Luen Ming Supreme Fabricator Co Ltd and Another v. Ng Chi Wah and Another
Read the full judgment text of HCA 2593/2017 on BabelCite. This High Court CFI judgment was delivered on 4 June 2021.
1. The Plaintiffs claim that they were induced, by fraudulent misrepresentation, to enter into an agreement with various business partners to use the 2nd Defendant (“ SSHK ”) as a corporate vehicle for the holding of the curtain wall business conducted by the Plaintiffs and the 1st Defendant, and to inject funds into the business. They also complain of breaches of the agreement. They seek to rescind the agreement and to obtain restitution of the funds invested into the business, and an award of
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HCA 2593/2017 [2021] HKCFI 1501 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2593 OF 2017 ____________________
____________________ Before: Madam Recorder Yvonne Cheng SC in Court Date of Hearing: 28 April – 5 May 2021 Date of Judgment: 4 June 2021 ________________________ JUDGMENT ________________________ A. INTRODUCTION 1.The Plaintiffs claim that they were induced, by fraudulent misrepresentation, to enter into an agreement with various business partners to use the 2nd Defendant (“SSHK”) as a corporate vehicle for the holding of the curtain wall business conducted by the Plaintiffs and the 1st Defendant, and to inject funds into the business. They also complain of breaches of the agreement. They seek to rescind the agreement and to obtain restitution of the funds invested into the business, and an award of damages. B. THE FACTS 2.Unless otherwise indicated, the following facts are not disputed. B1. The Business Partners and the inception of the Business 3.In late 2014 or early 2015, Mr Leung Tze Yin (“Mr Leung”), Mr Chan Chun Man (“Mr Chan”), Mr Yau Pak Sum (“Mr Yau”) and the 1st Defendant Mr Ng Chi Wah (“Mr Ng”) agreed to set up a business to manufacture curtain wall components (“the Business”) (“collectively, the Business Partners”[1]). There was some uncertainty as to whether a Mr Tan Shujin (“Mr Tan”), who was Mr Ng’s business associate and a joint owner and director of SSHK with Mr Ng, was formally one of the Business Partners or not. He attended most of the minuted meetings of the Business Partners, but Mr Ng’s evidence was that Mr Tan participated indirectly in the Business through SSHK rather than as a Business Partner in his own right. 4.Mr Leung worked in the curtain wall industry. He was the beneficial owner of, and controlled, the 1st Plaintiff, Luen Ming Supreme Fabricator Company Limited (“LM Ltd”). He was also in charge of Goldenwall Engineering Limited (“GE Ltd”). Both LM Ltd and GE Ltd were engaged in the glass curtain wall engineering business. The intention was for both GE and LM to be customers of the Business. 5.Mr Chan played golf with Mr Leung and Mr Ng. He is the husband of the 2nd Plaintiff Uy Maria Luisa Galvez (“Mrs Chan”), who was the nominee for Mr Chan’s interest in the Business. 6.Mr Ng worked in the construction industry and met Mr Leung through a construction project. They started playing golf together since 2000. 7.Mr Tan was a building contractor in mainland PRC and met Mr Ng in 2000. Mr Ng says that Mr Tan invited him to join forces to carry out real estate development in Zhaoqing. In 2011, they incorporated SSHK in Hong Kong and became its shareholders and directors. They also incorporated 信成(肇慶)置業有限公司 (“Shun Sing ZQ”), a Taiwan Hong Kong Macau legal entity-owned limited liability company registered under PRC law, which was wholly owned by SSHK. Mr Ng was the legal representative of Shun Sing ZQ. 8.Mr Yau was the other Business Partner who also had knowledge of, and experience with, the curtain wall business (in addition to Mr Leung); Mr Chan, Mr Ng and Mr Tan did not. Mr Yau owned Henry Yijian Holdings Ltd (“Henry Yijian”). 9.In late 2014, Mr Leung entered into a tenancy agreement for the leasing of agricultural land in Huizhou on the mainland, intended to be used for setting up the factory for the Business. It would later transpire that the permitted use of the land could not be changed to accommodate a factory. B2. The 1st Shareholders’ Meeting on 13 January 2015 10.The Business Partners held a number of meetings in 2015 and 2016, which were minuted by Mr Ng and described as “shareholders’ meetings”. The minutes were circulated to the Business Partners shortly after the meetings. Both parties say that certain matters were not documented in the minutes. 11.The first meeting was held on 13 January 2015. The attendees included Mr Leung, Mr Chan, Mr Ng, Mr Tan and Mr Yau. Amongst other things, the minutes recorded that the Business Partners agreed that they would set up three companies for the operations of the Business:
12.The names which they discussed for the latter two companies were subsequently amended at the 2nd Shareholders’ Meeting. 13.The Business Partners also agreed that the shares in the Business would be held as follows:
B3. The 2nd Shareholders’ Meeting on 26 February 2015 and subsequent events 14.Mr Leung says that by about mid-February 2015, he learnt that the owner of the agricultural land in Huizhou had been unable to obtain a permit for a change of land use, so that the plan to build a factory in Huizhou could not proceed. Time was getting tight for the establishment of a factory for the Business as GE Ltd had certain deadlines to meet. 15.Mr Leung came to know that a Mr Jiang Cai Feng (“Mr Jiang”), the owner of 鑫盈裝飾材料有限公司 (“YY Ltd”) in Zhaoqing, had some factory workshops available for lease. On 26 February 2015, Mr Leung, Mr Chan, Mr Ng and Mr Tan went to inspect the workshops, and afterwards, Mr Leung expressed the view that they were suitable to be restructured to manufacture curtain wall components. 16.It was agreed to lease the workshops for setting up the factory for the Business. The Business Partners held their second shareholders’ meeting on the same day, in Mr Jiang’s office. The attendees included Mr Leung, Mr Chan, Mr Ng, Mr Tan, and a Mr Xiao Zhiyun (who, it was agreed at the meeting, would be representing Mr Yau’s interest in the Business). 17.The Business Partners had further discussions about the three companies which were to be set up to conduct the Business, and agreed on the names for the companies. The Intended Holding Company was to be named “聯盈控股有限公司” (“UCD Holdings”). The name of the Hong Kong company taking orders remained unchanged from what was decided at the 1st Shareholders’ Meeting, namely “聯盈金屬有限公司” (“UCD HK”). The Intended PRC Company was to be named “聯盈金屬(肇慶)有限公司” (“UCD ZQ”). They further unanimously agreed that “to save time”, the name and registered address of the “current Shun Shing”, that is, SSZQ, would be changed to聯盈金屬(肇慶)有限公司 (that is, UCD ZQ). 18.At this meeting, the Business Partners also agreed:
19.The key factual disagreement in this case relates to what, if anything, was discussed and agreed as to the use of SSHK and SSZQ (as renamed to UCD ZQ) at this meeting, and why. Essentially, the Plaintiffs say that Mr Ng made a representation, which turned out to be false, that the companies had no operations, assets or liabilities, so that they could be used for the Business, and they would be unconditionally transferred to the Business Partners for this purpose. The Defendants deny that any such representation was made and say that it was only agreed that SSZQ would be lent temporarily to the Business for use. 20.On 1 April 2015, the Zhaoqing authorities approved the application to change the name of SSZQ to UCD ZQ, and its business scope to the processing, production and sales of stainless steel decoration, steel structures, and glass curtain wall units. 21.On the same day, UCD ZQ entered into a tenancy agreement with YY Ltd for the lease of its workshops, for a term of five years. These became the factory for the Business (“the Factory”). 22.On 17 April 2015, a company bearing the name 聯盈金屬有限公司 (in Chinese) and United Curtainwall Design and Manufacturing Limited (in English) – that is, UCD HK – was incorporated in Hong Kong. This was to be the company which conducted sales and marketing for the Business. Mr Danny Fu Kam Fung (“Mr Fu”), a director of and shareholder in GE Ltd, was appointed as the director. 23.On 20 April 2015, shares in UCD HK were allotted, resulting in ownership as follows:
