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Eminent Investments (Asia Pacific) Ltd v Dio Corporation

Judgment Cited authorities 16 Cited in Precedent Map Related
Vincent
Judgment Date23 September 2016
Year2016
Judgement NumberHCA1292/2011
Subject MatterCivil Action
CourtHigh Court (Hong Kong)
HCA1292/2011 EMINENT INVESTMENTS (ASIA PACIFIC) LTD v. DIO CORPORATION

HCA 1292/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1292 of 2011

________________________

BETWEEN
EMINENT INVESTMENTS (ASIA PACIFIC) LIMITED Plaintiff
and
DIO CORPORATION Defendant

________________________

Before: Mr Recorder Shieh SC in Court
Date of Hearing: 2 – 5, 8 – 12, 15 December 2014 24 and 25 March 2015
Date of Judgment: 23 September 2016

_____________________

J U D G M E N T

_____________________

Nature of the claim

1. The plaintiff in this action (“Eminent”) is a Hong Kong company which used to carry on the business of providing financial advisory and consulting services. It ceased carrying on business in or around March 2010. The defendant (“DIO”) is a South Korean company carrying on the business of producing and marketing dental implant devices, related equipment and accessories.

2. In this action Eminent claims against DIO certain sums due pursuant to a Financial Advisory Agreement (“FAA”) dated 10 October 2008and an Addendum to the FAA (“Addendum”) signed on 15 January 2009.

3. By way of defence DIO contended as follows:

(1) The FAA was induced by misrepresentation and that the FAA (and the Addendum) has been rescinded on the ground of such misrepresentation.

(2) The FAA and the Addendum had been terminated on the ground of repudiatory breach.

(3) In any event as a matter of construction, Eminent is not entitled to the fees claimed.

4. On the pleadings there was originally an illegality plea by way of defence, to the effect that the FAA and the Addendum was illegal and unenforceable because of contraventions by Eminent of certain provisions ofthe Securities and Futures Ordinance (Cap 571). However, DIO indicated in its written opening that the illegality defence would no longer be relied upon.

5. DIO also has a counterclaim against Eminent for refund of various amounts paid under the FAA and the Addendum, consequential upon rescission of the FAA and the Addendum.

Background facts

6. The underlying facts of this case, insofar as they are undisputed or indisputable, are as follows.

7. The key driving force behind Eminent is Mr Kane Yang (“Kane Yang”), a Korean who received his College education in the United States.

8. The President and Chief Executive Officer of DIO is Mr Jin Beak Kim (“CEO Kim”). His elder brother Mr Jin Cheol Kim (“Chairman Kim”)was the founder and Chairman of DIO.

9. In June 2007, a company called DSI Co Ltd (“DSI”), the predecessor of DIO (the details of how DSI merged with another company to become DIO are not strictly relevant for present purposes) issued US$27,000,000 convertible bonds to raise cash (“the Bonds”). A companycalled DKR Soundshore Oasis Hong Kong Limited (“DKR”) held some of the Bonds. DKR’s holding of such Bonds would be the subject matter ofcertain transactions called Rain III and Rain IV as described further below.

10. In about mid‑2008, DIO was exploring ways to raise additional capital and to expand its overseas business and brand. To this end DIO wanted to obtain international (as opposed to domestic Korean) advice on fund raising matters.

11. DIO was introduced to Eminent by a middleman called Mr Nam Eil Baek (“Mr Baek”). Mr Baek worked at a securities companycalled Kyobo Securities (“Kyobo”), which had provided domestic financialadvice to DIO. Mr Baek was also the host of a radio program in Busan, Korea where he gave financial advice to the public.

12. Through the introduction of Mr Baek, Kane Yang met CEO Kim in DIO’s headquarters in Busan on 7 August 2008. At that time Kane Yangtravelled to Busan to meet with a potential client called Samho Shipbuilding (“Samho”). He was co‑operating with Kyobo on that occasion in serving Samho. Mr Baek (representing Kyobo) was also at the meeting with Samho.

13. Mr Baek mentioned DIO to Kane Yang and suggested that Kane Yang should meet with DIO to see whether Eminent could offer any advice to DIO. Kane Yang agreed and it was against this background that Mr Baek introduced Kane Yang to CEO Kim at a meeting held at DIO’s headquarters in Busan. That meeting was on the same day as (but subsequent to) Kane Yang’s and Mr Baek’s meeting with Samho.

