Leung Chin Sing, Rabo and Another v. Ko Chun Hay, Kelvin

HCA 1861/2016

[2021] HKCFI 2242

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1861 OF 2016

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BETWEEN

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Before:  Deputy High Court Judge Jin Pao SC in Court

Dates of Hearing:  24-28, 31 August & 18 September 2020

Date of Judgment:  4 August 2021

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J U D G M E N T

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INTRODUCTION

1.This is the trial of an action in which the Plaintiffs (“Rabo” and “John” respectively)  seek damages of HK$26,867,344 against the Defendant (“Kelvin”)  for breach of an alleged oral finder’s fee agreement.

2.In broad outline, the Plaintiffs’ case is that they introduced the eventual purchaser of Kelvin’s interest in Brilliance Worldwide Holdings Limited (“BWHL”), a company whose shares were listed for trading on the GEM Board in Hong Kong (Stock Code: 8312).[1] They say the introduction was successful and the sale and purchase was completed in March 2016, but Kelvin acted in breach of an oral finder’s fee agreement reached in August 2015 by refusing to pay them the finder’s fees owing to them under that agreement.

3.More specifically, the Plaintiffs’ case is that there was originally a finder’s fee agreement reached on 9 August 2015 between Rabo and Kelvin.  No other persons were party to this agreement at that time.  This agreement was later varied on 28 August 2015 when Rabo introduced John and Liu Sit Lun, Lawrence (“Lawrence”)  to Kelvin. 

4.On the Plaintiffs’ case, Kelvin was informed on 28 August 2015 that Rabo, John and Lawrence would collaborate together to find a purchaser for Kelvin’s interest in BWHL. However, as it transpired, the ultimate purchaser of Kelvin’s interest in BWHL ended up being China Merit International Investment Inc. (“China Merit”). China Merit was a BVI company wholly-owned by Lawrence.  Therefore, it was actually one of the three original collaborators, Lawrence, who purchased Kelvin’s interest in BWHL through China Merit.

5.This is not the quintessential case where an outside investor was identified by the finders to purchase Kelvin’s interest.  Instead, it was one of the finders themselves that made the eventual purchase, albeit through a BVI corporate vehicle.  The Plaintiffs contend that this is immaterial because Lawrence was, as a matter of fact, introduced to Kelvin on 28 August 2015.  Without that introduction, the Plaintiffs say that the eventual sale and purchase would never have taken place. 

6.The Plaintiffs have confined their monetary claim to a two-thirds share of the finder’s fee allegedly due under the finder’s fee agreement.  This is because Lawrence is not a party to this action and does not make a claim on the agreement.   

7.Kelvin’s primary case is that no concluded finder’s fee agreement was ever reached between the parties.  Accordingly, the main issue in this case is a question of fact, namely, whether there a valid and binding finder’s fee agreement was concluded in the terms as alleged by the Plaintiffs on 9 and 28 August 2015.  Kelvin also advances an alternative defence of illegality based on an alleged contravention of section 114 of the Securities and Futures Ordinance (Cap 571)  (“SFO”).

8.At trial, the Plaintiffs were represented by Mr Victor Dawes SC leading Mr Martin Ho, and the Defendant was represented by Mr Jason Pow SC leading Mr Lau Ka Kin.  I am grateful to them for their assistance throughout the trial.

THE BACKGROUND FACTS

9.At trial, the parties have provided an Agreed Chronology and Agreed Statement of Facts.  The Agreed Chronology was more helpful than the Agreed Statement of Facts.  Where appropriate, I have referred to these documents in setting out the background facts below.

10.At all material times, Rabo was a financial advisor working for Kingsway Capital Limited (“Kingsway”)  as its Chief Operating Officer, while John worked for SBI China Capital Financial Services Limited (“SBI”)  as its Managing Director of Equities and Head of Institutional Sales.  Both Kingsway and SBI were licensed by the Securities and Futures Commission (“SFC”)  as a corporation to carry out certain specific types of regulated activities under the SFO.[2]

11.Kelvin was a director and beneficial owner as to 96.3% in Magic Ahead Investments Limited (“Magic Ahead”).  Magic Ahead was a BVI company which owned 519,000,000 shares in BWHL which represented 75% of BWHL’s total issued share capital.  Therefore, through Magic Ahead, Kelvin held a significant stake in BWHL.

12.Prior to 2015, Rabo and Kelvin had known each other for over 20 years.  They developed a friendship over the years and often used WhatsApp to communicate with each other.  In early 2015, Kelvin mentioned to Rabo that he was interested in selling his majority shareholding in his GEM listed company and asked Rabo whether he had any potential buyers in mind.  Rabo said he would let Kelvin know if he came across an interested buyer.   

13.In late July 2015, Lawrence told Rabo that he had friends who were acquiring a controlling interest in a company listed on the Main Board of the Hong Kong Stock Exchange.

14.On 6 August 2015, Rabo, John and Lawrence met at the Simply Life café in Queensway Plaza during which Lawrence indicated that his boss in Beijing was interested to buy a listed company.  On 7 and 8 August 2015, Rabo liaised with both Lawrence and Kelvin on the proposed deal.  There was a meeting between Rabo and Kelvin at the Pacific Club in Tsim Sha Tsui on 9 August 2015.  This is an important event because it is during this encounter where the Plaintiffs say that a finder’s fee agreement was first concluded between Rabo and Kelvin. 

15.The Plaintiffs say that Kelvin agreed with Rabo that in consideration of Rabo, and any other persons who he collaborated with as finders, introducing to Kelvin a potential investor to purchase his interest in BWHL or any part thereof, Kelvin would pay the finders a fee upon completion.  The finder’s fee payable would be calculated by reference to the following formula (“Formula”):

(1)  The calculated price for 100% shareholding in BWHL (based on the actual sale price per share).

less

(2)  HK$350,000,000

(3)  Multiplied by the percentage of actual shares sold over the entire shareholding in BWHL

16.Under the Formula, in order to earn the finder’s fee, the Plaintiffs would have to find an investor to purchase Kelvin’s interest in BWHL at a sufficiently high price level.  The benchmark of HK$350,000,000 was adopted with respect to a 100% shareholding in BWHL.  Unless this valuation was reached, the Plaintiffs would not be entitled to receive a finder’s fee. 

17.To derive the valuation, one would need to take the actual sale price per share and multiply this by the total number of shares in BWHL to obtain the price for a 100% shareholding.  After this figure was arrived at, one would deduct HK$350,000,000 and multiply this by the percentage of actual shares sold to ascertain the fee payable to the finders.  The Plaintiffs, therefore, had a financial incentive to find a purchaser to acquire the shares at a valuation over HK$350,000,000. In contrast, they had no incentive to find a purchaser to acquire the shares at a lower valuation because they would not be entitled to any finder’s fee.

18.At trial, Mr Dawes SC confirmed that it was not his clients’ case that this mathematical formula was specifically discussed at the meeting on 9 August 2015.  Rather, as I understand it, the formula reflected the substance of what had been agreed by Rabo and Kelvin on that day in a manner which could be readily understood.  Mr Pow SC confirmed that this was his understanding of the Plaintiffs’ case as well.

