TDC CAPITAL SOLUTION LTD v. WONG SUNG KING DOROTHY AND OTHERS

HCA 1598/2022

[2025] HKCFI 4617

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1598 of 2022

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BETWEEN

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D E C I S I O N

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INTRODUCTION

1.  On 22 May 2024, I struck out P’s SOC but gave it liberty to lodge and serve the Draft ASOC (“Strike-out Decision”).

2.  After a consequential hearing following the Strike-out Decision, on 19 March 2025, I granted leave for P to amend its SOC as per the Draft ASOC (save and except §§29A and 29B thereof) together with consequential directions (“Amendment Decision”).

3.  Pursuant to O59 r21(3) of the Rules of the High Court (Cap 4A) (“RHC”), Ds took out a summons dated 2 April 2025 (“Summons”) seeking (1) a direction that my order granting leave to P to file the Amended Statement of Claim as per the Draft ASOC is an order determining in a summary way the substantive rights of a party to an action, such that no leave to appeal is required; or (2) alternatively, retrospective leave be granted to Ds to appeal on the grounds set out in the Notice of Appeal filed in the Court of Appeal dated 2 April 2025 (“NOA”).

4.  In response to the Summons, P took a neutral stance on whether leave to appeal is required and did not advance any submissions on the same, but contended that if leave were required, no leave to appeal should be granted.

5.  This Decision should be read in conjunction with my Strike-out Decision and my Amendment Decision, which set out the relevant background. Unless otherwise stated, I will continue to adopt the abbreviations used in my two aforesaid decisions.

WHETHER LEAVE TO APPEAL IS REQUIRED

6.  Notwithstanding P’s indication that it remained neutral, out of abundance of caution, Ds seek a direction and determination from this Court as to whether leave is required for Ds to appeal against the Amendment Decision.

7.  Ds’ position is that leave to appeal is not required. Ds’ submissions may be summarised as follows:

a. Under s14AA(1) of the High Court Ordinance (Cap 4) (“HCO”) and O59 r21(1)(a) of the RHC, leave to appeal is required in respect of interlocutory judgments or orders save for, inter alia, “a judgment or order determining in a summary way the substantive rights of a party to an action”.

b. Ds submit that the Court should apply Securities and Futures Commission v Lu Ruifeng [2022] 1 HKLRD 1349 where the Court of Appeal held that an amendment to add a new cause of action, in the face of a limitation / time-bar contention, has the effect of determining that the defendant does not have a limitation defence – which is an accrued right. Accordingly, such an order allowing amendment should be characterised as determining in a summary way the substantive rights of a party.

c. Ds submit that the present case involves the unique situation where the Court’s order to allow the amendment involved adjudicating on both Ds’ limitation defence (where leave is not required) and the arguability or sufficiency of the Construction Plea in the Draft ASOC (where leave is required).

d. Notwithstanding the inability to find any direct authority on how this conundrum should be resolved (to the best of Ds’ research), Ds ask the Court to view the Amendment Decision as a whole and as a “judgment or order” that determines summarily the substantive rights of the parties falling within O59 r21(1)(a), such that no leave to appeal is required.

8.  Having carefully considered the submissions and authorities of Ds, and in the absence of contrary submissions or authorities from P, I am of the view (in agreement with Ds’ submissions) that it is not necessary for Ds to obtain leave to appeal against the Amendment Decision. My reasons are as follows.

9.  To begin, ss14AA(1) and (2) of the HCO provide that:

“(1) Except as provided by rules of court, no appeal lies to the Court of Appeal from an interlocutory judgment or order of the Court of First Instance in any civil cause or matter unless leave to appeal has been granted by the Court of First Instance or the Court of Appeal.

(2) Rules of court may specify a judgment or order of any prescribed description to which subsection (1) does not apply and accordingly an appeal lies as of right from the judgment or order.”

10.  The relevant rules of court include O59 r21(1)(a) of the RHC, which provides that:

“(1) Judgments and orders to which section 14AA(1) of the Ordinance (leave to appeal required for interlocutory appeals) does not apply and accordingly an appeal lies as of right from them are the following—

(a) a judgment or order determining in a summary way the substantive rights of a party to an action;”

11.  As to whether a judgment or order summarily determines the substantive rights of the parties under O59 r21(1)(a), the Court of Appeal provided guidance on this issue in the context of amendment applications in Securities and Futures Commission v Lu Ruifeng (supra) at §§33-45 per G Lam JA. For present purposes, the following passages are highlighted:

“33. The cases show that to decide whether an order falls within r.21(1)(a), one has to examine what the order actually determines, rather than its collateral practical effect. Thus, for example, it has been held that an order setting aside an extension of the validity of a writ of summons, which concerns the exercise of the court’s discretionary power under O.6 r.8(2) having regard to all the circumstances of the case, does not determine the substantive rights between the parties, notwithstanding that the collateral effect of the order is that the action fails: China Medical Technologies Inc (in liq) v Bank of China (Hong Kong) Ltd, supra, [23]. Likewise, a refusal to extend time for the payment of security of costs does not summarily determine the substantive rights of the parties, even though the effect is that the proceedings become permanently stayed: Lo King Yeung v Eddie Chu Hoi Dick [2017] 4 HKLRD 723 (Au J) and (CAMP 18/2017, 6 November 2017) (CA). These are cases where there is no decision on any issue of substantive merit between the parties, even though the effect of the decision may well spell the end of the proceedings in question.

34. It is plain that, ordinarily, an order giving leave to the plaintiff to join a defendant and amend the statement of claim is not one that determines any substantive rights. What it decides, usually, is merely that the plaintiff has an arguable case against the defendant. But an amendment that adds a claim based on a new cause of action or against a new defendant in the face of an objection that the applicable limitation period has expired stands on a different footing. Section 35(1)(b) LO means that, once added, the new claim relates back to the date of commencement of the original action. If the limitation period for the new claim had not expired by that earlier date, the time-bar defence would be lost to the defendant forever. This is why before such an amendment is to be permitted, the court has to be satisfied that the limitation defence is not reasonably arguable anyway: Sun Focus Investment Ltd v Tang Shing Bor [2012] 1 HKLRD 738, [11]–[15]; Global Bridge Assets Ltd v Sun Hung Kai Financial Ltd [2012] 4 HKLRD 474, [14]–[26]. As stated in Welsh Development Agency v Redpath Dorman Long Ltd [1994] 1 WLR 1409 at 1425G–H: ‘In such a case, leave to amend by adding a new claim should not be given unless the plaintiff can show that the defendant does not have a reasonably arguable case on limitation which will be prejudiced by the new claim, or can bring himself within R.S.C. Ord. 20 r. 5.’ It follows that a decision giving leave to amend in such a case necessarily determines that the defendant does not have a limitation defence.

…

39. Thirdly, with respect to the Judge, to say that a decision that finally determines the viability of a limitation defence falls outside r.21(1)(a) takes too narrow a view of both the rights enuring to a defendant from limitation statutes and the scope of the phrase ‘substantive rights’ in r.21(1)(a). The Judge said that there was no dispute that a limitation defence is ‘procedural in nature’. It is true that most of the limitation periods in the LO, upon expiry, simply bar the bringing of an action rather than extinguish the plaintiff ’s right or title, that limitation is a separate defence that needs to be pleaded rather than a constituent element of the plaintiff ’s cause of action, and that limitation, where it only bars a remedy, is regarded as a matter of procedure in conflict of laws. But even so, an established limitation defence is a most valuable right; it is a complete defence to an action. Once time has expired, the law regards the potential defendant as having an ‘accrued right’ based on the limitation statutes. …

…

44. In our opinion, the order below did determine in a summary way the substantive rights of a party, and therefore falls within O.59 r.21(1)(a). China United did not need leave to appeal, but issued a summons within time to seek a direction pursuant to r.21(3) as to whether the order was one within r.21(1)(a). In the circumstances we see no reason to differ from the Judge’s exercise of discretion (albeit on a contingent basis) that China United should be given an extension of time to serve a notice of appeal, and we therefore granted an extension of 7 days at the hearing.”