14. In September 2008, CEO Kim came to Hong Kong with Mr Baek and one of DIO’s senior management called Mr Tae Young Kim (“TY Kim”). They visited Eminent’s office on 22 September 2009 and met with Kane Yang and Mr Roger Chung (“Roger Chung”) (managing partner of Eminent). The meeting was also attended by Mr Jung Bok Lee (“Jung Lee”), executive director of Eminent, Mr Christopher Song (“Christopher Song”),Vice President of Eminent, and Mr Gerald Wu (“Gerald Wu”), Senior analyst of Eminent. The purpose of this visit was for CEO Kim to inspect Eminent’soffice and better evaluate Eminent’s capacities. There was a private meeting attended by a smaller number of people afterwards.

15. On 7 October 2008, Christopher Song emailed a draft FAA to CEO Kim.

16. The FAA was signed on 10 October 2008 in Busan. The parties gave it a code name “Rain I”.

17. However, before the FAA was signed, a team from Eminent went to DIO’s headquarters in Busan on or around 9 October 2008 to conduct meetings.

18. The FAA provided, where material, as follows:

“ WHEREAS, the Company hereto has retained the Financial Advisoron a sale and exclusive basis to advise the Company with respect toits corporate Governance, Equity Valuation, Financial & AccountingAnalysis, Corporate Financial Planning, Strategic Capital Raising and other Corporate Financing activities.

WHEREAS, the Parties hereto desire to specifically state the services mentioned above and under this agreement to be provided to the Company by the Financial Advisor, the compensation to be received by Financial Advisor from the Company for providing such services, and the terms and conditions that shall govern the relationship between the Parties.

NOW THEREFORE, the Parties, for good and valuable consideration, by executing this Agreement agree to be bound by its terms and conditions as follows:

1) TERM. This Agreement shall be for a term of eighteen (18) months. Notwithstanding the forgoing and except for earlier termination as otherwise provided for hereinafter, either Party hereto may terminate this Agreement upon thirty (30) days prior written notice.

2) ENGAGEMENT & FEE STRUCTURE.

i) SERVICES TO BE PROVIDED BY FINANCIAL ADVISOR:

(1) Study and review the business operations, Company’s historical financial performance, Company’s financial forecast and all related business and corporate information provide by the Company

(2) To assist in the design and writing of the company’s business plan to be presented to any potential investors and third parties

(3) On behalf of the Company, initiate the discussion and assist the Company to collect, analyze and organize business, financial, and legal information with third parties such as accountants, lawyers, auditor in order to achieve the goal

(4) On a best effort basis, advise the Company on Mergers & Acquisitions, Fund Raising, private placements or shareholder restricting prior to any IPO or Secondary Listing

(5) Starting in 2009, on a quarterly basis, provide independent research services to the Company in the form of equity research reports to be provided for institutional investors

(6) Advise the Company in appropriate investor relations and communications strategy with thefinancial community and financial public relations firm(s)

ii) RETAINER FEES: Upon the execution of this Agreement, the Company agrees to pay the Financial Advisor a fixed retainer of US Dollars One Hundred Thousand (USD100,000), paid in two installments. First installment,US Dollars Fifty Thousand (USD50,000) is due within seven (7) days upon signing of this agreement and second installment, US Dollars Fifty Thousand [USD50,000] is due sixty (60) days after the signing date of this agreement.

iii) INDEPENDENT EQUITY RESEARCH FEE: Uponthe execution of this Agreement, the Company agrees topay the Financial Advisor a quarterly fixed independentresearch fee in advance of US Dollars Thirty Thousand[USD30,000] due on first of each fiscal quarter whereas the payment due dates for 2009 are: January 1, 2009, April 1, 2009, July 1, 2009 and October 1, 2009.

iv) TRANSACTION FEE: Upon completion of any transaction for the Company. The Company agrees to pay the Financial Advisor a success fee including and notlimited to a three percent [3%] of the total transactionalamount tied to any financial transaction related to FundRaising or Private Placement or Shareholder restructuring, or Mergers & Acquisition for the Company.

3) OBLIGATIONS OF THE COMPANY:

a) The Company shall accept all liabilities arising from any wrongful assurances, warranties, guarantees or misrepresentation made by it and holds Financial advisorharmless from all claims, proceedings, loss and damages, costs and expenses arising there from.

b) The Company shall provide the Financial Advisor to access to key members of management and related staffduring the Company assessment and valuation phase and the remaining phases of the engagement.

c) The Company shall ensure proper accounting and risk control systems are in place

d) The Company shall allow the Financial Advisor full andcomplete access to accounting and financial information related to the Company

e) The Company shall disclose all material information thataffects proper accounting reporting, financial analysis and Company valuation including and not limited to actual and impending legal liabilities, off balance sheet loans, insider transactions and hidden liabilities

f) The Company shall responsible for all cost of obtainingfrom external sources or in...

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