FACV Nos. 9 & 10 of 2006 IN THE COURT OF FINAL APPEAL OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION FINAL APPEAL NOS. 9 & 10 OF 2006 (CIVIL) (ON APPEAL FROM CACV NOS. 297 & 298 OF 2004) _______________________ Between: SIEGFRIED ADALBERT UNRUH Plaintiff (Respondent) - and - HANS-JOERG SEEBERGER 1st Defendant (1st Appellant) EGANAGOLDPFEIL (HOLDINGS) LIMITED 2nd Defendant (2nd Appellant) _______________________ Court: Chief Justice Li , Mr Justice Bokhary PJ, Mr Justice Chan PJ, Mr Justice Ribeiro PJ and Mr Justice McHugh NPJ Dates of Hearing: 15, 16 and 18 January 2007 Date of Judgment: 9 February 2007 _______________________ J U D G M E N T _______________________ Chief Justice Li: 1. I agree with the judgment of Mr Justice Ribeiro PJ. — 2 — Mr Justice Bokhary PJ: 2. I agree with the judgment of Mr Justice Ribeiro PJ. Mr Justice Chan PJ: 3. I have read the judgment of Mr Justice Ribeiro PJ in draft. I agree entirely with his comprehensive analysis and conclusions. I too would dispose of these appeals as proposed by him in the concluding paragraph of his judgment. Mr Justice Ribeiro PJ: A. The parties and the issues 4. On 19 September 1992, the plaintiff (“Mr Unruh”) entered into a Memorandum of Agreement (“the MoA”) with the 1st defendant (“Mr Seeberger”). The MoA provides that under certain circumstances, Mr Unruh is to become entitled to payment of a “Special Bonus”. Mr Unruh contends that such entitlement has arisen and, not having been paid, brought proceedings to recover the same from Mr Seeberger and from the 2nd defendant (“Egana”, formerly called Haru International (Holdings) Limited). Prior to its flotation, Egana was owned by Mr Seeberger. He remains a substantial shareholder. 5. Mr Unruh’s claim is resisted by Mr Seeberger on the basis that, properly construed, no entitlement to a Special Bonus (or to an unapportioned Special Bonus) arises under the MoA. He also alleges that Mr Unruh failed to comply with a “best endeavours” obligation in the MoA said to operate as a condition precedent to any entitlement. He furthermore adopts the argument, advanced on Egana’s behalf, that the MoA is a champertous agreement and therefore void and unenforceable. 6. In a careful and comprehensive judgment, Deputy High Court Judge Saunders (as he then was) rejected all of those arguments and held Mr — 3 — Seeberger personally liable to pay the Special Bonus. 1 He gave judgment against him in the sums of HK$25,027,447.13 and NLG290,288.15 with interest and costs. His judgment in this respect was unanimously upheld in the Court of Appeal.2 7. As against Egana, which is not a party to the MoA, Mr Unruh relied at the trial on an oral contract allegedly made in late May or early June 1995 between himself and Mr Seeberger, with the latter acting on his own behalf and on behalf of Egana, whereby Egana took on the liability to pay Mr Unruh the Special Bonus, with Mr Seeberger remaining liable to pay if Egana were to default. The Judge rejected this part of Mr Unruh’s case and it was not pursued in the Court of Appeal. 8. Mr Unruh also contended at the trial that the doctrine of estoppel by convention applies so as to prevent Egana from denying its liability to pay him the Special Bonus, thereby entitling him to judgment against Egana. The Judge accepted that submission and adjudged Egana liable to pay Mr Unruh HK$23,335,902.23 and NLG290,288.15 with interest and costs. The amount of the judgment was less than that awarded against Mr Seeberger because the Judge accepted that Egana could set-off certain debts owed by Mr Unruh, which set-off was unavailable to Mr Seeberger. 9. By a majority, the Court of Appeal upheld the Judge’s decision in respect of Egana. Stone J dissented, taking the view that liability on Egana’s part could not be made out. Leave to appeal to this Court was granted by 1 HCA 6641/2000, 3 September 2004. 2 Rogers VP, Le Pichon JA and Stone J, CACV 297/2004 and CACV 298/2004, 7 October 2005. — 4 — Rogers VP pursuant to s 25 of the Hong Kong Court of Final Appeal Ordinance, Cap 484. 10. The primary issue concerning Egana on appeal is whether an estoppel by convention arises on the facts, and if so, whether it enables Mr Unruh to establish Egana’s liability to pay the Special Bonus. Secondly, Egana raises the issue of champerty. This is somewhat odd since the argument was directed at the enforceability or otherwise of the MoA, a question obviously relevant to Mr Seeberger’s case but not self-evidently relevant to Egana, which is not a party to that agreement and is not being sued on it. However, public policy may exclude the raising of an estoppel3 and Egana’s argument appears to be4 that Mr Unruh’s case on estoppel asserts a convention which effectively deems Egana to be a party to the MoA or to an equivalent agreement so that, by reason of the public policy against champertous agreements, such a conventional estoppel cannot arise. 