12.  Applying these principles, I agree with Ds that the Amendment Decision (including the order allowing P to amend its SOC) determines issues that require leave to appeal and also issues that do not require leave:

a. On the one hand, the Amendment Decision decided on the arguability and sufficiency of the Construction Plea (at §§18-25) for which leave to appeal would ordinarily be required as accepted by Ds: see Lu Ruifeng at §34.

b. On the other hand, the Amendment Decision also decided on the time-bar / limitation contention of Ds, where at §§26-29 I held that the new amendments in the Draft ASOC did not raise any new cause of action such that there was no merit to Ds contention that P’s amendments in the Draft ASOC were already time-barred by virtue of the Limitation Ordinance (Cap 347). As the Amendment Decision determined that Ds did not have any applicable limitation defence (which was an accrued right if established), leave to appeal would not be required to appeal against such determination: see Lu Ruifeng at §§34, 39 and 44.

13.  Given that the Amendment Decision encompasses matters that require leave and also matters that do not require leave, the next question is whether the Amendment Decision may be considered as a whole to be a “judgment or order” that summarily determines the substantive rights of the parties under O59 r21(1)(a) of the RHC such that leave is not required. I agree with Ds that the Amendment Decision and its orders should be viewed as a whole:

a. The wording of O59 r21(1)(a) focuses on whether the “judgment or order” appealed against (as opposed to specific issues) summarily determines the substantive rights of a party to an action.

b. It has been said that a “judgment or order” refers to the result of the hearing and not to the reasons given by the judge for reaching that result: Lo Kai Bun v Pong Man Yi & Ors (unrep, CACV 127/2006, 13 Dec 2006) at §18 per Stock JA (as he then was) which in turn cites Cie Noga d’Importation et d’Exportation SA v Australia and New Zealand Banking Group Ltd & Ors [2003] 1 WLR 307 at §53 per Hale LJ (as she then was).

c. Further, as noted in Lu Ruifeng at §33, in deciding whether an order falls within r21(1)(a), one has to examine what the order actually determines, rather than its collateral practical effect. See also China Medical Technologies Inc (In Liq) v Bank of China (Hong Kong) Ltd [2019] 2 HKLRD 710 at §§21-23 per Lam VP (as he then was).

d. Given that this Court’s rejection of Ds’ time-bar contention formed part of the Court’s reasoning in making the order allowing P to amend its SOC, I consider that the amendment order (along with the Amendment Decision) should be considered as a whole as being a “judgment or order” that determines in a summary way the substantive rights of a party under O59 r21(1)(a), and thus leave to appeal is not required.

14.  For these reasons, I accede to Ds’ application and make a direction that leave to appeal is not required for Ds to appeal against the Amendment Decision.

WHETHER LEAVE TO APPEAL SHOULD BE GRANTED

15.  However, in case I am wrong above and that leave to appeal is required for Ds to appeal against the Amendment Decision, I will go on to consider whether leave to appeal should be granted.

16.  In the NOA, Ds contend as grounds of appeal that I erred and/or was wrong in failing to hold that:

a. The Construction Plea as pleaded in the Draft ASOC did not explain or provide proper particulars as to how the Conditions were satisfied (“Particulars Ground”).

b. Alternatively, the Construction Plea is bound to fail as it is (i) internally inconsistent as to when the Conditions were “satisfied” and/or (ii) unsupported by the “context and background” of the Service Agreement as pleaded in Draft ASOC §28A.1 (“Arguability Ground”).

c. The Construction Plea was time-barred under ss35(3) and (5) of the Limitation Ordinance (Cap 347), in that it raised a new cause of action and that the pleas did not arise out of the same or substantially the same facts as those in issue at the time of the application to amend (“Limitation Ground”).

17.  Ds contend that the above grounds of appeal are reasonably arguable, and that insofar as necessary, it would be in the interests of justice for the appeal regarding arguability/sufficiency of the particulars of the Draft ASOC to be heard. However, P contends otherwise.

18.  The applicable principles on whether leave to appeal should be granted are well-established:

a. The test for leave to appeal is whether the intended appeal has a reasonable prospect of success or there is some other reason in the interests of justice why the appeal should be heard: s14AA HCO. Reasonable prospects of success means that the prospects of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable”: SMSE v KL [2009] 4 HKLRD 125 at §17 per Le Pichon JA.

b. Where the intended appeal is one against the exercise of discretion, the following principles as set out in Tao Soh Ngun v HSBC International Trustee Ltd[2018] HKCA 691 at §57 per Kwan JA (as she then was) are applicable:

“57. On well-established principles, the plaintiff has a very high hurdle to surmount to satisfy this court that the judge’s exercise of discretion in a matter of case management should be interfered with. As stated in Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887 at §31:

‘The appellant … must show that the Judge ‘has gone clearly wrong and made orders which will clearly involve an injustice or an inability for the trial court to carry out its task’, or if the Judge ‘erred in principle or the order was irrational having regard to the issues that had to be resolved’. It need hardly be emphasised that generally, an appellate court will not interfere with a judge’s exercise of discretion unless the Judge has misunderstood the law or the evidence or the exercise of his discretion was plainly wrong such that it was outside the generous ambit within which a reasonable disagreement is possible.’”

c. Such principles are applicable to a decision allowing amendments to pleadings as it involves an exercise of judicial discretion: Tao Soh Ngun at §56; and also to a determination on whether to strike out a claim on the ground that deficiencies in the pleading are such that the claim is obviously unsustainable: Dingway Investment Ltd v China City Construction & Development Co., (Hong Kong) Ltd & Ors[2023] HKCA 458 at §21 per Kwan VP.

19.  Having considered the parties’ submissions and the authorities above, in the event that leave to appeal is required, I would have refused to grant leave for the following reasons.

20.  In respect of the Particulars Ground, I do not consider that the same discloses any reasonable prospects of success:

a. I agree with P’s submission that the purpose of pleadings is to enable the opposing party to know the case against him, and that it is contrary to this purpose to seek particulars which are unnecessary when in truth each party knows the other’s case.

b. In the Amendment Decision, I have set out P’s case and the context and background relied upon in support of the contention that the Conditions were satisfied in the draft ASOC: Amendment Decision §§19-22. I held that a party reading the Construction Plea would know the construction that P contends, the factual basis of such construction, and its case on how the Conditions were satisfied: Amendment Decision §23.

c. As such, I do not agree with Ds’ submission that the Construction Plea does not plead to the level of compliance required and/or how the Conditions can be said to have been fulfilled.

21.  In respect of the Arguability Ground, I also do not consider that the same discloses any reasonable prospects of success:

a. In the Amendment Decision, I rejected Ds’ submission that the Construction Plea was bound to fail on the basis that I had already ruled in the Strike-out Decision that P’s Construction was not bound to fail: Amendment Decision §§24, 25.

b. I do not consider that any of the matters raised by Ds (whether in §1.4 of the NOA or otherwise) detracts from my determination above. As to Ds’ contention that the adequacy of the Reply was not in issue before me, I agree with P’s submission that this is beside the point. The point is that I have determined that P’s Construction was not bound to fail in the Strike-out Decision, which is a determination that also applies to §28A of the Draft ASOC which mirrors P’s Construction as pleaded in the Reply.

