Yau Sang Galvanizing (Hot-dip) Company Ltd (Formerly Known As Yau Sang Galvanizers (Hot-dip) Company Ltd v. Fashion Tress (America) Engineering Company Ltd and Others

HCA 1702/2021

[2025] HKCFI 529

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1702 OF 2021

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BETWEEN

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J U D G M E N T

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A.  INTRODUCTION

1.This is the trial of a land dispute in relation to industrial premises located at No. 59 Fuk Hi Street, Yuen Long Industrial Estate, Yuen Long, New Territories (“Premises”).

2.The Plaintiff, Yau Sang Galvanizing (Hot-Dip)  Company Limited (“P”), claims against the Defendants (“Ds”), being the occupants of the Premises for, inter alia, vacant possession of the Premises and mesne profits.

3.By way of counterclaim, Ds claim against P for:

(1)  a declaration that P has sold its interests in the Premises to the 1^st Defendant, Fashion Tress (America)  Engineering Company Limited (“D1”), and is accordingly not entitled to vacant possession of the same vis-à-vis Ds;

(2)  further or alternatively, a declaration that P is estopped from asserting any title or right (or a better title or right)  against Ds in relation to the Premises.

B.  INDISPUTABLE FACTUAL BACKGROUND

4.Unless otherwise indicated, the following facts are undisputed or indisputable, and I find them as facts.  Matters from the parties’ agreed statement of facts have also been incorporated.

B1.  THE PARTIES, RELATED ENTITIES AND PERSONNEL

(1)  P, related entities and personnel

5.P is and was at all material times:

(1)  a Hong Kong incorporated company with its registered office at No. 91-93 Fuk Hi Street, Yuen Long Industrial Estate, Yuen Long, Hong Kong.

(2)  the lessee of the Premises under a lease dated 10 August 1995 (“Lease”)  between P and Hong Kong Science and Technology Parks Corporation (“HKSTP”).  The Lease, as varied by a Deed of Extension of Lease Term and Modification also dated 10 August 1995 (“Deed of Extension”), is valid from 3 September 1985 to 27 June 2047 (“Extended Lease”).

6.Between 3 March 1998 to 2 March 2002, P’s directors were as follows:

(1)  Kam Ming Development Co Ltd (“Kam Ming”);

(2)  Favour Progress Co Ltd (“Favour Progress”);

(3)  Rockley Co Ltd (“Rockley”); and

(4)  Mr Ting Wai Ming (“Mr Ting”).

7.Prior to around July 2005, Mr Vincent Choi (“Mr Choi”)  was at all material times P’s Managing Director and General Manager (董事總經理及總經理)  and was responsible for overseeing the overall management of its business strategy, production and daily operations.

8.Kam Ming was associated with Mr Choi in that:

(1)  Mr Choi was one of the two directors of Kam Ming between 1997 and 1999, with the other director being his wife (i.e. Madam Chan Miu Kee).

(2)  Between 2000 and 2002, Mr Choi was one of the four directors of Kam Ming, with the other directors being his wife (i.e. Madam Chan Miu Kee)  and his children (i.e. Choi Ka Tsun and Choi Ka Ling).

9.As for Favour Progress and Rockley:

(1)  Favour Progress: Between 1997 and 2002, Favour Progress had 2 directors and 2 shareholders, namely, Mr Fong Siu Nang (“Mr Fong”)  and Madam Lee Lim (i.e. Mr Fong’s mother).  Favour Progress first became a director of P in 1999, prior to which Mr Fong was P’s director in his personal capacity since 1991.

(2)  Rockley: As of 2001 and 2002, Rockley had 2 directors, namely, (i)  Charternom Limited (“Charternom”)  and (ii)  Chartersec Limited (“Chartersec”).  As of 2001:

(a)  One of Chartersec’s directors was Charternom, which held 99.99% majority shareholding in Chartersec, with the remaining 1 out of 10,000 shares held by Mr Anthony Tse Yiu Tak (“Mr Tse”), the proprietor of the accounting firm Messrs. Anthony Y.T Tse & Co.  The other director of Chartersec was Taxon Property Development Limited.

(b)  Chartersec and Mr Tse were the directors of Charternom. 

10.In or around 2005, P’s directors, including, inter alia, Kam Ming, were removed as part of a management change (“2005 Management Change”)  and new directors, including, Mr Yan Hing Cheong (“Mr Yan”)  (i.e. P’s only factual witness in this trial)  were appointed.

(2)  Ds, related entities and personnel

11.D1 and the 2^nd Defendant, Yau Sang (Shotblasting-Painting)  Engineering Limited (“D2”), at all material times are and were both Hong Kong incorporated companies with their registered offices at No. 59, Fuk Hi Street, Yuen Long Industrial Estate, Yuen Long.

12.The shareholding of D1 is currently held as follows:

(1)  The 3^rd Defendant, Mr Yuen Sik Wa (“D3”)  – 20%;

(2)  The 4^th Defendant, Madam Chan Kwai Fong (“D4”)  – 20%; and

(3)  Fashion Tress Holdings Co., Ltd (“FTH”)  – 60%.

13.The shareholding of D2 is currently held as follows:

(1)  D3 – 5%;

(2)  D4 – 4.99%;

(3)  FTH – 90%; and

(4)  P – 0.01%.

14.D3 and D4 at all material times are and were directors of D1 and D2.

15.Apart from D1 and D2, D3 and D4 also at the material times owned and controlled the following companies:

(1)  FTH, a British Virgin Islands incorporated company; and

(2)  Fashion Tress Investment Company Limited (“FTI”), a Hong Kong company incorporated on 1 November 1985 with D3, D4 and D3’s mother as its directors and shareholders.

B2.  THE LEASE

16.By the Lease (as varied by the Deed of Extension)  between P and HKSTP, HKSTP demised the Premises unto P from 3 September 1985 to 27 June 2047 subject to its terms and conditions.

17.The Extended Lease contained, inter alia, the following non-alienation clauses (“Non-Alienation Clauses”):

(1)  Clause B(11)(a): “Except as provided in paragraphs (b), (c), (d), (e)  and (f)  hereof, not to assign mortgage charge demise underlet or part with the possession of the said premises or any part thereof or otherwise dispose of the said premises or any part thereof or any interest therein or enter into any agreement so to do nor to permit any other party by way of a licence or otherwise to occupy the said premises or any part thereof.”

(2)  Clause B(11)(f): “The Lessee may, subject to the prior written approval of [HKSTP], permit a subsidiary or associate company of the Lessee to occupy or share with the Lessee the use of part of (but not the whole of)  the said premises by way of licence on such terms for such duration and in such form as may be approved by and in conformity with any condition as may be imposed by [HKSTP] in its discretion.”

(3)  Clause 2 of the 3^rd Schedule to the Deed of Extension (replacing Clause B(11)(b)(i)  of the Lease): “In the event that the Lessee is desirous of assigning the said premises at any time during the term hereby demised the Lessee shall first by notice in writing to [HKSTP] offer to surrender this Lease… free from encumbrances and with vacant possession of the said premises at one of the following two considerations payable by [HKSTP] whichever shall be the lesser…”

B3.  DS’ OCCUPATION OF THE PREMISES AND THE EVICTION NOTICES

18.At some point in time prior to 2005, Ds began to occupy and use the Premises.  However, as will be seen in the paragraphs below, the parties are in disagreement as to the circumstances and reasons upon which Ds came into occupation and use of the Premises.

19.By a circular dated 4 February 2021, HKSTP stated to all its lessees (including P), inter alia, that with immediate effect, it would only permit classes of entities, including companies in which a lessee holds more than 20% but not exceeding 50% of the issued and paid up share capital with voting rights of that company, to be considered an associate of the lessee in question for the purpose of granting permission to use the leased premises.

20.In around late June 2021, HKSTP sent an email to Mr Yan stating, inter alia, that D1 and D2 were occupying or sharing the use of the space of the Premises, which raised a concern that P might be subletting, licensing or parting with possession of the Premises to a third party.

21.By a letter dated 21 July 2021, P’s solicitors at the time, Messrs Tse Yuen Ting Wong (“TYTW”), wrote to D1 stating that it had come to P’s attention that D1 had used and occupied the Premises from an unknown date without P’s authorisation and consent, and demanded it to vacate the Premises forthwith.

22.By another letter dated 21 July 2021, TYTW wrote to D2 stating, inter alia, that (1)  they understood that D2 was then using the Premises by way of licence; (2)  gave D2 written notice of termination of the licence; and (3)  asked for a reply within 3 days as to when D2 could vacate the Premises.

23.By 4 separate letters dated 21 October 2021 to each of Ds (“Eviction Notices”), TYTW (1)  stated that the occupation of the Premises by D1 and D2 was without the consent of HKSTP and in breach of the terms of the Lease; (2)  demanded the delivery of vacant possession of the Premises within 14 days; and (3)  reserved P’s rights and remedies including the right to commence legal action for repossession of the Premises and seek damages / mesne profits.

