HCA1856/2020 CHINA LUDAO TECHNOLOGY CO LTD AND ANOTHER v. PERFECT CENTURY GROUP LTD - LawHero
HCA1856/2020
高等法院（民事訴訟）Mr Recorder William Wong SC20/12/2021[2021] HKCFI 3855
HCA1856/2020
A A
HCA 1856/2020
[2021] HKCFI 3855
B B
IN THE HIGH COURT OF THE
C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
D D
ACTION NO 1856 OF 2020
E
______________ E
BETWEEN
F F
CHINA LUDAO TECHNOLOGY COMPANY LIMITED 1st Plaintiff
G G
PROSPER ONE DEVELOPMENT LIMITED 2nd Plaintiff
H H
and
I PERFECT CENTURY GROUP LIMITED Defendant I
J ______________ J
K K
Before: Mr Recorder William Wong SC in Chambers
L Date of Hearing: 21 December 2021 L
M Date of Decision: 21 December 2021 M
Date of Handing Down Reasons for Decision: 29 December 2021
N N
O O
REASONS FOR DECISION
P P
Q Q
R
INTRODUCTION R
S 1. The Plaintiffs, by a summons dated 10 November 2021, apply S
for default judgment against the Defendant.
T T
U U
V V
A A
2. The relevant facts as set out in the Statement of Claim (“SOC”)
B B
are:
C C
(a) The Plaintiffs entered into a sale and purchase agreement on
D D
29 November 2017 (“Agreement”) in respect of the shareholding
E of Ever Clever Group Limited with D (“Target Company”): see E
SOC at §2.
F F
G (b) Under the Agreement (which was varied by two supplemental G
agreements), the 2nd Plaintiff agreed to purchase and the
H H
Defendant agreed to sell 25% of the shares in the Target Company
I for a consideration of RMB 160 million (“Consideration”): see I
SOC at §§3-4.
J J
K (c) On top of a cash payment of RMB 112 million, the rest of the K
Consideration was paid via the issue of the 1st Plaintiff’s shares
L L
and convertible bonds (“CBs”) equivalent to RMB 16 million and
M RMB 32 million respectively: see SOC at §6. M
N N
(d) The Plaintiffs duly discharged their obligations under the
O Agreement and paid the Consideration in full in accordance with O
the terms of the Agreement: see SOC at §14.
P P
Q (e) The Target Company holds a 80% equity interest in Huailai Xian Q
Hengji Heat Supply Limited Company (“HGRL”), a company
R R
incorporated in the PRC: see SOC at §1(e).
S S
(f) Under the Agreement:-
T T
U U
V V
- 3 -
A A
(i) The Defendant guaranteed to the Plaintiffs that the audited
B B
net profit after tax of HGRL for each of the three twelve-
C month periods ending 31 March 2018, 2019 and 2020 shall C
not be less than the set amounts (“Profit Guarantees”): see
D D
SOC at §7.
E E
(ii) The Defendant is also under an obligation to procure
F F
HGRL to complete the audit of HGRL within 90 days from
G the end of each of the said twelve month periods and submit G
the audited financial statements to Ps: see SOC at §8.
H H
I (iii) If HGRL’s profits do not meet the levels stipulated under I
the Profit Guarantees, the Defendant shall pay the
J J
2nd Plaintiff amounts calculated by reference to the
K shortfall multiplied by a factor of 14.5 (“Profit K
Compensation”): see SOC at §§9, 10, 11.
L L
M (iv) The Plaintiffs have the absolute discretion to choose M
between various forms of compensation including but not
N N
limited to the cancellation of the CBs issued by the
O 1st Plaintiff to the Defendant: see SOC at §§9(c)(iii), O
10(c)(iii), 11(c)(iii), and 12.
P P
Q (g) In breach of the Agreement, the Defendant has failed and/or Q
refused to procure HGRL to deliver to the Plaintiffs the audited
R R
financial statements of HGRL in respect of each of the three
S twelve-month periods ending respectively 31 March 2018, 2019 S
and 2020: see SOC at §15.