19.Kelvin denies that any agreement was concluded at this meeting.  He said the meeting lasted about 15 minutes.  His evidence was that he had no concrete plan of disposing his controlling interest in BWHL at this time.  Rabo had made inquiries about whether he was interested in selling his shares, and Kelvin said that he might consider selling his shares but he had not decided on the number of shares to sell.  Further, Rabo only told him that there might be a potential buyer, but nothing was confirmed yet.  According to Kelvin, the overall discussion was very brief, general and non-conclusive and there was no mention of finder’s fee nor commission in this meeting. 

20.On 10 August 2015, Rabo, John and Lawrence met at Kingsway’s office to discuss the proposed deal.  During the next day, Lawrence chased Rabo for Kelvin’s stance on the proposed deal.

21.On 25 August 2015, Rabo, John and Lawrence met at Grappa’s in Pacific Place to discuss the details of the proposed deal.  After that meeting, Rabo followed up with Kelvin as to his availability for a meeting.  Kelvin confirmed that he was free on 28 August 2015. 

22.On 28 August 2015, there was a meeting at Grappa’s in Pacific Place.  Rabo, John, Lawrence and Kelvin were present.  Rabo introduced Lawrence to Kelvin on this occasion. This meeting is also important because, on the Plaintiffs’ case, the initial finder’s fee agreement was varied at this time.  According to them, Kelvin was informed that John and Lawrence would collaborate with Rabo as finders and be entitled to share in the finder’s fee.  Moreover, it was during this meeting which Kelvin agreed to increase the finder’s fee agreed on 9 August 2015 to include 3% of his beneficial interest in BWHL.  Kelvin denies that any variation of agreement took place at this meeting.

23.In terms of documentary evidence, there were two Internal Notices dated 28 August 2015 prepared by Rabo and John respectively.  On the face of these documents, their purpose was to seek consent from their respective employers about acting as introducers.  Both Internal Notices stated that they would be receiving a finder’s fee for this arrangement, but there was ‘no concrete plan’ concluded currently. 

24.The notices were not identical in terms.  The major difference was that Rabo’s notice said that he was acting as introducer to Kelvin, a major shareholder in BWHL, who wanted to find a purchaser to acquire his controlling stake in this listed company. In contrast, John’s notice said that he was acting as an introducer to Lawrence who wanted to find a seller of a controlling stake of a listed company. 

25.Rabo’s Internal Notice was only presented to Mr Michael Choi of Kingsway in August 2016, around one year after it was dated.  This information was obtained by Kelvin through third party discovery after these proceedings were commenced.  In contrast, John handed his notice to his superior at SBI on the same day, i.e. 28 August 2015. 

26.On 11 September 2015, Rabo, John and Lawrence met at Habitu in Hutchison House to discuss the potential buyer’s proposals in respect of the proposed deal.  Kelvin chased for updates on the proposed deal from Rabo.  There was a further meeting with all four persons present on the next day at the Pacific Club in Tsim Sha Tsui.

27.On 17 September 2015, Rabo, Lawrence and Kelvin had a conference call in the evening.  After the conference call, Lawrence met with Kelvin privately in To Kwa Wan at night.  On 18 September 2015, Rabo sought updates from Lawrence and Kelvin regarding their meeting the night before. Then, on 22 September 2015, Rabo, John, Lawrence and Kelvin met in a karaoke in Tsim Sha Tsui.  

28.Between 29 October 2015 and 4 December 2015, Kelvin asked for updates from Rabo on the proposed deal.  Kelvin asked Rabo to speed things up on 18 November 2015.  On 15 December 2015, Rabo asked to meet with Lawrence’s proposed investor based in Beijing.  Lawrence indicated that he was the Hong Kong representative (香港總裁)  of the proposed Beijing buyer.

29.On 28 December 2015, BWHL issued an announcement concerning a memorandum of understanding (“1^st MOU”)  regarding the possible acquisition of Magic Ahead’s shares in BWHL by a potential buyer at a consideration of HK$271,488,900.  The MOU was subject to a legally binding agreement being entered into.  

30.On 29 February 2016, BWHL issued an announcement about the expiry of the 1^st MOU and the execution of a second memorandum of understanding by Magic Ahead and a different potential buyer on 27 February 2016 in respect of the potential acquisition of Magic Ahead’s 68.5% shares in BWHL for HK$280,000,000 (“2^nd MOU”).

31.On 15 March 2016, Magic Ahead entered into a sale and purchase agreement with China Merit under which China Merit agreed to acquire the 68.5% stake in BWHL for HK$280,000,000.  The total number of shares in BWHL sold was 474,000,000 in aggregate. Hence, the actual sale price per share was approximately HK$0.5908 per share, and the valuation for a 100% shareholding was $408,833,600.  This was higher than $350,000,000 valuation benchmark under the alleged agreement and so the Plaintiffs say they are entitled to finder’s fees.

32.On 16 March 2016, John messaged Lawrence, and said:

“It’s me and Rabo who introduce you to Mr Ko, so some commission for us? (smile emoji)”.

33.Lawrence responded to this by saying that he did not know about this part, and John should ask Kelvin about it.  After discussions, on 28 March 2016, Rabo, John and Kelvin met at the Pacific Club in Tsim Sha Tsui.  The Plaintiffs say at this meeting Rabo and John requested the payment of the finder’s fee from Kelvin. 

34.On 28 April 2016, Baker & McKenzie issued a demand letter on behalf of Rabo and John against Kelvin.  This referred to an agreement alleged to have been reached on 28 August 2015 between Rabo, John and Lawrence as “Partners” with Kelvin.  They would introduce an investor to purchase some or all of Kelvin’s interest in BWHL in return for payment of a finder’s fee calculated by a formula.  There was no mention in this letter of any prior agreement being concluded on 9 August 2015. The letter referred to BWHL’s announcement dated 15 March 2016 recording the sale of 474,000,000 BWHL shares for $280,000,000 from Magic Ahead to China Merit, and hence Kelvin was requested to pay a fee of HK$40,301,016 based on the formula set out in the letter.[3]

35.On the same day, Baker & McKenzie also issued a demand letter against Lawrence.  This referred to a “commission agreement” reached by the “Partners” with Kelvin on 28 August 2015, but again, not any prior agreement concluded on 9 August 2015. It was alleged that there was a ‘partnership agreement’ between Rabo, John and Lawrence, and that Lawrence acted in breach of a partner’s duty of good faith by diverting a business opportunity away from the partnership to secure a personal benefit.  Lawrence was demanded to repay HK$26,867,344, which represented the two-thirds share of the fees that Rabo and John were entitled to out of the HK$40,301,016.  These allegations were denied by Lawrence in a letter dated 5 May 2016.

