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Tang Chack Wing v Yung Woon Kwai

Judgment Cited authorities 3 Cited in Precedent Map Related
Vincent
Judgment Date03 September 2021
Neutral Citation[2021] HKCFI 2566
Year2021
Judgement NumberHCA1837/2020
Subject MatterCivil Action
CourtCourt of First Instance (Hong Kong)
HCA1837/2020 TANG CHACK WING v. YUNG WOON KWAI

HCA 1837/2020

[2021] HKCFI 2566

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1837 OF 2020

________________________

BETWEEN

TANG CHACK WING (鄧澤榮) Plaintiff
and
YUNG WOON KWAI (翁煥貴) Defendant

________________________

Before: Master Alan Kwong in Chambers (Open to public)

Date of Plaintiff’s Written Submissions: 23 and 26 August 2021

Date of Defendant’s Written Submissions: 25 August 2021

Date of Decision: 27 August 2021

Date of Reason for Decision: 3 September 2021

________________________

REASONS FOR DECISION

________________________


1. By the Summons dated 4th May 2021, the Plaintiff seeks summary judgment against the Defendant.

Background

2. The Plaintiff, the Defendant and Mr Yung Yui Kwai are the founders of a group of companies that carry on business under the name of “Chun Yip”[1].

3. The Plaintiff and the Defendant respectively owns 50% shareholding in the following companies: Chun Yip Plastic Limited (“Chun Yip Plastic”), Chun Yip Industrial (Holdings) Limited (“Chun Yip Industrial”), Joinmark Investment Limited and Chun Yip Holdings Limited (hereinafter collectively the “Companies”).

4. By an agreement for sale and purchase of shares dated 15th Aug 2019 (hereinafter the “SPA”), the Plaintiff (as vendor) agreed to sell, and the Defendant (as purchaser) agreed to buy, the Plaintiff’s shares in the said Companies at the consideration of HK$1,000,000,000.

5. Pursuant to clause 3.2 of the SPA, the said consideration is to be paid by 5 installments throughout a period of four years from 15th September 2019 to 15th August 2023. On the day when the last installment is paid, completion shall take place. The Defendant shall acquire the Plaintiff’s 50% shareholding, thereby becoming the sole shareholder of the Companies.

6. Since completion will not take place until August 2023, clause 4.2 of the SPA requires the parties to ensure that pending completion, the Companies would continue to carry on normal business operation. Clause 4.2 also seeks to maintain the status regarding the affairs of the Company in various respects. The details of this clause will be further discussed hereinbelow.

7. Clause 3.3 of the SPA provides that if the Defendant fails to pay any installment, he shall give 7 days’ advance notice to the Plaintiff, and the Plaintiff shall give the Defendant a grace period of 2 months for payment of the installment that is due and payable. If the Defendant still fails to make payment within the grace period, all outstanding balance of monies payable under the SPA would become immediately due and payable by the Defendant.

8. It is not in dispute that pursuant to clause 3.1 of the SPA, on 15th September 2019 the Defendant did pay the first installment in the amount of HK$10 million to the Plaintiff.

9. However, the Defendant failed to pay the second installment of HK$190 million which became due on 15th August 2020. The Plaintiff gave the Defendant the grace period of 2 months in accordance with clause 3.3. After the expiry of the grace period, the Defendant still failed to pay the 2nd installment.

10. Hence, by virtue of clause 3.3 of the SPA, all the sums that will be payable under the SPA have become immediately payable. The total amount is HK$990,000,000 (ie HK$1,000,000,000 less HK$10,000,000).

11. On 16th October 2020, the Plaintiff, through his solicitors, issued a pre-action letter demanding the Defendant to pay him the sum of HK$990,000,000 pursuant to clause 3.3 of the SPA.

12. Since no payment was forthcoming, on 29th October 2020 the Plaintiff commenced the present Action.

13. In the Statement of Claim, the Plaintiff pleads that by operation of clause 3.3 of the SPA, the Defendant is liable to pay him the sum of HK$990,000,000[2]. Whilst the Plaintiff claims against the Defendant for the sum of HK$990,000,000[3], he also seeks “a decree of specific performance”[4].

14. As will be elaborated below, the Plaintiff is clearly seeking to enforce the SPA. It is not the case that the Plaintiff accepted the Defendant’s repudiatory breach and sues for damages. This is why acceptance of repudiation and damages are not pleaded in the Statement of Claim at all. Instead, the Plaintiff pleads clause 3.3 of the SPA (which entitles him to receive the sum of HK$990,000,000) as well as specific performance. The significance of this will be discussed below.