T T
U U
3
V V
- 4 -
A A
(h) The Plaintiffs were and still are unable to assess whether the Profit
B B
Guarantees have been met and the amount of compensation which
C the Defendant is liable to pay by reason of the Defendant’s failure C
to provide the audited financial statements of HGRL: see SOC at
D D
§§16-17.
E E
(i) Thus, the Plaintiffs claim for, inter alia, an order for specific
F F
performance that the Defendant deliver up the relevant audited
G financial statements of HGRL, a sum representing the G
compensation payable under the Agreement (calculated on the
H H
basis that HGRL was not profitable during the relevant periods),
I and a declaration that the Plaintiffs are entitled to cancel the CBs I
to the extent of any sums awarded to them.
J J
K 3. The Plaintiffs have served the writ together with the SOC on the K
Defendant on 12 January 2021 pursuant to Master Dick Ho’s order dated
L L
16 December 2020.
M M
4. However, as of this day, the Defendant has not acknowledged
N N
service and/or filed any defence and did not take any steps in this action. In
O the circumstances, the Plaintiffs now seek to enter default judgment against the O
Defendant.
P P
Q APPLICABLE LEGAL PRINCIPLES Q
R R
Legal Principles relevant to a default judgment application
S S
5. In an application for judgment in default of defence, the Court
T T
will assume that the SOC has been impliedly admitted and will give judgment
U U
4
V V
- 5 -
A A
according to the SOC alone without receiving any evidence: see Wu Ka v Wu
B B
Kuo Cheng [2003] 3 HKLRD 658 at §6 per Deputy Judge Wong SC.
C C
6. The Court’s practice in relation to the grant of declaratory relief
D D
in a default judgment application is summarised under Hong Kong Civil
E Procedure (2022), §19/7/20:- E
F F
(a) It is not the normal practice of the Court to make a declaration
G without a trial, particularly where the declaration is that the G
defendant in default of defence has acted fraudulently.
H H
I (b) However, this is only a rule of practice which should not be I
followed when the plaintiff has a genuine need for the declaratory
J J
relief and justice will not be done if such relief are denied.
K K
(c) Where declaratory relief is sought, the Court will scrutinise the
L L
application for default judgment carefully and does not hastily
M grant the relief sought. M
N N
(d) The declaratory relief to be granted should not be in terms wider
O than what the plaintiffs are entitled to and what is necessary to do O
justice to them.
P P
Q Analysis Q
R R
7. The main reliefs sought are (i) an order for specific performance
S that the Defendant deliver up the relevant audited financial statements of S
HGRL, (ii) a sum representing the compensation payable under the Agreement
T T
(calculated on the basis that HGRL was not profitable during the relevant
U U
5
V V
- 6 -
A A
periods), and (iii) a declaration that the Plaintiffs are entitled to cancel the CBs
B B
to the extent of any sums awarded in their favour.
C C
8. I am of the view that an order should be made in favour of the
D D
Plaintiffs in terms of the draft orders as submitted to this Court save and except
E that no order should be made in terms of paragraph 3(3) and 5 on the basis that E
the Court will not make an order which is academic. I now give my reasons.
F F
G 9. First, I am of the view that the Plaintiffs are entitled to have the G
audited financial statements of HGRL for each of the three twelve-month
H H
periods ending 31 March 2018, 31 March 2019 and 31 March 2020 under
I Clause 6.2 of the Agreement. They have a contractual right to the same. There I
is no strong reason why the same should not be delivered to the Plaintiffs.
J J
K 10. The relevant principles in relation to specific performance was set K
out in Pacific Harbor Advisors Pte Ltd v Winson Federal Ltd, unreported
L L
HCA 1257/2013, 19 November 2015 at §§55-59, per DHCJ R Ismail SC at
M §§55-59:- M
N N
(a) The elements for the relief of specific performance are (a) that
O there is a complete, binding and valid contract (b) that the O
contractual terms are sufficiently certain and (c) that damages are
P P
not an adequate remedy.
