vendor after receiving the deposits paid hereunder fail to complete the sale in accordance with the terms of this Agreement, the Vendor shall immediately refund the deposits paid to the Purchaser and compensate the Purchaser with a sum equivalent to the amount of the deposits as liquidated damages and the Purchaser shall not take any further action to claim for damages or enforce specific performance.

Clause 21

Unless otherwise specified herein, time shall in every respect be of the essence of this Agreement.” (emphasis added)

6. Hence, under clause 8(k) of the Agreement (“clause 8(k)”), the defendant as the vendor shall deliver to the plaintiff (a) the Company’s audited accounts for the past seven years within one month of the Agreement (ie, by 11 February 2019), and (b) the draft management accounts of the Company as at completion date five days before that date.

7. After the Agreement:

(1) The plaintiff paid the initial and further deposits at the total amount of HK$ 5.2 million under clauses 2(a) and 2(b);

(2) On 28 January 2019, the defendant’s solicitors Messrs Wat & Co (“WC”) provided various corporate documents and account records of the Company to the plaintiff’s solicitors Messrs Terry Yeung & Lai (“TYL”) for due diligence investigation purpose;

(3) On 29 January 2019, the parties agreed to advance the completion date from 11 April 2019 to 28 February 2019;

(4) By a letter dated 8 February 2019, TYL raised a number of requisitions after reviewing the documents and asked for, among others, (i) under item B1, the Company’s accounting documents for the financial year ended 31 December 2018; and (ii) under item B10, the completion management account “not less than 5 days prior to the completion date”;

(5) On around 25 February 2019, the plaintiff deposited the balance of the purchase money to TYL;

(6) On 26 February 2019, in response to the requisitions, WC provided further documents to TYL and stated that (a) they “shall revert to you shortly” to requisitions raised under item B1, and (b) they “noted” the request made under item B10;

(7) In light of the outstanding and unsatisfactory answers to the requisitions, by a letter dated 27 February 2019 (“the 27 February Letter”), TYL wrote to WC proposing to postpone the completion date to 14 March 2019 with all the terms and conditions of the Agreement to remain unchanged. WC accepted the proposal on the same date;

(8) By a letter dated 26 February 2019, WC sought to provide TYL with further answers to the various outstanding requisitions and requests;

(9) By a letter dated 11 March 2019 (“the 11 March Letter”) to WC, TYL referred to WC’s answers provided in their 26 February 2019 letter and further stated that the Company’s audited accounts for the year ending 31 December 2018 (the “2018 Audited Accounts”) and draft completion management accounts (the “Draft Management Accounts”) were still outstanding despite the fact that the completion date was approaching. It further reminded the defendant that “time is of the essence” as stated in the 27 February Letter and stated that the plaintiff was considering the possibility of accepting the defendant’s wrongful repudiation of the Agreement;

(10) On 12 March 2019, TYL wrote to WC to accept the defendant’s wrongful repudiation and terminate the Agreement.

8. The plaintiff thereafter brought the present claim against the defendant. It is plaintiff’s case that the defendant was in breach of clause 8(k) in failing to deliver the 2018 Audited Accounts and the Draft Management Accounts, which breach was accepted by the plaintiff on 12 March 2019. The plaintiff therefore claimed a refund of the deposit and liquidated damages of the same amount pursuant to clause 16(b) of the Agreement.

9. The defendant raised a number of defences against the plaintiff’s claim. These defences were summarized by the Recorder at [18] of the Judgment as follows:

(1) The conditions precedent to completion under clause 4 of the Agreement (namely, completion of due diligence by the plaintiff) had not been fulfilled, or alternatively, waived by the plaintiff;

(2) The 11 March Letter raised fresh requisitions, and the defendant was given insufficient time to answer...

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