22.  In respect of the Limitation Ground, I do not consider that the same discloses any reasonable prospects of success:

a. In the Amendment Decision, I considered that the new amendments in the Draft ASOC did not raise any new cause of action, applying the relevant principles in Li Tin Sang v Poon Bun Chak (unrep, HCA 9296/2000, 11 Apr 2003) which were upheld by the Court of Appeal (unrep, CACV 119/2003, 12 Nov 2003): Amendment Decision §§26-29.

b. I do not consider that any of the matters raised by Ds (whether in §2 of the NOA or otherwise) detracts from my determination above.

23.  Lastly, as to Ds’ contention that it is in the interests of justice that the Arguability and Particulars Grounds should be heard by the Court of Appeal as the Limitation Ground would also be heard by the Court of Appeal in any event, I do not agree. As none of the grounds in the NOA discloses any reasonable prospects of success, I do not consider it to be in the interests of justice for leave to be granted in such circumstances.

24.  Overall, had it been necessary to decide whether leave to appeal should be granted, I would have refused leave for the reasons above.

DISPOSITION

25.  For the above reasons, I allow the Summons to the extent of making a direction that leave to appeal is not required for Ds to appeal against the Amendment Decision.

26.  As for costs, I consider that the proper order is for costs of the Summons to be in the cause of the appeal, and I so order.

Mr Victor Dawes SC and Mr Cedric Yeung, instructed by DLA Piper Hong Kong, for the Plaintiff

Mr Bernard Man SC, Mr Danny Tang and Mr Jonathan Fung, instructed by Gallant, for the 1^st to 5^th Defendants

HCA 1598/2022

[2025] HKCFI 954

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1598 OF 2022

____________________

____________________

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D E C I S I O N

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INTRODUCTION

1.  This is a consequential hearing following my decision dated 22 May 2024 in this action (“Decision”). The abbreviations used in the Decision will continue to be used below.

2.  By the Decision, I struck out P’s SOC but gave it liberty to lodge and serve a Draft ASOC to address certain defects in its SOC.

3.  P has subsequently lodged and served its Draft ASOC pursuant to my orders.  However, Ds contend that P’s claims cannot be salvaged by the amendments proposed in the Draft ASOC. 

4.  The parties have therefore come before me for determination as to whether the proposed amendments ought to be allowed.

BACKGROUND

5.  The background to the underlying dispute has been set out in §§2 – 22 of the Decision and will not be repeated in full here.

6.  In gist, the dispute arose out of the written Service Agreement between the Original Intermediaries and Ds pursuant to which the former agreed to assist D1 to D3 in selling the shares in D4, D5 and others to an external buyer in return for the Service Fee.  The Service Agreement was later varied by the Supplemental Service Agreement whereby P assumed the rights and obligations of the Original Intermediaries.

7.  For present purposes, the material terms in the Service Agreement are found in Clauses 1.1, 1.1.2 and 1.1.3.  As mentioned in §8 of the Decision, these clauses provide as follows:

a.  By Clause 1.1, the Original Intermediaries “undertook to complete various matters stipulated below” (“承诺完成以下事宜”) including, inter alia, to assist Ds such that Ds would receive a cooperation framework agreement and/or sign a framework agreement and/or sign an asset or share purchase agreement (ie the SPA) by 30 November 2016 on the basis that the terms of the sale should “satisfy the conditions stipulated below” (“满足以下条件”).

b.  In relation to the Southern Land, Clause 1.1.2 requires that the SPA shall expressly provide that the buyer (ie the Southern Land Conditions):

i.    shall use its best endeavours to assist the Target Companies in recovering from the local authority the “Southern Land”, namely 300 mu that had been resumed by the local authority and 400 mu for which no land premium had yet been paid (collectively 700 mu outside the Subject Land), including but not limited to providing information and the Target Companies’ chops, and sending representatives to assist in the negotiations between the Target Companies and the local authority;

ii.   confirms that any land premium paid on behalf of the Target Companies for the Southern Land or compensation payable therefor would belong to Ds;

iii.  shall use its best endeavours to assist D1 to D3 in setting up one or more project companies for the purposes of holding the grants approved by the local authorities over the Southern Land, and transferring the benefit of the land premium paid by the Target Companies to the new project company/companies; and

iv.  confirms that its interests to be acquired through the SPA shall be limited to the Subject Land.

c.  In relation to the School, Clause 1.1.3 requires that the SPA shall expressly provide that (ie the School Conditions):

i.    the buyer would assist Ds in their application to the local authorities to move the School from its then current location on the Subject Land to the Southern Land;

ii.   in the event that the School is moved to the Southern Land, the buyer shall provide all necessary assistance free of charge; and

iii.  in the event that the move to the Southern Land is not approved by the local authority, the buyer agrees to allow the School to remain in the Subject Land occupying no less than 40 mu by way of a 70-year lease at nominal rent, and the sale consideration and the reserve price would be correspondingly reduced to reflect the reduction of 40 mu buildable area.

8.  However, the SPAs that were eventually entered into between Ds and the buyers (ie the Tahoe Companies) do not contain some of the key terms specified in the Conditions.  Despite having made a number of part payments for the Service Fee, Ds contend in the context of their strike out application that P is not entitled to payment of the balance of the Service Fee since there is a mismatch between the Conditions and performance under the Service Agreement and that the payment obligation had therefore not been triggered.  As such, the SOC discloses no reasonable cause of action and ought to be struck out.

THE DECISION

9.  On 22 May 2024, I handed down my Decision on Ds’ strike out application.

10.  As discussed in §§26 – 32 of the Decision, Ds submitted at the substantive strike out hearing on 8 January 2024, and I agreed, that on the basis of the claim as then pleaded in the SOC, there was a mismatch of the pleaded performance and the payment conditions.  There was also no explanation as to why the terms eventually found in the SPAs (which are materially different from the Conditions) nevertheless can be construed as having the effect of the Conditions.

11.  Importantly for present purposes, Mr Chang SC, Counsel for P who appeared before me at the last hearing on 8 January 2024, advanced the following construction argument (ie P’s Construction) in opposition to Ds’ strike out application (as recorded in §33 of the Decision):

a.  What P was required to do under the Service Agreement was to obtain for Ds a written document with legal effect and the Conditions of which would be reflected and be consistent with Clauses 1.1.1 – 1.1.3.

b.  Given that:

i.    the Service Agreement preceded any agreement P was to obtain for Ds;

ii.   the contemplated sale involved not only a straightforward transfer of shares but also the need to apply for and obtain increased plot ratio, seek re-vesting of and compensation for the Southern Land, and cater for the move of the School,

all these were contingencies which were not part of P’s responsibilities and their outcomes could not be guaranteed by P.

c.  As such, as a matter of construction, P’s obligations are limited to providing a contractual framework consistent with Clauses 1.1.1 – 1.1.3.  This is reinforced by Clause 2.4 of the Service Agreement which provides that “any” final agreement reached between Ds and, inter alia, Tahoe would be treated as the result of the services rendered by the Original Intermediaries to which the obligation to fully pay the Service Fee shall apply.

d.  As far as the SPAs are concerned, whilst the 18/11/16 SPA contemplates a successful move to the Southern Land, it importantly makes clear that Tahoe was committed to exploring alternatives including allowing the School to operate within the Subject Land if such need should arise.  Indeed, this was what happened.  The Conditions are only “contingencies” beyond P’s control and not something which P has promised to deliver.  The 18/11/16 SPA has indeed provided the framework to cater for the contingencies that the Southern Land could not be obtained and that the School could not be moved there.

e.  As such, P has clearly performed its obligations under the Service Agreement and is entitled to full payment of the Service Fee.

