Dr Yip Chi Him Roger and Another v. Lee Kwok Leung and Another

CACV 174/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 174 OF 2015

(ON APPEAL FROM HCA NO 356 of 2009)

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J U D G M E N T

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Hon Lam VP (giving the Judgment of the Court):

1.Though there were four parties in this action at the trial, there were only two parties appearing before us in the appeal. For the reasons given on 3 May 2016 by Lam VP and Chu JA, the 2^nd Plaintiff had never been an effective party to the appeal (and its name as a party to the appeal had been struck out). Due to the non-compliance with the court’s directions on 13 May 2016, the 2^nd Defendant was barred from lodging submissions or acting by a representative other than a solicitor. The 2^nd Defendant did not appear at the hearing of the appeal by solicitor. Thus, effectively the only parties before us were the 1^st Plaintiff and the 1^st Defendant. We shall therefore focus on causes of action concerning them.

2.In the action, the 1^st Plaintiff claimed against the 1^st Defendant for defamation.  The 1^st and 2^nd Defendants counterclaimed for damages for fraudulent misrepresentation and breach of contract.  After trial, Louis Chan J [“the Judge”] handed down his judgment on 30 June 2015 dismissing the claim of the 1^st Plaintiff.  The Judge found the counterclaim of the Defendants established and entered judgment in their favour in the sum of US$350,000 with interests and costs.

3.This is the 1^st Plaintiff’s appeal against the judgment.

4.The dispute between the parties arose from their dealings when the 1^st Plaintiff (and his company the 2^nd Plaintiff) acted as consultant for the Defendants in procuring the listing of shares of the 2^nd Defendant on the United States Over the Counter Bulletin Board [“OTCBB”].  Though the 1^st Plaintiff commenced his claims for defamation first, chronologically the events leading to the misrepresentation claims of the Defendants occurred before the emails which formed the subject matter of the defamation claims.  Further, the outcome in the misrepresentation claim in this case dictated the outcome in the defamation claims.  We shall therefore discuss the misrepresentation claims before we turn to the defamation claims.

5.We shall give a brief account of the misrepresentation claims.  The facts are largely taken from the judgment of the Judge.  References were also made by us to the expert evidence of the Joint Expert and the relevant documentary evidence placed before the court below.

The factual background

6.The 1^st Plaintiff held himself out as a US listing expert and the 1^st Defendant (a major shareholder, director and CEO of the 2^nd Defendant) sought his assistance in procuring the listing of the 2^nd Defendant on OTCBB.  The 1^st Plaintiff advised the 1^st Defendant that such listing could be achieved by the use of what was called a pink sheet shell company instead of direct filing.

7.The OTCBB is an electronic quotation service which displays realtime quotes and other information in respect of over-the-counter [“OTC”] securities.  These are not securities listed on NASDAQ or other stock exchange.  OTCBB is operated by the Financial Industry Regulatory Authority [“FINRA”], a self-regulatory organization recognized under the Securities Exchange Act.  Pink Sheets is a privately owned quotation service for OTC securities.  The difference between the two quotations lies in the requirement of OTCBB that issuers of securities listed on OTCBB has to be a reporting company under the Exchange Act.  There is no such requirement for Pink Sheets.

8.The aim of the Defendants was to obtain a quotation on OTCBB.  There were different ways to achieve that.  Direct filing means an application for registration of the securities of a company for sale to the public under the Securities Act or the Exchange Act.  As an alternative to direct filing, the application for registration could be processed by using a Pink Sheet shell company and merging the business of the intended applicant with the Pink Sheet company.  Under the latter method, it is still necessary to file a registration statement for approval in the name of the Pink Sheet company.  The advantage of this method is, as explained by Mr Mitchell Nussbaum, the Joint Expert giving evidence at the trial, that the Pink Sheet shell company already has a sufficient stockholder base to kick-start active trading of the securities after the commencement of OTCBB quotation.  A third method is reverse merger with an OTCBB shell company.

9.As mentioned, the 1^st Plaintiff advised the Defendants to proceed by using a Pink Sheet shell company.  For that purpose, he also advised the 1^st Defendant to acquire the shares of a company called Tabatha V, Inc [“Tabatha”], a Colorado corporation, which the 1^st Plaintiff introduced to the Defendants as a Pink Sheet shell company.

10.By an email of 20 March 2007, the 1^st Plaintiff put to the 1^st Defendant this proposal: upon the 2^nd Defendant entering into an agreement with the 2^nd Plaintiff for the purchase of the shell company and agreeing to pay the purchase price in 7 instalments, that shell company would be delivered upon receipt of 3 instalments and the 2^nd Plaintiff would enter into a back-to-back agreement with the vendor “for guarantee purpose”. 

11.On 22 March 2007, the 1^st Plaintiff sent another email to the 1^st Defendant attaching a draft stock purchase agreement regarding 72.85% of the shareholdings of Tabatha (at the price of US$350,000).  The 1^st Plaintiff also said that the vendor of the shell would want to have the first instalment within that week though he would push it to early April.

12.The 1^st Plaintiff further urged the 1^st Defendant to sign the agreement on that date to speed up the process so that capitalisation from listing could be achieved in autumn of 2007.  He said:

“My personal view is that we should take this deal now, as we are still having the ‘China Heat’ phenomenon on the raw materials industry in China. Next year, I believe people pay more attention to the real estates sector and the consumer product markets in China, or may even shift back to the US. We may not achieve the same kind of stock pricing at fund raising as we do this year.”