B4.  COMMENCEMENT OF THE PRESENT PROCEEDINGS AND PROCEEDINGS COMMENCED BY HKSTP AGAINST P

24.On 10 November 2021, P commenced these proceedings against Ds for vacant possession of the Premises and mesne profits.

25.On 21 April 2022, HKSTP commenced proceedings against P and D2 in HCA 439/2022, seeking damages for the breach of the Lease constituted by D2’s occupation of the Premises.

26.On 25 April 2022, HKSTP commenced proceedings against P before the Lands Tribunal in LDPE 256/2022, which were subsequently transferred to the High Court under HCA 941/2022.

27.To date, the proceedings commenced by HKSTP against P are still ongoing and Ds continue to occupy the Premises.

C.  THE PARTIES’ PLEADED CASES

C1.  P’S PLEADED CASE

28.P’s case as pleaded in the Statement of Claim filed on 10 November 2021 (“SOC”)  may be summarised as follows.

(1)  Sometime before P’s current management took control of P in around 2005, P’s former management had granted a licence to occupy the Premises or alternatively, a tenancy revocable at will (“Alleged Licence”)  to Ds as its associates to occupy the Premises.  To the best of P’s knowledge, the Alleged Licence was in effect granted by conduct, namely, by permitting Ds to occupy the Premises.

(2)  By the Eviction Notices, P revoked the Alleged Licence and demanded Ds to give vacant possession within 14 days, i.e. by 4 November 2021.

(3)  Ds failed to comply with the Eviction Notices and remained in occupation of the Premises as trespassers.

29.Accordingly, in the prayer of its SOC, P seeks the following reliefs:

(1)  An order that Ds do deliver the vacant possession of the Premises to P forthwith.

(2)  An injunction to restrain Ds by themselves or by any of their agents, employees or any persons authorised by any of them from entering into, using or occupying the Premises.

(3)  Damages / mesne profits until delivery of possession to be assessed.

30.Mr Val Chow (with Mr Zenith Chan), acting for P, in their written opening submissions, helpfully clarified that P only intends to seek mesne profits and will not pursue other heads of special damage.

C2.  DS’ PLEADED CASE

31.In a nutshell, Ds’ pleaded case as set out in their Defence and Counterclaim filed on 25 February 2022 (“D&C”)  is that they did not occupy the Premises pursuant to the Alleged Licence.  Instead, they have been occupying the Premises pursuant to an oral agreement concluded between Mr Choi (on behalf of P)  and D4 (on behalf of D1)  in around July 2001, whereby it was agreed that P’s interests in the Premises would be sold to D1 at a consideration of HK$5,000,000 along with the ancillary machinery at HK$500,000 (“Alleged Oral Agreement”).

32.According to Ds, the circumstances giving rise to the Alleged Oral Agreement were as follows.

(1)  D1 had been in the business of shotblasting, zinc spray and painting for over 25 years. It began to maintain a business relationship with P since around 1996 whereby D1 would sub-contract some of its projects relating to shotblasting and painting to P.

(2)  In around 2001, P intended to sell or otherwise dispose of its interests in the Premises because its business operations thereat had been loss-making.  Mr Choi, who was at the time a member of P’s senior management and had been communicating with D1 throughout their business relationship, orally informed D1 (through D3 and D4)  that P was considering 3 options, namely to (i)  surrender the Extended Lease to HKSTP; (ii)  sell or otherwise dispose of its interests in the Premises to a potential buyer; or (iii)  sell or otherwise dispose of its interests in the Premises to D1.

(3)  Option (i)  was not considered financially attractive since P would have to reinstate and remove all the pollutants at the Premises (which had been used and operated as an industrial plant and factory)  at its own cost as per HKSTP’s requirements, which would be very substantial.  P therefore approached D1 (which was one of the very few specialist operators in the industry of shotblasting, zinc spray and painting in Hong Kong)  and offered to dispose of its interests in the Premises to D1.

(4)  Mr Choi also mentioned during the negotiation process that a new entity might be jointly set up by P and D1 for the purpose of the intended disposal.

(5)  Eventually, the Alleged Oral Agreement was reached between Mr Choi (on P’s behalf)  and D4 (on D1’s behalf)  in or around July 2001, whereby P’s interests in the Premises would be sold to D1 at a consideration of HK$5,000,000 and that an auto-shotblasting machine and ancillary machine installed at the Premises (“ASB Machine”)  would be sold at an additional consideration of HK$500,000.

33.Thereafter, the parties took steps to implement the Alleged Oral Agreement.  

34.In this regard, there is no dispute that between around August and October 2001, P received a total amount of HK$5,500,000 from FTI by the following 3 cheques:

(1)  Cheque No. 028867 dated 6 August 2001 for HK$550,000;

(2)  Cheque No. 028910 dated 4 October 2001 for HK$2,800,000;

(3)  Cheque No. 754611 dated 4 October 2001 for HK$2,150,000.

35.In addition to the aforesaid payments, the other steps taken by the parties to implement the Alleged Oral Agreement included the following.

(1)  As proposed by Mr Choi, on 13 August 2001, D2 was incorporated with the following shareholding structure: (i)  D3 (5%), (ii)  D4 (4.99%), (iii)  P (0.01%)  and (iv)  FTH (90%).

(2)  On 4 October 2001, Mr Choi (on behalf of P)  and D4 (on behalf of FTH)  entered into a written Chinese agreement entitled “保證品抵押借款合約” (“Pledge Agreement”), pursuant to which FTH (as pledgee)  apparently agreed to provide a loan of HK$5,000,000 to P from 1 October 2001 to 30 June 2047, during which P was not required to repay.  In return, P apparently pledged the Premises as collateral.  It is an express term of the Pledge Agreement that D2 may use the Premises by paying an annual rent of HK$1.

(3)  On the same day when the Pledge Agreement was entered into, Mr Choi (on behalf of P)  and D4 (on behalf of D2)  also entered into a Chinese agreement / declaration entitled “買賣生財設備聲明” (“Sale of Equipment Declaration”)  pursuant to which P agreed to transfer to D2 all machine and equipment listed in the schedule, including the ASB Machine, at a consideration of HK$500,000.

(4)  P then vacated the Premises and D2 has then been and still is occupying the Premises and using it as an industrial factory / plant.

(5)  On 19 November 2021, FTH, D3 and D4 respectively transferred 9,000 shares, 499 shares and 498 shares in D2 to P.  On the same day, P made 3 declarations of trust (“Declarations of Trust”)  such that the same shares belonged beneficially to FTH, D3 and D4 were held on trust for them by P.  In return, P also passed to FTH, D3 and D4 their respective Instruments of Transfer signed by P in blank.  Thus, as at 19 November 2001, the shareholding structure of D2 (insofar as legal ownership of shareholding was concerned)  was as follows: (1)  D3 (0.01%); (2)  D4 (0.01%); and (3)  P (99.98%).

36.The arrangements including (1)  the incorporation of D2, (2)  the entering into of the Pledge Agreement and the Sale of Equipment Declaration, (3)  the share transfers on 19 November 2021, and (iv)  in return, the making of the Declarations of Trust and the signing and delivering of the Instruments of Transfer in blank (collectively “Corporate Arrangements”)  were all carried out solely pursuant to Mr Choi’s suggestion without any input or query from any of Ds. The transactional documents were also prepared by Messrs Anthony YT Tse & Co, an accounting firm engaged by P.

37.With the benefit of hindsight, the net effect of the Corporate Arrangements was to make D2 (which had a name very similar to that of P)  appear as P’s subsidiary (effectively wholly-owned or associated company)  to an outsider including HKSTP.  This allows the circumvention of the Non-Alienation Clauses in the Extended Lease.

38.It is Ds’ case that Mr Choi throughout had actual or at least apparent authority to represent and bind P by virtue of him:

(1)  holding the positions of Chairman and Chief Executive Officer of P at all material times until mid 2005; and

(2)  being one of the directors of P between 1982 and 1998 and, after 1998 until around 2005, being a de facto director of P through his corporate vehicle and/or alter ego, Kam Ming.

39.In around mid-2005, D3 and D4 were aware that P underwent a major management change whereby Mr Choi was removed from its management (i.e. the 2005 Management Change).  They felt insecure about the trust arrangement over their shares in D2 and they therefore caused the pre-signed Instrument of Transfer to be counter-signed.  As a result, the trust arrangement collapsed.

40.Alternatively, Ds seek to rely on promissory estoppel, proprietary estoppel and/or estoppel by convention, the effect of which is that D1 and D2 have a better title to and/or better right to occupy the Premises vis-à-vis P because but for the Alleged Oral Agreement, D1 would not have transferred HK$5,500,000 to P.

41.In this regard, during oral closing submissions, Mr Vincent Lung (appearing on behalf of Ds, together with Ms Alice Lau)  confirmed that Ds would abandon the plea of estoppel by convention and will only rely upon promissory estoppel and/or proprietary estoppel.

