Christine Ruth Ong Chai Hoon and Others v. Lam Kin Chung and Others
Read the full judgment text of HCA 1793/2012 on BabelCite. This High Court CFI judgment was delivered on 29 August 2025.
1. Mr Lam Kin Chung, the 1 st defendant, is a Hong Kong businessman. I shall call him “KC Lam” in this judgment. In 2004, he acquired the 4 th defendant, a Hong Kong incorporated company. Its name was later changed to the present name of eBizAnywhere Technologies Ltd (環貿通科技有限公司). I shall call it “eBiz”. At all times, KC Lam is the ultimate beneficial owner of a majority shareholding in the company. In about November 2004, eBiz acquired an e-commerce software known as “WebExpress” (“建網快車”).
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HCA 1793/2012 [2025] HKCFI 3857 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1793 OF 2012 ________________________
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________________________ J U D G M E N T ________________________ Table of Contents
1.Mr Lam Kin Chung, the 1st defendant, is a Hong Kong businessman. I shall call him “KC Lam” in this judgment. In 2004, he acquired the 4th defendant, a Hong Kong incorporated company. Its name was later changed to the present name of eBizAnywhere Technologies Ltd (環貿通科技有限公司). I shall call it “eBiz”. At all times, KC Lam is the ultimate beneficial owner of a majority shareholding in the company. In about November 2004, eBiz acquired an e-commerce software known as “WebExpress” (“建網快車”). 2.It is KC Lam’s case that WebExpress is a software which enables users to build their own websites easily and therefore facilitates them to build an online platform for their business to business services. He saw the potential in the software. It was his plan to launch the software in Mainland China, targeting in particular the small and medium enterprises market which was largely untapped at the time. In order to carry out the plan, KC Lam required funding and he intended to seek an IPO listing of eBiz. As part of that effort, in about mid-2006, he enlisted the assistance of Mr Yue Yew Meng, the 3rd defendant, for identifying and introducing potential investors in Singapore to provide pre-IPO funding. I shall call Yue by his English name “Desmond Yue”. At that time, Desmond Yue was a remisier (a kind of stockbroking agent) working at OCBC Securities in Singapore. 3.In the end, there were a total of 23 individuals from Singapore who decided to invest in the pre-IPO venture under a special structure. Funds were raised in five rounds from November 2006 to April 2008 under this structure. The investments were made by way of loans to eBiz which were backed by security in the form of car parks in Hong Kong owned by KC Lam, accompanied by an option to convert the loans into shares in eBiz. I shall adopt the plaintiffs’ terminology and call it “the Investment Structure”. The total amount invested under the Investment Structure was HK$40,930,000. 4.In July 2009, eBiz appointed Collins Stewart Pte Ltd (“Collins Stewart”), an investment bank, to act as its sponsor to seek a listing on the secondary board of the Singapore Stock Exchange known as the Catalist Board. Shortly after that, all the 23 Singapore investors converted their loans into eBiz shares. Subsequent to that, a number of them made further investments in eBiz by directly subscribing for its shares. 5.In 2011, the proposed IPO fell through. All the money invested in eBiz was lost. Out of the 23 Singapore investors, 11 of them commenced the present action against KC Lam, eBiz, Desmond Yue and Mr Lai Ming Kui Tommy claiming their lost investments. The latter is the 2nd defendant and I shall call him “Tommy Lai”. He was a director of eBiz from April 2007 to July 2011. He was also its Chief Financial Officer from August 2009 to August 2011. 6.These 11 investors are the 1st to 11th plaintiffs. Together, they are claiming the sum of HK$15,980,000 (representing the amounts they invested under the Investment Structure), and HK$7,836,058.38 and S$100,000 (representing their direct subscription monies). 7.This is the trial of the action between the plaintiffs, KC Lam, eBiz and Tommy Lai. Desmond Yue has not made an appearance in this action at all. However, when I use the term “the defendants” in this judgment, I am still generally referring to all the four defendants, namely KC Lam, eBiz, Tommy Lai and Desmond Yue. 8.The plaintiffs are represented by Mr Christopher Chain, SC, Ms Sharon Yuen and Mr Sim Jing En. KC Lam and eBiz are represented by Mr Wong Yan Lung, SC and Mr Justin Lam. Tommy Lai appears in person. Brief introduction of the plaintiffs’ case 9.The plaintiffs’ case is mounted solely in fraud. They do not allege negligence or vicarious liability. They say that they have been defrauded by the defendants who perpetrated a “Fraudulent Scheme” from June 2006 to October 2011. They were induced by a series of “Fraudulent Misrepresentations” made by the defendants to make pre-IPO investments into eBiz. 10.In the words of Mr Loke Chee Choong, the 4th plaintiff:
11.The plaintiffs have pleaded seven Fraudulent Misrepresentations, which they call by the following names:
12.The plaintiffs say that the Fraudulent Misrepresentations were repeatedly made by the defendants and bolstered over time, applying what they describe as “the Indoctrination Method”. Induced by the Fraudulent Misrepresentations, the plaintiffs made investments under the Investment Structure from June 2006 to April 2008. These investments were packaged as a “low risk no lose” deal, as the risks ordinarily associated with a pre-IPO investment were practically removed by the provision of the car park security by KC Lam. 13.Then, in July and August 2009, by fraudulently representing to the plaintiffs that the IPO was scheduled to occur imminently (when it was not), the defendants induced the plaintiffs to release the car park security and convert the loans into shares in eBiz. This has been pleaded as “the False IPO Notification”. And this had the effect of unravelling the protection given under the Investment Structure, namely the car park security. This, the plaintiffs contend, exemplifies the defendants’ fraudulent intention. 14.After that, the defendants continued to repeat, bolster and maintain the Fraudulent Misrepresentations. Some of the plaintiffs were induced to subscribe for further shares in eBiz directly. 15.The Fraudulent Scheme was eventually exposed in October 2011 after the failure of the IPO. 16.The plaintiffs therefore say that they are victims of fraud. They claim reliefs based on the Fraudulent Misrepresentations. While it is their case that some of the representations were personally made by one or two only of KC Lam, Desmond Yue and Tommy Lai (ie not all three of them), the plaintiffs contend, as their primary case, that the three of them (and eBiz) were acting in concert and pursuant to the common design of the Fraudulent Scheme, with KC Lam being the mastermind. Hence, each of the defendants should be liable for all the plaintiffs’ losses flowing from the Fraudulent Misrepresentations on the basis of joint tortfeasorship: see, eg, SNE Engineering Co Ltd v Hsin Chong Construction Co Ltd [2015] 4 HKLRD 517 at paras 169 to 171. Alternatively, each of KC Lam and Tommy Lai should be liable for those Fraudulent Misrepresentations which were made personally by them respectively. Brief introduction of KC Lam, eBiz and Tommy Lai’s cases 17.KC Lam and eBiz deny that they were engaged in the alleged Fraudulent Scheme. They deny that they made the alleged Fraudulent Misrepresentations, except the Company Valuation Misrepresentation, for which their position is that the representation was not false. They say that WebExpress is a genuine product and the IPO project was bona fide. It eventually failed not because of the alleged fraud on their part but due to factors outside of their control. 18.The present claim is thus a spurious claim by a minority of disgruntled investors seeking to recoup money lost in a “high risk and high return” pre-IPO investment in an emerging company. 19.As for Tommy Lai, the plaintiffs’ case against him is that he made the Fraudulent Misrepresentations to the 1st, 5th and 7th plaintiffs and, further, after he joined eBiz in April 2007, he was jointly involved in and responsible for conducting the Fraudulent Scheme. 20.Tommy Lai denies making the alleged representations. He also denies being part of the Fraudulent Scheme. He says that the IPO exercise was genuine and one reason for its failure is that the IPO process had dragged on for too long and the pre-IPO funds dried up quickly in the process. 21.This action is fundamentally a factual dispute. 22.The dispute primarily turns on what was said by KC Lam, Desmond Yue and Tommy Lai to the plaintiffs, both orally and in writing, from June 2006 to October 2011. I shall refer to this five-year timeframe as “the material period”. 23.The legal principles on fraudulent misrepresentations are well-established. The only matter which needs to be highlighted at the outset is that an allegation of fraud is a serious allegation. The more serious the allegation, the more inherently improbable it must be regarded, and the more compelling and cogent evidence must be required, even though the standard of proof remains to be the civil standard of balance of probabilities: Re H (Minors) (Sexual Abuse: Standard of Proof) [1996] AC 563. In this action, the burden is on the plaintiffs to adduce compelling and cogent evidence to make out their case of fraud against each of KC Lam, eBiz and Tommy Lai. At the same time, it should be recognised that direct evidence of fraud can be rare, and fraud can be proved by inferences of dishonesty which are properly grounded in primary facts: see, eg, Guangdong Shunde Zhanwei Trading Ltd v Sun Fung Timber Co Ltd [2022] 1 HKLRD 441, [2021] HKCFI 3823 at paras 39 to 40. 24.The factual disputes between the parties are stark. The parties are putting forward opposite narratives in respect of the same subject matter. Take the Revenue Misrepresentation as an illustration. There is no dispute that eBiz had no significant revenue at all during the material period. The plaintiffs’ case is that eBiz was sold to them as a valuable company which was already generating or would generate substantial revenue from already secured contracts. On the other hand, KC Lam and eBiz’s case is that all along KC Lam made clear to the plaintiffs that eBiz was an IT start-up company without any track record of revenue and profit. 25.The resolution of such factual disputes turns on the court’s assessment of the credibility of the parties and (in this case, to a lesser extent) their witnesses. 26.For the plaintiffs, all 11 of them testified at the trial. Each has made a witness statement, which is followed by a supplemental witness statement made about two years and nine months later. I highlight this now as one of the criticisms made against the plaintiffs is the apparent “escalation” of certain aspects of their evidence in the second round of witness statements in which they seemed to be able to recall more details of the same events than when they made the first statements. 27.The witness statement of the 4th plaintiff serves as the master statement of all the plaintiffs, setting out the Fraudulent Scheme in detail while the other plaintiffs address their individual circumstances in their own statements. 28.For KC Lam and eBiz, KC Lam himself testified. They also called four witnesses:
29.As for Tommy Lai, he testified at trial and called no other witness. 30.In terms of documentary evidence, there is before the court a mass of written documents which were generated during the material period. Amongst them, there are a number of key documents which the plaintiffs say show that the Fraudulent Misrepresentations had been made. It will be necessary to identify them one by one below. They are mainly presentation materials shown to the plaintiffs and emails sent by Desmond Yue to some of them. In this judgment, I shall call them “the key documents concerning the Fraudulent Misrepresentations”. On the other hand, KC Lam and eBiz rely on some other documents which they say contradict the plaintiffs’ case of fraud. One example is eBiz’s financial statements which, they say, were sent to the plaintiffs and showed its true financial condition (namely, no significant revenue). I will have to identify these other documents one by one below. 31.There is no dispute as to the authenticity of the documents disclosed in this action. One of the material factual disputes over these documents is whether some of them were in fact shown or given to, and read by, the plaintiffs. Once that dispute is resolved, the documents which are found to have been shown, given or read would be contemporaneous documents against which the parties’ cases can be usefully tested. 32.Lastly, on evidence, there is a single joint expert report on the valuation of 15 of the 20 car parks which were put up as security under the Investment Structure. The expert came up with a total valuation of HK$23,630,000 as of October 2006. This figure would be relevant to the Car Park Security Misrepresentation. 33.There are two matters which I would like to highlight as regards the procedural history of this action. The first relates to Desmond Yue. The second concerns the plaintiffs’ pleadings. 34.Desmond Yue has not participated in this action at all. Interlocutory judgment was entered against him in default in July 2013. No claim for damages is being pursued against him at trial. 35.According to the plaintiffs, after the exposure of the Fraudulent Scheme in October 2011, they obtained from Desmond Yue two large bags of documents concerning eBiz. But shortly after that, he absconded and disappeared. By the time the action was commenced in September 2012, the plaintiffs were no longer able to contact him. 36.It is KC Lam and eBiz’s case that Desmond Yue simply disappeared in about October 2011. According to KC Lam, Desmond Yue passed away several years ago. 37.While he is absent in the present action, Desmond Yue features prominently in the evidence. It is common ground that there were from time to time face-to-face meetings between KC Lam, Desmond Yue and the plaintiffs, whether individually or in groups, during the material period. On many other occasions, it was primarily Desmond Yue who communicated with the plaintiffs. And when it comes to written communications, it would be Desmond Yue who directly wrote to the plaintiffs, eg, via emails (sometimes copying KC Lam). This therefore raises the question as to whether the documents which were distributed by Desmond Yue to the plaintiffs can be attributed to KC Lam in support of the plaintiffs’ claims in the sense that the plaintiffs can rely on these documents as part of the alleged representations made by KC Lam. I shall refer to this issue as “the attribution point”. 