36.On 10 May 2016, Kelvin’s solicitors, Hui & Lam, responded to Baker & McKenzie’s letter of 28 April 2016 and requested certain clarifications.  This led to a response from Dechert dated 20 May 2016 who were retained by Rabo and John to replace Baker & McKenzie.  This letter also does not refer to any prior agreement having been reached on 9 August 2015.  It alleged, instead, that there was an agreement reached between Rabo and John in their personal capacity with Kelvin that he would pay a finder’s fee for the introduction of an investor to purchase Kelvin’s shares in BWHL.  The date of the agreement is not mentioned in the letter.  It was further alleged that on 28 August 2015, Rabo and John introduced Kelvin to Lawrence pursuant to that agreement, and that Lawrence, acting through China Merit, had purchased the shares on 15 March 2016. 

37.On 1 June 2016, Dechert enclosed a draft Writ of Summons setting out the basis of Rabo and John’s claim (“Draft Writ”).  The Draft Writ alleged, for the first time, that the finder’s fee agreement was reached on 9 August 2015.  In contrast to the position taken in Baker & McKenzie’s letter of 28 April 2016, there was no mention in the Draft Writ of any agreement being reached on 28 August 2015, or any variation of a prior agreement.  All that is said to have occurred on 28 August 2015 was that Rabo and John introduced Lawrence to Kelvin pursuant to the agreement concluded on 9 August 2015.[4]

WHATSAPP AND WECHAT COMMUNICATIONS

38.There are a number of relevant chat groups and dialogues through instant messaging software between relevant individuals.  There were three main chat groups in this case.

39.The first was a WeChat group named “Fellowship” between Rabo, John and Lawrence (“Chat Group 1”).  The second was a WhatsApp dialogue between Rabo and Kelvin (“Chat Group 2”).  This was the only chat group in which Kelvin was involved in.  The third was a WeChat group between Rabo and Lawrence (“Chat Group 3”). The contents of these chat groups have been helpfully set out by the parties, with agreed English translations, in a table in chronological order.

40.The messages contained in these chat groups are an important source of evidence as they are contemporaneous records of what was actually discussed between the relevant individuals in ‘real time’ as events unfolded.  These messages are an ‘electronic imprint‘ of what was in fact said and done by the parties.  Where appropriate, I will refer to them in the course of my overall evaluation of the evidence. 

RELEVANT LEGAL PRINCIPLES

41.Since this case concerns the existence of an alleged oral agreement, and turns on my assessment of the credibility of witnesses, the legal principles on evaluating the truthfulness of an account given by a witness are relevant. These principles were referred to in Hui Cheung Fai v Daiwa Development Ltd (HCA 1734/2009, 8 April 2014)  at [77-80] by DHCJ Eugene Fung SC, and helpfully summarized by Recorder Yvonne Cheng SC in Joint and Several Trustees of the Property of Yeung Wing Sing v Yeung Wing Sing [2021] HKCFI 2018 at [26] as follows:

“(1)  contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2)  in deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3)  regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence;

(4)  care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character;

(5)  witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.

42.It is rare in modern commercial litigation to encounter a claim based on an agreement which is not only said to have been purely by word of mouth but of which there is no contemporaneous documentary record of any kind.  The prevalence of e-mails, text messages and other forms of electronic communication is such that most agreements or discussions which are of legal significance, even if not embodied in writing, leave some form of electronic imprint: Blue v Ashley [2017] EWHC 1928 (Comm)  at [65] per Leggatt J (as he then was); Music Holdings Property HK Ltd v Ooi Lean Choo [2020] HKCFI 1312 at [58] per Ng J.  Because the value of a written record is understood by anyone with business experience, its absence may, depending on the circumstances, tend to suggest that no contract was concluded: Blue v Ashley at [49]; Wing Hing (1956)  Co Ltd v Nissin Foods Co Ltd [2021] HKCFI 638 at [56] per DHCJ Abraham Chan SC.

43.In Gestmin SGPS SA v Credit Suisse (UK)  Limited [2013] EWHC 3560 (Comm)  at [16-20], Leggatt J (as he then was)  set out a detailed analysis on the unreliability of human memory and the impact on the civil litigation process on recalling past events.  In view of these considerations, at [22], it was held that the best approach for a judge to adopt in the trial of a commercial case is to place little if any reliance on witnesses’ recollection of what was said in meetings and conversations, and to base factual findings on inferences drawn from the documentary evidence and known or probable facts.  These observations were cited with approval by Kwan VP in Galleria (Hong Kong)  Ltd v DBS Bank, Hong Kong Branch [2021] HKCA 611 at [175].  I have found these observations to be of assistance and particular relevance in approaching the witness evidence in this case, and I respectfully agree with them. 

44.I also bear in mind that the burden of proof rests on the Plaintiffs to prove and establish the oral agreement, including the manner in which it was concluded and on the terms as pleaded, on a balance of probabilities.  There is no burden on the Defendant to persuade the Court that his alternative version of events should be accepted: Music Holdings Property HK Ltd at [55] per Ng J.

WITNESS EVIDENCE

45.I turn to the witnesses who gave evidence at trial.  There were a total of 4 live witnesses. Each of the 3 parties to this action gave evidence.  Lawrence testified on subpoena on behalf of Kelvin.  

46.Jamie Cheung filed a short witness statement on behalf of Kelvin and his attendance at trial was excused upon Mr Dawes SC’s confirmation that he would not be cross-examined. 

(i)  Rabo

47.Rabo was the first witness at trial.  At the outset, having heard his testimony and reviewed the transcripts, I must say that I did not form a favourable impression of his evidence. In my judgment, he was an evasive witness who often refused to give direct answers to straightforward questions.  There were multiples times where he attempted to answer a question by saying “let me it put it this way” and avoided giving a direct answer.  This was a consistent theme throughout his evidence, and I think this was deliberate and not due to any misunderstanding of the questions asked.  This particularly showed when he was faced with questions which he believed were adverse to his case.  One example was where Rabo was questioned by Mr Pow SC about the fact that none of the text messages contained reference to the alleged oral agreement or the formula.  He attempted to evade these questions multiple times before reluctantly agreeing to the question put. 

48.Further, his evidence in relation to the consistency of his case with the demand letters sent by Baker & McKenzie and Dechert was also unsatisfactory.  He was unable to give any satisfactory answer as to why there were material discrepancies between the current account of his case, and the case as they were presented at the time by his solicitors.  This, to my mind, also undermined the credibility of his evidence.  

49.There were also inconsistencies between his written evidence and his oral testimony.  A clear example of this was his evidence in relation to his meeting with Kelvin on 28 March 2016 at the Pacific Club.  According to Rabo’s witness statement, Kelvin mentioned that he was willing to assume an unrelated $3m loss as a result of a previous and unrelated stock investment to off-set the finder’s fee.  Rabo said that he did not acknowledge or react to Mr Ko’s set-off comment.[5] However, in cross-examination, he said that he told Kelvin on that occasion that after Kelvin gave Rabo the finder’s fee Rabo would give back the money that Kelvin had lost.[6]  This was clearly inconsistent with his witness statement where Rabo had said that he had no reaction to Kelvin’s set-off comment.