42.In the circumstances, Ds, in the prayer of their Counterclaim, seek the following reliefs:

(1)  A declaration that P has, pursuant to the Alleged Oral Agreement, sold its interests in the Premises to D1 and is accordingly not entitled to vacant possession of the same vis-à-vis Ds.

(2)  Further or alternatively, a declaration that P is estopped from asserting any title or right (or a better title or right)  against Ds in relation to the Premises.

C3.  P’S PLEADED RESPONSES TO DS’ PLEADED CASE

43.In response to Ds’ case that their occupation of the Premises was pursuant to the Alleged Oral Agreement and/or that they are entitled to rely on promissory estoppel, proprietary estoppel and/or estoppel by convention, P pleaded in its Reply and Defence to Counterclaim filed on 19 May 2022 that:

(1)  The existence of the Alleged Oral Agreement is not admitted.

(2)  In any event, Mr Choi had no authority to enter into the Alleged Oral Agreement on P’s behalf and D1 and Madam Chan had knowledge of, or was irrational as to, such lack of authority.

(3)  The Alleged Oral Agreement is unenforceable and has force and effect at will only by virtue of sections 3, 4, 5 and/or 6 of the Conveyancing and Property Ordinance (Cap. 219)  (“CPO”).

(4)  The Pledge Agreement, which is in fact chargeable with stamp duty under the Stamp Duty Ordinance (Cap. 117), is a sham and is tainted by illegality and/or Ds’ unclean hands. Ds’ intention in creating the Pledge Agreement and procuring FTH to enter into the same was for the purpose of evading payment of stamp duty and/or cheating the public revenue.

(5)  Accordingly, Ds are not entitled to rely on promissory estoppel, proprietary estoppel and/or estoppel by convention, and it is denied that D1 and D2 have obtained any title and/or better right to occupy the Premises.  Ds were only permitted to occupy the Premises by reason of the Alleged Licence, which has been withdrawn.

D.  ISSUES FOR DETERMINATION

44.At trial, Mr Lung helpfully indicated that Ds are agreeable to the formulation of the issues for determination as set out in §33 of P’s written opening submissions.

45.Having considered the parties’ pleaded cases, the formulation of the issues in P’s written opening submissions and the clarifications made by the parties during the course of the trial, I am of the view that the main issues which I am required to determine in the present case are as follows (collectively the “Issues”):

(1)  Whether P had granted the Alleged Licence to Ds (“Issue 1”)?

(2)  Whether the Alleged Oral Agreement was reached between Mr Choi and D1 (“Issue 2”)?

(3)  If the Alleged Oral Agreement was reached between Mr Choi and D1:

(a)  Whether Mr Choi had actual and/or apparent authority to enter into the Alleged Oral Agreement on behalf of P (“Issue 3”)?

(b)  Whether the Alleged Oral Agreement is unenforceable by reason of sections 3, 4, 5 and/or 6 of the CPO (“Issue 4”)?

(4)  Are Ds entitled to rely on the doctrines of promissory estoppel and/or proprietary estoppel and whether Ds are barred from relying on such defences by reason of the doctrines of illegality and/or unclean hands (“Issue 5”)?

(5)  Is P entitled to vacant possession and mesne profits and if so, in what amount (“Issue 6”)?

E.  WITNESSES

46.P called Mr Yan as its only witness.  Meanwhile, Ds called 2 witnesses in total, namely, D4 and Mr Lam Ng Kan (“Mr Lam”).

47.In assessing the parties’ evidence, I have had regard to the principles summarised by DHCJ Jin Pao SC in Leung Chin Sing, Rabo v Ko Chun Hay, Kelvin [2021] HKCFI 2242 at §§41-43:

“ 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.”

E1.  P’S WITNESS – MR YAN

48.Mr Yan has been a director of P since his initial appointment on or around 16 July 2005, which took place as part of the 2005 Management Change.  Therefore, as fairly acknowledged by Mr Yan during cross-examination, he had no personal knowledge as to the matters which happened prior to 2005 before P’s current management took over, including, inter alia, how the Alleged Licence came about by virtue of Mr Choi’s and Ds’ dealings in around 2001 and whether the Alleged Oral Agreement was concluded.

49.Ds in their closing submissions criticised Mr Yan for being evasive in the witness box.  Nonetheless, I note that the examples relied upon by Ds mostly relate to matters before Mr Yan was appointed as a director, such as on what basis did he consider that the HK$5 million payment represented a loan from Ds to P.  Therefore, it is understandable that Mr Yan was unable to give satisfactory answers to such questions.

50.In any event, given Mr Yan’s lack of personal knowledge as to the matters which happened prior to 2005, I find Mr Yan’s evidence to be of limited assistance to this Court when resolving the Issues and I therefore would not place much weight on his evidence.

E2.  DS’ WITNESSES – D4 AND MR LAM

(1)  D4

51.D4 is the director and shareholder of D1 and D2, and the wife of D3. 

52.In the course of giving evidence, D4 portrayed herself as a highly experienced business person, having operated her family business via a complicated holding structure involving a BVI company.  She was well-versed with corporate governance: for example, she understood the need for corporate documents, such as certificates of incumbency, and even used the word “incumbency” in English when giving evidence, which demonstrates her familiarity with technical business and legal terms.

53.I consider that D4 is an unreliable witness for the following reasons. 

54.First, there were many occasions where D4 gave evidence which were contradictory to what were stated in her witness statement or even what she said earlier during her cross-examination.  For example:

(1)  According to §31 of her witness statement, the Alleged Oral Agreement was concluded over a telephone conversation between Mr Choi and D4 in or around July 2001.  The terms of the transaction were then confirmed again at a subsequent dinner gathering attended by Mr Choi and herself only.  However, under cross-examination, she said that the Alleged Oral Agreement was in fact not concluded during the telephone conversation and it was subject to further negotiation and execution of further written instruments.

(2)  D4 was also asked during cross-examination about when the consideration for the Alleged Oral Agreement was agreed.  She first replied that the consideration was agreed at a dinner held in Yuen Long in 2001 (seemingly before the telephone conversation in around July 2001 referred to in sub-paragraph (1)  above)  and attended by D4, Mr Choi, Mr Ting, Mr Fong and Mr Tse (“Yuen Long Dinner”), being either HK$6.5 million (for other potential buyers under Option 2)  or HK$5 million (for D1).  However, after P’s counsel referred her to §31 of her witness statement, she recanted and said that it was too long ago hence could not remember.  She eventually said that the HK$5 million figure was mentioned during the Yuen Long Dinner, but it was not a confirmed figure.

55.Second, D4 was evasive in the witness box and was prone to making self-serving speeches without giving direct answers to the questions posed to her under cross-examination.  As pointed out by Mr Chow, examples of D4’s evasiveness include, inter alia, the following:

(1)  D4 kept recycling the same answers, often before counsel had finished asking the question.  This includes, inter alia, repeating that she placed great trust in Mr Choi and that she knew nothing about the underlying purposes of the Alleged Oral Agreement and/or the Corporate Arrangements when pressed upon the details of the negotiation process and the transaction between P and Ds back in 2001 by P’s counsel.

(2)  When shown the land search results of the Premises and the Extended Lease, which stated that HKSTP was the owner of the Premises rather than P, D4’s answer was simply that all land in Hong Kong was only “leased” by the government to their respective owners until 2047 under the leasehold system.

56.In the circumstances, I would approach D4’s evidence with caution.

(2)  Mr Lam

57.Mr Lam is a director of C & Hang Co. Ltd (“C & Hang”).  His evidence, in gist, is that:

(1)  He was approached by Mr Sam Cheung (P’s sales manager)  on behalf of P in around 2000 and was enquired about whether C & Hang was interested in acquiring the Premises at a consideration of HK$5,000,000, and that he eventually did not acquire the Premises as he did not have sufficient funds at the time. 

(2)  He believed that Mr Sam Cheung also approached other potential buyers regarding the acquisition of the Premises in around 2000.

(3)  Since March or April 2001, C & Hang started to rent part of the Premises, and that since April 2001, he was told by Mr Sam Cheung that the rent of HK$12,000 should be paid to D1 instead as it had taken over “the management” of the Premises.  Such arrangement lasted until June 2001 when C & Hang had stopped renting the Premises.

58.Mr Chow invited me to find Mr Lam’s evidence to be unreliable, as Mr Lam sought to make corrections to his witness statement in the witness box regarding the starting date for paying rent to D1 (i.e. from April 2021 to October 2021)  and the amount of rent (from HK$6,000 to HK$12,000).

59.For present purposes, I am prepared to accept that Mr Lam is an honest witness, as there is no evidence to suggest that Mr Lam has any personal interest in the present litigation and that the outcome of these proceedings may impact him.  I therefore see no motive for him to lie. 