38.The second matter which I would point out at the beginning is the multiple versions of pleadings filed by the plaintiffs in this action. One of the main criticisms made by KC Lam and eBiz against the plaintiffs’ case is that it has undergone “sea changes” or “fundamental shifting” throughout these proceedings. That can be seen, KC Lam and eBiz contend, from the contradictions and inconsistencies revealed by the different versions of the plaintiffs’ pleadings. 39.There are in total four versions of each of the statement of claim and the reply (in respect of the defence of KC Lam and eBiz). The first statement of claim was made when the action was commenced in 2012. Both that pleading and the corresponding reply were prepared by solicitors. In 2015, leave was granted for the plaintiffs to replace the entire statement of claim by a new version, which was settled by counsel. That version was later amended in 2018. It was further amended in 2020. In the last round of amendment, the main change was the introduction of the Revenue Misrepresentation for the first time. In this judgment, I shall refer to the statement of claim filed in 2012 and the reply filed in early 2013 as “the original statement of claim” and “the original reply”, respectively, and “the original pleadings”, collectively. 40.The credibility of the plaintiffs’ case will be assessed by, among other things, the internal consistency (or inconsistency) as disclosed by the different versions of their pleadings. 41.In view of the large number of parties and related entities involved and the long time span over which the material events took place, I would first give an introduction of the individuals and entities who feature in the evidence before setting out the parties’ respective cases. 42.As will be seen below, there is one pleading point concerning the Company Valuation Misrepresentation which needs to be disposed of before I move on to resolve the factual disputes. 43.Some of the information relating to the background of the parties set out below are common ground and taken from the Agreed Documents Bundle lodged with the court in advance of the trial. Some other information is not admitted by the other side. One example would be the personal details pertaining to the individual plaintiffs. While such information is not admitted by KC Lam, eBiz or Tommy Lai, I would accept them as part of the background facts in this case. One example is the education level and the work experiences of the plaintiffs. Another example is how they got to be introduced to the investment opportunity in eBiz in the first place. Some of them say that they knew about it through Desmond Yue, who was their remisier at OCBC Securities at the time. Others say that they were introduced by colleagues of Desmond Yue, who were their remisiers at OCBC Securities or their friends. The two remisiers who feature in the evidence are Mr Justin Lye and Mr Philip Ng. 44.The 1st to 11th plaintiffs are residents of Singapore. 45.The 1st plaintiff, Ms Christine Ruth Ong Chai Hoon, is educated to a tertiary level. At the material time, she worked as a matrimonial lawyer. She invested in eBiz both under the Investment Structure and later by directly subscribing for its shares. Her first investment was made in April 2007. Her investments amounted to HK$529,975 in total. She was introduced to Desmond Yue by Justin Lye. 46.The 2nd plaintiff, Mr Koh Kok Leong, is educated up to secondary school level. At the material time, he was a director in a self-owned company carrying on the business of scaffolding works. He invested in eBiz under the Investment Structure only. His first investment was made in November 2006. His investments amounted to HK$2,130,000 in total. He was introduced to Desmond Yue and KC Lam by Philip Ng. 47.The 3rd plaintiff, Ms Koh Yew Choo, is educated up to secondary school GCE O-level. At the material time, she ran her own business in recycling scrap metals. She was also involved in the running of a food court business. She invested in eBiz under the Investment Structure only. Her first investment was made in November 2006. Her investments amounted to HK$2,800,000 in total. She was introduced to the investment by Desmond Yue. 48.The 4th plaintiff is educated to a tertiary level with a Master of Business Administration. At the material time, he was employed in a senior management role of a multinational corporation in Singapore involved in the construction chemical business. In 2007, he was posted to Shanghai by his company. He invested in eBiz both under the Investment Structure and later by directly subscribing for its shares. His first investment was made in November 2006. His investments amounted to HK$1,814,459 and S$100,000. He was introduced to Desmond Yue by Philip Ng, who was his ex-schoolmate and remisier. 49.The 5th plaintiff, Mr Tan Eng Lee, is educated to secondary school level. Later, he obtained a part-time diploma in electrical installation and control and further obtained a Master of Business Administration and Business Studies in Chinese Media. At the material time, he ran a business of electrical installation and control for commercial and industrial project as a subcontractor. He invested in eBiz both under the Investment Structure and later by directly subscribing for its shares. His first investment was made in February 2008. His investments amounted to HK$6,928,874. He was introduced to Desmond Yue by Justin Lye. 50.The 6th plaintiff, Mr Tan Eu Yong, is educated to Cambridge O-level. At the material time, he had been running his own business of recycling, buying and selling scrap metals for more than 20 years. He invested in eBiz both under the Investment Structure and later by directly subscribing for its shares. His first investment was made in November 2006. His total investments amounted to HK$1,019,901. He was introduced to the investment opportunity by Desmond Yue. 51.The 7th plaintiff, Mr Tan Geu Chuan, is educated to a tertiary level with a Bachelor of Science degree. At the material time, he was the owner of a company which supplied special chemicals to the electronic industry for the production of semi-conductor and circuit boards before his retirement in 2008. He invested in eBiz both under the Investment Structure and later by directly subscribing for its shares. His first investment was made in April 2007. His total investments amounted to HK$2,842,848. He was introduced to Desmond Yue by Philip Ng. 52.The 8th plaintiff, Mr Tan Ong Huat, is educated to A-level in secondary school. At the material time, he was employed as a director of a Singaporean civil engineering and construction company. He made only one investment in eBiz, which was made under the Investment Structure in April 2007. The amount was HK$500,000. He was introduced to Desmond Yue by the 2nd plaintiff. 53.The 9th plaintiff, Ms Tan Wan Li, is educated to a tertiary level with a postgraduate diploma in Strategic IT Business and Information. At the material time, she was employed as a professional services director in an IT company in Singapore, which carried on the business of software development for the logistics industry in relation to custom declarations. She retired towards the end of 2006. She invested in eBiz under the Investment Structure only. Her first investment was made in November 2006. Her investments amounted to HK$1,750,000 in total. She was introduced to the investment opportunity by Desmond Yue. 54.The 10th plaintiff, Mr Yeo Boon Leong, is educated to GCE A-level. At the material time, he was the managing director of a company carrying out the business of supply and rental of photocopying machines. He made only one investment in eBiz, which was made under the Investment Structure in October 2006. He invested a sum of HK$1,000,000. He was introduced to the investment opportunity by Desmond Yue, who was not only his remisier at OCBC Securities but also a personal friend whom he had known since their army days. 55.The 11th plaintiff, Mr Goh King Hiong, is educated to a tertiary level with a diploma in engineering and a degree in economics. At the material time, he was a service manager in an air-conditioning company in Singapore. He made only one investment in eBiz, which was made under the Investment Structure in February 2008. He invested the sum of HK$2,500,000. He was introduced to Desmond Yue by Justin Lye, a mutual friend. 56.It is the plaintiffs’ case that they largely did not know each other prior to the eBiz investment. There is however evidence from the plaintiffs’ oral testimony that the 2nd, 4th and 7th plaintiffs were acquaintances before the investments took place. However, I do not consider that as particularly material in the evaluation of the credibility of the evidence. 57.The above sets out the personal background of the plaintiffs, save their investment experiences prior to the material period. That would be a matter generally privy to the individual plaintiffs. KC Lam, eBiz and Tommy Lai would have no personal knowledge of that. However, I should say at once that the plaintiffs’ prior investment experiences is a matter which is material in at least two ways. 58.First, their experiences would have a bearing on the level of expertise they had in financial investments and their risk appetites. This would become relevant when the court evaluates the inherent likelihood of their factual case concerning how they perceived the risks associated with the pre-IPO investments in eBiz. 59.Secondly, it is well-established that where there is a dispute as to the meaning conveyed by a representation, the court interprets the relevant words or conduct using an objective approach, viewing the communication from the perspective of a reasonable person in the position of the representee. The test is whether (1) the words or conduct in fact led the representee to believe the alleged false fact, and (2) it was reasonable for the representee to believe it from the words or conduct as he perceived them: see, eg, Joytex Development Ltd v Super Homes Ltd [2018] HKCFI 2286 at para 77(2). Hence, in the present case, the characteristics of the plaintiffs, including their level of sophistication, will become relevant and material when the court considers what meaning the alleged representations had conveyed to them and whether they in fact believed in the alleged representations. 60.I shall come back to the prior investment experiences of the plaintiffs when I set out their individual cases below. 61.I now introduce the individuals or entities associated with the defendants. 62.KC Lam was the Chairman and Chief Executive Officer of eBiz during the material period (with the exception of a few months in 2011). Sun Dynamic Ltd and Strong Man Investment Ltd were two of his corporate vehicles, of which he was director and majority shareholder. Sun Dynamic was designated as the borrower in the Investment Structure who received investment monies (indirectly) from the Singapore investors. Strong Man was the legal owner of the car parks who were put up as security under the Investment Structure. 63.During the material period, eBiz had two wholly-owned subsidiaries in the Mainland, namely Nanjing eBizAnywhere Technologies Ltd (“eBiz Nanjing”) and Beijing eBizAnywhere Technologies Ltd (“eBiz Beijing”). They were later acquired by KC Lam in around 2011. 64.Mr Harry Tse was the Chief Operating Officer of eBiz. (His exact title is not agreed but nothing turns on it.) He features in some of the contemporaneous emails. As mentioned above, eBiz acquired the WebExpress software in 2004. Harry Tse was a majority shareholder and director of the company who originally owned the software. 65.During the period from late 2008 to 2011, the following four individuals had at various times acted as INEDs of eBiz. Prof Edward Chen was one of them. The other three were Mr Leong Mun Wai, Mr Loh Weng Whye and Dr Lee George Lam. 66.Deloitte Touche Tohmatsu was the auditor of eBiz during the material period. It prepared its audited financial statements covering the period from its year of incorporation to the end of 2010. The first audited financial statements covered the period from 11 August 2004 to 31 December 2005 and was dated 31 July 2006. This set of audited statements assumes significance in the case of KC Lam and eBiz. I shall refer to it as “the 2005 audited statements” below. 67.Tommy Lai is a certified public accountant in Hong Kong. He was appointed as a director and Chief Executive Officer of eBiz in April 2007. He was appointed as the Chief Financial Officer in August 2009. He resigned as a director in July 2011. He resigned from the position of Chief Financial Officer with effect from August 2011. Prior to joining eBiz, he was a director of a company called Full Star Consultants Ltd. That company provided valuation services. Relevantly, it provided a valuation of 15 car parks owned by KC Lam, which formed part of the security under the Investment Structure, at HK$25,968,000 by a report dated 19 October 2006. 68.Desmond Yue was a remisier at OCBC Securities whose clients included the 3rd, 6th, 9th and 10th plaintiffs. He was appointed an adviser of eBiz in May 2006. He was appointed as the general manager and Vice Chairman of eBiz in January 2009. He was a director of eBiz from June to October 2011. Entities involved in the Investment Structure 69.From November 2006 to April 2008, the Singapore investors invested in eBiz under the Investment Structure in five rounds. In each round, an offshore special purpose vehicle (“SPV”) was set up into which the investors would pay their monies. In exchange, each investor would receive a corresponding shareholding in the SPV proportionate to the sum of his or her investment. The SPV then entered into a loan agreement as lender with Sun Dynamic as borrower (each, a “Loan Agreement”). Strong Man was a party to the Loan Agreement as a guarantor in respect of Sun Dynamic’s obligations. It was also the entity which put up 20 car parks in Bijou Court in Hong Kong as security in favour of the SPVs. 70.The 5 SPVs are (with the dates of the investments stated in brackets):