50.I also find that Rabo was also prepared to lie when it suited his interests.  One example of a lie in the witness box is his message sent in Chat Group 1 on 16 March 2016 at 10:23am.  He mentioned to Lawrence that there was an “oral agreement”, and that they all trusted each other in the beginning.  The context of this message was that John had raised the issue of commission with Lawrence earlier that morning in Chat Group 1.  Plainly, viewed in that context, Rabo’s reference to “oral agreement” was one that was reached with Lawrence from the buyer’s side. However, in cross-examination, Rabo insisted that he was in fact talking about the “oral agreement of commission paid by the seller, not the buyer”.[7] In my judgment, this answer was incapable of belief and was a deliberate lie to distance himself from what he actually wrote.

51.A further example of a lie (in the instant messages)  is that in Chat Group 1, Rabo sent a message on 31 March 2016 at 1:13pm seeking to persuade Lawrence to pay commission. Rabo said to Lawrence that “we receive the funds through Kingsway and SBI, full licenses”.  This statement to Lawrence was plainly untrue because Rabo’s intention all along was to personally receive whatever commission he could get from Lawrence.  He had always maintained that this was a personal deal that had nothing to do with Kingsway.  In cross-examination, Rabo was evasive in his answers, and even to questions raised by this Court.[8] In my mind, this was an example which showed that Rabo was capable of fabricating things in order to advance his own financial interests.

52.His written evidence was also positively misleading in material respects.  When Rabo mentioned his Internal Notice dated 28 August 2015 in his evidence,[9] he omitted to say that he only presented it to Michael Choi of Kingsway one year later, in August 2016.  This information was only obtained by Kelvin’s solicitors via third party discovery against Kingsway.  The impression given by Rabo’s written evidence was that Michael Choi signed this document contemporaneously, when in fact this was not the case.  Rabo’s witness statement was filed in July 2017, and he must have known of this fact at the time when his witness statement was prepared.  The information was only later discovered by the Defendant through third party discovery.  I find that his evidence in this respect was deliberately misleading.

53.For these reasons, I have had serious reservations about the overall reliability and credibility of Rabo’s evidence, especially where it was not supported by contemporaneous documents or undisputed facts.  I will further deal with his evidence in relation to the events on 9 and 28 August 2015 further below.

(ii)  John

54.In contrast with Rabo, John gave evidence in a direct and straightforward manner.  Overall, I do not think John was an evasive witness, and his demeanor in giving evidence was satisfactory.  Having said this, I take into account that John had a ‘more subsidiary role’ in the events in this case, as he accepted in cross-examination.[10] For example, John was not present at the 9 August 2015 meeting, and he was only a participant in Chat Group 1 with Rabo and Lawrence.  Kelvin was not ‘his contact’ and the Beijing buyer was Lawrence’s contact.  His real ‘added value’ to the deal was his personal acquaintance with Lawrence.

55.Moreover, his account of what transpired at the meeting on 28 August 2015 and other events essentially mirrored that of Rabo, and I have already expressed my reservations about Rabo’s evidence overall.  I also bear in mind both Rabo and John have a common financial interest in the outcome of the present case, and they worked closely together in this endeavour at the material time. I have also cautioned myself from placing excessive reliance on demeanor as a reliable guide to the truth. 

56.John was cross-examined about the reasons why he requested commission from Lawrence instead of from the seller’s side.  His evidence was that the reason he approached Lawrence was because Kelvin asked him to do so, and because John suspected that Lawrence had already collected a share of the commission that should have been payable to Rabo and himself.  I am unable to accept this explanation.  If there was, in truth, a concluded finder’s fee agreement with Kelvin which entitled them to fees, I am unable to see why the Plaintiffs persisted in chasing after Lawrence, in his capacity as the purchaser of the shares, for commission in March 2016. 

57.John was also cross-examined about the Internal Notices dated 28 August 2015 and why the terms of his notice were different from Rabo’s.  John’s evidence was that he printed a hard copy of the document in the afternoon on 28 August 2015, and handed it to SBI’s Chief Executive Officer, Mr Kenny Wong Kin Fai.  On the face of the documents, there was a clear inconsistency between their terms.  John’s Internal Notice said that he acted as introducer to Lawrence while Rabo’s Internal Notice stated that Rabo acted as introducer to Kelvin.  Moreover, John’s Internal Notice was inconsistent with his claim in this action which is made on the basis that both he and Rabo acted as introducers for the seller, Kelvin.  In seeking to explain these inconsistencies, John’s evidence was that he came to know Lawrence for a longer time so he decided to portray himself to be a person who would introduce a seller to him.  This evidence is inconsistent with his own case.  In my judgment, the indisputable inconsistencies between Rabo and John’s Internal Notices militate against the conclusion that there was a concluded finder’s fee agreement as at 28 August 2015 to which Rabo, John and Lawrence were party on the one hand, and Kelvin on the other.  If that were truly the case, I am unable to see why John would have to seek SBI’s consent to act as introducer to Lawrence.

(iii)  Kelvin

58.As with Rabo, I also did not form a favorable impression of Kelvin’s evidence at trial.  Kelvin gave extensive evidence on matters which were simply not covered in his witness statement. 

59.I also have reservations over his recollection of events on 28 August 2015.  For example, in his witness statement, he mentioned that Rabo and John had proposed a dubious deal structure on that day.  He then explained that “it came to him” that Rabo had previously been subject to disciplinary action by the SFC.[11] I have serious reservations as to whether this truly reflected his actual thought process on the day, or whether this was simply added by someone ex post facto.  It seems to me that this prejudicial material was only included in hindsight with a view wholly to create a negative impression of Rabo.  This affected my overall evaluation of the credibility of his witness statement.

60.His evidence was that he was not interested in proceeding with the deal structure proposed by Rabo and John on 28 August 2015 because he had received professional advice from Mr Jamie Cheung and Ms Bowie Fung that the structure was problematic. However, as pointed out by Mr Dawes SC, he only obtained that advice in November and December 2015, and as such it could not have represented the real reason why he did not wish to engage further with the Plaintiffs. 

61.Kelvin also gave evidence, for the first time, in relation to another illegal proposal involving under-table payments in Macau put forward by the Plaintiffs on 12 September 2015.  However, this proposal, not to mention this meeting, was not even mentioned in his witness statement.  It struck me that Kelvin was at pains to paint the Plaintiffs with a prejudicial brush at all costs, even to the extent of mentioning matters for the first time in the witness box.

62.Another matter is that Kelvin failed to disclose any of his WhatsApp or WeChat messages in the present case.  As a practical matter, this is less of a concern with respect to Chat Group 2 since Rabo has produced the WhatsApp records between the two of them already. 

63.Chat Group 2 was between Rabo and Kelvin.  But there were also messages between Kelvin and Lawrence.  Kelvin did not disclose these, and Lawrence was actually subpoenaed by Kelvin to produce his WeChat dialogues at trial.  Lawrence could no longer access them and he explained why that this was the case. 

64.There were certainly WeChat messages between them because there was a screenshot of a WeChat message between Kelvin and Lawrence placed in evidence.  The screenshot was a picture sent by Lawrence on 31 March 2016, and Rabo and John disclosed this document. 

65.Kelvin stated to Lawrence that “there is strictly no private deal nor any agreed commission paid to them from my side. I don’t know your side”.  I am unable to place any reliance on this message because the Court has not been provided with the complete record of the WeChat messages as between Kelvin and Lawrence.  

