FACV No. 10 of 2008

IpsofactoJ.com: International Cases [2009] Part 5 Case 8 [CFA]


COURT OF FINAL APPEAL, HKSAR

Coram

Regent National Enterprises Ltd

- vs -

Goldlion Properties Ltd

(Raiffeisen Zentralbank Osterreich AG, Intervener)

JUSTICE KEMAL BOKHARY PJ

JUSTICE PATRICK CHAN PJ

JUSTICE R.A.V. RIBEIRO

JUSTICE NAZARETH NPJ

SIR GERARD BRENNAN NPJ

25 JUNE 2009


Judgment

Justice Bokhary PJ and Justice Chan PJ

  1. This appeal turns on the true construction of a force majeure clause and its application to the material facts properly analysed. The clause is contained in an agreement for the sale of a hotel in Hong Kong by a Hong Kong company to another Hong Kong company. At the time when the vendor entered into the agreement and at all material times thereafter, its board of directors was acting at the direction of one of the joint liquidators of its grandparent, a company incorporated in the British Virgin Islands in respect of which a winding-up order had been made there. The sale was not completed, the force majeure clause having been invoked for the purpose of relieving the vendor of its obligation to complete. That led to this litigation which the purchaser and its nominees commenced by way of an Originating Summons for specific performance.

  2. The vendor succeeded in the High Court (Deputy Judge Longley) which dismissed the Originating Summons. But in the Court of Appeal (Tang VP and Stone and Barma JJ) success went instead to the purchaser and its nominees in whose favour it was declared that the vendor “was not entitled to and did not validly invoke” the force majeure clause. In this Court, the vendor is the appellant while the purchaser and its nominees are the respondents.

  3. What resulted in the invoking of the force majeure clause was an eve of completion move made in the British Virgin Islands by a third party to set aside the winding-up order. The liquidator’s capacity depended on that order. So did everything which he had done and caused to be done in that capacity. It can safely be said that the setting aside of the winding-up order would not vitiate the agreement for sale and purchase entered into while it was extant and without notice of any move to set it aside. But does that mean that the same can safely be said about completion executed after and despite such notice? And does it mean that it can safely be said that the vendor would not be exposed to liability for completing after and despite such notice? These were matters about which the liquidator felt some concern.

  4. Legal advice was taken before invoking the force majeure clause. Relevant to those causes for concern, that advice was to the effect that the setting aside of the winding-up order would strike at the liquidator’s capacity to do what he had done qua liquidator. It was in favour of invoking the force majeure clause. As to the relevance of that strike at the liquidator’s capacity, it is to be stressed that the arrangements under which the vendor entered into the agreement for sale and purchase was one brought about and operated by the liquidator qua liquidator.

    CONSTRUCTION OF FORCE MAJEURE CLAUSES

  5. Mr Jonathan Sumption QC for the vendor and Mr Michael Beloff QC for the purchaser and its nominees each provided the Court with very helpful arguments. On the construction of force majeure clauses, however, each presented the other with some ammunition. At one stage Mr Sumption’s argument bore, as it seemed to us, some trace of the approach rejected by Lord Halsbury LC in Leader v Duffey (1888) 13 App Cas 294 at p.301 where his Lordship pointed out that one must not “begin by assuming an intention apart from the language of the instrument itself”. And at one stage Mr Beloff’s argument for a strict construction shaded into, as it seemed to us, an argument for a hostile construction. That was when he cited Sir James Wigram V-C’s announcement in Morley v Cook (1842) 2 Hare 106 at p.115 of an intention to construe a certain type of clause in a way which would discourage them.

  6. Like any other contractual provision, a force majeure clause is to be given a fair reading in its factual matrix. Of course since contracts are made to be performed, clauses invoked to remove or modify obligations of performance ought at least in general to receive a strict construction. Such a construction means that any ambiguity would be resolved against the party seeking to rely on the clause. But that is not to say that such clauses, made within the freedom of contract, are to be viewed with hostility. It is not for the courts to encourage or discourage such clauses. Whether or not such a clause is to be included in a contract must be left to the parties freely to negotiate. Indeed the justification given in Paradine v Jane (1647) Aleyn 26 at p.27 for treating contractual liability as strict is, it should be remembered, that the promisor “might have provided against it by his contract”. There are of course other acceptable ways of putting the same point as to construction. Mr Sumption offered one. No doubt having in mind the statement in Mariner International Hotels Ltd v Atlas Ltd (2007) 10 HKCFAR 1 at p.27J that “very careful scrutiny does not mean scrutiny with a jaundiced eye”, he rightly pointed out that a strict construction does not mean a jaundiced construction.

    THIS FORCE MAJEURE CLAUSE

  7. The force majeure clause in the present case is preceded by a statement of the consequences of default on the part of the vendor. That statement is followed by a right of pre-emption for the purchaser in the event of the force majeure clause being invoked. As to the circumstances in which it may be invoked, the clause provides that it may be invoked

    should the Vendor become unable or fail to complete the sale and purchase of the Property on the completion date due to any matter (including and without limitation to third party action) beyond the reasonable control of the Vendor and which in the reasonable opinion of the vendor materially hinders, prevents or obstructs the completion of the sale and purchase of the Property.

  8. It will be noticed that the formula used is “materially hinders, prevents or obstructs”. We share the view which Eve J expressed in Peter Dixon & Sons Ltd v Henderson, Craig & Co. Ltd [1919] 2 KB 778 at p.789 when he said that

    the mere fact that there was a possibility of surmounting the hindrance does not do away with or remove the hindrance. If the hindrance is insurmountable then it becomes prevention, and no longer hindrance.

  9. Mr Beloff placed some reliance on Parker LJ’s statement in Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323 at p.327, col.1 that “a party must not only bring himself within the clause but must show that he has taken all reasonable steps to avoid its operation, or mitigate its results”. We think that Mr Sumption is right in saying that the statement is to be understood as being directed to the force majeure clause in that case, which is materially different from the one in the present case. But what if Parker LJ’s statement were treated as extending to a case like the present one? Even so, it would not help Mr Beloff’s clients unless there was something effective that could have been done by way of avoidance or mitigation in the very short time available in the present case. In our view, there was none.

  10. There are certain features that might be considered typical of force majeure clauses. But that does not mean that all such clauses are alike in all material respects. They “come in many shapes and sizes” (as it is neatly put in Force Majeure and Frustration of Contract, 2nd ed. (1995) at p.9). Not all or perhaps even most clauses within the range commonly and conveniently called “force majeure clauses” actually use the words “force majeure” in their body or any heading. On what we consider to be the true construction of the force majeure clause in the present case, what the vendor must do in order to justify its failure to complete the sale is to establish five elements, namely

    • the occurrence of a matter since the agreement for sale and purchase

    • which matter was beyond its reasonable control and

    • had caused it to form the opinion

    • which opinion was reasonable

    • that the matter constituted a material hindrance to completion.

    IN THE COURTS BELOW

  11. In regard to the move to set aside the winding-up order, the trial judge found in effect that the vendor had established each and every one of those five elements. So, he held, the vendor had brought itself within the force majeure clause and had therefore justified its failure to complete the sale. But the Court of Appeal held that the vendor had not done so.

  12. They so held on alternative bases, the first of which ran thus. It was incumbent on the vendor to show that there were no reasonable steps which it could have taken to avoid being hindered from performing its obligations. For that purpose, the vendor ought to have informed the purchaser of the move to set aside the winding-up order and given it reasonable time to consider whether to object to title. Since the vendor did not do that, and the evidence did not show that the purchaser would have refused to complete, the vendor was not entitled to rely on the move to set aside the winding-up order as a ground for invoking the force majeure clause.

  13. The alternative basis on which the Court of Appeal held against the vendor ran thus. It was wrong as a matter of law to say that the setting aside of the winding-up order would invalidate the sale. The title was not defeasible. And the legal advice which the liquidator received was absurd and ridiculous. The liquidator was an experienced professional liquidator, and no reasonable liquidator would have acted on that legal advice without query.

    HINDRANCE

  14. As principle dictates and the decision of the House of Lords in Tennants (Lancashire) Ltd v C S Wilson & Co Ltd [1917] AC 495 illustrates, the approach to the concept of hindrance is realistic and practical. When a sale of land is completed, the purpose and expectation of each party is naturally that he will be secure in what he receives and does with the same. Otherwise he and those dealing with him would be placed in a very awkward position indeed. So a party’s reasonable apprehension prior to completion that the sale is liable to be set aside thereafter or that he would be exposed to liability for completing runs counter to the natural purpose and expectation of a completing party who is in earnest. In our view, such an apprehension materially hinders completion.

    IRRELEVANCE OF THE PURCHASER'S WILLINGNESS TO PROCEED TO COMPLETION

  15. If the occurrence had been the discovery of a defect in the vendor’s title, then obtaining the purchaser’s informed willingness to accept the title and proceed to completion despite such defect would prevent such occurrence from hindering completion. But such willingness would be irrelevant to the correctness or otherwise of a third party’s contention that the setting aside of the winding-up order would vitiate completion executed after and despite notice of a move to set aside that order or would expose the vendor to liability for completing after and despite such notice.

    QUESTIONS

  16. And let it always be remembered that the question is not whether the move constituted a hindrance to completion. The question is whether the vendor was reasonably of the opinion that the move constituted such a hindrance. It is plain that the liquidator was of such opinion. He felt unable, after taking legal advice, to treat the move as bereft of prospects of success. Was that opinion reasonable? If the answer is “No”, then the vendor fails. This is not to say that the vendor must succeed if the answer is “Yes”. There would still remain the question of whether the opinion and the invoking of the force majeure clause based on such opinion are to be attributed to the vendor.

    REASONABLENESS

  17. On the issue of reasonableness, it is true that the liquidator appears to have considered his own position as well as that of the vendor. But that would not vitiate his opinion or render it unreasonable. No act or omission on his part could expose him to liability unless such act or omission was contrary to the vendor’s interest. It is also true that the legal advice which the liquidator received involved some reference to the possibility of his being criticised if the matter were to proceed to completion despite the availability of the force majeure clause. But that does not mean that such legal advice involved the notion that the clause ought to be invoked simply because it was in existence. No failure to invoke the clause could possibly be a matter for criticism of the liquidator unless it would have been appropriate to invoke it.

  18. On a question such as whether the setting aside of the winding-up order would vitiate completion executed after and despite notice of a move to set aside the order, it is only natural that a liquidator would seek legal advice. This liquidator, an accountant, did seek legal advice on that question. And he sought it from an appropriate source, namely an experienced insolvency practitioner in a highly respected firm of solicitors. Mr Sumption drew attention to the case of Re Windsor Steam Coal Co (1901) Ltd [1929] 1 Ch 151 in which Lord Hanworth MR said (at p.159) that “[o]ne does not wish to attribute to a liquidator the knowledge or the experience of the lawyer, but … one may reasonably ask from him the exercise of some common sense and judgment when he is placed in a difficulty”. The move to set aside the winding-up order placed the liquidator in a difficulty. And he exercised common sense and judgment by seeking legal advice from an appropriate source.

  19. We see no reason why the liquidator should have queried the legal advice which he received. Nor do we see how, even if he were minded to query that advice, he could have gone about querying it in any meaningful way in the very short time available for looking any further into the law or the facts.