13.On 31 March 2007, the 1^st Defendant as buyer entered into an agreement [“the Tabatha Agreement”] with the 2^nd Plaintiff as seller for the purchase of 267,250 shares representing 72.85% of the issued capital of Tabatha at the price of US$350,000 payable by 7 instalments of US$50,000 each.

14.The 1^st Plaintiff on behalf of the 2^nd Plaintiff also entered a Chinese agreement dated 30 March 2007 (though it was actually signed on 28 May 2007) with the 1^st Defendant on behalf of the 2^nd Defendant in respect of the consultancy service on OTCBB listing [“the Listing Agreement”].  The terms of that agreement clearly set out that the method adopted would use a Pink Sheet company.  There was no suggestion in the Listing Agreement that another method was to be used.  Under the section prescribing for expenses, it stipulated that the costs of acquiring the shell company would be US$350,000 payable by 7 instalments.   

15.The price was paid by instalments under the Tabatha Agreement.  By June 2007 the 1^st Defendant had paid US$150,000 to the 2^nd Plaintiff.  Eventually, the whole purchase price of US$350,000 was paid.

16.Unbeknown to the Defendants, the 1^st Plaintiff used a BVI company called Characters Capital Group Limited (not the 2^nd Plaintiff) to purchase 1,298,440 shares of Tabatha from First Asia Private Equity Investment Ltd [“First Asia”] by an agreement of 22 June 2007 at the price of US$150,000. 

17.The 1^st Plaintiff engaged a US law firm Harrison Law to act for the 2^nd Defendant in the application for listing.  The 1^st Plaintiff (in the absence of the 1^st Defendant) met a representative of that law firm Michael Daniels at a meeting on about 24 March 2007.  At that meeting, Mr Daniels advised that the 2^nd Defendant should use direct filing.  The 1^st Plaintiff did not advert to the use of a Pink Sheet shell company at that meeting.  Subsequently, the 1^st Defendant signed an engagement letter of 28 April 2007 for the services of Harrison Law to obtain a listing at the OTCBB.  Harrison Law proceeded with the application by making a direct filing in the name of the 2^nd Defendant.

18.The listing process was delayed because the 2^nd Defendant encountered some liquidity problems.  The 1^st Plaintiff provided some assistance in that regard and another contract was made between another company of the 1^st Plaintiff called Entrepreneurial Engineering Corporation Ltd and the 2^nd Defendant in respect of such services. 

19.Eventually, listing of the 2^nd Defendant on OTCBB was achieved on 7 November 2008.  Tabatha was not used in the process.  Instead it was procured by direct filing in the name of the 2^nd Defendant. 

20.The Defendants’ case was that they were all along ignorant of the abandonment of the Pink Sheet shell company as the vehicle for procuring listing.  The 1^st Defendant only found out about this after he had obtained advice from a New York accountant Aaron Stein in January 2009.  He further found out from Stein that Tabatha was not a Pink Sheet company and it was only a grey market company. 

21.According to the Joint Expert, whose evidence was accepted by the Judge, the securities of a grey market company were not quoted on either the OTCBB or the Pink Sheets.  But it has trading symbols assigned to them so that members of FINRA can comply with trade reporting obligations and the report transactions on such securities are said to be on the ‘grey market’.

22.In his Supplemental Report of 8 October 2012, the Joint Expert explained Tabatha had reported in 2006 that there was no active market for their shares and inquiry with OTC markets revealed that there was no record of shares of Tabatha having ever been quoted.  “It appears to have been on the Grey Market from [14 November 2005] up until its registration was revoked on [10 February 2011].” The opinion of the Joint Expert was that Tabatha was a grey market company in March 2007 instead of a Pink Sheet company.

23.The Defendants considered they had been misled by the 1^st Plaintiff in acquiring Tabatha and accused the 1^st Plaintiff of having induced the 1^st Defendant to enter into the Tabatha Agreement by misrepresentations and demanded repayment. 

24.On 25 and 26 January 2009, the 1^st Defendant wrote to the 1^st Plaintiff a string of 6 emails in which he alleged the 1^st Plaintiff of cheating and that the doctorate degree of the 1^st Plaintiff was not genuine.  The emails were also copied to 2 business associates of the 1^st Plaintiff who had been involved in the transaction.  The 1^st Plaintiff brought claims of defamation against the 1^st Defendant in respect of these emails.

Findings by the Judge

25.In a judgment of 129 pages and 384 paragraphs, the Judge gave reasons for holding the Plaintiffs liable on the Counterclaim and dismissing the Plaintiffs’ claims.

26.Whilst it is a matter of regret that the judgment was delivered more than 2 years after the trial (the trial took place in October 2012 and the judgment was delivered in June 2015), it is also clear from the judgment that the Judge had referred back to the records of the trial (including transcripts), the documentary evidence placed before the court and the written submissions of the parties when he prepared his judgment.  There were extensive references to these materials in the very comprehensive judgment.