B4. The 4th Shareholders’ Meeting on 5 September 2015 and subsequent events 24.The fourth meeting was held on 5 September 2015. The attendees were Mr Leung, Mr Chan, Mr Ng, Mr Tan, and Mr Yau. 25.At this meeting, it was also decided that Mr Chan and Mr Fu should join the board of directors of UCD ZQ. 26.On 10 September 2015, the Business started receiving income. As Mr Chan agreed in his testimony, UCD HK could not receive the income as it had no bank account. It is common ground that UCD HK was unable to open a bank account because its shareholders were corporate entities, and that on the advice of the bank, LM Ltd, Henry Yijian and SSHK transferred their shares in UCD HK to Mr Fu, Mr Yau and Mr Leung respectively on 10 September 2015. 27.UCD HK was finally able to open a bank account on 14 December 2015. Mr Chan agreed in his testimony that the reason why the receipts of the Business were paid into the bank account of SSHK between 10 September 2015 and 14 December 2015 was because UCD HK’s bank account had not yet been opened during this period. 28.On 13 October 2015, there was a transfer of shares in SSHK as follows:
29.The shareholders in SSHK therefore became:
30.The parties’ shares in SSHK were therefore proportionate to their shares in the Business. B5. The 5th Shareholders’ Meeting on 14 December 2015 and subsequent events 31.The fifth meeting was held on 14 December 2015. The attendees were Mr Leung, Mr Chan, Mr Ng, Mr Tan, and Mr Yau. 32.The minutes of the meeting documented the agreement between Mr Leung and Mr Ng in November or December 2015 that LM Ltd would sell half of its interest in the Business to SSHK for HK$2m. LM Ltd’s stake in the Business would fall from 40% to 20%, whereas SSHK’s stake would rise from 20% to 40%. The HK$2m was subsequently settled by Mr Ng injecting the amount into UCD HK on Mr Leung’s behalf in December 2015. 33.It was also agreed at the meeting that a further capital injection of HK$5m would be made by the Business Partners, in proportion to their respective shareholdings in the Business. 34.On 16 December 2015, Mr Ng was appointed as a director of UCD HK. B6. The 6th Shareholders’ Meeting on 5 February 2016 and subsequent events 35.The sixth meeting was held on 5 February 2016. The attendees included Mr Leung, Mr Chan, Mr Ng, Mr Tan, and Mr Yau. 36.At this meeting, the Business Partners agreed that the HK$5m discussed at the previous meeting should be provided by way of a shareholders’ loan rather than a capital injection. 37.Mr Ng also reported that UCD HK’s account with Bank of China had been opened, so that the transfer of its shares could be carried out. After the transfer of shares the interests in UCD HK would be SSHK 40%, LM Ltd 20%, Henry Yijian Facade Limited 20%, and Mrs Chan 20%; on the other hand, SSHK shares would be transferred back to Mr Ng (50%) and Mr Tan (50%). The minutes further recorded that the holding of the Factory would be operated by agreement. There is a dispute as to what this portion of the minutes means. 38.On 29 March 2016, Mr Leung, Mr Chan and Mr Yau transferred the shares which LM Ltd, Mrs Chan and Henry Yijian held on their behalf back to Mr Ng and Mr Tan, at nil consideration, in accordance with the agreement of 5 February 2016. There is a dispute as to why this transfer took place. The Plaintiffs say that they did this because (1) Mr Ng had revealed that SSHK in fact held two mortgaged properties, contrary to what he had previously represented to the Business Partners, and (2) he had undertaken to cause SSHK to transfer its shares in UCD ZQ to UCD HK so as to make UCD ZQ the wholly-owned subsidiary of UCD HK. The Defendants deny this. 39.In about April 2016, Mr Yau agreed to sell half of his 20% interest in the Business to Mr Chow. B7. The 7th Shareholders’ Meeting on 14 April 2016 and subsequent events 40.The seventh meeting was held on 14 April 2016. The attendees were a Mr Chen Huaxia (representing Mr Leung), Mr Chan, Mr Ng, Mr Tan, Mr Yau and Mr Chow. 41.One of the matters which Mr Ng reported at the meeting was that the Factory had no money to fund its operations. He asked the Business Partners to provide funds to enable the factory to continue operating. 42.There was also discussion of the amounts owed to the Business by LM Ltd and GE Ltd, which were major customers of the Business. 43.On 26 April 2016, the shares in UCD HK were transferred back as follows:
B8. The 8th Shareholders’ Meeting on 22 May 2016 44.The eighth meeting was held on 22 May 2016. The attendees were Mr Chen Huaxia (representing Mr Leung), Mr Chan, Mr Ng, Mr Tan, Mr Yau and Mr Chow. 45.Mr Ng reported that the Factory had no money at all to fund its operations. He appealed again to the Business Partners to put forward feasible financial arrangements to enable the factory to continue to operate. Again, there were discussions regarding the debts owed by GE Ltd to the Business. B9. The 9th Shareholders’ Meeting on 4 June 2016 46.The ninth meeting was held on 4 June 2016. The attendees included Mr Chan, Mr Ng, Mr Tan, Mr Yau, and Mr Chow. Mr Leung did not attend, but a Mr Sham Wai Keung, the company secretary of LM Ltd and GE Ltd, and a director and shareholder of GE Ltd, did. 47.It was agreed that the HK$1m loan from LM Ltd would be used as payment for GE Ltd’s outstanding debt to the Factory. 48.In about June 2016, Mr Xiao Ruhua ceased to be the general manager of UCD ZQ, and Mr Ng was appointed in his place. B10. The 11th Shareholders’ Meeting on 5 November 2016 and the deterioration in the Business Partners’ relationship 49.There is some dispute as to whether the meeting on 5 November 2016 was the eleventh one or whether there was a meeting prior to that on 30 July 2016, for which no minutes were produced. For present purposes the meeting on 5 November will be referred to as the 11th Shareholders’ Meeting. Mr Leung’s son attended as the representative of Mr Leung and Mr Chan. Mr Ng, Mr Tan, Mr Yau and Mr Chow also attended. 50.The minutes indicate that there continued to be discussion about the financial problems of the Factory, and debts owed by GE Ltd. Mr Ng agreed that his monthly salary (as general manager) should be cancelled. 51.The Business Partners’ relationship had been deteriorating, and continued to do so after the meeting. Various accusations were made against Ng, including that he was refusing the business offered by LM Ltd to the Factory, that he sought to transfer staff of the Factory to his private company, and that he had caused incorrect financial reports regarding UCD ZQ, exaggerating its losses, to be circulated. Mr Ng, for his part, says that he refused orders from Mr Leung and his companies until they paid the debts owed to the Business. 52.There was a meeting of the shareholders of UCD HK on 21 January 2017, which Mr Ng did not attend on the grounds that inadequate notice had been given. Following on from this, in a letter of 24 January 2017, Mr Chow, Mr Fu (for LM Ltd) and Mrs Chan signed a letter making various complaints against Mr Ng, declaring that they would not admit expenses of UCD ZQ from February 2017, and requesting that he should transfer the shareholding in UCD ZQ, which SSHK was holding on behalf of UCD HK, to UCD HK. 53.Mr Ng’s evidence is that in the absence of further injection of funds from the Business Partners, the operation of the Factory came to an end. In March 2017, Mr Yau unilaterally took over the operation of the factory, and paid its expenses. Mr Ng did not object to this. B11. The capital injection 54.During the period from March to July 2015, Mr Leung injected his share of capital of HK$4m into the Business via LM Ltd, and Mr Chan injected his share of capital of HK$2m. Both amounts were paid into the bank account of SSHK. During this period, UCD HK had not yet been able to open a bank account in its name. Mr Yau also provided his contribution during this period, mostly in the form of machinery and equipment. 55.Mr Leung’s share of capital was subsequently reduced to HK$2m when he sold half of his interest in the business to Mr Ng, and he has been paid for this: in December 2015, Mr Ng injected HK$2m into UCD HK on Mr Leung’s behalf, and this was taken as the consideration for Mr Ng’s acquisition of half of Mr Leung’s interest in the Business. Mr Tasman Tam, counsel for the Plaintiffs, accepts that of this HK$2m:
56.In closing submissions, Mr Tam nevertheless maintained that LM Ltd sought the return of HK$3m as capital contributions made by it, comprising (1) Mr Leung’s remaining HK$2m capital contribution in the Business plus (2) the HK$1m which was in fact used, by agreement, to settle LM Ltd’s trade debts to the Business. The basis for claiming this latter amount of HK$1m has not been properly explained. 57.As to Mr Ng’s share[2] of capital of HK$2m, Mr Tam accepted that whilst this was not deposited into the bank account of SSHK, it was in fact injected into the Business and used for the purposes of the Business and the Factory, as confirmed by Mr Leung’s testimony. B12. The Shareholders’ Loans 58.As indicated above, Mr Leung’s shareholder’s loan of HK$1m to the Business originated from a capital injection made by Mr Ng on Mr Leung’s behalf, as part of the consideration for Mr Ng’s acquisition of half of Mr Leung’s interest in the Business. The capital contribution was subsequently converted to a shareholder’s loan, pursuant to the agreement at the 6th Shareholders’ Meeting of 5 February 2016. It is also accepted that this loan of HK$1m was then used to settle trade debts owed by GE Ltd at the 9th Shareholders’ Meeting on 4 June 2016. 59.As for Mr Chan’s shareholder loan of $1m, it is not disputed that this was paid on 9 December 2015, originally as the second round of the Business Partners’ capital injection agreed at the 5th Shareholders’ Meeting of 14 December 2015. This was similarly converted into a shareholder’s loan pursuant to the agreement at the 6th Shareholders’ Meeting of 5 February 2016. It is not disputed that this amount has been repaid pursuant to a 2018 judgment in proceedings taken in the PRC. 60.Neither of the loans made by Mr Leung or Mr Chan (“the Shareholders’ Loans”) was outstanding, but Mr Tam relied on their existence to submit that chronologically, it was not logically impossible for Mr Leung and Mr Chan to have advanced the loans in reliance on the 2nd Representation and Undertaking (as defined below). However, this was not in fact the evidence of either Mr Leung or Mr Chan. 61.In closing submissions, Mr Tam also indicated that LM Ltd was maintaining its claim to the return of the HK$1m shareholder’s loan, although the basis for this claim has not been properly explained, given the acceptance that it was used to set off the debts owed by GE Ltd. B13. The Audit Report 62.In August 2016, Mr Leung engaged auditors from Shenzhen (“the PRC Auditor”) to audit the accounts of UCD ZQ, covering the period from March 2015 to August 2016. The first draft was first circulated by Mr Ng to the Business Partners on 14 October 2016. The final version was circulated some time after January 2017 (“the Audit Report”). None of the witnesses queried the figures or findings set out in the report. C. THE PLAINTIFFS’ CASE C1. Fraudulent misrepresentation 63.The Plaintiffs’ pleaded case is that on 24 February 2015 and also at the 2nd Shareholders’ Meeting of 26 February 2015, Mr Ng orally represented to the Business Partners that SSHK, set up by Mr Ng and Mr Tan, had a wholly-owned subsidiary in the PRC, namely, SSQZ; and that neither of the companies had any business operations, assets or liabilities, so that they could be used as the Business Partners’ Intended PRC Company and Intended Holding Company (“the 1st Representation”). 64.They plead that relying on the 1st Representation, Mr Leung and Mr Chan agreed that SSHK and SSZQ could be used to hold the intended factory on the mainland, that SSZQ would be renamed as UCD ZQ, that Mr Ng and Mr Tan would transfer their shares in SSHK to Mr Yau, Mr Chan and Mr Leung (or their nominees) and that the capital monies of the Business could be paid into SSHK’s bank account (“the Investment Agreement”). 65.The Plaintiffs say that the 1st Representation was false, in that SSHK held two mortgaged properties for and on behalf of Mr Ng and Mr Tan. 66.The Plaintiffs claim various types of relief for the fraudulent misrepresentation, including a declaration that the Investment Agreement has been rescinded, restitution of the amounts paid into the Business, and damages for misrepresentation or breach of the Investment Agreement. C2. Repudiatory breach of Investment Agreement 67.In the Amended Statement of Claim, the Plaintiffs plead that in about February or March 2016, Mr Ng admitted that contrary to the 1st Representation, SSHK was in fact holding two mortgaged properties for and on behalf of Mr Ng and Mr Tan. This has been termed as “the 2nd Representation”, although it is not said to be false and no relief is claimed in respect of it. 68.The Plaintiffs further say that Mr Ng asked Mr Leung and Mr Chan to transfer their shares in SSHK back to Mr Ng and Mr Tan at nil consideration, and that he undertook that within six months of the transfer, he would cause SSHK to transfer its shares in UCD ZQ to UCD HK, so as to make UCD ZQ the wholly-owned subsidiary of UCD HK (“the Undertaking”). 69.The Plaintiffs complain that relying on the 2nd Representation and the Undertaking, they made the Shareholders’ Loans to UCD ZQ and the Factory via SSHK. 70.They further complain that from about February 2017 onwards, Mr Ng and SSHK failed to provide information to Mr Leung and Mr Chan regarding the business and financial information of UCD ZQ and the Factory. 71.The Plaintiffs rely on these two complaints as evidence of the Defendants’ intention to repudiate the Investment Agreement. 72.The Plaintiffs claim a declaration that they have validly accepted such repudiation, and damages for breach of the Investment Agreement. D. THE DEFENDANTS’ CASE D1. Fraudulent misrepresentation 73.The Defendants say that the 1st Representation was not made. Even if it was, the Plaintiffs could not have relied on it, or been induced by it, to enter into the Investment Agreement. In any event, by their conduct, the Plaintiffs elected to affirm the Investment Agreement, given that (amongst other things) they continued to participate in the Business. Furthermore, the Plaintiffs fail to show that any damage flowed from the 1st Representation. D2. Repudiatory breach of Investment Agreement 74.The Defendants say that the 2nd Representation and Undertaking were not made. Even if they were, the Plaintiffs could not have been induced by them to make the Shareholders’ Loans, which were granted before the date of the 2nd Representation and Undertaking. Nor did Mr Ng fail to provide business and financial information in relation to UCD ZQ and the Factory. E. THE ISSUES 75.The parties presented a four-page list of issues, the main ones of which may be summarised as follows.