  20. Whether or not the legal advice which the liquidator received was correct, we do not think that it can be condemned as absurd, ridiculous or anything of the kind. It was legal advice on which it was at least reasonable in all the circumstances for the liquidator to act. After and despite respectful consideration of the Court of Appeal’s view, we have come to the conclusion that the trial judge was justified in finding that the liquidator’s opinion that completion was materially hindered was a reasonable opinion.

  21. There were, apart from the move to set aside the winding-up order, other matters which have been put forward as bases for invoking the force majeure clause. But we do not regard those other matters as anything on which the vendor can or needs to rely.

    ATTRIBUTION

  22. What remains is the question of attribution. Since its board of directors was acting at the liquidator’s direction, he is rightly to be regarded as the vendor’s “directing mind and will” (to employ the phrase which Lord Haldane LC famously introduced in Lennard’s Carrying Co. Ltd v Asiatic Petroleum Co. Ltd [1915] AC 705 at p.713 consistently with what Lord Hoffmann identified in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at p.511B as the purpose for which Lord Haldane LC was using it). In our view, the liquidator’s opinion that completion was materially hindered and the invoking of the force majeure clause based on that opinion are to be attributed to the vendor.

    RESULT

  23. For the foregoing reasons and those more elaborately articulated by Mr Justice Ribeiro PJ, we would allow this appeal to

    1. set aside the Court of Appeal’s judgment,

    2. restore the trial judge’s order dismissing the Originating Summons and

    3. make an order nisi awarding the vendor its costs here and below against the purchaser and its nominees.

    The intervener does not seek costs against anybody, and nobody seeks costs against it. We would make no order as to the intervener’s costs.

    Justice Ribeiro PJ

  24. On 23 July 2003, the appellant, Regent National Enterprises Limited (“Regent”), entered into a contract (“the Contract”) with the 1st respondent, Goldlion Properties Limited (“Goldlion”), for the sale to the latter of a property which Regent owned in Kimberley Road in Kowloon (“the Property”). The Kimberley Hotel stands on the Property and was then being operated by Fancy Kingdom Limited (“Fancy Kingdom”), a subsidiary of Regent.

  25. Completion, which was due in November 2003, did not take place because Regent invoked a clause in the Contract (“clause 13.2”), claiming that it was thereby entitled to rescind the agreement. Goldlion disputes Regent’s entitlement to rescind and instituted the present proceedings for specific performance. The issue is whether, in the circumstances which had arisen, rescission under clause 13.2 was available to Regent. Deputy High Court Judge Longley held that it was - HCMP 5273/2003 (29 January 2007). However, his decision was reversed by the Court of Appeal - [2008] 3 HKLRD 104 (Tang VP, Stone and Barma JJ). This appeal comes before this Court by leave of the Court of Appeal pursuant to section 22(1)(a) of the Court’s statute.

    A. THE PERSONS INVOLVED AND THE EVENTS LEADING TO THE LITIGATION

    A.1 Loans by BOC to Stephen Lau’s companies

  26. At the time the Contract was made, Regent was under the control of joint and several liquidators appointed pursuant to certain winding-up proceedings in the British Virgin Islands (“BVI”) more fully discussed below. Prior to their appointment, Regent, a Hong Kong company, was part of a group owned and controlled by Mr Stephen Lau Hei Wing (“Mr Lau”). Regent was owned, as to 9,999 of its 10,000 issued shares, by High Pressure Resources Limited (“High Pressure”), a company incorporated in the BVI. The remaining Regent share was owned by Kimberley Hotel Holdings Limited (“KHHL”), another BVI company, which also wholly owned High Pressure. KHHL was in turn wholly owned by Far East Express Company Limited (“Far East”), a company owned and controlled by Mr Lau.

  27. On 6 June 1996, Regent entered into an agreement for a loan facility of US$200 million with the Bank of China, Hong Kong Branch (which, with its statutory successor, Bank of China (Hong Kong) Limited, will be referred to as “BOC”). That loan was secured by various instruments. These included a Debenture dated 6 June 1996 whereby Regent mortgaged the Property to BOC and granted to BOC a first floating charge on Regent’s undertaking and all its assets. The indebtedness was also secured by a Share Charge dated 29 May 1997 executed by High Pressure and KHHL charging all their shares in Regent in favour of BOC as security for the repayment of Regent’s indebtedness and covenanting that they would themselves repay that indebtedness on demand. On 11 June 1997, Regent granted to BOC a second mortgage on the Property, this time to secure general banking facilities which had been afforded to Synergy Sport International Limited, a related company.

    A.2 Winding-up of KHHL and appointment of the liquidators

  28. Regent defaulted on the loan and on 5 September 2002, BOC made a statutory demand addressed to KHHL for payment of US$264,535,808.22 on the basis of KHHL’s obligations under the Share Charge. Payment was not forthcoming and on 2 October 2002, BOC presented a petition in the BVI for the winding-up of KHHL. A winding-up order was made on 25 November 2002 and the BVI Court appointed two insolvency specialists from the well-known accountancy firm of Deloitte Touche Tohmatsu (“Deloittes”) as KHHL’s joint and several liquidators. The Deloittes partner principally concerned was Mr Joseph Lo Kin Ching (“Mr Lo”). He was assisted by Mr Glen Ho (“Mr Ho”), also of Deloittes. The other liquidator appointed was Mr Derek K Y Lai (“Mr Lai”), but he played no active part in the relevant events.

  29. It may be noted that the decision was made to wind up KHHL and not Regent even though Regent was the principal borrower in default. It is likely that this was because it was intended that Regent should sell the Property with the hotel as a going concern. Thus, on 4 October 2002, BOC petitioned in Hong Kong for the winding-up of Radier Limited which had been Mr Lau’s hotel operating company, resulting in a winding-up order on 4 December 2002. On 15 October 2002, exercising shareholders’ powers, Mr Lo caused the directors of Regent, including Mr Lau, to be removed and replaced by five corporate directors which were Deloittes service companies under his control. Fancy Kingdom, whose board consisted of two of those service companies, took over the hotel’s management in March 2003.

    A.3 Sale of the Property

  30. In June 2003, Mr Lo, with BOC’s consent, took steps to cause Regent to sell the Property. A property agent was appointed and Goldlion emerged as the proposed purchaser. Goldlion is a subsidiary of Kwong Hing Investment (Hong Kong) Limited. So too are the 2nd, 3rd and 4th Respondents, who are joined as parties because they were nominated for the purpose of taking the intended assignment of the Property and for various other purposes under the Contract. Nothing further needs to be said about them. The negotiations regarding the sale and purchase of the Property were conducted by Mr James Yip Shiu Kwong (“Mr Yip”), a director of Goldlion, on behalf of the purchasers and by Mr Lo, assisted by Mr Ho, on behalf of Regent. Goldlion was represented by the solicitors’ firm of Johnson, Stokes and Master (“JSM”). Regent’s solicitors for the purposes of the transaction were Messrs Koo & Partners (“K&P”).

  31. At a meeting held at the premises of BOC on 23 June 2003 attended by Mr Yip among others, Mr Ho explained that while KHHL was in liquidation, that was not the case with High Pressure or Regent but that their boards of directors were “controlled by Deloittes”. He explained that the sale would be for the benefit of BOC which was the major creditor. Details were given about the operation of the hotel and the intended transfer to the purchaser of its fixtures and fittings, licences and various contracts.

  32. Further negotiations followed in relation, inter alia, to the purchase price and to a term which was to emerge as clause 13 of the Contract, which is at the heart of this appeal. By letter dated 16 July 2003, the liquidators reported to BOC that an offer acceptable from the perspective of Regent and Fancy Kingdom had been received and requested BOC’s consent to its acceptance. BOC gave its consent and the Contract was signed a week later on 23 July 2003.

    A.4 The Contract

  33. The Contract was executed on Regent’s behalf by one Lam Kai Cheung signing for Kerry Secretaries Limited, one of the corporate directors appointed to Regent’s board. The Contract (Clause 3.4) stipulates that on completion, Regent is to furnish to Goldlion a copy of its board minutes approving and authorising execution of the agreement and the assignment.

  34. The purchase price is stated to be HK$700 million, of which about HK$684 million is attributable to the Property and the rest to the hotel’s furniture and fittings. A deposit of HK$70 million was paid by Goldlion. Completion would involve payment of the balance and Regent’s assignment of the Property to Goldlion free from encumbrances - [4] Clause 3.1. The Contract (Clause 19.1) acknowledges the mortgage in favour of BOC and Regent undertakes to discharge it on or before completion.

  35. The Contract also contains provisions (Clauses 5.1 and 7.1) concerning Regent’s title to the Property, including Goldlion’s confirmation that it accepts Regent’s title and waives all requisitions and objections subject to immaterial exceptions.

  36. The deadline for completion was noon on 21 November 2003 (Sixth Schedule), with time being in every respect of the essence of the Contract (Clause 25.1).

    A.5 Clause 13

  37. Clause 13, containing the provisions of clause 13.2 invoked by Regent as the basis for rescission, relevantly provides as follows:

    CLAUSE 13.1

    If for any cause (other than the default of the Purchaser) the Vendor shall fail to complete the sale in accordance with the terms hereof, then all deposits paid by the Purchaser to the Vendor pursuant to the provisions of this Agreement shall be returned to the Purchaser forthwith who shall also be entitled to recover from the Vendor damages (if any) which the Purchaser may sustain by reason of such failure on the part of the Vendor and it shall not be necessary for the Purchaser to tender an assignment to the Vendor for execution.

    CLAUSE 13.2

    Notwithstanding the provisions in Clause 13.1 above, the parties hereto agreed that should the Vendor become unable or fail to complete the sale and purchase of the Property on the completion date due to any matter (including and without limitation to third party action) beyond the reasonable control of the Vendor and which in the reasonable opinion of the Vendor materially hinders, prevents or obstructs the completion of the sale and purchase of the Property, the Vendor shall, within 3 business days of the date fixed for completion, return all deposits and other monies paid by the Purchaser in connection with the purchase of the Property, together with all interests accrued thereon and the actual costs incurred by the Purchaser in connection with the purchase, as full and final settlement of the Purchaser’s claim herein and (conditional upon the receipt of such deposits, interests and costs) the Purchaser shall not take any further action to claim for damages or to enforce specific performance. The Purchaser also agrees that (conditional upon such receipt as aforesaid) it shall have no claims against Deloitte Touche Tohmatsu, its partners, principals, directors, managers and staff, and in all cases, any successors or assignee, Bank of China (Hong Kong) Limited, their agent and solicitors by reason of the Vendor’s inability or failure to complete the sale hereunder for the reason aforesaid.

    CLAUSE 13.3

    If the Vendor, after having invoked the provisions of Clause 13.2, is in a position to offer the Property for sale in future, it shall grant to the Purchaser [a] right of pre-emption over the Property [allowing the Purchaser to match any bona fide arm’s length offer which the Vendor is then prepared to accept].

    CLAUSE 13.4

    Clause 13.3 shall cease to have effect upon (a) the expiry of the period of 36 months from the date of the Vendor invoking the provisions of Clause 13.2; or (b) upon the release of the Property from [the Debenture and the Second Mortgage] whichever is the earlier.