71.In the Investment Structure, Preston Gates and Ellis acted as eBiz’s corporate lawyer. The law firm also acted as the legal representative of Sun Dynamic. 72.UniLegal LLC, a law firm in Singapore, was the legal representative of the SPVs. Entities involved in the IPO exercise 73.The evidence before the court shows that Catalist, a secondary board on the Singapore Stock Exchange, was launched in late 2007 and ten “full sponsors” and six “continuing sponsors”were approved in early 2008. For a company wishing to be listed on the board, it would need to appoint a full sponsor in its application and after it is listed, it would need to appoint a continuing sponsor. 74.In August 2008, Stamford Law Corporation, one of the six approved continuing sponsors, was appointed as eBiz’s legal representatives in Singapore in respect of its proposed listing on Catalist. 75.In July 2009, eBiz appointed Collins Stewart, one of the ten approved full sponsors, in respect of its proposed listing on Catalist. 76.The evidence shows that before the appointment of Collins Stewart, in the course of 2008, eBiz had engaged the following professional parties in respect of the proposed IPO:
Entities featuring in the Revenue Misrepresentation 77.The following entities feature in the Revenue Misrepresentation:
Entities featuring in the Company Valuation Misrepresentation 78.The Company Valuation Misrepresentation concerns three reports. 79.The first report is a report made by BI Appraisals Ltd and dated 24 November 2000, which valued eBiz at HK$857,000,000 as of 31 October 2004 (“the BI Appraisals report”). 80.The second report is a report made by Grant Sherman and dated 25 June 2008, which valued eBiz at RMB2,117,000,000 as of 31 May 2008 (“the first Grant Sherman report”). 81.The third report is a report also made by Grant Sherman and dated 29 October 2010, which valued eBiz at RMB1,459,000,000 as of 15 October 2010 (“the second Grant Sherman report”). 82.Keith Yan, one of the witnesses of KC Lam and eBiz, is the managing director of Grant Sherman. He was in charge of preparing the two Grant Sherman reports. Entities featuring in the High Profile Partners Misrepresentation 83.As confirmed in the plaintiffs’ written closing submissions, the High Profile Partners Misrepresentation concerns the following individuals or entities:
Entities featuring in the High Profile Investors Misrepresentation 84.Also, as confirmed in the plaintiffs’ written closing submissions, the High Profile Investors Misrepresentation concerns the following individuals or entities:
Entities featuring in the KC Lam Credentials Misrepresentation 85.The KC Lam Credentials Misrepresentation revolves around a company called Ninetowns Digital World Trade Holdings Ltd (“Ninetowns”), a start-up software company listed on the NASDAQ Stock Market in 2004. 86.In a nutshell, the plaintiffs’ case is that the defendants made the Fraudulent Misrepresentations during the material period for the purpose of inducing them to invest in eBiz. In the process, they acted in concert and pursuant to the common design of the Fraudulent Scheme. 87.In this section, I shall narrate the plaintiffs’ case primarily with reference to each of the seven alleged representations. In order to understand the context in which they were made, however, it is necessary to first give a chronological account of the events from the time when the plaintiffs were introduced to the investment opportunity up to the time when the False IPO Notification, as alleged, took place in July and August 2009. Within this account, I shall set out the terms of the Investment Structure in detail as they are material to the plaintiffs’ contention that the investment in eBiz was sold to them as a “low risk no lose” deal. The terms are not controversial as they are documented in the legal agreements signed at the time, which is not subject to any challenge. 88.Against the backdrop of that account, I shall set out how each of the Fraudulent Misrepresentations was made, as pleaded and (in some cases) as narrowed down in the course of the trial, and the material evidence in support in each case. It will be recalled that the Fraudulent Misrepresentations are said to have been made and repeated throughout the material period. I shall therefore relate the relevant evidence which spans across the entire period in this part of the judgment. I would pause here to say that the primary factual dispute is whether (with the exception of the Company Valuation Misrepresentation) the alleged representations were indeed made, rather than whether they were false. 89.That will be followed by the plaintiffs’ account of:
90.I shall lastly set out the prior investment experiences of the plaintiffs. 91.The above will be done with reference to the plaintiffs’ case against KC Lam and eBiz first. Their case against Tommy Lai will be dealt with next in a separate subsection. 92.As to quantum of the plaintiffs’ claims, there is no dispute between the parties as the amounts invested and lost by each of the plaintiffs are common ground. 93.The plaintiffs made their investments at different times. Many of them invested more than once. In their pleadings, each of the plaintiffs’ claims has been specifically formulated in a table format. In respect of each investment made by each plaintiff, there is an entry identifying the misrepresentation(s) which induced the investment, and the defendant(s) who made the misrepresentation(s). 94.Take the 1st plaintiff’s case as an illustration. She made three investments in total. First, she invested HK$400,000 in Radiant Sun in early 2007. It is pleaded that she was induced to make that investment by all the seven representations made by KC Lam and Desmond Yue. Second, she directly subscribed for shares by paying HK$128,755 in October 2009. Third, she directly subscribed for further shares by paying HK$1,220 in April 2011. It is pleaded that she was induced to make the second and third investments by all the seven representations except the Revenue Misrepresentation, and that the six representations were made by all the four defendants. 95.In terms of evidence, in her written statements, the 1st plaintiff spoke about the meetings she had with Desmond Yue, KC Lam and Tommy Lai, her telephone calls with Desmond Yue and the emails sent by Desmond Yue to her during the material period. On those occasions, the defendants would persuade her to invest in eBiz by making oral representations about the business or by sending or showing her various documents about the company. For example, she spoke about a group meeting which she had with Desmond Yue and Justin Lye and other people in a pub called Wu Bar in Circular Road in Singapore in July 2006. Desmond Yue made various statements about eBiz. Among the many things which he said in his “sales pitch” was that under the management of KC Lam, eBiz was planning to be listed very soon, with very good prospects of success. That would be her evidence in support of her case of the IPO Prospects Misrepresentation in relation to her investment in Radiant Sun. 96.Further, the 1st plaintiff spoke about the numerous meetings with KC Lam and Desmond Yue between mid-2007 and August 2009 in which they would repeat their representations, including continuing their narrative of how stellar eBiz’s existing business and the IPO progress were going. Together with what Desmond Yue said in Wu Bar in July 2006, what was said in these subsequent meetings forms the 1st plaintiff’s evidence in support of her case of the IPO Prospects Misrepresentation in relation to her direct subscriptions in October 2009 and April 2011. 97.When evaluating the plaintiffs’ case, I shall take the Fraudulent Misrepresentations as the primary reference points. In other words, the plaintiffs’ case will be narrated with reference to each of the Fraudulent Misrepresentations and in that narrative, I shall set forth the material evidence of those plaintiffs who were allegedly induced by the representation in question. I will not separately set out the case of each individual plaintiff in this judgment. And I want to explain why I adopt this approach. 98.In theory, when evaluating the plaintiffs’ case,as a matter of analysis, the court should consider whether in respect of each investment made by a particular plaintiff, the relevant misrepresentation was made. This is because each such investment is said to have been induced by the particular misrepresentation(s) in question and by a particular defendant or defendants. If the case is made out, the court would award damages to that plaintiff in respect of that particular investment. The exercise will have to be repeated for each of the other investments of the same plaintiff and of the other plaintiffs. It may be said that since that is how damages will be awarded, the judgment should be organised that way. 99.However, I do not think that it is particularly helpful to adopt that methodology. The plaintiffs’ case is that the Fraudulent Misrepresentations were made, repeated and bolstered during the material period. If we take the above evidence of the 1st plaintiff as an example, it is unlikely to be the case that the court will find that what is alleged to have been said to her in Wu Bar in July 2006 (which goes to support the IPO Prospects Misrepresentation) was indeed said but similar things which are alleged to have been said later from mid-2007 to August 2009 (which goes to support the same misrepresentation) were indeed not said. Hence, generally speaking, setting out each plaintiff’s case in full would not be particularly helpful in terms of evaluating the credibility of his or her evidence. 100.I should also note here that it is in fact the plaintiffs’ case, as stated in the 4th plaintiff’s witness statement, that the substance and essence of the Fraudulent Misrepresentations that were made to each of them are the same. 101.As a separate point, to spell out the case of each of the plaintiffs by going through all the instances of misrepresentations which apply to him or her would add to the length of this judgment very considerably. The evidence from the 1st plaintiff which I have set out above is only a small part of her written evidence. Other plaintiffs’ witness statements contain evidence of similar length. 102.I shall therefore organise the plaintiffs’ case with reference to each of the Fraudulent Misrepresentations. I shall first set out the key documents concerning the Fraudulent Misrepresentations. I shall then set out what is alleged to have been said orally to the plaintiffs by reciting the evidence of some (but not all) of them which I consider to be more material and more representative of the misrepresentation in question. 103.I should record here that counsel for the plaintiffs and counsel for KC Lam and eBiz have both lodged very detailed closing submissions discussing the plaintiffs’ case by including two parts – one part discussing the case with reference to each of the Fraudulent Misrepresentations and another part discussing the case with reference to each of the plaintiffs. I do not propose to do the same for the reasons just given. 104.Lastly, I have set out the dates and amounts of the 1st plaintiff’s investments in the example above. But I do not propose to do the same in respect of the other plaintiffs because, first, there is no dispute as to these details; and, secondly, as will be seen below, the plaintiffs’ claims will be dismissed in toto and no award of damages will be made. Hence the details regarding the investments would not be of any importance. For the same reasons, I shall not set out the details as to which investment was induced by what misrepresentation. From around June 2006 to July 2009 105.The plaintiffs were introduced to KC Lam and eBiz at different times. The earliest ones were introduced in June and July 2006 whereas the latest ones in December 2007 and January 2008. The common thread connecting them was Desmond Yue. 106.Desmond Yue had been a remisier at OCBC Securities, which is the stockbroking division of OCBC Bank, a large and highly reputable consumer bank headquartered in Singapore. Some of the plaintiffs had in fact been his longstanding clients. They included the 3rd, 6th, 9th and 10th plaintiffs. Desmond Yue also approached his colleagues, Justin Lye and Philip Ng, to introduce potential investors to him. At his urging, Justin Lye introduced to Desmond Yue the 1st, 5th and 11th plaintiffs, and Philip Ng introduced the 2nd, 4th and 7th plaintiffs. The 8th plaintiff was introduced to Desmond Yue by the 2nd plaintiff. 107.Desmond Yue (and later KC Lam and Tommy Lai) would meet up with the plaintiffs and other Singapore investors at different times, sometimes in groups (of various combinations) and other times with some of them individually. The investors would be shown or sent (by emails, again, sometimes in group emails and other times individual emails) documents relating to the investment opportunity. Telephone calls would also be made to them. 108.While, understandably, the plaintiffs cannot now recall the exact words used by the defendants on the many occasions when they spoke or met, what the plaintiffs have uniformly described in this action is that the defendants would engage in a relentless “sales pitch” introducing to each of them the “great investment opportunity” of investing in eBiz by making, repeating, expanding, refining, and bolstering the Fraudulent Misrepresentations on almost every occasion of contact, and selling the investment as a “low risk no lose” deal. When doing so, the defendants acted in a concerted, coordinated, and systematic manner. It was a single and seamless, continuous and extended sales pitch which lasted for approximately five years. That reflects a clearly defined and well planned modus operandi in carrying out the Fraudulent Scheme. That has been referred to by the plaintiffs as “the Indoctrination Method”. That method was seamlessly and consistently applied to each of them even after they had been induced to invest in the Fraudulent Scheme so as to maintain it. 109.In the process, the credentials of KC Lam were frequently emphasised by the defendants. Desmond Yue would in particular emphasise that KC Lam was a wildly successful businessman, well-acquainted with business tycoons, government officials, politicians, celebrities, and the rich and famous. It was said that he was an investment wizard with many personal contacts and friends in high places, particularly in Mainland China. Also, KC Lam was described as a person of strong Confucian values. KC Lam himself always appeared well-dressed and composed, and he came across as well-spoken, charming and charismatic. Desmond Yue would from time to time send emails to the plaintiffs with information and photographs of KC Lam meeting with public figures, government officials and business leaders. He would also email them with information about alleged awards and appointments received by KC Lam, information about his charity fund and magazine articles in which KC Lam was interviewed. 110.The plaintiffs say that this portrayal of KC Lam helped the defendants carry out the Fraudulent Scheme. With such impressive credentials, the plaintiffs easily fell into the trap of trusting everything that was said by KC Lam to them. When some of the plaintiffs wondered why the defendants would offer such an attractive investment to them, the defendants’ answer was that because KC Lam was already so successful and wealthy, he was willing to offer these attractive terms in order to build more contacts and make more friends in Singapore. The plaintiffs did not find this answer incredulous because of everything that had already been told to them of KC Lam’s wealth, success, generosity, and Confucian beliefs. 111.In summary, what happened was:
112.While the plaintiffs rely on a number of documents as examples of the Fraudulent Misrepresentations, they say that these examples are merely the corroborative tip of the iceberg. Their case is that the defendants most frequently made and repeated the Fraudulent Misrepresentations orally over telephone calls, individual meetings, and group meetings. 113.To give the false impression of the “success” of eBiz and KC Lam, many of the group meetings took place in lunch and dinner gatherings held at high-end luxury establishments in Singapore, such as the Fullerton Hotel (five-star), the Executive Lounge of the Carlton Hotel (4.5-star), and the Pine Tree Club, an exclusive and prestigious private members club, now renamed as The Pines. 114.There was, in particular, a group trip to Beijing arranged by the defendants in about June 2007. The 1st, 2nd, 3rd, 4th, 8th, 9th and 10th plaintiffs, together with other investors, visited eBiz’s Beijing offices. It was a three-day all-expenses-paid trip. Tommy Lai was introduced as the Chief Financial Officer. It was the occasion where some of the plaintiffs met Tommy Lai for the first time. A presentation of the WebExpress software and eBiz’s business plan was given in very rosy terms, mainly by KC Lam and Tommy Lai. The presentation repeated the Fraudulent Misrepresentations. Harry Tse was briefly introduced as the “inventor” of the software but did not speak much. 115.The reaction was a bit mixed. For instance, the 3rd plaintiff thought that the scale of the Beijing office was quite small and she was not particularly impressed by the trip. The 10th plaintiff also formed a negative impression of the Beijing office due to its scale and organisation. On the other hand, the 4th plaintiff thought the presentation given by KC Lam and Tommy Lai sounded very convincing and impressive. 116.In this action, the plaintiffs invite the court to look at the extensive contemporaneous documents, in particular emails generated during the material period. They say that they are not only express examples of the defendants making and repeating the Fraudulent Misrepresentations, but they also fully corroborate the fact that defendants were making them to the plaintiffs orally in individual and group meetings. 117.Due to the lapse of time, the plaintiffs have not been able to retrieve every single email that was sent to each of them. For instance, the 8th plaintiff says that he suffered a crash of his email server and as a result lost a vast majority of the emails and documents sent to him. However, he says that the defendants sent identical or substantially similar emails and documents to the other plaintiffs, which he would rely on. 118.Out of all the plaintiffs, it would appear that the 6th plaintiff has managed to retrieve the most email records. After the exposure of the Fraudulent Scheme in 2011, with the assistance of his daughter, he printed out and kept the various emails and attachments relevant to eBiz. Among these emails, there were some sent to his personal email address. It is a “hotmail” address, which I will not set out here but will refer to as “the 6th plaintiff’s Hotmail address”. 119.Separately, there were two group emailing lists created by Desmond Yue and the lists included the plaintiffs. I shall simply call them “the group email addresses”. However, the plaintiffs have made it clear in this action that these emails that they had been able to retrieve are unfortunately far from a complete and exhaustive record of all the emails sent during the material period. 120.In addition to the emails, the plaintiffs rely on what I have called the key documents concerning the Fraudulent Misrepresentations. They include:
121.It would be convenient to set out at this juncture some of the contents of the above key documents. 122.The June 2006 Brochure contained the following passages:
123.The eBiz Promotional Brochure contained the following passages:
124.The June 2006 Key Points 1 read:
125.The June 2006 Key Points 2 read:
126.The January 2007 Info Memo read:
127.To complete the general picture concerning documents relied on by the plaintiffs, as mentioned above, there are also the two bags of documents left by Desmond Yue before he disappeared in 2011. 128.The sales pitch put forward by the defendants consisted of two components – first, the Fraudulent Misrepresentations and, second, the Investment Structure. The latter in itself was in fact a genuine arrangement which offered protection to the investors in the form of the car park security. But the defendants made use of it in tandem with the Fraudulent Misrepresentations in order to induce the plaintiffs’ investments. 129.There were five rounds of investment under the structure. In each round, each investor would pay his investment money into a designated offshore SPV, arranged and set up by the defendants for that round, and would obtain a corresponding shareholding of that SPV proportionate to his investment. The SPV would then enter into the Loan Agreement with Sun Dynamic and Strong Man. 130.The five Loan Agreements were in substantially identical terms. Broadly:
131.The conversion mechanism was elaborately spelt out in the Loan Agreements:
132.In summary, the defendants was essentially selling a very attractive “no lose” deal to the plaintiffs. It was “no lose” because of (1) the provision of the car parks as security, (2) the revival clause, and (3) the timing of the delivery of the title deeds of the car parks. 133.The Loan Agreements were pre-prepared and pre-arranged by the defendants. Each time, the defendants would inform the plaintiffs when the documentation was ready to be signed and, as instructed, the plaintiffs would attend the offices of UniLegal LLC, a Singaporean law firm arranged by the defendants, to sign the documents. 134.In this action, the plaintiffs have repeatedly emphasised that it is not their case that the defendants lied about the terms of the Investment Structure. There is nothing fraudulent about the structure when it is looked at in isolation. They plaintiffs believe that the structure was deliberately designed by the defendants to appear legitimate on its face in order to make their sales pitch more attractive. In other words, it was used as a complementary tool to strengthen the inducing effects of the Fraudulent Misrepresentations. 135.In the oral testimony of some plaintiffs, it was in fact emphasised that because of how the Investment Structure worked, they considered that what they were doing was simply advancing “simple loans” to eBiz. 136.The existence of the Investment Structure is also the reason why the plaintiffs do not agree with KC Lam and eBiz’s characterisation of the pre-IPO investment as a high-risk investment. Rather, they say that it is a practically risk-free investment under which the investors had watertight protections. 137.I now turn to set out the plaintiffs’ case on each of the alleged misrepresentations. 138.The Revenue Misrepresentation is pleaded as follows – from 2006 onwards, eBiz will generate or has generated extensive sales and revenue from already secured contracts, eg revenue figures mentioned by the defendants include RMB100 million per annum and total RMB500 million. 139.In gist, it is the plaintiffs’ case that eBiz was portrayed as a company that had generated or would as a matter of guaranteed certainty shortly generate extensive revenue, in the range of hundreds of millions pre-IPO pursuant to already signed or secured contracts with big conglomerates. Given its impressive sales and revenue, eBiz was a company that could and was planning to list on main boards such as NASDAQ by 2008. 140.The Revenue Misrepresentation is corroborated by the following documents shown or given by KC Lam and/or Desmond Yue: 141.First, the June 2006 Brochure:
142.Second, the eBiz Promotional Brochure:
143.In the attached five-year financial forecast, annual sales were projected to be around RMB134 million for 2006, which increases year-on-year to around RMB 540 million for 2010. 144.Third, the June 2006 Key Points 1:
145.Fourth, the General Information on Pre-IPO Investment:
146.Fifth, emails sent by Desmond Yue to the 6th plaintiff in July and August 2006 making references to various stock exchanges: see the two emails reproduced in paras 184(1) and 234 below. 147.Sixth, an email sent by Desmond Yue to the group email address on 23 January 2007 (which is referred to as “the January 2007 Sales Getting Strong Email”) read:
148.The above documents convey the following meanings:
149.The Revenue Misrepresentation was also made orally by the defendants. For example, according to the 4th plaintiff, at the Beijing meeting in about June 2007:
150.Later, at meetings in Shanghai in early 2008, according to the 4th plaintiff:
151.The Revenue Misrepresentation was false for a number of reasons. 152.First, the No Revenue Reality, which is undeniable. The total revenue for the financial years ending on 31 December 2006, 2007, 2008, and 2009 were HK$513,045, HK$412,919, HK$131,880 and HK$67,745 respectively. These figures are extracted from the company’s audited financial reports. eBiz in fact had no or minimal business operations, sales, revenue or income. 153.It did not even have a sales department. This is outright admitted by KC Lam in the contemporaneous emails. See, eg:
154.Second, it is KC Lam’s own evidence that eBiz was not able to generate any significant revenue at all in the first few years, without substantial funding from a successful IPO for aggressive marketing. He said this in his witness statements:
155.Third, as regards the high-value agreements signed or secured by eBiz:
156.For the above reasons, the plaintiffs say that there can be no serious dispute that the Revenue Misrepresentation is clearly false, and that the defendants made the misrepresentation knowingly, without belief in its truth, or recklessly, careless whether it be true or false. The Company Valuation Misrepresentation 157.The Company Valuation Misrepresentation stands out from the other misrepresentations in one way. The primary factual dispute surrounding the other representations is more about whether they were made, rather than whether they were false. The converse is true for the Company Valuation Misrepresentation. 158.The Company Valuation Misrepresentation is pleaded as follows – eBiz’s business had been fairly valued by independent third party professionals to be worth HK$857,000,000 as of October 2004, and RMB2,117,000,000 as of May 2008 and HK$1,459,000,000 as of October 2010. 159.It is necessary to reproduce the plaintiffs’ plea in respect of the alleged falsity:
160.In cross-examination, Mr Chain pursued a line of questioning which sought to establish that eBiz did not have the available working capital to earn the sales projection underlying the valuation reports. That, if established, would in turn support the plea that the valuations were premised entirely “on wholly idealistic and unrealistic projected growth and sales figures … for which there is no or no sufficient factual basis”. I shall call it “the working capital point” in this judgment. The questions were objected to by Mr Wong on the basis that the point ought to have been pleaded but was not, and hence the plaintiffs should not be allowed to run it. 161.Having heard counsel’s argument on this issue, I directed that the plaintiffs be allowed to continue with this line of questioning, with the issue of whether they should be allowed to rely on this point as part of their case to be reserved to closing. In the course of the oral closing submissions, at my request, Mr Chain submitted a written formulation of the working capital point if the point were to be pleaded. That was of course without prejudice to his position that the point need not be pleaded in the first place. 162.Had the point been pleaded, the plaintiffs would have formulated it in this way:
163.This is the pleading point which is mentioned in the “Introduction” section above and will be dealt with in the “The working capital point” below. As will be seen, I am of the clear view that the plaintiffs should not be allowed to run this point. I therefore will not go into the evidence on this point in this section as such evidence does not properly form part of the plaintiffs’ case in this action. 164.Among the three valuation reports, the BI Appraisals report was the valuation most extensively referred to and utilised by the defendants as it was the first report obtained by KC Lam and it pre-dated the five rounds of investments under the Investment Structure. It is, on the plaintiffs’ case, considered to be the “most crucial” valuation report among the three. While the first and second Grant Sherman reports post-dated the Investment Structure, they are still relevant as they were made to maintain and bolster the Company Valuation Misrepresentation. 165.It can safely be said outright that there is no serious dispute that the valuation figures were made known to all the plaintiffs and they knew about them. For instance, in respect of the BI Appraisals valuation, the defendants’ sales pitch documents expressly cited the valuation figure, eg, the June 2006 Key Points 1 (“HK$857 Millions Dollars Company – By B.I. Appraisals Limited”) and the June 2006 Brochure (“eBizAnywhere is a HK $ 857,000,000 Company”). 166.What is controversial is whether copies of the actual reports were shown or given to the plaintiffs; if so, whether they read them; and, if that is the case, to what extent they did so. This point is material because KC Lam and eBiz are relying on some of the passages in those reports which stated that eBiz was a start-up company. This would, KC Lam and eBiz contend, contradict the plaintiffs’ case that they were consistently told that eBiz was already earning substantial revenues. This will have a significant bearing on the plaintiffs’ case on the Revenue Misrepresentation. I shall make use of this section to set out each of the plaintiffs’ case on this issue. 167.The 1st plaintiff’s case is based on the BI Appraisals valuation and the first Grant Sherman valuation.
168.The 2nd plaintiff’s case is based on the BI Appraisals valuation only.