27.As it has previously been held, though it is important for judgment to be given promptly, a fair case must be shown for believing that the judgment contains errors that are possibly attributable to the delay before the appellate court can set aside the judgment.  If the appellate court finds no significant consequential error in the reasoning in the judgment, it would not be fair to the parties to set aside the judgment simply on the ground of delay.  See Cobham v Frett [2001] 1 WLR 1775; Ramnarine v Ramnarine [2013] UKPC 27; Mak Kang Hoi v Ho Yuk Wah (2007) 10 HKCFAR 552; Welltus Ltd v Fornton Knitting Co Ltd [2013] 5 HKC 106; Hui Ling Ling v Sky Field Development Ltd CACV 122 of 2012, 22 March 2013.

28.At the same time, by reason of the delay, the appellate court would exercise a higher degree of scrutiny in examining a challenge to finding of fact in the manner explained in Goose v Wilson Sandford & Co. unreported, English Court of Appeal (Civil Division) 13 February 1998, adopted by our Court of Appeal in  Chow Sau Hei v Ho Keung Yuen CACV 112 of 2013, 7 July 2014, [7.8]:

“113. Because of the delay in giving judgment, it has been incumbent on us to look with especial care at any finding of fact which is now challenged. In ordinary circumstances where there is a conflict of evidence a judge who has seen and heard the witnesses has an advantage, denied to an appellate court, which is likely to prove decisive on an appeal unless it can be shown that he failed to use, or misused, this advantage. We do not lose sight of the fact that the judge had transcripts of the evidence, as well as very extensive written submissions from counsel. But the very fact of the huge delay in itself weakened the judge’s advantage, and this consideration had to be taken into account when we reviewed the material which was before the judge. In a case as complex as this, it is not uncommon for a judge to form an initial impression of the likely result at the end of the evidence, but when he has come to study the evidence (both oral and written) and the submissions he has received with greater care, he will then go back to consider the effect the witnesses made on him when they gave evidence about the matters that are not troubling him. At a distance of 20 months, Harman J denied himself the opportunity of making this further check in any meaningful way.” (emphasis added in Chow Sau Hei)

29.Though the degree of scrutiny is more intense, the basic principles in respect of appeal against findings of fact are still applicable: this Court would not disturb the findings of fact by the trial judge unless, considering such delay against the cogency and adequacy of the reasons set out in the judgment, we are persuaded that the findings are plainly wrong or palpable errors are identified and established: see Hui Ling Ling v Sky Field Development Ltd CACV122 of 2012, 22 March 2013 at [43]; Welltus Ltd v Fornton Knitting Co Ltd, supra, [12] to [16].

30.Before we assess the merits of this appeal, we shall first set out the crucial findings by the Judge on the important issues in this case.

31.The crux of the complaint of the Defendants, putting aside the true status of Tabatha (viz whether it was a Pink Sheet company or merely a grey market company), was that the 1^st Plaintiff induced them to acquire Tabatha on the basis that it would be the instrument for the listing of the 2^nd Defendant when in truth Tabatha was not used in the process of listing.  Further, the 1^st Plaintiff induced them to pay the price of US$350,000 to the 2^nd Plaintiff on a back to back basis when in truth the 1^st Plaintiff and his company only paid US$150,000 for the shares of Tabatha.

32.On the complaint regarding the use of Tabatha as the instrument for listing, there was no dispute that the 1^st Plaintiff had represented to the 1^st Defendant that listing would be procured by means of a Pink Sheet shell company and Tabatha was to be used.  There cannot be any dispute in these regards because it was clearly stipulated in the Listing Agreement that a Pink Sheet shell company would be used and the price for acquiring that company was US$350,000.  It was also not disputed that the method actually used was direct filing without using Tabatha.  The Plaintiffs’ case, as pleaded, was that there was a change in the method used because of the financial and human resource problems of the 2^nd Defendant and at the end of April 2007, the 1^st Plaintiff orally advised the Defendants to use direct filing simultaneously with the use of the Pink Shell company and the Defendants agreed[1].  As the contract engaging Harrison Law was signed on 28 April 2007 and Harrison Law was instructed to proceed by direct filing, the decision on such change had to take place before that date.

33.Based on the respective cases of the parties, the following were the important factual issues at the trial:

(a) whether the 1^st Plaintiff gave a true account of the reasons for the change;

(b) whether the 1^st Plaintiff had informed the Defendants of the change;

(c) whether the Defendants were aware of the use of a different method and therefore they could not complain about Tabatha not being utilised;

(d) whether the 1^st Plaintiff intended to use Tabatha for the listing process when he advised the 1^st Defendant to acquire it at US$350,000. 

34.In respect of the 1^st Plaintiff’s account for the change in method, there were two different versions: one set out in his email of 22 January 2009 to the 1^st Defendant, the other one was the evidence of the 1^st Plaintiff.  The Judge alluded to the difference at [172] to [173] of the judgment.  He discussed the version in the email of 22 January 2009 at [167] to [182] of the judgment and examined that in light of the evidence of the Joint Expert.  His conclusion was that the explanations in the email could not explain the need to change the method of listing and the explanations were not truthful, see [182].  In essence, two reasons were given by the 1^st Plaintiff: liquidity problem of the 2^nd Defendant and change in regulatory framework.  The Judge addressed the latter at [177] and [178] with reference to the evidence of the Joint Expert who said there was no regulatory change between 30 March 2007 and 7 November 2008 that would have made it very difficult for a Pink Sheet company to become quoted on the OTCBB.  The rule relied upon by counsel for the Plaintiffs at the trial (when it had not been pleaded) only came to their knowledge on 16 November 2007, thus could not have been the basis for a change before 28 April 2007.  On the liquidity problem, the Judge found at [179] that it would not have made the filing through a Pink Sheet company more difficult as compared with direct filing.  Thus, it could not be the real reason for the purported change.