Q Q
(b) There has been a growing tendency by the courts not to treat the
R R
adequacy of damages as a necessary threshold to surpass, but
S rather to ask the ultimate question of whether it would be more S
just to grant specific performance than to award damages.
T T
U U
6
V V
- 7 -
A A
(c) Where there is a risk that the defendant will be unable to satisfy
B B
an order for damages (e.g. the defendant has an unknown
C financial status), that would in and of itself be enough to justify C
the conclusion that damages are inadequate.
D D
E 11. Applying the above principles to the facts of the present case, I E
am of the view that:-
F F
G (a) There is a complete, binding and valid contract between the G
Plaintiffs and the Defendant in the form of the Agreement.
H H
Further, the Defendant is under a specific obligation under Clause
I 6.2 of the Agreement to procure the completion of the audit of the I
relevant financial statements and to submit the same to the
J J
Plaintiffs.
K K
(b) The Plaintiffs have an indirect interest in HGRL by reason of their
L L
25% interest in the Target Company. They plainly have an
M interest to obtain a copy of the relevant audited financial M
statements of HGRL so that they can understand how HGRL is
N N
doing financially.
O O
(c) It is also difficult to put a monetary value on the Defendant’s
P P
obligation under Clause 6.2 of the Agreement to procure the
Q completion of the audit of the relevant financial statements and to Q
submit the said financial statements to the Plaintiffs.
R R
S 12. There is nothing objectionable to order the Defendant to perform S
its contractual obligations.
T T
U U
7
V V
- 8 -
A A
13. Secondly, the 2nd Plaintiff seeks a liquidated sum representing the
B B
compensation payable (calculated on the basis that HGRL was not profitable
C during the relevant periods). C
D D
14. I note the Plaintiffs’ case that the Defendant has failed and/or
E refused to procure HGRL to deliver to the Plaintiffs the relevant audited E
financial statements of HGRL such that it is difficult for the Plaintiffs to know
F F
precisely whether the Profit Guarantees have been met and, if so, the amount
G of compensation which the Defendant is liable to pay under the Agreement. G
H H
15. Nonetheless, the 2nd Plaintiff does claim a sum in the amount of
I the Cash Compensation payable by the Defendant representing the profit I
compensation in respect of the years ended 31 March 2018, 31 March 2019
J J
and 31 March 2020 under Clauses 6.3.2, 6.4.2 and 6.5.2 of the Agreement.
K K
16. Mr Tai for the Plaintiffs referred this Court to the case of Armory
L L
v Delamirie (1722) 1 Str 505. Mr Tai submitted that if a claimant’s proof has
M been made more difficult by the defendant’s wrong, the principle “raises an M
evidential presumption in favour of the claimant which gives him the benefit of
N N
th
any relevant doubt”: see Chitty on Contracts (34 Edn) at §29-019,
O Footnote 118; Fearns v Anglo-Dutch Paint & Chemical Co Ltd [2010] EWHC O
1708 (Ch) at §70 per G Leggatt QC (as he then was); Morris-Garner v One
P P
Step (Support) Ltd [2018] UKSC 20 at §38 per Lord Reed.
Q Q
17. Mr Tai for the Plaintiffs submitted that in light of the Defendant’s
R R
repeated failure to procedure the relevant audited financial statements of
S HGRL, this Court is entitled to resolve this uncertainty against the Defendant S
and to proceed on the basis that HGRL did not make any profit for the years
T T
ended 31 March 2018, 31 March 2019 and 31 March 2020. Mr Tai’s point is
U U
8
V V
- 9 -
A A
that if the Defendant has reached the contractual profit targets, the Defendant
B B
would have voluntarily disclosed the relevant financial statements. Its failure
C to do so points to the fact that the relevant profit targets have not been reached. C
I agree.
