LAM PO CHIU MARK v. ION GLOBAL (BVI) LTD AND OTHERS

HCA 4754/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4754 OF 2003

----------------------

BETWEEN

----------------------

-------------------------

J U D G M E N T

-------------------------

This litigation

1.  In this case the plaintiff, Mr Mark Lam Po Chiu, sues the 1^st, 2^nd and 3^rd defendants for the sum of US$741,937.00.

2.  This amount is said to represent the price of his shares in a company known as ‘e2e Business Solutions Ltd’ (‘e2e’), shares which Mr Lam maintains should have been purchased by the 1^st defendant, Ion Global (BVI) Limited (‘Ion Global’) pursuant to the exercise of a Put Option granted within a ‘Stock Purchase and Subscription Agreement’ dated 14 February 2000 and executed by plaintiff and 1^st defendant on 22 March 2000.

3.  Whilst the 1^st defendant is pursued as the direct contractual counterparty – which, it is said, should have purchased the shares consequent upon the issue by Mr Lam of a Put Option Notice dated 18 February 2003, but in breach of its contractual obligation failed so to do – the claim against the 2^nd and 3^rd defendants, CDC Corporation (‘CDC’) and Mr Peter Yip Hak Yung respectively, is mounted solely upon the secondary tortious basis of inducing the 1^st defendant to breach the contract represented by the Principal Agreement.

4.  Whilst not complex, this case cannot be understood absent reference to the factual matrix which spawned it.

The factual background

5.  The plaintiff, Mr Lam, is a computer software developer‑cum‑entrepreneur, who was involved in the late 1990’s in the development of that which then was perceived as a niche market in ‘internet-based software’.

6.  Pursuant to this aim, in 1998, together with a colleague, a Mr Roger Covey, Mr Lam founded ‘Chelcon Technology Group Limited’; of the issued shareholding, Mr Covey held 2,850,009 shares therein, and Mr Lam 150,001.

7.  Chelcon Technology, later to be renamed ‘e2e Business Solutions Ltd’ (‘e2e’), provided internet-based software and e‑business consultancy services.

8.  The 1^st defendant, Ion Global, is a BVI registered company, and itself is, or at least was, involved in the business of providing e‑business consulting services in Pacific-region companies; Ion Global is wholly-owned by the 2^nd defendant, CDC, which is registered in the Cayman Islands and is listed on the Nasdaq in New York.

9.  CDC is a holding company with investments in a variety of BVI companies (including the wholly-owned Chinadotcom Ventures Limited to which Ion Global transferred all its shareholding in e2e in December 2001), which provide services in the internet and e‑business field such as internet media and advertising, mobile applications, software outsourcing and business software.

10.  The 3^rd defendant, Mr Peter Yip, is a director and CEO of CDC; whilst he himself directly holds no shareholding therein, his wife and children are the beneficiaries of a trust which holds in the order of 19‑20% of the shares in that company.

11.  Clearly also Mr Yip is a man of very significant influence in the running of this corporate group. Although in evidence before this court Mr Yip attempted to play down the extent of his wide-ranging personal importance and influence within this group, I have no doubt, and indeed so find, that he was and remains the de facto controlling mind of the 1^st and 2^nd defendants; in the sage words of Deputy Judge Ian Carlson, who in June 2009 had presided over an attempted (and ultimately unsuccessful) strike out of the plaintiff’s Re-amended Statement of Claim, Mr Yip is the “eminence gris under whose influence the directors and executives of these two companies take their lead in the overall conduct … of these companies’ affairs.”

12.  But this is to get ahead of the story.

13.  Mr Lam first came into contact with the 2^nd defendant, CDC, in January 2000 through the good offices of Dr Raymond Chi’ien, who then was Chairman of the Board of CDC, which at that time recently had listed on the Nasdaq; with the capital so raised CDC was seeking suitable investment opportunities within the internet-related and e-business fields.

14.  After this initial contact further discussions took place with CDC executives, including Mr Stephen Mackay, the then President of Ion Global and Vice-President of CDC. After several meetings, Mr Mackay expressed to Mr Lam a confirmed interest in e2e’s business and proposed a majority-share acquisition of e2e by Ion Global; preliminary terms of sale thereafter were agreed, which involved the purchase by Ion Global of 1,470,005 shares from Roger Covey, 30,000 shares from Mr Lam, and the issuance of 375,001 new shares in e2e to Ion Global, the net effect of which was that after the sale Ion Global would own 55% of e2e shares.

15.  Mr Lam’s evidence to this court, which in terms of all material factual matters I accept, was that the reason that the two founders of Chelcon/e2e wished to enter into this share sale to Ion Global was twofold: first, that they had been assured that there would be a public listing of e2e on the Nasdaq, or upon some internationally-recognised exchange, within two years of this takeover, and further that in the share sale agreement that these gentlemen also would be granted a Put Option, which obliged Ion Global to purchase their remaining shareholding in e2e in the event that the envisaged public listing of e2e did not occur within the time frame as then anticipated.

16.  Moreover, they understood that should the share sale come about via the exercise of the Put Option, CDC also wished that Mr Covey and Mr Lam should remain involved in e2e, the better to integrate e2e with the overall operations of CDC, which thereby would ensure that business referrals would continue to be made from CDC to e2e.

17.  The plaintiff’s evidence on this aspect, again accepted by this court, was that Covey and himself had been most concerned to ensure that they had not parted with ownership of their ‘baby’, e2e, too easily and for insufficient consideration, and thus that they regarded the Put Option within the share sale agreement as, in Mr Lam’s words, “the ultimate deal breaker”, since the insertion of the Put Option would afford Covey and himself the possibility of a ‘clean break’ and enable them to realize the value of their remaining shares if the anticipated public listing of e2e did not occur.

18.  It is a matter of record that by the ‘Stock Purchase and Subscription Agreement’ (‘the Principal Agreement’) dated 14 February 2000 that Messrs Covey and Lam, the shareholders of the entity then known as Chelcon Technology Group Ltd, agreed to sell stock in that company to the predecessor of Ion Global, The Connection Group (BVI) Limited.

19.  I return to the content of this ‘Principal Agreement’ later in this judgment; for present purposes, suffice to say that under this Agreement it was envisaged that the consideration for the transfer of the shares was to come from CDC, which had issued a Promissory Note for US$7,840,000 to Mr Covey as payment for 1,470,005 shares and another Promissory Note for US$160,000 to Mr Lam as payment for 30,000 shares. These shares thereafter were transferred to the purchaser, the 1^st defendant, with Chelcon then issuing 375,001 new shares to the 1^st defendant.

20.  As a result of these transfers, the shareholding situation in Chelcon/e2e was as follows: Mr Lam held 3.56%, or 120,001 shares, Mr Covey held 40.89%, or 1,380,004 shares, and Ion Global held 55.56%, or 1,875,006 shares, and thus the latter entity controlled the company.

21.  The evidence, which essentially is undisputed, is that after this share transaction CDC and Ion Global rapidly assumed full control over the composition of the e2e Board of Directors, and, as Mr Lam expressed the position, also controlled “the setting of strategic directions, operating and financial policies” of e2e; about 3 months after the signing of the Principal Agreement, Ion Global appointed five of their representatives to the Board of e2e, including Messrs Hamilton, McKay, Winslow and Widdicombe.

22.  Whilst Mr Lam formally was retained as CEO of e2e, his role within the company fundamentally was diminished, and he was delegated certain functions only, such as the running of sales and marketing, and certain consulting and software development functions; more significant corporate functions, including finance, audit, company secretarial, human resources, administration and the setting of corporate strategy were placed under the control of officers of the 1^st and 2^nd defendants.

23.  It seems not to have taken a great deal of time for cracks to begin to appear to the relationship between Mr Lam and Mr Covey on the one hand and the CDC/Ion Global representatives on the other; in particular, Mr Lam says that Mr Covey and Mr Peter Yip met in New York on 20 November 2000, and that Covey later told him that at that New York meeting that Mr Yip had informed Covey that the terms of the Principal Agreement would not be honoured unless Messrs Covey and Lam were willing to renegotiate that which Mr Yip considered a poor and “badly negotiated” deal from the viewpoint of CDC.