66.I have been unable to accept the entirety of Kelvin’s evidence at face value, and as with Rabo, I also have concerns about the overall reliability of his evidence. 

(iv)  Lawrence

67.Lawrence filed a very short witness statement on behalf of Kelvin which contained a few short and uninformative paragraphs about what happened on 28 August 2015.  He clearly knew more than what he was prepared to include in his witness statement.  He did not, for example, give any account of what was discussed in his private meeting with Kelvin on 17 September 2015.  In my judgment, his witness statement was perfunctory and superficial.  I am unable to place any reliance on it.  It is also clear, in my judgment, that Lawrence wanted to avoid coming to court to testify.  He failed to attend court at the scheduled time and day. His explanation was that his secretary’s neighbour contracted Covid-19, and he expected that he would also be designated as a “close contact” and hence could not come to court.[12] But he was not under any government quarantine order at the time.  

68.In my judgment, this was a lame excuse and he wasted the time of everyone.  He did not make any inquiries with the court beforehand and unilaterally decided not to attend.  This situation led to an adjournment of the trial for Mr Pow SC’s team to secure his attendance by way of subpoena, which was applied for and granted by me at trial. Lawrence answered the subpoena and attended trial to give evidence on 30 August 2021.  The sheer lack of effort in his written evidence, and his evasiveness in attending trial left me with the distinct impression that he could not be relied upon as a witness of the truth. 

69.Given the brevity of his witness statement, his evidence in cross-examination strayed to matters which were not covered in his statement at all.  This was unsatisfactory since the purpose of the exchange of a witness statement is to ensure that all cards are on the table, and to prevent surprise at trial.  Since Lawrence was subpoenaed as a corroborative witness by Kelvin as to what transpired on 28 August 2015, I will focus my evaluation as to his evidence in that regard.

70.His evidence in relation to the 28 August 2015 meeting was that he did not hear anything about the confirmation of finder’s fee or commission at the meeting.[13] From cross-examination, it was clear to me that he did not have a sound recollection of what transpired at that meeting.  He could not recall whether there were discussions about the intended acquisition price at that meeting.  Moreover, he admitted that there were certain aspects of their conversation that he did not bother paying attention to.  Overall, he struck me as being equivocal insofar as his recollection of what happened on that day.  In these circumstances, it is difficult for me to attach weight to his statement that he did not hear anything about the finder’s fee at that meeting.  I am unable to place reliance on his recollection of what transpired on 28 August 2015. 

71.Lastly, I will refrain from making any finding or speculating as to the precise arrangement, if any, between Lawrence and Kelvin with respect to the eventual sale and purcase.  That is not a pleaded issue in this case, as Mr Dawes SC fairly accepted in closing submissions. 

ANALYSIS OF THE EVIDENCE

72.In evaluating the evidence, I have primarily based my findings of fact on the inherent probabilities, the undisputed documentary evidence and the known or probable facts.  Given my observations about the unsatisfactory reliability of the witness testimony in this case, I have placed less reliance on their personal recollection of events, except where there is independent support from the documentary evidence or undisputed facts.  The existence of independent evidential support, and the inherent probabilities are matters which assume an even greater significance in the present case given the care I must approach the witness testimony in this case.  The observations in Gestmin SGPS SA v Credit Suisse (UK)  Limited at [16-20] are particularly apposite here.

73.I also bear in mind that the Plaintiffs bear the burden of proof in establishing the oral agreement, and that there is no burden on the Defendant to persuade the Court that its alternative version of events should be accepted.  I have cautioned myself against jumping to the conclusion that the Plaintiffs’ version of events on 28 August 2015 must necessarily be accepted even though I have been unable to place any reliance on Lawrence’s recollection on what happened and that I have certain reservations over Kelvin’s evidence as well.  After all, it is up to the Plaintiffs to prove their case on a balance of probabilities.

74.In my judgment, the first question of fact to determine is whether Rabo and Kelvin reached a binding finder’s fee agreement on 9 August 2015 at the Pacific Club.  The entire basis of the Plaintiffs’ claim is predicated on the existence of this agreement.  Their case is pleaded and advanced solely on the basis that there was first an initial agreement on 9 August 2015 which was later varied on 28 August 2015.[14] If there was no valid agreement entered into on 9 August 2015, there would be no contract in existence to vary on 28 August 2015. 

75.I have taken into account the detailed submissions filed by both parties in this regard.  I have been assisted by these submissions, but I do not think it would be productive to individually set out each and every criticism made in this judgment. Rather, I will focus on the main points which have led me to reject the Plaintiffs’ factual case that a binding oral finder’s fee agreement was reached on 9 August 2015. 

76.First, I take into account that there was no written record evidencing that a finder’s fee agreement was concluded on 9 August 2015 in the terms alleged by the Plaintiffs. 

77.In cross-examination, Rabo admitted that he never attempted to record the finder’s fee agreement in writing:

“Q: The next general question. Between 9 August 2015 and up to 28 April 2016, which is the date of the Baker & McKenzie demand letter, did you ever attempt to record the agreement and its terms or the varied agreement and its terms in black and white”.

A:  Not in black and white”.[15]

78.Rabo also admitted that, in all the text messages, there was no record of Kelvin agreeing to give him finder’s fees:

“Q: In all the text messages, do you agree that there is no record of the defendant, Mr Ko, agreeing to give you finder’s fees, firstly? Agree or disagree?

A: Not reflected in the messages, yes.”[16]

79.Rabo’s evidence was that due to his relationship with Kelvin for over 20 years, he did not ask him to execute a written agreement.[17] Even if that were true, it does not explain why there was nothing in Chat Group 2 between Rabo and Kelvin which suggests that a finder’s fee agreement was reached on 9 August 2015.  There was no message from Rabo to Kelvin confirming, or even remotely suggesting, that an agreement had been reached following their meeting at the Pacific Club on 9 August 2015.  Given his business experience and background, Rabo must have understood the value and significance of a written contemporaneous record even if the agreement was concluded orally at first.  I do not think this can simply be explained away by saying this was a private business deal between friends.  This is especially the case given that the potential finder’s fee payable was potentially substantial. 

80.In my mind, the absence of a written contemporaneous record is a factor which suggests that no contract was concluded.  Rabo was cross-examined about the lack of written recording of the alleged agreement.  His answer was that things were in progress, and if there was no mutual trust, it would not proceed at all.[18] I reject this explanation.  I do not accept that sending a message to Kelvin confirming their agreement would have jeopardized the matter to the extent that it could not proceed.

81.Moreover, there was also no reference to an agreement for finder’s fees or the formula in Chat Group 1 between Lawrence, Rabo and John immediately after 9 August 2015.  Rabo only spoke of a “preliminary plan” in Chat Group 1 on 10 August 2015 at 2:15pm. He made no mention of any agreement with Kelvin or the fees payable.  This is surprising because the meeting with Kelvin had just taken place on the previous day, and if there was an agreement reached with him, one would have expected Rabo to have shared this with John and Lawrence.