    A.6 Stephen Lau’s intervention

  38. There was evidence that Mr Lau had protested to the liquidators against sale of the Property while this was being negotiated. However, the parties concluded the Contract in any event. During the four-month period leading up to the date for its completion, Mr Lau embarked on a campaign aimed at disrupting the sale. In this endeavour, he instructed Messrs Siao, Wen & Leung (“SW&L”), a firm of solicitors.

  39. On 14 August 2003, SW&L wrote to Deloittes on Mr Lau’s behalf, describing him as the ultimate beneficial owner of a company called Synergy Finance Limited (“SFL”). They indicated that Mr Lau would in due course apply to set aside the appointment of Mr Lo and Mr Lai as liquidators of Regent (a status which they were erroneously thought to hold). They also alleged that Regent owed SFL HK$75 million and that the sale was at an undervalue, to the prejudice of Mr Lau.

  40. Receipt of that letter caused Mr Lo to instruct Messrs Clifford Chance (“Clifford Chance”), a well-known solicitors’ firm, to deal with any contentious issues raised by Mr Lau. The partner engaged was Mr Campbell Korff (“Mr Korff”), a specialist in insolvency work who claimed extensive experience of large scale insolvencies and restructurings in this part of the world. K&P continued to act for Regent and the liquidators in connection with the conveyance of the Property.

  41. In its reply dated 26 August 2003, Clifford Chance informed SW&L that Mr Lo and Mr Lai were not the liquidators of Regent but of KHHL and stated that SFL was not a creditor of KHHL.

  42. Undeterred, on 24 and 25 October 2003, SW&L issued three statutory demands against Regent, alleging debts of HK$75,618,287.63, HK$49,037,812.42 and HK$112,155,812.17 said to be owing respectively to SFL, Waygood Investment Limited (“Waygood”) and Mr Lau personally. Replying on 10 November 2003, Clifford Chance stated that Regent’s books showed no such debts owing and rejected the claims as spurious. Mr Korff had earlier advised the liquidators that if a winding-up petition were to be presented on the basis of those demands, section 182 of the Companies Ordinance (Cap 32) might be triggered so as to make any disposition of company property after the date of the petition void, so that it would be prudent to seek the court’s approval for the sale if there was any uncertainty as to whether the section was engaged.

    A.7 Presentation of the Waygood Petition

  43. Mr Lau caused a winding-up petition to be presented on the basis of the Waygood statutory demand (“the Waygood Petition”) on 19 November 2003, two days before completion of the Contract was due. The petition alleged that Regent was indebted to Waygood in the sum of HK$49,037,812.42 “as a result of moneys advanced by [Waygood] to [Regent] via one Radier Limited”.

  44. In a letter accompanying service of the Waygood Petition on 19 November 2003, SW&L stated that Mr Lau was about to lodge an appeal against the KHHL winding-up order on the ground that “the debts/liabilities due by the Petitioner (BOC) to Mr Lau and his group of companies (including [KHHL] and you, being its subsidiary) well exceed the amount alleged to be due by [KHHL] and/or you to the Petitioner”.

  45. When the Waygood Petition was served, Mr Lo was in Beijing. A conference call was arranged the next morning for its implications to be discussed involving, among others, Mr Lo, Mr Korff and someone from K&P. Mr Lo decided in consequence that completion of the Contract should go ahead notwithstanding the petition.

    A.8 The BVI application

  46. However, a new development occurred later that day while Mr Lo was on an aircraft on his way back to Hong Kong. It has been referred to in submissions as “the BVI application”. Just before 3.00 pm on 20 November 2003, Mr Mohan Datwani (“Mr Datwani”), a lawyer with K&P, informed Mr Korff and Mr Ho that BOC had told him “that they have been separately sued for a damages claim aside from the challenge to the winding-up order over [KHHL].” Mr Datwani also reported that BOC had asked him to indicate to the others “that they do not wish the transaction to be completed unless the subject matter under the notice of application has been ventilated in a Court.”

  47. Some time after 4.00 pm on that day, Regent’s lawyers had sight of the papers which had been filed by Mr Lau in the BVI. They involved an application by Mr Lau for leave to appeal to the BVI Court of Appeal out of time against the Order made about a year earlier for the winding-up of KHHL. The application was also for “a stay of the winding-up order granted pending determination of the Appeal in particular the sale of the Company’s assets by the court appointed liquidators.”

  48. It was supported by three affirmations. The first was by Mr Lau who accused BOC of having deceived him at a meeting in May 1999 into handing over, without documentation, US$20 million which he had borrowed from a corporation referred to as “China Everbright Group” on the bank’s undertaking that the money would be applied to discharge a mortgage on a property in Repulse Bay which China Everbright had agreed to re-finance. Instead, he alleged, it was applied by BOC to reduce Regent’s indebtedness without discharging the Repulse Bay mortgage. In consequence, his transaction with China Everbright (itself under investigation for financial impropriety) aroused great suspicion on the part of the mainland authorities to whom it appeared that US$20 million had been extracted from China Everbright without justification as an unsecured loan, whereas it had in fact been intended to be secured on the Repulse Bay property. BOC’s conduct led to his being detained on the mainland between 23 July 1999 and 30 January 2003, during which time his extensive business empire collapsed, resulting in alleged losses exceeding HK$2.6 billion affecting various interests held by various companies in his group. The affirmation also alleged that prior to his detention, Mr Lau had received an offer from an independent third party to purchase the hotel for HK$1.8 billion, his contention being that its sale for HK$700 million was not a sale at a proper price.

  49. Mr Lau’s affirmation was supported by the affirmation of Mr Anthony Leung Tat Kin, a partner of SW&L, who corroborated Mr Lau’s account of the meeting with BOC in May 1999 when, contrary to advice, Mr Lau agreed to make the US$20 million payment without documentation. Similar corroboration was offered in the affirmation of Mr Yiu Ying Fai, a Certified Public Accountant and the then financial controller of the Kimberley Hotel.

    A.9 The decision to invoke clause 13.2

  50. Mr Lo was told of this development when he landed in Hong Kong in the late afternoon of 20 November. He went straight to the offices of Clifford Chance where a meeting with Mr Korff and others was held to discuss it. Mr Lo’s evidence was that he considered the BVI application far more worrying than the Waygood Petition since it involved a dispute between Mr Lau and BOC which he knew little about and which, since it involved a challenge to the winding-up order upon which his authority as liquidator was based, posed (he believed) a risk of his appointment and all acts done as liquidator being invalidated, including his replacement of Regent’s board and his causing Regent to enter into the Contract.

  51. It was noted at the meeting that whereas BOC had the power as mortgagee to sell the Property outside of the KHHL winding-up, it was unwilling to exercise it. Instead, in the course of the meeting, a letter was received from BOC’s solicitors, Messrs Gallant Y T Ho & Co (“GYTH&Co”) stating that in the light of the Waygood Petition and the BVI application, BOC believed that it would be prudent to invoke clause 13.2. Mr Lo’s telephone inquiries elicited confirmation that BOC did not intend to instruct Regent not to proceed, taking the view that it could not do so since Regent was not its receiver.

  52. Having taken Mr Korff’s advice as to the implications of the BVI application (discussed further below), Mr Lo decided to invoke clause 13.2. At about 10.20 pm that evening, K&P wrote to JSM informing them of Regent’s reliance on the clause and citing the Waygood Petition and the BVI application as grounds.

    A.10 The BVI injunction

  53. There was a further phase to Mr Lau’s campaign to disrupt the sale. At about 5.00 pm on 20 November 2003 BVI time, which equates with 5.00 am on 21 November, Hong Kong time, he obtained an ex parte injunction from the High Court of the BVI restraining the liquidators personally as well as Regent from carrying out any acts in furtherance of the sale, including its completion, pending the hearing of the BVI application. A return date for the injunction was given for 17 December.

  54. There was an issue below as to whether this Order came to Mr Lo’s notice before the noon deadline for completion on 21 November 2003. The evidence was that there had been a telephone call between Mr Korff and Ms Beverly Chan of SW&L at about 10.00 am that morning but whether the BVI injunction was then mentioned was in dispute. It is clear however that at 11.45 am, a mere 15 minutes before expiry of the deadline, SW&L sent Clifford Chance a fax telling them of the BVI injunction in relation to “your clients”. A similar fax had been sent at 11.45 am to BOC informing it (erroneously since BOC was not the subject of that order) that it had been restrained by the BVI Court from disposing of the hotel. It appears (as the Court of Appeal noted) that the summons, affidavit and order were only delivered to K&P at 11:51 am.

  55. Mr Lo’s evidence was that he was probably playing golf when he was informed of the BVI injunction by telephone and that his reaction was to think that this reinforced the decision not to proceed with the sale taken the previous evening. He testified that he believed that this occurred before noon on 21 November but his evidence made it clear that this was a conclusion reached after a process of trying to reconstruct what had happened. In any event, clause 13.2 had already been invoked and completion did not take place at noon as envisaged by the Contract.

    A.11 Subsequent events

  56. At about 2.42 pm on 21 November 2003, JSM, who were aware of the Waygood Petition, the BVI application and the BVI injunction as well as Regent’s decision to rescind the Contract the night before, wrote to K&P stating that Goldlion was nevertheless ready and willing to complete and suggested that an application be made to the winding-up court for liberty to complete the sale “with the proceeds to be paid to the mortgagee bank for discharge of the existing mortgages”, adding: “As and when such direction or order is granted, completion of the sale and purchase can then take place in the manner originally agreed.”

  57. A little later on the same day, GYTH&Co wrote to Clifford Chance confirming BOC’s view that it was prudent to invoke clause 13.2 and ruling out the idea of BOC proceeding with the sale by exercising its powers as mortgagee.

  58. Goldlion refused to accept return of the deposits and on 3 December 2003, commenced the present proceedings.

  59. On BOC’s application, the BVI injunction was discharged on 17 December 2003 with Mr Lau ordered to pay indemnity costs and with a direction for an inquiry as to damages. It appears that this was because Mr Lau lacked any locus to appeal against the winding-up order or to seek interim relief in respect of such appeal. On 20 January 2004, Regent applied to strike out the Waygood Petition.

    A.12 The progress of the litigation

  60. The litigation proceeded at a leisurely pace. Then in the latter part of 2006, Mr Lau came to terms with BOC, having succeeded in re-structuring his indebtedness with Raiffeisen Zentralbank Osterreich AG (“RZB”) which decided to intervene in the present proceedings. BOC transferred its interest in the Property to RZB and the BVI winding-up proceedings against KHHL were stayed after a hearing in which Far East (which had apparently taken over as applicant for leave to appeal from Mr Lau), BOC as petitioner, RZB, KHHL in liquidation and its liquidators took part. The liquidators were discharged and their costs were to be met by KHHL pursuant to an agreement reached between Regent, BOC and Mr Lau. In September 2006, the Waygood Petition and the striking out application were withdrawn by consent.

  61. The trial in the present proceedings commenced before Deputy High Court Judge Longley on 1 November 2006 and lasted some six days. Only Mr Lo gave evidence viva voce, having also filed three relevant affirmations on Regent’s behalf. An affidavit was also filed by Mr Korff setting out the advice he had given to Mr Lo, privilege having been waived. Additionally, Mr Lau, by now once more a director of Regent, filed an affirmation providing an account of events which led to his detention on the mainland, the collapse of his business establishments and the restructuring of his liabilities. The evidence filed on Goldlion’s behalf consisted of a series of affirmations by Mr Yip, three of which have been placed before this Court.