D D
E 18. Hence, I am of the view that the 2nd Plaintiff is entitled to claim E
the sums of:-
F F
G (a) RMB 797.5 million1, calculated by reference to the formula under G
Clause 6.3.2 of the Agreement, which represents the 1st Year
H H
Profit Compensation as defined at §9(b) of the SOC.
I I
(b) RMB 942.5 million2, calculated by reference to the formula under
J J
Clause 6.4.2 of the Agreement, which represents the 2nd Year
K Profit Compensation as defined at §10(b) of the SOC. K
L L
(c) RMB 1087.5 million 3 , calculated by reference to the formula
M under 6.5.2 of the Agreement, which represents the 3rd Year Profit M
Compensation as defined at §11(b) of the SOC.
N N
O 19. Thirdly, the Plaintiffs seek a declaration that they are entitled to O
cancel and avoid and/or procure the cancellation and avoidance of the CBs to
P P
the extent of any sums and/or damages awarded in their favour.
Q Q
20. It is explained in the 3rd Affirmation of Ho Ka Wai dated
R R
st
14 December 2021 that the 1 Plaintiff was informed by its auditors that they
S S
1
T RMB 55 million x 14.5 (1st Year Guaranteed Profit multiplied by a factor of 14.5) T
2
RMB 65 million x 14.5 (2nd Year Guaranteed Profit multiplied by a factor of 14.5)
3
RMB 75 million x 14.5 (3rd Year Guaranteed Profit multiplied by a factor of 14.5)
U U
9
V V
- 10 -
A A
would only accept the cancellation of the CBs if there was a court order to that
B B
effect. Accordingly, without a court order, the auditors would not remove the
C references to the CBs from the financial statements of the 1st Plaintiff. C
D 21. This Court is agreeable to render assistance so that clarity can be D
provided to the 1st Plaintiff’s auditors and will enable any set off of the CBs
E E
issued to the Defendant to be properly reflected in the 1 Plaintiff’s financial
st
F statements. I agree that this is of material importance to the 1st Plaintiff as it is F
a company listed on the Main Board of the Stock Exchange of Hong Kong
G G
Limited.
H H
SERVICE
I I
J 22. Mr Tai also submitted that given that the Defendant has not J
acknowledged service, strictly speaking, the Summons does not have to be
K K
served on the Defendant by reason of RHC O.65, r.9. Out of an abundance of
L caution, the Plaintiffs served the Summons on the Defendant at its registered L
office in the British Virgin Islands. However, leave of this Court is required
M M
before the Summons could be served on the Defendant out of jurisdiction under
N RHC O.11, r.9(4). N
O O
23. In the circumstances, Mr Tai for the Plaintiffs invited this Court
P P
to grant retrospective leave for the service of the Summons and all other or
Q
further documents of these proceedings on the Defendant at its registered Q
address or elsewhere in the British Virgin Islands: see e.g. Re Dragon Concept
R R
HK Ltd [2020] HKCFI 2535 at §2 per G Lam J (as he then was); Sham Wai
S
Bun v Net Effect Limited [2021] HKCFI 2409 at §12 per DHCJ Raymond S
Leung SC; Hong Kong Civil Procedure (2022) at §11/9/13.
T T
U U
10
V V
- 11 -
A A
DISPOSITION
B B
C 24. For all the reasons stated above, I made an order in terms of the C
draft orders as submitted to this Court save and except that this Court does not
D D
find it necessary to grant any order in relation to any damages to be assessed
E as Mr Tai quite rightly submitted that the same will be rather academic. E
F F
25. I also make an order that the Plaintiff is entitled to costs of and
G occasioned by this application and the same is to be taxed on party to party G
basis if the parties cannot reach any agreement.
H H
26. Finally, it remains for this Court to thank Mr Tai for the Plaintiffs
I I
for his helpful assistance.