24.  Under the Principal Agreement, the Promissory Notes as issued to Messrs Covey and Lam originally were due and payable by CDC on or before 31 December 2000, but payment to Mr Covey was not forthcoming and was witheld. In the event, matters could not be settled, and in January 2001 Mr Covey issued legal proceedings against CDC – which I understand also included a claim for failure to honour Covey’s Put Option – and Ion Global; these proceedings subsequently were settled, albeit the court is unaware of the precise terms thereof.

25.  The upshot of Mr Covey’s departure from the scene consequent upon settlement of his litigation was that Ion Global had acquired Mr Covey’s remaining 1, 380,004 shares in e2e in exchange for Mr Covey waiving his rights under the Put Option granted in the Principal Agreement; the result of this was that Ion Global then owned a total of 3,255,010 shares, that is, 96.44% of e2e’s total issued share capital of 3,375,011 shares.

26.  This left Mr Lam as the only survivor of the original company, still holding 3.56% or 120,001 shares.

27.  Mr Lam continued to work in the business of the company, in particular in the evaluation of potential acquisition candidates for CDC to absorb. He also remained preoccupied with the much-touted possibility of bringing e2e to market on an IPO, and it had been this possibility, he said, which had sustained him in his continuing (and increasingly uphill) labours within the business of e2e.

28.  However, in a meeting with Mr Yip in July 2002 Mr Lam was told that CDC would not be helping e2e to go public as prevailing market conditions were poor; instead Mr Lam was requested to engage in negotiations with a company known as Platinum China (another CDC subsidiary which had been acquired in April 2002) with a view to effecting a merger of e2e with that company in order to form a new company to be titled ‘CDC Software’.

29.  Mr Lam stated, and I accept, that he did not agree with this proposed course, and informed Mr Yip that he intended to exercise his Put Option within the Principal Agreement; nevertheless, at an e2e Board Meeting on 13 November 2002 chaired by Mr Widdicombe, with Mr Yip in attendance, Mr Lam was ordered to deliver a presentation upon such merger prospects with China Platinum – the very plan to which he had objected. Mr Lam says, truthfully in my view, that his request at that meeting to raise the issue of his existing Put Option was rejected on the premise that this had not been placed within the particular meeting agenda.

30.  In the event, Mr Lam’s continuing requests to have the issue of his Put Option placed before the e2e Board came to nought; nevertheless he states that at one stage Mr Yip offered to buy out his remaining shares in e2e at “an attractive price” if Mr Lam would approach, discuss and broker a merger with Platinum China.

31.  Accordingly, Mr Lam worked with personnel of Platinum China and duly came up with a merger plan, which subsequently he presented at the office of CDC; however, nothing came of Mr Yip’s promise to purchase his shares.

32.  Thereafter Mr Lam’s position within e2e deteriorated markedly. On 29 November 2002 he had a meeting at the office of Mr Widdicombe to review the alleged “poor performance” of e2e, and he was asked to take a reduction in salary. Mr Lam refused, and told Mr Widdicombe that he wished to exercise his Put Option and requested an e2e Board Meeting in order to discuss this.

33.  However, Mr Lam stated that this request was ignored, and on 2 December 2002 he submitted to Mr Yip his resignation letter from e2e, which resignation was accepted; at the same time he declined Mr Yip’s request that he, Mr Lam, remain on the e2e Board.

34.  Thereafter, Mr Lam purported to exercise his Put Option, and on18 February 2003 gave formally gave Notice obliging Ion Global to purchase his remaining shares in e2e within sixty days.

35.  However, this Notice was ignored, and the Put Option to purchase Mr Lam’s 120,001 shares was not executed – hence these proceedings.

The evidence

36.  At the hearing of this case there were but two viva voce witnesses of fact: the plaintiff, Mr Mark Lam, and the 3^rd defendant, Mr Peter Yip.

37.  Their style of giving evidence was very different.

38.  Mr Lam was focused and methodical and, I am minded to add, transparently honest. Perhaps unsurprisingly, he knew every nuance of his case, and had every fact at his fingertips. Taken in the round, he was an impressive witness and in my view obviously was a witness of truth. Accordingly in terms of matters of fact which were within his direct knowledge, I have, as I have said, accepted his evidence without reservation.

39.  Whilst ostensibly charming and authoritative, Mr Yip was very different. His forensic style was not to confront a question directly, or, if pressed to do so, to make a brief and often dismissive response to the specific question posed, and thereafter to launch into a monologue relating to ancillary matters, the impression given being of someone who wished to divert attention from the immediate issue the subject of cross-examination.

40.  Notwithstanding the apparent modesty he affected, Mr Yip was very clearly the ‘big boss’ (to use Mr Lam’s description) of CDC and the associated group, and notwithstanding Mr Yip’s ostensible lack of recollection of matters of detail, I formed the strong impression that there was little within the operations of the CDC group of which either he was unaware or with regard to which he did not have a strong commercial opinion. I also formed the impression that he knew far more about Mr Lam’s position, and about the purported operation of the Put Option within the Principal Agreement, than he was prepared to accept, despite his strong denial of any adverse influence in this regard and his apparent lack of detailed recollection of important issues as were canvassed in cross‑examination. I do not wish to be unfair, but in summary I am driven to the conclusion that in his evidence Mr Yip was not being full and frank with the court.

41.  If and so far as it is necessary in the determination of objective factual issues in this case, I have little hesitation in preferring Mr Lam’s version of events to that of Mr Yip.

The contractual position

42.  The ‘Stock Purchase and Subscription Agreement’ or ‘Principal Agreement’ as it was referred to throughout this trial, is dated 14 February 2000, although it is not disputed that it was executed subsequently on 22 March 2000.

43.  This document, in some 17 sections, has been drafted by lawyers – I suspect that there is considerable element of ‘cut and paste’ in its make-up – and it is fair to say that it does not yield up its secrets easily; it contains a profusion of good old-fashioned ‘boiler plate’, it has Schedules and Exhibits A-F, and is redolent with detail.

44.  For immediate purposes, however, the relevant sections are Sections 13 and 14.

45.  Section 13 is entitled ‘Put and Call Option’; section 13.01 says that in consideration of the Sellers entering into this Agreement, the Purchaser grants each of the Sellers an option (“the Put Option”) exercisable only in accordance with the provisions of section 13.02, to require the Purchaser by written notice to purchase within 60 days of the issuance of the Put Notice the remainder of the outstanding shares of the Company as thencurrently held by the Sellers.

46.  Section 13.02 states that, subject to the Purchaser’s rights under Section 14, the Put Option may be exercisable with effect from 2 years from the Closing Date (in this instance, 22 March 2000), provided first, that there has been no IPO of the company within that 2 year period, and second, that a Warrant Certificate shall have been issued by the Company to the purchaser in accordance with section 14.04 prior to the expiry of the 2 year period, otherwise known as the ‘Put Option Vesting Date’.

47.  Thereafter section 13.04 says that the purchase price payable for the Put Option shares shall be based upon a valuation of the Company in accordance with the formula therein specified.

48.  As thus stated, therefore, the procedure for the exercise of the Put Option for sale of the remaining shares of Messrs Covey and Lam in e2e is tolerably clear, save that such exercise is constrained by the provisions of Section 14 of the Principal Agreement, which section is entitled ‘Issuance of Revenue Warrants’.

49.  Within this Agreement, ‘Revenue Warrants’ essentially represent a type of credit-mechanism to be given to the Purchaser of the shares under the Put Option.

50.  These Warrants are specified to have an aggregate value of US$0.50 for every US$1.00 of revenue which has been generated by the Company from business referrals from the purchaser, Ion Global, or its associated company China.com, during the 24 month period available for the exercise of the Put Option, with the result that each US$1 of Revenue Warrants “shall be equal to US$1 worth of shares in the Company”; thereafter a formula is set out which calculates the percentage of the outstanding share capital of the Company to which the Purchaser under the Put Option thus shall be entitled.

51.  In terms of the precise formulation of the Purchaser’s share entitlement thus accruing, section 14.04 states that the Revenue Warrants are to be issued in the form of a ‘Warrant Certificate’which is to be executed as a deed by the Company and delivered to the Purchaser “on the date falling 24 months from the Closing Date (the ‘Issue Date’)” and shall be exercisable for a period of 12 months from the date of their issuance.