169.The 3rd plaintiff’s case is based on the BI Appraisals valuation only. She was handed a hard copy of that report by Desmond Yue at meetings in 2006. She “did not read the fine print of the report as it appeared to be very technical”. Desmond Yue just showed her the report to illustrate that eBiz was indeed very valuable. 170.The 4th plaintiff was not shown a copy of the BI Appraisals report but at a dinner in 2006, KC Lam and Desmond Yue told him that eBiz was “independently valued at US$110 million in 2005”. He also saw the valuation of HK$857,000,000 in the June 2006 Brochure. He did not obtain a copy of the first Grant Sherman report but received emails drawing his attention to the valuation figure. He received a copy of the second Grant Sherman report by email. He did not read the “fine print” of the report as it did not occur to him that there was a need to do so given everything he had been cumulatively told by that time. 171.The 5th plaintiff’s evidence is not entirely clear. In his written statement, he said that he did not read the “fine print” of the BI Appraisals report “as it appeared to be very technical” and Desmond Yue just showed him the report at lunch meetings in December 2007 and January 2008 but did not give him a copy. But, in cross-examination, he said that he was given a valuation report but he simply focused on the valuation figure. According to the plaintiffs’ written closing submissions, it seems to be the 5th plaintiff’s case that he had also received the two Grant Sherman reports but did not read them at all other than the actual valuation figures. 172.The 6th plaintiff received copies of the BI Appraisals report and the first Grant Sherman report from Desmond Yue, who told him about the valuations. As the reports are in English, he did not carefully review their contents. (He says he only has limited, basic conversational English proficiency.) He received the second Grant Sherman report by the group email sent by Desmond Yue. 173.The 7th plaintiff received all three reports. He did not read the “fine print” of the report “as it appeared to be rather technical” and it did not occur to him that there was a need to do so given everything he had been cumulatively told by that time. 174.The 8th plaintiff’s case is based on the BI Appraisals valuation only. He was shown a copy of the report by Desmond Yue at a meeting in March 2007. Desmond Yue briefly took him through it, in particular emphasising the valuation figure. He did not read the “fine print” as it appeared to be very technical and Desmond Yue just showed him the report to illustrate that eBiz was indeed very valuable. 175.The 9th plaintiff’s case is based on the BI Appraisals valuation only. She was provided with a copy by KC Lam and Desmond Yue at the dinner gatherings between November 2006 and April 2007. She did not read the “fine print” as it did not occur to her that there was a need to do so given everything else she had been cumulatively told by that time. That is what she said in her written statements. In cross-examination, she revealed that she did not read the report at all:
176.The 10th plaintiff’s case is based on the BI Appraisals valuation only. He was shown a copy (but not given a copy) at a coffee meeting with Desmond Yue in October 2006 and the latter told him about the valuation figure. He did not read the “fine print” of the report at the time “as Desmond Yue just showed [him] the report to illustrate that eBiz was indeed very valuable”. He did not receive the first Grant Sherman report. 177.The 11th plaintiff does not mount a claim based on the Company Valuation Misrepresentation. 178.The plaintiffs contend that the Company Valuation Misrepresentation was false. I should record here that the plaintiffs have made plain in this action that they are not challenging the independence or professional integrity of the valuers. 179.As put by the 4th plaintiff, the sales projections which were provided to the valuers were “wild and outlandish”. He relied on KC Lam’s own words:
180.The 4th plaintiff summed up the falsity as follows:
181.The plaintiffs also rely on the fact that in May 2011, eBiz Beijing and eBiz Nanjing were sold to KC Lam at a mere sum of HK$1 million, which is of course a far cry from the three valuations shown to the plaintiffs throughout the material period. The High Profile Partners Misrepresentation 182.The High Profile Partners Misrepresentation is pleaded as follows – rich and famous companies and individuals had already become, or had agreed to become, or were in serious discussions about becoming partners of eBiz for its WebExpress software business. The high profile partners mentioned by the defendants include the Temasek group, the Hutchison group, the China Telecom group, the Malaysia Telecom group, PCCW, Skype, Li Ka Shing, Digital China, Lenovo Group, Ninetowns, Jardine One Solution, CCPIT, China Chamber of International Commerce, Nanyang Technological University, UKM Technology Sdn Bhd (for National University of Malaysia), China ASEAN Association, and a general reference to “Hong Kong tycoons”. 183.At the trial, the scope of the misrepresentation is narrowed down to the following three high profile partners only:
184.As regards the Temasek group:
185.As regards the Malaysia Telecom group:
186.As regards the Hutchison group:
187.The plaintiffs contend that the High Profile Partners Misrepresentation (as revised) was false because none of the high profile partners mentioned by the defendants had actually become, or agreed to become, or were ever in serious discussions to become partners of eBiz. The defendants made the misrepresentation knowingly, without belief in its truth, or recklessly, careless whether it be true or false. The High Profile Investors Misrepresentation 188.The High Profile Investors Misrepresentation is pleaded as follows – rich and famous companies and individuals had already invested in and become, or had agreed to invest in and would soon become, or were in serious discussions about investing in and becoming shareholders of the Company. The high profile investors mentioned by the defendants include the Temasek Group, the Hutchison Group, Li Ka Shing, Richard Li Tzar Kai, “Nan Da Soft Technologies Ltd” (said to be a company listed on the Hong Kong Stock Exchange), a “France telecommunications giant”, Cheng Yu Tung of the Hong Kong New World Group, and the Ho Family (the founding family of Hang Seng Bank). 189.At the trial, the scope of the misrepresentation is narrowed down to the following five high profile investors only:
190.As regards Cheng Yu Tung:
191.As regards Li Ka Shing:
192.As regards the French telecommunications giant:
193.As regards the Hutchison group:
194.As regards the Malaysian blue chip company:
195.The plaintiffs contend that the High Profile Investors Misrepresentation (as revised) was false because none of the high profile investors mentioned by the defendants had actually invested in, or agreed to invest in, or were ever in serious discussions about investing and becoming shareholders of eBiz. The defendants made the misrepresentation knowingly, without belief in its truth, or recklessly, careless whether it be true or false. The KC Lam Credentials Misrepresentation 196.The KC Lam Credentials Misrepresentation is pleaded as follows – KC Lam is a financial genius and investment wizard, with extensive knowledge and experience, who has connections with many political and business leaders, and in particular has the prior experience of being the driving force and main person behind the listing of Ninetowns on the NASDAQ Stock Exchange. 197.At the trial, the scope of the misrepresentation is narrowed down to only the last part, namely that KC Lam has the prior experience of being the driving force and main person behind the listing of Ninetowns on the NASDAQ Stock Exchange. 198.Notwithstanding the narrowing down, the plaintiffs submit that the other credentials, though not being relied on as an actionable misrepresentation, remain important to their case, as they show how KC Lam utilised the Indoctrination Method to gain the plaintiffs’ trusts. 199.The KC Lam Credentials Misrepresentation is corroborated by the following documents. 200.First, a business magazine called “華商世界” published in 2005 featuring KC Lam on its cover and containing a four-page article with the title “林健忠 新一代儒商” (“the 2005 Magazine Article”). The following passage appeared in the article:
201.Second, the General Information on Pre-IPO Investment:
202.Third, the June 2006 Key Points 1:
203.The above documents convey the following meanings:
204.The KC Lam Credentials Misrepresentation was also made orally by KC Lam and Desmond Yue repeatedly. While different words might have been used on the many occasions when the representation was made and repeated, in gist, the message conveyed was that KC Lam was responsible for the listing of Ninetowns. I quote the following as examples. 205.In his written evidence, the 9th plaintiff said that Desmond Yue made the following oral representation over several individual tea and dinner meetings from mid-2006 to November 2006:
206.In his written evidence, the 10th plaintiff said that at a coffee meeting with Desmond Yue in late October 2006, the latter said:
207.In his oral testimony, the 10th plaintiff added:
208.The 11th plaintiff said this in cross-examination:
209.The KC Lam Credentials Misrepresentation was false because KC Lam was not the driving force or main person behind the listing of Ninetowns. His role was limited to investing in and introducing strategic investors to the company. He was not involved in the management at all. This has been admitted by him. 210.In the premises, the defendants made the KC Lam Credentials Misrepresentation knowingly, without belief in its truth, or recklessly, not caring whether it be true or false. The Car Park Security Misrepresentation 211.The Car Park Security Misrepresentation is pleaded as follows – each investment would be secured by the car parks in Hong Kong which were ultimately beneficially owned by KC Lam. The value of the car parks has been fairly valued by an independent third party professional and is sufficient to fully secure each investment. The misrepresentation was made with particular reference to the valuation report of Full Star dated 19 October 2006 which stated that the value of 15 of the car parks in October 2006 was HK$25,968,000, ie HK$1,731,200 per car park. 212.At the trial, the scope of the misrepresentation is narrowed down in two ways. First, the plaintiffs are no longer pursuing the part which says that the car park properties have been fairly valued by an independent third party professional. Second, they are no longer pursuing the misrepresentation as regards the Ocean Gate round of investments. This is because the value of the specific car parks allocated to that round was sufficient to cover the loan amount. 213.It is necessary to set out some undisputed background facts.
214.The Car Park Security Misrepresentation was false because the value of 20 car parks was not sufficient to fully secure the total loan amount of HK$40,930,000. 215.The Car Park Security Misrepresentation is corroborated by the following documents. 216.First, the June 2006 Key Points 1:
217.Second, the June 2006 Key Points 2:
218.Third, the January 2007 Info Memo:
219.Fourth, in a document used by Desmond Yue in relation to the False IPO Notification, which is referred to as “the August 2009 speaking note”:
220.The above documents convey the meaning that full security would be provided for all the investments. This was either expressly stated (“Dr KC Lam offers personal assets to back-up all the investments”) or implied in the context. 221.The implication would arise since there is no qualification that the security would be offered as a partial backup only. In addition, the whole purpose of the security was to cater for the contingency that eBiz was unable to repay the loans. A reasonable reader would therefore have understood the above statements to mean full security. 222.Furthermore, for those plaintiffs who received both the June 2006 Key Points 1 and the June 2006 Key Points 2, namely the 6th, 7th and 8th plaintiffs, the cumulative meaning must have been that there would be full security for all the investments. The first placement was expressed to have “a Dollar to a Dollar” protection. As there is no suggestion that the subsequent rounds of investments would be treated differently, one would expect that the subsequent placements would be similarly protected “a Dollar to a Dollar”. 223.The Car Park Security Misrepresentation was also made orally by KC Lam and Desmond Yue repeatedly and, on occasions, also by Tommy Lai. In gist, the message was that all the investments would be fully secured by the car park security. Sometimes, express words would be used. On other occasions, the message could be implied. I quote the following as examples. 224.According to the 3rd plaintiff, over several individual meetings and telephone calls from mid-2006 to November 2006, Desmond Yue orally represented to her:
225.In cross-examination, she said:
226.Similarly, according to the 6th plaintiff, at his individual face-to-face meeting with Desmond Yue in mid-2006, the latter represented:
227.In cross-examination, the 6th plaintiff said that at the dinner gatherings with Desmond Yue and KC Lam after June 2006:
228.The 7th plaintiff’s evidence is that between February and April 2007, he had several meetings with KC Lam, Desmond Yue and Tommy Lai. During the meetings, he was given copies of documents, such as the June 2006 Key Points 1, the June 2006 Key Points 2 and the January 2007 Info Memo. And the three of them orally represented that:
229.KC Lam made the Car Park Security Misrepresentation knowingly, without belief in its truth, or recklessly, careless whether it be true or false, as he knew the approximate value of each individual car park by reference to the Full Star valuation. The IPO Prospects Misrepresentation 230.The IPO Prospects Misrepresentation is pleaded as follows – the business of eBiz (as described by (1) the Revenue Misrepresentation, (2) the Company Valuation Misrepresentation, (3) the High Profile Partners Misrepresentation, and (4) the High Profile Investors Misrepresentation), was good enough for it to proceed to IPO within two to three years on its own, very likely leading to investment returns of 5 to 10 times, or even 10 to 20 times. 231.There was some discussion in the course of the opening submissions about what the phrase “on its own” means. It is explained in the plaintiffs’ closing submissions that eBiz was represented to them as one that possessed the requisite revenue, valuation, investors and partners that enabled it to proceed to an IPO without the need for any additional external funding or partnerships at the material times. In other words, when eBiz was sold to them, it was described as a company which was ready to proceed to IPO with the resources it had already obtained. It was an overarching misrepresentation which tied together the other Fraudulent Misrepresentations. 232.This is how Mr Chain puts it:
233.The IPO Prospects Misrepresentation is corroborated by a number of contemporaneous emails. I would highlight one of them below. As to the others, I do not consider it necessary to set out the contents here. Many of these emails appear to be neutral in that they merely show that the defendants were taking steps in the IPO process. In particular, those emails sent by Desmond Yue in 2010 were quite plainly just updates given to the investors about the IPO. When read alone, I have to say that they do not at any rate go to make out the plaintiffs’ allegation. I bear in mind that I should take a holistic approach evidentially. I just wish to make it clear here that I have reviewed and taken into account those emails. 234.The plaintiffs rely on an email sent by Desmond Yue with the title “Planning to List in 2007” on 26 July 2006 to the 6th plaintiff, which was also seen by the 3rd and 9th plaintiffs. It read:
235.The IPO Prospects Misrepresentation was also made orally by KC Lam and Desmond Yue repeatedly. In gist, the messages conveyed were:
236.The 1st plaintiff’s evidence is that over two meetings in July 2006, “eBiz was described to me by Desmond Yue as a very successful and highly valuable, award-winning company, with excellent prospects of success of listing very soon”. 237.The 4th plaintiff’s evidence is that at a group dinner, “Desmond Yue had told me … The plan was to list eBiz within 2 years and there was a high likelihood of success with KC Lam at the helm”. 238.The 7th plaintiff’s evidence is that at meetings between February and April 2007, KC Lam, Desmond Yue and Tommy Lai stated that “eBiz is on track to be listed on a major stock exchange such as NASDAQ or the Tokyo Stock Exchange within 2 to 3 years”, and in follow-up telephone calls between August and October 2008, Desmond Yue further told the 7th plaintiff that “eBiz was going to be listed very soon and that any further investment would see a highly favourable return within a short period of time”. 239.The 8th plaintiff’s evidence is that at the face-to-face meeting in early March 2007, Desmond Yue orally represented that “[t]here is a one-of-a-kind opportunity to invest in eBiz, a Hong Kong company in the software and IT development business, which was on the brink of an IPO”. 240.The 9th plaintiff’s evidence is that at the dinner gatherings from November 2006 to April 2007, KC Lam and Desmond Yue orally represented that “[d]ue to these great and positive developments, the IPO of eBiz is even closer and even more likely than before”. 241.The 11th plaintiff’s evidence is that at a meeting in early December 2007, Desmond Yue and KC Lam represented that “[t]he IPO for eBiz is already at a very advanced stage, and eBiz was expected to be successfully listed in 3 to 6 months”. 242.As pleaded, the IPO Prospects Misrepresentation was false because the company with the IPO prospects as described by the defendants did not exist as a matter of fact. eBiz in fact had no or minimal business operations and generated no or minimal revenue, let alone profit. 243.In closing, the case of falsity is put differently:
244.It is therefore clear from the above that eBiz did require funds or assets from sources external to the company to meet the working capital requirements for a listing on Catalist. Hence, when KC Lam, Desmond Yue and Tommy Lai told the plaintiffs that eBiz was good enough to successfully list on its own between 2006 to 2011, that was a misrepresentation. The defendants made it knowingly, without belief in its truth, or recklessly, careless whether it be true or false. 245.Throughout the material period, the defendants painted a false picture of consistent incremental progress being made by eBiz towards an IPO. See the following emails:
246.July and August 2009 is a particularly significant turning point. This is when the False IPO Notification happened. 247.It is necessary to refer to how the term is defined in the pleadings. Para 16 of the re-re-amended statement of claim reads:
248.This plea is supported by the master witness statement of the 4th plaintiff, in which he said that the defendants misrepresented that the IPO for eBiz was a few months away, and that “Collins Stewart had issued an IPO notification”. However, this last part of the evidence is later corrected in the supplemental witness statements of all the plaintiffs. They now say that they were not using the term “False IPO Notification” in a technical sense as they do not have the expertise to use such technical terms. They were not suggesting in the original witness statement that Collins Stewart had issued some kind of formal, technical notification. Rather, the term was simply used to describe the defendants’ conduct, namely their falsely representing that the IPO was scheduled to occur. 249.This has been criticised by KC Lam and eBiz as a shifting of case or a “sea change” of the case. The plaintiffs do not agree with that criticism. In his closing submissions, Mr Chain says that when the pleadings and the witness statements of the plaintiffs are read as a whole, their case is that it was falsely represented to them in August 2009 that Collins Stewart had notified eBiz that it was definitively scheduled to be listed on Catalist. 250.What happened in late August 2009 is that Desmond Yue sent an email to the plaintiffs in respect of each SPV on 26 August stating (and I quote below the one relating to Ocean Gate):
251.The email continued to say that a shareholders meeting would be held on 30 August. 252.The attachment to the email is a letter dated 22 August from Sun Dynamic addressed to Ocean Gate stating:
253.I shall refer to this letter and identical letters sent to other SPVs below as “the notification letters from Sun Dynamic dated 22 August 2009”. 254.Shareholders’ meetings of the SVPs were held on 30 August 2009. Induced by the False IPO Notification, and believing that the IPO of eBiz was imminent, the plaintiffs all agreed to convert their loans into shares. In addition, they consented to the SPVs signing termination agreements which had the effect of terminating the Loan Agreements and releasing the car park security back to Strong Man immediately (“the Termination Agreements”). 255.Shortly after, the defendants arranged for the SPVs to be quickly dissolved in October and November 2009. 256.I will return later to explain in detail why the plaintiffs contend that the False IPO Notification shows the fraudulent intent of the defendants. In short, they say so because:
The IPO exercise and further direct subscriptions 257.At that time, the plaintiffs of course did not know about the truth of the matter. 258.In fact, the False IPO Notification had the effect of significantly bolstering the Fraudulent Misrepresentations which in turn induced some of them to make direct subscription of the shares after September 2009. 259.From August 2009 to February 2011, Desmond Yue emailed the plaintiffs from time to time giving them updates of the IPO progress. However, the IPO dates kept being postponed. Indicative timetables revising the listing dates were circulated. In 2010, the IPO was delayed from March to mid-May, and then to mid-August, and, in November, Desmond Yue circulated a further revised timetable with the listing date pushed back to mid-April 2011. That was the last timetable prepared by Collins Stewart. 260.In the period from late February to August 2011, there were fewer emails from the defendants. However, individual and group meetings were still arranged regularly. The defendants never gave any proper explanation of the failure of eBiz to list in mid-April 2011. 261.To some of the plaintiffs who were more active and vocal about the repeated delays, the defendants said that the blame lay with Collins Stewart who had wrongfully refused to file eBiz’s application. The defendants then shifted to talking about a “restructuring exercise”, painting a rosy picture of alternative listing plans on other stock exchanges. It was vaguely suggested that a restructuring was necessary, and eBiz’s business was to be restructured into a new listing vehicle, Zhong Yang Cloud Computing (“ZYCC”). To other plaintiffs who were more passive, the defendants simply did not say anything. 262.During this period, the defendants were still inviting the plaintiffs to make further direct subscriptions, purportedly as part of the “restructuring exercise”. The 1st, 4th, 5th, 6th and 7th plaintiffs made direct subscriptions in April 2011. 263.In May 2011, Tommy Lai arranged for KC Lam to acquire eBiz Beijing and eBiz Nanjing for HK$1 million. Tommy Lai explained that this was a set-off against an existing liability owed by eBiz to KC Lam. None of the plaintiffs objected as they had been led to believe that this was part of the “restructuring exercise”. 264.It was not until August 2011 that the Fraudulent Scheme began to unravel. The exposure of the Fraudulent Scheme 265.This is how the 4th plaintiff describes in his master witness statement when the plaintiffs first found out that they had indeed been defrauded:
266.However, by late September and early October 2011, the defendants had changed tack and started to say that the plaintiffs had to invest more monies in order to become shareholders of ZYCC, or else lose their previous investments. It was then that the plaintiffs finally realised that they had been defrauded. Angry emails were exchanged between the plaintiffs and KC Lam in October 2011. 267.Before the exposure in October 2011, some of the plaintiffs had in fact received warnings about the true nature of the Fraudulent Scheme from a Miss Jessie Wong and Harry Tse. I am not going to set out the evidence here as I do not consider that to be material in this case. 268.After October 2011, the plaintiffs tried their best to find out what exactly had happened. It is in this process that they managed to obtain from Desmond Yue the two large bags of documents before he later disappeared. Police reports were made in Singapore and Hong Kong. Pre-action letters were issued to the defendants. In September 2012, the plaintiffs commenced this action. 269.The plaintiffs stress that at first they were not completely clear on the details of how they had been defrauded. In his master witness statement, the 4th plaintiff specifically said this:
270.I shall have to come back to this point because one of the major criticisms made by KC Lam and eBiz is that there are stark contradictions between the different versions of documents, eg, the original pleadings on the one hand and the latest pleadings on the other. 271.With more documents at hand, it is now clear to the plaintiffs that the defendants knew all along that, given the No Revenue Reality and its weak (or non-existent) fundamentals, it was impossible or very unlikely for eBiz to be successfully listed unless a tycoon was persuaded to invest. In this action, it is not the plaintiffs’ case that the defendants never intended for eBiz to succeed in an IPO. Rather, their case is that it was a high-risk gamble of KC Lam to “hook” a tycoon investor by making use of their monies obtained through the Fraudulent Misrepresentations. Had the high-risk gamble succeeded, eBiz would have been listed with handsome pay-offs. That was the purpose behind the Fraudulent Scheme. The False IPO Notification exemplifies the fraudulent intent 272.I now return to the topic of the False IPO Notification and set out the plaintiffs’ case on how that exemplifies the defendants’ fraudulent intent when making the Fraudulent Misrepresentations. What happened is also strong evidence showing that KC Lam was the mastermind of the Fraudulent Scheme, assisted by his subordinates Desmond Yue and Tommy Lai. 273.The contemporaneous documents now available reveal the following sequence of events. 274.The first email in the sequence was dated 4 August 2009 from a lawyer at K&L Gates to Desmond Yue and Tommy Lai. The lawyer attached a “discussion draft” of the Termination Agreements and asked for comments. There are two matters which are of note in this email. 275.First, the lawyer made reference to the definition of “Listing Price” in the draft agreement. The relevance of this will become clear shortly. 276.Secondly, he raised a query in para 3:
277.On 6 August, Desmond Yue by email requested Collins Stewart to prepare a letter and an indicative timetable “for the shareholder, Sun Dynamic Limited”. 278.On 7 August, Collins Stewart provided a first draft as requested. The draft letter stated that:
279.On 13 August, Desmond Yue specifically requested Collins Stewart to remove the words “Upon requests made by Mr Desmond Yue” in the draft. 280.On 18 August, in response, Collins Stewart revised the draft letter by using the words “At the request of the Company”. 281.The notification letters of Sun Dynamic dated 22 August 2009 were issued to the SPVs. 282.On 26 August, Desmond Yue sent emails to the investors, which were blind copied to KC Lam calling EGM meetings of the SPVs four days later to choose between conversion shares and the car parks. 283.On 30 August, the EGMs were held. A speaking note was prepared by Desmond Yue recording what he had planned to say at the meeting (“the August 2009 speaking note”). I reproduce some of the contents below:
284.The Singapore investors all elected conversion shares. 285.On 5 September, Desmond Yue emailed KC Lam confirming that the SPVs had all exercised their rights to receive conversion shares. 286.On the same day, Desmond Yue replied to the email of 4 August from the lawyer at K&L Gates saying that, with regard to the para 3 query, the lawyer should “check with KC”. 287.On the following day, on this point, KC Lam replied in bold:
288.On 8 September, by email, the lawyer circulated revised drafts of the Termination Agreements. At the end of the email, the lawyer make the remark that these drafts were prepared on the basis that the terms reflected the current intention and agreement between the relevant parties. 289.Separately, between 5 and 8 September, there was a chain of emails among Desmond Yue, Tommy Lai and KC Lam which set out the defendants’ plan to set the “Termination Day” to be 11 September 2009 and the need for a “comfort letter” from Sun Dynamic. 290.On 9 and 10 September, there was a chain of emails where Desmond Yue and Tommy Lai worked together to prepare various board resolutions for the Termination Agreements and the release of the car parks. Tommy Lai was the one who prepared the board resolutions. 291.On 10 September, the finalised version of the Termination Agreements were sent to Desmond Yue by Tommy Lai for the meeting of KC Lam and Desmond Yue the following day. 292.On 11 September, the scheduled “Termination Day”, various documents such as the Termination Agreements were signed by the directors of the SPVs. The 5th and 11th plaintiffs were directors of Liberty Star and they were asked to sign the documentation. Both of them now say that they signed without having proper sight of the contents. 293.On the same day, the comfort letters was sent by KC Lam on behalf of Sun Dynamic to the SPVs. 294.In October and November, all the SPVs were dissolved. This was done under the instructions of KC Lam. 295.The plaintiffs have a number of complaints over the above events. 296.First, KC Lam intentionally engineered a wholly artificial justification as a basis for Sun Dynamic to issue the notification letters dated 22 August 2009. It was at the specific request of Desmond Yue that Collins Stewart issued a draft preliminary IPO timetable. Collins Stewart took the effort to make it clear that it only did so pursuant to a request. At that time, the first IPO kick-off meeting had not even taken place. (It was only held later on 6 October 2009.) The draft indicative timetable was the only basis Sun Dynamic could possibly rely on to issue the notification pursuant to clause 5.01 of the Loan Agreements. That clause however provided that Sun Dynamic should issue a notice if “a Qualified Event is scheduled to occur before the Repayment Date”. Here, the mere existence of a draft indicative IPO timetable clearly cannot count as the IPO being “scheduled to occur”. 297.Secondly, the plaintiffs say that the False IPO Notification was pre-planned and done under the instructions of KC Lam for the deliberate purpose of stripping away the watertight protections the Investment Structure provided. There is otherwise no other explanation for what had happened. 298.Critically, the Termination Agreements and the winding up of the SPVs altered and superseded the elaborate contractual mechanism already provided for under the Loan Agreements in two material respects.
