Conal Investment Ltd and Another v. Yu Pun Hoi
Read the full judgment text of HCA 1654/2012 on BabelCite. This High Court CFI judgment was delivered on 4 March 2019.
1. The 1 st plaintiff is a Hong Kong company, of which the 2 nd plaintiff businessman is the only shareholder and 100% beneficial owner. The relationship between the 2 nd plaintiff and the defendant goes back many years to about 1993, but the relevance and detail of that historical relationship is a matter of controversy between the parties in this action.
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HCA 1654/2012 [2019] HKCFI 541 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1654 OF 2012 ____________
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_______________ JUDGMENT _______________ Introduction 1.The 1st plaintiff is a Hong Kong company, of which the 2ndplaintiff businessman is the only shareholder and 100% beneficial owner. The relationship between the 2ndplaintiff and the defendant goes back many years to about 1993, but the relevance and detail of that historical relationship is a matter of controversy between the parties in this action. 2.In short, in about 1993 the 2nd plaintiff became an investor in a company called King Corporation Limited, formerly known as CIM Company Limited (“KCL” or “CIM”), of which the defendant was then chairman and director. The investment sum was US$10 million, and it is the plaintiffs’ case that the investment was made upon a representation by the defendant that KCL had a good business and would generate good profits and that any investment in KCL would be doubled in return very soon. The defendant denies making any such representation. 3.It was a Mr Frank Lee who introduced the 2ndplaintiff to the defendant. Mr Lee had apparently known the 2ndplaintiff for many years, and the defendant since around 1991. Mr Lee remained a ‘go-between’ (to use, for the moment, a neutral term) between the 2ndplaintiff and the defendant in the subsequent years. Indeed, for a significant period of the material time there was no direct contact between the 2ndplaintiff and the defendant, and all contact was made between them through Mr Lee. One potential question is whether Mr Lee acted as agent for the 2ndplaintiff, or for the defendant, or for neither or both. 4.Whether contrary to the alleged representation, or simply as the consequence of a commercial decision, it turned out that KCL did not generate profit from 1993 until 2003/2004, when the company was wound up and dissolved. It is this investment turned bad that the plaintiffs say framed the subsequent dealings between them and the defendant. 5.In around 1998, the defendant signed an Option Deed under which (on its face) the defendant granted to the 2nd plaintiff an option to sell his KCL shares to the defendant at the price of HK$78 million, being roughly the sum invested previously. Whether or not that Option Deed was intended to have legal effect is in issue between the parties. 6.The 2nd plaintiff says that he exercised the option within the option period, by written notice dated 27 March 1998, but that the defendantfailed to complete the purchase or make any payment of the purchase price within the agreed period of 90 days. He further says that the defendant subsequently admitted his failure and breach, in a letter dated 13 October 1998, and promised to complete the purchase as soon as possible. 7.It is not in dispute that no purchase had been made by 2004. However, in that year (according to the plaintiffs) or around 2007 (according to the defendant) another written agreement which bears the date 25 June 2004 came into being. The legal effect of this agreement (“the Agreement”) is also in dispute between the parties, but it is the contractual basis for the claim in this action. 8.Though until the trial itself the 2ndplaintiff only acknowledgedreceipt of HK$20 million from the defendant, it is now common ground thatin fact HK$22 million was received by the 2nd plaintiff from the defendant or companies connected to him over the period from February 2006 until November 2010. The plaintiffs say those payments were part payments under the Agreement. The defendant says they were monetary gifts made out of friendship and respect, and as a result of the request for monetary assistance coming from the 2ndplaintiff through Mr Lee. 9.The claim is to the unpaid portion said to be due under the Agreement, or damages for breach of that contract, together with interest. The trial witnesses 10.At trial, the only witnesses to give evidence were the 2nd plaintiff and the defendant. 