52.  Accordingly, the broad shape of the contractual position was thus: the sellers of their outstanding shares in e2e were to be able to sell pursuant to the Put Option within a 2 year window of opportunity, pursuant to a recognized pricing formula, and subject to the accretion by the Purchaser, via the use of these ‘Revenue Warrants’, of an amount to be calculated, again pursuant to a specified formula, of the outstanding issued share capital of the Company.

53.  However, within these sections as drafted there lurks an anomaly: given the interaction between the ‘ Put Option Vesting Date’ [Clause 13.02] and the issue date of the Warrant Certificates [Clause 14.04], on its face it appears that these dates are identical, that is, 22 March 2002, and thus that it is not possible for any Warrant Certificate that is issued pursuant to Clause 14.04 to fulfil the requirement of Clause 13.02(b). Thus the due operation of Clause 13.01 – which requires adherence to Clause 13.02 – prima facie is not possible.

54.  It is this drafting anomaly upon which the defendants place reliance in their defence of the present claim.

The parameters of the argument

55.  For the defendants, Mr Eric Lau argued that the Principal Agreement was negotiated at ‘arm’s length’ and represented a professionally drafted document, and that the plaintiff well knew about the relevant conditions (that is, no public offering and the issuance of the Warrant Certificate by e2e) as conditions precedent to his right to exercise his Put Option.

56.  He suggested that as CEO of e2e the plaintiff was in a position to, but pointedly did not, convene a Board Meeting to discuss the exercise of the Option and the issuance of a Warrant Certificate, and that in any event the 3^rd defendant, who was not involved with the daily and detailed operation of e2e, and was not a director thereof, had not himself or through the 1^st or 2^nd defendants sought to exert influence in order to block either the convening of a Board Meeting or to prevent the exercise of the Put Option.

57.  He went further. Mr Lau argued that the plaintiff had his own particular reason for not insisting on an e2e Board Meeting to discuss the exercise of his Put Option, since his primary (and clearly predominant) concern was that e2e should be publicly listed, and that exercise of the Put Option represented his “fall back” position only.

58.  On behalf of the plaintiff, Miss Abigail Wong made what essentially was a two-pronged submission: first, that on the issue of the ability to exercise the Put Option, there had been no substantive defence raised by the defendants, and that the challenge to the plaintiff’s claim essentially went solely (and erroneously) to locus standi, namely, that since the Warrant Certificate was not issued by e2e prior to the ‘Vesting Date’ as required under clause 13.02(b) of the Principal Agreement the plaintiff had not been entitled to exercise the Put Option at all – a proposition which she maintained was defeasible, and could be remedied as a matter of contractual construction; and second and in any event, it was plain that the driving force behind the refusal to comply with the Put Option obligations under the Principal Agreement obviously was the 3^rd defendant, who was “the shadowy power” behind the scenes of this entire operation, and whose word essentially was law – hence the plaintiff must be able to succeed on this basis against the 3^rd defendant also.

Decision

59.  There are two primary issues for decision in this case. I take them in turn.

(a)  Was the purported exercise of the Put Option valid?

60.  So far as the cause of action in breach of contract against the 1^st defendant is concerned, namely that in breach of the Principal Agreement the 1^st defendant wrongfully had failed to purchase Mr Lam’s remaining shares in e2e pursuant to his issuance of a Put Option Notice on 18 February 2003, this is the plaintiff’s primary hurdle. Absent establishment of any such contractual breach, it seems clear that this case falls away against all defendants.

61.  Miss Wong accepts that there is a drafting problem (“internal contradictions” was the way she put it) inherent in the Principal Agreement in light of the non-issuance of Warrant Certificates by the company, to which the exercise of the Put Option is said to be subject; indeed, as matters currently stand, due to such ‘contradictions’ within the Agreement, she accepted that due issuance of the Warrant Certificates was “impossible”.

62.  Faced with this difficulty, Miss Wong did not move for the remedy of rectification, nor is any case advanced on behalf of the plaintiff in terms of mistake, common or unilateral, or misrepresentation. Instead Miss Wong pursued several alternative construction contentions, which she submitted enabled the plaintiff’s case on the Principal Agreement to get home.

63.  In this regard, in her written opening she had argued that the ‘severability clause’ within clause 16.10 may be relied upon to save the Put Option, and/or that on a proper construction of clauses 13 and 14 of the Principal Agreement, the issuance of the Warrant Certificates was permissive and not mandatory, so that failure to issue the same did not preclude the validity of the exercise of the Put Option, and/or that there was an “effective waiver” of the requirement of the issuance of Warrant Certificates which may be inferred from the defendants’ conduct, and/or that in order to give effect to that which the parties clearly intended to be the position that the Principal Agreement thereby was subject to the necessary implication of contractual terms.

64.  Of the alternatives thus advanced by counsel, I have no difficulty in dismissing each as a viable possibility in the context of this case, save for the ‘implied term’ submission, which was the only issue which ultimately was pressed in final argument, and clearly comprised the main plank of the plaintiff’s case. As Miss Wong outlined it, her submission focused upon the implication of a term to the effect that the 1^st defendant would act in good faith, and would not hinder the plaintiff’s exercise of the Put Option by failing to procure the issuance of the Warrant Certificates – which act was, of course, required to be approved by deed by e2e’s Board; slightly different iterations of similar implied terms are pleaded at paragraph 10 of the Re‑Amended Statement of Claim.

65.  Miss Wong argued that in light of the inclusion of the provision as to the Put Option within the Principal Agreement, and to the obvious significance accorded thereto in context of the general factual matrix, that the implication of such a term was required in order to give business efficacy to the contract, that such a term did not (indeed could not) contradict any express term of the Principal Agreement, and that the Principal Agreement in its present form effectively would render the Put Option nugatory, and thus could not be effective without it. She also says (I think) that the ‘entire agreement clause’ (Clause 16.02) did not invalidate implication of a term necessary to provide business efficacy upon what popularly is known as ‘the Moorcock test’.

66.  I have reflected at some length upon this construction argument, not least because of the clear and obvious general merit I perceive within the plaintiff’s case.

67.  Ultimately, however, I have been unable to accede to the ‘implied term submission’ as a way around the impasse created by the drafting of this agreement, drafting which I am told was vetted and approved by lawyers on both sides of the fence; in short, I fail to see how this problem can be ‘construed’ out of existence. In any event, and at the risk of undue repetition, I return once more to the particular provisions in question.

68.  Clause 13.01 of the Principal Agreement provides that the Put Option was “subject to Section 13.02 and Section 14”, and that it was “only exercisable in accordance with Section 13.02”.

69.  However, Section 13.02 provides that the Put Option was exercisable “with effect from the date falling 2 years from the Closing Date ‘the Put Option Vesting Date” – that is, 22 March 2002 – provided that two conditions are satisfied.

70.  These conditions are first, that e2e must not have been publicly listed by the Vesting Date – and it is common ground that this condition is satisfied – and second, that the Warrant Certificate “shall have been duly issued by e2e to [the 1^st defendant] in accordance with Section 14.04 prior to the Put Option Vesting Date”: see Clause 13.02(b).

71.  It is this second precondition which creates the difficulty, because by Clause 14.04 the issuance of the Warrant Certificates “shall be executed as a deed by e2e and delivered to [the 1^st defendant] on the date falling 24 months from the Closing Date (the ‘Issue Date’)” – and clearly this cannot be achieved given the coincidence of the date.

72.  It seems to me that Miss Wong’s argument, and her suggestion as to an appropriate implied term, does not solve the problem, however much her client would wish this to be the case. I say this for two reasons: first, that the proposed implied term does not meet the immediate difficulty, since it can be argued that there can be no lack of good faith on the part of the Board of e2e if (as is the case) the precise contractual term(s) themselves operate to prohibit due compliance irrespective of considerations of good faith; and second, that it is trite law that the construction device of any implied term cannot be used if the same is, or would be, inconsistent with the express wording of the contract: if authority for this proposition be needed see, for example, Chitty on Contracts, Volume 1, at para 13-009.

