Chen & Anor v Chui & Ors

This is an application for permission to appeal from an order of HHJ McCahill QC of 14 September 2007 by the unsuccessful defendants, who have been represented here today by the second defendant, Dr Ding, who is a most attractive advocate. He has a PhD and is an academic in the field of chemistry.

The background is that the claimants and the defendants held discussions which developed into a business venture which was to become Herbmagic (UK) Limited, the third defendant. How and why the discussions began was contested. A form of co-operation agreement was executed in January 1999. Some of the terms are agreed but there was a major issue at trial as to whether the issued capital of the company was to be held in equal shares by both sets of parties. Both parties contributed to the capital but the method by which that contribution was made by the claimants was contested.

The company was incorporated in March 1999. The defendants were the initial shareholders and were director and secretary. Subsequently, the capital was allotted as follows: to the first defendant, 46 ordinary shares and one ordinary B share; to the second defendant, 46 ordinary shares and one ordinary C share, and to the second claimant, one ordinary D share. Whether this was done with the claimants’ knowledge and with their agreement was the subject of dispute.

By November 2000 the relationships between the two sets of parties had deteriorated and the reasons for that deterioration were again a matter of dispute. It was agreed that about £20,000 was missing from the company for the period July 1999 to October 2000, and the money was ultimately re-paid in March 2001. In February 2001 some shop proceeds were paid into the bank account by the first defendant and apparently there was a shortfall. The reason that both sets of funds were missing was contested, and the reason for the repayment of the £20,000 and who made the repayment was also contested.

By March 2001 the parties had irreconcilable differences. The police were called to the shop and the second claimant, Dr Du, was arrested on the ground that he had wrongfully retained the shop takings, but he was later released without charge. In March 2001 the claimants were suspended by the defendants from their offices and subsequently dismissed.

The claim form sought specific performance of the agreement which the parties entered into in January 1999 and an order for transfer of the shares and a rectification of the register. The Particulars of Claim pleaded that, by the agreement made in January 1999 and evidenced by the note of 31 January 1999, it had been agreed that the issued share capital of the company was to be divided equally between the claimants and the defendants and that, in breach of the agreement, the issued share capital had been allotted by the defendants in the manner to which I have referred. The Particulars of Claim made it clear that, if and when the register of members was rectified, it was the intention of the claimants to petition for relief under section 459 of the Companies Act 1985.

The defence denied the agreement and stated that it was agreed that only upon the claimants’ attaining permanent residence in the United Kingdom would they be offered a share in the company and also pleaded that, by reason of the conduct of the claimants, there had been a repudiation of the agreement, evincing an intention by the claimants not to be further bound by the agreement.

The critical findings of the judge, as regards the real points in issue, were as follows:

As regards repudiation, the judge found that without equal representation at the counting, and given specific examples on both sides of delays in paying money, it was unsustainable to regard the delay in payment to the bank as a breach of the agreement, let alone a repudiatory breach, and he specifically rejected allegations of dishonesty on the part of the first and second claimants.

As I have said, the applicants seek permission to appeal against the order, and they also apply for an order that the further witness evidence be admitted, namely evidence from Dr Wu, who was Dr Chen’s former employer, and Miss Ping Chen, who has given a witness statement indicating that the first claimant admitted that she had taken the £20,000.

I should indicate that the grounds for appeal, as regards the interpretation point, are as follows: that it was perverse of the judge to find that the cooperation agreement provided a clear expression of joint ownership, and wrong to find that any other interpretation would be a commercial absurdity. In particular, reliance is placed on the wording of clause 1 of the agreement, which said: “Once party B [that is, the claimants] obtain long-term residence, the company registration shall be changed to joint registration in the names of the partners.”

Looking at the cooperation agreement as a whole, it seems to me to be clear on its face, and the judge was plainly entitled to hold, that clause 1 is about registration and not about ownership. If one looks to the other provisions of the agreement, particularly clause 4, providing for each party to provide 50% of the funds; clause 5: the parties to share in the company’s profits; clause 7: the parties jointly to bear risk, share profits and make joint decisions, and the duration for ten years, taken together, all these provisions amply justify the finding, as a matter of construction, that that was the intention.

So far as the question of whether there was an oral agreement and also, to the same effect, the question of whether there was a repudiation, these were essentially questions of fact on which the judge heard the witnesses and took a view. As I pointed out to Dr Ding in the course of his argument, it is extremely difficult to persuade an appellate court to interfere with the findings of a judge based on fact and it seems to me there are no reasons for considering that an appeal on a question of fact would have a chance of success on appeal.

So far as the new evidence is concerned, as Dr Ding recognises, it has to fulfil what used to be called the three tests in Ladd v Marshall [1954] 1 WLR 1489. It seems to me that this is not material which fulfils those tests. It is not material which it seems to me to be likely to be evidence which could not have been obtained at the time. In any event even if it would have been difficult, if not impossible, to obtain it, it does not seem to be the kind of material which is likely to have affected the outcome.

In those circumstances, despite Dr Ding’s extremely attractive submissions, I dismiss the application.