299.The para 3 query raised by the K&L Gates lawyer and KC Lam’s reply are telling. The lawyer highlighted that Strong Man “are asking for the return of everything (title deeds etc.)” in the Termination Agreements and hence he suggested that the SPVs should be repaid the loans and premium if the IPO does not occur. To this, KC Lam replied, “Never paid the loan amount plus an agreed premium!” 300.Thirdly, the plaintiffs consented to the arrangements without full appreciation of the ramifications of the documents, given the great degree of trust reposed in KC Lam in particular. The contemporaneous correspondence does not show that the arrangements were ever explained to the plaintiffs. The plaintiffs’ prior investment experiences 301.To complete the plaintiffs’ factual case, I shall lastly set out the prior investment experiences of each of the plaintiffs. 302.The 1st plaintiff has limited investment experience and financial sophistication with a low risk appetite. She has a limited understanding of the workings of the stock market and considers herself as risk averse when it comes to investments. 303.The 2nd plaintiff has limited investment experience and financial sophistication with a low risk appetite. He seldom bought shares from the Singapore Stock Exchange. Before eBiz, he had never made any pre-IPO investments. 304.The 3rd plaintiff has minimal investment experience and financial sophistication with a low risk appetite. Her experience is limited to buying and selling blue chip shares on the Singapore Stock Exchange. Before eBiz, she had never made any risky investments such as pre-IPO investments or structured or derivative financial products. 305.The 4th plaintiff has limited insight and experience in investment. He only bought shares on the Singapore stock market to hold for the long term. He has never made any investment in structured or derivative financial products. He only once made a pre-IPO investment in 2004 by way of convertible loan in a private company, which was subsequently listed on the Singapore Stock Exchange. 306.The 5th plaintiff has limited financial sophistication with a low risk appetite. He is generally risk averse and conservative with a preference for blue chip companies to hold for the long term. Before eBiz, he had never made any risky investments such as pre-IPO investments or structured or derivative financial products. 307.The 6th plaintiff has limited investment experience and limited financial sophistication with a low risk appetite. He occasionally bought and sold shares on the Singapore Stock Exchange. Before eBiz, he had never made any pre-IPO investments or invested in structured or derivative financial products. 308.The 7th plaintiff has some investment experience. He occasionally purchased stocks. Prior to eBiz, he had made two pre-IPO investments. 309.The 8th plaintiff has limited investment experience and financial sophistication with a low risk appetite. He only bought shares on the Singapore Stock Exchange to hold for the long term. Before eBiz, he had never made any pre-IPO investments or invested in structured or derivative financial products. 310.The 9th plaintiff has limited investment experience and financial sophistication with a low risk appetite. She has bought some shares from the Singapore Stock Exchange before through Desmond Yue, usually at his recommendation. Before eBiz, she had never made any pre-IPO investments or invested in structured or derivative financial products. 311.The 10th plaintiff has limited investment experience and financial sophistication with a low risk appetite. Before eBiz, he had never made any pre-IPO investments or invested in structured or derivative financial products. 312.The 11th plaintiff has limited investment experience and financial sophistication with a low risk appetite. He only bought shares of blue chip companies or government utilities companies on the Singapore Stock Exchange, using his public retirement funds. He chose those shares for their stability as he considers himself to be risk averse. Before eBiz, he had never made any pre-IPO investments or invested in structured or derivative financial products. Reliefs against KC Lam and eBiz 313.The plaintiffs invite the court to find that KC Lam and eBiz are liable as joint tortfeasors acting in concert with Desmond Yue and Tommy Lai pursuant to the common design of the Fraudulent Scheme. As such, KC Lam and eBiz should be liable for the losses flowing from all the Fraudulent Misrepresentations, whether or not the representations were made personally by KC Lam. Hence, KC Lam and eBiz should be ordered to pay damages to the plaintiffs in the sum of HK$23,816,058.38 and S$100,000, these sums together representing the losses suffered by all the plaintiffs. 314.Alternatively, if the court does not find in favour of the joint tortfeasorship argument, KC Lam should be liable for the Fraudulent Misrepresentations which were made by him personally. For this, KC Lam and eBiz should jointly and/or severally pay a total sum of HK$20,066,058.38 and S$100,000. The plaintiffs’ case against Tommy Lai 315.I now set out the plaintiffs’ case against Tommy Lai. 316.First, Tommy Lai had made Fraudulent Misrepresentations to three of the plaintiffs to induce them to invest. The three plaintiffs are the 1st, 5th and 7th plaintiffs. 317.Second, KC Lam, Desmond Yue and Tommy Lai were jointly acting in concert pursuant to the common design of the Fraudulent Scheme. More specifically:
318.For these reasons, even though Tommy Lai only came in the picture later, he rendered acts of assistance to maintain and prolong the Fraudulent Scheme. The plaintiffs invite the court to find him liable as a joint tortfeasor acting in concert with KC Lam and Desmond Yue pursuant to the common design of the Fraudulent Scheme. As such, Tommy Lai should be liable for all losses flowing from the Fraudulent Misrepresentations, including those representations which were not made by him personally. He should be ordered to pay the same sum as stated in para 313 above. 319.Alternatively, if the court does not find in favour of the joint tortfeasorship argument, Tommy Lai should be liable for the Fraudulent Misrepresentations personally made by him to the 1st, 5th and 7th plaintiffs. For this, he should be ordered to pay a total sum of HK$10,301,698.38. 320.I shall set out the case of KC Lam and eBiz by, first, giving a broadly chronological account of events from their perspective and, secondly, setting forth their specific responses to the plaintiffs’ case. 321.KC Lam was born and brought up in Hong Kong. He attended Queen’s College, a well-known local secondary school. Upon graduation, he joined the workforce owing to family financial obligations. He built up his wealth from his business as a real estate agent. His business grew in the 1990s when the property market in Hong Kong just started to boom. As his business extended, he acquired wide business networks in and out of Hong Kong. 322.As he builds up his personal wealth, due to his belief in Buddhism and his desire to repay society, he makes donations to various causes from time to time, including to education institutes and universities all over the world. His contributions have been recognised by the different institutes and many of them have granted him honorary academic qualifications or positions. 323.In early 2000, KC Lam had experience in investing and raising capital in Ninetowns, a start-up software company. He had introduced strategic investors to Ninetowns to support its business and enable it to be listed on the NASDAQ stock market in 2004. The investors whom he had introduced were Mr Lee Tat Man, the younger brother of Dr Lee Shau Kee, a well-known Hong Kong tycoon, and Mr DC Lee, who was in good relationship with AIA Taiwan, which later became the 25% shareholder of Ninetowns. On account of his effort and contribution, KC Lam was allotted shares in Ninetowns. 324.The successful experience in Ninetowns gave KC Lam an insight that start-up software development companies had a huge potential. And that can be said to be the background leading eventually to his acquisition of WebExpress. He said in his written statement:
325.WebExpress is a user-friendly and low-cost business to business trading software. It enables users to build their own websites easily within hours and hold the websites in their own computers. It also enables the users’ product information to be updated continuously and provides a platform for business to business online services. 326.After obtaining a due diligence evaluation report from CCID Consulting Company Ltd, a research and consultancy firm in the Mainland, dated September 2004, KC Lam through eBiz acquired WebExpress in late 2004. 327.CCID Consulting conducted an evaluation of the market potential of WebExpress in the Mainland. It concluded that the software had great attractions for commercial enterprises, and had huge growth potential. It estimated a 22.91% compound growth rate reaching a market scale of RMB100 million in the Mainland over 2004 to 2007.