F. WHETHER 1ST REPRESENTATION MADE F1. The applicable principles in a claim of fraudulent misrepresentation 76.There was little dispute as to the elements which need to be established for a claim of fraudulent misrepresentation. The applicable principles were summarised in Shun On Finance Ltd v Lau Lee Sung [2018] HKCFI 1441 per Wilson Chan J at [18] to [20].
77.A fraudulent misrepresentation renders a contract voidable, but not void. The victim of a fraudulent misrepresentation is entitled to, at his election, rescind the contract ab initio. But, unless and until he does so, the contract continues to be binding and enforceable: Johnson Electric v Bel Global Resources, unreported, HCA 1240/2012, 17 April 2013 at [17] per To J. 78.Furthermore, the right to rescind will be lost if the representee, with knowledge of the facts and his right to rescind,[4] affirms the contract either expressly, or by doing an act inconsistent with an intention to rescind: Chitty on Contracts, 33rd ed., paras 7-133, 7-134. 79.The question of whether the representee has affirmed a contract is tested objectively: Cartwright, Misrepresentation, Mistake and Non-Disclosure, 5th ed., para 4-45. 80.The burden of proving the loss of the right to rescind lies on the alleged representor: Treitel, The Law of Contract, 15th ed., para 9-113. F2. The applicable principles in the assessment of credibility 81.There is no contemporaneous written record of the 1st Representation. The credibility of Mr Leung’s and Mr Chan’s evidence is therefore an important consideration. 82.In this regard, there are a number of general principles applicable to fact finding and the assessment of credibility. 83.In Hui Cheung Fai and another v Daiwa Development Limited (unreported, HCA 1734/2009, 8 April 2014), Deputy High Court Judge Eugene Fung SC said:
84.Another summary of relevant principles was given by HH Judge Simon Barker QC in Northampton Borough Council v Cardoza and others [2019] BCC 582:
85.In Watson v Foxman and ors (1995) 49 NSWLR 315, McLelland CJ said at 319 (in the context of whether a representation constituted misleading or deceptive conduct under the Trade Practices Act 1974 in Australia):
86.Where statements from different witnesses are substantially identical, the court should approach them with caution. Such a feature is highly suggestive of either collusion between the witnesses, or that the person drafting the statements has not used the actual words of one or both witnesses. Both possibilities seriously prejudice the value of the evidence. See Au Yeung Pui Chun v Cheng Wing Sang [2021] HKCFI 463, per Godfrey Lam J at [30] to [35]. F3. The evidence relating to the 1st Representation F3.1 The Plaintiffs’ evidence 87.The key points of Mr Leung’s evidence regarding the 1st Representation may be summarised as follows.
88.Mr Chan’s evidence regarding the 1st Representation was essentially the same as Mr Leung’s evidence. As noted above, Mr Chan’s description in his witness statement[5] of the critical part of the conversation on 24 February 2015 (as to the two companies being “clean” and as to Mr Chan and Mr Leung agreeing to the proposal to use them for the Business) is virtually identical to that in Mr Leung’s witness statement, which was dated on the same day as Mr Chan’s. 89.The Plaintiffs had earlier filed a statement from Mrs Chan, but as she was not called to testify, there was no dispute that the statement did not form part of the Plaintiffs’ evidence. F3.2 The Defendants’ evidence 90.The key points of Mr Ng’s evidence regarding the 1st Representation may be summarised follows.
F3.3 Analysis of the evidence relevant to the 1st Representation F3.3.1 No contemporaneous record of 1st Representation 91.It is first of all noteworthy that the 1st Representation was not recorded in the minutes of the 2nd Shareholders’ Meeting of 26 February 2015, which is the occasion on which it is said to have been made (in addition to the earlier occasion of 24 February 2015). One would have expected it to have been recorded, particularly if it was relied on by Mr Leung and Mr Chan to formulate their plans for the Business. 92.The Plaintiffs point out that the minutes were taken by Mr Ng, and that in any event they do not record every point of discussion, not even those now relied on by Mr Ng. However, Mr Chan agreed in cross examination that he would have raised objections if he had thought that the minutes of the shareholders’ meetings had inaccuracies or omissions. F3.3.2 No contemporaneous record of arrangement said to arise from 1st Representation 93.On the Plaintiffs’ case, the 1st Representation was part and parcel of a discussion resulting in an agreed arrangement whereby SSHK and SSZQ would be used to hold the intended factory in the PRC, with SSHK and SSZQ being “unconditionally transferred” for the use of the Business, and in particular, SSHK’s shares being transferred by Mr Ng and Mr Tan to Mr Leung, Mr Chan and Mr Yau. It is therefore useful to assess the evidence by reference to thiscontext. 94.Again, the claimed arrangement of 24 and 26 February 2015 was not recorded in the minutes of the 2nd Shareholders’ Meeting on 26 February 2015. There was no reference to the fact that Mr Ng and Mr Tan would be gifting SSHK and SSZQ to the Business, which one might have expected to see being noted down given that the minutes were being taken down by one of the donors. (Of course, the minutes likewise do not record that SSZQ was to be used on a temporary basis only, although this is perhaps less surprising if the arrangement was temporary.) 95.More significantly, there was no reference in the minutes to the use of SSHK as the Intended Holding Company at all. 96.On the contrary, the minutes recorded that there would be a holding company in Hong Kong named “聯盈控股有限公司” (UCD Holdings). They did not record that SSHK would now be used as the holding company in lieu of incorporating a company with this name, or that SSHK would be renamed as UCD Holdings (cf. the recording of the arrangement to rename SSZQ as UCD ZQ). Indeed, in cross examination, Mr Chan initially agreed that had the parties intended to use SSHK as the Intended Holding Company, they would have passed a resolution to rename SSHK as UCD Holdings (although when asked again, he said that the point had not occurred to him at the time). 97.The minutes also recorded a discussion and agreement that the amount of the registered capital of the Intended Holding Company would be set at $10,000 – in other words, they envisaged a company which was yet to be incorporated. Again, this is inconsistent with there being an arrangement to use the existing SSHK as the Intended Holding Company. F3.3.3 Illogical for SSHK to be in dual capacity of investor in Business and holding company of Factory 98.There is no dispute that the Business Partners had agreed that their respective interests could be held by nominees. The minutes of the 1st and 2nd Shareholders’ Meetings show that SSHK was to be one such nominee, representing the interests of Mr Ng and Mr Tan. SSHK continued to play this role in the dealings between the Business Partners:
99.Consistently with the above, the Plaintiffs themselves have all along pleaded that SSHK was to own a 20% shareholding in the Intended Holding Company (and the Intended PRC Company), as the corporate representative of Mr Ng and Mr Tan in the Business. 100.However, if, as Mr Leung and Mr Chan say, it was agreed that SSHK would be the Intended Holding Company itself, then this would mean that SSHK was somehow going to own 20% of its own shares. How this was to be done has not been explained. Nor has it been explained how SSHK could be the corporate representative of Mr Ng and Mr Tan in the Business if its shares were in fact to be owned by the other Business Partners as well. 101.When asked how SSHK was to be both investor and part of the corporate structure of the Business at the same time, Mr Chan said that he did not think about this at the time. Mr Leung did not answer the question directly despite being offered several opportunities to do so. 102.Mr Tam submitted that the facts that (1) SSHK performed the function of receiving and making payments for the Business between mid-October 2015 and mid-December 2015 and (2) the shares in SSHK were transferred to the Business Partners from mid-October 2015 until late March 2016 showed that it is possible for SSHK to be both investor and part of the corporate structure at the same time.