35.In respect of the evidence of the 1^st Plaintiff on the reasons for the change given at the trial, the Judge analysed it at [253] to [278].  Liquidity problems of the 2^nd Defendant was analysed at [257] and [258].  The Judge rejected it as the timing was not correct.  Liquidity problems arose because of the anonymous letter of 1 May 2007 so could not be the reason for a change before 28 April 2007.  On the alleged problems in the accounting records and human resource problems of the 2^nd Defendant, the Judge did not find any concrete evidence for this allegation.  Regarding specific matters which evidence could pinpoint they could not be the cause for the change because of the mismatch in the timing.  At the highest they could only lead to delay instead of change of method, see [259] to [271].  At [272], the Judge came to this conclusion:

“Since none of the alleged reasons advanced by Yip would have caused a change in the listing method, I therefore conclude that there was no reason that would have produced the need to change the listing method.”

36.On the question whether the 1^st Plaintiff informed the 1^st Defendant of the change, there were telephone conversations between the two and between the 1^st Defendant and Clarence Chan, the business partner of the 1^st Plaintiff.  The Judge referred to these conversations (which were recorded by the 1^st Defendant) at [141] to [157].  The Judge further came back to this issue at [273] to [278].  In light of those conversations and the contemporaneous emails and the conducts of the parties in the course of event, the Judge found that the 1^st Plaintiff did not inform the 1^st Defendant of the change.

37.On the knowledge of the Defendants regarding the change, the Judge also considered the Plaintiffs’ case that various actions taken by the 1^st Defendant in furtherance of the application for listing by direct filing indicated that the Defendants were aware of change of method. Those actions included the enlargement of the shareholder base of the 2^nd Defendant, the approval and signing of documents to be filed with the US Stock Exchange Committee [“SEC”], the re-domicile of the 2^nd Defendant to Florida, the references to registration statements in emails.  The Judge considered this line of submission at [279] to [325].  His finding at [325] was as follows:

“I accept that Lee had been misled by Yip as described by Lee in evidence and Lee thought that all the documents relating to listing that he has signed were for reverse merger. I accept that he was inexperienced in investment and had only invested in some unit trust as suggested by his bank manager. He did not even know what a prospectus was or the difference between a market maker and an investment banker. Despite his inexperience in investment, Lee regarded himself a highly educated and not a gullible person. That explains the deluge of his anger as demonstrated in the phone conversations on 16 January 2009 and the six e-mails he sent Yip afterwards (to be referred to below) after he had learnt that he had been cheated.”

38.On the intention of the 1^st Plaintiff at the time of the Tabatha Contract, the Judge made these findings which are relevant:

(a) At the meeting on 24 March 2007, Mr Daniels advised the 1^st Plaintiff that the 2^nd Defendant should use direct filing for procuring listing on OTCBB.  Notwithstanding that, the 1^st Plaintiff did not tell the 1^st Defendant of such advice, see [56], [123] to [124] of the judgment;

(b) The 1^st Plaintiff had not done a proper search in respect of Tabatha, see [93] to [101] of the judgment;

(c) In the latter part of March 2007, the 1^st Plaintiff coaxed and cajoled the 1^st Defendant to sign the Tabatha Contract, see  [101] of the judgment;

(d) The 1^st Plaintiff had no credible explanation for the purported change of the listing method from using a Pink Sheet shell company to direct filing, see discussion above;

(e) The 1^st Plaintiff shifted his case in respect of the change in methods: in the email of 22 January 2009 he said the change would involve the sale of Tabatha and if necessary the acquisition of a OTCBB company whereas in the pleaded case, adopted in evidence at trial, he alleged that Tabatha would be kept for simultaneous application under its name.  The Judge found that the 1^st Plaintiff made such change due to the inability to account for his acquisition of Tabatha in June 2007 if the change was as depicted in the email of 22 January 2009: if there had been a change in April 2007, there was simply no point for the 1^st Plaintiff’s company to acquire Tabatha for onward sale to the 1^st Defendant in June 2007, see [170] to [175] of judgment;

(f) The 1^st Plaintiff acquired Tabatha in June 2007 at US$150,000 as opposed to US$392,000 as claimed by him and there was no truth in his representation of a back to back arrangement at the price of US$350,000, see [216] to [252] of the judgment;

(g) The 1^st Plaintiff did not advise the 1^st Defendant of the change, see discussion above.    

39.Against the background of these findings, the Judge said the following at [344] of the judgment:

“344. Since there was not any incident or problem that had occurred between 31 March and 28 April 2007 that would have produced the need to change the listing method and Yip had not told Lee about the change of listing method, it is more likely than not that when Yip coaxed and cajoled Lee to commit to the Tabatha Contract, he had no intention of using Tabatha to do a reverse merger.  Yip had thus fraudulently misrepresented to Lee that he intended to use Tabatha (or a pink sheet shell) for a reverse merger with Green Dragon.  Yip had thus fraudulently induced Lee to enter into the Tabatha Contract on 31 March 2007 and the Listing Contract on about 28 May 2007.