    B. CONSTRUCTION OF CLAUSE 13

  62. Clause 13 has been set out above - see Section A.5. Clause 13.1 makes it clear that the Contract is not conditional and that the Vendor is prima facie liable for damages for non-performance. Clauses 13.3 and 13.4 deal with the Purchaser’s right of pre-emption if the Vendor has rescinded under clause 13.2. The crucial words of clause 13.2 are those defining the requirements which must be satisfied before the Vendor is lawfully entitled to rescind:

    .... should the Vendor become unable or fail to complete the sale and purchase of the Property on the completion date due to any matter (including and without limitation to third party action) beyond the reasonable control of the Vendor and which in the reasonable opinion of the Vendor materially hinders, prevents or obstructs the completion of the sale and purchase of the Property ....

    B.1 Clause 13.2 generally

  63. The parties dispute the construction of clause 13.2 in several important respects. Before turning to each of those disagreements, I shall examine the structure and some of the less controversial features of the clause.

  64. Clause 13.2 is inserted for Regent’s benefit. The provisions justifying rescission are not intended for the protection of either the liquidators or the mortgagee. The last sentence of clause 13.2[1] does confer protection on such persons, but only against suit by Goldlion and only after the power to rescind has been lawfully exercised and the deposits returned.

  65. The clause addresses a situation where the Vendor is unable or fails to complete. Either condition suffices. It is therefore unnecessary for non-completion to be due to an inability – a concept with connotations of a lack of means or power – to complete. The fact that the Vendor has simply failed to complete is enough.

  66. The Vendor must however show that its failure to complete is “due to” a particular “matter”. The word “matter” is of course extremely wide, but the parties have limited its scope in two significant ways:

    1. the matter must be something beyond the reasonable control of the Vendor; and,

    2. it must be something “which in the reasonable opinion of the Vendor materially hinders, prevents or obstructs the completion of the sale and purchaser of the Property”.

    The clause refers to “third party action” as one example of a relevant “matter” which might give rise to a failure or inability to complete.

  67. Clause 13.2 does not require the relevant matter to be shown actually to be a well-founded legal or physical impediment to completion. It provides that it must be the Vendor’s reasonable opinion that the matter constitutes a material hindrance, etc, to completion. This means that the Vendor must genuinely have formed that opinion and that such opinion must be reasonable. The opinion that the matter hinders completion does not have to be right in law, it must merely be an opinion which it is reasonable to hold in the prevailing circumstances.

  68. Since the failure to complete must be “due to” the matter in respect of which the Vendor has formed the relevant opinion, it is that matter, so perceived by the Vendor, which must actually have motivated the Vendor’s failure to complete. If that failure was motivated by some extraneous consideration, such as a desire to re-sell the Property at a higher price in a rising market, the Vendor could not, in good faith, invoke the clause.

  69. Furthermore, for the Vendor’s failure to complete to have been due to the relevant matter, such matter must have come to the Vendor’s attention and caused it to form the requisite opinion prior to the deadline for completion.

    B.2 Whose opinion constitutes the Vendor’s opinion?

  70. The first important point of dispute is as to whether Mr Lo’s opinion is properly to be treated as “the Vendor’s opinion” for the purposes of the Contract.

  71. It was Mr Lo’s unchallenged evidence that he alone took all the relevant decisions on behalf of Regent. The corporate directors merely did what he instructed them to do. It was his opinion, attributed to Regent, that was relied on as the basis for invoking clause 13.2. At the trial, Goldlion challenged such attribution, contending that it was for Regent’s board to form the relevant opinion and that, no such opinion having been formed, clause 13.2 was not engaged. Although this point was not taken in the Court of Appeal, it is my view that Goldlion should be allowed to revive it in this Court since such a course involves no evidential or procedural unfairness to Regent.

  72. Two questions require to be addressed. First, are the actions and decisions of Mr Lo, including his forming the opinion that clause 13.2 hindrances had arisen, capable of being attributed to Regent under the general law? Secondly, if the answer to the first question is “Yes”, does Mr Lo’s opinion constitute “the opinion of the Vendor” as a matter of the Contract’s construction?

    B.2a Attribution of Mr Lo’s opinion to Regent as a matter of general law

  73. As Lord Hoffmann pointed out in Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500 at 506 (PC) the primary rules of attribution generally fix a company with the acts and decisions of its organs, including in particular its board, whether as expressly stated in the company’s constitution or as implied by company law.

  74. However, acts attributable to a company are not confined to those of its formally constituted organs. As his Lordship pointed out, the primary rules of attribution are insufficient for practical purposes and are supplemented by the principles of agency - ibid:

    Not every act on behalf of the company could be expected to be the subject of a resolution of the board or a unanimous decision of the shareholders. The company therefore builds upon the primary rules of attribution by using general rules of attribution which are equally available to natural persons, namely, the principles of agency. It will appoint servants and agents whose acts, by a combination of the general principles of agency and the company's primary rules of attribution, count as the acts of the company. And having done so, it will also make itself subject to the general rules by which liability for the acts of others can be attributed to natural persons, such as estoppel or ostensible authority in contract and vicarious liability in tort.

  75. In my view, those principles of agency operate in the present case to establish that Mr Lo was acting on Regent’s behalf for relevant purposes. Having taken over Regent’s management, he decided that Regent’s main asset should be sold with the hotel carrying on business as a going concern. He secured the consent of the mortgagee to the sale and engaged a property agent to market the Property. He negotiated the Contract with Goldlion, bargaining for a higher price and pressing for the inclusion of clause 13. When the terms were settled, Regent, through one of its corporate directors Kerry Secretaries Limited, executed the Contract, and undertook in clause 3.4 that on completion Regent would furnish to Goldlion a copy of the board minutes approving the agreement and its execution. Regent thereby ratified Mr Lo’s actions and confirmed his authority to act on its behalf in the operation of the Contract. The evidence shows that Goldlion thereafter acted on the basis that Mr Lo’s opinion was the opinion of Regent.

    B.2b Mr Lo’s opinion as “the Vendor’s opinion” under the Contract

  76. It of course remains possible, whatever the position may be as a result of applying the rules of attribution, that the parties intended to contract on the footing that the company’s decisions or acts must be those of its board. Is that the effect of the Contract in the present case?

  77. The Contract speaks only of the opinion of the Vendor without saying whose opinion is to suffice for these purposes. In this context, it is legitimate to have regard to the factual matrix, taking into account all relevant facts known or available to both parties which might affect a reasonable person’s understanding of the language used. Reflecting his well-known exposition of the principles in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896 at 912-913, Lord Hoffmann, when sitting as a member of this Court, described the approach as follows:

    The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.

    [Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279 at 296; applied in River Trade Terminal Co Ltd v Secretary for Justice (2005) 8 HKCFAR 95 at 107.]

  78. In the present case, much of the relevant factual background is referred to in the minutes of a meeting held on 23 June 2003 at BOC’s premises, attended by Goldlion’s representatives including Mr Yip. The minutes note that Mr Ho described the structure of the corporate group to which Regent belonged, informing those present that KHHL was in liquidation whereas its subsidiaries High Pressure and Regent were not. He stated that their boards were “now controlled by Deloitte”. Mr Ho also told the meeting that Fancy Kingdom was “a new company set up by Deloitte for the purpose of operating the hotel”, explaining that it had entered into a management contract “which can be terminated at any time”. The minutes (which were apparently prepared by Goldlion) go on to note that “Deloitte has the intention to sell the operation to the buyer”; that “.... the operation is run at the sole discretion of Deloitte”; and that “Deloitte agrees to start negotiation regarding the handover with us now ....”

  79. It was clear to everyone that Mr Lo had charge of the negotiations and had bargained for Goldlion to improve its purchase offer from $683 million to $700 million and to agree to the insertion of clause 13, subject to a right of pre-emption. Goldlion will also have seen that Regent, through an authorised member of its board, executed the Contract, holding out Mr Lo as having authority to act on its behalf.

  80. Taking into account these facts which were plainly known to both parties, it is my view that any reasonable person would have concluded that the parties were contracting on the basis that Mr Lo, the Deloittes partner concerned, would exercise effective control over Regent for all contractual purposes. They must be taken to have intended that the reference in clause 13.2 to “the Vendor’s opinion” should extend to include opinions formed by Mr Lo.

    B.3 Can a risk or apprehension of potential difficulties constitute a “hindrance” to completion?

  81. The second significant debate concerns the scope of the words “materially hinders, prevents or obstructs” completion. The parties differ in particular as to whether a perceived risk that Regent may lack power to convey the Property to Goldlion is sufficient to constitute a “material hindrance” to completion.

  82. As a matter of language, it is clear that the word “hinders” sets a substantially lower threshold than the word “prevents” (with “obstructs” occupying a position perhaps somewhere in between). Thus, in Tennants (Lancashire) Ltd v CS Wilson and Co Ltd [1917] AC 495, a case involving a clause dealing with the prevention of or hindrance to delivery[2] in a sale contract affected by the outbreak of the First World War, Lord Atkinson stated at 518:

    ‘Preventing’ delivery means, in my view, rendering delivery impossible; and ‘hindering’ delivery means something less than this, namely, rendering delivery more or less difficult, but not impossible.

    Earl Loreburn put the bar somewhat higher, interpreting “hindering” to mean “interposing obstacles which it would be really difficult to overcome”. But “hindering” was on any view not a concept requiring the supplier to show that some contingency had prevented delivery.

  83. I would for my part construe “materially hinders .... the completion” in clause 13.2 to mean “makes completion more difficult in an appreciable or significant way”. It does not require Regent to show that completion had been prevented or become impossible.

  84. Mr Jonathan Sumption QC, appearing with Mr Ramesh Sujanani for Regent, focuses principally on the BVI application as constituting the “matter” justifying rescission. He contends that it gave rise to a reasonable opinion on Mr Lo’s part that there was a material “hindrance” to completion consisting of a significant risk that Regent might lack authority to enter into the Contract and thus lack power to convey the Property to Goldlion.

  85. Mr Michael Beloff QC, appearing with Mr Michael Thomas SC and Mr Godfrey Lam SC for Goldlion, submits that it is conceptually inappropriate “to describe a risk that certain things may happen after completion as being a hindrance to completion”. He contends that a hindrance must be something palpable and that the apprehension or risk of future difficulties is insufficient.

  86. I am unable to accept the restricted meaning contended for by Mr Beloff. A vendor who perceives – let it be assumed reasonably for present purposes – a risk that he may lack legal power to convey property which he has purported to sell, would be faced with uncertainty which is likely in itself to pose significant commercial problems. As a matter of ordinary language, such uncertainty is capable of constituting a “hindrance” to the vendor completing its contract. Clause 13.2 permits the Vendor to adopt a risk-averse approach especially where, as the clause contemplates, third party action places difficulties (such as those associated with litigation risks) in the way of completion, even though completion is not thereby prevented or rendered impossible.

    B.4 Was Regent obliged to take steps to avert a hindrance?

  87. The third difference between the parties concerns the question whether Regent was required to take steps to avoid or mitigate any hindrance which it perceived to exist before becoming entitled to rely on clause 13.2. This is an important point since it provided one of the two grounds upon which the Court of Appeal allowed the appeal. It concluded that there was such a requirement and, in particular, that Regent was obliged to give Goldlion a reasonable time to consider whether to complete the sale notwithstanding the Waygood Petition and the BVI application. It held that since Regent had not afforded Goldlion such an opportunity, Regent was not entitled to invoke the clause - Court of Appeal §76.