F3.3.4 No directors representing other Business Partners in SSHK 103.Thedirectors of SSHK have all along been Mr Ng and Mr Tan. Even during the period when some of the shares in SSHK were held by the other Business Partners, no directors representing those partners were appointed. 104.This is to be contrasted with UCD HK, in which Mr Fu (representing LM Ltd) was a director in addition to Mr Ng. It is also to be contrasted with UCD ZQ, in respect of which the Business Partners agreed (at the 4th Shareholders’ Meeting of 5 September 2015) that Mr Fu (representing LM Ltd) and Mr Chan should be added as directors in addition to Mr Ng. 105.Had SSHK been agreed to be the Intended Holding Company, one would have expected the appointment of directors to the company to represent the interest of the Business Partners other than Mr Ng and Mr Tan. F3.3.5 The transfer of shares in SSHK to the Business Partners in October 2015 106.There was indeed a transfer of SSHK shares to the Business Partners’ nominees on 13 October 2015.
107.Mr Tam submitted that Mr Ng’s account must have been fabricated since his original reservations about lending SSHK would have remained, so that it was improbable that Mr Ng would have agreed to a temporary transfer of shares. However, I consider it plausible that the parties, finding themselves in the unexpected position where UCD HK had no bank account to receive income from the Business, made a temporary arrangement to deal with this. Mr Chan acknowledged that SSHK was receiving the Business’ receipts on a temporary basis pending the opening of UCD HK’s bank account, but denied that this was the reason why shares in SSHK were transferred to the Business Partners. Mr Ng did not answer the point directly. 108.In order to assess which, if any, of the Plaintiffs’ or Defendants’ explanation of the transfer of SSHK shares on 13 October 2015 is the more likely, I have had regard to a number of other pieces of evidence, rather than the oral evidence alone. 109.The first relates to the timing of the transfer of the SSHK shares. The Plaintiffs’ case is that the agreement that SSHK would be the Intended Holding Company was made in February 2015, together with the agreement that SSZQ would be renamed and used to hold the Factory (leaving aside whether this was to be on a permanent or temporary basis). However, no steps were taken to transfer the shares in SSHK to the Business Partners, at least not until October 2015. This may be contrasted with the other steps that were being taken in the meantime.
110.Mr Leung was asked several times as to why shares in SSHK were not transferred to the Business Partners before October 2015. Initially he said that he did not know. Ultimately, all that he could say was that it was not surprising, and “maybe” it was because the relevant procedures and formalities had not been carried out, but anyway that the friends all trusted each other. 111.Had SSHK been agreed to be the Intended Holding Company, one would have expected that its shares would have been transferred to the Business Partners well before October 2015, given that other steps were being taken to set up and run the Business, and given that SSHK had received Mr Leung’s, Mr Chan’s and Mr Yau’s capital injections by July 2015. 112.The second piece of evidence is the minutes of the 5th Shareholders’ Meeting of 14 December 2015, which was the first meeting after the transfer of SSHK shares on 13 October 2015. This refers to the sale by Mr Leung of half of his interest in the business to Mr Ng and Mr Tan, and it was agreed that this would be implemented by LM Ltd transferring half of its interest to SSHK for HK$2m. Thereafter, the agreed interest of SSHK in the Business would be increased from 20% to 40%. This arrangement would not make sense if SSHK by then was used by the Business Partners as the Intended Holding Company. 113.The third piece of evidence is the minutes of the 6th Shareholders’ Meeting of 5 February 2016. These refer to the fact that UCD HK’s bank account had been opened, so that the share transfer (of the UCD HK shares back to corporate nominees) could be carried out. This would result in (inter alia) SSHK holding 40% of the shares in UCD HK. They also refer to the “transfer back” of SSHK shares to Mr Ng and Mr Tan. All of this is consistent with the Defendants’ explanation that the transfer of SSHK shares back in October 2015 had been on a temporary basis pending the opening of UCD HK’s bank account. It is not, however, consistent with the Plaintiffs’ case, as it would be a reversal of the agreement to use SSHK as the Intended Holding Company. Insofar as the Plaintiffs say that the Undertaking had been made by the time of this meeting[6] and therefore explains the transfer back of SSHK shares, that was not recorded in the minutes; insofar as the Plaintiffs say that the Undertaking had not been made by the time of this meeting, then they have offered no alternative explanation as to why it was agreed that the SSHK shares would be transferred back to Mr Ng and Mr Tan. 114.On the evidence, therefore, the Defendants’ explanation as to why shares in SSHK were transferred on 13 October 2015 is the more likely one. F3.3.5 Whether SSZQ was to be permanently or temporarily used by the Business 115.It is the Plaintiffs’ case that not only SSHK, but also SSZQ (renamed as UCD ZQ) was to be permanently used by the Business. I have already referred above to the fact that the minutes of the 2nd Shareholders’ Meeting on 26 February 2015 did not refer to the fact that Mr Ng and Mr Tan would be gifting SSHK and SSZQ to the Business. 116.It is not disputed that in fact, Mr Ng had in 2012 injected US$200,000 into UCD ZQ. He says that as at December 2014, SSZQ was still looking for land for its real estatebusiness. 117.Against this background, it seems unlikely that Mr Ng would have represented that SSZQ had no operations, no assets and no liabilities. No reason has been put forward for Mr Ng (or Mr Tan, who was not even alleged to have been at the meeting of 24 February 2015) to gift SSZQ to the Business, without taking credit for the assets which it held (and indeed without even disclosing that SSZQ hadsuch assets). F3.3.7 Urgency more for Mr Leung than Mr Ng 118.Indeed it is difficult to see what advantage Mr Ng would have obtained in letting the Business use SSZQ (UCD ZQ), even on a temporary basis. In contrast, Mr Leung was facing deadlines to get the Factory operational as soon as possible so that LM Ltd could meet its contractual deadlines. 119.This gives credence to Mr Ng’s evidence that he was reluctant to lend SSZQ to the Business and that Mr Leung sought to persuade him to do so, rather than Mr Leung’s evidence that Mr Ng unilaterally proposed gifting SSHK and SSZQ for the purposes of the Business. F3.3.8 Claims regarding the 1st Representation 120.By the time of the Plaintiffs’ witness statements in October 2018, the allegation regarding the 1st Representation had crystallised into a specific conversation of 24 February 2015, at the Tai Hing Restaurant in Uptown Plaza in Tai Po, recounted in (largely identical) verbatim detail by both Mr Leung and Mr Chan. This may be compared to what (if anything) was said about the 1st Representation on earlieroccasions.