J J
K K
L (William Wong SC) L
Recorder of the High Court
M M
N Mr Terrence Tai, instructed by Ma Tang & Co., for the Plaintiffs N
O The Defendant was not represented and did not appear O
P P
Q Q
R R
S S
T T
U U
11
V V
CHINA LUDAO TECHNOLOGY CO LTD AND ANOTHER v. PERFECT CENTURY GROUP LTD
A A
HCA 1856/2020
[2021] HKCFI 3855
B B
IN THE HIGH COURT OF THE
C C
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
D D
ACTION NO 1856 OF 2020
E
______________ E
BETWEEN
F F
CHINA LUDAO TECHNOLOGY COMPANY LIMITED 1st Plaintiff
G G
PROSPER ONE DEVELOPMENT LIMITED 2nd Plaintiff
H H
and
I PERFECT CENTURY GROUP LIMITED Defendant I
J ______________ J
K K
Before: Mr Recorder William Wong SC in Chambers
L Date of Hearing: 21 December 2021 L
M Date of Decision: 21 December 2021 M
Date of Handing Down Reasons for Decision: 29 December 2021
N N
O O
REASONS FOR DECISION
P P
Q Q
R
INTRODUCTION R
S 1. The Plaintiffs, by a summons dated 10 November 2021, apply S
for default judgment against the Defendant.
T T
U U
V V
A A
2. The relevant facts as set out in the Statement of Claim (“SOC”)
B B
are:
C C
(a) The Plaintiffs entered into a sale and purchase agreement on
D D
29 November 2017 (“Agreement”) in respect of the shareholding
E of Ever Clever Group Limited with D (“Target Company”): see E
SOC at §2.
F F
G (b) Under the Agreement (which was varied by two supplemental G
agreements), the 2nd Plaintiff agreed to purchase and the
H H
Defendant agreed to sell 25% of the shares in the Target Company
I for a consideration of RMB 160 million (“Consideration”): see I
SOC at §§3-4.
J J
K (c) On top of a cash payment of RMB 112 million, the rest of the K
Consideration was paid via the issue of the 1st Plaintiff’s shares
L L
and convertible bonds (“CBs”) equivalent to RMB 16 million and
M RMB 32 million respectively: see SOC at §6. M
N N
(d) The Plaintiffs duly discharged their obligations under the
O Agreement and paid the Consideration in full in accordance with O
the terms of the Agreement: see SOC at §14.
P P
Q (e) The Target Company holds a 80% equity interest in Huailai Xian Q
Hengji Heat Supply Limited Company (“HGRL”), a company
R R
incorporated in the PRC: see SOC at §1(e).
S S
(f) Under the Agreement:-
T T
U U
V V
- 3 -
A A
(i) The Defendant guaranteed to the Plaintiffs that the audited
B B
net profit after tax of HGRL for each of the three twelve-
C month periods ending 31 March 2018, 2019 and 2020 shall C
not be less than the set amounts (“Profit Guarantees”): see
D D
SOC at §7.
E E
(ii) The Defendant is also under an obligation to procure
F F
HGRL to complete the audit of HGRL within 90 days from
G the end of each of the said twelve month periods and submit G
the audited financial statements to Ps: see SOC at §8.
H H
I (iii) If HGRL’s profits do not meet the levels stipulated under I
the Profit Guarantees, the Defendant shall pay the
J J
2nd Plaintiff amounts calculated by reference to the
K shortfall multiplied by a factor of 14.5 (“Profit K
Compensation”): see SOC at §§9, 10, 11.
L L
M (iv) The Plaintiffs have the absolute discretion to choose M
between various forms of compensation including but not
N N
limited to the cancellation of the CBs issued by the
O 1st Plaintiff to the Defendant: see SOC at §§9(c)(iii), O
10(c)(iii), 11(c)(iii), and 12.
P P
Q (g) In breach of the Agreement, the Defendant has failed and/or Q
refused to procure HGRL to deliver to the Plaintiffs the audited
R R
financial statements of HGRL in respect of each of the three
S twelve-month periods ending respectively 31 March 2018, 2019 S
and 2020: see SOC at §15.