345. I also find that Yip had fraudulently misrepresented to Lee that Yip had found an owner who was willing to sell a pink sheet shell for US$350,000.  Yip in fact found First Asia which was willing to sell Tabatha for US$150,000.  He paid First Asia US$150,000 on 14 June 2007 and got the transfer of shares on 22 June 2007.  This finding would lead to the next finding that Yip had fraudulently misrepresented to Lee that the shell owner was willing to accept payment by seven instalments of US$50,000 provided Yip would give his guarantee.”

40.We have alluded to the findings of the Judge as regards the true price for the acquisition of Tabatha by the 1^st Plaintiff and the falsity of his representation of back to back arrangement.

41.Regarding the true status of Tabatha, based on the evidence of the Joint Expert, the Judge found that it was only a grey market company instead of a Pink Shell company.  However, the Judge only found the 1^st Plaintiff to be extremely careless in failing to check.  The Judge was not prepared to infer that he made the false representation that it was a Pink Shell company knowingly or fraudulently, see [346] of the judgment.

42.The Judge made these further findings on misrepresentation at [347] to [350]:

“347. Since I find that Yip had found First Asia which was willing to sell Tabatha at US$150,000, he must have fraudulently misrepresented to Lee that the opportunity to acquire Tabatha at US$350,000 was too good to be missed. 

348. He must have likewise fraudulently misrepresented to Lee that the sellers of the Tabatha shares would deliver the shares upon the payment of the first three instalments of US$50,000 yet still required payment of the balance of US$200,000. 

349. He also fraudulently misrepresented to Lee that his company Capital would enter into a back to back agreement with the shell owner for the purpose of guaranteeing the last four instalments.

350. I also find that Lee had not agreed with Yip to change from the reverse merger method to the so-called simultaneous method or the 3rd method with the 1st method being held in reserve.”

43.Based on these findings, the Judge ordered the Plaintiffs to repay the US$350,000 to the Defendants at [351] to [354]:

“351. Lee after discovering the deception sent Yip an e-mail on 23 January 2009 telling Yip that he considered the whole agreement and deal void (CB 168). He also demanded the refund of all the money amounting to more than US$1 million. That is all the money paid pursuant to the Listing contract, Tabatha Contract, EECL Contract and the contracts with the American attorneys and auditors. Mr Pow, leading counsel for the defendants submitted and I accept that this is a notice of rescission by Lee in his own right and on behalf of Green Dragon to Listing contract, Tabatha Contract, EECL Contract. Hence, Lee is seeking the return of the US$350,000 that he had paid Capital for the shares of Tabatha.

352. Lee has undertaken to the court to take all steps necessary to revert the Tabatha shares registered in his name to BVI Capital upon receiving the damages awarded to him (§16 of the defendants’ closing submissions). Given that the joint expert opinion says that Tabatha was at all material times a grey market company, Capital cannot resist this claim of US$350,000.

353. Furthermore, given my finding that Lee was induced by Yip’s fraudulent misrepresentations to commit to the Tabatha Contract and that he would not have entered into that contract had he known that Yip did not intend to use the pink sheet company for reverse merger with Green Dragon, Yip should also pay Lee damages for his misrepresentations at US$350,000.

354. I therefore order Yip and Capital to pay Lee US$350,000 with interest on this sum at 2.5% above the best lending rate of the Hong Kong Bank from the date of the filing of the defence and counterclaim on 9 April 2009 until judgment.  Lee after receiving this sum and interest thereon shall take all necessary steps to revert the Tabatha shares registered in his name to BVI Capital.”

44.On the defamation claim of the 1^st Plaintiff, the Judge found that the sting of the emails in question was the imputation of fraud in that the 1^st Plaintiff had defrauded the Defendants.  Since such imputation was justified in light of the Judge’s conclusions in the claims by the Defendants, the 1^st Defendant could rely on Section 26 of the Defamation Ordinance to resist the 1^st Plaintiff’s claim based on the much less serious imputation that his doctorate degree was not genuine.

45.In any event, the Judge further found the 1^st Defendant succeeded in establishing that the degree of the 1^st Plaintiff was not genuine.

46.The Judge dismissed the defamation claims accordingly.

The appeal of the 1^st Plaintiff

47.In his Notice of Appeal of 27 July 2015, the 1^st Plaintiff advanced 11 grounds of appeal.  He elaborated on the same in his written submissions of 17 June 2016 and his oral submissions at the hearing of 13 October 2016.

48.Under the first ground, the 1^st Plaintiff alleged that he had been kidnapped by a person called Lu in the mainland, who had been a client of the 1^st Plaintiff.  He said he had paid a ransom and he was released after 6 days after paying a sum of $5 million.  He said he had reported to the police in Hong Kong but the police did not investigate as the alleged kidnapping happened outside jurisdiction.  The 1^st Plaintiff had commenced civil action against Lu.  The 1^st Plaintiff then said at the trial of this action between him and the Defendants, he found Lu sitting next to the 1^st Defendant and he said Lu stared at him.  Later, Lu was allegedly taken away by the police upon report made by another witness Wong. 