60.However, as will be further elaborated below, I do not consider that Mr Lam’s evidence assists Ds.  This is because even accepting his evidence in full, it only suggests that P was looking for potential buyers in around 2000 and that he was told by P that “the management” of the Premises had been handed over to Ds.  The fact that the management of the Premises had been handed over to Ds does not necessarily mean that there was any outright sale of P’s interest in it (which is what Ds are now contending).

E3.  Mr Choi

61.Mr Choi was not called as a witness in these proceedings. However, both sides in their written closing submissions have invited me to draw adverse inferences against one another based on the parties’ respective failure to call Mr Choi as a witness.

62.In considering whether I should do so, I have regard to the principles regarding the drawing of adverse inferences summarised by the Court of Appeal in Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd (unrep, CACV 91/2012, 17.9.2013)  at §§106-107, which may be summarised as follows.

(1)  In certain circumstances, a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2)  If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3)  If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn.  If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.

63.As Mr Choi was part of P’s management back in 2001 and as admitted by Mr Yan during cross-examination, Mr Choi was considered to be the “big boss” of P, there is no doubt that Mr Choi would be considered to be in a position to give key evidence for both sides.  Specifically:

(1)  For P, if there was indeed the Alleged Licence, in light of Mr Choi’s role in P back in 2001, Mr Choi would and should have direct and first-hand knowledge as to how the Alleged Licence came into existence.

(2)  Meanwhile, for Ds, if there was indeed the Alleged Oral Agreement, Mr Choi should be in a position to give evidence to corroborate Ds’ allegation that the Alleged Oral Agreement had been concluded between D4 and Mr Choi.  This is especially the case when D4 admitted under cross-examination that she has been assisted by Mr Choi in this litigation.

64.In this regard, I note the explanations of Mr Yan and D4 in the witness box that they had both reached out to and did successfully contact Mr Choi when preparing for this trial, but that he was not cooperative.  Whilst Mr Yan said that Mr Choi claimed to have forgotten everything and it would be pointless to find Mr Choi in light of their previous quarrels, D4 said that Mr Choi was uncooperative because he was suffering from depression.

65.I do not consider such explanations to be satisfactory. Nonetheless, as the failure to call Mr Choi as a witness is a mutual failure common to both parties, I am not prepared to draw any adverse inference against any of the parties in the present case.  In any event, I am of the view that the Issues can be resolved without the need to resort to the drawing of adverse inferences. 

66.I now turn to consider the Issues.  For the avoidance of doubt, this Court has duly considered all the submissions made by the parties when determining the Issues.

F.  ISSUE 1 – WHETHER THE PLAINTIFF HAD GRANTED THE ALLEGED LICENCE TO THE DEFENDANTS?

67.The parties have fairly accepted that whilst P bears the burden of proving its case based on the Alleged Licence, Ds equally bear the burden of proving their pleaded defence based on the existence of the Alleged Oral Agreement because “he who asserts must prove”: Chun Sang Plastics Co Ltd v Commissioner of Police [2011] 4 HKLRD 74 at §69 per Cheung CJHC (as he then was).

68.As noted above, P’s case is that sometime before the 2005 Management Change, P’s former management had granted a licence to occupy the Premises.  Such licence, to the best of its knowledge, was granted by conduct, namely, by permitting Ds to occupy the Premises.

69.Having considered all the evidence placed before this Court, I am unable to find that P has discharged its burden of proof that Ds’ occupation of the Premises is pursuant to the Alleged Licence.

70.In coming to such a conclusion, I have had particular regard to the following matters.

71.First, P’s case on the Alleged Licence is extremely vague.  P is unable to provide even the most basic particulars on the Alleged Licence, including, inter alia, when, where and between whom the Alleged Licence was concluded and the material terms of the Alleged Licence, let alone any objective and contemporaneous evidence supporting the existence of the Alleged Licence.  Indeed, P admits in its Answers to Ds’ Request for Further and Better Particulars of the SOC that the “exact manner in which the Licence was granted is not known to the current management of [P]”.

72.Second, it is not P’s pleaded case that the Alleged Licence carried any licence fee.  Thus, P’s undisputed receipt of HK$5,500,000 from Ds between around August and October 2001 does not seem to sit well with its case on the Alleged Licence.

73.Third, it is Mr Yan’s own evidence that he was informed by D4 that the Premises had been sold outright to Ds in around 2009 (though this is denied by Ds whose evidence is that they were not in contact with Mr Yan in around 2009).  Assuming that Mr Yan’s evidence is accurate, if P had indeed granted the Alleged Licence to Ds, one would have thought that a reasonable person in the position of P would have put on record straight away, for example by sending a simple letter or even a WhatsApp message to D4, that Ds were occupying the Premises on the basis of the Alleged Licence.  However, there is no evidence that Mr Yan or P had done so in the present case.

74.In the circumstances, I hold, on a balance of probabilities, that the Alleged Licence did not exist.

G.  ISSUE 2 – WHETHER THE ALLEGED ORAL AGREEMENT WAS REACHED BETWEEN MR CHOI AND D1?

75.Equally, I am unable to find that Ds have been able to discharge their burden of proof that Ds’ occupation of the Premises was pursuant to the Alleged Oral Agreement for the following reasons.

76.First, as admitted by D4 during cross-examination, she recognised the value of written documentation in commercial transactions.  However, there is no written record of the Alleged Oral Agreement before this Court at all. 

77.Even if D4 did not see the need to record the Alleged Oral Agreement in 2001, one would have expected that by 2005 (i.e. when Mr Choi was removed from P’s management as part of the 2005 Management Change), D4 would have put the Alleged Oral Agreement on record by that time so as to protect Ds’ position going forward.  This is particularly so when D4, a highly experienced business person, admitted to feeling insecure at that time and collapsed the trust arrangements for that reason.

78.Second, the evidence given by D4 at trial is inconsistent with Ds’ pleaded case.  In this regard:

(1)  Ds’ plea in §11 of their D&C is that Mr Choi (on behalf of P)  and D4 (on behalf of D1)  “… orally agreed in or around July 2001 that the Plaintiff’s interests in the Premises would be sold to the 1^st Defendant at a consideration of HK$5,000,000, and that the auto-shotblasting machine and ancillary equipment installed at the Premises would be sold at an additional consideration of HK$500,000” (emphasis added). 

(2)  D4 then further elaborates as to how the Alleged Oral Agreement was reached in her witness statement.  Specifically, §§29-31 of D4’s witness statement allege that:

(a)  Negotiations had been carried out between Mr Choi and D4 subsequent to the Yuen Long Dinner.

(b)  Eventually, in or around July 2001, Mr Choi and D4 reached the Alleged Oral Agreement over the telephone, with the Premises and the machinery therein to be sold to FTA at the consideration of HK$5 million and HK$500,000 respectively.

(c)  Those terms were then confirmed again at a subsequent dinner gathering attended by D4 and Mr Choi.

(3)  However, in the witness box, D4 gave the following evidence:

(a)  When asked about when the price was agreed, her initial response was that it was agreed at the Yuen Long Dinner, being either HK$6.5m (for other potential buyers)  or HK$5 million (for FTA).  Later on, she recanted and said it was too long ago, and she could not remember. 

(b)  Over the telephone with Mr Choi, she only discussed the approximate terms of the deal (in her words, “大約個内容”)  with him.  By “大約個内容”, she meant that Mr Choi had told her that he would be sending over documents for her consideration.  D4 was then further asked by P’s counsel whether this meant that the transaction would only be confirmed upon the signature of documents.  D4 then stated that payment would only be made after documents were signed.  To confirm the answer, P’s counsel asked D4 whether this meant that the deal would only be confirmed upon signing of documents.  D4 expressly answered in the affirmative. 

79.Whilst this Court is prepared to accept that due to passage of time, D4 might not have accurately recalled all the details of the transaction, there were simply far too many inconsistencies in a fundamental respect between D4’s witness statement and her evidence at trial, which makes Ds’ case incredible.  

80.In particular, D4’s evidence at trial suggests that the Alleged Oral Agreement was neither finalised nor intended to be a binding contract back in July 2021 and that it was really the Pledge Agreement (which was signed in October 2021)  which she and Mr Choi regarded as the operative contractual document in the alleged transaction.  D4’s evidence therefore suggests that the parties did not conclude the Alleged Oral Agreement in the manner as pleaded by Ds in §11 of D&C.  The Alleged Oral Agreement was hence at most a “subject to contract” agreement, which did not constitute a binding agreement: Chitty on Contracts (35^th edn)  at §4-162.

81.It is trite that it is the parties’ pleaded cases which define the issues at trial.  Unpleaded issues cannot be raised out of evidence (Kwok Chin Wing v 21 Holdings Ltd (2013)  16 HKCFAR 663 at §21 per Ma CJ; Sinoearn International Ltd v Hyundai-CCECC Joint Venture (2013)  16 HKCFAR 632 at §§30-34 per Ribeiro PJ).  Accordingly, once this Court is not satisfied that the Alleged Oral Agreement arose in the manner which was pleaded by Ds, it must follow that this Court must reject Ds’ case on the Alleged Oral Agreement.  Otherwise, it would unfairly deprive the counterparty of the opportunity to respond properly if this Court allows Ds to rely upon unpleaded matters to make good their case.