73.  In light of this conclusion, there is no need for present purposes to make a finding upon whether the presence of the ‘entire contract’ clause operates to obviate any necessary implication of terms, even if such was amenable on the facts of this case; without finally deciding the point, which was but barely argued if at all, I suspect that the correct answer is that such a clause is not decisive but that, as the authorities clearly tend to establish, the court will be the more reluctant to make any such implication where the parties have entered into a carefully drafted contract containing, as does this one, extremely detailed terms as were agreed between them.

74.  Accordingly, commercially sympathetic though I am with the plaintiff’s current position, and with the unfortunate circumstances in which he now finds himself, wherein the obligation to purchase his remaining shares under the Put Option effectively is rendered nugatory, it seems to me that to imply the term/terms as sought by Miss Wong necessarily would entail a judicial rewriting of the specific contractual provisions, and thus achieve rectification ‘through the back door’ – a temptation which, it seems to me, I am constrained by principle to reject.

75.  It follows from the foregoing, therefore, that in answer to the question posed, namely, ‘Was the purported exercise of the Put Option valid’, in my judgment, as a matter of contractual construction the answer regrettably must be ‘No’.

(b)  If the exercise of the Put Option had been valid, did D2 and/or D3 procure breach of the Agreement?

76.  In light of the foregoing conclusion, strictly there is no need to progress to the second stage; as earlier observed, in the absence of establishment of contractual breach, the case must fall away against the other defendants upon this ancillary cause of action which, I am told, is pursued against the 3^rd defendant, Mr Yip, primarily because the 1^st defendant, Ion Global, is a BVI company, so that undoubtedly there would be difficulties facing a successful plaintiff in terms of execution.

77.  Nor do I consider that I am in any position sensibly to indicate any final view on the alternative cause of action now pursued against Mr Yip personally, given that this court has declined to imply a term (or terms) into the Principal Agreement. In short, before evaluating whether there has been any inducement to breach a contract, as is alleged against Mr Yip, it is necessary to establish the terms of the contract allegedly subject to such inducement– and, as matters currently stand, it cannot be said that Mr Yip has been responsible for non-compliance with a contract which on its face Miss Wong herself accepts is “impossible” to perform.

78.  Nevertheless, notwithstanding this conceptual difficulty, I am prepared to observe, in broad terms, that urbane (and loquacious) though he undoubtedly was, in my judgment parts of Mr Yip’s evidence in relation to his dealings with Mr Lam, and in his purported ignorance of the details of the Put Option, merited the characterization of “disingenuous” and “evasive”. Moreover I entertain little doubt that relatively early in the game that Mr Yip indeed had come to the view that the Put Option in question – which under the Principal Agreement potentially had applied both to Mr Lam, the current plaintiff, and to Mr Covey, his former partner – represented too expensive a contractual commitment, and that Mr Yip firmly had set his face against any payout upon this basis for the e2e shares then residually held by Messrs Lam and Covey. On the available evidence it is tolerably clear that nothing occurred in the operation of this CDC group absent Mr Yip’s imprimatur, and to hold otherwise in my view would be to fly in the face of the clear commercial reality.

79.  Suffice it to say, therefore, that in so far as there had been a contractually operable Put Option consequent upon the issuance by Mr Lam of his Put Option Notice – which I have held that there was not – I have no doubt that Mr Yip would have made it his business to decide and/or influence whether payment would be made for Mr Lam’s remaining shares upon the basis of the Put Option formula appearing within the Principal Agreement.

80.  For the reasons earlier given, however, this opinion serves to take the case no further from the plaintiff’s standpoint in terms of establishment of the alternative cause of action against Mr Yip or the 2^nd defendant.

Quantum

81.  In the circumstances this element again is of contingent relevance only.

82.  Miss Wong has formulated differing ways of arriving at the sum claimed – including the highly unusual course of filing supplemental submissions without leave after the conclusion of the trial, although it must be said that this was done without objection on the part of the defendants – and if and in so far as the quantum of this claim had imposed itself upon the result of this case (which it has not), I should have been content, on the available evidence, to have adopted the figure as claimed by the plaintiff, namely that of US$741,937.00.

Order

83.  In light of this judgment, it must follow that the plaintiff’s case against the 1^st, 2^nd and 3^rd defendants must be dismissed.

84.  I so order.

Costs

85.  I have felt constrained to make the foregoing Order, although I confess that this strikes me as a less than satisfactory result, since, as earlier observed, the broad merits of this case seem to me to lie entirely the other way.

86.  I have reflected upon the issue of costs, and after taking all the circumstances into account, in the exercise of my discretion I am minded to make an order nisi, to become absolute within 14 days of the date of the judgment herein absent formal application being made so to vary, that there be no order as to the costs of this action.

Appeal by the plaintiff to Court of Appeal allowed. Please refer to CACV46/2010 dated 15 September 2010

HCA 4754/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4754 OF 2003

----------------------

----------------------

----------------------

J U D G M E N T

----------------------

Introduction

1.  This is a late application, in an action started 5½ years ago, to strike out the re-amended Statement of Claim which I have decided to hear out on its merits in a case where the Statement of Claim has been subjected to an amendment and a re-amendment which took place on 30 January 2007.  Although the date of the re-amendment reduces the delay somewhat, even on this shortened time-scale the Defendants have taken over two years to issue their summons to strike it out.  At first it appeared that lateness was going to be a point that Miss Wong, who appears on behalf of the Plaintiff, was going to press but sensibly, in my view, she has confined herself to referring to the case of Poon Lai Bing v. Gold Dragon Limited t/a Club Paris & Anr, unreported, CACV 136/2007 (Court of Appeal), which held that late striking out applications should only be acceded to in the clearest circumstances, such as cases where particulars were totally lacking and the allegations were clearly unsustainable.  In the event, I have decided that the matter should proceed on its merits in the conventional way.

2.  The action concerns the sale, on 14 February 2000, of an internet company called e2e Business Solutions Limited (“e2e”) to the 1^st Defendant.  The sale proceeded under the terms of a detailed agreement in writing called the Principal Agreement to which, presently, further reference will need to be made.

3.  e2e was founded in Hong Kong under the name of Chelcon Technology Group Limited in 1998.  Its shareholders were the Plaintiff and a person called Roger Covey.  Mr Covey owned 2,850,009 shares and the Plaintiff 150,001.  e2e provided internet-based software and e-business consulting services.  The 1^st Defendant, a BVI registered company, is involved in the business of providing e-business consulting services in several Pacific-region countries.  CDC, the 2^nd Defendant, is registered in the Cayman Islands.  It is listed on the Nasdaq in New York and is a holding company with investments in a variety of companies providing services such as portal, internet services, internet media and advertising, mobile applications, e-business consulting, software outsourcing and business software.  The 1^st Defendant is wholly-owned by the 2^nd Defendant.

4.  The 3^rd Defendant, Mr Yip, a substantial shareholder in the 2^nd Defendant appears to be its controlling mind and through it, of the 1^st Defendant.  He is the “eminence gris” under whose influence the directors and executives of these two companies take their lead in the overall conduct of their duties and of these companies affairs.

Background to the dispute

5.  This being a strike out application based on all the grounds mentioned in Order 18 r 9 I am able to have regard to affidavit evidence as opposed to merely confining myself to the pleading that is sought to be struck out, which would be the case if the sole ground were that on its face the pleading discloses no reasonable cause of action.

6.  The lateness of this application has meant that the parties between them have filed no less than 13 sets of pleadings including requests for further and better particulars and their replies to those requests.

7.  Instead of proceeding to have the matter tried the Defendants, having changed their representation, have decided to now make this application.  To date, the 13 sets of pleadings to which I have referred run to 73 pages, as a result of which every allegation and counter-allegation has been examined in preparation for trial.  The final pleading dated 20 December 2008 [153-173] is the Answer to the Request for Further and Better Particulars of the re-Amended Statement of Claim.  As I have already observed the Statement of Claim had been re-amended on 30 January 2007.  The request for further and better particulars of that final version of the Statement of Claim came 10 months later on 25 October 2008 [137-152] prepared by the Defendants’ new solicitors after their original solicitors, Barlow Lyde and Gilbert had ceased representing them.  It strikes me that given the difficult burden that a defendant carries in an application to strike out a claim Mr Kam Kwok, who appears for the Defendant, really needs to show that after the exchange of so many pleadings there exists some clean point of law or other unanswerable reason why this claim is bound to fail.