49.The 1^st Plaintiff said his slow and clumsy voice during his testimony was not due to his lack of confidence in what he testified but due to the fear of Lu.  He said Lu also threatened him of his family members’ safety.

50.These are serious allegations.  However, we cannot entertain this ground without any evidential basis.  The 1^st Plaintiff was legally represented and if he really felt threatened by the presence of Lu at the trial, he surely would have told his counsel. His counsel would have informed the Judge.  However, the 1^st Plaintiff did not place before us any transcript regarding such complaint.  The closing submissions of his counsel before the Judge did not mention anything regarding the alleged threat.  It would be highly surprising that counsel made no mention of it in closing submissions if the 1^st Plaintiff had told his counsel of the same and his counsel had reasonable basis to suggest the manner in which the 1^st Plaintiff gave evidence was affected.  And if counsel had made such complaints to the Judge at the trial, it would also be surprising that the Judge made no mention of it in his very elaborate judgment.  Thus, there is simply no material before us supporting such serious allegations.  We do not find these allegations established on the materials available to us.

51.The second ground of appeal referred to the revocation of the registration of Tabatha by the SEC.  Strictly speaking, as there had not been any application for leave to put in additional evidence, the 1^st Plaintiff had not properly placed before us evidence of such revocation.  The revocation took place before the trial and the 1^st Plaintiff did not explain why he could not have produced such evidence at the trial.  As such, even if he were to make an application, he cannot satisfy the test in Ladd v Marshall [1954] 1 LR 1489.

52.Further, we do not accept the bare and untested assertions of the 1^st Plaintiff that the 1^st Defendant deliberately neglected to pay the necessary fees to maintain the registration. Again, the 1^st Plaintiff could not explain why the issue was not raised at the trial.

53.In any event, the 1^st Plaintiff had told the 1^st Defendant in the telephone conversation of 16 January 2009 Tabatha had no more use as there was no one working on Pink Sheet companies and it had no or very little value, see judgment at [151] and [153]. The assertion of the 1^st Plaintiff in the appeal that Tabatha would have been very valuable today cannot be a ground to overturn the finding of the Judge made at the trial based on the evidence before the court.

54.Also, the terms of the undertaking of the 1^st Defendant only oblige him to take all steps necessary to revert the Tabatha shares registered in his name to the company of the 1^st Plaintiff, BVI Capital upon receiving the US$350,000.  Two points emerge from this.  First, the Plaintiffs have not yet paid the US$350,000 and the 1^st Plaintiff told us that he had no means to pay.  Second, the fact that Tabatha was not registered at SEC does not mean that the shares could not be reverted to BVI Capital if such payment is made.

55.There is no obligation on the part of the 1^st Defendant to maintain the registration of Tabatha with SEC.

56.Hence we do not accept the 1^st Defendant could not perform his obligations under the undertaking.  We do not see any unfairness in the judgment in this respect. 

57.The third ground of appeal of the 1^st Plaintiff challenged the second report of the joint expert.  We do not see any valid basis for us to interfere with the case management decision of the Judge to call for the second report.  Quite clearly, the second report did shed further light on the status of Tabatha as a grey market company instead of a Pink Sheet company.  The 1^st Plaintiff was represented by counsel at the trial and if he wanted to challenge the opinion of the joint expert in that respect, he should have done so at the trial.  It is not open to him to come to this Court to assert without any evidential foundation ever laid at the trial that the opinion of the joint expert, accepted by the Judge, was wrong.

58.The 1^st Plaintiff also referred to the way in which costs of different methods of listing were to be calculated in the context of the expert report.  He said the Judge misunderstood the costs alluded by the expert as all inclusive costs as opposed to legal costs.  As he did not produce the relevant transcript before us, we cannot tell whether this point had been taken by his counsel. It did not seem to be a point raised in closing submissions.  In any event, the stark fact is that Tabatha was not used for the listing application and there was no reason why the Defendants should have to pay the costs for acquiring it when their objective was to achieve listing instead of the acquisition of Tabatha per se.

59.The fourth ground of appeal challenged the finding of the Judge that the 1^st Defendant was ignorant of the use of the direct filing method.  The 1^st Plaintiff referred to the fact that the 1^st Defendant was a MBA holder and he participated in the process and signed the documents.  It is clear that the Judge did not lose sight of these matters.  He referred to the education background of the 1^st Defendant in the judgement at [102] and observed:

“I also note here that Lee, despite having a bachelor degree in business administration from the University of Michigan and a master degree in management and economics from a university in Japan, did not appear to be conversant with the skills in handling contractual documents. He said in his witness statement that he had told Wong that he wanted to read the terms of the draft Tabatha Contract. I have no doubt that he wanted to do so before committing to pay the US$350,000. However, he was not able to raise to single question on any of the drafts despite the problems mentioned above. He also did not appear to understand the need to conduct searches on Tabatha before committing to the contract.”

60.The Judge discussed the significance of the 1^st Defendant signing documents which contained references to registration documents at [103] to [105].  He also examined the relevant evidence on the knowledge of the 1^st Defendant, including the documents he signed at length at [310] to [333].  We have already quoted [325] above.  See also [317] and [324] of the judgment.