  88. Four alternative bases have been suggested for the Court of Appeal’s conclusion, namely:

    1. that the obligation on Regent to approach Goldlion derives from the words “beyond the reasonable control of the Vendor” in the clause - Court of Appeal §69;

    2. that it derives from the word “material” - ibid;

    3. that it arises by virtue of an independent rule of law applicable to force majeure clauses; and,

    4. that it arises as part of the process of showing good title - Court of Appeal §§72-73.

    B.4a “Beyond the reasonable control of the Vendor

  89. As noted in Section B.1 above, the power to rescind arises should the Vendor become unable or fail to complete due to the occurrence of a “matter” which clause 13.2 qualifies in two ways: (i) it must be a matter which is “beyond the reasonable control of the Vendor”; and (ii) it must be a matter which “in the reasonable opinion of the Vendor materially hinders, prevents or obstructs the completion of the sale and purchase of the Property”. It follows that the thing which has to be beyond Regent’s reasonable control is the “matter” which leads to the failure to complete. The “beyond reasonable control” requirement does not attach to the hindrance which is reasonably perceived by the Vendor to be the consequence of the “matter” relied on.

  90. On this construction, a “matter” would not qualify as something beyond Regent’s reasonable control if Regent could, by taking reasonable steps, forestall or eliminate or neutralize it. This was, for instance, very much the focus of Goldlion’s attack at first instance on the Waygood Petition as a ground for invoking the clause. Goldlion contended that insofar as presentation of the Waygood Petition was relied on as the relevant “matter”, it was not something beyond Regent’s reasonable control since Regent could have obtained an order restraining Waygood from presenting the petition once it was served with the statutory demand or because Regent could easily have neutralized that “matter” by obtaining a validation order which, on Mr Korff’s advice, would be a mere formality.

  91. However, once the “matter” is shown to be beyond the Vendor’s reasonable control, that requirement is spent. It is not applicable to the rest of the clause. The relevant words do not create a separate obligation requiring Regent to take reasonable steps with a view to ensuring that completion could proceed in the face of the perceived hindrance.

  92. It follows (in the context of the BVI application in particular, as further discussed below) that insofar as the Court of Appeal’s conclusion that Regent was obliged to seek Goldlion’s agreement to complete rested on the “beyond reasonable control” requirement, it was based on a misconstruction of the Contract. Mr Lo was under no obligation to attempt to press on with completion even if in his reasonable opinion, a material hindrance had arisen.

  93. This construction flows from clause 13.2 setting the bar at the relatively low level of a reasonably perceived hindrance. As previously noted, a matter may, in the Vendor’s reasonable opinion constitute a hindrance even though it is clear that completion is not thereby prevented or rendered impossible. It is therefore beside the point to contend that Regent could have gone ahead and completed if it had taken the reasonable step of seeking Goldlion’s agreement to do so notwithstanding the BVI application. That might be a crucial argument if it were necessary for Regent to establish that completion was impossible. But it is an irrelevant argument where the clause merely requires Regent to show that in its reasonable opinion the matter constituted a hindrance to completion.

  94. The significance of the difference between “hindrance” and “prevention” as separate grounds for rescission was clearly brought out in Peter Dixon & Sons Ltd v Henderson, Craig & Co Ltd [1919] 2 KB 778. That was a case where a force majeure clause provided for a contract for the sale of wood pulp to be suspended during any contingency beyond the control of the parties which “prevents or hinders .... delivery .... namely, Act of God, War .... (etc)”. When war broke out, British ships were no longer available to carry the wood pulp but foreign ships could be employed at a much higher freight rate. The English Court of Appeal held that while the higher freights were not in themselves a hindrance, they reflected the war’s complete dislocation of the shipping market which did constitute a hindrance. The fact that delivery could be arranged using foreign tonnage did not alter the fact that a hindrance justifying suspension of the contract had arisen. Bankes LJ put this as follows at p 788:

    .... when once the real hindrance is established, it is quite immaterial to suggest that the difficulty could have been overcome by paying this largely increased price; because the answer is this: The sellers were not prevented, because they could have made other arrangements; but they have established the fact that they were hindered, and it is no answer to say that they were not prevented, so long as they can say they have established the fact that they were hindered.

    B.4b “Material” hindrance

  95. The second basis for the argument that Regent was obliged to seek Goldlion’s agreement to proceed to completion involves the contention that a hindrance only qualifies as “material” if it cannot be avoided or mitigated by taking reasonable measures.

  96. This is essentially the same argument as that discussed and rejected in Section B.4a above, transferred this time to the word “material” in clause 13.2. It involves the misdirected contention that, faced with a relevant hindrance, Regent was obliged to take steps aimed at continuing nonetheless to completion. As noted above, this would have been an appropriate objection to a claim that completion was not possible, but it is not a relevant answer to Regent’s claim that completion was hindered. There is no justification for giving the word “material” a meaning which effaces the difference between “hinders” and “prevents” in clause 13.2.

  97. In my view, on its true construction, the word “material” conveys the requirement that the hindrance must be perceived to make completion appreciably or significantly more difficult. It does not bear a meaning supporting the Court of Appeal’s conclusion.

    B.4c A free-standing legal principle?

  98. The next argument was one which did not find favour with the Court of Appeal but which was revived by Mr Beloff. Basing himself on Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323, he submitted that quite apart from the express words of clause 13.2, there is inherent in the concept of a force majeure clause the principle that the person who seeks to rely upon it must prove that, even if a qualifying event had occurred which could materially impede or hinder completion, such person had taken all reasonable steps to avoid the force majeure effects of that event. This principle, he contended, justifies the conclusion that Regent was obliged to approach Goldlion with a view to achieving completion of the Contract.

  99. I am unable to accept that argument. I see no juridical basis for positing any free-standing legal principle of the type urged. What conditions must be satisfied for a party to bring himself within a force majeure clause depends simply on its construction and, properly understood, Channel Island Ferries says nothing different.

  100. The relevant clause in that case was quite different from the present and in particular, did not involve “hindrances” to performance.[3] It is clear that it was construed as being triggered only when performance was prevented. Thus, Ralph Gibson LJ stated at p 329:

    .... the accepted construction of a force majeure clause of this nature, as to which there was no issue, requires that the party claiming its protection proves that there were no reasonable steps which it could have taken to avoid being prevented from performing its obligation by the incident or event said to be within the clause.”

    [emphasis supplied]

  101. Lord Parker LJ put this as follows:

    It is important in my view to bear in mind:

    (1)

    that it is for the party relying on a force majeure clause to bring himself squarely within that clause;

    (2)

    that in most cases that can only be done by showing either legal or physical impossibility; ....

    [emphasis supplied]

    It was on this basis that his Lordship stated:

    (4)

    a party must not only bring himself within the clause but show that he has taken all reasonable steps to avoid its operation, or mitigate its results.

  102. One can readily accept that if the wording of a force majeure clause makes it operative only if the qualifying event has prevented performance it is necessarily implicit that the clause does not apply if performance could in fact have been rendered by the taking of reasonable steps. Such a clause justifies a construction which places an obligation on the party relying on it to show that he has taken all reasonable steps to render performance. But no such obligation is implicit in the proposition that a particular matter has materially hindered performance.

    B4.d An obligation as part of showing and transferring good title?

  103. In the Court of Appeal, citing Active Keen Industries Ltd v Fok Chi-keong [1994] 1 HKLR 396, Tang VP accepted the argument that Court of Appeal §72:

    .... insofar as the Waygood petition and the BVI application affected title, and it arose after 16 July 2003, the cut-off date for acceptance of title under clause 5.1(a) of the Agreement, the defendant was obliged to inform the plaintiffs and they would be entitled to a reasonable time to consider them, to raise requisitions, and in the light of the answers, to decide whether to accept a transfer of title.

    This led to his Lordship’s conclusion (at §76) that since Goldlion “had not been given an opportunity to decide whether or not to accept title”, Regent was precluded from relying on clause 13.2.

  104. With respect, I am unable to accept the correctness of that approach. It mischaracterises the issue as one concerning Regent’s title to the Property. Title was not in question. As pointed out above (Section A.4) in the Contract, Goldlion confirmed that it accepted Regent’s title and waived all requisitions and objections with exceptions which are not relevant - Clauses 5.1 and 7.1. It is not suggested that Regent’s title was in any way deficient.

  105. We are concerned instead with the question whether Regent was entitled to rescind pursuant to clause 13.2. That is an entitlement which Regent seeks to claim in its own interests in the face of third party threats. The suggestion that Regent should first have offered Goldlion a chance to “decide whether to accept title” is quite incongruent with the purpose of the clause. There is no parallel with the situation where a vendor may be required to afford to a purchaser the opportunity to decide whether to accept title by waiving a potential blemish in the vendor’s title.

    B.4e No obligation

  106. It is accordingly my view that on its true construction, clause 13.2 did not make it incumbent on Regent to take steps to seek Goldlion’s agreement to press on with completion if Regent was faced with a reasonably perceived material hindrance. I would therefore reject the first basis on which the Court of Appeal allowed the appeal.

  107. This conclusion makes it unnecessary to deal with the factual objections to this aspect of the Court of Appeal’s decision. I would however state in passing that there is much force in the objection taken before that Court that since this was a point not explored at first instance, it was far from clear that Goldlion would in fact have been prepared to complete before the deadline fixed for completion and before appropriate court orders could be obtained. Indeed, in a letter dated 21 November 2003 sent a couple of hours after expiry of the deadline, JSM indicated on Goldlion’s behalf that the latter was prepared to defer completion until such time as directions approving the sale could be obtained from the winding-up court in BVI. If this was realistically the position, an approach to Goldlion would not have led to completion under the Contract as it stood. At most, it would have led to negotiations for possible variation of the stipulated deadline and of the provision making time of the essence. Mr Beloff did not shrink from submitting that if completion could not occur in time, Regent was nevertheless obliged to approach Goldlion with a view to agreeing an extension of time for completion. However, I find it impossible to accept that clause 13.2 imposes an obligation on the parties to seek to alter the terms on which they had contracted.

    B.5 The standard of reasonableness

  108. The fourth and final major difference between the parties concerning the Contract’s construction relates to the standard to be adopted in assessing the reasonableness of the opinion formed regarding the existence of a material hindrance to completion.

  109. The standard adopted by the Court of Appeal was that enunciated in Regal Success Venture Ltd v Jonlin Ltd (2000) 3 HKCFAR 364 at 377, namely, that Regent’s opinion ought not to be considered unreasonable, even if its legal basis may be debatable, unless it “can be seen to be patently wrong or absurd” or, put another way, unless it “can quickly be seen to be absurd or ridiculous”. Mr Sumption submitted that this was the appropriate test arguing that the present case is indistinguishable from Regal Success and from the cases on which that decision was based, notably, Hudson v Buck (1877) 7 ChD 683.

  110. With respect, I do not agree. Regal Success was a very different case. It involved a sale and purchase agreement which stipulated that completion was subject to a condition that the vendors “prove that the Company has a good title to the Property .... to the satisfaction of” named solicitors appointed jointly by the parties to act in that context. As was pointed out in the judgment, the effect of the clause was to make the contract conditional and its rationale was the avoidance of protracted litigation in case the transaction were to throw up legally uncertain points of title.

