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Great Wall Pan Asia International Investment Co Ltd v Cervera Holdings Ltd And Another

Judgment Cited authorities 7 Cited in Precedent Map Related
Vincent
Judgment Date01 June 2016
Year2016
Judgement NumberHCCT13/2016
Subject MatterConstruction and Arbitration Proceedings
CourtHigh Court (Hong Kong)
HCCT13/2016 GREAT WALL PAN ASIA INTERNATIONAL INVESTMENT CO LTD v. CERVERA HOLDINGS LTD AND ANOTHER

HCCT 13/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS

NO 13 OF 2016

______________

IN THE MATTER of Section 45 of the Arbitration Ordinance (Cap 609)

and

IN THE MATTER of Order 29 and Order 73 of Rules of High Court (Cap 4A) and inherent jurisdiction of the Court

______________

BETWEEN
GREAT WALL PAN ASIA INTERNATIONAL INVESTMENT COMPANY LIMITED
（長城環亞國際投資有限公司）		 Plaintiff
and
CERVERA HOLDINGS LIMITED 1st Defendant
YEUNG WING YAN（楊永仁） 2nd Defendant

______________

Before: Hon Mimmie Chan J in Chambers (open to public)
Date of Hearing: 10 May 2016
Date of Decision: 1 June 2016

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D E C I S I O N

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Background

1. On 3 June 2015, the plaintiff (“Great Wall”) as buyer and the 1st defendant (“CH”) as seller entered into an agreement (“Agreement”) for Great Wall’s acquisition of 360 million shares of Hang Fat Ginseng Holdings Company Limited (“Company”), a listed company in Hong Kong. The shares represented approximately 1.8% of the Company’s issued shares, at a consideration of HK$237,600,000, or HK$0.66 per share (“Purchase Price”). Under a Put Option Deed (“Deed”) of the same date, Great Wall was granted the option (“Option”) to require CH to purchase shares of the Company held by Great Wall during the specified term of the Deed, at the price of HK$0.671 per share (“Option Price”). By virtue of a Supplemental Put Option Deed dated 16 January 2016 (“Supplemental Deed”), the term of the Deed was extended for Great Wall to exercise the Option by 28 May 2016.

2. By a deed of guarantee also dated 3 June 2015 (“Guarantee”), the 2nd defendant (“Yeung”) personally guaranteed CH’s performance of its obligations under the Agreement and Deed. Yeung was at the material time the beneficial owner of 63% of the shares in CH. Other members of the Yeung family beneficially owned another 37% of the shares in CH. CH was at the material time (until recently) the controlling and majority shareholder holding approximately 57.14% of the shares in the Company. Yeung was the founder, Chief Executive Officer, chairman and one of the 3 executive directors of the Company. His brother and his mother are the other executive directors of the Company, and also directors of CH. Until recent disposals, Yeung and the Yeung family beneficially held approximately 68.67% and 74.22% respectively of the total issued share capital of the Company.

3. The Agreement, the Deed and the Guarantee all contain an arbitration clause, whereby the parties agreed to submit their disputes to arbitration in Hong Kong.

4. Great Wall claims that after completion and its payment of the consideration for the shares under the Agreement, Great Wall exercised the Option on 29 January 2016, requiring CH to purchase the entirety of the 360 million shares at the Option Price, in the total sum of HK$241,560,000 (“Exercise Price”). This was as a result of the Company’s share price plummeting on that day from HK$0.395 to HK$0.034, representing a 91.4% drop in a single day. The Option Notice was served on CH on 29 January 2016, and Yeung acknowledged receipt of the same on the same day. According to Great Wall, CH made a partial payment to Great Wall of HK$20 million on 1 February 2016, but it failed to make payment of the remaining balance of the Exercise Price due.

5. Great Wall claims that as evidenced by various transactions in the shares held by CH/Yeung in the Company between 28 January 2016 and 1 March 2016, CH and Yeung had been dissipating their assets. On 2 March 2016, Great Wall obtained an ex parte injunction (“Injunction”) to restrain CH and Yeung from disposing of their assets, to the value of HK$170,560,000. These assets include shares in the Company and other properties. The Injunction was sought in aid of arbitration proceedings to be commenced under the Agreement, Deed and Guarantee.

6. The Injunction was amended on 3 March 2016, and continued on 11 March 2016, pending full arguments on the inter partes summons. On 8 March 2016, Great Wall served Notice of Arbitration pursuant to the arbitration agreement. On 10 March 2016, CH and Yeung applied by summons to discharge the Injunction and for variation of the Injunction to permit payment of further legal costs and living expenses for Yeung.