T T
U U
3
V V
- 4 -
A A
(h) The Plaintiffs were and still are unable to assess whether the Profit
B B
Guarantees have been met and the amount of compensation which
C the Defendant is liable to pay by reason of the Defendant’s failure C
to provide the audited financial statements of HGRL: see SOC at
D D
§§16-17.
E E
(i) Thus, the Plaintiffs claim for, inter alia, an order for specific
F F
performance that the Defendant deliver up the relevant audited
G financial statements of HGRL, a sum representing the G
compensation payable under the Agreement (calculated on the
H H
basis that HGRL was not profitable during the relevant periods),
I and a declaration that the Plaintiffs are entitled to cancel the CBs I
to the extent of any sums awarded to them.
J J
K 3. The Plaintiffs have served the writ together with the SOC on the K
Defendant on 12 January 2021 pursuant to Master Dick Ho’s order dated
L L
16 December 2020.
M M
4. However, as of this day, the Defendant has not acknowledged
N N
service and/or filed any defence and did not take any steps in this action. In
O the circumstances, the Plaintiffs now seek to enter default judgment against the O
Defendant.
P P
Q APPLICABLE LEGAL PRINCIPLES Q
R R
Legal Principles relevant to a default judgment application
S S
5. In an application for judgment in default of defence, the Court
T T
will assume that the SOC has been impliedly admitted and will give judgment
U U
4
V V
- 5 -
A A
according to the SOC alone without receiving any evidence: see Wu Ka v Wu
B B
Kuo Cheng [2003] 3 HKLRD 658 at §6 per Deputy Judge Wong SC.
C C
6. The Court’s practice in relation to the grant of declaratory relief
D D
in a default judgment application is summarised under Hong Kong Civil
E Procedure (2022), §19/7/20:- E
F F
(a) It is not the normal practice of the Court to make a declaration
G without a trial, particularly where the declaration is that the G
defendant in default of defence has acted fraudulently.
H H
I (b) However, this is only a rule of practice which should not be I
followed when the plaintiff has a genuine need for the declaratory
J J
relief and justice will not be done if such relief are denied.
K K
(c) Where declaratory relief is sought, the Court will scrutinise the
L L
application for default judgment carefully and does not hastily
M grant the relief sought. M
N N
(d) The declaratory relief to be granted should not be in terms wider
O than what the plaintiffs are entitled to and what is necessary to do O
justice to them.
P P
Q Analysis Q
R R
7. The main reliefs sought are (i) an order for specific performance
S that the Defendant deliver up the relevant audited financial statements of S
HGRL, (ii) a sum representing the compensation payable under the Agreement
T T
(calculated on the basis that HGRL was not profitable during the relevant
U U
5
V V
- 6 -
A A
periods), and (iii) a declaration that the Plaintiffs are entitled to cancel the CBs
B B
to the extent of any sums awarded in their favour.
C C
8. I am of the view that an order should be made in favour of the
D D
Plaintiffs in terms of the draft orders as submitted to this Court save and except
E that no order should be made in terms of paragraph 3(3) and 5 on the basis that E
the Court will not make an order which is academic. I now give my reasons.
F F
G 9. First, I am of the view that the Plaintiffs are entitled to have the G
audited financial statements of HGRL for each of the three twelve-month
H H
periods ending 31 March 2018, 31 March 2019 and 31 March 2020 under
I Clause 6.2 of the Agreement. They have a contractual right to the same. There I
is no strong reason why the same should not be delivered to the Plaintiffs.
J J
K 10. The relevant principles in relation to specific performance was set K
out in Pacific Harbor Advisors Pte Ltd v Winson Federal Ltd, unreported
L L
HCA 1257/2013, 19 November 2015 at §§55-59, per DHCJ R Ismail SC at
M §§55-59:- M
N N
(a) The elements for the relief of specific performance are (a) that
O there is a complete, binding and valid contract (b) that the O
contractual terms are sufficiently certain and (c) that damages are
P P
not an adequate remedy.