  111. Regal Success therefore involves a situation where both parties cede to a solicitor with professional expertise on conveyancing issues, the decision as to whether good title has been satisfactorily shown by the vendor. It is a narrowly circumscribed and technical legal question that is placed in the solicitor’s hands, with his conclusion intended to be determinative for both parties. This was equally the position in Hudson v Buck although, as Mr Sumption pointed out, the solicitor in that case was not jointly appointed, but the purchaser’s own solicitor. Having agreed to let the solicitor decide, the parties in Regal Success obviously did not intend his conclusion as to title to be second-guessed and litigated. The threshold for challenge was therefore obviously intended to be set very high, with the solicitor’s decision to be final unless it could quickly be seen to be so blatantly unreasonable as to be absurd or ridiculous or unless it could be shown to have been reached in bad faith.

  112. In the present case, the parties have not ceded any question to any third person to be conclusively decided. The object of clause 13.2 is not to avoid litigation, but to define the circumstances in which Regent may lawfully rescind the contract, a term inserted for Regent’s own benefit against the background of the KHHL liquidation. The grounds that might be relied on to justify rescission are at large. They are not confined to technical questions about legal title. Regent’s decision to invoke clause 13.2, taken by Mr Lo, is therefore qualitatively different from the decision of a solicitor taken pursuant to a solicitor’s satisfaction clause. There is no justification for adopting a particularly stringent test of unreasonableness in the present case.

  113. I accept Mr Beloff’s submission that here, the opposite of “reasonable” is simply “unreasonable” and not “absurd or ridiculous”. The reasonableness or otherwise of Mr Lo’s opinion is to be judged taking into account the circumstances in which his opinion was formed, including the information and advice which was available to him or to which he could reasonably have gained access and bearing in mind his status as a professional liquidator.

    C. THE CLAUSE 13.2 “MATTERS” RELIED ON BY REGENT

  114. As noted above (Section A.9), as a result of the meeting at Clifford Chance on his return from Beijing on 20 November 2003, Mr Lo decided to invoke clause 13.2 and a letter was sent to JSM citing the Waygood Petition and the BVI application as two “matters” relied on as the basis of rescission. At the trial, Regent also sought to rely on the BVI injunction as an additional matter triggering the clause. However, the Judge held that it was not established that Mr Lo had become aware of that injunction before the noon deadline for completion and therefore that it was not available as a basis for invoking clause 13.2 - Judgment §§55 and 56. That finding was upheld by the Court of Appeal (although with considerable hesitation on the part of Stone J) - Court of Appeal §§130 and 168.

  115. On this appeal, Mr Sumption does not seek to rely on the Waygood Petition standing alone as a ground. While he relies primarily on the BVI application as the triggering event, he also invites the Court to re-open the factual question regarding the time when Mr Lo found out about the BVI injunction, notwithstanding the adverse concurrent findings made by the courts below.

    C.1 The Waygood Petition

  116. Mr Sumption is plainly right not to rely on the Waygood Petition as an independent ground for rescission. Mr Lo’s evidence establishes that he never formed the opinion that it constituted a material hindrance to completion. He was confident that Waygood was not a creditor of Regent and had been advised that even though section 182 might have been activated by the petition, it would be a mere formality to obtain a validation order. He testified that after the conference call held to discuss the petition, he decided that he would go ahead with completion notwithstanding.

  117. There would in any event have been no basis for refusing a validation order. As Buckley LJ pointed out in In re Gray's Inn Consruction Co Ltd [1980] 1 WLR 711 at 718-719 the court seeks to procure so far as practicable rateable payments of the unsecured creditors’ claims (see also Denney v John Hudson & Co Ltd [1992] BCLC 901). It will decline to make a validation order where it might result in an unjustified preference or reduce the assets available for distribution to the prejudice of the unsecured creditors. Since the Property was subject to two mortgages in favour of BOC which had consented to the sale and which would receive the entire proceeds of sale, completion would not have affected the unsecured creditors at all. There would not have been any preference or prejudice to them. Rendering the sale void would merely have caused the Property to revert to the status of a property mortgaged to BOC, a pointless consequence. It would therefore have been difficult to argue that the Waygood Petition was a matter beyond Regent’s control.

    C.2 The BVI injunction

  118. The courts below found that it had not been established that Mr Lo knew of the BVI injunction before noon on 21 November 2003. It could therefore not be shown that failure to complete was due to the BVI injunction or that Mr Lo had formed the requisite opinion that such injunction constituted a material hindrance to completion. It was accordingly not a basis for rescission under clause 13.2.

  119. The settled practice of this Court is to refuse to disturb such concurrent findings save in rare and exceptional cases where they involve a miscarriage of justice or violation of some principle of law or procedure - e.g., Sky Heart Ltd v Lee Hysan Co Ltd (1997-1998) 1 HKCFAR 318; Aktieselskabet Dansk Skibsfinansiering v Brothers (2000) 3 HKCFAR 70. The Court will not undertake a review of the evidence unless the party seeking to challenge the concurrent findings first demonstrates that such exceptional circumstances exist - Chan Wai Sun v Law Shiu Kai (2007) 10 HKCFAR 601 at 610, §28.

  120. Mr Sumption submits that in the present case a principle of procedure was violated in that no proper review was carried out by the Court of Appeal of the material relevant to determining when Mr Lo became aware of the BVI injunction. I do not agree. Mr Sumption’s criticisms were directed at the Court of Appeal’s treatment of Mr Lo’s evidence, the contemporary documents and the inherent probabilities. The Court gave careful consideration to each of those matters and the suggestion that it failed properly to review relevant materials cannot be justified.

  121. I would add that in my view, it had ample grounds for upholding the Judge’s findings.

    1. The details regarding Mr Lo’s first awareness of the injunction were hardly dealt with in his affirmations and there was some inconsistency between what was there stated and his oral testimony regarding the identity of the persons who had conveyed the information to him. The Judge had the advantage of hearing Mr Lo testify and was plainly entitled to find that he did not have any direct recollection of those matters, but had sought to reconstruct the position from discussions with others and from the documents.

    2. Mr Korff, Mr Datwani and Mr Ho, who might have been expected to give evidence on this matter did not do so.

    3. The contemporaneous documents were at best inconclusive as to whether Ms Beverly Chan of SW&L had informed Mr Korff of the injunction at 10.00 am on the morning of the 21st. Indeed, I am inclined against the conclusion that the injunction was mentioned.

    4. Ms Chan’s letter faxed to Clifford Chance at 12:24 pm on 21 November says nothing about the injunction but records the fact that in the earlier conversation, Mr Korff had advised her that the sale had been postponed, which is consistent with Mr Korff’s letter of the following day. It is not surprising that Mr Korff should have initiated the call since it would have been natural for him to wish to confirm that the rescission notice faxed at about 10.20 pm the previous night had been duly received. That is at least as inherently probable as the suggestion that Ms Chan would have wanted to ensure that the BVI injunction came to Regent’s notice before noon and so was giving oral notice of it before sending the faxes at 11:45 am. If that had been her intention, it is surprising that she did not record the fact that she had passed this information on to Mr Korff in her letter sent later that morning. And if Mr Korff had been told of the injunction at 10.00 am, he might have been expected to send a further letter to JSM adding it to Regent’s earlier justifications for rescinding. That did not happen.

    5. In Mr Korff’s letter to SW&L of 22 November 2003, he records that in the 10.00 am conversation on the previous day he had indicated that Regent had decided not to complete as a result of the Waygood Petition and the BVI application. There is no suggestion that anyone mentioned the injunction. The complaint he was making (on the following day) was that the injunction was an excessive measure given that SW&L had already been informed that Regent did not intend to complete.

    6. It is true that it can plausibly be said to have been inherently probable that SW&L would wish to ensure that notice of the BVI injunction got to Regent in good time before noon so that its intended purpose would be fulfilled. However, if this was the object, SW&L would surely have documented the giving of such notice and the only documentary evidence generated by SW&L consisted of the faxes sent a quarter of an hour before the noon deadline. It is not known when SW&L themselves first heard of the BVI injunction nor why, if they were able to, they did not fax notice of the order sooner. It is also plausible that Mr Lau’s strategy was to hold off giving notice of the order until the last moment so as to leave Regent with no time for manoeuvre, forcing it to put off completion.

    7. There is in any event no good reason to think that once notice of the BVI injunction was received in the Regent camp, it would necessarily have been communicated to Mr Lo as a matter of urgency. As far as Mr Lo, Mr Ho and the solicitors involved were concerned, the die had been cast the night before. Clause 13.2 had been invoked and completion was not going to take place. The urgency had gone and, as Mr Beloff put it, freed of the perceived problems posed by the BVI application, Mr Lo was properly relaxing on the golf course “and his mind was, no doubt, on his swing rather than elsewhere”. It is therefore entirely plausible that the message was not conveyed to him until after the deadline had passed. When Mr Lo heard about the BVI injunction, his reaction was to think that this reinforced the decision taken the previous evening. It was not that this presented another ground for rescission which should urgently be notified to Goldlion before the time fixed for completion.

  122. There is accordingly no basis for interfering with the concurrent findings and the decision to reject the BVI injunction as a ground for rescission cannot be disturbed.

    C.3 The BVI application

    C.3a Beyond Regent’s reasonable control

  123. The Judge noted that it had not been suggested at the trial that there were any steps that the defendant could have taken to prevent the filing of the BVI application and accordingly held that it was a matter beyond the reasonable control of Regent - Judgment §107.

  124. However, as we have seen, the Court of Appeal held that Regent was obliged to offer Goldlion the opportunity to proceed to completion notwithstanding the BVI application and that in the absence of its having done so, the BVI application could not be regarded as a matter beyond Regent’s reasonable control - Judgment §69. For the reasons given in Section B.4a above, I respectfully disagree.

  125. The “matter” consisted of Mr Lau’s application in the BVI for leave to appeal out of time against the order made on BOC’s petition to wind up KHHL together with an application aimed at “staying” or restraining the sale of the Property in the interim. The papers were seen by Regent’s lawyers at some time after 4.00 pm on 20 November and considered in detail with Mr Lo after his return from Beijing. Nothing could have been done by Regent to prevent Mr Lau from filing the application in the first place. Earlier warnings from Mr Lau lacked particularity and, in any event, it is hard to see what kind of pre-emptive application Regent might have had locus to make in the BVI. In the absence of any evidence that effective steps could have been taken to neutralize the BVI application between the time it came to Mr Lo’s attention and noon on the following day, no basis exists for interfering with the Judge’s finding that the BVI application was something beyond Regent’s reasonable control.

    C.3b Failure to complete “due to” BVI application

  126. The evidence on its face indicated that Mr Lo’s failure to complete was “due to” the BVI application. He testified that when he boarded the plane for Hong Kong, he was still intending to complete despite presentation of the Waygood Petition. It was only after having discussed the papers filed in the BVI and taking advice from Mr Korff that he decided in the late evening of 20 November to invoke clause 13.2.