8.  I have to say that the nature of the case is such that it calls for an interpretation of the Principal Agreement and the parties respective rights and obligations under it, and also an examination of the conduct of various individuals whose conduct bears on how and why the Principal Agreement, according to the Plaintiff, was, in breach of its terms, not carried into effect by the Defendants.

9.  The fullest account of the background to the dispute appears in the witness statement of the Plaintiff dated 10 June 2008 [178-190].  This has obviously been prepared for the trial.  There is also a short witness statement from the 3^rd Defendant dated 10 November 2008 [174-177], presumably also prepared for that purpose.  These pre-date the striking out summons which is dated 10 March this year [1-3].  This summons is supported by an affirmation by the 3^rd Defendant dated 24 April 2009 [4-85] and one in reply by the Plaintiff dated 15 May 2009 [86-91].  I should make clear that although reference has also been made to the two witness statements these are strictly not evidence in this application.  They were not prepared for this purpose nor have they been referred to and adopted in the two affidavits.  Accordingly, I propose to restrict myself to considering the two affidavits.

10.  The two principal documents are the re-amended Statement of Claim and the Principal Agreement, both of which have been referred to in the two affidavits.

11.  Both are substantial documents, the Principal Agreement, a carefully crafted document, being 69 pages long.  In order to keep this judgment manageably short I do not propose to recite here any of the parts of the re-amended Statement of Claim nor of the Agreement.  Insofar as specific reference may be required I will refer to the paragraphs and pages in the bundle.

12.  A factual account of the course of the making of the Agreement and the subsequent breakdown in the parties’ relationship appears in the re-amended Statement of Claim.

13.  As appears in paragraphs 5 and 6 [95] of the re-amended Statement of Claim the 1^st Defendant wished to obtain control of e2e by acquiring a majority of its shares.  After that acquisition the 1^st and/or the 2^nd Defendant would procure an Initial Public Offering of e2e’s shares on the Nasdaq or another internationally recognised stock exchange.  The business of e2e would become integrated with that of the 1^st and 2^nd Defendants who would refer business to e2e.  As a result the potential value of e2e as a business would be increased.  Notably, both Mr Covey and the Plaintiff were entitled to sell their remaining shares in e2e [“the Put Option”] to the 1^st Defendant which was required to purchase those remaining shares following the lapse of an agreed period of time after the acquisition of e2e by the 1^st Defendant.  The significance of the delay was to allow for the expected increase in the worth of e2e to take place following its integration into the business of the 1^st and 2^nd Defendants so as to give more value to the remainder of Mr Covey’s and the Plaintiff’s shareholdings in e2e.

14.  It is averred that the availability of the Put Option was fundamental in persuading Mr Covey and the Plaintiff to enter into the Agreement which they did on 14 February 2000.

15.  The Put Option provisions are contained in Section 13 of the Agreement and pleaded at paragraph 8 of the re-amended Statement of Claim [97-100].  This enabled Mr Covey and the Plaintiff to sell their remaining shares to the 1^st Defendant two years after the acquisition.

16.  As appears at paragraph 9 of the re-amended Statement of Claim [100-102] the exercise of the Put Option was conditional on the issuing of Warrant Certificates by e2e to the 1^st Defendant which were to be issued on terms set out in Section 14 of the Agreement.

17.  Pausing here for the moment, and this I can take broadly, although if the action is permitted to go to trial it will form by far the most important part of the evidence for the trial judge to consider, the Plaintiff’s allegation is that the 3^rd Defendant who is said to control the 1^st  and 2^nd Defendants had a change of mind as to the worth of the Agreement to the 1^st Defendant.  He considered that it needed to be re-negotiated to the financial detriment of Mr Covey and the Plaintiff.  The 3^rd Defendant and his associates were, to put it informally, far heavier hitters than Mr Covey and the Plaintiff.  The 3^rd Defendant had, following the acquisition of e2e, put in his own associates on the Board of e2e with the result that the Plaintiff and Mr Covey were powerless to have any real say in what had been their company.  Although the Plaintiff was installed as CEO of e2e he was, according to him, no more than well-renumerated hired-help.  He and Mr Covey were powerless.  When the time came for the Revenue Warrants to be issued by e2e to the 1^st Defendant, as a pre-condition for the exercise of the Put Option, Mr Covey and the Plaintiff were unable to get the Board of e2e, controlled as it was by the 3^rd Defendant, to issue the Warrants.

18.  In the event, Mr Covey brought an action of his own in respect of this, which was settled by him cheaply according to the Plaintiff, by which the rest of his shareholding was acquired by the 1^st Defendant now leaving the Plaintiff to fight his corner by this action.

19.  From that brief summary it can be seen that the conduct of the 3^rd Defendant and of his associates in trying to manoeuvre the Plaintiff (and Mr Covey) to re-negotiate the Agreement by, in the final analysis, blocking the issue of the Revenue Warrants will be the centerpiece of the trial.

20.  Returning to the pleaded cases, the Defendants’ case is that the 1^st Defendant cannot be in breach of the Agreement because its duty under it is only to receive the Revenue Warrants prior to the exercise of the Put Option.  In this regard the re-amended Statement of Claim at paragraph 10 pleads certain implied terms to the Agreement that the 1^st Defendant would do nothing to prevent the Plaintiff or Mr Covey from exercising the Put Option particularly in relation to the issuing of the Revenue Warrants.

21.  In breach of these terms the Plaintiff complains that the Agreement has been sabotaged by the 3^rd Defendant, who by virtue of his control of the two Boards of the 1^st and 2^nd Defendants and of the post-acquisition Board of e2e, has seen to it that the Revenue Warrants were not issued.  This is what the case is all about.

Should the action be struck out?

22.  Mr Kwok submits that if his construction of the Agreement is right and the 1^st Defendant’s only duty is to receive the Revenue Warrants then the whole case must fall apart.

23.  To uphold such a submission would be to completely ignore the underlying evidence and the conduct of the 3^rd Defendant and his associates.  Such a submission simply cannot run on these facts.  This is very much a case which will have to be decided on the evidence.  The pleading plainly discloses a reasonable cause of action and the evidence which will be called in support of it is, at this stage, perfectly viable.  It is only after the evidence has been heard and tested that the result can be determined.

24.  I regret to say that this is an application that should not have been mounted.  These are perfectly good pleas supported by a good prima facie evidential base.  The application has served as a distraction to what should have been the real business at hand which ought to have been  getting the case listed and tried as soon as possible.  The Defendants have attempted to cut the action short but without any proper foundation for doing so.  The summons must stand dismissed with costs which will be taxed and paid forthwith.  The order for costs will be an order nisi in the usual way.

25.  The principles governing a strike out application are well-known.  I have been referred to them in the skeleton arguments and in counsel’s oral submissions.  I am sorry to say that none of Mr Kam Kwok’s submissions has come close, late as this application has been, to persuade me that the claim should be struck out.

HCA 4754/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4754 OF 2003

____________

____________

Before: Deputy High Court Judge Carlson in Chambers

__________

R U L I N G

__________

1.  I am grateful to Miss Chan for the Plaintiff and to Mr Hart for the Defendants for their very full written submissions on costs following the Defendants' success in the appeal before me.

2.  Clearly the costs before the Registrar should remain undisturbed.  He undoubtedly had the correct order on what he had been told.

3.  The real question is what costs order should I make on the appeal.  The Defendants have succeeded but this was an appeal very much of their own making.  They had got themselves into this situation from which they were obliged to appeal.  Miss Chan says that I should order them to pay the Plaintiff's costs on an indemnity basis.  Mr Hart submits that where he has succeeded costs should follow the event.  And so there is no meeting of minds.

4.  In my judgment, the costs should be to the Plaintiff.  It was perfectly reasonable for the Plaintiff to have resisted the appeal.  The Defendants offer to settle the issue of costs on the basis of the Plaintiff conceeding the appeal was made far too late.  This is a classic case of “he who is late pays”.

5.  In the circumstances, the Defendants will pay the Plaintiff's costs of the appeal and also the costs of and occasioned by the consequential setting aside of the judgment in default which all relates to the internal failings within the Defendants' solicitors' offices in not appreciating what had been going on, which resulted in the Registrar making the unless order and thereafter in not having appreciated the extent of his order with the result that a default judgment was entered.

