Cheng Yun Sing and Another v. Ho Sai Chu and Others

Case No.CACV 190/1990

Court

Court of Appeal

Date21 Jun 1991

Judge—

Case Document

100%Judiciary

CACV000190/1990

IN THE COURT OF APPEAL

1990, No. 190
(Civil)

BETWEEN

	CHENG YUN SING	1st Appellant (1st Plaintiff)
	BUSIAID MANAGEMENT SERVICE LIMITED	2nd Appellant (2nd Plaintiff)
	AND
	HO SAI CHU	1st Respondent (1st Defendant)
	ADVOCATE NOMINEES LIMITED	2nd Respondent (2nd Defendant)
	FANTA INVESTMENTS LIMITED	3rd Respondent (3rd Defendant)
	----------

Coram: Hon. Sir Derek Cons, V.P., Clough, J.A. & Sears, J.

Date of Hearing: 4 - 6 June 1991

Date of handing down judgment: 21 June 1991

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JUDGMENT

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Sir Derek Cons, V.P. delivered the judgment of the court:

1. This is an appeal from the refusal of Master Perrior, sitting as a deputy judge of this court, to enter judgment for the 1st plaintiff, Mr Cheng Yun Sing, a professional accountant, and the 2nd plaintiff, Busiaid Management Services Ltd., the service company of his firm and which he used from time to time as his personal nominee.

2. The story began in July 1985 when Mr Cheng entered into a joint venture with Mr. Ho Sai Chu, the 1st defendant, to take a controlling interest in the Tin Tin Daily News. To this end they purchased a 75% interest (and later on the remaining 25%) in a shelf company, Fanta Investments Ltd., the 3rd defendant, which in turn purchased a majority interest in the company which ran the newspaper. Mr Ho purchased 60% of the shares in Fanta, his wife 25% and Mr Cheng 12%. There was a Mr Wu who purchased the remaining 3%, but he played no subsequent part. Mr Cheng was made the director and the secretary of Fanta, offices which he filled through his nominee, Busiaid. he was also given three other directorships within the Tin Tin Group, and shares which he held in trust.

3. The joint venture did not work out. The principal stumbling block seems to have been the participation of Mrs Ho who, although she was not experienced in business, was allowed to take a major part in the project. Mr Cheng did not get on well with her. Furthermore the newspaper was running at a loss. Mr Cheng was confident that it could be turned round if proper steps were taken. To his annoyance and frustration, he was effectively excluded from the management and there were certain other matters in which he did not think he was paid the respect which was his due.

4. Matters came to a head in February 1987 when Mrs Ho made remarks to Mr Cheng which he found unacceptable. That was on the 5th, a Thursday. Mr Cheng considered his position over the weekend and on Monday, the 9th, instructed his assistant, a Mr Chu, as a director of Busiaid, to resign all the directorships and execute blank transfer and bought and sold notes in respect of the shares which he, in the name of Busiaid, held in trust. This was done, and the letters of resignation and the blank snare documents delivered to the staff of Mr. Ho that evening. Unfortunately, and by mistake as the judge at the trial accepted, included as well in the bundle were documents allowing for the transfer of Mr Cheng's private shares in Fanta. The error was revealed in a telephone conversation three days later, i.e. the 12th, between Mr Cheng and a Mr Stephen Hui, a solicitor acting for Mr Ho that evening.

5. It was in respect of those shares in Fanta that Mr Cheng, and Busiaid, brought action. The crux of the matter lies in what happened at a luncheon meeting arranged between the two men at the Pacific Club on the 24th of the month. Mr Ho, in his evidence, was clear that an agreement was reached that Mr Cheng would sell his shares to Mr Ho for $600,000, being 12% of the $5 million for which Mr Ho was at that time negotiating to sell a major part of Fanta's interest in the Tin Tin company to Tony Wong of Jademan. He offered to Mr Cheng a further, pro rata share if Mr Cheng would help him to get the price increased. In the event the interest went for something like $27 million put Mr Cheng had hot in fact helped.

6. Mr Cheng's evidence does not allow for such an agreement. He asked, he said, for his shares back. But Mr Ho replied that it did not matter and that after the sale the proceeds would be distributed pro rata. Mr Cheng advised against any sale, but did not press the matter.

7. Two other witnesses were called below, a Mr Chu, Mr Cheng's assistant and director of Busiaid, who took matters no further; and a Mr Stephen Hui, the solicitor, whose evidence was completely discounted by the judge. The judge's decision would then necessarily have to turn, as he himself put it, upon his:

"determination of the relative credibility of Mr Cheng and Mr Ho, particularly, so far as it relates to their meeting at the Pacific Club on the 24th February 1987."