  127. However, a major line of attack developed by Goldlion at the trial was an attempt to establish that Mr Lo was actually motivated by a wish to advance the interests of BOC. The Judge put the point thus - Judgment §93:

    It is suggested by Mr Huggins[4] that in reality what prompted the defendant through Joseph Lo to purport to exercise its right to terminate under Clause 13.2 was a desire to follow the wishes of the Bank of China rather than any genuine belief that a situation described in Clause 13.2 had arisen. It is also suggested that what prompted the Bank of China to try to prevent the sale was a rising property market.

    As his Lordship noted elsewhere in his judgment - Judgment §68:

    It is an allegation of lack of bona fides.

  128. That attack was rejected by the Judge who found that “such a motive on the part of the BOC had not crossed his mind” and that Mr Lo “believed that the BOC’s concerns were on legal grounds” - Judgment §94. His Lordship therefore expressed himself satisfied that Regent’s failure to complete was “due to” the BVI application - Judgment §103.

  129. The Court of Appeal agreed, stating - Judgment §109:

    It was suggested to Mr Lo that the termination notice was issued for the benefit of BOC. On this issue, which goes to the genuineness of the reasons relied on by Mr Lo, the learned judge has found in favour of the defendant. It is a finding which rightly has not been challenged on appeal.

  130. Given those concurrent findings, it is unsurprising that the abovementioned line of attack has not been revived by Mr Beloff. But it was suggested that Mr Lo’s decision was motivated not so much by concern about the legal consequences of the BVI injunction as by anxieties about his own personal position or potential liability, being matters extraneous to clause 13.2. Mr Sumption’s response, which I accept, is that this submission introduces a false dichotomy between the interests of Regent and the personal position of Mr Lo. Anxieties which Mr Lo felt about being himself criticised arose out of the concern that if he completed the Contract he might later be shown to have done the wrong thing from the point of view of the company.

  131. I therefore consider that there is no basis for interfering with the concurrent findings that Regent’s failure to complete was due to the BVI application.

    C.3c The opinion held by Mr Lo

  132. As noted above (Section B.4a), the clause 13.2 “matter” must also be something which “in the reasonable opinion of the Vendor materially hinders, prevents or obstructs the completion of the sale and purchase of the Property”. This prompts two questions: (i) was it in fact Mr Lo’s opinion that the BVI application constituted a hindrance to completion of the Contract? (ii) If so, was that a reasonable opinion?

  133. The facts relevant to the first of those questions have been set out in Section A.9 above. Mr Lo was worried that the BVI application, involving a challenge to the winding-up order from which his authority as liquidator derived, might lead to the invalidation of his appointment and of all the acts done pursuant thereto, including his replacement of Regent’s board and Regent’s entry into the Contract. As stated above (Section B.3), I consider that the risk perceived by Mr Lo that Regent lacked the power to convey the property which it had purported to sell, with the uncertainty attending that risk, was capable of amounting to something which hindered Regent’s completion of the Contract within the meaning of clause 13.2.

    D. WAS MR LO'S OPINION REASONABLE?

    D.1 The decisions of the courts below

  134. The Judge found that Mr Lo’s opinion was reasonable (see Judgment §§104 and 122), having been based on Mr Korff’s advice “to the effect that the title he would transfer was potentially defeasible”, his Lordship holding that - Judgment §105:

    Even if there were elements of [Mr Korff’s] advice that he might have queried ..., it would have been unreasonable to disregard even a small possibility that [such] advice was correct bearing in mind the possible implications on the sale.

  135. On this crucial point, his decision was unanimously overturned by the Court of Appeal. Tang VP, giving the leading judgment, reasoned as follows:

    1. Title would only be defeasible if it might have led to the invalidation of the acts of Regent’s directors - Court of Appeal §90.

    2. If this were a Hong Kong liquidation there could be no doubt that setting the winding-up order aside would not affect the directors’ appointment or invalidate the sale.[5]

    3. English authorities (In re A B & Co (No 2) [1900] 2 QB 429; and In re Joseph Phillips Ltd [1964] 1 WLR 369) also show that the appointment of receivers and provisional liquidators remains valid so as to entitle them to remuneration during the period when they were acting as such even though the underlying petition or winding-up order is later dismissed or set aside.

    4. His Lordship concluded that it was:

      .... inconceivable that any reasonable professional liquidator would believe that, if he had carried on the business of the company, or had disposed of assets, or had entered into contracts, they could be impeached in the absence of any misconduct on his part.

      He added - Court of Appeal §97:

      So here, for example, it is inconceivable that the business of the defendant as well as the Hotel which had been run by directors ‘appointed’ by the liquidators (by exercising shareholders’ rights) could be successfully challenged even if the BOC winding up was eventually discharged, and the liquidators removed. I have no doubt that under Hong Kong law, even if the winding up order was set aside on appeal, that would not lead to the invalidation of the sale by the defendant. Any opinion otherwise ‘can quickly be seen to be absurd or ridiculous’.

    5. Recognizing that his remarks concerned the position under Hong Kong law, Tang VP stated (Court of Appeal §98) that in the absence of evidence to the contrary, the court was entitled to proceed on the basis that BVI law would be the same as English law in this context.

    6. Turning to the advice Mr Lo received from Mr Korff, his Lordship criticised it as “vague” and stated - Court of Appeal §100:

      If I am right that Mr Lo’s opinion ‘can quickly be seen to be absurd or ridiculous’, I do not believe it could be saved by Mr Korff’s advice. Moreover, I am of the view that no reasonable liquidator would have acted on Mr Korff’s advice without query.

  136. It is my respectful view, that such reasoning incorporates a wrong approach. It must be kept in mind that, as stated above (Section B.1) clause 13.2 does not, as a matter of construction, require the Vendor’s opinion that the relevant matter hinders completion to be correct in law. What it does require is for it to be an opinion which is reasonably held in the prevailing circumstances, given the materials reasonably available and given Mr Lo’s position as a professional liquidator. An assessment of the opinion’s reasonableness must therefore involve examining what those circumstances and available materials were.

  137. However, Tang VP’s approach to reasonableness is almost purely conceptual. It is based on a legal analysis leading him to the conclusion that, as a matter of Hong Kong law, the acts of a board of directors would clearly not be retrospectively invalidated by a setting aside of a winding-up order pursuant to which they had been appointed. Relying on an evidential presumption, he treats that conclusion as equally applicable to the law of the BVI. On this basis, he concludes that “it is inconceivable” that any reasonable professional liquidator could have believed otherwise, and indeed that to do so would be absurd or ridiculous.

  138. The approach his Lordship adopted is therefore that of a courtroom analysis proceeding on the basis of legal citation and evidential presumptions. It involves no examination of the actual circumstances faced by Mr Lo when forming his opinion or of the materials available to him in reaching that opinion. The Court of Appeal was simply saying that the opinion was so plainly wrong, that no liquidator could reasonably hold it. That does not do justice to clause 13.2 which accommodates wrong but reasonable opinions. The key question of whether it was reasonable, albeit wrong, was not properly considered.

  139. This deficiency is clearly brought out by the Court of Appeal’s treatment of Mr Korff’s advice. Whatever a court might subsequently think of its correctness, it was undoubtedly a factor of the first importance to Mr Lo in coming to his decision to invoke clause 13.2. It is essential to take such advice into account, even if it was wrong, in determining whether Mr Lo’s opinion to which it had contributed was reasonable. Tang VP, however, adopts an inverted approach, stating: “If I am right that Mr Lo’s opinion ‘can quickly be seen to be absurd or ridiculous’, I do not believe it could be saved by Mr Korff’s advice.” In other words, having already decided the crucial issue, namely, that Mr Lo’s opinion was unreasonable, and indeed, absurd or ridiculous, his Lordship discounted Mr Korff’s advice as being incapable of redeeming that absurd opinion.

  140. The approach is also open to procedural or evidential objection. I have expressed the view above (Section B.5) that the Regal Success test of whether a solicitor’s opinion was “absurd or ridiculous” should not have been adopted in the present case. However, it was the test applied by the Court of Appeal and its conclusion that Mr Lo’s opinion was absurd or ridiculous and that it was inconceivable that any reasonable liquidator could believe that his actions might be retroactively invalidated, are highly damaging to him. On what basis was it being suggested that Mr Lo formed such an “inconceivable” opinion? Was it that he did not in fact believe that the transaction could be retrospectively unravelled, so that his opinion must have been reached in bad faith (one of the Regal Success grounds for challenge)? If so, that was never put to Mr Lo and would be inconsistent with the Judge’s findings and with the Court of Appeal’s own statement that it had to proceed on the basis that Mr Lo’s opinion was honestly held - Court of Appeal §99. Or was it being suggested that Mr Lo was professionally incompetent – an implication that is difficult to escape? If so, the factual basis of that damaging allegation was also never put to him.

  141. A final objection which may properly be taken to the Court of Appeal’s approach concerns its conclusion that no reasonable liquidator would have acted on Mr Korff’s advice “without query”. It is a highly inchoate criticism since the Court of Appeal does not say what kinds of queries he should have made; to whom they should have been addressed; and by when he should have had his answers. Nor is it clear what answers could be expected and what difference the making of such queries might have made to Mr Lo’s opinion.

    D.2 The reasonableness of Mr Lo’s opinion in its factual context

  142. An appropriate assessment of the reasonableness of Mr Lo’s opinion that the BVI application constituted a material hindrance to completion might begin by contrasting such opinion with his reaction to the Waygood Petition. As we have seen, he certainly did not adopt a supine attitude when that petition was presented but, being confident that there was no debt owing by Regent to Waygood and having taken Mr Korff’s advice that a validation order would be a formality, he decided to go ahead with completion anyway.

  143. Mr Lo regarded the BVI application as a very different kettle of fish. He saw that it involved a challenge to the winding-up order from which his authority as liquidator derived and was worried that, if successful, it might unravel all the actions he had initiated as liquidator including Regent’s sale of the Property. He thought that if he completed the Contract while aware of the BVI application and if Mr Lau subsequently succeeded in those proceedings, Mr Lo would be shown to have caused Regent to sell its main asset unnecessarily to repay a debt which was cancelled out by a cross-claim of which he had been given notice. It was not just a legal threat that might be projected to arise somewhere down the line. As Mr Korff pointed out, Mr Lau was seeking an immediate “stay” of the winding-up pending the appeal, “in particular the sale of the Company’s assets by the court appointed liquidators”. Mr Lau was therefore seeking an order specifically restraining him, an officer of the BVI Court, from completing the sale.

  144. Mr Beloff submitted that it was unreasonable for Mr Lo to take the BVI application seriously. He should, he argued, have questioned Mr Lau’s locus to make the application and should have been incredulous of Mr Lau’s story about being deceived by BOC into handing over US$20 million without any documentation and about the enormous losses said to have been thereby caused. No doubt powerful legal arguments can be made along such lines as a matter of forensic debate.

  145. However, as Mr Lo stated on several occasions, in the evening of 20 November, he found the BVI application particularly worrying because it involved a dispute between Mr Lau and BOC which was “beyond his level”, being a dispute to which Regent was not a party; which he could do nothing about and which involved factual issues about which he had little information. Mr Lo explained under cross-examination:

    My appointment was made in the BVI court by the petition of BOC based on the fact that they were owed 1.9 billion. And it was made ex parte in the absence of Stephen, so we have not heard the story from Stephen Lau at the time when my appointment was made by the BVI court. So, this is the first time I heard Stephen Lau is suing or claiming damages against BOC .... for a sum greater than that 1.9 billion BOC was owed.