61.We reviewed the relevant documents in the appeal bundles and we cannot see any basis for suggesting that the Judge was plainly wrong in his finding.  In that regard, the lack of knowledge on the part of the Defendants is further supported by the fact that the Listing Contract executed on 28 May 2007 referred to the use of Pink Sheet Company instead of direct filing.  The rejection by the Judge of the 1^st Plaintiff’s explanation for the terms of the Listing Contract at [189] to [200] is, in our view, impeccable.

62.Bearing in mind the legitimate scope for this Court’s reversal of factual findings of a trial judge discussed above, and in light of the analysis by the Judge, we cannot accept the 1^st Plaintiff’s argument that it was extremely unlikely that the 1^st Defendant, as an MBA holder participated in the process actively, was not aware the actual method used was direct filing.

63.The fifth ground of appeal in the Notice of Appeal concerns the 2^nd Plaintiff and its relationship with the 2^nd Defendant under the Listing Contract.  As the 2^nd Plaintiff is not a party to this appeal, and the judgment against the 1^st Plaintiff in respect of US$350,000 arose from the Tabatha Contract, the services rendered by the 2^nd Plaintiff under the Listing Contract had no relevance to the present appeal.  In any event, the Listing Contract expressly provided that the method to be used involved the Pink Sheet Company, it cannot avail the 1^st Plaintiff in persuading the court that he had not made any misrepresentation as to the purpose for the acquisition of Tabatha.

64.Under the sixth ground of appeal, the 1^st Plaintiff submitted that he would not gain anything from misrepresenting the position to the 1^st Defendant.  Basically, he submitted that the change was occasioned by difficulties caused by the financial and other problems of the 2^nd Defendant and he was not careless in not checking the Pink Shell status of Tabatha.  In our judgment, the Judge had properly considered those issues and gave detail, cogent and sound reasons for coming to his findings.  There is nothing in the arguments advanced by the 1^st Plaintiff in this appeal which could remotely cast doubt on those findings.

65.As regards the finding of fraudulent intent on the part of the 1^st Plaintiff, we are of the view that the finding is sound in law and fact in light of the findings of the Judge.  The 1^st Plaintiff had no legitimate reason in connection with the listing application to suggest the 1^st Defendant to acquire Tabatha after he received advice from Mr Daniels that direct filing should be used instead of Pink Shell.  Not only did he fail to relay to the 1^st Defendant the advice of Mr Daniels (as he should have since the advice was obtained in his fiduciary position), he coaxed and cajoled the 1^st Defendant to sign the Tabatha Contract on 31 March 2007 (without properly checking on the status of Tabatha and its suitability as a vehicle for Pink Sheet shell listing).  He concealed from the Defendants the fact that his company only needed to pay US$150,000 for the acquisition of Tabatha.  Instead, he told the 1^st Defendant that it was a back-to-back arrangement and gave the impression to the 1^st Defendant that he was doing a favour to the latter by acting as a guarantor.  His case of change of method after the signing of the Tabatha Contract was properly rejected by the Judge.  He did not tell the 1^st Defendant that Tabatha would no longer be of any use even after committing the process to the direct filing method upon signing the contract of 28 April 2007 with Harrison Law.  Instead, he continued to represent to the 1^st Defendant that the method used would be a Pink Sheet shell company as stated in the Listing Contract executed on 28 May 2007.  The Judge had properly taken all these matters into account and reflected upon the high standard of proof in respect of the serious nature of the allegation of fraud before he reached his finding of fraud on the part of the 1^st Plaintiff.  We do not find any error in the Judge’s approach and conclusion.

66.Notwithstanding that four different representations were pleaded and argued before the Judge, in essence there were 2 representations which were false and made by the 1^st Plaintiff fraudulently.

67.First, the representation that the Plaintiffs intended to proceed with the application for listing by using Tabatha as a Pink Sheet shell company: a representation of present intention when no such intention was held is clearly actionable as much as a misrepresentation of fact: see Cartwright, Misrepresentation, Mistake and Non-disclosure 3^rd Edn §3-42.  Here, in view of the advice of Mr Daniels and the course of conduct of the 1^st Plaintiff set out above, the Judge was entitled to find that the 1^st Plaintiff did not have any intention to proceed with listing application via a Pink Sheet shell company as at 31 March 2007 when he urged the 1^st Defendant to execute the Tabatha Contract.

68.Second, the representation that the vendor of Tabatha would sell Tabatha at US$350,000 when the 1^st Plaintiff was able to purchase it at US$150,000: in holding that the 1^st Plaintiff dressed up the Tabatha Contract as part of a back to back arrangement when no such arrangement was needed as the real purchase price was only US$150,000 and that sum was fully paid by the time the 1^st Plaintiff purchased Tabatha from First Asia, the Judge was plainly right in concluding that the 1^st Plaintiff made the misrepresentation of the costs of acquisition of Tabatha fraudulently.

69.It is also quite plain that but for these representations, the 1^st Defendant would not have entered into the Tabatha Contract and paid US$350,000 for acquiring the shares of Tabatha.

70.The seventh ground of appeal addressed the treatment of the evidence regarding Mr Daniels’ advice at the meeting of 24 March 2007.  The Judge had before him confirmation from Harrison Law that at that meeting Mr Daniels advised that direct filing should be used rather than the use of a Pink Sheet company (see email of 27 January 2009 from Diane Harrison).  There was also an email on 22 January 2009 that the 1^st Plaintiff had not told Harrison Law about the acquisition of Tabatha.  There was also evidence of telephone conversations with Mr Daniels. On the evidence, the Judge had proper evidential basis for coming to the finding that the 1^st Plaintiff had been so advised. 