8. That determination he set out later at p. 17 of his judgment:

"So far as their respective recollections as to what transpired during the course of this meeting, I have no hesitation in accepting Mr Ho's version and rejecting that of Mr Cheng. It follows therefore that I find as a fact that Mr Cheng did agree to accept the sum of $600,000 for his shares plus a further consideration if he helped Mr Ho in securing a better price from Jademan."

9. Mr Tang, who now appears for the plaintiffs, concedes that if that passage stood alone he would find it difficult to suggest that this court should interfere. But he refers us to several comments made by the judge leading up to his finding, which Mr Tang suggests are mistaken, and to other matters where the judge went wrong, which so undermine that finding that we should set the decision aside and at least remit the action for a further hearing.

10. The first passage criticised is at p. 14 of the judgment:

"Thus, in my judgment, when he had the minor disagreement with Mrs Ho on the 5th February 1987, he decided that enough was enough and decided to completely sever his relationship with Fanta and the TTPD Group companies."

Exception is taken by Mr Tang to the use of the word "completely". It is not justified, he suggests, because

	(1)	Mr Cheng, through Busiaid, retained the secretaryship of the company, and
	(2)	he intended to retain his shares.

11. The force of the secretaryship point is reduced by the financial value of the office, the reason which in fact Mr Cheng gave for his keeping it. It is also to be noted that it was given up almost immediately after the 24th February meeting, although Mr Cheng said that it was to prevent possible embarrassment to his assistant in connection with an investigation by the Commercial Crimes Bureau into an earlier director and editor of the Tin Tin Daily News which had been instigated by himself. In his evidence as to severing his relationship he said at one stage:

"After I was told by Mrs Ho that I was selfish I wanted nothing more to do with Fanta and resigned as Director and Secretary in same way as I went to Australia, New Zealand and Singapore on holiday when I disagreed with Ho's negotiations with Wai."

and later:

"I did say that I wanted nothing more to do with company and wanted to retreat in all directions i.e. as manager and Director."

In the light of these passages we do not think the criticism of the judge's language is justified. In any event the judge was well aware that Mr Cheng had intended to retain the shares. He mentioned it in the very next wreath of his judgment:

"However, having said that, I am satisfied that the inclusion of the transfer, and bought and sold notes, executed in blank, in the envelope were so included as a result of a mistake by Mr Chu."

12. The second attack is on his conclusion that by the end of January 1987 "Mr Cheng must have considered that the shares in Fanta were worthless". For our part we find no fault in that comment. The paper was running at a loss, the operating company in dire financial straits. We accept that Mr Cheng saw potential there and that he advised on 24th February not to sell, but excluded as he was from management and his advice as to running that company being continually rejected, there was little practical prospect of that potential's being realised. It is irrelevant that a third party, who would put in different management, was subsequently willing to pay a higher price.

13. Again on p. 14 of his judgment the judge observed:

"Secondly, on the 19th February 1987, Fanta resolved to hold off the approval and acceptance of the resignation of Bsiaid for the time being. It may be that it was not open to Fanta to accept or reject Busiaid's resignation, for the same was not tended for approval by that company, but was merely delivered to it However, if Mr Ho, who by this time was actively negotiating with Mr Tony Wong of Jademan, was actively seeking to take advantage of Mr Cheng's mistake for some ulterior personal advantage, in my judgment Busiaid's resignation would have been accepted with alacrity and the shares transferred into his (Mr Ho) beneficial ownership whether it be in the name of a nominee company or not. Certainly, there would seem to be no good reason for Mr Ho to arrange a meeting with Mr Cheng."

14. This accolade is said to have been mistakenly accorded because:

	(1)	completion of the transfer forms would not of itself have passed the beneficial interest in the shares to Mr Ho. Some form of agreement or consideration would first be necessary; and
	(2)	at that time the Jademan offer was only $5 million, suggested to be "small beer" to Mr Ho. The real incentive to take advantage of Mr Cheng's mistake did not cone until later, when the offer was up to $27 million.

15. In the light of Mr Ho's evidence that there was an agreement the first point does not seem to lead anywhere. The second is very much a situation of sauce for the goose and gander. Mr Cheng himself made no attempt whatsoever to pursue his claim to the shares until he was sent the money on 23rd March. By then the sale to Jademan and the price had been widely reported in the press.