121.In oral evidence, Mr Chan said that the 1st Representation was made once in late 2014, and once in February 2015. Mr Leung was insistent that it was made on 24 February 2015. 122.These internal inconsistencies cast some doubt on the extent to which the detailed and largely identical accounts of the 1st Representation in the witness statements of Mr Leung and Mr Chan can be relied upon. F3.3.9 Affirmation of the Investment Agreement 123.In section I below, I refer to the conduct of the Plaintiffs which amounted to an affirmation of the Investment Agreement, despite the Plaintiffs’ discovery that the 1st Representation was (on their case) a fraudulent mispresentation. The Plaintiffs’ explanation is that they continued to trust Mr Ng, and waited for him to perform the Undertaking, but even if that were the case, it is surprising that they made no mention of the 1st Representation and discovery of its falsity whilst they waited for Mr Ng to perform the Undertaking, and instead, continued to participate in the Business. Indeed, this remained the case even for a while after the time for performance of the Undertaking had expired. F3.3.10 Mr Ng’s connection to Zhaoqing 124.In closing submissions, Mr Tam submitted that there were two “primary factors” relevant in assessing whose evidence was to be believed. The first was the fact that Mr Ng was a member of the Chinese People’s Political Consultative Conference in Zhaoqing, and Zhaoqing was his hometown, so that he had connections in Zhaoqing. It is said that therefore, he must have been the person who proposed that the Factory should be set up in Zhaoqing. 125.But whether or not Mr Ng was the person who proposed Zhaoqing, it was Mr Leung’s evidence that his own employee told him about the workshops for lease from YY Ltd, and he himself visited the workshops and pronounced on their suitability to be developed into the Factory. 126.The fact that Mr Ng has connections in Zhaoqing has little probative value to the issue of whether or not he made the 1st Representation. F3.3.11 Mr Ng’s evidence regarding the 2nd Shareholders’ Meeting 127.The second factor relied on by Mr Tam was that Mr Ng’s oral evidence as regards what took place at the 2nd Shareholders’ Meeting of 26 February 2015 was unsatisfactory. It is said that whilst he claimed to have concerns about the temporary lending of SSZQ, the promises given by the other Business Partners (to indemnify SSHK, SSZQ and Mr Ng for liability and to cause Ms Ng to incorporate the Intended Holding Company and Intended PRC Company as soon as possible) would not have assuaged his concerns completely, as there was no separate promise to indemnify in respect of adverse effects on SSZQ’s real estate business, and as the promises did not address Mr Ng’s concern about co-mingling of the accounts of SSHK and the accounts of the Business. 128.Having reviewed this part of Mr Ng’s testimony again, I cannot agree that it is incredible. Mr Ng understood that the Business Partners had promised to be responsible should any adverse impact arise from the lending of SSZQ, which would have covered an adverse impact on SSZQ’s real estate business. As to co-mingling of accounts, Mr Ng explained that these were addressed in practice by his manuscript highlighting of SSHK’s bank statements to differentiate items relating to the Business and items relating to SSHK’s other dealings. 129.It is also said that Mr Ng failed to record the Business Partners’ promises and the temporary nature of the lending of SSZQ in the minutes of the 2nd Shareholders’ Meeting. It is true that these matters were not recorded. However, the Plaintiffs’ account of the 1st Representation and the associated agreement to use SSHK as the Intended Holding Company was also not recorded. This point in itself does not take matters much further. If one has to compare the respective omissions, the omission to take a note of what is agreed to be a temporary arrangement is less surprising than the omission to take a note of an agreed permanent business structure involving a transfer of ownership in existing companies. 130.In any event, even if Mr Ng’s evidence were to be disregarded, the Plaintiffs would still have to establish that the 1st Representation was made, by reference to the remainder of the evidence. As analysed above, the evidence is strongly against such a representation having been made. F3.4 Finding as to whether 1st Representation made 131.Having regard to the evidence relevant to the 1st Representation as set out above, and testing the Plaintiffs’ case against the undisputed facts, contemporaneous documents, inherent probabilities and simple logic, I find that the 1st Representation was not made. It follows that it did not constitute the fraudulent misrepresentation complained of by the Plaintiffs. G. WHAT THE TERMS OF THE INVESTMENT AGREEMENT WERE 132.The parties agree that under the Investment Agreement:
133.There are various differences of detail between the parties as to the exact terms of the Investment Agreement, but the material differences are:
134.In the light of the evidence set out above in relation to the 1st Representation, I find that the Business Partners:
H. WHETHER 2ND REPRESENTATION MADE AND UNDERTAKING GIVEN 135.In the light of the rather peculiar way in which the case regarding the 2nd Representation and Undertaking has been pleaded,[7] I will first set out a few observations regarding the 2nd Representation and Undertaking. 136.It is important to bear in mind that as pleaded, the 2nd Representation is not said to be an additional representation, but rather, a confession that the 1st Representation was false.[8] 137.In the light of my finding that the 1st Representation was not in fact made, the 2nd Representation cannot be a confession. At most, even if Mr Ng made a statement that SSHK held two mortgaged properties on behalf of himself and Mr Tan, he did so simply as a statement as to fact. 138.The Plaintiffs do not plead any falsity of the 2nd Representation (whether the confessional aspect or the factual aspect). Rather, they rely on it:
139.Therefore, the issue of real importance is whether the Undertaking was made. H1. The evidence relating to the 2nd Representation and Undertaking 140.As set out in more detail above, the Plaintiffs’ pleaded case is that:
H1.1 The Plaintiffs’ evidence 141.The key points of Mr Leung’s evidence regarding the 2nd Representation and Undertaking may be summarised as follows.
142.The key points of Mr Chan’s evidence regarding the 2nd Representation and Undertaking may be summarised as follows.
H1.2 The Defendants’ evidence 143.The key points of Mr Ng’s evidence regarding the 2nd Representation and Undertaking may be summarised as follows:
H2. Analysis of the evidence relevant to the 2nd Representation 144.It is common ground that the fact that SSHK had a bank loan,[9] secured by mortgages on certain properties, was discussed by the Business Partners. Since I have already found that the 1st Representation was not made, whatever Mr Ng said about SSHK’s loan was not a “confession” that the 1st Representation was wrong, but simply a statement as to fact. Points of contention such as whether it was Mr Leung and Mr Chan who discovered the monthly repayments, or Mr Ng who brought up the matter (in other words, as a “confession”), fall away. 145.As to the timing of when the Business Partners discussed the SSHK bank loan, whilst the Plaintiffs’ evidence was not very clear, other evidence points to it taking place at the 6th Shareholders’ Meeting of 5 February 2016:
146.I therefore find that the Business Partners discussed the fact of the SSHK bank loan at the 6th Shareholders’ Meeting of 5 February 2016, and that this was one of the reasons why the Business Partners transferred their shares in SSHK back to Mr Ng and Mr Tan on 29 March 2016. However, Mr Ng’s discussion of the SSHK bank loan was not a confession that the 1st Representation was false and cannot be characterised as the “2nd Representation” as pleaded. H3. Analysis of the evidence relevant to the Undertaking H3.1 No contemporaneous record of Undertaking 147.The Undertaking was not contemporaneously recorded in the minutes of the Shareholders’ Meetings. Whilst Mr Ng took the minutes, one would have expected that the other Business Partners would have pointed out the omission, given that the Undertaking was to be relied upon by the Business Partners in transferring their SSHK shares back to Mr Ng and Mr Tan at nil consideration. This is all the more so when, on the Plaintiffs’ case, Mr Ng had also just made the 2nd Representation in the sense of admitting that he had been lying to the other Business Partners. One would expect that the Business Partners would have wanted to obtain a record of Mr Ng’s commitment to carry out certain acts in the future, given that he was apparently not trustworthy. 148.Furthermore, whilst there were subsequent specific written requests from the Business Partners for the transfer of UCD ZQ shares from SSHK to UCD HK, they were not made on the basis that Mr Ng had earlier promised to make such a transfer pursuant to the Undertaking. These include Mr Leung’s text message of 16 December 2016 in the Business Partners’ chatgroup, Mr Fu’s proposed agenda for a shareholders’ meeting of 14 January 2017 in which he proposed a resolution that Mr Ng be given until March 2017 to transfer the UCD ZQ shares; and the letter of 24 January 2017 signed by Mr Chow, Mr Fu (for LM Ltd) and Mrs Chan in which they requested the transfer before 28 February 2017. 149.As to Mr Ng’s email of 19 February 2017,[10] this does not refer to the Undertaking. It did refer to Mr Leung’s recent request to transfer SSHK’s shares in UCD ZQ to UCD HK, and Mr Ng’s instructions to Leslie Chan (a member of staff of Mr Leung’s companies) to find out information about different modes of proceeding. It does not suggest that an Undertaking was given at (or at about the time of) the 6th Shareholders’ Meeting. 150.The absence of any contemporaneous record of the Undertaking, and reference to it even after the parties had fallen out, undermines the credibility of the assertion that it was ever made. H3.2 Evidence as to timing of the Undertaking 151.The Plaintiffs pleaded the 2nd Representation and the Undertaking as a “package”, having taken place at the same time, and both being relied on by the Plaintiffs in returning the SSHK shares to Mr Ng and Mr Chan. 152.However, the evidence which the Plaintiffs gave regarding the date of the Undertaking contradicts their own version of events.