12.  Having considered P’s Construction carefully, I came to the view that I could not dismiss it as unarguable.  However, since P’s Construction had not been pleaded in the SOC but only in the Reply filed on 22 November 2023, I struck out the SOC but gave P an opportunity to amend its SOC to rectify its pleading defect (see Decision §§34 – 35, 41 – 47).  In particular, I specifically found in §§43 – 44 of the Decision that P’s Construction is not unarguable or bound to fail for the following reasons:

a.  Clear words are required before a clause is classified as a condition precedent (in the sense that the condition must be precisely fulfilled), since it may deprive a contractual party of a right for a trivial breach that bears little or no prejudice and loss on the other: Lewison on the Interpretation of Contracts (7^th Ed, 2020) at §16.14.

b.  Clause 1.1 of the Service Agreement provides that the conditions set out in Clauses 1.1.1 – 1.1.3 are to be satisfied or “滿足”.  It may be argued that those words do not call for strict and literal compliance.

c.  In light of the contextual matters set out in §33 of the Decision, it is not unarguable that Clauses 1.1.2 – 1.1.3 did not intend to operate as conditions precedent requiring strict and literal compliance before P would be entitled to the Service Fee.

d.  Indeed, it may be said that a literal and strict interpretation of the Conditions would be against Ds’ own interests as sellers as this would leave no room for negotiation with the potential buyers on those conditions, and thus making a successful sale more difficult.

13.  It should also be mentioned that at the substantive strike out hearing on 8 January 2024, P advanced the Waiver Contention and the Estoppel Contention as an alternative to P’s Construction in opposition to Ds’ strike out application.  As recorded in §36 of the Decision, by those contentions, P submitted that even if the terms of the SPAs did not satisfy Clauses 1.1.2 – 1.1.3 of the Service Agreement:

a.  Ds had waived any alleged non-compliance since:

i.    these clauses operated solely for Ds’ benefits;

ii.   Ds being privy to the Service Agreement plainly knew that these terms existed and were for their benefit; and

iii.  Ds communicated its waiver to P by entering into various SPAs and the Supplemental Service Agreement and by making part payments of the Service.

(ie the Waiver Contention)

b.  Ds are estopped from insisting upon full compliance with Clauses 1.1.2 – 1.1.3 since:

i.    Ds made an unequivocal representation by conduct to P that Ds had waived Clauses 1.1.2 – 1.1.3 in entering into the 18/11/16 SPA, the 6/1/17 SPA and the Supplemental Service Agreement;

ii.   Ds’ payments to P as mentioned in §16 of the Decision further perpetuated the aforesaid representation;

iii.  P detrimentally relied on Ds’ representation, for eg, by procuring Tahoe to continue to perform the various SPAs and expending its connections and resources to achieve the above, and by abstaining from taking measures for the protection of its rights under the Service Agreement etc.

(ie the Estoppel Contention)

14.  I ruled that as the Waiver Contention and the Estoppel Contention had not been pleaded in the SOC but only in the Reply, they could not salvage a defective SOC where complete causes of action had not been pleaded.  However, given that I found that P’s claims were not bound to fail on its contractual interpretation contention, I did not have to rule on whether the Waiver Contention and the Estoppel Contention were bound to fail (see Decision §§37 – 40, 45).

THE DRAFT ASOC

15.  In the Draft ASOC lodged and served after the Decision, P has introduced a number of new paragraphs to Section C of the pleading entitled “Performance of the Relevant Services” to further elaborate on how and why P has fully performed and discharged its obligations under the Service Agreement.

16.  It is evident from the Draft ASOC that the pleas at the new §28A (“Construction Plea”), §29A (“Waiver Plea”) and §29B (“Estoppel Plea”) substantially mirror the pleas of P’s Construction, the Waiver Contention and the Estoppel Contention respectively as pleaded in P’s Reply.

17.  Ds now oppose these amendments proposed by P on the basis that they are bound to fail and/or are time-barred by s35(3) of the Limitation Ordinance (Cap 347).  In respect of the Construction Plea, Ds also contend that it is not sufficiently particularised.

THE CONSTRUCTION PLEA

18.  In relation to the Construction Plea, I do not agree that it lacks particulars.

19.  Paragraph 28A of the Draft ASOC begins with a clear statement that on the true construction of the Service Agreement set in its proper context and background, the Original Intermediaries and P have fully discharged their obligations under the Service Agreement, and strict and legal compliance with the Conditions was not required for them to be “satisfied” under Clause 1.1 thereof.

20.  Paragraph 28A.1 then goes on to plead the context and background relied upon, including, inter alia, that:

a.  The Sale was subject to various contingencies which were not part of the responsibilities of the Original Intermediaries or P and their outcomes were not guaranteed by the Original Intermediaries or P under the Service Agreement.

b.  Instead the relevant services under the Service Agreement were confined to the Original Intermediaries and P assisting Ds to obtain a framework agreement or an asset or share acquisition agreement from an intended purchaser which satisfied the Conditions and complete the legal approval procedures required and obtain payment of the deposit by certain stipulated dates.

c.  It was wholly up to Ds to decide whether to enter into and execute the same and thereafter vary the terms thereof with the intended purchaser.

21.  In relation to Ds’ criticism that P has not pleaded what amounted to the satisfaction of the Conditions, P has sufficiently pleaded in §28A.2 of the Draft ASOC that the Original Intermediaries and P procured and obtained for Ds the 18/11/16 SPA (whether by itself or subsequently varied) pursuant to which a contractual framework was set up with the intended purchaser to give effect to and satisfy the Conditions.

22.  Indeed, in relation to the mismatch between P’s performance and the Conditions, P has provided particulars in §28A.2(a) and (b) of the Draft ASOC of the manner in which the various SPAs created a contractual framework to cater for the contingencies and to thereby give effect to and satisfy the Conditions.

23.  I therefore agree with P’s submission that a party reading the Construction Plea would know the construction of Clause 1.1 of the Service Agreement which it contends, the factual basis of such construction and its case on how the Conditions were satisfied even though the Conditions were not strictly complied with.

24.  Indeed, as I noted in §16 above, this Construction Plea in §28A of the Draft ASOC mirrors the plea of P’s Construction in the Reply.  In other words, P has merely transposed the relevant plea in the Reply to the Draft ASOC.  In coming to my Decision that P’s Construction could not be dismissed as unarguable, I necessarily had no difficulty in understanding the plea in the Reply which now forms the new §28A of the Draft ASOC.

25.  As regards Ds’ contention that the Construction Plea is bound to fail, this ought to be rejected also on the basis that I had already ruled in the Decision that P’s Construction was not bound to fail.  The Construction Plea in §28A of the Draft ASOC merely pleads out P’s Construction as found in the Reply.  There are no new changes to the plea which will cause me to come to a different conclusion from the one I reached in the Decision.

26.  As regards Ds’ time-bar contention, the relevant questions for present purposes are whether the proposed amendments seek to add or substitute a new cause of action and if so, whether the new cause of action arises out of the same or substantially the same facts as are already in issue in the existing claim (see Shenzhen Futaihong Precision Industry Co ltd v BYD Company Ltd [2019] 2 HKC 175 at §74).