6.  This having been said it is going too far to say that costs should be on an indemnity basis.  This will be party and party costs which can be taxed now and payable forthwith.  This order, it seems to me, would meet the justice of the situation.

Linda Chan, instructed by Messrs S K Lam, Alfred Chan & Co., for the Plaintiff

Andrew Hart, of Messrs Barlow Lyde & Gilbert, for the 1^st and 2nd Defendants

HCA 4754/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4754 OF 2003

____________

____________

_______________

J U D G M E N T

_______________

Introduction

1.  This is an appeal by the 1^st Defendant against two orders.  Firstly, an Unless Order made by the Registrar on 13 February 2006 requiring the 1^st Defendant to file and serve its amended defence by 5:00 p.m. on 27 February 2006, failing which the Plaintiff would be at liberty to apply to enter judgment as claimed in the amended statement of claim.  In respect to this part of the appeal, the 1^st Defendant is 31 days out of time and therefore seeks an extension in order to bring its appeal.  No amended defence having been filed within the requisite period the Plaintiff has applied for and obtained a judgment in the sum of US$741,937.

2.  If the appeal against the Unless Order succeeds the judgment consequent upon it must, of necessity, also go.  If the 1^st Defendant fails on this part of the appeal then it appeals against the judgment itself.  So that is how the matter stands.

Background

3.  In arguing the appeal Mr Hart, who appears for both Defendants, has laid great stress on the history of the action which, he says, had the Registrar been made aware of, it is most unlikely that he would have made the order that he did. 

4.  I have a chronology which is agreed by the parties.  As a matter of convenience, I propose to attach it to the judgment and will refer to the dates and events which I consider essential in order to determine the outcome of the appeals. 

5.  On 31 December 2003, the Plaintiff issued his writ which was served on the 1^st Defendant, it being the only Defendant at that stage.  The defence came on 24 February 2004 and the matter proceeded uneventfully until 17 November 2004 when on that date Master Lung was asked by the Plaintiff to adjourn the Check List Review hearing (“CLR”) because, I believe, he wished, through his solicitors of course, to investigate the possibility of getting more witnesses and preparing additional witness statements.  The Master acceded to the request and adjourned the CLR to 26 January 2005, when again, at the Plaintiff’s request he adjourned the hearing sine die again for the same reason. 

6.  Then there was a hiatus of nine months.  The Plaintiff did nothing, at all events, in terms of progressing the action.  Mr Hart draws attention to this really by way of deflecting any criticism of the Defendants for any delays by them in amending and/or filing their defences.  Miss Linda Chan, for the Plaintiff, submits that this delay is completely irrelevant to the decision that I have to make, and I think that she must be right about that, although it does account for part of the history of the matter.

7.  The case came to life again on 18 October 2005 when the Plaintiff issued its summons upon which an order was made by the Registrar on 24 October giving the Plaintiff leave to add the 2^nd Defendant to the action, it being the 1^st Defendant’s parent company.  Leave was given for the statement of claim to be amended, the amendments being substantial alleging that the 2^nd Defendant, as parent, had influenced the 1^st Defendant to breach its agreement with the Plaintiff.  For present purposes it is not necessary to investigate the detail of the pleadings beyond this.  Under paragraph 4 of the Registrar’s order [page 33] the 1^st Defendant was to “be at liberty to consequentially amend its defence” and to serve it within 14 days of the order.  I should observe, at this juncture, that Mr Hart is anxious to draw attention to the fact that the 1^st Defendant (at that stage still referred to as the Defendant) was only “at liberty” to amend its defence.  It was not a requirement that it do so.  This is a matter that I will need to return to presently. 

8.  This order was appealed against by the 1^st Defendant to Deputy High Court Judge Saunders.  The basis of the appeal was that the summons to add the 2^nd Defendant had come unannounced in previous correspondence and, on the hearing itself, the summons was not supported by affirmation to explain the basis of the application.  Notwithstanding objection to this course, the Registrar declined to adjourn the summons for argument and to require the Plaintiff to file an affirmation in support of it.  On the appeal, the Deputy Judge required an affirmation from the Plaintiff and adjourned the appeal for that to be done.  On the substantive hearing of the appeal on 19 December 2005, having heard the argument, he reserved his decision to 13 January 2006 when the appeal was dismissed.

9.  In the meantime, there was agreement between the parties, starting on 5 December 2005, when the appeal first came on before Deputy Judge Saunders, that the time for filing and service of the 1^st and 2^nd Defendants amended defence and defence respectively should be extended until the determination of the 1^st Defendant’s appeal.  Following its dismissal on 13 January 2006, the Plaintiff agreed to a further extension on 26 January 2006 which was to expire on 10 February.  On 10 February the 1^st Defendant issued its time summons asking for a further 14 days, which was the one heard by the Registrar on 13 February when he made the Unless Order now appealed from.  That is how the matter got to the stage of the making of the order that I am now considering. 

The Defendants’ case on their failure to comply with the Unless Order

10.  A convenient starting point to this is the 4^th affidavit of Mr Hart, the Defendants’ solicitor, dated 21 February 2006 [page 46], which he swore in support of the 2^nd Defendant’s summons under O. 12 r. 8 RHC of the same date.  In this affidavit, he sets out the fact that the 2^nd Defendant is a foreign corporation with no established place of business in Hong Kong.  The purported service of the amended writ, he says, on the 2^nd Defendant at the 1^st Defendant’s Hong Kong office on 10 November 2005 was therefore defective.  In such circumstances, it is submitted that the court has no jurisdiction over the 2^nd Defendant.  This summons came before the Registrar on 3 March 2006 and has been adjourned for argument.  It therefore remains outstanding. 

11.  Mr Hart’s principal affidavit in support of this appeal is his 5^th, dated 3 March 2006 [page 60].  In it he says that the principal reason for the taking out of the time summons on 10 February was to give him time to consider, with his client, whether to issue a summons under O. 12 r. 8 to challenge jurisdiction, which was done on 21 February.  What is clear is that a lot went wrong on the hearing of the time summons on 13 February.  Before I come to that I should set out what Mr Hart has told me in the course of the appeal as to why he had previously sought and obtained extensions from the Plaintiff’s solicitors for the filing of any amended defence by the 1^st Defendant and by the 2^nd Defendant of its defence, following the Registrar’s order allowing the addition of the 2^nd Defendant to the action on 24 October 2005.  He has explained, in my judgment perfectly sensibly, that it would have been a pointless exercise to go to that trouble and expense before his appeal had been determined.  He stresses the fact that under the terms of the order of 24 October the amendment of the 1^st Defendant’s defence was permissive rather than mandatory.  The expression used in the order is “to be at liberty to amend” and so I consider that Mr Hart is right about that.  It was therefore entirely correct that the Plaintiff’s solicitors agreed to that course.  Then, having lost the appeal, the 2^nd Defendant, perhaps somewhat tardily, decided on its O. 12 r. 8 summons to challenge the court’s jurisdiction.  Once the summons was issued a decision would have had to be made by the court as to whether service on the 2^nd Defendant was valid.  If it held that it was, then the defence would have to come; if service was held to be invalid the Plaintiff’s solicitors would have to apply under O. 11 for leave to serve out of the jurisdiction, where it might be met with the familiar arguments as to whether Hong Kong is the appropriate jurisdiction to have the action tried between the 2^nd Defendant and the Plaintiff.

12.  Until all of this is resolved the amended writ and statement of claim would remain in a state of suspension.  That being so there would be no need for the 1^st Defendant to amend its defence.  This therefore is how the argument proceeds.  Unfortunately, the Registrar was told none of this by the assistant, and inexperienced, solicitor for the Defendants’ who appeared before him on 13 February in the unavoidable absence of Mr Hart.  I have read the transcript of that hearing which I had ordered for the appeal.  The message that the Registrar got was that this was the 4^th attempt to extend time and nothing else.  Understandably this exercised him and on that basis he only allowed the time summons on “Unless” terms.  The Defendants’ assistant solicitor in fact had agreed to the making of the Unless Order.  If a full exposition of the facts, background and reasoning had been in placed before him, as it has before me in the course of a 2½-hour appeal, it may well be that the Registrar would have taken a different course. 