    And later on:

    .... until November 20th, before my arrival back to Hong Kong, all along my understanding was that Waygood, Stephen Lau were threatening to sue Regent National, which I represent, which I handle. And my staff Glen was telling me that we do not owe them money, so I have nothing to worry. It is only by the evening when I was at the meeting with Clifford Chance, and also when I arrived back to Hong Kong, Glen gave me a telephone call saying that Stephen is now suing Bank of China at the BVI level, at a level beyond my reach.

  146. He saw that Mr Lau’s complaint against BOC was corroborated by two further affirmations, one by a solicitor and the other by a certified public accountant. Moreover, as Mr Sumption pointed out, the BVI High Court did not consider it a manifestly bad application since, on the following day, it granted the BVI injunction on the basis of that very material.

  147. The only person that Mr Lo could sensibly ask about the BVI application was BOC. If BOC were to discount Mr Lau’s allegations as baseless, this would obviously have been of great importance to the opinion formed by Mr Lo. But BOC’s reaction was far from being dismissive of the application.

    1. Mr Datwani, who spoke to BOC with Mr Ho’s consent, reported at about 3.30 pm on 20 November that BOC “do not wish the transaction to be completed unless the subject matter under the notice of application has been ventilated in a Court”.

    2. In the course of the meeting at Clifford Chance after Mr Lo’s return from Beijing, he received a letter from BOC’s solicitors GYTH&Co stating:

      .... because of s 182 of the Companies Ordinance and taking into account the application made by [Mr Lau] in the BVI Court, our client believes that it would be prudent for the Company to inform the Purchaser of the situation and to give notice to the Purchaser that an event described in Clause 13.2 has occurred ....

    3. Mr Lo inquired whether BOC might take over the sale or instruct Regent not to proceed with the sale and learned that BOC was not prepared to take either course.

  148. It was suggested in argument that Mr Lo ought to have sought BVI advice overnight. However, given that Mr Lo had very limited information about the BVI application, it is hard to see how he could have given proper instructions to BVI lawyers to obtain an advice on its merits. Mr Korff, who would no doubt have taken charge of instructing such lawyers, thought there was insufficient time to do so. Moreover, as the Judge noted:

    It has not been suggested by Mr Huggins that there would at this stage have been sufficient time to obtain legal advice from a BVI lawyer as to the implications of such an application.

  149. Of crucial importance was the advice given by Mr Korff. He was a partner in Clifford Chance’s insolvency department brought in specifically to deal with contentious issues resulting from Mr Lau’s intervention. Mr Lo obviously thought that he needed such advice as he went directly to the offices of Clifford Chance from the airport. It would obviously be reasonable for him to give weight to Mr Korff’s views.

  150. After a lengthy meeting where the BVI papers were thoroughly discussed and BOC’s attitude ascertained, Mr Korff advised Mr Lo in respect of the BVI application along the following lines (as summarised in his affidavit):

    (d)

    As the documents relating to the BVI Action were only received on the eve of the Scheduled Completion Date, there was insufficient time for the Defendant to seek BVI law advice on the merits and impact of the BVI Action. However, in order to assist the Defendant given the time constraints, I indicated that it seemed to me that as the BVI Action was an appeal against the Winding-up Order, if Mr Lau was successful in overturning the Winding-up Order, it was likely that the Liquidators’ capacity to appoint the current management of the Defendant, and thus the current management’s capacity to enter into the S&P Agreement, would be challenged. I also noted that the BVI Action included an application to restrain the completion of the sale of the Hotel.

    (e)

    Further, if the Defendant proceeded to complete the sale of the Hotel on notice of the BVI Action in circumstances where there was a provision in the S&P Agreement (Clause 13.2) giving the Defendant an ability to terminate in the present circumstances and Mr Lau was successful with the BVI Action, it seemed to me that the BVI Court might have little sympathy with the Defendant and Mr Lo in the event that Mr Lau subsequently sued for damages. Mr Lo asked me whether I thought it was open to him to invoke Clause 13.2 and terminate the S&P Agreement. I advised Mr Lo that the Petition, the BVI Action and the fact that by that time there was less than 12 hours before the appointed date for completion (time being of the essence of the S&P Agreement) were, taken together, circumstances which it seemed to me were within the range of circumstances in which the Defendant might invoke Clause 13.2. I noted further that should Mr Lo choose to invoke Clause 13.2, the 1st Plaintiff had a right of pre-emption in respect of a subsequent sale of the Hotel pursuant to Clause 13.3 of the S&P Agreement.

  151. There was no application to cross-examine Mr Korff on this evidence. Even if his advice was subsequently thought to be clearly wrong (as the Court of Appeal thought), it was nevertheless confirmatory of Mr Lo’s fears. He was being advised that if Mr Lau should be successful in setting aside the winding-up, “it was likely that the Liquidators’ capacity to appoint the current management of the Defendant, and thus the current management’s capacity to enter into the S&P Agreement, would be challenged”. It is true that Mr Korff did not say whether he thought such a challenge would succeed. However, he was pointing to a likelihood of such a challenge being made and obviously thought it posed a risk of sufficient substance to merit considering rescission as a prudent course. He also pointed out that application was being made for completion to be restrained in the interim.

    E. CONCLUSION

  152. As indicated above, I consider a litigation risk which cannot be discounted to fall within the ordinary meaning of the word “hinders” for clause 13.2 purposes. It is my view that taking into account the circumstances in which Mr Lo found himself in the evening of 20 November 2003 as well as the information, materials and advice reasonably available to him, the Judge was fully entitled to conclude that the BVI application furnished a proper basis for his invocation of clause 13.2. He was entitled to find that Regent had failed to complete the sale and purchase of the Property due to the BVI application, an instance of third party action, which was beyond Regent’s reasonable control and which in the reasonable opinion of Mr Lo (whose opinion was rightly attributed to Regent) materially hindered the completion of the sale and purchase of the Property.

  153. I would accordingly allow the Appeal, set aside the Order of the Court of Appeal dated 13 March 2008, restore the Order of Deputy High Court Judge Longley dated 29 January 2007 dismissing the Originating Summons herein and make an order nisi that the plaintiffs pay Regent’s costs here and below. I would direct that submissions as to costs, if any, be made in writing to be filed and served by the plaintiffs within 14 days from the date of this judgment and that any submissions in reply be filed and served by Regent within 14 days thereafter. If no costs submissions are filed as aforesaid, I would direct that the order nisi stand as an order absolute without further order. Regent must of course return the deposit with interest and Goldlion’s expenses in accordance with the Contract. I would direct that any submissions in relation to the return of the deposit be made in writing within 14 days from the date of this judgment with liberty to the other side to file any submissions in reply within 14 days thereafter, such submissions to be dealt with by a single Permanent Judge.

  154. RZB has seen fit to intervene in these proceedings and to be represented by solicitors and counsel in this Appeal. This appears to have been based on some notion that RZB’s interests needed to be protected against some issue extraneous to this appeal but affecting its position vis-à-vis Goldlion being broached in the course of argument. Such a concern appears to be misconceived. As was pointed out at the hearing, it would have been much better addressed by RZB not making itself a party and therefore not being bound by anything that might be said or decided as between the plaintiffs and the defendant. No orders need to be made, whether in respect of costs or otherwise, in relation to RZB, a fact which underlines the pointlessness of its intervention and of the costs incurred in consequence.

    Justice Nazareth NPJ

  155. I agree with the judgment of Mr Justice Ribeiro PJ.

    Gerard Brennan NPJ

  156. I agree with the judgment of Mr Justice Ribeiro PJ.

    Justice Bokhary PJ

  157. The Court unanimously allows the appeal and makes the orders and directions set out in the last two paragraphs of Mr Justice Ribeiro PJ’s judgment.


[1] “The Purchaser also agrees that (conditional upon such receipt as aforesaid) it shall have no claims against Deloitte Touche Tohmatsu, its partners, principals, directors, managers and staff, and in all cases, any successors or assignee, Bank of China (Hong Kong) Limited, their agent and solicitors by reason of the Vendor’s inability or failure to complete the sale hereunder for the reason aforesaid.”

[2] “.... deliveries may be suspended pending any contingencies beyond the control of the sellers or buyers (such as .... war ....) causing a short supply of labour, fuel, raw material or manufactured produce, or otherwise preventing or hindering the manufacturing or delivery of the article.”

[3] “A party shall not be liable in the event of non-fulfilment of any obligation arising under this contract by reason of Act of God, disease, strikes, Lock-Outs, fire and any accident or incident of any nature beyond the control of the relevant party.”

[4] Mr Adrian Huggins SC, then instructed for Goldlion

[5] Court of Appeal §92, citing Goff and Jones (The Law of Restitution, 7th Ed, §16-003) as showing that a purchaser of property from an officer of the court gets an unimpeachable title and holding that the same ought to apply to liquidators.


Cases

Leader v Duffey (1888) 13 App Cas 294

Morley v Cook (1842) 2 Hare 106

Paradine v Jane (1647) Aleyn 26

Mariner International Hotels Ltd v Atlas Ltd (2007) 10 HKCFAR 1

Peter Dixon & Sons Ltd v Henderson, Craig & Co. Ltd [1919] 2 KB 778

Channel Island Ferries Ltd v Sealink UK Ltd [1988] 1 Lloyd’s Rep 323

Tennants (Lancashire) Ltd v C S Wilson & Co Ltd [1917] AC 495

Re Windsor Steam Coal Co (1901) Ltd [1929] 1 Ch 151

Lennard’s Carrying Co. Ltd v Asiatic Petroleum Co. Ltd [1915] AC 705

Meridian Global Funds Management Asia Ltd v Securities Commission [1995] 2 AC 500

Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896

Jumbo King Ltd v Faithful Properties Ltd (1999) 2 HKCFAR 279

River Trade Terminal Co Ltd v Secretary for Justice (2005) 8 HKCFAR 95

Tennants (Lancashire) Ltd v CS Wilson and Co Ltd [1917] AC 495

Peter Dixon & Sons Ltd v Henderson, Craig & Co Ltd [1919] 2 KB 778

Active Keen Industries Ltd v Fok Chi-keong [1994] 1 HKLR 396

Regal Success Venture Ltd v Jonlin Ltd (2000) 3 HKCFAR 364

Hudson v Buck (1877) 7 ChD 683

In re Gray's Inn Consruction Co Ltd [1980] 1 WLR 711

Denney v John Hudson & Co Ltd [1992] BCLC 901

Sky Heart Ltd v Lee Hysan Co Ltd (1997-1998) 1 HKCFAR 318

Aktieselskabet Dansk Skibsfinansiering v Brothers (2000) 3 HKCFAR 70

Chan Wai Sun v Law Shiu Kai (2007) 10 HKCFAR 601

In re A B & Co (No 2) [1900] 2 QB 429

In re Joseph Phillips Ltd [1964] 1 WLR 369

Authors and other references

Force Majeure and Frustration of Contract, 2nd ed. (1995)

Goff & Jones, The Law of Restitution, 7th Ed

Representations

Jonathan Sumption QC and Ramesh Sujanani (instructed by Messrs Allen & Overy) for the appellant

Michael Beloff QC, Michael Thomas SC and Godfrey Lam SC (instructed by Messrs Mallesons Stephen Jaques) for the respondents

Colin Wright (instructed by Messrs Stephenson Harwood & Lo) for the intervener


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