27.  In the context of a statement of claim that has been struck out because it is defectively pleaded and the plaintiff is given an opportunity to file a fresh statement of claim, P has drawn my attention to the decision of Burrell J in Li Tin Sang v Poon Bun Chak (unrep, HCA 9296/2000, 11 Apr 2003) and in particular §§8 – 9 as follows:

“The basis of Mr Kenneth Kwok, SC’s submission on behalf of the defence is that as the original Statement of Claim was struck out as disclosing no cause of action any subsequent pleading which discloses a cause of action must, by definition, be a new cause of action.  I do not regard this as a sound argument.  “New” should be construed as meaning a different cause of action, not in the sense that hitherto it did not exist.  The cause of action in the Amended Statement of Claim did not suddenly appear from nowhere, it existed before albeit it had been defectively pleaded.  The fact that new averments are made in the Amended Statement of Claim does not mean it is a new claim.  If the underlying basis of the claim remains substantially the same then the likelihood is that it will not be a new claim…

In my view, in the present case, the amended claim is entirely recognizable as the original (defectively pleaded) claim which has been clarified.  Further, it remedies the defects to which Woolley DJ had pointed. The relief sought is the same save in one respect.  Of seven forms of relief originally claimed, only the first is amended.  Originally it was “damages for breach of contract and/or procurement of breach of trust”.  The amended version is simply “damages for breach of contract”.  Far from a new or different claim, submits Mr Michael Bunting, SC for the plaintiff, it is a “slimming down” of the same claim, albeit more particularized.  I agree.”

28.  Burrell’s decision was upheld by the Court of Appeal (unrep, CACV 119/2003, 12 Nov 2003) where Rogers VP held at §13 that:

“…There was a cause of action which was pleaded. It was a cause of action in contract, as indeed, was referred to by Deputy Judge Woolley in paragraph 6 of his decision. The fact is that it was defectively pleaded. It was not a matter that the action was commenced in respect of something which did not constitute a cause of action, it was a situation where there was a defect in the pleading, which was recognised by the Deputy Judge as being curable.”

29.  In the present case, it is clear that the new amendments in the Draft ASOC do not raise any new cause of action.  The cause of action remains one of breach of contract.  The Construction Plea is corrective and merely pleads further facts upon which P’s action is based.  There is therefore no merit to Ds’ time-bar contention.

30.  In the circumstances, I allow the amendments proposed by P in relation to the Construction Plea.

THE WAIVER PLEA AND THE ESTOPPEL PLEA

31.  In respect of the Waiver Plea and the Estoppel Plea, the primary position of P is that they are not causes of action and should properly be pleaded in the Reply.  However, since I ruled in the Decision that P’s Construction had not been properly pleaded in the SOC and that the pleas of waiver/estoppel in the Reply could not be used to salvage a defectively pleaded SOC, Mr Dawes SC (Counsel for P) has helpfully informed me during the hearing that P has inserted the Waiver Plea and the Estoppel Plea in the Draft ASOC out of an abundance of caution even if P does not necessarily need them in the ASOC.

32.  In view of my ruling above allowing P’s proposed amendments in respect of the Construction Plea and Mr Dawes’ indication, it is not necessary for me to specifically rule on Ds’ opposition to the Waiver Plea and the Estoppel Plea that they are bound to fail and/or are time-barred.

DISPOSITION

33.  For the above reasons, I allow all the amendments proposed by P in the Draft ASOC save and except the Waiver Plea at §29A and the Estoppel Plea at §29B.

34.  I therefore make the following orders:

a.  P do have leave to file the Amended Statement of Claim as per the Draft ASOC (save and except §§29A and 29B thereof) within 7 days from the date of this Decision.

b.  Ds do have leave to file an Amended Defence within 28 days thereafter.

c.  P do have leave to file an Amended Reply within 28 days thereafter.

35.  As for costs, I do not see any reason to depart from the usual order that the costs of and occasioned by the amendment of the SOC be to Ds, and I so order. 

36.  As for the costs of the hearing (including all preparation and incidental costs in dealing with Ds’ grounds of opposition), P has asked for such costs with certificate for 2 counsel.  In this regard, P has submitted a statement of costs for summary assessment totalling HK$971,960.  In reply, Ds have lodged written submissions contending that even if I were to allow P’s amendments, P should only be awarded costs to the tune of HK$477,320.  Ds further submit that if P is successful only on part of its amendments, the costs of the hearing should be further apportioned.

37.  In view of my ruling above that I have only allowed part of P’s amendments, I will only allow 50% of P’s costs of the hearing with certificate for 2 counsel.  Having carefully considered Ds’ costs submissions and adopting a broad brush approach, I order Ds to pay P the costs of the hearing on 20 December 2024 summarily assessed at HK$390,000.

38.  I thank all Counsel for their assistance.

HCA 1598/2022

[2024] HKCFI 1373

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1598 OF 2022

________________________

________________________

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D E C I S I O N

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INTRODUCTION

1.  This is the appeal of the 1^st to 5^th Defendants (together “Ds”) against a Master’s order dated 25 October 2023 (“Master’s Order”) to dismiss Ds’ summons dated 18 April 2023 (“Summons”) issued under O18 r19(1)(a)-(d) RHC to strike out the Plaintiff’s Writ of Summons and Statement of Claim (“SOC”) and to dismiss its action.

BACKGROUND

The Parties

2.  The Plaintiff (“P”) is a Hong Kong incorporated company that mainly provides consultancy services on asset restructuring and merger and acquisition.  Qianhai Hongsheng Capital Limited (前海弘晟資產管理（深圳）有限公司) and VC Management Corporation (together the “Original Intermediaries”) are related companies of P, all of which are under the control of a Mr Chen Xiaohui, Victor (“Mr Chen”).

3.  The 1^st and 2^nd Defendants (“D1” and “D2” respectively) are husband and wife.  They are the ultimate beneficial owners of the 3^rd, 4^th and 5^th Defendants (“D3”, “D4” and “D5” respectively).

4.  D3 is a company incorporated under the laws of the British Virgin Islands whose authorised representatives are D1 and D2.  D3 was a controlling shareholder of D4 and D5.

5.  Until the completion of the Sale (as defined below), D4 and D5 were the sole shareholders of 增城荔丰房地产有限公司 (“Lifeng”) and 增城荔涛房地产有限公司 (“Litao”) respectively (together the “Target Companies”).  The Target Companies were companies incorporated in the PRC which owned a piece of land in Guangzhou (“Subject Land”).  D1 and D2 also operated an international school on the Subject Land (“School”).

The Service Agreement

6.  The Original Intermediaries and Ds entered into a written agreement (增城北区项目独家咨询与居间服务协议) dated 5 September 2016 (“Service Agreement”) pursuant to which the Original Intermediaries agreed to assist D1 to D3 in selling the shares in D4, D5, Lifeng and/or Litao to an external buyer in return for a service fee (“Service Fee”).

7.  The Service Agreement was varied by a supplemental agreement (增城北区项目独家咨询与居间服务协议之补充协议) dated 16 January 2017 (“Supplemental Service Agreement”) whereby P assumed the rights and obligations of the Original Intermediaries.

8.  The following terms in the Service Agreement are material for present purposes:

a.  By Clause 1.1, the Original Intermediaries “undertook to complete various matters stipulated below” (“承诺完成以下事宜”) including, inter alia, to assist Ds such that Ds would receive a cooperation framework agreement and/or sign a framework agreement and/or sign an asset or share purchase agreement (“SPA”) by 30 November 2016 on the basis that the terms of the sale should “satisfy the conditions stipulated below” (“满足以下条件”).

b.  In relation to the Southern Land, Clause 1.1.2 requires that the SPA shall expressly provide that the buyer (“Southern Land Conditions”):

i.    shall use its best endeavours to assist the Target Companies in recovering from the local authority the “Southern Land”, namely 300 mu that had been resumed by the local authority and 400 mu for which no land premium had yet been paid (collectively 700 mu outside the Subject Land), including but not limited to providing information and the Target Companies’ chops, and sending representatives to assist in the negotiations between the Target Companies and the local authority;

ii.   confirms that any land premium paid on behalf of the Target Companies for the Southern Land or compensation payable therefor would belong to Ds;

iii.  shall use its best endeavours to assist D1 to D3 in setting up one or more project companies for the purposes of holding the grants approved by the local authorities over the Southern Land, and transferring the benefit of the land premium paid by the Target Companies to the new project company/companies; and

iv.  confirms that its interests to be acquired through the SPA shall be limited to the Subject Land.

c.  In relation to the School, Clause 1.1.3 requires that the SPA shall expressly provide that (“School Conditions”):

i.    the buyer would assist Ds in their application to the local authorities to move the School from its then current location on the Subject Land to the Southern Land;

ii.   in the event that the School is moved to the Southern Land, the buyer shall provide all necessary assistance free of charge; and

iii.  in the event that the move to the Southern Land is not approved by the local authority, the buyer agrees to allow the School to remain in the Subject Land occupying no less than 40 mu by way of a 70-year lease at nominal rent, and the sale consideration and the reserve price would be correspondingly reduced to reflect the reduction of 40 mu buildable area.