11.Unfortunately, Mr Lee passed away sometime between the commencement of these proceedings and the trial date, probably in 2015. Before he passed away, Mr Lee had apparently refused to provide a witness statement for either side. At least, that is how the defendant explained it in his evidence, though the 2ndplaintiff also gave evidence that he had trouble contacting Mr Lee and lost touch with him before he passed away. 12.The 2nd plaintiff is resident in Singapore, and because of his age and health condition I acceded to an application that he might give evidence by way of video link. I did so primarily by reference to the principles which I found helpfully enumerated in the cases which emphasize the balance between the advantage of seeing and hearing a witness in the courtroom and the fact that technology now often permits that process to be conducted by a video-link. As it happened, there were some technical glitches during the giving of the video link evidence, but I have made due allowance for any interruption in the flow of that evidence, and I consider that overall the evidence was tolerably received, and the technology enabled me to “see and hear” both side’s evidence. 13.In closing submissions, both Mr Paul Wu (leading Mr Benjamin Lam) and Mr Benjamin Chain (leading Ms Sonia Ng) asserted that the case would turn on matters of credibility of the witnesses. Of course, each of Mr Wu and Mr Chain urged me to prefer the credibility of their own witness/lay client. 14.In assessing the evidence of the witnesses, I have done so in the usual way, considering but without heavy focus on demeanour, but rather by considering the oral evidence against the documentary evidence and what seem to me to be the likely inherent possibilities and plausibilities when viewing the evidence as a whole. The documentation and other evidence 15.Despite the passage of a significant number of years over what is said to be the material period, there is relatively little in the way of documentation. This fact is something relied upon by the defendant for reasons which will become apparent below. Where there are documents, there can be little dispute about what they say on their face. The dispute is about what was intended by them, and the context in which they were produced. 16.Few documents were produced in relation to the original investment by the 2nd plaintiff in the shares of KCL, except the share certificate and company returns. There was no dispute that such investment was made, and that the company did not subsequently perform very well. Indeed, during cross examination the defendant offered that the company had performed “terribly”. 17.Of course, there is an issue as to whether or not the original investment was on the basis of the alleged representation. However, ultimately that does not seem to me to be necessarily vital to the analysis of subsequent events. Anyway, I doubt — and, if necessary, so find — that what was said about the potential future performance of the company in advance of the 2ndplaintiff’s investment either was or is capable of amounting to an actionable (mis)representation. In any event, it seems to me that the evidence as a whole identifies that this was simply an investment which went bad, and about which the defendant felt to an extent“responsible”, so that he was minded to try to assist the investor (as he said in evidence he would with any other shareholder) if he was able to. 18.I also bear in mind that the 2ndplaintiff did not really come upto proof on the representation in his oral evidence; and when the investment went bad, the 2ndplaintiff did not bring any action for misrepresentation, nor is there any document by which he asserted any misrepresentations. Rather, the 2nd plaintiff just appears to have been (probably understandably) keen to have withdrawn from the investment by being repaid the sum invested. It might also be noted that the terms of the Option Deed left open to the 2ndplaintiff the choice whether or not to exercise the option, namely the opportunity to maintain ownership of the shares. But, if there was a subsequent legally binding agreement under which the defendant agreed to buy back the shares from the 2ndplaintiff, it may not matter why each of them was prepared to enter into that agreement. 19.The only version of the Option Deed produced bears no date, but was likely made in 1997 (as the option validity period begins in that year). It is accepted by the defendant that it was signed by him, against a signature block saying that it was “signed, sealed and delivered”. The copy of the Option Deed appears to have what in the original was probably a red circular sticker denoting a seal. 20.The recitals to the Option Deed refer to CIM, and the 2ndplaintiff’sownership of 6 million ordinary shares (approximately 5.28% of the issued share capital of CIM), and the defendant’s wish and agreement to grant to the 2ndplaintiff the irrevocable right for him to sell the 6 million shares on the terms and conditions of the deed. 21.The relevant option validity period was between 2 pm on 1 December 1997 and 1 pm on 31 March 1998. The originally typed option validity period ended on 31 December 1998, but the 2ndplaintiff said the manuscript change to 31 March 1998 (against which the defendantsigned) was because he was not prepared to wait so long for the opportunity to retrieve his investment money. 