82.For completeness, I shall also address the following points advanced on Ds’ behalf.

83.First, Ds submit that their case on the Alleged Oral Agreement and P’s case on the Alleged Licence are “two sides of the same coin in respect of the ultimate question as to the circumstances and reasons upon which D2 came into occupation and usage of the Premises”.  I do not agree.  The fact that I have rejected P’s case on the Alleged Licence does not make Ds’ case on the Alleged Oral Agreement more probable.  Even in the absence of a positive case from P, Ds’ account of events must still be evaluated with reference to inherent probabilities and its consistency with the objective circumstances and the contemporaneous documents.  For the reasons set out above, I do not consider that Ds have discharged their burden of proof in establishing that the Alleged Oral Agreement existed.

84.Second, Ds submit that as there is no dispute that P has received the total sum of HK$5,500,000 and there is no suggestion that any licence fee is/was involved on P’s own case, the undisputed payment and receipt is only explicable by the Alleged Oral Agreement.  Again, I do not agree with such a submission.  In my judgment, it does not logically follow that once this Court rejects that there was no licence, the payment must only be made pursuant to the Alleged Oral Agreement.  There could be a myriad of reasons as to why money was paid and it is for the parties to demonstrate and satisfy the Court as to how the payment supports their case.

85.Third, Mr Lung has placed much emphasis on the creation of the Pledge Agreement, which according to him, reinforces evidentially the existence of the Alleged Oral Agreement and certain understanding that existed between Mr Choi and D4. 

86.In this regard, it is important for me to first set out the key terms of the Pledge Agreement (insofar as they are relevant for present purposes):

(1)  Recital: The pledgor borrows from the pledgee the sum of HK$5,000,000 by providing the collateral, and the pledgor and the pledgee agree to abide by the terms and conditions set out in the Pledge Agreement.

(2)  Clause 1: A loan in the sum of HK$5,000,000 shall be advanced for a term of 45 years and 9 months from 1 October 2001, during which FTH (as the lender and pledgee)  could not ask for repayment.  Upon the expiry of the term of the loan at the end of June 2047, the lender may take the benefit of the collateral if there is no further agreement between the parties and if, at the same time, the borrower is unable to repay the loan.

(3)  Clause 2: The collateral would be the Premises and the facilities installed therein.

(4)  Clause 3: The collateral would be occupied by D2 from the date of the Pledge Agreement.

(5)  Clause 4: D2 may use the Premises by paying an annual rent of HK$1.

87.The terms of the Pledge Agreement are clearly inconsistent with the Alleged Oral Agreement in that:

(1)  The parties to the two agreements are different.  Whilst the parties to the Alleged Oral Agreement as pleaded were P and D1, the parties to the Pledge Agreement were P (as the pledgor)  and FTH (as the pledgee).

(2)  The Pledge Agreement appears to evidence a “secured lending transaction” with D1 providing a HK$5,000,000 loan to P and the pledging of the Premises as security and payment of annual rent of HK$1, rather than evidencing an outright sale of P’s interests in the Premises to D1.

88.In light of such inconsistencies, I asked Mr Lung in the course of the trial how he could rely upon the terms of the Pledge Agreement to support Ds’ factual case based on the Alleged Oral Agreement when the terms of that document do not reflect the terms of the Alleged Oral Agreement at all.

89.Mr Lung’s response was that if one looks through the terms of the Pledge Agreement, it is obvious that the underlying transaction is in substance a sale and purchase (rather than secured lending).  According to him, the Pledge Agreement evidentially tallies with the existence of the Alleged Oral Agreement in the following ways:

(1)  It recorded payment of the sum of HK$5 million by FTH to P, which is the alleged consideration payable by D1 under the Alleged Oral Agreement.

(2)  It recorded that in return for such payment, the possession of the Premises was to be handed over to D2.

(3)  It provides a commercially sensible explanation to the otherwise unrealistic nature of the provisions in Clause 1 of the Pledge Agreement, i.e. the fact that there would be no repayment in 45 years and that redemption of the collateral (i.e. the Premises)  at the end of the term in June 2047 is most unlikely given the lack of any kind of commercial value.  There would be no incentive for the borrower to repay and redeem the collateral because there would be no residual commercial value in the Premises by that time.

90.I also note that under cross-examination, when asked why the terms of the Pledge Agreement are inconsistent with the terms of the Alleged Oral Agreement, D4’s answer was that the transaction felt logical and reasonable to her and she simply trusted Mr Choi’s idea to implement the transaction through the Pledge Agreement and in establishing D2 as a “董事屋”to hold the Premises whereby the sale and purchase was in effect implemented by a transfer of the shares in D2.  She also added that she had been given time to consider the draft pledge agreement and she proposed adding Clause 1 after reviewing the draft.  The reason why she wanted this clause to be inserted was to reflect that the transaction was a sale, not a loan; hence she wanted a clause to make that clear and prevent P from simply repaying the amount and taking the Premises back.  Mr Choi acceded to her request, which resulted in Clause 1 of the Pledge Agreement as ultimately executed. 

91.As pointed out by P, the short answer to such a point is that even assuming in Ds’ favour that some understanding might have been reached, it does not logically follow that the understanding must have been the Alleged Oral Agreement.  No such conclusion can be drawn from the Pledge Agreement, especially when Ds have expressly pleaded in §14(b)  of D&C that the Pledge Agreement “did not record or reflect the true intention of the parties”.  If its contents did not reflect the parties’ intention, then the Pledge Agreement cannot shed any light on the parties’ true agreement (if any).  In other words, Ds’ argument that the Pledge Agreement somehow evidences the parties’ true agreement is actually the precise opposite of their own pleaded case.

92.Lastly, I also note that it is Mr Lam’s unchallenged evidence that since around 2001, his company, C & Hang, rented the premises and that he paid rent to D1 after he was told by Mr Sam Cheung that D1 had taken over the “management” of the Premises.  In this regard, I accept Mr Chow’s submission that Mr Lam’s evidence does not assist Ds’ case.  The fact that D1 had taken over the “management” of the Premises does not necessarily mean that there was a sale of the Premises by P to D1.

93.In the circumstances, I hold, on a balance of probabilities, that the Alleged Oral Agreement was not concluded and did not exist as pleaded by Ds.

H.  ISSUE 3: WHETHER MR CHOI HAD ACTUAL AND/OR APPARENT AUTHORITY TO ENTER INTO THE ALLEGED ORAL AGREEMENT ON BEHALF OF THE PLAINTIFF?

94.For completeness, even if I were to find that the Alleged Oral Agreement was concluded and did exist, I would have found that Mr Choi did not have actual and/or apparent authority to enter into the Alleged Oral Agreement on behalf of P.

95.The starting point is always the parties’ pleaded cases.  In this regard, it is Ds’ pleaded case that Mr Choi throughout had actual or at least apparent authority to represent and bind P by virtue of him:

(1)  holding the positions of Chairman and Chief Executive Officer of P at all material times until mid 2005; and

(2)  being one of the directors of P between 1982 and 1998 and, after 1998 until around 2005, being a de facto director of P through his corporate vehicle and/or alter ego, Kam Ming.

96.During his oral closing submissions, Mr Lung clarified that Ds would no longer be running their case on express actual authority.  Instead, Ds would only be relying upon implied and apparent authority.  As it is trite that the issues in a trial are defined by pleadings and not by evidence, I will only consider the issue of authority based upon the 2 bases of Mr Choi’s authority pleaded by Ds as set out in §95 above: Sinoearn at §§30-34 per Ribeiro PJ; Kwok Chin Wing at §§21-23 per Ma CJ.

H1.  LEGAL PRINCIPLES ON IMPLIED AND APPARENT AUTHORITY

97.Given Mr Lung’s indication, it is not necessary for me to discuss express actual authority. 

98.As to implied authority:

(1)  The very appointment of an individual to his or her position may give rise to “usual authority”.  Usual authority can correspond to either actual or apparent authority:

(a)  As a type of implied authority: Where an agent is put in a position which normally carries with it certain authority, the agent impliedly has such authority unless it is withdrawn by the principal.  A person can in such circumstances be said to have “usual authority”.

(b)  As a type of apparent authority: Apparent authority seems to involve 2 types of cases, namely: (i)  cases where there can be said to be something like a specific representation by the principal of the agent’s authority on which the third party relied, which could be called cases of “genuine apparent authority”; and (ii)  cases where the only representation made by the principal lies in putting the agent in a position carrying with it an unusual authority.  In both cases, the principal is liable despite reservations in the authority uncommunicated to the third party, but the two could be differentiated as “apparent” and “usual” authority respectively.

See Bowstead & Reynolds on Agency (23^rd edn)  at §3-005.