Q Q
(b) There has been a growing tendency by the courts not to treat the
R R
adequacy of damages as a necessary threshold to surpass, but
S rather to ask the ultimate question of whether it would be more S
just to grant specific performance than to award damages.
T T
U U
6
V V
- 7 -
A A
(c) Where there is a risk that the defendant will be unable to satisfy
B B
an order for damages (e.g. the defendant has an unknown
C financial status), that would in and of itself be enough to justify C
the conclusion that damages are inadequate.
D D
E 11. Applying the above principles to the facts of the present case, I E
am of the view that:-
F F
G (a) There is a complete, binding and valid contract between the G
Plaintiffs and the Defendant in the form of the Agreement.
H H
Further, the Defendant is under a specific obligation under Clause
I 6.2 of the Agreement to procure the completion of the audit of the I
relevant financial statements and to submit the same to the
J J
Plaintiffs.
K K
(b) The Plaintiffs have an indirect interest in HGRL by reason of their
L L
25% interest in the Target Company. They plainly have an
M interest to obtain a copy of the relevant audited financial M
statements of HGRL so that they can understand how HGRL is
N N
doing financially.
O O
(c) It is also difficult to put a monetary value on the Defendant’s
P P
obligation under Clause 6.2 of the Agreement to procure the
Q completion of the audit of the relevant financial statements and to Q
submit the said financial statements to the Plaintiffs.
R R
S 12. There is nothing objectionable to order the Defendant to perform S
its contractual obligations.
T T
U U
7
V V
- 8 -
A A
13. Secondly, the 2nd Plaintiff seeks a liquidated sum representing the
B B
compensation payable (calculated on the basis that HGRL was not profitable
C during the relevant periods). C
D D
14. I note the Plaintiffs’ case that the Defendant has failed and/or
E refused to procure HGRL to deliver to the Plaintiffs the relevant audited E
financial statements of HGRL such that it is difficult for the Plaintiffs to know
F F
precisely whether the Profit Guarantees have been met and, if so, the amount
G of compensation which the Defendant is liable to pay under the Agreement. G
H H
15. Nonetheless, the 2nd Plaintiff does claim a sum in the amount of
I the Cash Compensation payable by the Defendant representing the profit I
compensation in respect of the years ended 31 March 2018, 31 March 2019
J J
and 31 March 2020 under Clauses 6.3.2, 6.4.2 and 6.5.2 of the Agreement.
K K
16. Mr Tai for the Plaintiffs referred this Court to the case of Armory
L L
v Delamirie (1722) 1 Str 505. Mr Tai submitted that if a claimant’s proof has
M been made more difficult by the defendant’s wrong, the principle “raises an M
evidential presumption in favour of the claimant which gives him the benefit of
N N
th
any relevant doubt”: see Chitty on Contracts (34 Edn) at §29-019,
O Footnote 118; Fearns v Anglo-Dutch Paint & Chemical Co Ltd [2010] EWHC O
1708 (Ch) at §70 per G Leggatt QC (as he then was); Morris-Garner v One
P P
Step (Support) Ltd [2018] UKSC 20 at §38 per Lord Reed.
Q Q
17. Mr Tai for the Plaintiffs submitted that in light of the Defendant’s
R R
repeated failure to procedure the relevant audited financial statements of
S HGRL, this Court is entitled to resolve this uncertainty against the Defendant S
and to proceed on the basis that HGRL did not make any profit for the years
T T
ended 31 March 2018, 31 March 2019 and 31 March 2020. Mr Tai’s point is
U U
8
V V
- 9 -
A A
that if the Defendant has reached the contractual profit targets, the Defendant
B B
would have voluntarily disclosed the relevant financial statements. Its failure
C to do so points to the fact that the relevant profit targets have not been reached. C
I agree.