The Southern Land Conditions and the School Conditions are collectively referred to as the “Conditions”.

9.  By Clause 2.1, Ds agreed that the Service Fee shall become payable upon the Original Intermediaries’ “completion of their services under Clause 1.1” (“完成本协议第1.1项的服务”).

Subsequent SPAs

10.  Ds subsequently decided to sell the Subject Land to 泰禾集团股份有限公司 (“Tahoe”) and its affiliated companies (“Tahoe Companies”).

11.  In this regard, 深圳瑞德置业有限公司and 深圳红悦置业有限公司 (together the “1^st Tahoe Buyers”) entered into a sale and purchase agreement dated 18 November 2016 with D1, D2, D4 and D5 and (“18/11/16 SPA”) for the sale of all of the shares in the Target Companies (“Sale”).

12.  The terms of the 18/11/16 SPA were subsequently varied and/or supplemented by a total of five written agreements entered into on the following dates:

a.  6 January 2017 (“6/1/17 SPA”);

b.  6 July 2017 (“6/7/17 SPA”);

c.  25 July 2017 (“25/7/17 SPA”);

d.  November 2017 (“11/17 SPA”).  Under the 11/17 SPA, the remaining shares in the Target Companies were to be transferred to 广州增城区泰禾置业有限公司and 广州增城区泰禾恒昇置业有限公司 (together the “2^nd Tahoe Buyers”); and

e.  16 April 2018 (“16/4/18 SPA”).

13.  In relation to the Southern Land Conditions:

a.  In the 18/11/16 SPA, the terms of Clause 5.4.1 are similar to those contained in Clause 1.1.2 of the Service Agreement, save that Clause 5.4.1 does not provide for the transfer of the benefit of land premium paid by the Target Companies to the new project companies, but rather that the Tahoe Companies have undertaken the obligation to facilitate the acquisition of the Southern Land and that Ds and Tahoe would separately agree on the mechanism to transfer the land premium to Ds.

b.  In the 6/7/17 SPA, there is no provision for Tahoe and the 1^st Tahoe Buyers to use best their endeavours to assist D4 and D5 in obtaining grants over the Southern Land, and in transferring the benefit of land premiums to the new project companies.

14.  In relation to the School Conditions:

a.  In the 18/11/16 SPA, Clause 5.4.2 provides that D4 and D5 shall procure the move of the School to the Southern Land within 2 years after full payment of the sale consideration at their own costs.  Alternatively, upon the 1^st Tahoe Buyers’ written consent, D4 and D5 may relocate the School to a temporary site within the Subject Land designated by the 1^st Tahoe Buyers for 3 years pending its move to the Southern Land.

b.  In the 6/7/17 SPA, Clause 5 provides that within half a year after the 1^st Tahoe Buyers obtain the construction permit for the Subject Land, they would complete the necessary land formation and setting back works for a site in the Subject Land designated for the new School and handover the same to D4 and D5, whereupon D4 and D5 would complete construction of the new School at their own costs within 2 years and the move of the School to such site within one year thereafter.

c.  In the 16/4/18 SPA:

i.  Clause 1 provides that the 1^st Tahoe Buyers and the 2^nd Tahoe Buyers (together the “Tahoe Buyers”) agreed to procure the surrender and regrant of a portion of the Subject Land which shall be designated as the new School site and to facilitate the local authority’s land use change procedures.

ii.  Clauses 2 and 3 provide, inter alia, that upon the Tahoe Buyers agreeing to the surrender and regrant at nil land premium and signing necessary documents and payment of RMB200 million to D4 and D5, the Tahoe Buyers would be treated as having fully discharged their obligations under the 18/11/16 SPA (as varied) with respect to the School.

15.  Between 10 January 2017 and 23 January 2018, Ds received full payment totalling around RMB4.3 billion from Tahoe’s side in respect of the Sale.

16.  Since 19 September 2017, Ds began to make payment of the Service Fee under the Service Agreement to P.  However, payment stopped after 2018 and resumed again in 2020 when P demanded for the same.  The last payment was made on 9 October 2020.  In total, P has received RMB728,260,451.65, ie around 54% of the Service Fee due.

Writ of Summons and SOC

17.  In view of the non-payment of the outstanding balance of the Service Fee, P issued the Writ of Summons with indorsement of claim on 17 November 2022 and subsequently filed the SOC on 16 December 2022 against Ds.

18.  The salient parts of the SOC are as follows:

a.  In Section B entitled “Service Agreement”, P first pleads the background of the Service Agreement, namely that Ds were unable to develop the Subject Land on their own and engaged Mr Chen to “introduce potential buyers and to negotiate the terms with such buyers” (SOC §§10 – 11).

b.  The relevant express terms of the Service Agreement, including Clauses 1.1 and 1.1.1 – 1.1.3, are then pleaded in Section B of the SOC.  Notably, it is pleaded that:

i.  by Clause 1.1, the terms of the sale should “satisfy” the Conditions (SOC §13.1);

ii.  Clauses 1.1.2 and 1.1.3 require the SPA to include terms “to the effect” that the stipulated matters in the Southern Land Conditions and the School Conditions are performed (SOC §13.2);

iii.  by Clause 2.1, Ds agreed that, upon completion of the relevant services set out in Clause 1.1, Ds shall pay the Original Intermediaries the Service Fee (SOC §13.3);

iv.  by “Clauses 2.4 and 2.4.4…the Service Fee…would be payable in the event that the Defendants reached final agreement with Tahoe or…Tahoe Companies”  (SOC §13.4); and

v.  P shall “rely on the Service Agreement and the Supplemental Service Agreement for their full terms and effect at trial” (SOC §15). 

c.  In Section C entitled “Performance of the Relevant Services”, P proceeds to plead that the Original Intermediaries and P have “fully performed the Relevant Services and discharged their obligations under the Service Agreement and the Supplemental Service Agreement” (SOC §17).

d.  It then pleads the material express terms of altogether 6 agreements between Ds and the Tahoe Companies, namely the 18/11/16 SPA, the 6/1/17 SPA, 6/7/17 SPA, 25/7/17 SPA, 11/17 SPA and 16/4/18 SPA (together “SPAs”) (SOC §§18-24, 28).

e.  At the end of Section C, P then pleads:

“In the premises, the Original Intermediaries and the Plaintiff have fully discharged their obligations under the Service Agreement and the Supplemental Service Agreement by procuring Tahoe and the Tahoe Buyers to enter into the [18/11/16 SPA] (as subsequently varied) which satisfied the Conditions, and to complete the Sale, for which the Defendants received sale consideration as pleaded in paragraphs 26 to 27 above” (SOC §29) (emphasis added).

THE DEFENDANTS’ STRIKING OUT SUMMONS

19.  On 18 April 2023, Ds issued the Summons to strike out the Writ of Summons and the SOC.

20.  Although all 4 limbs under O18 r19(1) RHC are relied upon in the Summons, Ds’ primary contention is that the SOC discloses no reasonable cause of action and it ought to be struck out pursuant to O18 r19(1)(a).