The Defendant’s Case

The initial defence

15. Initially, the Defendant’s case is grounded on clause 4.2(A) of the SPA. This clause provides that both the Plaintiff and the Defendant shall ensure that the Companies would continue to carry on normal daily operation, and they would consult each other on operational matters.

16. The Defendant alleges that the Plaintiff (1) refused to attend office; (2) was hardly contactable; and (3) often refused to sign or approve resolutions (including resolutions for obtaining loans for business operation)[5]. Based on these allegations, the Defendant contends that the Plaintiff failed to actively engage in the operation and business of the Companies, and hence he breached a condition of the SPA. The Defendant says that this was why he accepted the Plaintiff’s repudiation and terminated the SPA by the letter or notice dated 22nd October 2020.

17. As will be elaborated below, I am not convinced that this defence is credible and/or arguable.

18. However, this is not the end of the story. After this Action was commenced, there was subsequent development.

The defence arising from subsequent development

19. On 28th April 2021, the Plaintiff commenced winding-up proceedings under HCCW 167/2021 and HCCW 168/2021 (the “Winding-up Proceedings”). He sought to wind-up two of the Companies, namely Chun Yip Plastic and Chun Yip Industrial, on just and equitable grounds.

20. The Defendant contends that:

(1) The SPA must contain an implied term to the effect that (i) the Plaintiff shall not do anything which would diminish, negatively affect and/or destroy the value and economic substance of the shareholding in the Companies; and (ii) the Plaintiff shall not do anything that would adversely affect the Companies’ ability to operate as an on-going concern.

(2) Hence, by commencing the Winding-up Proceedings, the Plaintiff breached the said implied terms of the SPA, and he evinced an intention that he no longer wished to be bound by the SPA. Accordingly, the Defendant was entitled to accept repudiation, and this was done when the Defendant’s solicitors issued the further letter dated 9th July 2021.

21. In light of the said development, the Defendant has taken out a summons dated 20th July 2021 seeking to amend his Defence. Whilst there are a couple of proposed cosmetic changes, the Defendant also seeks to bring a Counterclaim against the Plaintiff seeking restitution in respect of the first installment of HK$10 million on the basis of unjust enrichment (the unjust factor being total failure of consideration).

Legal Principles on Summary Judgment

22. Once the plaintiff can show a prima facie case, the defendant is vested with the burden of establishing an arguable defence or triable issue. There shall be no mini-trial on affidavits as genuine factual disputes ought to be resolved at trial, and summary judgment application is only for clear cases: see Hong Kong Civil Procedure (2021), para 14/4/9.

Analysis

The initial defence

23. For the following reasons, I am of the view that there is no merit in the Defendant’s contention that the Plaintiff breached clause 4.2(A) of the SPA, such that he was entitled to terminate the SPA by the letter dated 22nd October 2020.

24. The starting point is that clause 4.2(A) of the SPA only provides that the parties should ensure that the Companies would continue their normal business operation, and the parties would consult each other. As pointed out by Mr Richard Leung[6] (who represents the Plaintiff), clause 4.2(A) does not impose any obligation requiring the Plaintiff to devote himself.

25. There is no evidence showing that the daily operation of the Companies has been affected as a result of the alleged inaction or inertia on the part of Plaintiff. This is hardly surprising. The success of the Companies (which appear to have a sizeable operation) does not depend on the effort of one person. Indeed, the Defendant does not even suggest that these Companies have difficulty in carrying on daily operation.

26. Furthermore, Mr Leung helpfully draws my attention to the following contemporaneous documents, which contradict the Defendant’s allegations: -

(1) In the termination letter or notice dated 22nd October 2020, the Defendant stated that the SPA had to be terminated because he lacked the ability to complete the deal[7]. This diametrically contradicts the Defendant’s current stance that he terminated the SPA because the Plaintiff was in breach of clause 4.2(A)[8]. In fact, the letter or termination notice does not contain one single word suggesting that the Plaintiff breached the SPA, neglected his duties owed to the Companies or refused to cooperate.

(2) Furthermore, there are telephone messages showing that as of 11th August 2020, the Defendant’s daughter and the Plaintiff’s daughter were discussing the Defendant’s plan to generate cash (which involved selling a property in Repulse Bay). In a telephone message from the Defendant’s daughter, it was...

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