Au Yeung Kwan v. Lee Lam
Read the full judgment text of HCA 2464/2014 on BabelCite. This High Court CFI judgment was delivered on 3 December 2020.
1. This is the trial of 2 actions commenced by Mr Au Yeung Kwan (歐陽坤) (“ AYK ”) and Mr Lee Lam (李林) (“ LL ”) against each other.
Cited by 1 case · Cites 4 cases
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HCA 2464/2014 [2020] HKCFI 3024 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2464 OF 2014 ________________________ BETWEEN
(By Original Action) BETWEEN
(By Counterclaim) AND HCA 2473/2014 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2473 OF 2014 ________________________ BETWEEN
________________________ Before: Hon Linda Chan J in Court Dates of Hearing: 15 – 24 September 2020 Date of Judgment: 3 December 2020 ________________________ J U D G M E N T ________________________ 1.This is the trial of 2 actions commenced by Mr Au Yeung Kwan (歐陽坤) (“AYK”) and Mr Lee Lam (李林) (“LL”) against each other. 2.In HCA 2464/2014, AYK seeks to enforce the terms of a written agreement signed by both of them on 11 July 2014 (“Agreement”) or, alternatively, repayment of the $27,765,157.5 paid by him (and his 4 friends) to LL for investment purpose. 3.In HCA 2473/2014, LL against AYK, Mr Yau Sai Mo (丘世武) (“Yau”), New Century Laundry Limited (新世紀洗衣有限公司) (“New Century”), 7000 Limited and 5 other companies under the control of AYK namely, 5000 Limited, 1222 Limited, 166 Limited, 863 Limited and 73 Limited (collectively “5 Number Companies”) for, inter alia, (1) declarations that the Agreement “has never arisen” or has already come to an end or is no longer binding upon the parties; (2) a declaration that AYK holds the 5 Number Companies on “constructive trust” for LL; (3) damages against Yau for negligence and breach of fiduciary duties; and (4) other extensive declarations and relief to the effect that LL is the beneficial owner of (i) the “Raton Property” (as defined in §20 below), (ii) 75% of the issued shares in New Century; (iii) the “TMIC Properties” (as defined in §19 below), and (iv) the “6 Pahsang Units” (as defined in §25 below). 4.The 2 actions were consolidated by the order dated 9 November 2015 with HCA 2464/2014 being the lead action. AYK’s case is pleaded in the Amended Statement of Claim filed on 23 March 2018 (“SOC”) and Amended Reply and Defence to Counterclaim (“R&DC”) filed on 1 June 2018. LL’s case is pleaded in his Re-Amended Defence and Counterclaim filed on 27 April 2018 (“D&CC”). 5.New Century and 7000 Limited have not been represented or participated at the trial. Ms Catherine Wong and Mr Peter Chiu appear on behalf of AYK, Yau and the 5 Number Companies, while Mr Bache Sit appears on behalf of LL. 6.Although in the SOC, the pleader does not claim specific performance as a relief, it is clear from the order sought in §§(1) to (3) of the prayer that AYK is seeking specific performance of the Agreement. Ms Wong in her opening submissions makes clear that AYK seeks, as a primary relief, specific performance of the Agreement. Mr Sit in his opening submissions also deals with the claim on the basis that AYK seeks specific performance of the Agreement as his primary relief. 7.Pursuant to this Court’s directions, the parties have filed Agreed Statement of Facts and agreed list of issues (“Agreed Issues”). A. UNDISPUTED FACTS 8.The following facts and matters are based on the Agreed Statement of Facts or facts which are not in dispute. A1. Dramatis personae 9.AYK engages in restaurant and property investment businesses. LL engages in laundry services and restaurants businesses, and has made substantial investments in real properties in Hong Kong. LL’s wife is Ms Yau Chiu Sheung (游肖嫦) (“Mrs Lee”). 10.AYK and LL have known each other since 1990. LL regularly invested in real properties jointly with his friends and was considered a leader in that circle. AYK was a member of that circle. The circle of friends including AYK would pool their resources together and made investments jointly. They would hold the real properties acquired on behalf of each other. 11.In early 2013, AYK and LL began to cooperate in making investments in real properties and restaurant businesses and their contact became more frequent. 12.Apart from investing his own monies, AYK introduced his friends to LL, who are Au Yeung Ka Yee (歐陽家宜) (“Ka Yee”), Ng Kam Ming (伍金銘) (“Ng”), Yang Mengsu (楊夢甦) (“Yang”) and Ngan Yim Man (顏炎文) (“Ngan”) (collectively 4 Friends”), and they invested in LL’s business. 13.Yau was (and still is) employed by Bentleys C.P.A. Co Limited (班利仕會計師事務所有限公司) (“Bentleys”) as audit manager. He has known AYK for over 20 years and has been handling the accounting affairs of his companies. 14.Law Wai Kong (羅偉光) (“Law”) is a long-time friend and business partner of LL. Since 2002, Law has been investing in Chinese restaurants together with LL. The other major investor is Kwok Luk Ming (郭綠明) (“Kwok”). Law has acted as general manager of the chain of restaurants in which he had invested. LL entrusted all accounting and financial matters relating to his businesses and investments to Law, and Law would act on the instructions given by LL from time to time. 15.Leung Kwok Ming (梁國明) (“Leung”) has known LL for over 10 years. He had invested in the restaurant business operated by LL and, through such investment, came to know AYK. A2. Investments made by AYK and 4 Friends 16.AYK paid an aggregate sum of $22,835,157.50 for the purpose of investing in 7 real properties or restaurants described in §§17-23 below (collectively “AYK Investments”). There is a dispute as to (1) whether the parties agreed to convert the net amount of $12,000,000 paid by AYK in respect of New Century into a loan; and (2) the amount invested in “Raton Property”. Subject to that, AYK and LL confirm, during cross-examination, that by the time Law finalised the document entitled “歐陽坤先生 – 借款予李林及入股於各公司” dated 25 August 2014 (“Investment Schedule”), they agreed to its contents. Accordingly, unless otherwise stated, where I refer to the amount paid by AYK in respect of a specific investment, it is based on the descriptions in the Investment Schedule. 17.First, 10/F, Viking Technology and Business Centre (維京科技商業中心) (“Viking Properties”) for which AYK paid an aggregate sum of $1,950,000 by way of 3 cheques dated 18 January 2013 ($100,000), 25 January 2013 ($170,000) and 21 March 2013 ($1,680,000). 18.Second, Workshops A, B and E on 10/F, Block 2 and carpark nos 7 and 27 on G/F of Kwai Tak Industrial Centre (葵德工業中心), Nos 15-33 Kwai Tak Street, Kwai Chung (collectively “Kwai Tak Properties”) in that:
19.Third, Units A3, A4, C2 and C4 on 12/F of Tuen Mun Industrial Centre, No 2 San Ping Circuit, Tuen Mun (collectively “TMIC Properties”) in that:
20.Fourth, Unit 6 on 2/F of Raton Industrial Building (利通工業大廈), No 4 Kin Wong Street, Tuen Mun (“Raton Property”) in that:
21.Fifth, Nice Inn Restaurant in Ping Shek Estate (坪石邨怡軒海鮮酒家) (“Ping Shek Nice Inn”) for which AYK paid an aggregate sum of $2,960,000 by way of 3 cheques dated 17 June 2013 ($640,000 and $2,000,000) and 11 September 2013 ($320,000). 22.Sixth, Good Fortune Seafood Restaurant (福囍酒家) which the parties later referred to as Nice Inn Restaurant in Chai Wan (柴灣怡軒海鮮酒家) (“Chai Wan Nice Inn”) for which AYK paid an aggregate sum of $900,000 by way of 2 cheques dated 26 April 2013 ($500,000) and 19 September 2013 ($400,000). 23.Seventh, Nice Garden Restaurant (怡苑海鮮酒家) (“Nice Garden”) and Golden Fortune Restaurant (金福酒家) for which AYK invested $400,000 by way of 2 cheques dated 26 April 2013 ($300,000) and 16 September 2013 ($100,000). 24.Through the introduction of AYK, on 20 March 2013, the 4 Friends invested an aggregate sum of $4,930,000 in the Viking Properties, Nice Garden, Ping Shek Nice Inn and Chai Wan Nice Inn (collectively “4 Friends Investments”) as follows:
A3. LL’s investment in 6 Pahsang Units 25.In January and February 2013, LL acquired Unit A2 on 1/F, Units A, B, C and D on 13/F and Unit B on 17/F of Pahsang Industrial Building (百勝工業大廈), No 16 San On Street, Tuen Mun (collectively “6 Pahsang Units”) in that:
A4. Meeting on 11 July 2014 and the Agreement 26.In the last quarter of 2013, the relationship between AYK and LL turned sour. In December 2013, AYK indicated to LL that he wished to withdraw all his investments and they began to negotiate on how to divide their investments. 27.On 11 July 2014, AYK and LL met in a VIP room at a spa in Shenzhen together with Yau, Law, Kwok, Leung and Leung Chi Kwan (梁志坤) (“Meeting”). The Meeting was tape-recorded by AYK and the contents of the transcripts are indisputable. 28.At the request of LL, Yau wrote down the points and emphasised that a “大綱” (framework) would be sufficient. In respect of each point, there were discussions between LL and AYK with comments made by Kwok, Law, Leung and Leung Chi Kwan. As and when LL and AYK agreed on a point, LL instructed Yau to write it down. The points agreed were:
29.After writing down the 5 points, at the request of LL, Yau read out what he had written and LL confirmed that they were correct[6]. LL then said he would return the deposits collected from the tenants of the Pahsang units to AYK, and AYK agreed that such deposits would be dealt with as part of the reconciliation (對數) process. If there was still an outstanding amount after reconciliation, LL would pay AYK $100,000 a month and cheques would be issued for such purpose. LL said if AYK had no problem, the matters agreed could not be changed. LL and AYK then signed as parties and the others present signed as witnesses[7]. 30.The Agreement stated as follows:
A5. Steps taken by parties in August 2014 31.Immediately after the Meeting, LL entrusted Law to deal with matters relating to the verification of the amounts invested by AYK and the 4 Friends based on copies of the cheques provided by AYK, the value of the 6 Pahsang Units and the corresponding amount of outstanding mortgage loans. After a few rounds of discussions between Law and AYK, with drafts being provided for review by LL and AYK, Law produced:
32.In the Reconciliation Schedule, the net amount payable by LL to AYK was stated as $3,315,794.40, which was derived from the following items:
33.AYK takes issue with the correctness of the Reconciliation Schedule on the basis that under the Agreement, LL was obliged to transfer all the 6 Pahsang Units to him, instead of 4 units. 34.Yau asked the staff of Bentleys to prepare the documents for the purpose of transferring the 5 Number Companies from LL and Mrs Lee to AYK. These included the bought and sold notes, instruments of transfer and Notices of Resignation of Company Secretary and Director (Form ND4) to be filed at the Companies Registry (collectively “Transfer Documents”). In mid-August 2014, Yau brought the Transfer Documents to LL and Mrs Lee for their consideration, and they both signed on the Transfer Documents. There is a dispute as to whether prior to LL and Mrs Lee signing the Transfer Documents, Yau gave an undertaking to LL that he would not pass the Transfer Documents to anyone before completion of the Agreement. 35.In the meantime, in view of the fact that AYK and LL had provided guarantees in favour of the banks as security for the mortgage loans taken out when the properties were acquired, AYK instructed his solicitors to prepare a draft 還款安排協議書 (“Repayment Agreement”) to formalise the arrangement with regards to such guarantees and loans. 36.On 25 August 2014, being the date suggested by AYK for completion of all the transfers under the Agreement, AYK met with Law trying to agree on the wordings of the Repayment Agreement but no agreement could be reached. 37.On 26 August 2014, AYK informed the 4 Friends that negotiations with LL had broken down and he would ask solicitors to issue demand letter to LL. AYK signed the Transfer Documents and instructed Bentleys to proceed with stamping the bought and sold notes and instruments of transfer and filing the relevant notices at the Companies Registry in respect of the change in directors, company secretary and registered office with effect from 27 August 2014. Since then, AYK has been the sole shareholder and director of the 5 Number Companies. 38.After LL had discovered the transfer of the 5 Number Companies to AYK, he called Yau and accused him of passing the Transfer Documents to AYK without his instructions. On 1 September 2014, LL and Law attended Bentleys’ office to look for Yau but to no avail. A6. Demands for completion of the Agreement 39.By letter dated 4 September 2014, Messrs KM Tang & Co (“KMT”), on behalf of AYK, stated that (“1st Demand Letter”):