13.  Now, on the appeal, Mr Hart has made a number of criticisms including that the order made by the Registrar [page 2P-Q of the transcript] and the order as drawn and entered differ.  Nevertheless, I am satisfied that the order as drawn and entered correctly reflects what the Registrar expressed and intended in his ruling.

Why the delay in this appeal?

14.  Mr Hart has tried to provide an answer to this in his 5^th affidavit which was made before he had a sight of the transcript.  At paragraph 5, page 61, he says that he understood that the Unless Order only related to the 2^nd Defendant’s filing of its defence.  As to the 1^st Defendant, there would have been no need for an Unless Order because it had already filed a perfectly good defence, particularly in view of the final paragraph of the defence which included the standard general traverse and joinder of issue.  He says that had he known that the order also covered the 1^st Defendant he would have entered an appeal straightaway.  It must follow from this that the assistant solicitor must have misunderstood the Registrar and then passed on her misunderstanding to Mr Hart.  Miss Chan, for the Plaintiff, says that this is curious.  If that was really the case there should be an affirmation from the assistant solicitor deposing to her misunderstanding of what the Registrar had said during the hearing. 

15.  What happened next was that Mr Hart issued his O12 r. 8 summons on 21 February, before the expiry of the Unless Order, on the 2^nd Defendant’s behalf.  In order to complete the chronology, I should observe that on 27 February this year, being the 14^th day following the date of the Unless Order, the Plaintiff drew up and entered the order.  The following day, he applied to enter judgment against both Defendants.  On 3 March, the Registrar, as I have already observed, gave directions on the 2^nd Defendant’s O. 12 r. 8 summons and separately, declined to enter judgment against both Defendants.  He was of course absolutely correct to refuse judgment against the 2^nd Defendant with its O. 12 r. 8 summons still to be determined.

16.  What then happened was that there was correspondence (ex parte) between the Plaintiff’s solicitors and the Registrar about the entry of judgment against the 1^st Defendant.  On 9 March, the Unless Order was served on both Defendants.  Mr Hart submits that the ex parte correspondence between the Plaintiff’s solicitors and the Registrar was irregular.  The terms of the Unless Order were that the Plaintiff could “apply” to enter judgment and this being the case, Mr Hart submits, that the application to enter judgment should have been inter partes.  As to this I am satisfied that he cannot be right.  The original time summons, under which the Unless Order had been made, was of course inter partes.  The Defendants’ solicitor was present and taken to know what order had been made.  In fact as it was these solicitors who had taken out the time summons, they would have had carriage of the order and it would have been their initial responsibility to draw up the order.  They did not and after expiry of the requisite period, the Plaintiff’s solicitors were entitled to and did draw it up.  Once time had expired, the entitlement to enter judgment engaged and they applied to do so.  I can see no requirement for them to serve their application to enter judgment on the Defendants.  It was then a matter for the Plaintiff’s solicitors to satisfy the court that no obstacles existed to the entry of judgment.  The court was satisfied as to the 1^st Defendant and so judgment was entered on 28 March 2006, followed by this appeal on 30 March.

The extension of time for the appeal

17.  The reasons for the delay appear in Mr Hart’s 5^th affidavit [see pages 61 and 62].  Having misunderstood the position that the Unless Order only related to the 2^nd Defendant and having issued his O. 12 r. 8 summons on its behalf he felt able to await the determination of that summons having considered that the 1^st Defendant was not in receipt of an Unless Order.  He was dis-abused of that only when he received the Plaintiff’s solicitors’ letter of 29 March enclosing a sealed copy of the judgment against the 1^st Defendant.  Miss Chan has suggested in her written submission that Mr Hart is not being frank about this which is, of course, a very strong thing to say against an experienced solicitor.  It is unfortunate that she has chosen to say this in the course of what otherwise were a series of very helpful and persuasive submissions.  I am entirely satisfied that Mr Hart has been completely frank in the explanations that he has given.  I have absolutely no doubt that had he been told by his assistant that the 1^st Defendant was also in receipt of an Unless Order he would have appealed against their straightaway.  The test in deciding whether to extend time on an appeal from a Master is that set out in Mortgage Corporation Plc v Sandoes (1997) PNLR 263.  Millett LJ (as he then was) held that “the overriding principle was that justice must be done”.  The merit(s) — the prospect of the appeal succeeding and/or its intrinsic importance from the perspective of justice is now the dominant consideration.  I must therefore have regard to the following in descending order of importance :

1.      The prospect of injustice;

2.      The length of the delay;

3.      The reason for the delay; and

4.      The degree of prejudice to the other party.

[See O. 58 r. 1 at 58/1/9, page 842 of the current practice].

The Outcome

18.  Accepting, as I do, Mr Hart’s explanations as to his approach and in particular the fact that there will be no need to amend the 1^st Defendant’s defence until it can be shown by the Plaintiff that the court has jurisdiction over the 2^nd Defendant, this because the amended statement of claim is all directed to the 2^nd Defendant in its relationship with the 1^st Defendant; the1st Defendant is perfectly entitled to stand on its present defence.  I am therefore satisfied that this appeal has real merit.  The delay is not inordinate given the reasons put forward by Mr Hart, and the prejudice to the Plaintiff is not fatal by any means.  It will lose the judgment but it is still left in its original position of having to prove its case, as all Plaintiffs’ have to and, in any event, it is also able to be compensated for in costs should the judgment go.  For all these reasons, I will therefore extend time and entertain the appeal. 

19.  Having done so the matter comes before me as a hearing de novo.  I am of the view that it is not appropriate to make an Unless Order against the 1^st Defendant nor a fortiorari against the 2^nd Defendant which, still has its O. 12 r. 8 summons outstanding.  It is pointless requiring the 1^st defendant to amend its defence until everybody knows what is to happen to the 2^nd Defendant’s O. 12 r. 8 summons.  The fact that I am disposed to allow the appeal and set aside the Unless Order can in no way reflect on what the Registrar did.  On what he had been told I am sure that he was correct to have made the order that he did.  Had he known what I have now been told, he would perhaps have come to the conclusion that I have arrived at, but that does not matter because I am free to make such order as I consider correct on what is now before me.

20.  I will therefore make the following orders :

(a)     The 1^st and 2^nd Defendants’ time to bring this appeal is extended by the requisite number of days;

(b)    The order of the Registrar will be set aside and as a consequence so will the judgment of 28 March 2006;

(c)     Time for service of the 1^st Defendant’s amended defence, if so advised, will be extended to 14 days following the determination of the 2^nd Defendant’s summons under O. 12 r. 8;

(d)    The time for service of the 2^nd Defendant’s defence, if the matter arises, will be determined by the Master hearing its O. 12 r. 8 summons; and

(e)     The issue of the costs of this appeal is adjourned to enable the parties to file submissions in writing no later than 31 May.  These submissions are to be exchanged and not served sequentially.

21.  Given the way that I have determined this matter, the judgment having been set aside, there is no purpose to be served in saying how I would have found had I not given leave to appeal against the Unless Order and therefore had I been required to determine the matter on the basis of an appeal against the judgment itself. 

Linda Chan, instructed by Messrs S K Lam, Alfred Chan & Co., for the Plaintiff

Andrew Hart, of Messrs Barlow Lyde & Gilbert, for the 1^st and 2nd Defendants

                                                               Chronology

	re Ion Global BVI Limited (D1)	re CDC Corporation (D2)
31/12/2003	P issued Writ of Summons with Statement of Claim against D1.  P served the same on D1.
13/1/2004	D1 filed Acknowledge of Service.
24/2/2004	D1 filed and served Defence.
24/3/2004	P filed and served Answer to Request for F&BP.
6/4/2004	P filed and served Reply.
28/5/2004	Master Hui gave directions at the direction hearing.
25/6/2004	D1 filed and served List of Documents.
29/6/2004	P filed and served List of Documents.
12/11/2004	P filed and served Supplemental List of Documents.
17/11/2004	Master Lung adjourned checklist hearing with directions.
26/1/2005	Master Lung adjourned checklist hearing sine die.
24/10/2005	Mr Registrar Chan ordered D2 be joined.  Leave to D1 to file Amended Defence.	Mr Registrar Chan ordered D2 be joined.  Leave to D2 to file Defence.
10/11/2005		P served Amended Writ of Summons with Amended Statement of Claim on D2.
7/11/2005	D1 appealed against Mr Registrar Chan’s order.
23/11/2005		D2 filed Acknowledge of Service.