22.There was a provision that the relevant exercise notice would be deemed to be served if served upon the defendant or alternatively upon his named solicitors, Robert W H Wang & Co (attention Navin Aggarwal). Following service of an exercise notice, completion should take place at the offices of the 2nd plaintiff’s named solicitors, Stephenson Harwood & Lo (attention Malcolm Kemp), on the next business day after the expiry of90 calendar days from the date of the notice. Incidentally, the 2nd plaintiff in oral evidence could not recall that that firm was his nominated solicitor,and it seems those solicitors were never contacted by the 2nd plaintiff after the alleged exercise of the option, which Mr Chain said were signs that the Option Deed was not intended to be binding. 23.I note that the 90-day period was substituted for an originally drafted 7-day period, the defendant again having signed against the change. In passing, it seems to me that the two signed manuscript amendments made by the defendant make it less likely that his signing of the Option Deed was not intended to have any legal effect. 24.On the basis of an option notice dated 27 March 1998, the completion date would have been 26 June 1998. This date is significant, when one counts 6 years from it to 25 June 2004. 25.The plaintiffs produced two exercise notices, both dated 27 March 1998. One is addressed directly to the defendant and the other is addressed to his designated solicitors. Both documents were signed by the 2ndplaintiff on his own headed paper and both state that they were sent by fax to numbers stated, and by courier. The notices state that they are made pursuant to clause 2(A) of the Option Deed. There is a dispute as to whether those notices were in fact sent and/or received, or received in good time. 26.The 2nd plaintiff said that he sent out the two exercise notices both by fax and by courier, though he was unable to produce documentary evidence of doing either, he said because of the passage of, as a result of the passage of time. It seems to me to be odd that one might keep safe copies of notices said to have been sent, but no proof that they were in fact sent (when such evidence might well be important). The defendant said he never received the notices, either directly or from his solicitors (who he said would have brought it to his attention had they received it). 27.The 2nd plaintiff identified in evidence that he thought he had validly exercised the option, but had some difficulty in answering the question as to what he expected to happen next. Of course, he did nothing himself — including nothing to transfer the shares, whether from Singapore or by travelling to Hong Kong — at least for several months, and in fact for much longer. 28.In his witness statement, the defendant stated that on a date before 1 December 1998 (perhaps a typographical error for 1997) he entered into the Option Deed, but actually had no intention to buy back the 2ndplaintiff’s shares or to recover the 2ndplaintiff’s loss from the shares. But in his oral evidence, the defendant explained that the Option Deed came about in a different way, namely as result of being asked by Mr Lee to sign a document without prior arrangement on Mr Lee’s representation that it was for the comfort of the 2ndplaintiff only. 29.Mr Wu submitted that there was certainly a shift in the defendant’s case on the Option Deed. Up to trial, he said, the focus of the defence was that the option notice was not validly sent, so no option was validly exercised, not that the Option Deed was not intended to be binding anyway. There is some force in that submission. 30.The defendant accepted in oral evidence that he was an experienced businessman, chairman of at least one listed company, used to executing documents with legal effect, working often with lawyers and so familiar with solicitors, and that he would not lightly append a signature to a document, knowing that it would have legal effect. He also understood the effect of sealing by placing the small circular sticker to that effect. 31.The defendant said in evidence that he signed the deed becausethe 2ndplaintiff’s business was very bad at the time, and the defendant saidthat he even joked with Mr Lee because he could not believe the 2nd plaintiff’s business was even worse than his. The defendant said in evidence that he was fully aware that it was a legal document and bore his signature, but it was produced on the understanding with Mr Lee that without the date, it was imperfect. He did not intend for it to be binding. 32.But, as I have indicated, the signed amendments, the additionof the seal, and the subsequent volunteered assurance to purchase the sharesin accordance with the terms of the Option Deed, tend—without reference to other evidence—to suggest otherwise. 33.There is, also, a letter dated 13 October 1998 written on the defendant’s headed notepaper and signed by him, addressed to the 2ndplaintiff at his address in Singapore. The letter states:
34.There is an issue as to what was meant by the content of that letter, and the reason why it was sent. As noted above, the 2ndplaintiff saysthat in this letter the defendant admitted his failure to complete the purchaseof the shares within the agreed timeframe and his breach of the Option Deed, and further promised to complete the purchase as soon as possible. In his evidence, the defendant said that the reference to the date expiring was to the expiration of the option validity period, but he nevertheless was offering some comfort that he would in due course purchase the shares from the 2ndplaintiff. 35.The wording of the letter seems to me to read naturally such that the apology for the delay is as to the delay or expiration of the date by which the shares should have been purchased. It does not seem likely that the defendant would feel the need to apologise for the delay of the 2ndplaintiff in failing to exercise the option before it expired. The natural reading also fits with the subsequent assurance to purchase the shares in accordance with the terms of the Option Deed. Such an assurance is at least also consistent with the Option Deed having been intended to be binding. 36.There was also some force in Mr Wu’s pointing out that the 3 October 1998 letter was not dealt with by the defendant in his witness statement at all, and was only addressed by him in his oral evidence. 37.The next letter is dated 17 June 2002, and is from the 2nd plaintiff to Mr Lee at an office address in Hong Kong but marked “via fax”. The 2nd plaintiff confirmed in his evidence that there was no correspondence between himself and the defendant, whether directly or through Mr Lee, at any time between 13 October 1998 and 17 June 2002 — a period of over 3 ½ years. In his witness statement, the 2ndplaintiff originally suggested that the letters he produced were “a few examples” of his continually chasing the defendant through Mr Lee. In light of his concession during oral evidence, namely that he had (and had given disclosure of) a near complete record of his dealings with the defendant, it is clear that there were significant breaks in any contact between the 2ndplaintiff and Mr Lee regarding anything to do with the defendant or the CIM shares. These breaks are difficult to explain. 38.The 17 June 2002 letter is subject-headed “Conclusion for thesigning of official contract for the sales of ‘CIM’ shares to [the defendant]”. Its content reads as follows:
39.It can be noted from the letter that the 2ndplaintiff had been inHong Kong in June 2002, but there is no suggestion that he tried to contactthe defendant whilst in Hong Kong. Also, the subject-heading of the letter and its content — identifying the possibility of an “official contract” for the sale of CIM shares — sits uncomfortably with the suggestion that there was already a legally binding prior agreement (the Option Deed) under which those shares should already have passed. 40.On 11 July 2002, the 2nd plaintiff again wrote to Mr Lee at the same address but “via fax” stating under the subject-heading “Purchase Contract for CIM shares”:
41.Subsequently on 23 September 2002, the 2nd plaintiff wrote toMr Lee under the subject heading “Early conclusion of CIM New Package with [the defendant]”, stating:
42.There is then a gap in the correspondence until a letter dated 26 September 2003, sent by the 2nd plaintiff to Mr Lee. It bears the subjectheading “Speedy conclusion for [the defendant] to repurchase my investment of HKD 78 million in the CIM Company Limited”, and states:
43.The next letter from the 2nd plaintiff to Mr Lee is dated 17 March 2004 and states:
44.The wording of this letter, following the others, is at least some suggestion that Mr Lee was acting as agent for the 2ndplaintiff. It also hints at the only possibility of a new contract. 45.The following month by letter dated 26 April 2004 from the 2nd plaintiff to Mr Lee, under the subject heading “Conclusion for the sales of CIM shares to [the defendant]”, the 2ndplaintiff wrote:
46.The version of the letter in the trial bundle has some manuscript additions, which the 2nd plaintiff said in evidence were probably added by his secretary. The manuscript note reads:
47.On the basis of that manuscript note, it seems that the letter of 26 April 2004 would not have been received by Mr Lee. There is no further letter at any time after April 2004, even in the context of or in light of the Agreement. 48.It is also of note that none of the letters are couched in terms of demands by the 2nd plaintiff that the defendant should comply with the promise in the Option Deed, or in light of a valid exercise of the option under it. It seems to me that references to a “new” or “official” agreement identify that any previous arrangement had either expired or was only informal and not binding. The reference to “whether a new contract can be concluded” hints that it was regarded only as a possibility. 49.The Agreement had the date of June 2004 typed in, but the day was added by someone in manuscript “25th”. This date is of some importance, though that only became apparent late in the trial when the submission was made by Mr Wu that the cause of action accrued on the Option Deed on 26 June 1998, so that the Agreement was made just within the 6-year limitation period following the date on which the share transfer/ payment ought to have occurred following a valid exercise of option on 27 March 1998. Probably, the limitation period on a deed is actually 12 years, but the understandable mistake may have been commonly held by Mr Lee, hence the date provided. I find that date was put in to meet that narrative. 