153.It is also noteworthy that whilst the Amended Statement of Claim (verified by a statement of truth signed by Mr Leung) had alleged that the Shareholders’ Loans were advanced by the Plaintiffs in reliance on the 2nd Representation and the Undertaking, the funds representing Mr Leung’s HK$1m loan had already been injected into the Business in December 2015 (as noted at the 5th Shareholders’ Meeting of 14 December 2015); it was subsequently agreed at the 6th Shareholders’ Meeting of 5 February 2016 that the Business Partners’ capital injections would be converted into shareholders’ loans instead. Thus the original injection of Mr Leung’s HK$1m could not have been in reliance on the 2nd Representation and Undertaking, no matter which version of dates is taken for the Undertaking. H3.3 Undertaking not an obvious way to procure transfer of UCD ZQ shares 154.If what Mr Leung and Mr Chan had wanted to achieve was for SSHK to transfer its shares in UCD ZQ to UCD HK, then the most obvious way for them to achieve this would have been to procure SSHK to do so whilst they in fact held the majority of the shares in SSHK (prior to the transfer back, Mr Leung (via LM Ltd) and Mr Chan held 60% of the shares in SSHK, whereas Mr Ng and Mr Tan each held only 10%), rather than to transfer the shares back to Mr Ng and accept his Undertaking to procure the transfer within six months, especially when he had just confessed to lying about the 1st Representation. H3.4 No Undertaking needed by Defendants to justify transfer back of SSHK shares 155.The Defendants say that the original transfer of the SSHK shares to the Business Partners on 13 October 2015 was temporary, pending UCD HK’s opening of a bank account. Once this was done, the shares could be returned to Mr Ng and Mr Tan. 156.Earlier above, I have referred to the fact that had there not been any transfer of the SSHK shares back to the Business Partners, then Mr Ng and Mr Tan would have been left with only an 8% interest in UCD HK (via SSHK), a fraction of their 40% investment in their Business. There was no need for Mr Ng to undertake to procure changes in the shareholding of UCD ZQ[11] to justify the transfer back of the SSHK shares. H3.5 Plaintiffs’ need for Undertaking as security 157.Mr Tam submitted that it would have been risky for Mr Leung, Mr Chan and Mr Yau to transfer their SSHK shares back to Mr Ng and Mr Tan without having the Undertaking in place. One might then ask why, if such risk was perceived, Mr Leung, Mr Chan and Mr Yau did not simply procure SSHK to transfer its shares in UCD ZQ to UCD HK, rather than accepting the Undertaking from Mr Ng, who (they say) had just confessed to lying to them. 158.In any event, as the Defendants point out, there was no real risk which would have necessitated the Undertaking, since at the time, Mr Leung and Mr Chan had sufficient control over UCD ZQ.
H3.6 Mr Chan’s evidence as to impossibility of Undertaking 159.On Day 2 of the trial, Mr Chan gave evidence that he had all along thought that UCD ZQ could not be transferred to UCD HK. It was only around two weeks before trial that he found out that such a transfer was possible. This would have meant that according to Mr Chan’s belief at the time that Mr Ng gave the Undertaking, it would have been impossible to execute. Yet he apparently accepted the Undertaking. When he was asked further about this topic on Day 3 of the trial, Mr Chan said that he had been confused and tired on the previous day in giving evidence. However, he nevertheless maintained that Mr Ng had told him, on the one hand, that the transfer of UCD ZQ shares was not possible, yet on the other hand, he gave the Undertaking to do this. If so, it does not make sense that Mr Chan would have accepted it. H3.7 Finding as to whether Undertaking given 160.Having regard to the evidence relevant to the Undertaking as set out above, and again, assessing the Plaintiffs’ case against the undisputed facts, contemporaneous documents, inherent probabilities and simple logic, I find that the Undertaking was not given. I. AFFIRMATION OF THE INVESTMENT AGREEMENT 161.In the light of my findings above that the 1st Representation was not made, it is not necessary for me to go further to deal with the other elements of the Plaintiffs’ claim based on the 1st Representation. Indeed, it would be artificial to attempt to consider hypothetical questions such as whether, if the 1st Representation had been made, the Plaintiffs would have relied on it. 162.I will however set out some brief observations relating to the Plaintiffs’ claim for rescission of the Investment Agreement. 163.The Defendants say that in any event, the Plaintiffs affirmed the Investment Agreement and are not entitled to claim rescission.[12] I agree. 164.On the Plaintiffs’ case, they were aware of the falsity of the 1st Representation (via Mr Ng’s confessional 2nd Representation). They were also aware that they could terminate the Investment Agreement: Mr Chan’s evidence was that they did not terminate it because they still trusted Mr Ng, not because they were unaware of their right to do so. 165.The Plaintiffs’ conduct was inconsistent with an intention to rescind the Investment Agreement.