40.In response, LL through Law informed AYK that he would only agree to complete and execute other agreements if AYK would first transfer the 6 Pahsang Units to LL. By letter dated 12 September 2014, KMT informed LL that AYK did not agree with LL’s proposal, but would give 7 days for LL to sign the transfer documents in respect of 2333 Limited or contact KMT to arrange an appointment for both parties to sign the transfer documents simultaneously. If LL failed to do either, AYK would treat LL as having acted in breach of the Agreement and would present the $12,000,000 cheque issued by LL in favour of AYK (“$12m Cheque”) as partial repayment of the amount which ought to have been returned to AYK (“2nd Demand Letter”). 41.By 2 letters dated 23 September 2014, KMT informed Messrs Ivan Tang & Co (“ITC”), solicitors for LL, that AYK would present the $12m Cheque for payment within 7 days and would attend the office of New Century to inspect its books and records on 9 October 2014. 42.Meanwhile, KMT on behalf of 7000 Limited issued a letter dated 3 October 2014 to LL to terminate the licence for occupation of Raton Property with effect from 3 November 2014, and required LL to deliver vacant possession on the same day (“Termination Notice”). 43.In their letter dated 21 October 2014, ITC replied to the 1st and 2nd Demand Letters in this way (“ITC’s 1st Letter”):
44.On the next day, by letter dated 22 October 2014 KMT stated that (“3rd Demand Letter”):
45.ITC did not reply to the 3rd Demand Letter. In KMT’s letter dated 28 October 2014, they confirmed that AYK remained “ready and willing [to] perform the obligations of the Agreement to execute the documents on 5th November 2014 as proposed” and had no objection to attend ITC’s office to execute the documents. Unless ITC provide their written reply by 31 October 2014, AYK would institute legal proceedings without further notice (“4th Demand Letter”). 46.In their 1st letter dated 31 October 2014, ITC replied to the Termination Notice that LL had always been the owner of Raton Property and that AYK had been holding the same on trust for LL (“ITC’s 2nd Letter”). ITC went on to say this:
47.In their 2nd letter dated 31 October 2014, ITC replied to the 3rd and 4th Demand Letters stating that (“ITC’s 3rd Letter”):
48.By letter dated 4 November 2014 KMT replied to ITC’s 2nd and 3rd Letters stating that (“5th Demand Letter”):
49.On the last day of the deadline imposed in the 5th Demand Letter, ITC in their letter dated 11 November 2014 stated that (“ITC’s 4th Letter”):
50.On 3 December 2014, AYK commenced HCA 2464/2014. LL commenced HCA 2473/2014 the next day. B. ISSUES 51.In view of the prolixity of the D&CC (which runs to 68 pages) and the apparent factual inconsistencies pleaded therein, at the PTR on 11 June 2020, this Court directed the parties to prepare and lodge an agreed list of issues to identify what are the real issues which require determination of the Court. However, in the Agreed Issues, counsel identified 44 issues which is most unhelpful. During trial, this Court reminds Mr Sit that in identifying what are the real issues, he has to take into account the facts which are no longer in dispute and the requirement that a party cannot plead or maintain inconsistent factual allegations in relation to a matter which is plainly within his knowledge[10]. 52.In the revised Agreed Issues submitted on 18 September 2020, counsel identified the following 13 issues:
53.In addition, there is an issue on the construction §4 of the Agreement (Construction Issue). I deal with each issue in turn. C. ANALYSIS OF ISSUES C1. Incomplete Agreement Issue 54.The contention that the Agreement is a preliminary or incomplete agreement is wholly devoid of merit. 55.First, it is clear from the extensive discussions during the Meeting that LL and AYK both knew and agreed that the Agreement set out a “framework” in respect of the assets to be transferred to the other, and LL and AYK would procure such assets to be transferred. LL and AYK knew that there were other investors who had interests in the assets to be transferred, and were content to proceed on the basis that it was their respective responsibility (and no one else) to procure the transfers of the assets in question. The fact that the Agreement did not spell out the obvious fact that (1) the Pahsang units were to be transferred to AYK, and (2) it was the responsibility of LL to transfer Kwai Tak Properties to AYK would not render the Agreement to become a preliminary or incomplete agreement. 56.This is reinforced by the conduct of LL and AYK after the Agreement (described in Section A5 above), which shows that both parties knew what assets were to be transferred to the other without any doubt or uncertainty. 57.Ms Wong relies on LL’s own evidence under cross-examination which, she says, shows that LL clearly understood the 6 Pahsang Units were to be transferred to AYK:
58.As regards Kwai Tak Properties, Ms Wong relies on LL’s evidence under cross-examination, which shows that the parties understood that Kwai Tak Properties were to be transferred to AYK and how the transfer should be made:
59.The above evidence of LL shows that (1) all along he intended to perform the Agreement and the parties only needed to carry out reconciliation of the value of the assets to be transferred against the total amount of the AYK Investments and the 4 Friends Investments; and (2) it was unnecessary for the parties to discuss how to transfer Kwai Tak Properties, as both parties knew that LL had to procure the transfer of Kwai Tak Properties to AYK. 60.Second, I do not agree that the Agreement is “silent” on how many Pahsang units are to be transferred to AYK. In §4 of the Agreement, the 6 Pahsang Units were mentioned. 61.Third, even after the parties’ relationship had turned sour and AYK issued the 1st to 5th Demand Letters requiring LL to perform his obligations under the Agreement, in ITC’s 1st, 3rd and 4th Letters, ITC acknowledged on behalf of LL that the parties could perform the obligations under the Agreement and that LL was ready, willing and able to perform the Agreement. This militates against any suggestion that the Agreement is a preliminary or incomplete agreement. C2. Additional Terms Issue 62.As regards the Oral Term (as formulated by LL), it can be seen from the following extracts of the transcripts that when AYK and LL used the word “simultaneous”, they were referring to the requirement that both parties would perform their obligations by signing the transfer documents prepared by their respective lawyers. There was no reference to the requirement that both parties would exchange the transfer documents simultaneously, as alleged by LL:
63.I do not agree with Mr Sit’s submission that AYK admits, under cross-examination, that it was an oral term of the Agreement that all the transfer documents were to be exchanged simultaneously. As Ms Wong submits, all that AYK says is that the term “simultaneous” (同步) was mentioned at the Meeting:
64.That the parties did not at the Meeting agree on the Oral Term is reinforced by the fact that when ITC responded to KMT’s suggestion (in 2nd Demand Letter) that LL should either sign the transfer documents in respect of 2333 Limited or contact KMT to arrange an appointment for both parties to sign the transfer documents simultaneously, they said “[o]ur client agrees that the respective clients should attend the office of a solicitors [sic] to sign the documents simultaneously” and said that “this was the intention when the Agreement was entered” (see ITC’s 1st Letter quoted in §43 above). 65.Similarly, in ITC’s 3rd Letter in response to KMT’s suggestion (in 4th Demand Letter) to execute the remaining transfer documents at the office of ITC, again ITC said the relevant documents were “intended to be executed by the respective clients simultaneously” (see §47 above). 66.There is no suggestion that the contents of ITC’s 1st and 3rd Letters are in anyway incorrect or that they were not based on the instructions of LL. These letters were written at the time when LL already had the benefit of legal advice and the parties were still trying to perform their respective obligations under the Agreement and, as such, should be taken as representing the true position. 67.For the above reasons, I hold that LL fails to discharge the burden of proving that the Oral Term formed part of the Agreement. 68.I turn to the Implied Terms, namely:
69.The requirements for implying a term in a written contract were stated by Lord Simons in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of Shire of Hastings (1978) 52 ALJR 20 at 26 (as applied in Kensland Realty Ltd v Whale View Investment Ltd (2001) 4 HKCFAR 381 at §59) in this way:
70.So far as the Authority Term is concerned, I do not think it can be implied into the Agreement as it is not necessary to give business efficacy to the Agreement. 71.First, as stated in §55 above, it was well known to AYK and LL that there were third parties’ interests in the assets to be transferred and the parties made the Agreement on the basis that it was their respective responsibility to procure the relevant assets to be transferred to the other. These included: (1) Kwai Tak Properties to be transferred to AYK in which Kong and Chow had interests; and (2) the restaurants[16] in which the 4 Friends had invested. 72.So far as the 4 Friends Investments are concerned, at the Meeting, AYK emphasised that it was him who had brought the 4 Friends into investing in the restaurants, and he was obliged to obtain return of their Investments as and when he withdrew his investments with LL. So long as LL repaid the amount invested by AYK and the 4 Friends, it was a matter for AYK to account for and return the amounts invested by the 4 Friends. This was the basis upon which LL agreed to “buy back” all the AYK Investments and the 4 Friends Investments[17]. 73.Second, it is not in dispute that the 4 Friends have never been registered as shareholders in any of the restaurants managed and controlled by LL. Under cross-examination, LL confirms that the 4 Friends made their investments through AYK and none of them has ever been registered as shareholder. He also confirms any investor may withdraw if another person is willing to take over his investment. This shows that the Agreement is effective without the Authority Term. Indeed, until ITC’s 4th Letter which was sent 11 days after LL had allegedly treated AYK as having repudiated the Agreement, both parties proceeded on the basis that the Agreement could be performed without the Authority Term. 74.Third, after the 4 Friends had been provided with a copy of the Agreement on 30 August 2014, none of them raised any objection to §4 which stated that AYK and his friends’ “shares” in the restaurants be transferred to LL in exchange for the payment to be made by LL. Further, at different times after the Meeting, the 4 Friends confirmed to AYK that they had made their investments through AYK and had all along been represented by him and that they did not have any right or standing to ask LL to return their investments. This can be seen from the following:
75.Having confirmed that AYK had authority to represent them in seeking return of their investment in the restaurants, it is not open to the 4 Friends to change their stance and contend that their investments were made in their own right or that AYK had no authority to obtain return of their investments in the restaurants. As a matter of fact, despite their knowledge of these actions, none of the 4 Friends have sought to be joined as a party or raised any objection to the relief sought by AYK. 76.I turn to the Agreed Amount Term. 77.By the time of the Meeting, AYK had already obtained copies of all the cheques evidencing the amounts invested by him and the 4 Friends and provided such copies to LL and Law, and LL knew the amounts involved[18]. During cross-examination LL says that:
78.It was with the above knowledge that AYK and LL came to agree on the terms of the Agreement. As LL puts it repeatedly during cross-examination, what properties were required to be transferred to AYK and him were very clear, the value of the properties were known to both parties and the amounts of loans repaid and outstanding could easily be ascertained. This confirms that the Agreement is effective without the Agreed Amount Term. 79.Further, by seeking to introduce the Agreed Amount Term, LL is in effect trying to re-write the Agreement by unilaterally creating a condition precedent never discussed or agreed between the parties. Such Term is contradictory to the express terms of §§1 to 4 of the Agreement, which required the properties to be transferred without the alleged condition precedent. 