21.  In particular, as will be further discussed below, Ds contend that even on P’s own pleaded case, there is a mismatch between the Conditions (the satisfaction of which would trigger Ds’ obligation to pay the Service Fee to P) and performance under the Service Agreement.  Ds point to the fact that some of the key Conditions do not feature at all in the SPAs eventually entered into between Ds and the Tahoe Buyers.

22.  Ds therefore contend that the obligation to pay the Service Fee under the Service Agreement had therefore not been triggered.  Accordingly, P is not entitled to any Service Fee and its Writ of Summons and SOC therefore ought to be struck out and its action dismissed.

RELEVANT LEGAL PRINCIPLES

23.  The principles relating to a strike out application are trite.  The court’s jurisdiction to strike out a claim is to be exercised only in a plain and obvious case, although plain does not mean simple and obvious does not mean short.  The mere fact that the case is weak and not likely to succeed are not grounds for a strike out: Hong Kong Civil Procedure 2024, Vol 1 at §18/19/4.

24.  The court may strike out a statement of claim without dismissing the action and give the plaintiff an opportunity to amend the statement of claim when it finds the pleading to be defective, but cannot go so far to say that no reasonable cause of action could ever be pleaded.  After all, as provided in O1A r2(2) RHC, in giving effect to the underlying objectives of those rules, the Court shall always recognise that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties.  See Suen Wah Fai & Anr v CIS Global Opportunities Fund SPC & Ors[2023] HKCFI 2493 at §43 per DHCJ H Au-Yeung; Sun Focus Investment Ltd v Tang Shing Bor & Anr (unrep, HCA 538/2007, 5 Oct 2009) at §35 per Recorder Shieh SC.

25.  As regards the need to plead the meaning of a contractual term, when a plaintiff seeks to enforce its rights under an agreement, and the fulfilment or non-fulfilment of contractual conditions forms the basis of the claim, the plaintiff ought to plead the relevant clause and the meaning which he or she contends, especially when such meaning is different from the apparent meaning of the clause.  In this regard, in Schindler Lifts (Hong Kong) Ltd v Nikko Services Ltd (unrep, HCMP 270/2014, 20 May 2014), Kwan JA (as she then was) held at §§11 – 12 as follows:

“11. Express term (a) is clearly a material provision to the plaintiff’s claim to enforce its rights under the settlement agreement. If the plaintiff should contend that this term should not be construed as a pre-condition, contrary to what might have been suggested on the face of the wording, this should be pleaded in the statement of claim, as the meaning and effect of this term is different from the apparent meaning. And if this term had not been fulfilled, or was not fulfilled within time, what is the basis of the plaintiff’s case for asserting that the defendant was in breach of the implied terms as alleged in paragraphs 11 and 12 of the statement of claim? This is not apparent from the statement of claim, nor is it apparent in what way it is alleged that the defendant failed and/or refused to achieve the withdrawal of the appeal or to co-operate with the plaintiff to achieve the withdrawal of the appeal.

12. These are crucial matters that should be pleaded in the statement of claim, not in the reply, because they formed the basis of the plaintiff’s assertion that it is entitled to enforce its rights to claim damages under the settlement agreement.  The three material paragraphs in the statement of claim quoted above are inadequate.  Pleadings are not a game of words.  They serve the important function of informing the other party and the court the factual and legal issues in dispute, so that proper preparation for trial may be made and the trial may be conducted in a manner in compliance with the underlying objectives of the rules of court.”

THE SOC DEMURRABLE ON ITS FACE?

26.  Ds’ primary contention in this striking out application is that the SOC is demurrable on its face as there is a mismatch between the Conditions and performance even on P’s own pleaded case.

27.  As mentioned in §18.b above, P has pleaded in the SOC that Clauses 1.1 and 2.1 of the Service Agreement require that the SPA to be entered into should “satisfy” the Conditions and that the Service Fee would only become payable after “completion” of the relevant services under Clause 1.1.

28.  However, as pointed out by Ds, some of the key provisions of the Conditions simply do not appear in the SPAs as entered into between Ds and the Tahoe Buyers:

a.  In respect of the Southern Land Conditions, none of the SPAs mentions the transfer of land premium to newly established project companies.  Further, the Tahoe buyer side’s best endeavours obligations to assist D4 and D5 in obtaining grants over the Southern Land and the benefit of land premiums for the new project companies are mentioned only in the 18/11/16 SPA but not in the subsequent versions of the SPAs.

b.  In respect of the School Conditions, it was primarily envisaged that the School would be moved to a new site in the Southern Land upon obtaining the authorities’ approval.  Under Clause 1.1.3 of the Service Agreement, it was only when approval was not forthcoming that the School would be moved to the Subject Land.  In any event, none of the SPAs refers to the provision of a 70 year lease at nominal rent in the event that the School had to be moved to the Subject Land.  The final terms agreed between Ds and the Tahoe Buyers as recorded in the 6/7/17 SPA and the 16/4/18 SPA could not amount a 70 year lease at nominal rent.

29.  In circumstances where the pleaded performance and the payment conditions do not match, there is prima facie no cause of action for the payment of the sum payable upon satisfaction of the conditions.

30.  As Mr Man SC, Counsel for Ds, colourfully puts it, if Y pleads a term that X shall pay Y $100 if Y provides him with 10 bananas and the plea is that Y has given X 10 apples, there can be no viable claim for $100.  To the extent that there is a construction that one can put on the word “bananas” such that it may be deemed as “apples”, such a construction would have to be pleaded.

31.  This analogy is apt in the present case.  Using the School Conditions as an example, it is not readily apparent to me from reading the SOC how a surrender and regrant by the target companies of the Subject Land and the payment of RMB200 million by the Tahoe Buyers to Ds as compensation or contribution towards any land premium payable for the regrant (as the arrangement provided for under the 16/4/18 SPA) could constitute the satisfaction of the School Conditions as originally envisaged under the Service Agreement.

32.  In such circumstances, following the pleading requirements expounded in Schindler Lifts as discussed in §25 above, it is incumbent upon P to explain how the terms provided for in the SPAs could be construed as satisfaction of the Conditions.  However, such an explanation is absent in the SOC.  In this regard:

a.  Whilst §29 of the SOC pleads that the 18/11/16 SPA (as subsequently varied) satisfied the Conditions, P has not explained how the eventual terms found in the SPAs (which are materially different from the Conditions) could be construed as being equivalent to the Conditions for the purpose of triggering Ds’ obligation to pay the Service Fee under the Service Fee Agreement.

b.  Whilst §13.2 of the SOC pleads that the SPAs should include terms “to the effect” of the Conditions such that P’s case can be construed as being that the eventual SPAs do not need to contain terms identical to the Conditions but only terms to the effect of the Conditions before the payment obligation under the Service Agreement is triggered, the fact remains that P has not explained why the terms eventually found in the SPAs, which as I have mentioned are materially different from the Conditions, nevertheless can be construed as having the effect of the Conditions.