166.Mr Tam submitted that the Undertaking amounted to a reservation of the right of rescission. Leaving aside the fact that I have found that the Undertaking was not made, I do not agree, since on the Plaintiffs’ own formulation, the Undertaking did not make any such reservation. J. CLAIM FOR BREACH OF INVESTMENT AGREEMENT 167.The Plaintiffs’ pleaded case is that the Defendants repudiated the Investment Agreement in failing to honour the Undertaking, and in failing to provide information regarding the business and financial information of UCD ZQ and the Factory. J1. Failure to honour the Undertaking 168.In the light of my findings above that (1) UCD ZQ was only to be used by the Business on a temporary basis, and (2) the alleged Undertaking was not made, the claim of repudiatory breach based on a complaint of failure to honour the Undertaking must fail. 169.I make a few further observations in this regard. I have made findings above regarding the parties’ dispute as to what the terms of the Investment Agreement were. It was not, however, part of the Plaintiffs’ pleaded case that those terms included, whether at inception or by subsequent variation, an obligation on the part of Mr Ng to honour the Undertaking, that is, to cause SSHK to transfer the shares in UCD ZQ to UCD HK. Still less was it alleged that SSHK (the 2nd Defendant) had any obligations under the Undertaking. 170.Mr Tam submitted that the failure to honour the Undertaking was a repudiation of “the fundamental term of the Investment Agreement: ie. the agreement that the Business Partners were to jointly invest in the manufacturing of curtainwalls”, in that it isolated Mr Leung and Mr Chan from the Business. However, the Plaintiffs’ case is that an express term of the Investment Agreement was that the Factory was to be held (via a PRC company) by the Intended Holding Company, and not by the Hong Kong company handling orders for the Business. Honouring the Undertaking would have been a breach of this term. J2. Failure to provide information 171.Paragraph 18 of the Amended Statement of Claim pleads that “from around February 2017, Ng and Shun Sing HK further refused to provide information to Leung and Chan regarding the business and financial information of UCD ZQ and the Zhaoqing Factory.” There is no plea as to how the duty on the part of the Defendants is said to have arisen. 172.Mr Leung’s witness statement at paragraph 53(i) simply says “Since about February 2017, Ng Chi Wah refused to report to [LM Ltd] and the other shareholders about any operational or financial information of UCD ZQ and Zhaoqing Factory at all.” 173.In his oral closing submissions, Mr Tam clarified that there were no requests for information from Mr Leung or Mr Chan that went unanswered. The complaint was simply that there was an “absence of any information”. 174.I agree with Mr Lai’s submission that the complaint of refusal to provide information must fail.
J3. No repudiation of the Investment Agreement 175.I therefore find that the Defendants were not in repudiatory breach of the Investment Agreement. K. CREDIBILITY OF THE WITNESSES K1. Mr Chan 176.Mr Chan was the first of the Plaintiffs’ witnesses to give evidence. 177.He claimed not to know much about the Business, including basic details such as the agreed corporate structure, and said that he was simply investing along with his friends. However, his carefully considered answers to questions showed him to be an intelligent witness who was in fact familiar with a number of details of the Business. According to Mr Leung’s text message in the Business Partners’ whatsapp group of 19 December 2016, Mr Chan had been consistently asking for strict and correct financial reporting for over a year, and he had been expressing such views at the Shareholders’ Meetings. 178.In re-examination, he sought to backtrack on a number of answers previously given. An example was his clear answer on the previous day that the Undertaking had only been given after the shares in SSHK had been transferred back to Mr Ng and Mr Tan. He claimed that he had been quite confused, and that the Undertaking had been given first, because otherwise he would not have transferred the SSHK shares back to Mr Ng and Mr Tan. This was not convincing: the point he had sought to make in cross-examination was precisely that the Undertaking “did not exist” prior to the transfer of the SSHK shares. K2. Mr Leung 179.There were quite a few occasions on which Mr Leung gave rambling or muddled answers in cross-examination, which did not address the question being asked. For example, when asked how SSHK could be both an investor in the Business and yet be part of the corporate structure of the Business, Mr Leung gave an answer about the Business Partners going to look for a factory, having tea and discussing the renting of an existing factory. He was asked the question a few times, and gave various answers, none of which addressed the question. When it was put to him that had there truly been an agreement to use SSHK as the corporate vehicle for the Business, the Partners would not have needed to wait until October 2015 before the SSHK shares were transferred, Mr Leung gave another series of answers which did not address the point. K3. Mr Ng 180.Mr Tam submitted that Mr Ng’s witness statements should be disregarded or given minimal weight as they were prepared in English, which he did not fully understand, but they did not bear a certificate of interpretation, contrary to the requirements of Practice Direction 19.3 paragraph 6. 181.Mr Ng was cross-examined extensively on this omission. He said that his solicitors had explained the contents of his statements to him before he signed them. There were two missing dates in the first statement (corrected in the second statement), but he had told the solicitor about these and he did not know why the version ultimately filed in court did not have the dates inserted. 182.It is not satisfactory that Mr Ng’s witness statements did not contain certifications that they were translated to him: Chok Yick Interior Design & Engineering Co Ltd v Lau Chi Lun t/a Chi Hung Construction Eng Co, unreported, HCA1480/2008, 21 June 2010 at [29] to [32], per Lam J (as he then was). 183.However, Mr Ng did not seek to disavow his witness statements (unlike the case in Choi Yick Interior Design & Engineering Co Ltd), nor was he shaken in cross-examination on any material aspect of the statements. I therefore do not agree that the statements should be disregarded or given minimal weight. I would add that insofar as it may be questioned whether every last detail of Mr Ng’s witness statements was translated to him, my analysis of the evidence was not dependent on such details. 184.In view of the reservations which I have expressed above in relation to the oral evidence of Mr Chan and Mr Leung, where it conflicts with that of Mr Ng and is uncorroborated by other objective evidence, on balance, I prefer the evidence of Mr Ng. 185.In any event, as I have set out in the earlier sections of this judgment, my findings as to the existence or otherwise of the 1st Representation, 2nd Representation and Undertaking have been made not so much by weighing the oral evidence of one witness against the other, but by assessing the credibility of the Plaintiffs’ asserted case against undisputed facts, contemporaneous documents, inherent probabilities, and logic. L. CONCLUSION 186.I therefore dismiss the Plaintiffs’ claims against the Defendants. 187.I further make an order nisi that the Defendants’ costs in this action, including any costs reserved, be paid by the Plaintiffs, to be taxed if not agreed. In the absence of any application to vary, the order will become absolute after 14 days.
Mr Tasman Tam, instructed by Bryan Chan & Co. for the 1st and 2nd Plaintiffs Mr Adrian Lai and Mr Raymond Tsang, instructed by Kevin L.H. Kwong & Co. for the 1st and 2nd Defendants [1] Subsequently, Mr Raymond Chow also joined as a Business Partner. [2] Or Mr Ng’s and Mr Tan’s share. [3] The Plaintiffs pleaded that both Defendants committed breaches of the Investment Agreement, although the agreed list of issues confines this to Mr Ng. [4] The Defendants raised an argument that knowledge of the right to rescind is not necessary. For reasons explained further below, it has not been necessary to resolve this point. [5] Paragraph 9 of Mr Chan’s witness statement; cf. paragraph 21 of Mr Leung’s witness statement. [6] I return below to the different dates advanced by the Plaintiffs as to when the Undertaking was said to have been made. [7] Not by Mr Tam. [8] Paragraph 12 of the Amended Statement of Claim reads: “On or about 4 March In February or March 2016, Ng orally represented and/or admitted to Leung and Chan that contrary to his 1st Representation, Shun Sing HK was in fact holding two mortgaged properties (“the 2nd Representation”) for and on behalf of him and Tan.” [9] Although Mr Leung’s and Mr Chan’s witness statements describe the loan as being one to Mr Ng and Mr Tan, Mr Leung’s also describes it as a loan to SSHK, and both of them say that SSHK had repayment obligations to the bank. [10] In closing submissions, Mr Tam relied on Mr Ng’s email of 19 February 2017 as evidence that the 2nd Representation was made, but not as evidence that the Undertaking was made. [11] Or indeed, to confess to lying (ie. by making the 2nd Representation as alleged by the Plaintiffs). [12] Whilst the point was not pleaded, the Plaintiffs did not object to it being taken. |
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