82.While Rabo did mention a ‘verbal agreement at initial stage’ in Chat Group 2 to Kelvin on 16 March 2016 at 10:38am, this was only at a very late stage after Rabo discovered the deal and it failed to identify the date on which the agreement was reached or its main terms.  I am unable to attach any weight to this message in determining whether an agreement was concluded on 9 August 2015. 

83.In terms of documentary evidence, there are also the two Internal Notices dated 28 August 2015 by Rabo and John to their respective employers.  These notices do not speak of any agreement reached on 9 August 2015, and for reasons I have already mentioned, their inconsistent terms undermines any suggestion that there was any concluded variation of a finder’s fee agreement on 28 August 2015.  These Internal Notices both said “no concrete plan is concluded currently”, and made no mention of any specifics of the alleged finder’s fee agreement. 

84.I find that Rabo’s explanation for failing to notify Kingsway immediately after the conclusion of the alleged agreement on 9 August 2015 is completely incredible.  His explanation was that only he and Kelvin were at that meeting, and he offered no other reason.[19] In my judgment, that was an wholly unimpressive and illogical answer.  I find that the real reason Rabo did not notify Kingsway immediately is because there simply was no concluded agreement reached on 9 August 2015.  Moreover, I find that Rabo was deliberately misleading in his evidence when he gave the impression in his witness statement that the Internal Notice was received and signed by Michael Choi of Kingsway contemporaneously, when it was only presented to him in August 2016.

85.Second, on Rabo’s account, I find that it is difficult to believe there was no negotiation by Kelvin whatsoever in relation to the finder’s fee on 9 August 2015.  Rabo’s evidence was that he explained to Kelvin that he and his business associates had a buyer who was interested in buying a listed shell and was willing to offer HK$350,000,000 for 100% of the shares in BWHL.  According to Rabo, the meeting concluded with an agreement that Kelvin would pay Rabo and his business associates a finder’s fee on the completion of the sale and purchase of all or part of the shares with reference to the Formula.[20] On his account, there was no detailed negotiation over the terms, which is wholly consistent with the fact the meeting was fairly short and only lasted about 15 minutes.  However, under the Formula, Kelvin would not benefit if the valuation was over HK$350,000,000.  Irrespective of what valuation Kelvin was privately content with, it is contrary to commercial common sense for an agreement to have been concluded without at least some negotiation as to terms and the fees payable.  On any view, Kelvin’s interest in BWHL was a valuable asset, and depending on the eventual valuation, the finder’s fee payable to Rabo and his business associates could substantially reduce the net amount Kelvin would eventually receive.  Kelvin was an experienced businessman with a controlling stake in a listed company.  I find that it is incredible that Kelvin would have agreed to ‘cap his upside’ at a valuation of HK$350,000,000 without even trying to negotiate.

86.In this regard, I have not lost sight of Mr Dawes SC’s point that prior to the 9 August 2015 meeting, there were messages on 7 August 2015 in Chat Group 1 suggesting that the purchaser whom Lawrence represented was willing to offer a ‘base price’ of $350,000,000.  The point was, I believe, to provide the context for the price mentioned at the 9 August 2015 meeting.  I do not consider, however, that this negates the point that one would have expected a process of negotiation during that meeting.  Even if Rabo believed that there was a genuine offer in the range of $350,000,000 in the pipeline, it was not commercially sensible for Kelvin to have simply agreed to cap his upside at that valuation especially since Kelvin did not know much about that offer. 

87.Moreover, in this regard, I accept Kelvin’s evidence that, as at 9 August 2015, he had not yet made a final decision as to the price at which he was prepared to sell his stake in BWHL.[21]

88.Third, I agree with Mr Pow SC’s submission that Rabo’s version of events is incredible from his own perspective.  Under the Formula, Rabo and his associates would not actually stand to earn anything if the eventual valuation was lower than $350,000,000.  On Rabo’s account, he did not even attempt to negotiate with Kelvin to cater for the payment of finder’s fee where the eventual valuation was lower than $350,000,000, but at a level which was still acceptable to Kelvin.  In this regard, Rabo’s evidence was that the rough going price of a GEM-listed shell was $300,000,000 and that he had heard that Kelvin was looking for $310,000,000.[22] At the time, however, there was no guarantee that Rabo could find a purchaser who was willing to purchase at a valuation above $350,000,000.  In these circumstances, I find that it is highly improbable that an agreement was concluded on 9 August 2015 without scarcely an attempt by Rabo to negotiate with Kelvin on the finder’s fee payable if the valuation was below $350,000,000.

89.Fourth, I also find that the existence of a concluded finder’s fee agreement on 9 August 2015 is difficult to reconcile with the Plaintiffs’ version of events as to what happened at Grappa’s on 28 August 2015.  In particular, according to the Plaintiffs, on 28 August 2015, Kelvin agreed to include 3% of the shares as part of the agreed finder’s fee.[23] Their explanation was that Lawrence had expressed concern on that day that the agreed finder’s fee was too low and he made a request that the fees payable be increased by the additional 3% in shares.  However, on the Plaintiffs’ case, a binding agreement had already been reached on 9 August 2015.  On that basis, it is difficult to believe that Kelvin would have added an extra 3% shares simply because the finders asked for it.  I do not accept Rabo’s evidence that Kelvin responded to Lawrence’s request for the extra 3% shares by simply saying “no problem”.[24]  If there truly was a valid and binding agreement already in existence on 9 August 2015, it is wholly unclear to me what incentive Kelvin would have in offering the additional 3% in shares.   

90.Fifth, I also find that the subsequent conduct of the Plaintiffs in seeking commission from the buyer’s side difficult to square with the existence of a binding agreement for finder’s fee payable by the seller.  After learning about the deal, the Plaintiffs immediately sought commission from Lawrence.  John asked Lawrence for commission by a message sent at 8:56am on 16 March 2016 in Chat Group 1. John followed-up with a long message explaining why Lawrence should pay commission sent at 12:51pm on 31 March 2016 in Chat Group 1.  There are other messages in Chat Group 1 to this effect as well.  But if Kelvin was liable to pay a finder’s fee, as seller, under a binding agreement, it is difficult to see why they would immediately approach Lawrence for commission.  Their fees would be covered by their entitlement from Kelvin, and there would be no reason to approach Lawrence.  This is so even if the Plaintiffs genuinely held the view that Lawrence went behind their back to complete the deal without their involvement.  The approach of the Plaintiffs was, essentially, to see what they could get from either Lawrence or Kelvin by making requests for fees.  In my view, this is hardly consistent with a valid and binding agreement on the seller’s side.

91.Sixth, there was no mention of any finder’s fee agreement having been concluded on 9 August 2015 in either Baker & McKenzie’s letter of 28 April 2016 or in Dechert’s letter of 20 May 2016.  Both of these letters were sent on behalf of the Plaintiffs by reputable law firms.  I find it difficult to believe that if there was, in truth, an agreement concluded on 9 August 2015 that it would be omitted from these demand letters.  The letters of 28 April 2016 and 20 May 2016 were the first two formal demand letters made by the Plaintiffs, and their contents reflect the contemporaneous understanding of the nature of the claim made by the Plaintiffs and their lawyers.  Rabo was cross-examined on this issue, and he was unable to give any satisfactory explanation with respect to either of the two demand letters.[25] I was not convinced by his answers which I found to be deliberately evasive.  I am also not convinced by the Plaintiffs’ reliance on John’s evidence that they were not satisfied with the services of Baker & McKenzie.  The letter of 28 April 2016 was sent on the Plaintiffs’ instructions and with their approval.  I find that any attempt to shift the blame to the former lawyers is not well-founded. 