33.  However, Mr Chang SC, Counsel for P, contends that:

a.  What P was required to do under the Service Agreement was to obtain for Ds a written document with legal effect and the Conditions of which would be reflected and be consistent with Clauses 1.1.1 – 1.1.3.

b.  Given that:

i.  the Service Agreement preceded any agreement P was to obtain for Ds;

ii.  the contemplated sale involved not only a straightforward transfer of shares but also the need to apply for and obtain increased plot ratio, seek re-vesting of and compensation for the Southern Land, and cater for the move of the School,

all these were contingencies which were not part of P’s responsibilities and their outcomes could not be guaranteed by P.

c.  As such, as a matter of construction, P’s obligations are limited to providing a contractual framework consistent with Clauses 1.1.1 – 1.1.3.  This is reinforced by Clause 2.4 of the Service Agreement which provides that “any” final agreement reached between Ds and, inter alia, Tahoe would be treated as the result of the services rendered by the Original Intermediaries to which the obligation to fully pay the Service Fee shall apply.

d.  As far as the SPAs are concerned, whilst the 18/11/16 SPA contemplates a successful move to the Southern Land, it importantly makes clear that Tahoe was committed to exploring alternatives including allowing the School to operate within the Subject Land if such need should arise.  Indeed, this was what happened.  The Conditions are only “contingencies” beyond P’s control and not something which P has promised to deliver.  The 18/11/16 SPA has indeed provided the framework to cater for the contingencies that the Southern Land could not be obtained and that the School could not be moved there.

e.  As such, P has clearly performed its obligations under the Service Agreement and is entitled to full payment of the Service Fee.

34.  Whilst this construction of the Service Agreement by P (“P’s Construction”) cannot be dismissed as unarguable at this stage (see also further discussions in §43 below), the fact remains that this has not been pleaded in the SOC, nor is the meaning/construction of the terms of the Service Agreement now advanced by P apparent from reading the terms themselves.

35.  Although the relevant averments supporting P’s Construction have now been pleaded in §4 of P’s Reply filed on 22 November 2023 (ie after the last hearing before the Master on 25 October 2023), they should have been pleaded in the SOC and not in the Reply because they formed the basis of P’s assertion that it is entitled to enforce its rights to recover the outstanding Service Fee under the Service Agreement (see Schindler Lifts at §12).

36.  As an alternative to P’s Construction, P contends that even if the terms of the SPAs did not satisfy Clauses 1.1.2 – 1.1.3 of the Service Agreement:

a.  Ds had waived any alleged non-compliance since:

i.  these clauses operated solely for Ds’ benefits;

ii.  Ds being privy to the Service Agreement plainly knew that these terms existed and were for their benefit; and

iii.  Ds communicated its waiver to P by entering into various SPAs and the Supplemental Service Agreement and by making part payments of the Service.

(“Waiver Contention”)

b.  Ds are estopped from insisting upon full compliance with Clauses 1.1.2 – 1.1.3 since:

i.  Ds made an unequivocal representation by conduct to P that Ds had waived Clauses 1.1.2 – 1.1.3 in entering into the 18/11/16 SPA, the 6/1/17 SPA and the Supplemental Service Agreement;

ii.  Ds’ payments to P as mentioned in §16 above further perpetuated the aforesaid representation;

iii.   P detrimentally relied on Ds’ representation, for eg, by procuring Tahoe to continue to perform the various SPAs and expending its connections and resources to achieve the above, and by abstaining from taking measures for the protection of its rights under the Service Agreement etc.

(“Estoppel Contention”)

37.  However, similar to P’s Construction, the Waiver Contention and the Estoppel Contention have not been pleaded in the SOC but only in the Reply.

38.  Whilst a plaintiff does not need to anticipate the defence, if a plea is invoked as effectively founding a cause of action, this should not be done in the reply but be introduced in the statement of claim (see Herbert v Vaughan [1972] 1 WLR 1128 at 1133C per Goff J (as he then was)).

39.  P has referred me to Sports Mantra India Private Ltd & Anr v Force India Formula One Team Ltd (In Liq) [2019] EWHC 2514 at §114 per DHCJ Ashworth QC and Amalgamated Investment & Property Co Ltd v Texas Commerce International Bank Ltd [1982] QB 84 at 131F-H per Brandon LJ as suggesting that the proper place of pleading estoppel/waiver is in the reply. 

40.  These seem to be cases where despite the plea of estoppel, there were already complete causes of action pleaded on the face of the statement of claims (see Sports Mantra at §§19-21, 23(c), 93-94, 114-116 and Amalgamated Investment & Property Co Ltd at 131F-H).  However, in the present case, in light of my view expressed above that there is a mismatch between the Conditions and performance and that a complete cause of action has not been pleaded in the SOC, these authorities do not assist P.

41.  In the circumstances, I am of the view that the SOC is demurrable on its face and is liable to be struck out on this basis.

PROPER ORDER TO BE MADE

42.  As Mr Man acknowledged at the hearing, based on the authorities referred to in §24 above, if I am of the view that the present SOC is demurrable on its face but that a non-demurrable SOC could have been pleaded, this Court may nevertheless give an opportunity to P to amend the SOC to salvage its claim without dismissing the action.

43.  Whilst Ds contend that P’s claim is bound to fail anyway because, inter alia, as a matter of contractual interpretation, Clauses 1.1.2 and 1.1.3 of the Service Agreement demand strict and literal compliance and that they have not been satisfied in the present instance, I cannot dismiss P’s Construction as unarguable for the following reasons:

a.  Clear words are required before a clause is classified as a condition precedent (in the sense that the condition must be precisely fulfilled), since it may deprive a contractual party of a right for a trivial breach that bears little or no prejudice and loss on the other: Lewison on the Interpretation of Contracts (7^th Ed, 2020) at §16.14.

b.  Clause 1.1 of the Service Agreement provides that the conditions set out in Clauses 1.1.1 – 1.1.3 are to be satisfied or “滿足”.  It may be argued that those words do not call for strict and literal compliance.

c.  In light of the contextual matters set out in §33 above, it is not unarguable that Clauses 1.1.2 – 1.1.3 did not intend to operate as conditions precedent requiring strict and literal compliance before P would be entitled to the Service Fee.

d.  Indeed, it may be said that a literal and strict interpretation of the Conditions would be against Ds’ own interests as sellers as this would leave no room for negotiation with the potential buyers on those conditions, and thus making a successful sale more difficult.

44.  In the circumstances, I am unable to conclude that P’s claim is bound to fail on the ground that P failed to “satisfy” the Conditions because they are not strictly and literally complied with.

45.  During the hearing, Ds also contended that P’s alternative case on waiver/estoppel is bound to fail.  However, in light of my ruling above that P’s claim is not bound to fail on its contractual interpretation contention, it is not necessary for me to rule on these alternative grounds.

46.  In light of the above, since it cannot be said that P’s claim is unarguable or bound to fail, I am of the view that the proper order to be made is to strike out the SOC but to give P an opportunity to amend. In this regard, Ds have helpfully drawn my attention to Suen Wah Fai at §46 per DHCJ H Au-Yeung for an example of the orders made in similar circumstances which I have considered in arriving at the orders set out below.

DISPOSITION

47.  For the above reasons, I allow Ds’ appeal and make the following orders:

a.  Paragraphs 1 and 2 of the Master’s Order be set aside.

b.  P’s SOC be struck out.

c.  P is at liberty to lodge and serve its draft Amended Statement of Claim (“Draft ASOC”) within 28 days from the date of this decision.

d.  P and Ds shall write jointly to the Court within 28 days thereafter and seek directions in relation to the Draft ASOC.  In the event that Ds contend that P’s claims cannot be salvaged by the amendments as proposed in the Draft ASOC, parties shall endeavour to agree on how the issue may be further dealt with by the Court.  In such circumstances, they shall also consider, inter alia, whether any further argument may be dealt with by way of paper disposal.

e.  In the event that P fails to comply with §47d above, the Writ of Summons filed herein be struck out and the action be dismissed.

48.  As for costs, I see no reason why costs should not follow the event.  I therefore make an order nisi that costs of the appeal and the Summons be paid by P to Ds with certificate for two counsel, such costs to be taxed if not agreed.  The costs order nisi shall become absolute 14 days after the date of handing down of this decision.

49.  I thank all Counsel for their assistance.