11. The champerty argument will in any event have to be examined in relation to Mr Seeberger who relies on that ground in addition to contending that the decisions below should be overturned on grounds relating to the construction of, and the best endeavours obligation in, the MoA. 12. The Court is indebted to counsel for their assistance. Mr Unruh is represented by Mr Ashley Burns, appearing with Mr Alexander Stock. Mr Ambrose Ho SC appears with Ms Linda Wong for Mr Seeberger, and Mr Denis Chang SC appears with Mr Hectar Pun and Mr Newman Lam for Egana. 3 Kenneth Allison Ltd V A E Limehouse & Co [1992] 2 AC 105 at 126-127; Furness Withy (Australia) Pty Ltd v Metal Distributors (UK) Ltd, The “Amazonia” [1990] 1 Lloyd’s Rep 236; Hyundai Engineering and Construction Company Ltd v Vigour Ltd [2004] 2 HKC 505, §114. 4 Printed case §58. — 5 — B. The main course of events B.1. ESCT and the Licence Agreement 13. Eco Swiss China Time Limited (“ESCT”) is a Hong Kong company founded by Mr Unruh and at the material time was wholly-owned by him. Its business involved the production and distribution of watches and other time pieces. 14. On 1 July 1986, ESCT entered into a Licence Agreement (“the Licence Agreement”) with Benetton International NV (“Benetton”) and Bulova Watch Company Inc (“Bulova”). This permitted ESCT, on payment of royalties, to manufacture and service what were referred to as “fashion watches” using the name “Benetton by Bulova”. The Licence Agreement was for a term of eight years with the parties agreeing to enter into negotiations in good faith with a view to extending its term not later than one year before its expiration. It also contained an arbitration clause in favour of the Netherlands Arbitration Institute in The Hague (“the Tribunal”), applying the laws of the Netherlands. 15. It appears that exploitation of the Licence Agreement proved very lucrative. According to Mr Unruh, “Benetton by Bulova” became the second biggest selling watch brand in the world, achieving sales of over 5 million watches per year. B.2 Acquisition of ESCT and commencement of NAI 1325 16. Mr Unruh and Mr Seeberger had known each other from previous dealings. In April 1991, Mr Seeberger was contemplating the flotation of Egana on the Hong Kong stock market. He began discussions with Mr Unruh for the acquisition of ESCT with a view to its being injected into Egana for the purposes of the flotation. — 6 — 17. However, as these discussions were progressing, Benetton served a notice dated 24 June 1991 purporting to terminate the Licence Agreement. It alleged various wrongful acts on the part of ESCT, including the granting of an unauthorized sub-licence concerning alarm clocks; a failure to pay royalties; providing inaccurate books; understating sales figures to avoid paying royalties; and so forth. It also relied on the fact that, on 10 April 1991, a receiver had been appointed by a Milan court over an Italian subsidiary of ESCT called Eco Swiss SpA (“Eco Swiss”) which was alleged to constitute a substantial part of ESCT’s assets. The eight-year term of the Licence Agreement was due to run until 30 June 1994, so Benetton was purporting to cut it short by about three years. 18. ESCT rejected these allegations and, on 28 June 1991, commenced an arbitration against Benetton (which became known as Arbitration “NAI 1325”) before the Tribunal. In its Statement of Claim delivered on 2 March 1992, it specified as part of the relief sought in NAI 1325, a declaration that the Licence Agreement continued in full force; an order for Benetton to continue rendering performance, including the commencement of good faith negotiations for its extension; compensation for damages flowing from Benetton’s alleged repudiation “and related misconduct”. Alternatively, if the Licence Agreement were held not to continue in force, ESCT sought damages resulting from the alleged “repudiation and related misconduct, including lost future profits covering both the initial term and the foreseen extension of the Agreement, in an amount to be proven in a second phase of the proceedings.” 19. Mr Seeberger was not deterred by Benetton’s termination of the Licence Agreement from proceeding with ESCT’s acquisition. The parties entered into a series of agreements between August 1991 and September 1992 setting the terms upon which Mr Unruh was to part with his shares in ESCT, such terms evolving with each new agreement.