92.Moreover, neither of these two letters mentioned the additional 3% in shares which Kelvin allegedly agreed to pay to the Plaintiffs on 28 August 2015.  I find that Rabo’s explanation in cross-examination that he instructed his lawyers not to mention this because he was giving Kelvin “a favour” or “concession” to be unconvincing.  

93.Seventh, there was a fundamental change in the case as set out in the letters of 28 April 2016 and 20 May 2016, as compared with the Draft Writ.  The existence of an agreement on 9 August 2015 was mentioned for the first time in the Draft Writ. I do not speculate as to why this is the case, but I am unable to brush aside the glaring omission in the two previous demand letters.  This was not a matter of legal nicety as it went to a fundamental factual issue in the case, namely, the date on which the finder’s fee agreement was actually reached.  Moreover, even the case set out in the Draft Writ is inconsistent with the Plaintiffs’ case as eventually pleaded in this action.  There was no mention in the Draft Writ that there was a variation of agreement on 28 August 2015, nor any reference to the additional 3% in shares at all.  Overall, in my judgment, the fluid and evolving manner in which the Plaintiffs’ case was advanced contemporaneously undermines its credibility.

94.I should mention that I do not accept Mr Pow SC’s submission that Rabo put forward a new case for the first time in the witness box.  It was suggested that Rabo had testified that only the shell price was agreed on 9 August 2015, and that the Formula was in fact only agreed on 28 August 2015.[26] This was a point made repeatedly in written closing submissions.  I have not placed any reliance on this point because I do not think it is a fair reading of Rabo’s evidence in context.

95.For these reasons, I find that as a matter of fact there was no finder’s fee agreement concluded on 9 August 2015 between Rabo and Kelvin.  I accept Kelvin’s evidence that the discussion at that meeting was “very brief, general and non-conclusive”. This is so despite my misgivings over the general realiabilty of his evidence, as I believe it is the likely version of events given the considerations I have discussed above.  While I accept that there were likely to have been discussions between them regarding whether Kelvin was prepared to sell his controlling interest in BWHL, I do not accept that a valid and concluded finder’s fee agreement was reached between them on that occasion. 

96.There is little, if anything, in terms of contemporaneous documentation to support that conclusion.  Moreover, in terms of inherent probabilities and commercial reality, the sheer brevity of that meeting and the lack of negotiation between the parties make it unlikely that Rabo and Kelvin reached a concluded agreement.  This was, on any view, not a small or trivial deal, nor were the potential finder’s fees involved insignificant. The initial demand letters also did not make any reference to an agreement having been concluded on 9 August 2015 either.  The subsequent conduct of the Plaintiffs in seeking commission from Lawrence is also relevant.  These matters further undermine any suggestion that such an agreement existed.  

97.The Plaintiffs seek to rely on the lack of immediate denial by Kelvin after 16 March 2016 and by Kelvin’s solicitors of the claim.  It is common ground that there was eventually a meeting on 28 March 2016 where Kelvin refused to pay.  Moreover, as pointed out by Mr Pow SC, the Plaintiffs’ claims were denied in full by DLA Piper’s letter dated 23 August 2016.  I do not think too much can be read into Hui & Lam’s reply of 7 June 2016.  They were asserting regulatory breaches, and they reserved the right to reply substantively once particulars were provided.

98.One of the major criticisms raised by the Plaintiffs is that Kelvin’s case is one of bare denial.  I do not accept this submission.  His evidence in relation to 9 August 2015 is that the finder’s fee was not discussed, and that there was no agreement reached.  He asked Rabo about the potential buyer, and there was nothing concrete yet.  I agree with Mr Pow SC’s submission in oral closing submissions that this was an unwarranted criticism of Kelvin’s evidence.

99.In my judgment, my finding of fact regarding 9 August 2015 is already determinative of the Plaintiffs’ claim.  As I have menioned above, the Plaintiffs’ case is predicated on the existence of a finder’s fee agreement already being in place by 9 August 2015.  There was, therefore, no agreement to vary on 28 August 2015.  In any event, in relation to the events on that day, I find that there were discussions between Rabo, John, Lawrence and Kelvin in relation to the potential deal structure in relation to the potential sale of Kelvin’s interest in BWHL.  It is unnecessary to go into the details of these discussions.  For reasons I have already explained, I do not accept the Plaintiffs’ evidence that Kelvin agreed to give an additional 3% in shares on Lawrence’s request.  There is no valid commercial reason for Kelvin to have done so if there was already a binding agreement in place. 

100.In this regard, the Plaintiffs have placed reliance on Lawrence’s voice messages on 18 September 2015.  This followed from the private meeting by Lawrence with Kelvin the previous evening, and Lawrence said that Kelvin raised an issue about the 3% shares and Kelvin was looking for some benefit if he had to pay.  The Plaintiffs argue that this can only be explained by a pre-existing finder’s fee agreement in the terms they suggest.  I do not accept this submission.  I agree with Mr Pow SC that the fact that Lawrence did raise the issue of remuneration at this time does not necessarily suggest that an agreement had been previously concluded.   Viewed against all of the other factors I have identified above, and given that there is nothing to connect the reference to 3% shares to an agreement on 28 August 2015, I do not think that this point is sufficient to prove the alleged agreement. 

101.Moreover, I find that the existence of a finder’s fee agreement on 28 August 2015 in the terms that the Plaintiffs allege is inconsistent with the terms of the two Internal Notices prepared by Rabo and John respectively.  I accept Mr Pow SC’s submission that it is difficult to see why John deliberately changed the wording of his Internal Notice if he had been party to an agreement to introduce a potential buyer to Kelvin.  The wording of the Internal Notice is also equivocal as it said “no concrete plan is concluded”, and although it did mention the potential payment of finder’s fees, it made no reference to any specifics such as the formula, the amount of fees payable, or the 3% additional shares. 

102.I agree with Mr Pow SC that the Internal Notices only go to show that Rabo and John might have expected a finder’s fees to be payable, but it remained unknown and to be confirmed who was going to pay even if the deal materialised.  This, in my view, is consistent with the fact that the Plaintiffs chased after Lawrence for the payment of commission on 16 March 2016, and continued to do that afterwards. 

103.I do not accept that the Plaintiffs have discharged their burden of proof to show that, on a balance of probabilities, on 28 August 2015 there was any agreement that John and Lawrence would collaborate with Rabo as a finder, and would be entitled to share in the finder’s fee in accordance with the formula.  I also do not accept that there was an agreement on the part of Kelvin to offer an additional 3% of his beneficial interest in BWHL to Rabo, John and Lawrence as finder’s fees.