-  2  -

5/12/2005	Deputy Judge Saunders adjourned D1’s appeal.  P agreed with D1 and D2 that time for filing and service of D1’s Amended Defence and D2’s Defence be extended until determination of D1’s appeal.	P agreed with D1 and D2 that time for filing and service of D1’s Amended Defence and D2’s Defence be extended until the determination of D1’s appeal.
19/12/2005	Deputy Judge Saunders heard the appeal and reserved his decision.  P further agreed with D1 and D2 that time for filing and service of D1’s Amended Defence and D2’s Defence be extended to 14 days after the determination of D1’s appeal.	P further agreed with D1 and D2 that time for filing and service of D1’s Amended Defence and D2’s Defence be extended to 14 days after the determination of D1’s appeal.
13/1/2006	D1’s appeal was dismissed.
26/1/2006	P agreed by way of consent order that time for filing and service of D1’s Amended Defence and D2’s Defence be extended to 10/2/2006.	P agreed by way of consent order that time for filing and service of D1’s Amended Defence and D2’s Defence be extended to 10/2/2006.
10/2/2006	D1 and D2 issued time summons for filing and service of D1’s Amended Defence and D2’s Defence.	D1 and D2 took out time summons for filing and service of D1’s Amended Defence and D2’s Defence.
13/2/2006	Mr Registrar Chan made an unless order for filing and service of D1’s Amended Defence and D2’s Defence.	Mr Registrar Chan made an unless order for filing and service of D1’s Amended Defence and D2’s Defence.
21/2/2006		D2 took out an O12 r8 summons to dispute service.
27/2/2006	P drew up and entered Mr Registrar Chan’s unless order.	P drew up and sealed Mr Registrar Chan’s unless order.

-  3  -

28/2/2006	P applied to enter Judgment against both D1 and D2.	P applied to enter Judgment against both D1 and D2.
3/3/2006		Mr Registrar Chan gave directions on D2’s O12 r8 summons.
3/3/2006	Mr Registrar Chan refused to enter Judgment against both D1 and D2.	Mr Registrar Chan refused to enter Judgment against both D1 and D2.
9/3/2006	P applied to enter Judgment against D1.
10/3/2006	Mr Registrar Chan raised requisition as to service of the unless order.
9/3/2006	P served the unless order on D1 and D2.	P served the unless order on D1 and D2.
10/3/2006	Mr Registrar Chan raised further requisition.
13/3/2006	P answered Mr Registrar Chan’s further requisition.
14/3/2006	Mr Registrar Chan asked for copy of a case.  P lodged the same with Mr Registrar Chan.
18/3/2006	Judgment entered against D1.
28/3/2006	Clerk to Mr Registrar Chan approved the draft judgment.  P sealed the Judgment.
29/3/2006	P served sealed copy of the Judgment on D1.
30/3/2006	D1 appealed against the unless order.

HCA 4754/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4754 of 2003

____________

____________

______________

D E C I S I O N

______________

1.  On 31 December 2003, Mr Lam commenced proceedings against Ion alleging breach of an agreement in relation to a put option relating to certain shares.  The defence was filed on 24 February 2004, and a Reply was filed on 6 April 2004.  Following an Order for Directions, lists of documents were exchanged.  A checklist hearing was held on 17  November 2004, which was adjourned to 26 January 2005, which was in turn adjourned sine die.

2.  On 18 October 2005, Mr Lam issued a summons seeking first, to join CDC Corporation as second defendant, pursuant to Order 15 rule 6, and secondly to amend the statement of claim as shown in a draft, pursuant Order 20 rule 5.  Appropriate ancillary orders were also sought.  The matter came before the Master on 24 October 2005, and an order was made in terms of the summons.  From that order Ion now appeal.

3.  Ion is a wholly owned subsidiary of CDC Corporation.  The allegations against CDC Corporation contained in the proposed Amended Statement of Claim demonstrate that three persons, amongst the seven who held office in either Ion or CDC Corporation, hold office in both companies.  The Chief Executive Officer and a director of Ion is Chief Operating Officer and a director of CDC Corporation.  The President of Ion is Vice-President of CDC Corporation.  A Director of Ion is the Chief Financial Officer of CDC Corporation.

4.  The allegations in the Amended Statement Claim include an allegation that the consideration of the transaction was in the form of a promissory note issued by CDC Corporation.

5.  It is plain from these allegations that there is a direct overlapping of the allegations between Ion and the proposed new defendant CDC Corporation.  The allegations go a long way beyond a mere allegation that Ion is controlled by CDC Corporation.  It is plain that the matter has traversed at the trial of the present action will greatly overlap with any matters that might be traversed at a trial should Mr Lam issue separate proceedings, as he is perfectly entitled, against CDC Corporation.

6.  Order 15 rule 6(2)(b)(i) & (ii) gives the court jurisdiction, at any stage of the proceedings, to order that any person may be added as a party who ought to have been joined as a party, or whose presence before the court is necessary to ensure that all matters in dispute in the cause or matter may be effectually and completely determined and adjudicated upon, or against whom relief is sought out of the same matter.

7.  Mr Hart stands on principle and says that on the documents before the court the Mr Lam has failed to demonstrate that he has fulfilled the requirements of the order.

8.  Mr Hart accepts that the end result sought by Mr Lam would be achieved by the issue of a new writ against CDC Corporation, was a statement of claim along the lines of the proposed amended statement of claim, and an application for consolidation of that new proceeding with the present proceeding.  Mr Hart acknowledged that if a new writ were issued on that basis it was inevitable that consolidation would take place and both matters would be heard together.  His objection to the procedure proposed to be followed by Mr Lam was one of principle, based upon strict limits to the jurisdiction of the court under Order 15 and Order 20.

9.  When the matter first came before me the summons was not accompanied by an affidavit.  Somewhat reluctantly, Ms Wong accepted that an affidavit was required.  Her original contention was that as proceedings could be commenced without an affidavit, then no affidavit ought to be required.

10.  But that cannot be right in cases of joinder.  If a defendant is to have another defendant or third-party imposed upon the proceedings, with the consequent potential increase in costs, a proper basis must be shown for that joinder.  That can only be done by affidavit.  Consequently I adjourned the proceedings and an appropriate affidavit was then filed.  Notwithstanding that affidavit Mr Hart maintained his objection to the application.

11.  I now am satisfied that the papers do satisfy the requirements of Order 15, and Order 20, and that this is a case where CDC Corporation ought to be joined, and the amendments to the statement of claim permitted.  That that is so is plain from the terms of the proposed Amended Statement of Claim.  The extent of the involvement of CDC Corporation in the transaction that will plainly be the subject to the scrutiny of the court is such that that company ought to be a party to the proceedings.  If the allegations are substantiated CDC Corporation played an integral role in the whole transaction.  Issues of discovery against CDC Corporation may well arise, and in any event direct relief is sought against CDC Corporation.

12.  I am satisfied that even if the strict terms of Order 15 are not met this is an appropriate case for joinder.  Mr Hart’s acknowledgement that the situation that would be achieved by joinder would inevitably be achieved by requiring Mr Lam to issue a separate writ against CDC Corporation, and then to apply for consolidation is itself a sufficient basis to make the order.  A stand based upon principle where a party’s position cannot be seen to have been undermined in any way at all will not be encouraged by the court.  To require Mr Lam to issue a separate writ and apply for consolidation would only be to unnecessarily generate costs and expenses all of which may be avoided by the making of this order.

13.  For those reasons the appeal is dismissed.  The order of that Master will stand.  Sensibly, when the application was originally made to the Master, costs were sought in favour of Ion, notwithstanding the fact that the order was to Mr Lam’s benefit.  There is no reason to disturb that costs order.  The appeal having been dismissed however, Mr Lam is entitled to an order nisi, to be made absolute in 14 days, for his costs on the appeal, to be taxed on the party and party basis if not agreed, and paid forthwith.