50.The Agreement states that it is made between the 1st plaintiff as “Vendor”, the defendant as “Purchaser” and KCL “the Company”. KCL is described in the heading as “(formerly known as ‘CIM Company Ltd’) is/was a company incorporated under the laws of Hong Kong …”. The reference to “is/was” is clearly relevant in the context that the order winding up against KCL was made on 26 March 2003 and the company hadbeen dissolved on 20 May 2004. After that date, the shares were worthless, if indeed they even continued in existence at all. 51.On the signature page, the 2nd plaintiff signed for the 1stplaintiff (but without any company chop and without any witness despite the wording “in the presence of:-”). The absence of a company chop and witness is a little odd if real formality were intended by the 2nd plaintiff, whois also a very experienced businessman. The defendant signed against hisname, and it was apparently witnessed with (probably) Mr Lee’s signature — though there was no evidence as to when the signature of Mr Lee was added. Despite the signature block for it, there is no signature at all for KCL or “its successor entity”, and so obviously no witness. This might also tell against any intended binding nature of the Agreement. 52.The 2nd plaintiff said in evidence that he decided to use the 1stplaintiff as his corporate vehicle to sign the Agreement (though it was not clear to me why), and that he was the sole beneficial owner of the entire share capital of the 1stplaintiff throughout. After urging Mr Lee in the correspondence (see above), the 2ndplaintiff says he had been given the draft Agreement by Mr Lee sometime in mid-2004. 53.The Agreement appears to have been professionally drawn by a lawyer or lawyers, being in legal form with recitals, an interpretation section and various clauses with typical legal headings; it is written in legallanguage. It bears a footer “[identification reference S&P/888999˂v.2˃]”. It might have been drafted by Mr Lee, who was a lawyer. As Mr Wu said, the drafting has a high degree of sophistication, and he asked why Mr Lee would have drafted it (or had it drafted) in this way, with all the effort that involved, if it was not intended to be binding. 54.The recitals state that the Vendor and/or its associates have entered into one or more agreements to acquire and/or dispose of various interest in the share capital of the Company, whilst the Purchaser is the chairman, a director and has a significant interest in the issued share capital of the Company. The recitals also make reference to the fact that the Purchaser is in addition chairman and director of two other named companies, neither of which have anything otherwise to do with the Agreement. The 2ndplaintiff says he thinks those references were made to “impress him”, but I do not see why that was necessary or would add anything. It is just an odd feature of the drafting. The recitals also state that the Vendor wishes to sell or procure the sale of, and the Purchaser wishes to purchase, the Sale Shares subject to the terms and conditions of the Agreement. 55.Clause 2.1 of the Agreement provides for the sale of the Sale Shares, being the 6 million shares of the Company presently or previously registered in the name of the 2ndplaintiff, irrespective of whether the Company (a) is in good standing, (b) has been and/or is in the process of being struck off, (c) has migrated to an alternative legal jurisdiction, or (d) is the subject of a winding up petition or is in liquidation. 56.Clause 1.5 provides that the expressions “the Vendor” and “the Purchaser” shall, where the context permits, include their respective successors, personal representatives and permitted assigns. 57.Clause 3.1 deals with the consideration payable by the Purchaser to the Vendor for the Sale Shares in the total cash sum of US$10 million, to be paid in four equal instalments of US$2.5 million on the 1080th, 1440th, 1800th and 2160th calendar days respectively after the Signing Date respectively. In other words, the first instalment is not due until almost 3 years after the signing date, and the last instalment is due 3 years later the that, that is 6 years after the signing date. If the Agreementwas signed in June 2004, the instalment dates were in June 2007, June 2008, May 2009 and May 2010. 58.Clause 4 of the Agreement is a “No Litigation” clause which includes clause 4.1:
59.Clause 5.2 of the Agreement (mis-typed as 6.2) provides that:
60.Under Clause 6.2 of the Agreement the Purchaser acknowledges and confirms being fully aware of all matters in connection with and incidental to the acquisition of the Sale Shares, waives any and all claims against the Vendor’s rights regarding the transferability of title, and waives any rights or claims against the Vendor in connection with the acquisition of the Sale Shares irrespective of the position of the Company, including the appointment of one or more traditional managers, traditional administrators, receivers or liquidators. 61.Clauses 2.1, 4, and 6.2 lend some support to the 2nd plaintiff’scase that he had been assured by Mr Lee that the defendant would definitelypay him the agreed amount whatever might happen to KCL, and that Mr Lee would draft the agreement specifically to deal with these issues. 62.On the other hand, in his oral evidence the 2nd plaintiff claimed that he did not know the shares were worth nothing by 2004, notwithstanding that the company had been at least wound up months beforehand, and had actually been dissolved. This is difficult to accept, and seems to me to be inconsistent with his other explanation as to why certain terms were included in the Agreement. 63.Clause 16 provides that the Agreement is governed by Hong Kong law, and the parties irrevocably submit to the non-exclusive jurisdiction of the Hong Kong courts. 64.The 2ndplaintiff said in evidence that on or about 28 June 2004, and at the request of the defendant, he delivered the original of the Option Deed to the defendant via Mr Lee. The defendant denied making such a request, and said in evidence that he never received the Option Deed, and had never had a copy of it. 65.The defendant gave evidence, written and oral, that he signed the Agreement to the best of his recollection on an occasion sometime in or after 2007, and that he did so on the representation of Mr Lee (who had given it to him) that it was only meant to give face and comfort to the 2nd plaintiff. Before signing the Agreement he had made it clear to Mr Lee, whom he trusted, and was assured by Mr Lee, that neither the Agreement nor his signature was meant to be of any legal and binding effect. The defendant says that he had certainly not asked the 2ndplaintiff to enter into the Agreement, and he had only signed it at the request of Mr Lee. The defendant pointed out that the Agreement made no reference to either the Option Deed or any alleged breach on his part of the Option Deed. 66.The defendant said he thought he signed the Agreement after hehad paid some money to the 2ndplaintiff, and after the start of the financial crisis, which is why he pinned it to some time in 2007. It might also be thought that the instalment dates set out in the Agreement, starting in 2007 lend some support to the idea that the Agreement came into being then; if the re-purchase were supposed to have been outstanding under a binding agreement since 1998, there was no explanation why an agreement made in 2004 would allow another 3 years before any payment at all. Mr Chain also pointed to the absence of any default clause in the Agreement. 67.As to the circumstances in which he signed the Agreement, the defendant gave an explanation which seemed spontaneous, unusual and rang true that he signed it in a car near Central when travelling with Mr Lee. He read it quickly, but told Mr Lee to do nothing formal with it, and that the signature was not intended to make him liable or the document become binding. Such circumstances are not typical of a formal making of a binding agreement, and it would seem to me that an experienced businessman such as the defendant, when asked to sign a clearly detailed legal agreement, would unlikely do so without his own legal advice if he intended to make the agreement binding, and to be sure it provided for what he was prepared to agree as binding. 68.The defendant said in evidence that the Agreement was signed to make the 2nd plaintiff more comfortable, and it could not have been a real agreement to buy and sell shares in a company if the company was no longer there (and the shares no longer existed). It was signed in the car because Mr Lee pleaded with him to do something to help the 2ndplaintiff. The thinking was to let the “old gentleman” (the 2ndplaintiff) feel more comfortable, and the defendant was intending to do what he could to help him recoup what was possible, and the position was the same “today” (ie at the trial). As the defendant put it, “the reality is I do not have an obligation legally, but I do want to help the 2nd plaintiff … whether we had paper or not I would still give him money whenever I can afford to do it”. 69.The defendant said in evidence that neither Mr Lee nor the 2ndplaintiff ever mentioned the Agreement after it was signed, nor was he (the defendant) given a copy, and he did not see it again until these proceedings. There is no evidence to the contrary, and this fact tends to support the defendant’s case. 70.But Mr Wu made the submission that the real problem for the defendant is from the simple fact that he accepts that he signed the Agreement. Mr Wu referred me to the Court of Final Appeal decision in Ming Shiu Chung & Others v Ming Shiu Sum & Others (2006) 9 HKCFAR 334 at §§84 – 87. That passage deals with the principles applicable in circumstances where a document or an instrument has been signed by the person who signed claims that he had no knowledge or consent as to what was signed. The Court of Final Appeal disapproved the Court of Appeal’s assumption that, provided that it was proved that the person did not know what he signed, it was unnecessary for it to be proved how or why he nevertheless signed. Hence, it was held that it remained highly material in law to ask how or why the person nevertheless signed the documents, and the court would be looking at whether the basis of knowledge or consent had in some way been vitiated (for example, through fraud, misrepresentation, non est factum, duress, undue influence and lack of mental capacity), or whether reliance on the document by some other person falls into some category of unconscionable conduct justifying relief in equity. 