(2)  The distinction between the “actual” and “apparent” strains of usual authority has been discussed by Lord Denning MR in Hely-Hutchinson v Brayhead Ltd [1968] 1 QB 549 at 583A-F as follows:

“ I need not consider at length the law on the authority of an agent, actual, apparent, or ostensible. That has been done in the judgments of this court in Freeman & Lockyer v. Buckhurst Park Properties (Mangal)  Ltd. It is there shown that actual authority may be express or implied. It is express when it is given by express words, such as when a board of directors pass a resolution which authorises two of their number to sign cheques. It is implied when it is inferred from the conduct of the parties and the circumstances of the case, such as when the board of directors appoint one of their number to be managing director. They thereby impliedly authorise him to do all such things as fall within the usual scope of that office. Actual authority, express or implied, is binding as between the company and the agent, and also as between the company and others, whether they are within the company or outside it.

Ostensible or apparent authority is the authority of an agent as it appears to others. It often coincides with actual authority. Thus, when the board appoint one of their number to be managing director, they invest him not only with implied authority, but also with ostensible authority to do all such things as fall within the usual scope of that office. Other people who see him acting as managing director are entitled to assume that he has the usual authority of a managing director. But sometimes ostensible authority exceeds actual authority. For instance, when the board appoint the managing director, they may expressly limit his authority by saying he is not to order goods worth more than £500 without the sanction of the board. In that case his actual authority is subject to the £500 limitation, but his ostensible authority includes all the usual authority of a managing director. The company is bound by his ostensible authority in his dealings with those who do not know of the limitation…” (emphasis by underlining added)

(3)  As regards usual authority in the sense of actual authority, this covers 2 situations:

(a)  An agent who is authorised to conduct a particular trade or business or generally to act for the principal in matters of a particular nature, or to do a particular class of acts, has implied authority to do whatever is incidental to the ordinary conduct of such trade or business, or of matters of that nature, or is within the scope of that class of acts, and whatever is necessary for the proper and effective performance of the duties undertaken; but not to do anything that is outside the ordinary scope of the agent’s employment and duties: Bowstead & Reynolds Article 29 (at §§3-028-3-030).

(b)  Alternatively, an agent who is authorised to do any act in the course of the agent’s employment, trade, profession or business has implied authority to do whatever is normally incidental, in the ordinary course of such employment, trade, profession or business, to the execution of the express authority, but not to anything which is unusual in such employment, trade, profession or business, or which is neither necessary for nor incidental to the execution of the express authority. Even with express powers, there may be an implied limitation that they are to be exercised only for transactions on usual terms and conditions: Bowstead & Reynolds Article 30 (at §§3-031-3-033).

99.As to ostensible or apparent authority:

(1)  Ostensible or apparent authority is the authority of an agent as it appears to others.  It is trite that apparent authority depends on there being a representation or holding out by the principal.

(2)  In Freeman and Lockyer v Buckhurst Park Properties (Magnal)  Ltd [1964] 2 QB 480, Diplock LJ held at 503-504 as follows:

“ The representation which creates “apparent” authority may take a variety of forms of which the commonest is representation by conduct, that is, by permitting the agent to act in some way in the conduct of the principal’s business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal’s business has usually “actual” authority to enter into.”

(3)  Then, at page 505, Diplock LJ held as follows:

“ The commonest form of representation by a principal creating an “apparent” authority of an agent is by conduct, namely, by permitting the agent to act in the management or conduct of the principal’s business. Thus, if in the case of a company the board of directors who have “actual” authority under the memorandum and articles of association to manage the company’s business permit the agent to act in the management or conduct of the company’s business, they thereby represent to all persons dealing with such agent that he has authority to enter on behalf of the corporation into contracts of a kind which an agent authorised to do acts of the kind which he is in fact permitted to do usually enters into in the ordinary course of such business. ...”

(4)  Further, if a person dealing with an agent knows that the agent does not have actual authority to conclude the contract or transaction in question, the person cannot rely on apparent authority.  Apparent authority can only be relied on by someone who does not know that the agent has no actual authority.  If a person dealing with an agent knows or has reason to believe that the contract or transaction is contrary to the commercial interests of the agent’s principal, it is likely to be very difficult for the person to assert with any credibility that he believed the agent did have actual authority. Lack of such a belief would be fatal to a claim that the agent had apparent authority: Criterion Properties v Stratford UK Properties LLC [2004] 1 WLR 1846 at §31 per Lord Scott.

(5)  Once the principal has pleaded lack of authority, the onus of proving the existence of authority lies on the party asserting it: Achieve Goal Holdings Ltd v Zhong Xin Ore-Material Holding Co Ltd [2020] HKCA 546 at §17 per Kwan VP.

H2.  MR CHOI’S POSITIONS OF “CHAIRMAN” AND “CHIEF EXECUTIVE OFFICER”

100.The first pleaded basis relied upon by Ds in contending that Mr Choi had authority is his holding of the positions of “Chairman” and “Chief Executive Officer” of P at all material times until mid 2005.

101.However, I have difficulties in finding that Mr Choi had implied actual authority and/or apparent authority to enter into the Alleged Oral Agreement on behalf of P by virtue of him allegedly holding these positions.

102.As for implied actual authority:

(1)  First of all, there is no evidence adduced by Ds before this Court showing that Mr Choi indeed held the positions of “Chairman” and “Chief Executive Officer” of P at the time.

(2)  When Mr Choi was removed from P’s management as part of the 2005 Management Change, P’s new management issued a circular.  However, that circular only described Mr Choi as P’s “前任董事總經理及總經理” (i.e. former Managing Director and General Manager).  It did not describe Mr Choi to be P’s Chairman and Chief Executive Officer.

(3)  In this regard, whilst the parties do not dispute that Mr Choi held the positions of Managing Director and General Manager of P and that he was responsible for overseeing the overall management of its business strategy, production and daily operations prior to July 2005, Ds did not plead that the basis giving rise to Mr Choi’s authority in reaching the Alleged Oral Agreement with Ds was by reason of his positions of Managing Director and General Manager of P at the material time.

(4)  In fact, when asked by P’s counsel whether it was only her guess that Mr Choi was the Chairman and Chief Executive Officer, D4 admitted that to be the case under cross-examination and that she arrived at such a conclusion after she was told by Mr Ting that Mr Choi was P’s highest responsible person and leader (“最高負責人” and “最高級領導人”).

(5)  Mr Lung tries to get around this by saying that the “label” or precise “job title” that was given to Mr Choi is purely a matter of semantics and it is hardly reasonable to expect Ds to know the precise title granted by P to Mr Choi since that is a matter of internal management.  For this reason, Ds have pleaded that “to the best of the Defendants’ knowledge, Choi held the positions as the Chairman and Chief Executive Officer of the Plaintiff…” (emphasis added).  In any event, Mr Lung says that P has not been able to pinpoint what difference it makes in terms of authority between the positions of “Chairman and Chief Executive” and “Managing Director and General Manager”.

(6)  Further, even if I were to accept that Mr Choi did hold the positions of “Chairman” and “Chief Executive Officer” of P at the time, there is no plea (let alone evidence)  from Ds to suggest what is the usual scope of authority that came with Mr Choi occupying the positions of Chairman and Chief Executive Officer. 

103.As for apparent / ostensible authority, in addition to the matters set out in §102 above, as pointed out by P, one of the requirements for apparent / ostensible authority is that there must be a representation of authority of Mr Choi made by P (see also §99(2)  above).   Whatever D4 might have thought in her mind is therefore irrelevant when considering whether there was such a representation of authority.

104.In the circumstances, I find that Ds have not made out their case that Mr Choi had implied actual authority and/or apparent authority to enter into the Alleged Oral Agreement on behalf of P by virtue of him holding the positions of Chairman and Chief Executive Officer of P.

H3.  MR CHOI BEING A DIRECTOR OF P BETWEEN 1982 AND 1998 AND A DE FACTO DIRECTOR OF P THROUGH KAM MING BETWEEN 1998 AND 2005

105.The second pleaded basis relied upon by Ds is Mr Choi’s directorship of P between 1982 and 1998 and de facto directorship of P through Kam Ming between 1998 and 2005.

106.As the Alleged Oral Agreement was said to have been concluded in around July 2001, I only have to consider whether Mr Choi indeed had the authority to bind P by reason of him being a “de facto director” of P at around that time.

107.The principles regarding de facto directorship were summarised by Coleman J in Cyberworks Audio Video Technology Ltd v Mei Ah (HK)  Co Ltd [2020] HKCFI 398 at §56 as follows:

(1)  The essence of deciding whether a person has acted as a de facto or shadow director is to consider whether that person has acted in such a way that he is to be taken to have assumed – and for the court to impose on him – a director’s duties and responsibilities in relation to the subject company.

(2)  Each case gives rise to a question of fact and degree, where all relevant factors must be taken into account and looked at in their context.  It is the cumulative effect of all relevant factors that guides the court.  But those who assume to act as directors and who thereby exercise the powers and discharge the functions of a director must accept the responsibilities of the office, whether they are validly appointed or not, and whether they claim to be a director or claim not to be.