104.Further, I find that, as a matter of fact, it was never contemplated by the parties as at 9 or 28 August 2015 that one of the original finders would actually become the eventual purchaser of Kelvin’s interest in BWHL.  This, I belive, cannot possibly be disputed.

105.The whole purpose of the collaboration, on the Plaintiffs’ case, was that Rabo, John and Lawrence would work together to identify an outside purchaser for Kelvin.  I do not think that it is inherently probable that the parties would have ever agreed to a finder’s fee agreement that would be broad enough to cover a situation where one of the three original finders ended up being the purchaser. 

106.Mr Dawes SC’s answer was to focus on the terms of the agreement as pleaded, and he contended that they were sufficiently wide.  But, in my view, this begs the question as to whether it was probable that such an agreement existed in the first place.  We are dealing with an oral agreement.  My task is not to construe the pleadings as if they were terms set out in a written agreement.  I do not think that a narrow focus on the terms pleaded is an answer to the wider and more important point, namely, whether the parties ever actually contemplated this situation arisng at the time.  This is an important part of the factual matrix which is essential to consider when evaluating the inherent probability of the agreement pleaded. In my judgment, it is far-fetched to think that the parties would have ever agreed to an agreement so wide in scope.  Rabo and John may or may not have a complaint against Lawrence, but that is besides the point.  I find that the Plaintiffs’ case in this regard is divorced from the reality of the actual situation.

107.Lastly, the Plaintiffs invited me, relying on Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 356 to draw an adverse inference against Kelvin with respect to his failure to disclose his instant message communications with Lawrence.  It was argued that this was because Kelvin knew that these documents would either support the existence of the agreement, or be detrimental to Kelvin’s defence that Lawrence’s purchase of these shares was unrelated to the efforts of the Plaintiffs. 

108.In view of Kelvin’s failure to disclose, I have already decided to attach no weight to the screenshot of the WeChat message between Kelvin and Lawrence sent by Lawrence on 31 March 2016.  I have already observed that Kelvin’s explanation for his failure to disclose and preserve those messages is unsatisfactory.  The question is whether I should go further and draw the adverse inference urged upon me by the Plaintiffs.  After giving the matter anxious consideration, on balance, I have decided not to do so.  These are my reasons.  First, there was no specific discovery application taken out by the Plaintiffs.  This, in my view, undermines the suggestion that the Plaintiffs truly believed that these documents were of importance to the disposition of this case.  The disputes over how Kelvin no longer had access to these messages could have been efficiently ventilated in the context of a specific discovery application.  Second, the evidence suggests that Kelvin did not have Lawrence’s telephone number until 17 September 2015.  As such, their messages would have been created after the alleged finder’s fee agreement was concluded.  Third, insofar as Kelvin has sought to rely on the WeChat message screenshot as a purported denial of the agreement, I have already rejected this and decided to place no weight on it.  Fourth, to the extent the messages are sought to show that Kelvin’s case that Lawrence’s purchase was “unrelated” to the Plaintiffs is not well-founded, I have not placed reliance on this aspect of Kelvin’s evidence in this judgment.[27]

THE ILLEGALITY DEFENCE

109.In view of my conclusion above, it is strictly unnecessary for me to determine the issue of illegality under section 114 of the SFO.  For the sake of completeness, and had it been necessary to do so, I do not consider that the illegality defence would have been established.  I will briefly explain my reasons for this conclusion.   

110.Kelvin’s case is that if the finder’s fee agreement had existed it would have been void and/or unenforceable by reason of contravening section 114 of the SFO because the Plaintiffs were purportedly carrying on a regulated activity or performing a regulated function in relation to regulated activity defined in Schedule 5 to the SFO, namely, (i)  advising on securities and/or (ii)  advising on corporate finance, when neither of them acting in their personal capacity was licensed to do so.[28] The particulars were that Rabo and John had been involved in advising on deal price and structure in their personal capacities, and not as representatives of Kingsway and SBI, respectively.[29]

111.I would not have accepted the illegality argument for the following main reasons.

112.In order to rely on the doctrine of illegality, it must be shown that the plaintiff needs to plead or rely on the asserted illegality in proving his entitlement before the enforcement of the right would be refused by the Court.  This is the approach to illegality under Tinsley v Milligan [1994] 1 AC 340 which still represents current Hong Kong law: see Kan Wai Chung v Hau Wun Fai [2016] 5 HKC 585 at [8.7] per Cheung JA.  In the present case, I agree with the Plaintiffs that they were not required to plead or rely on the particulars of the alleged illegal conduct in order to justify their entitlement under the finder’s fee agreement.  On the Plaintiffs’ case, it is the introduction of a purchaser which triggers the entitlement to a finder’s fee.  In my judgment, whether or not they did in fact advise on the deal price or structure is not a necessary element for the Plaintiffs’ claim to succeed.  

113.I also agree with the Plaintiffs that the Defendant is not entitled to take the illegality point in any event.  As Mr Dawes SC correctly pointed out, the prohibitions in SFO section 114(1)  and (3)  are triggered only if the regulated activity or function was “carried on as a business”.  The question of whether certain conduct amounts to the carrying on of business is a question of fact and degree, and the concept involves a degree of continuity and repetition: Lee Yee Shing v Commissioner of Inland Revenue (2008)  11 HKCFAR 6 at [69-70] per McHugh NPJ; SFC v CL Management Services Ltd [2018] 3 HKC 327 at [17-20] per M Poon J.  In the present case, Kelvin has not pleaded that the Plaintiffs carried on business in a regulated activity or function. 

114.For this reason alone, I do not consider that the illegality plea is a sustainable one.  This is not a mere technical objection. As a matter of fairness, the Plaintiffs ought to be entitled to know what facts were relied upon in support of the particular allegation.  It would have been open, for example, for the Plaintiffs to meet the unpleaded allegation by saying the conduct was a single, one-off venture which did not amount to the carrying on of business within the meaning of section 114(1)  and (3).  Evidence could have been directed towards that issue had the matter been properly raised.  In my view, in the absence of a proper pleading, I do not think the Defendant is entitled to take the point.  

115.In the premises, it is unnecessary for me to deal with the Plaintiffs’ argument that Wong Lung v Chinese University of Hong Kong Employees’ Credit Union (HCA 1122/2010, 2 November 2016)  was wrongly decided and should not be followed. DHCJ Wilson Chan (as he then was)  held at [65-91] that a contract which contravenes section 114 of the SFO should not be given effect to.  There were detailed submissions made by the Plaintiffs as to why the reasoning in that case was flawed.  Without any disrespect, I do not intend to set out these submissions in detail.  I do not express a view on this issue.  In my judgment, it would be more appropriate for the the issue to be determined, if at all, in a future case where it is necessary for it to be resolved.

CONCLUSION

116.For these reasons, I dismiss the Plaintiffs’ claims.  I make a costs order nisi that the Plaintiffs pay the Defendant the costs of this action, including all costs reserved, to be taxed if not agreed.

Mr Victor Dawes SC leading Mr Martin Ho, instructed by MinterEllison LLP, for the Plaintiffs

Mr Jason Pow SC leading Mr Lau Ka Kin, instructed by Kitty So & Tong, for the Defendant