71.But I do not think that passage, or those principles, really assist in a situation where the factual assertion made by the defendant is that he knew what he was signing and that it would otherwise have had legal effect,but for the fact (he says) that he specifically informed the person to whom he gave it who either represented or would have informed the other party that the document was not to be taken as having any legal effect and not be binding. 72.As already mentioned, there is no dispute that the 2ndplaintiff did receive various payments totalling HK$22 million from the defendant. The payments made were as follows:
73.So, the defendant paid the 2nd plaintiff $1 million in 2006 (on his case, before he signed the Agreement), $5 million in 2007, $12 millionin 2008, $3 million in 2009 and $1 million in 2010. The defendant says he did so after Mr Lee asked him for monetary assistance for the 2ndplaintiff, and so he provided monetary gifts out of friendship and respect for the 2ndplaintiff. I accept these are not inconsequential sums, which might raise an eyebrow if not paid under some actual contractual obligation. 74.Although the 2ndplaintiff says he had a file for this transaction, he did not keep a record of these payments in that file. Mr Chain submitted that, as well as evidencing the lack of connection between the payments and any suggested purchase agreement, that fact helps to explain the miscalculation by the 2nd plaintiff as to what funds he had actually received. I agree. 75.Indeed, it cannot be disputed that the amount and dates of these payments were nothing close to being in accordance with the payment terms under the Agreement, which required a payment of approximately HK$19.5 million on each of the instalment dates in June 2007, June 2008, May 2009 and May 2010. By each of those dates, the amount paid by the defendant was cumulatively only HK$6 million, HK$7 million, HK$19 million and HK$21 million respectively. 76.But there is no evidence of any complaint or demand made by the 2nd plaintiff over that period of time. There was no demand at all before the letter before action in June 2012. This is telling. The 2nd plaintiff claimed to have made repeated requests of Mr Lee, at least 15 times, but there is no document which supports that (in circumstances where the 2nd plaintiff had previously written to Mr Lee). Also, it seems odd that if Mr Lee had been contacted without success why the 2nd plaintiff would not have gone directly to the defendant whom he would have had no difficulty contacting. 77.Approximately half a year before the trial began the 2ndplaintiff had a meeting with the defendant in the presence of his god-daughter, and came to Hong Kong for that purpose. Though it may have been that the purpose was in relation to settlement discussions, the fact that there was a meeting fixed without any difficulty shows that it would not have been difficult for the 2ndplaintiff to have contacted the defendant at any earlier time. 78.The 2nd plaintiff claims to have been “patient” from 1998 to 2010 when, as he put it, “patience must have an end”. He denied that he had taken no action simply because he knew that the defendant was not liable to pay him. Even though the 1stplaintiff had a registered office in Hong Kong, no steps were taken by it, or procured by the 2nd plaintiff, for it to make any demand of the defendant. Indeed, as noted above, I confess to having some difficulty understanding why it is said the 1stplaintiff was interposed at all. 79.The 2ndplaintiff’s patience having ended, as he said, he brought his claim, and he brought it based upon the Agreement. Conclusion 80.Mr Chain submitted that this is a case which can be decided on the facts alone, as whatever law follows is indisputable. 81.As to Mr Lee’s possible position as an agent, Mr Chain pointed to the 2ndplaintiff’s own evidence in which he effectively disavowed Mr Lee as an agent for the defendant. Hence, Mr Chain submitted, either (a) Mr Lee was the 2ndplaintiff’s agent (as the correspondence between them tends to show) so that whatever the defendant told Mr Lee would be binding on the 2nd plaintiff, or (b) Mr Lee was the agent of neither and just a go-between, on which basis there was no reason to think that Mr Lee would not tell the truth. 82.On either basis, Mr Chain submitted, the objective facts showthat the 2nd plaintiff well knew the correct position which is the explanation for his lack of action for 15 years; if he truly believed he was entitled to the money, then his inaction is inexplicable. Again, I agree. 