71.The 1^st Plaintiff contended before us that Mr Daniels did not give such advice categorically and he had not commented on pink sheet shell company as his firm did not offer that kind of service.  He said Mr Daniels had modified his views.  Such contention does not sit well with the statements of Mr Daniels in the taped conversation.

72.As said earlier, the 1^st Plaintiff did not produce the relevant transcript of his evidence in this respect. Notwithstanding the significance of the advice from Mr Daniels at that meeting, counsel for the Plaintiffs did not put forward this alleged explanation of the 1^st Plaintiff (now advanced by him on appeal) in his closing submissions.

73.Appeal is not the occasion for a litigant to recast his case or to give further evidence on facts to salvage or reinforce a case rejected by the trial judge.  We are not satisfied that the 1^st Plaintiff had given evidence about that meeting in the way he now sought to persuade us.  Without any evidential basis, it is not a proper ground of appeal.

74.The eighth ground of appeal related to the assessment of the taped conversations.  It is a matter of weighing the evidence, which the Judge had duly considered.  We are of the view that the Judge was entitled to make use of the taped conversations (notwithstanding there are places where the recordings might not be clearly audible) in the way he did.  The closing submissions of counsel for the Plaintiffs did not raise any objection in this regard.  Having read the relevant transcripts of the taped conversation, we do not find any basis for disturbing the findings of the Judge.

75.Under his ninth ground of appeal in the Notice of Appeal, the 1^st Plaintiff alleged that the Judge was biased by referring to several episodes at the trial.  However, he did not produce the relevant transcripts to support his assertions.  The bald statements in the Notice of Appeal or his submissions were not tested by cross-examination and cannot be regarded as evidence.  If there were episodes at the trial that raise legitimate concerns on the impartiality of the Judge when the Plaintiffs were represented by counsel, it is unbelievable that the 1^st Plaintiff had not relayed his concerns to counsel and counsel did not raise that with the Judge.  However, there is no evidence of counsel raising such objections at the trial.  His counsel did not make complaint of such kind in his closing submissions.  Nor did the 1^st Plaintiff apply to call evidence from those representing him at the trial to support his serious imputations against the Judge.  There is simply no evidential basis before us to support the serious allegations of bias against the Judge.             

76.In coming to this conclusion, we did not lose sight counsel for the Plaintiffs did make a point in his closing submission about the 1^st Defendant’s explanation on his ignorance of direct filing when he was involved in preparing and signing the registration statements[2]. Counsel did suggest that the 1^st Defendant was silent initially and he only gave his answer upon prompting.  However, counsel did not say that the prompting was from the Judge or that such prompting indicated bias on the part of the Judge.  As the 1^st Plaintiff did not place the relevant transcript of the trial before us, we cannot tell if it was a “prompting” by the Judge.  However, even assuming that the Judge had made some remarks before the 1^st Defendant answered the question, as counsel did not deem it appropriate to suggest that such remarks were inappropriate or indicative of bias on the part of the Judge, we are not prepared to accept that as “prompting” by the Judge. 

77.By his tenth ground of appeal in his Notice of Appeal, the 1^st Plaintiff contended that the Judge did not sufficiently analyze the defamatory statements.  He tried to overturn the Judge’s finding that he did not have a genuine degree. He claimed that he genuinely believed he had been given the honorary degree though the University concerned had its own internal management and credibility problems which affect the validity of such conferment.

78.With respect, this ground has no merit.  First, the Judge was plainly correct in finding that the sting of the emails was the allegations of cheating against the 1^st Plaintiff, such allegations the court found to be justified in light on the conclusions on fraudulent misrepresentation.  Thus, Section 26 of the Defamation Ordinance can be relied upon. 

79.Second, the Judge discussed the evidential position regarding the conferment of the degree at [374] to [381].  The 1^st Plaintiff did not advance the case before the Judge that though the degree was not valid due to the internal management problems of the University he was not deliberately using a fake degree to advance his business interest.   To the contrary, he kept on using the degree as demonstrated by the fact that in the writ and in his Notice of Appeal, he named himself as Dr Yip.  His case at the trial was that the degree was a genuine one.

80.The eleventh ground of appeal is only a summing up of the other grounds.  It does not advance any independent arguments to the appeal.

81.In our judgment, none of the grounds of appeal advanced by the 1^st Plaintiff has any merit. 

82.Having reviewed the judgment of the Judge against the evidence, notwithstanding the regrettable delay in giving judgment, we come to the firm and clear view that the Judge gave cogent and adequate reasons for his findings and there is no error of law or facts in his findings. 

83.For these reasons, we dismiss the appeal of the 1^st Plaintiff.  We take the view that the appeal is so devoid of merit that it should not have been brought in the first place.  We therefore order the 1^st Plaintiff to pay the costs of the Defendants in this appeal on indemnity basis as the Defendants were previously represented by lawyers in this appeal until 21 March 2016.  Such costs are to be taxed if not agreed.

The 1^st plaintiff appearing in person

The 1^st defendant appearing in person

The 2^nd defendant, absent