80.In short, the Agreed Amount Term cannot be implied into the Agreement as it is not necessary to give business efficacy to the Agreement and it contradicts §§1 to 4 of the Agreement. C3. Construction Issue 81.A hotly contested issue between the parties is whether under §4 of the Agreement, LL is obliged to transfer the 6 Pahsang Units to AYK irrespective of the result of reconciliation (as AYK contends) or whether LL is only required to transfer 4 units on 13/F, leaving a balance of $3,315,794.40 to be paid by LL to AYK as to $100,000 per month (as LL contends). Both counsel cross-examine AYK and LL extensively on this issue. In my view, such issue turns on the construction of §4 of the Agreement. 82.It is well established that when construing the express terms of the contract, one must have regard to the context and the surrounding circumstances known to both parties at the time the contract was made (Lo Yuk Sui v Fubon Bank (Hong Kong) Limited [2019] HKCA 261 at §29). However, the law imposes limits on both (1) the materials that inform the relevant context and surrounding circumstances, and (2) the extent to which such context and surrounding circumstances can affect the meaning of the express terms of the contract. 83.In relation to the materials that inform the relevant context and surrounding circumstances of a contract, statements made in the course of pre-contractual negotiations are inadmissible for the purpose of drawing inferences of what the contract meant (Jumbo King Ltd v Faithful Properties Ltd & Ors (1999) 2 HKCFAR 279 at 296G-I, per Lord Hoffmann NPJ). However, pre-contractual negotiations may be looked at for the purpose of establishing an objective facts known to both parties at the time of making the contract (Chartbrook Ltd v Persimmon Homes Ltd [2009] 1 AC 1101, at §§38, 42, per Lord Hoffmann). 84.As to the extent to which context and surrounding circumstances can bear upon the meaning of the express terms of a contract:
85.As stated above, the Agreement was made during the Meeting and was intended to serve as a framework for AYK to exit from all the investments he had made with LL. At the Meeting, the parties said this:
86.It can be seen from the above discussions that it was the common intention of both parties, and subsequently agreed by them, that the actual number of Pahsang units required to be transferred from LL to AYK would depend on the result of reconciliation between the value of the units (i.e. $1,500 psf times the size of the units less the amount of outstanding loans in respect of such units) (“Net Value”) and the amount invested by AYK and the 4 Friends, and AYK would first take the larger unit, follow by the smaller units until the value reached the aggregate amount of the AYK Investments and the 4 Friends Investments. 87.In construing the meaning of “李林用百勝工業大廈1/F, (1 單位)，13/F (4 個單位), 17/F (1 單位) 作價1,500 / 呎包括 (Stamp Duty) 作對數酒樓的股份” in §4 of the Agreement, it is necessary to take into account the above objective facts and the net value of Kwai Tak Properties to be transferred to AYK under §1 of the Agreement, having regard to the wordings in the latter part of §4 which state that “如有餘款再作以上之不足之數”. 88.In my view, §4 of the Agreement, properly construed, requires the parties to do the reconciliation in a manner akin to the Reconciliation Schedule, which shows that LL is required to transfer the 4 units on 13/F in Pahsang and Unit A2 on 1/F, being the unit with a larger size, to AYK. If there is any surplus, it shall be repaid by AYK to LL. C4. Condition Precedent / Subsequent Issue 89.The alleged condition precedent or subsequent is no more than a different label put to the Oral Term and the Implied Terms in support of LL’s argument that the Agreement came to an end upon the alleged breach of such Terms. In view of my holding that the Agreement is not subject to the Oral Term and Implied Terms, the issue does not arise for consideration. 90.In any event, I do not think that there is any basis for LL to castigate the transfer of the 5 Number Companies to AYK as “misappropriation”. It is not in dispute that LL and Mrs Lee signed the Transfer Documents pursuant to §4 of the Agreement. AYK was entitled to have the 5 Number Companies transferred to him and took the corresponding responsibilities as their shareholder and director following the transfers. The allegation that by completing the formalities associated with the Transfer Documents AYK was misappropriating the 5 Number Companies is vexatious and should never have been made. 91.As will be discussed in Section C7 below, the reason why the other properties could not be transferred in accordance with the Agreement was due to LL’s refusal to comply with the 1st to 5th Demand Letters, which provided 5 opportunities for LL to perform his obligations under the Agreement. C5. Repudiation Issue 92.As the alleged breach is premised on LL’s contention that the Oral Term and the Implied Terms formed part of the Agreement, which I do not think is the case, the issue does not arise for consideration. 93.In any event, I do not accept Mr Sit’s contention that LL is entitled to claim $515,700, being the stamp duty paid when workshop E and carpark no. 27 of Kwai Tak Industrial Centre was assigned from Comforthome to 2333 Limited on 3 May 2016 for $6.9 million. No submission is made to explain why the workshop had to be assigned from Comforthome to 2333 Limited or why the stamp duty associated with the assignment can be said to be a loss caused by AYK’s repudiation of the Agreement. C6. Representation Issue and False Representation Issue 94.In the D&CC, the alleged Representation is pleaded in §26(b) as part of the oral terms allegedly agreed during the discussions at the Meeting. In §29 of the D&CC, there is an alternative plea that the same Representation constitutes a representation relied upon by LL in entering into the Agreement. It has not been explained by Mr Sit as to how the same Representation could constitute a representation made prior to the Agreement and, at the same time, formed a term of the Agreement. 95.Nevertheless, the burden is on LL to adduce evidence in support of his allegation that AYK made the alleged Representation and that LL relied on such Representation in entering into the Agreement. In his closing, Mr Sit is unable to identify any evidence in support of the allegation that AYK made a representation to LL to the effect that “he [had] already been authorised by the [4 Friends] to sell their said interest”. Instead, Mr Sit resorts to an assertion, made for the first time in his closing, that AYK “effectively made an implied representation that ‘he [had] already been authorized by the 4 friends to sell their said interest’ on 11 July 2014”. It is not open to Mr Sit to raise a new allegation which has never been pleaded, particularly when such allegation is contradictory to LL’s pleaded case that the Representation was allegedly made during the Meeting. 96.For completeness, in case these actions go further, I set out the facts and matters which show that the alleged Representation was never made by AYK, and LL did not rely on the alleged Representation in entering into the Agreement:
97.The allegation that AYK made the Representation fraudulently or recklessly is wholly without basis and should never have been made. C7. 2333 / Comforthome Issue 98.It is not in dispute that despite repeated demands made by AYK through the 1st to 5th Demand Letters, LL refused to execute any documents for the purpose of transferring 2333 Limited and Comforthome or Kwai Tak Properties to AYK. This constituted a breach of §1 of the Agreement. I hold that the date of the breach was 11 November 2014, which was the time limit specified in the 5th Demand Letter for the parties to attend the office of ITC to execute the remaining transfer documents at the same time (see §48 above). 99.I do not accept LL’s allegation that AYK failed to execute the documents for the purpose of transferring 7000 Limited and New Century to LL. It was clearly stated in the 1st to 5th Demand Letters that AYK had already prepared and signed the documents to transfer the shares in 7000 Limited and New Century to LL and the only outstanding documents which awaited LL’s execution were the transfer documents in respect of 2333 Limited and Comforthome. Had LL complied with the 5th Demand Letter and signed the transfer documents in respect of 2333 Limited and Comforthome within the time limit imposed (there is no suggestion that the time limit was unreasonable or could not have been complied with), the Agreement could have been performed by both parties on 11 November 2014. 100.Once LL executed the remaining transfer documents, the parties could have proceeded to finalise the reconciliation between the value of the properties transferred to AYK and the total amount of the AYK Investments and the 4 Friends Investments. This would have been a simple matter, given that the Reconciliation Schedule had already been prepared by 25 August 2014 (see §32 above), and only the outstanding loans owed by the 5 Number Companies to the banks required to be updated. C8. Return of Investment Issue 101.In the SOC, it is pleaded that:
102.Insofar as the claim is based on the Investment Agreement, it must fail as AYK has not adduced any evidence in support of the Investment Agreement. 103.As regards the NC Loan Agreement, at trial, it is no longer in dispute that amongst the AYK Investments, $15 million had been invested in New Century and LL repaid $3 million to AYK, leaving a balance of $12 million. 104.The following evidence shows that AYK and LL did enter into the NC Loan Agreement in mid-July 2013:
105.As it is common ground that the parties subsequently entered into the Agreement to settle all their disputes, including AYK’s investment in New Century (and the conversion of the amount into a loan), it is unnecessary to grant any relief in respect of the NC Loan Agreement. 106.Ms Wong does not pursue the “trust” claim or the unjust enrichment claim, and no submission is made on either cause of action. Mr Sit submits that as the AYK Investments were not received by LL, there is no basis to claim unjust enrichment. As the claim has been abandoned, nothing further needs to be said. 107.Lastly, in respect of the alternative claim, Ms Wong submits that in view of the clear intention of both parties to end their joint investments by July 2014, and LL’s acceptance that he would return all the AYK Investments and the 4 Friends Investments to AYK, if the Agreement is held to be not binding, AYK is entitled to obtain the return of $27,765,157.50 from LL. I am unable to accept this submission. Unless and until a valid basis has been pleaded and proved which entitles AYK to obtain return of the AYK Investments and the 4 Friends Investments, there is no basis for AYK to require LL to repay either of the Investments to him. The parties will have to continue to remain as co-investors in the business and real properties in which AYK has invested. C9. New Century Issue 108.LL’s claim that AYK only acquired 25% interest in New Century is incredulous, as AYK admittedly invested $15 million in acquiring New Century. Pursuant to the NC Loan Agreement, LL only repaid $3 million to AYK, leaving $12 million unpaid. 109.In his closing, Mr Sit does not pursue the claim that AYK holds 75% of the shares in New Century on resulting and/or constructive trust for LL (as pleaded in §§10(h) and 80 of D&CC). Instead, Mr Sit relies on the NC Loan Agreement and AYK’s “admission” in §20 of R&DC that he does not hold beneficial interest in the shares in New Century and submits that AYK holds all the shares in New Century on trust for LL. I do not think §20 of R&DC contains an admission that AYK holds the shares in New Century on trust for LL. 110.The mere fact that AYK and LL entered into the NC Loan Agreement did not create a trust. Nor did it create a fiduciary relationship between AYK and LL in respect of the shares in New Century. This accords with the principle, as submitted by Ms Wong in her opening, that mere separation of legal and equitable ownership does not without more result in a fiduciary relationship or create a trust (R v Chester and North Wales Legal Aid Area Office (No 12) [1998] 1 WLR 1496 at 1500H, per Millett LJ (as he then was)). 111.As Mr Sit makes no submission on how and in what circumstances the alleged trust or fiduciary relationship arose, there is no basis for LL to claim that AYK holds the shares in New Century on trust for LL. 112.In any event, as the parties have subsequently settled all their disputes including the shares in New Century by entering into the Agreement, which I find to be binding upon the parties, no relief will be granted in favour of LL even if, contrary to my view, AYK is holding the shares in New Century on trust for LL. C10. Breach of Fiduciary Duties Issue 113.In §§43 and 81 of D&CC, it is pleaded that:
114.Mr Sit submits that where a shareholder holds shares as a bare trustee for a third person, he is obliged to exercise his voting power in the way the beneficiaries desire (Kirby v Wilkins [1929] 2 Ch 444). In his closing, Mr Sit contends that if AYK fulfilled his duties by exercising his voting power and appointing LL as a director of New Century as his replacement or simply returning the shares in New Century to LL, LL would have been able to re-mortgage the TMIC Properties to a bank and retire the LSH Loan. AYK should be liable to compensate LL for the extra interest paid by him. 115.The claim must fail, given that LL has abandoned his claim that AYK holds 75% shares in New Century for LL and has failed to discharge the burden of proving that AYK holds the shares in New Century on trust for LL. 116.Even if a trust arose at the time of the NC Loan Agreement (which has not been established), LL still has to prove that AYK came under the duty alleged to have been owed to LL. No attempt has been made to address, let alone proved this issue. 117.In any event, there is no evidence to suggest that LL has requested AYK (1) to return the shares in New Century, be it 75% or 100%, or (2) to exercise his voting power by appointing LL as a director in place of AYK. This is unsurprising, given that LL has not repaid the entire $15 million pursuant to the NC Loan Agreement or performed all his obligations under the Agreement. It is also difficult to see how AYK can be said to have acted in breach of his fiduciary duties when it is common ground that the LSH Loan was taken out by LL for his personal purpose and the same was never used for the purpose of New Century. As AYK was (and still is) a director of New Century, it is his duty to ensure that the assets of New Century, including the TMIC Properties, are used for the proper purpose of New Century, rather than for the personal purpose of LL. Thus, even if, contrary to my view, AYK owed fiduciary duty to LL, I do not think that AYK acted in breach of his duty as he was justified in not complying with LL’s instructions which involved misapplication of New Century’s assets for the personal purpose of LL. C11. 7000 / Raton Issue 118.The claim that 7000 Limited is holding Raton Property on resulting trust for LL is misconceived.
119.In his closing, Mr Sit relies on “the presumption of resulting trust” to claim beneficial interest in Raton Property on the basis that LL never intended to gift it to 7000 Limited. It is not open to Mr Sit to run a new case which has never been pleaded. 120.As regards the claim that AYK is holding the shares in 7000 Limited on trust for LL, as pleaded in the D&CC, LL relies on the same matters described in §118(1) above.
121.In his closing, Mr Sit tries to expand LL’s case by making 2 new allegations: (1) it is LL’s case that “it was the common intention of AYK and himself that AYK shall hold the shares in 7000, which was used to acquire the Raton Property, on LL’s behalf”; and (2) any contributions made by AYK with his own monies would simply be contributions made on behalf of LL. Again, neither allegation has been pleaded and it is not open to Mr Sit to run yet another new case in closing. 122.For the above reasons, the claim in respect of Raton Property and the shares in 7000 Limited fails. C12. 5 Number Companies Issue 123.In §§39-40 and 74 of the D&CC, the claim is pleaded as a “fraud” or misappropriation of the shares in the 5 Number Companies as follows:
124.This represents a fundamental departure from LL’s case as pleaded in his (original) Defence dated 11 February 2015, where it was alleged that Yau acted in breach of his undertaking not to release the Transfer Documents to AYK before simultaneous exchange of all the transfer documents on completion, as follows:
125.In his opening, Mr Sit relies on a passage in Westdeutsche Landesbank Girozentrale v Islington London Borough Council [1996] AC 669 at 715H-716D, where Lord Browne-Wilkinson explained that where property is obtained by fraud, equity imposes a constructive trust on the fraudulent recipient and the property is recoverable and traceable in equity. 126.In his witness statement, LL says that when Yau gave him the Transfer Documents for his signature, he told Yau not to pass the Transfer Documents to AYK before completion and was assured by Yau that he would not do so[21]. However, AYK and Yau reneged their promises made to LL (“雙雙背棄了對我作出的承諾”) by stealing the 5 Number Companies from him. 127.Under cross-examination, it is put to AYK that the unilateral transfer of the 5 Number Companies would be problematic in view of the Oral Term. It is not put to AYK that his act in putting the Transfer Documents into effect constituted a “fraud, theft and/or deceit” or that it was done dishonestly. AYK says that he put the Transfer Documents into effect to protect his interests, given that LL had refused to complete the Agreement on 25 August 2014, and he did not inform LL about the stamping as his solicitors and Yau had been liaising with LL. I am unable to see how AYK’s act can be said to be dishonest. 128.In his closing, Mr Sit submits that:
129.The allegations that the transfer of the 5 Number Companies to AYK constituted a “fraud, theft and/or deceit” or that it was done dishonestly are wholly without merit. 130.First, there was nothing improper, let alone dishonest, for AYK to put the Transfer Documents into effect on 27 August 2014, given that:
131.Second, it is difficult to see how the same facts surrounding the transfer of the 5 Number Companies, which were known to LL and ITC at the material times, could undergo such substantial changes, from a transfer in accordance with §4 of the Agreement (in correspondence), then evolved into a transfer made in breach of Yau’s undertaking and the Oral Term (in Defence), subsequently to a “fraud, theft and/or deceit” (in the D&CC), then to a breach of assurance and promises made by Yau and AYK (in LL’s witness statement) and finally, a transfer inconsistent with the “prior understanding” allegedly reached between AYK and Law, without the authority of LL and constituted an appropriation made by AYK dishonestly. The changes in the allegations are glaring and no attempt has been made by LL or Mr Sit to explain their inconsistencies. I have no hesitation in rejecting the allegations. C13. Yau Issue 132.The claim against Yau, as pleaded in §§34, 45, 75-77 of the D&CC, is one for breach of duty of care and skill and fiduciary duty in that:
133.Yau denies that he gave the alleged undertaking to LL or that he owed any duty to LL, given that LL was at all times represented by his own lawyers. 134.Other than an assertion that Yau owed a duty of care and skill to LL when the received the signed Transfer Documents from LL, Mr Sit has not articulated any basis for contending that Yau owed such duty to LL. 135.In any event, I am not satisfied that LL discharges the burden of proving that Yau owed the alleged duty of care to him. 136.First, no such allegation was made in any of ITC’s Letters. Had Yau given the alleged undertaking, ITC would have said so in the ITC’s 1st to 4th Letters where they addressed the transfer of the 5 Number Companies. 137.Second, the account given in the witness statements of LL, Mrs Lee and Law on what was allegedly said by LL and Yau at the time when the Transfer Documents were signed are inconsistent with one another and inconsistent with the case pleaded in §34 of the D&CC. In any event, the statements alleged to have been said by Yau do not amount to voluntary assumption of responsibility by Yau to keep the Transfer Documents on behalf of LL pending completion of the Agreement:
138.Third, I accept Yau’s evidence that he did not give the alleged or any undertaking to the effect that he accepted the responsibility of keeping the Transfer Documents until completion. There was no reason for Yau to give such undertaking at the time when LL was still contemplating to complete the Agreement. I also accept Yau’s evidence that it was his usual practice to pass any transfer documents to the company secretary department of Bentleys for their handling, and he followed such practice in respect of the Transfer Documents. He did not pass the Transfer Documents to AYK or caused the Documents to be stamped as it was not within his responsibility to do so. 139.As regards the alleged fiduciary duty, I am unable to see how the alleged undertaking, even if made out, can give rise to a fiduciary duty owed by Yau to LL. 140.It seems to me that even if the alleged duty is made out, it has not been demonstrated by LL that he suffered the alleged loss or that such loss was caused by the breach of duties on the part of Yau. Rather, it was the result of LL’s own decision in not completing the Agreement pursuant to the 1st Demand Letter. D. Disposition 141.For the reasons set forth above, I hold that:
142.LL’s counterclaim is dismissed. 143.As regards AYK’s primary claim for specific performance of the Agreement, it has not been suggested by Mr Sit that there is any matter which renders specific performance to become impossible or inappropriate. It is appropriate to make an order that the Agreement be specifically performed and carried into execution. 144.In view of the time gap between the date of the Agreement and this Judgment during which both parties have made repayments on the mortgage loans in respect of the properties concerned and have benefitted from the use of the properties or received rental income generated by the properties under their respective control, I order an account to be taken of the rents and profits received by AYK and LL (or by any other persons or entities on their behalf or by their order) in respect of the properties required to be transferred under the Agreement, and the amounts of mortgage loans in respect of the properties repaid by them. 145.I direct the parties to try to agree on the directions on the taking of account and submit the same to the Court within 14 days of this Judgment. If no agreement is reached, AYK and LL do lodge their respective proposed directions together with explanatory submissions within 7 days thereafter. 146.The parties be at liberty to apply to the Court for the purpose of executing or carrying into effect the terms of Order and for directions on the account. 147.As for costs, I make a costs order nisi that LL do pay the costs of and occasioned by the 2 actions to AYK and Yau (in respect of HCA 2473/2014) on a party and party basis, to be taxed if not agreed. This reflects the fact that:
Ms Catherine Wong and Mr Peter Chiu, instructed by K M Tang & Co, for the plaintiff (By Original Action) and the 1st, 2nd, 5th – 9th defendants (by Counterclaim) Mr Bache Sit, instructed by Ivan Tang & Co, for the defendant (By Original Action) and the plaintiff (by Counterclaim) The 3rd and 4th defendants (by Counterclaim) did not appear [1] [D/113-116, 127] [2] [D/120-127] [3] [D/130-131] [4] [D/134] [5] [D/132,136] [6] [D/134-135] [7] [D/136] [8] Mistakenly stated as “4”. For ease of reference, it is re-numbered as “5” [9] Amounts invested by AYK was $3,693,407.50; LL was $1,364,300; Chow was $3,977,955.34 and Kong was $3,315,157.50. Under cross-examination, AYK does not dispute these amounts and emphasizes that he only disputes the number of Pahsang units to be transferred to him, which he says should be 6 units, instead of 4 units [10] See Order 18 rule 12A of Rules of the High Court, and the editor’s note at §18/12A/1, Hong Kong Civil Procedure 2021, p 503 [11] §8 of the Agreed Issues adopts the figure used in the SOC (i.e. $25,913,407.50). However, it is common ground that LL already repaid $3 million to AYK and, as such, AYK is only entitled to claim the amount equivalent to the AYK Investments (i.e. $22,913,407.50). [12] [D/109] [13] [D/114] [14] [D/114] [15] [D/115] [16] The Viking Properties were not mentioned at the Meeting, and both AYK and LL treated the amounts invested by the 4 Friends as their investment in the restaurants. Although in the Investment Schedule, Ka Yee was stated to have invested $1,650,000 in the Viking Properties, there is no suggestion by any party, whether at the Meeting or in the WeChat messages between AYK and the 4 Friends that this $1,650,000 should be treated as Ka Yee’s investment in Viking Properties, as opposed to her investment in restaurants. [17] See Transcripts at [D/116-124] [18] Evidenced by AYK asking Law to pay him $950 as photocopying charges [D/131] [19] The correct figure should be $4,930,000, i.e. the 4 Friends Investment [20] See §§11(c), (d), (h), (i), 78-78A of D&CC [21] §39 of LL’s WS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Further hearings and rulings under HCA 2464/2014