83.As the claim is brought upon the Agreement, even Mr Wu was forced to acknowledge in submission that the factual circumstances existing prior to the Agreement (whether it was made in 2004 or 2007) created some difficulty. He noted that KCL was wound up on 26 March 2003 and dissolved on 20 May 2004, and that both the 2ndplaintiff and the defendant were aware at least that by 2003 KCL was being wound up. Nevertheless, the Agreement purported to contain an agreement by the 1stplaintiff to procure the sale of the Shares, shares which had not just been affected in value by a winding up order, but which had simply ceased to exist by virtue of the dissolution. 84.Mr Wu’s submission was whilst on the surface the Agreement is a share purchase agreement, understood in context it discharges the defendant from the 2nd plaintiff’s bona fide claim under the Option Deed in return for a new obligation to pay the 2ndplaintiff. He said that the real consideration was the 2ndplaintiff’s forbearance to sue on the valid claim against the defendant, and the Shares (which were worthless by the time of the Agreement). 85.The problem with this submission is that it is not the basis of the claim, and is an argument for rectification which was not pleaded. Whilst it may be correct that it is the defendant who essentially bears the burden of disowning the Agreement (as Mr Wu submitted), and perhaps that the Court is faced with a situation where the defendant is in effect required to disown all of the key documents signed by him over the years, the practical reality is that it is common ground that the terms of the Agreement — the document sued on — were not in fact terms which the parties either did agree or could have agreed. It seems to me this fact was also known to Mr Lee, in circumstances where he may well have been trying to keep both the 2nd plaintiff and the defendant reasonably content. 86.It might be thought that if the agreement were simply for the defendant to have refunded an amount equivalent to the 2nd plaintiff’s original investment, that would be extremely simple to have drafted. It would not have required a convoluted and complicated agreement which was in reality incapable of being performed, as the parties well knew. 87.I was tempted by Mr Wu’s attractively phrased submission thatit is of the greatest irony that it is the defendant who now attempts to disown signed documents of legal effect “with nothing but his own eloquence”. But that submission really begs the question which ultimately I have to decide, namely whether the documents signed by the defendant did indeed have legal effect. Also, the question is posed most relevant to the Agreement sued upon. 88.Ultimately, despite some evidence to the contrary which I have canvassed (see above), I am persuaded on the evidence overall and on the balance of probabilities that the Agreement which forms the basis of the claim in these proceedings was not one which truly bound the parties purportedly entering into it. 89.Even if the Option Agreement was valid and binding, the action/inaction on the part of the 2ndplaintiff over the many years thereafter seems to me to more consistent with the failure to have exercised any option in good time, or the acceptance by the 2nd plaintiff that the defendant had no binding obligation either to buy the CIM shares or to refund the original investment. I accept that the 2nd plaintiff was keen to obtain the return of an investment which had turned sour, and that the defendant was in return content to provide some assistance by way of comfort documents which might be shared with third parties, and by the provision of some funds. But, on balance, I find that the Agreement was not in fact, and was not intended or understood by the 2nd plaintiff and the defendant to have been, a binding contractual agreement. 90.Of course, strictly, the 2nd plaintiff is in any event not a party to the Agreement sued upon, and he could have no claim on it. That would explain why he was added as a party only by amendment a year afterthe action began, apparently for the purposes of pleading the prior dealings as regards the original investment in CIM/KCL and the Option Deed (as the basis underpinning why a later agreement might have been reached). Although the prayer in the Amended Statement of Claim seeks relief for “the plaintiffs”, the body of the claim has only a claim or claims for the 1stplaintiff. 91.But in any event, on the basis of my above findings, I dismiss the claim. Costs 92.I make an order nisi as to costs that the plaintiffs shall pay thedefendant’s costs of the action, costs following the event, to be taxed if notagreed. The order will become absolute if no variation application is made within 14 days. If a variation application is made, it shall be decided on paper: the applicant for variation shall make submissions within 14 days, and the opponent to variation shall respond within 14 days thereafter.
Mr Paul Wu, leading Mr Benjamin Lam, instructed by Michael Li & Co, for the 1st and 2nd plaintiffs Mr Benjamin Chain, leading Ms Senia Ng, instructed by Ho, Tse, Wai & Partners, for the defendant | ||||||||||||||||||||||||||||||||||||||||||||||||
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