D D
E 18. Hence, I am of the view that the 2nd Plaintiff is entitled to claim E
the sums of:-
F F
G (a) RMB 797.5 million1, calculated by reference to the formula under G
Clause 6.3.2 of the Agreement, which represents the 1st Year
H H
Profit Compensation as defined at §9(b) of the SOC.
I I
(b) RMB 942.5 million2, calculated by reference to the formula under
J J
Clause 6.4.2 of the Agreement, which represents the 2nd Year
K Profit Compensation as defined at §10(b) of the SOC. K
L L
(c) RMB 1087.5 million 3 , calculated by reference to the formula
M under 6.5.2 of the Agreement, which represents the 3rd Year Profit M
Compensation as defined at §11(b) of the SOC.
N N
O 19. Thirdly, the Plaintiffs seek a declaration that they are entitled to O
cancel and avoid and/or procure the cancellation and avoidance of the CBs to
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the extent of any sums and/or damages awarded in their favour.
Q Q
20. It is explained in the 3rd Affirmation of Ho Ka Wai dated
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st
14 December 2021 that the 1 Plaintiff was informed by its auditors that they
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1
T RMB 55 million x 14.5 (1st Year Guaranteed Profit multiplied by a factor of 14.5) T
2
RMB 65 million x 14.5 (2nd Year Guaranteed Profit multiplied by a factor of 14.5)
3
RMB 75 million x 14.5 (3rd Year Guaranteed Profit multiplied by a factor of 14.5)
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A A
would only accept the cancellation of the CBs if there was a court order to that
B B
effect. Accordingly, without a court order, the auditors would not remove the
C references to the CBs from the financial statements of the 1st Plaintiff. C
D 21. This Court is agreeable to render assistance so that clarity can be D
provided to the 1st Plaintiff’s auditors and will enable any set off of the CBs
E E
issued to the Defendant to be properly reflected in the 1 Plaintiff’s financial
st
F statements. I agree that this is of material importance to the 1st Plaintiff as it is F
a company listed on the Main Board of the Stock Exchange of Hong Kong
G G
Limited.
H H
SERVICE
I I
J 22. Mr Tai also submitted that given that the Defendant has not J
acknowledged service, strictly speaking, the Summons does not have to be
K K
served on the Defendant by reason of RHC O.65, r.9. Out of an abundance of
L caution, the Plaintiffs served the Summons on the Defendant at its registered L
office in the British Virgin Islands. However, leave of this Court is required
M M
before the Summons could be served on the Defendant out of jurisdiction under
N RHC O.11, r.9(4). N
O O
23. In the circumstances, Mr Tai for the Plaintiffs invited this Court
P P
to grant retrospective leave for the service of the Summons and all other or
Q
further documents of these proceedings on the Defendant at its registered Q
address or elsewhere in the British Virgin Islands: see e.g. Re Dragon Concept
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HK Ltd [2020] HKCFI 2535 at §2 per G Lam J (as he then was); Sham Wai
S
Bun v Net Effect Limited [2021] HKCFI 2409 at §12 per DHCJ Raymond S
Leung SC; Hong Kong Civil Procedure (2022) at §11/9/13.
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A A
DISPOSITION
B B
C 24. For all the reasons stated above, I made an order in terms of the C
draft orders as submitted to this Court save and except that this Court does not
D D
find it necessary to grant any order in relation to any damages to be assessed
E as Mr Tai quite rightly submitted that the same will be rather academic. E
F F
25. I also make an order that the Plaintiff is entitled to costs of and
G occasioned by this application and the same is to be taxed on party to party G
basis if the parties cannot reach any agreement.
H H
26. Finally, it remains for this Court to thank Mr Tai for the Plaintiffs
I I
for his helpful assistance.
J J
K K
L (William Wong SC) L
Recorder of the High Court
M M
N Mr Terrence Tai, instructed by Ma Tang & Co., for the Plaintiffs N
O The Defendant was not represented and did not appear O
P P
Q Q
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