(3)  In order to make a person liable for misfeasance as a de facto director, it must be shown that the person was part of the corporate governing structure, namely the system by which the subject company’s business is directed and controlled, and that he assumed a role sufficient to impose on him a fiduciary duty to the company. That may require the court to consider the company’s business and whether the person’s acts were directorial in nature.

(4)  Often, a de facto director is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such.  Though that is not a necessary feature, it may be weighty evidence in support of the conclusion that a person acted as a director in fact.  So might the evidence that third parties considered that he was a director.  The court will not focus on what the person was called by the company or by himself, or (by extension)  what others called him, but instead the court will look to see what he actually did.  The court will consider if he was the sole person directing the affairs of the company, or acting on at least an equal footing with others in directing its affairs, whether those others were validly appointed or not.

(5)  It is not sufficient to show that the person was concerned in the management of the company’s affairs, or undertook tasks in relation to its business, which can properly be performed by a manager below board level. Rather, it is necessary to plead and prove that the person undertook functions in relation to the company which could properly be discharged only by a director.  That is because it is only the exercise of such functions which give rise to the corresponding duties and responsibilities.  If it is unclear whether the acts of the person are referable to an assumed directorship or to some other capacity, and so long as the court does not strain the facts on this question, the person is entitled to the benefit of the doubt.

108.Further, in Re Hydrodam (Corby)  Ltd [1994] BCC 161, Millet J (as he then was)  said at 163D as follows:

“ A de facto director is a person who assumes to act as a director. He is held out as a director by the company, and claims and purports to be a director, although never actually or validly appointed as such. To establish that a person was a de facto director of a company it is necessary to plead and prove that he undertook functions in relation to the company which could properly be discharged only by a director. It is not sufficient to show that he was concerned in the management of the company's affairs or undertook tasks in relation to its business which can properly be performed by a manager below board level.” (emphasis added)

109.In my judgment, there is no proper case based upon de facto directorship pleaded in the present case for the following reasons:

(1)  The only pleas in Ds’ D&C which touch on the issue of authority are §§9 and 11, where they allege that Mr Choi had “on behalf of the Plaintiff” negotiated with D4 and reached the Alleged Oral Agreement.

(2)  Ds then filed voluntary particulars of the D&C about 1.5 years later, i.e. on 18 July 2023, supplementing that Mr Choi acted as a de facto director of P and controlled its affairs through his corporate vehicle and/or alter ego Kam Ming.

(3)  There is therefore no plea in Ds’ pleadings that Mr Choi undertook functions in relation to P which could properly be discharged only by a director: see Re Hydrodam (Corby)at 163D.

(4)  By simply asserting that Mr Choi had controlled P’s affairs is plainly insufficient for this Court to find that he had undertaken functions in relation to P which could properly be discharged by only a director.

110.On this ground alone, any claim that Mr Choi had authority by reason of his de facto directorship of P cannot succeed.

111.In this regard, Mr Chow has pointed out that a similar approach was taken by the Court in Shown Wai Investment Company Limited v Hui Yip Wing David [2024] HKCFI 1477 at §§108-118 in finding that the claim based upon the alleged de facto directorship cannot succeed as the plaintiff failed to plead the functions which could only be discharged by a director of the company in question in the statement of claim.

112.Accordingly, since I am not satisfied that Ds have authority based upon the 2 pleaded bases of Mr Choi’s authority as set out in §95 above, I find that even if the Alleged Oral Agreement had existed, Mr Choi had no implied actual authority and/or apparent / ostensible authority to conclude the Alleged Oral Agreement on behalf of P.

H4.  THE INVOLVEMENT OF MR FONG, MR TING AND MR TSE AT THE YUEN LONG DINNER

113.For completeness, I will also deal with Ds’ argument that the involvement of Mr Fong, Mr Ting and Mr Tse at the Yuen Long Dinner shows that Mr Choi had actual or at least apparent authority in representing and binding P in concluding the Alleged Oral Agreement and/or that Ds were reasonable in relying on Mr Choi’s apparent authority.

114.I am unable to accept such a submission for the following reasons:

(1)  First, the involvement of Mr Fong, Mr Ting and Mr Tse is nowhere to be found in Ds’ pleadings.  If Ds seek to rely upon such a matter to show that Mr Choi had actual or at least apparent authority in representing and binding P in concluding the Alleged Oral Agreement and/or that Ds were reasonable in relying on Mr Choi’s apparent authority, then this should have been made clear in the pleadings: OCI Capital Ltd v Lanhai International Trading Ltd [2023] HKCFI 1804 at §8.1 per Cheng J.

(2)  In any event, I have difficulties in accepting that P’s corporate directors can be equated with Mr Choi, Mr Fong and Mr Tse as a matter of law.  In this regard:

(a)  It is trite that companies and their shareholders are separate legal persons. It follows that even a company with a single shareholder and director only cannot be equated simpliciter with a natural person, and the position must be a fortiori for companies with more than one shareholder or director.

(b)  As pointed out by Mr Chow, the 3 companies in question, namely, Kam Ming, Favour Progress and Rockley were not “one man band” companies at the material time.

(i)  Kam Ming had 4 directors and shareholders, namely, Mr Choi, Madam Chan Miu Kee (Mr Choi’s wife), Choi Ka Tsun and Choi Ka Ling (both Mr Choi’s children).

(ii)  Favour Progress had 2 directors and shareholders, namely, Mr Fong and Madam Lee Lim (Mr Fong’s mother).

(iii)  Rockley had 2 shareholders, namely, Mr Tse Shing and Ms Lo Po Lun (Mr Tse’s parents), and 2 directors, Chartersec and Charternom. Charternom’s 2 directors were Chartersec and Mr Tse and its 2 shareholders are persons named “Kam Yiu Kwok” and “Mak Wai Ping”, with no evidence who these persons were, or whether (and if so how)  they were related to Mr Tse.  Meanwhile, for Chartersec, it had 2 directors, i.e. Charternom and Taxon Property Limited, and 2 shareholders, i.e. Mr Tse and Charternom.  Again, there is no evidence as to who Taxon Property Development Limited, or whether (and if so how)  it was related to or controlled by Mr Tse.

(c)  During cross-examination, Mr Lung drew Mr Yan’s attention to the corporate details of Kam Ming, Favour Progress and Rockley, and based upon such details, Mr Yan agreed that Kam Ming was Mr Choi’s company (“金明Development Company Limited其實係Vincent Choi嘅公司嚟嘅”)  and Rockley and Chartersec were Mr Tse’s companies.  However, Mr Yan added that he could not say whether, in the case of Favour Progress, Madam Lee Lim was holding the shares on behalf of Mr Fong.  Based upon such evidence, Mr Lung submits that Mr Yan accepted that Kam Ming and Rockley were the corporate nominees of Mr Choi and Mr Tse.

(d)  With respect, I agree with Mr Chow that this is a mischaracterisation of Mr Yan’s evidence.  Mr Yan never stated that Kam Ming and Rockley were the “corporate nominees” of Mr Choi and Mr Tse.  He only accepted that those were the “companies” of Mr Choi and Mr Tse, which, in this Court’s view, is an inherently vague term that can reasonably be understood as meaning a company owned by Mr Choi / Mr Tse or affiliated with Mr Choi / Mr Tse, and does not necessarily mean that they were the “corporate nominees” of Mr Choi and Mr Tse.

(e)  In fact, even if what Mr Yan meant was that Kam Ming and Rockley were the “corporate nominees” of Mr Choi and Mr Tse, I am not prepared to accept Mr Yan’s evidence.  It is clear from the evidence that Mr Yan was not involved in P’s management prior to 2005 and had no personal knowledge as to matters which occurred before 2005.  Accordingly, I do not see how Ds could rely upon Mr Yan’s evidence for the purpose of proving who was in control of P’s corporate directors at the time when the Alleged Oral Agreement was concluded.

(f)  Even if I were to accept that P’s corporate directors can be equated with Mr Choi, Mr Fong and Mr Tse, it is in any event D4’s own evidence that at the Yuen Long Dinner, the parties had not yet reached any final and binding agreement (see §80 above).  Accordingly, even if Mr Fong, Mr Ting and Mr Tse were present at the Yuen Long Dinner, I am unable to see how it could be said that Mr Choi had the authority to conclude the Alleged Oral Agreement with D1 after the Yuen Long Dinner.

115.In view of the above, even if I were to find that Mr Choi and D1 entered into the Alleged Oral Agreement, I would have found that the Alleged Oral Agreement was unenforceable, as it was entered into by Mr Choi without P’s authority.

I.  ISSUE 4: WHETHER THE ALLEGED ORAL AGREEMENT IS UNENFORCEABLE BY REASON OF SECTIONS 3, 4, 5 AND/OR 6 OF THE CPO?

116.Section 3(1)  of CPO provides that no action shall be brought upon any contract for the sale or other disposition of land unless the agreement upon which such action is brought, or some memorandum or note thereof, is in writing and signed by the party to be charged or by some other person lawfully authorised by him for that purpose.