16. Next it is said that the judge was wrong to find that by tendering debit notes for professional services rendered to the company, which Mr Cheng did the day following the meeting on the 24th, he "was seeking to obtain repayment of the shareholders' loan made to (Fanta) by(Busiaid)". The total of the debit notes was, as the judge pointed out, precisely the same as the amount of the loan that Mr Cheng had made to Fanta soon after the company was acquired But, with respect, the judge did not at any time conclude that Mr Cheng rendered the notes in order to get back that money (which incidentally was repaid with interest later). The judge made the observation as "yet another indication of Mr Cheng's desire at that time to totally distance himself from Fanta".

17. Finally on this aspect of the appeal, complaint is made of the implied criticism of Mr Cheng at p. 11 of the judgment:

"It is his evidence that he was convinced at the time that he was the only one who had fully paid up his share capital. Indeed, he went so far as asserting that Mr & Mrs Ho paid nothing for their shares in the company. He could not even accept that this view is incorrect when properly audited accounts were produced to him showing beyond peradventure that they had paid for their shares."

18. This is said to be unfair because:

	(1)	his evidence was that he only "suspected" that they had not paid; and
	(2)	although the accounts showed that the capital had been fully paid up, they showed also that Mr Ho was owing to the company $2.9 million at the end of March 1986 and over $6 million on the same date in 1987.

19. This passage appears as one of six factors which the judge found to be present in Mr Cheng's mind towards the end of January 1987 - none of the others being challenged - and which the judge thought to have influences his subsequent conduct. The judge's use of the word convinced" in the first part of the passage does not appear to be fully justified from what is to be round in his written note of the evidence. The second point, however, is more of a comment on Mr Cheng's attitude in the witness box than a finding of fact, echoing perhaps the judge's earlier comment that he was "a difficult man, overconcerned with face and frequently lacking in objectivity".

20. Apart from having formed mistaken impressions the judge is said to have failed to draw the correct inference from his finding that the Fanta shares had been transferred by mistake. It is suggested that in the circumstance the judge should have approached Mr Cheng's evidence, that he did not on 24th February agree to sell, without a pre-conception that Mr Cheng had already decided completely to sever his relationship with the company. With respect this seems to us merely to raise the earlier argument in different guise and we need make no further comment.

21. The final ground of appeal arises from a letter which Mr Stephen Hui wrote to Mr Cheng on 31st March and which contained the words:

	"This intention to sell at a price to be fixed by our client was repeatedly reaffirmed throughout this period not only to Mr Hui, but also to our client and his wife".
	As to this the judge said:
	" On any view of Mr Hui's evidence, the assertion to Mr Cheng 's solicitor that Mr Cheng had repeatedly reaffirmed his intention to Mr Hui, is patently untrue.
	I cannot begin to understand how Mr Hui came to write what he did.
	Mr Litton submitted that it calls into question Mr Hui's evidence as a whole and I agree with him."

and then commented that he found Mr Ho's evidence to be "irredeemably tainted", by what had been written. It is suggested that, the natural inference being that the letter was written on Mr Ho's instructions, the judge should have found his evidence to be equally "irredeemably tainted".

22. The letter itself is long and detailed. A great deal of it could not possibly have been written on Mr Ho's instructions. It concerns matters which occurred only between Mr Ho and Mr Cheng. Mr Ho was examined at length upon the contents of the letter. To some extent he supported them, although he construed "repeatedly" as meaning it to have been said to more than one person. The judge's concern was with the "repeated reaffirmation" to Mr Hui. There seems to us to be no reason why Mr Ho's apparent mental aberration in that respect should be ascribed to Mr Ho.

23. Thus in only one very minor aspect, the exaggeration of suspicion to conviction, can the judge be faulted in the details of his judgment. His actual conclusion, on p. 17 as we set out earlier, is short, as is often the case where a judge has to weigh two flatly contradictory stories. In the present instance the judge does not say how big a part the demeanour of the two men played in his determination, but it would be idle to think that it played none at all. But apart from that, the weigning of the inherent plausibility of each story is a matter for him, and not for this court, unless in some way he went significantly wrong. In our view he did not. The appeal must therefore be dismissed.

24. In handing down this judgment we make a order nisi that the respondents are to have their costs.

(Sir Derek Cons)
Vice President

(P.G. Clough)
Justice of Appeal

(R.A.W. sears)
Judge of the High Court

Representation:

Robert C. Tang, Q.C. and Miss V. Chih (M/s. Kwan & Kwan) for plaintiffs/appellants

Charles Ching, Q.C. & Warren C.H. Chan (M/s. Peter C. Wong, Chow & Hui Bon Hua) for defendants/respondents