Whether there is good arguable case

7. Extensive evidence has been filed by Yeung as to the matters in dispute. These include claims made that he had been threatened by Great Wall’s representatives into signing the Supplemental Deed, that the Supplemental Deed was void as it had been obtained from him by coercion, that the Supplemental Deed was not supported by any consideration, that he had not understood what he had been asked to sign, and that he suffered from psychiatric illnesses at the relevant time from at least 12 January 2016, when he was asked to sign the Supplemental Deed, up to his making payment of HK$20 million to Great Wall on 1 February 2016.

8. As I have indicated at the hearing, the Court cannot at this interlocutory stage, and based simply on the affirmations filed on behalf of the parties, make any conclusive finding on the facts in dispute, as to (for example): (1) whether the Supplemental Deed was signed by Yeung on 23 December 2015 as Great Wall claims, or on 12 January 2016 (and after the initial term of the Deed had expired) as Yeung claims; (2) whether the Supplemental Deed was signed by Yeung under coercion by Great Wall’s Chief Operating Officer (“Gong”), as Yeung alleges; (3) how CH’s seal was fixed to the Supplemental Deed; or (4) Yeung’s mental state at the relevant time. This can only be done after cross-examination of the witnesses and (if relevant and necessary) the experts at trial.

9. For the purpose of deciding whether the Injunction should be continued, it suffices for Great Wall to establish that it has a good arguable case that CH and Yeung were in breach of the Agreement, the Supplemental Deed and the Guarantee. In this respect, I am so satisfied. I do not find the assertions made by Yeung in the affirmations so far filed, as to the Supplemental Deed having been signed by him under duress, or coercion, to be credible. His declarations of his subjective understanding of the Agreement as an outright sale and purchase, and his subjective intention that Great Wall would not seek to sell the shares back to CH under the Option, are irrelevant and inadmissible as to the meaning and effect of the Agreement and the Option. He had arranged for part payment of the indebtedness to be made on 1 February 2016, and there was an email sent under his instructions on 30 January 2016 to acknowledge the indebtedness to Great Wall under the Option Notice. I do not consider his denials of responsibility for the Supplemental Deed, the email and the part payment to be reliable evidence. Yeung claims in these proceedings that he is suffering from psychiatric illnesses which impairs his memory, and that he is unable to deal with complicated matters (nevertheless proceeding to file 3 lengthy affirmations with detailed accounts of his alleged dealings since 2015). Such a claim shows either that he is capable of making baseless claims if they should suit him and that he is incredible or, if he is indeed to be believed as to his impaired memory, that his evidence in these interlocutory proceedings is unreliable as to what he asserts and dubious as to what he can, or cannot, reliably recall.

Whether there was material non-disclosure regarding the Supplemental Deed

10. It is claimed that Great Wall had failed to make full and frank disclosure of “all matters in relation to the Supplemental Deed”. So far as it can be understood from Yeung’s evidence and from the submissions made on his behalf by Counsel, it is Yeung’s case that Great Wall failed to disclose that the Supplemental Deed was signed 2 weeks after the term for the exercise of the Option under the Deed had expired, and that it is accordingly void for failure of consideration.

11. As indicated above, it is not necessary and not possible at this stage to determine the issues in dispute as to when the Supplemental Deed was signed. Great Wall has a credible and a good arguable case that the parties had orally agreed in December 2015 to extend the term of the Deed, and that pursuant to such oral agreement, the Supplemental Deed was signed by Yeung in December, before the original term of the Deed expired on 31 December 2015. Between 15 November 2015 and 15 December 2015, the Company’s share price had been trading at a range of HK$0.59 at the lowest (on 16 November 2015) to HK$0.670 at the highest (on 7 December and 16 December 2015), compared to the Purchase Price of HK$0.66, and the Option Price of HK $0.671. Before 15 November 2015, the share price had reached as low as HK $0.56 (on 2 November 2015), and it was only on 31 December 2015 that the share price of the Company reached HK$0.71. It is reasonable and credible, as Great Wall claims, that its representatives had meetings with Yeung in November and December 2015, to express their concerns as to the price of the shares, and the possibility of Great Wall exercising the Option, and hence, for Yeung to have sought an extension of the time for CH to make payment for the shares, should Great Wall exercise the Option.

12. In applying for the Injunction, Great Wall had simply referred to the Supplemental Deed as being made on 16 January 2016, which Great Wall now explains was a typographical error for 12 January 2016. The copy of the Supplemental...

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