117.Section 4(1)  of CPO provides that a legal estate in land may be created, extinguished or disposed of only by deed, unless one of the exceptions in subsection (2)  applies.

118.Section 5 of CPO relevantly provides that no equitable interest in land can be created or disposed of except by writing signed by the person creating or disposing of the same, and that the disposition of equitable interest is required to be made by writing. 

119.Section 6 of CPO further provides that, if a contract for sale of land does not comply with the formality requirements in sections 3 to 5 of CPO, then the creation of interest pursuant to such contract would only be an interest at will.

120.It is P’s case that the Alleged Oral Agreement was not made in writing and signed by P.  As such, even if this Court finds that the Alleged Oral Agreement had been concluded between the parties as a binding agreement as alleged by Ds, it would still be unenforceable by virtue of the CPO provisions.  

121.Meanwhile, whilst Ds do not dispute that the formality requirements in the CPO were not complied with, their case is that as Ds are not asserting a contractual claim on the basis of the Alleged Oral Agreement but are relying on the tenor of the Alleged Oral Agreement as forming the underlying basis of proprietary estoppel and/or promissory estoppel, the CPO provisions are not engaged and the operation and/or legal effect of sections 3 to 6 of CPO have no bearing to the present case.

122.However, in light of my finding that the Alleged Oral Agreement was not concluded and did not exist between the parties, it is unnecessary for me to deal with Issue 4.

123.For completeness, I will also point out that in P’s written closing submissions, Mr Chow raised for the first time that it is open to this Court to find that P had granted Ds the Alleged Licence by reference to Ds’ own pleaded case by relying on the case of Poon Hau Kei v Hsin Chong Construction Co Ltd (2004)  7 HKCFAR 148 at §19.  According to P, even if Ds are right to say that there was the Alleged Oral Agreement, given the unenforceability provisions in the CPO, the legal consequences flowing from that would be that Ds’ interests in respect of the Premises would be an interest at will only, which is the same thing as a licence.  I reject such a submission for the following reasons.

(1)  First, as pointed out above, this Court is not satisfied that Ds have discharged their burden of proving the existence of the Alleged Oral Agreement.  Therefore, it is unnecessary for this Court to consider the operation of the CPO provisions.

(2)  Second, in Poon Hau Kei, Bokhary PJ (as he then was)  held at §§16, 18-19 as follows:

“ 16. Two decisions were cited by Ma JA. One was the decision of the Court of Appeal in England in Soar v National Coal Board [1965] 1 WLR 886. The other was the decision of Geoffrey Lane J (later Lord Lane CJ)  in Waghorn v George Wimpey & Co Ltd [1969] 1 WLR 1764…

…

18. In each of those two cases, the plaintiff sought to succeed on a scenario not pleaded by either side and outside the defendant’s contemplation. That is the opposite of the situation in the present case. The respondent pleaded the light trough scenario as one in which the accident “was caused solely or contributed to by the negligence of” the appellant…

19.   Provided that it does so in a fair manner, a court is entitled to decide in favour of a party on the basis of a scenario that he has not pleaded but his opponent has pleaded.  This is a proposition at which I arrive on principle. It is also a proposition supported by highly persuasive authority.  In John G Stein & Co Ltd v O’Hanlon [1965] AC 890 at p.910A, Lord Guest said: ‘I failed to see how [the defenders] can have been in any way prejudiced when the facts upon which liability was established are those averred in the defences and spoken to by their witnesses in evidence.’…”

(3)  In summary, there are 2 elements to be satisfied for the Court to apply the principle in Poon Hau Kei, namely: (i)  the opponent’s pleaded case must be capable of allowing the Court to find liability; and (ii)  the Court does so in a fair manner.

(4)  The case of Poon Hau Kei involved an accident at work consisting of a fall from a height surrounded by an acute dispute as to the factual circumstances in which it occurred and the plaintiff sought damages for personal injuries based on his version of how the accident had occurred. The defendant denied this and said the accident happened in a different way of which the plaintiff himself was contributorily negligent.  The defendant conducted its own case on the basis that they might be liable under the light trough scenario rather than relying on the case that such scenario would leave them blameless.  The defendant had fully canvassed the relevant evidence and made submissions thereon.

(5)  By contrast, the present case is entirely different.  Ds’ case throughout these proceedings has always been based upon a sale and purchase.  Ds have never contended that they are running a case on licence.  It would therefore be unfair to Ds to allow P to adopt a new stance especially when the first time P raised this new stance was after the evidence had been concluded. 

J.  ISSUE 5: ARE THE DEFENDANTS ENTITLED TO RELY UPON THE DOCTRINES OF PROMISSORY ESTOPPEL AND/OR PROPRIETARY ESTOPPEL AND WHETHER THE DEFENDANTS ARE BARRED FROM SUCH DEFENCES BY REASON OF THE DOCTRINES OF ILLEGALITY AND/OR UNCLEAN HANDS

124.In Ds’ written closing submissions, Mr Lung confirmed that Ds’ case is that “the tenor of the [Alleged] Oral Agreement forms the underlying basis of Ds’ reliance on proprietary estoppel and/or promissory estoppel and/or estoppel by convention” and that it is the Alleged Oral Agreement that “gave rise to the representations and understandings between the parties”.  In other words, the only premise upon which estoppel is argued by Ds is the Alleged Oral Agreement.  Accordingly, in light of my finding that the Alleged Oral Agreement was not concluded and did not exist, I also reject Ds’ case on estoppel.

K.  ISSUE 6: VACANT POSSESSION AND MESNE PROFITS

125.Issue 6 concerns the reliefs to be granted by this Court. 

126.As held above, this Court considers that both sides have failed to make out their respective cases in that this Court is not satisfied that either the Alleged Licence or the Alleged Oral Agreement existed.

127.During oral closing submissions, I asked the parties what orders this Court should make if I were to find that neither the Alleged Licence nor the Alleged Oral Agreement existed.  The parties’ responses to this question may be summarised as follows:

(1)  According to P, as it is the registered lessee of the Premises, it would be prima facie entitled to possession of the Premises.  There would then be no justification for Ds to remain in possession of the Premises, and P would ask this Court to grant the reliefs sought in the SOC.

(2)  According to Ds, the proper order in such circumstances would be to dismiss both P’s claim and Ds’ counterclaim, and make no other orders.  That said, Mr Lung fairly accepted that in such circumstances, Ds would in reality have no basis to stay on the Premises going forward and that after receiving this Court’s judgment, the parties would have to liaise on the handing over of the Premises back to P because there would be trespass upon the findings of the Court.

128.Having considered the parties’ submissions, I agree with Ds’ submissions.

129.As mentioned above, the parties’ pleaded cases define the scope of the issues at trial and unpleaded issues cannot be raised out of evidence.  Whilst I agree that P as the registered lessee of the Premises would be prima facie entitled to possession of the Premises, P’s pleas for relief in the SOC, including, inter alia, an order for vacant possession and mesne profits, are based on its plea that the Alleged Licence existed, which this Court has already rejected.  This is evident from SOC §§7 and 10-12:

“ C. The Licence

7. The Plaintiff has previously granted a licence or alternatively, a tenancy revocable at will to the Defendants (the “Licence”)  as its associates to occupy the Premises.

D. Withdrawal of Licence

…

10. By letter dated 21^st October 2021, (the “Eviction Notice”)  the Plaintiff informed the Defendants that:-

(1)  Their occupation of the Premises are in breach of the Lease terms.

(2)  The Licence conferred by the Plaintiff to the 2^nd Defendant has been revoked.

(3)  The Plaintiffs demanded the Defendants to give vacant possession by 14 days from the date of the letter, that is, 4^th November 2021.

11. To date, the Defendants have failed to comply with the Eviction Notice and have remained in occupation of the Premises as trespassers therein.

12. Accordingly, the Defendants are liable to give vacant possession and for damages and/or mesne profit for trespass (to be assessed).”

130.Nowhere in P’s pleadings has P pleaded any alternative case that if the Alleged Licence does not exist, P, as the registered lessee of the Premises, would still be entitled to vacant possession and/or mesne profits.

131.In the circumstances, I consider that the most appropriate order to be made is to dismiss both P’s claim and Ds’ counterclaim.

L.  CONCLUSION

132.For the above reasons, I dismiss both P’s claim and Ds’ counterclaim.

133.As for costs, as neither party is successful, I consider that the proper order should be no order as to costs and I make such an order on a nisi basis, which is to be made absolute if neither party applies for variation within 14 days after the date of handing down of this judgment.

134.It remains for me to thank counsel for their helpful assistance.

Mr Val Chow and Mr Zenith Chan, instructed by Fongs, for the plaintiff.

Mr Vincent Lung and Ms Alice Lau, instructed by Keith Lam Lau & Chan, for the defendants.