328.The software had great growth potential because the vast market for SMEs in the Mainland to build their own websites for e-commerce was still largely untapped at the time. In this action, KC Lam and eBiz rely on the following statistics to demonstrate that huge potential:
329.Online e-commerce functions are commonplace today. But that was not the case in 2004. It is KC Lam and eBiz’s contention that WebExpress was unique and ground-breaking at the time. The following are some of the milestone events:
330.The software has won numerous awards, including:
331.As Executive Chairman and Chief Executive Officer of eBiz, KC Lam formulated the overall corporate planning and business strategies of eBiz. Tommy Lai, as the Chief Financial Officer and executive director, was mainly responsible for all financial matters and working closely with the professional parties during the IPO exercise. Desmond Yue was mainly responsible for investor relations, particularly communication and liaison with Singapore investors, and business development. Harry Tse was mainly responsible for sales and marketing and overseeing the day-to-day operations in the Mainland and the research and development of WebExpress. 332.eBiz Nanjing and eBiz Beijing undertook software research and development. The main operation was in eBiz Beijing after it was set up in early 2006. The office had around 50 employees comprising mainly software engineers. 333.Since 2005, eBiz had been actively seeking collaborations with strategic partners as KC Lam was of the view that doing so would enable it to raise the profile of WebExpress and to garner greater market acceptance for the software. It was therefore eBiz’s strategy to enter into agreements with key players in the field of information technology and other related businesses, particularly in Hong Kong and the Mainland. 334.eBiz Nanjing signed an agreement with Digital China entitled “建網快車 通用軟件 五年獨家總代理協議書” and dated 30 September 2005. Digital China agreed to become the sole agent in marketing WebExpress for eBiz in the Mainland. At that time, Digital China was the biggest software distributor in the Mainland. 335.eBiz Nanjing signed an agreement with Lenovo entitled “聯想 環貿通 合作意向書” and dated 14 October 2005 under which WebExpress was bundled with Lenovo’s desktop computer “Yang Tin Series” to be launched in the Mainland. 336.There are other strategic partners lined up by eBiz in the following years. While it may slightly disturb the chronological order of the events set out in this section, it would be convenient to set them out here in one go:
337.KC Lam envisaged that eBiz, like other start-up IT companies, would require substantial funding to support its capital expenditure, particularly for large-scale sales and marketing programmes. He therefore started to formulate the plan for eBiz to get an IPO listing. He personally made substantial investments into eBiz. 338.Prior to the plaintiffs joining as investors, KC Lam had already secured some investors to become shareholders of eBiz. One of them was Ho Hau Wong, who became a shareholder (indirectly through a company) in around mid-2005. He presently holds around 6.38% of shares in eBiz. 339.KC Lam was introduced to Desmond Yue through a business contact in Singapore. At that time, Desmond Yue held the position of Vice President of the Dealing Department of OCBC. In May 2006, eBiz appointed Desmond Yue as its adviser. He was to advise on eBiz’s proposed IPO listing, to identify and introduce potential investors, and to assist in the IPO listing. Desmond Yue would receive an incentive commission of 6.5% of the amount raised based on HK$23 million fundraising and 5% of eBiz’s paid up capital shares upon completion of the fundraising exercise. 340.Like in the plaintiffs’ case, Desmond Yue features prominently in KC Lam and eBiz’s case, according to which it was primarily Desmond Yue who communicated with the plaintiffs. KC Lam would give him information about eBiz and keep him updated of the latest development. He would give hard copies of the documents relating to eBiz to Desmond Yue. Desmond Yue would then divulge proper information in relation to the investment in eBiz to the plaintiffs. 341.The hard copy documents included audited financial reports and business appraisal reports which Desmond Yue would give to the plaintiffs. While KC Lam himself was not privy to the communications between Desmond Yue and the plaintiffs, based on the contemporaneous documents, he invites the court to make a finding to that effect. If so found, KC Lam then says that the contents of those documents would go to contradict the plaintiffs’ case. 342.Going back to the initial stage, ie around mid-2006, it was Desmond Yue who approached the plaintiffs on his own without the involvement of KC Lam, and KC Lam had no knowledge of the emails sent by Desmond Yue to the plaintiffs (not copied to him) at the time. 343.As regards the documents or presentation materials shown or sent by Desmond Yue to the plaintiffs, KC Lam now says that he was not involved at all in respect of these documents:
344.This piece of evidence would be relevant to the attribution point. 345.After the initial introduction of Desmond Yue, KC Lam would meet the plaintiffs from time to time. However, whenever he did so, Desmond Yue would be there as well. KC Lam seldom communicated with the Singapore investors and that was in part due to language issues, as Hokkien or English with a Singaporean accent may be used to communicate. That was indeed part of the services that Desmond Yue was engaged to perform. Before Desmond Yue left OCBC to join eBiz in January 2009, he was plainly acting on his own initiatives and ideas, which is the rationale for engaging him in the first place. Contrary to what the plaintiffs now contend, Desmond Yue was not acting as KC Lam’s subordinate to carry out his instructions. Nor was Desmond Yue acting as a mere coordinator or messenger. eBiz was presented as an IT start-up with potential but no track record 346.The core contention of KC Lam and eBiz in this action is that eBiz was a typical IT start-up and any investment in it was a “high risk and high return” one. That is how the investment opportunity was presented to the plaintiffs. And they knew about it from the very beginning. 347.The investments would yield high returns if the potential of WebExpress could be materialised. However, to achieve that, substantial funds would first have to be expended on research and development and building up user base. The investments carried high risks as the success of the software would depend on many factors and subject to uncertainties, some of which were beyond the control of eBiz. 348.This is how KC Lam put it in his witness statements:
349.At meetings with the plaintiffs, KC Lam introduced the potential of eBiz as a start-up IT business with software development as its key business. He admitted to them that eBiz had limited track record of business turnover but its attraction would lie in its business potential. Throughout the material period, when KC Lam met with the plaintiffs in meetings, he would keep them informed of the business status and progress of eBiz. The plaintiffs would often make in-depth enquiries with him and other management of eBiz and one major area of interest to them was the revenue of eBiz. On those occasions, KC Lam would inform them that eBiz had only minimal sales and revenue and it would need to generate funding from the intended IPO in order to implement aggressive sales and marketing programmes to boost its sales and revenue. 350.KC Lam and eBiz rely on a number of emails and documents sent by Desmond Yue to say that the plaintiffs had all along known about eBiz’s lack of revenue, and the risks associated with investments in the company. They are documents generated from August to October 2006. What was happening then was that Desmond Yue was liaising with the plaintiffs in respect of the signing of the loan documentation for the Ocean Gate round of investment. 351.On 18 August 2006, Desmond Yue sent an email to an address which appears to be the email address of the 6th plaintiff. The email was entitled “Listing Markets Report”. It reproduced certain contents of “Grant Thornton’s 2006 Global New Markets Guide (For Emerging Firms)” as of December 2005, setting out information of the market capitalisation of a number of stock exchanges. Notably, “HK/GEM” and “SG/Sesdaq” were included. These appear to be references to the secondary boards in Hong Kong and Singapore respectively. It is KC Lam and eBiz’s contention that any reader of the email would understand that the intention was to list eBiz as an emerging firm in one of these secondary markets. 352.On the same day, Desmond Yue sent an email to the 6th plaintiff’s Hotmail address. It read:
353.On 24 August 2006, Desmond Yue sent an email to the 6th plaintiff’s Hotmail address. This is the email referred to in para 184(1) above. The point to highlight here is that at the end of the email, Desmond Yue wrote:
354.On 28 September 2006, Desmond Yue sent an email to the group email address. (I shall call this “the 28 September 2006 group email”.) It read:
355.On 17 October 2006, Desmond Yue sent an email to the group email address, saying that Preston Gates had appointed UniLegal to handle the placement administration in Singapore and that the investments documents would be ready by the following week. 356.On 25 October 2006, Desmond Yue sent an email to the group email address saying that all the documents would be ready the following week. 357.On 31 October 2006, Desmond Yue sent an email to the group email address saying that there was a delay and the loan documents should be expected to be ready later. 358.On the same day, Desmond Yue sent an email to the 6th plaintiff’s Hotmail address. This is one of the most heavily relied on documents in KC Lam and eBiz’s case. I shall call it “the 31 October 2006 email”. It read:
359.The significance of this email is that it has six attachments. It is common ground what those attachments are. Most materially, the following were attached:
360.Even though the 31 October 2006 email was sent to the 6th plaintiff’s Hotmail address, KC Lam and eBiz invite the court to find that emails of the same or similar contents accompanied by the same attachments were sent to the other plaintiffs at about the same time. This is because it can be readily seen that the above emails form a series of emails concerning the Ocean Gate investment, and the 31 October 2006 email obviously formed part of that series as its purpose was also to give information about the Ocean Gate investment and there is no reason why Desmond Yue would only send such information to the 6th plaintiff but not the others. 361.The 2005 audited statements show that eBiz had no revenue as of the year end whereas the June 2006 management accounts show that eBiz Nanjing only recorded very modest net sales of about RMB300,000 and substantial expenses of over RMB 2.5 million as of June 2006. Hence, by sending these attachments to the plaintiffs, eBiz had made known to them its lack of revenue at the time. 362.In around June 2007, KC Lam invited the Singapore investors to visit eBiz Beijing’s office. He did so so that they would have an opportunity to more fully understand eBiz’s business operation, and to make an informed decision regarding investing in eBiz. He bore their airfare and accommodation expenses upon their request. The 1st, 2nd, 3rd, 4th, 8th, 9th and 10th plaintiffs flew to Beijing. 363.During the site visit, KC Lam gave a detailed presentation about eBiz. He introduced to the attendees Tommy Lai who joined eBiz in April that year. That was the occasion when many of the investors met him for the first time. KC Lam explained that eBiz began as a research and development house and it was still in its early years with modest revenue and profit. He also reminded the plaintiffs that any investment in eBiz involved high risk and potentially high return. 364.During the site visit, Harry Tse, who was the inventor of WebExpress, also gave detailed explanation about the software and demonstrated its features. 365.At the material times, KC Lam orally informed some of the plaintiffs of the valuation figures of eBiz based on the BI Appraisals report and the first and second Grant Sherman reports. Copies of the reports were made available to the plaintiffs. Hard copies were also made available when KC Lam gave presentations to them. 366.The reports all expressly reminded the readers of the considerable risks involved in investing in eBiz. 367.The BI Appraisals report contained a section called “Risk Factors”:
368.The first Grant Sherman report also contained a “Risk Factor” section. It expressly stated that eBiz had just launched its WebExpress services which, according to KC Lam, was a reference to the online version of the software, and was still in “the initial stage of marketing”. The section went on to highlight that the risk associated with the company was one typically associated with a start-up business:
369.The second Grant Sherman report contained a similar passage in the “Risk Factor” section. 370.Given the above contents of the valuation reports, the plaintiffs well knew that eBiz was still “in its infancy” stage and was a start-up business. 371.Because of the inherent risks involved, in around late 2006, KC Lam agreed with the plaintiffs to put in place what he called “the Convertible Debt-to-Equity Arrangement”, which is the Investment Structure referred to in the plaintiffs’ case. This was to give them more time to assess the business potential of eBiz and the option to withdraw if they so wished. The arrangement would provide some hedging against the inherent risks in investing in start-up companies like eBiz. 372.This was therefore a “risk hedging” arrangement. It corroborates the high-risk nature of the pre-IPO investment into eBiz. Precisely because of the high risk element, KC Lam agreed with the plaintiffs to put in place this hedging arrangement. 373.This arrangement is to be contrasted with how previous investors had advanced monies to eBiz. For instance, Ho Hau Wong directly subscribed for shares in eBiz without the benefit of this risk hedging arrangement. 374.In his oral testimony, KC Lam revealed for the first time that it was in fact the plaintiffs who came up with the risk hedging arrangement. As the plaintiffs considered the pre-IPO investment to be risky and they did not know anything about KC Lam, they suggested that a convertible loan arrangement be put in place. KC Lam and eBiz took steps towards an IPO 375.Since mid-2006, KC Lam had been exploring different options for the listing of eBiz. He mainly focused on finding a suitable stock exchange which would allow start-up IT companies like eBiz with no track record to be listed. With this in mind, he looked into the possibility of listing on the Tokyo Stock Exchange and the AIM board of the London Stock Exchange. He also met with various investment houses who might act as potential underwriters for the proposed IPO. 376.In around 2008, KC Lam was introduced by Desmond Yue to Ms Lee Suet Fern, the Senior Partner of Stamford Law. (Lee is the wife of Mr Lee Hsien Yang, who is one of the sons of the late Mr Lee Kuan Yew, the late former Prime Minister of Singapore.) KC Lam was informed by Lee that the Catalist board in Singapore was recently established in late 2007 to cater for the needs of start-up, high-growth companies like eBiz and there is no minimum operating track record, profit or share capital requirement for listing on the Catalist. 377.KC Lam considered that Catalist was a good match for eBiz. He started to reach out to Macquarie Securities Pte Ltd to explore appointing it as eBiz’s initial sponsor for the listing. (In the end, Collins Stewart was appointed as KC Lam considered them to be more suitable.) 378.In mid-2008, eBiz appointed Stamford Law as its solicitors for the intended IPO on the Catalist board. 379.Through Stamford Law, KC Lam was introduced to Collins Stewart, who was one of the few pioneer full sponsors approved by the Singapore Stock Exchange. 380.In a meeting in the summer of 2009, KC Lam met with Mr Alex Tan, the Chief Executive Officer of Collins Stewart. KC Lam mentioned clearly to Tan that eBiz did not have track record of revenue and it required funding from the IPO in order to expand its sales and marketing programmes. Tan reassured him that there was no minimum track record requirement for Catalist. 381.Other steps which eBiz took in the meantime to achieve an IPO included:
eBiz appointed Collins Stewart for the IPO and the investors converted their loans into eBiz shares 382.By a mandate letter dated 27 July 2009, eBiz appointed Collins Stewart to be its full sponsor for its proposed listing on Catalist. 383.Before that, at one of the meetings, Collins Stewart orally advised KC Lam that before eBiz could be listed, the actual position of its shareholdings had to be confirmed. It means that the investors under the Investment Structure had to decide whether they would exercise their options to convert their loans into shares in eBiz. 384.That is the background leading to the issue of the notification letters from Sun Dynamic dated 22 August 2009. See para 252 above. Subsequent to that, the plaintiffs signed conversion notices and gave consent to the SPVs to return the title deeds of the car parks to Strong Man and to sign the Termination Agreements. KC Lam and eBiz stress that in doing so, the plaintiffs made their independent judgment and made their own commercial decisions. Given their background, they knew or ought to have known that there were risks associated with the investment decisions made by them. They were also advised to seek independent legal advice and to obtain separate legal representation. 385.In his oral testimony, KC Lam said that the atmosphere at that time was that everyone was expecting a smooth sail to the IPO. (Tommy Lai gave similar evidence.) 386.By letters dated 11 September 2009 addressed to each of the shareholders of the SPVs, including the 1st, 2nd, 3rd, 4th, 5th, 7th, 8th, 9th, and 11th plaintiffs (ie the comfort letters referred to in para 293 above), KC Lam, acting for and on behalf of Sun Dynamic, set out the formula for conversion and stated that if the IPO listing did not take place before 11 September 2010, the individual loan amount from these shareholders would be converted into eBiz’s shares at 50% of eBiz’s valuation of HK$600 million. The letter (addressed to Radiant Sun) stated:
387.It will be recalled that the plaintiffs now highlight that the arrangements put in place in August 2009 represents two departures from the original contractual mechanism – first, the title deeds of the car parks were returned to Strong Man immediately, as opposed to in exchange for the conversion shares; second, the revival clause no longer applied such that if the IPO did not happen, the Loan Agreements would not be revived and there would be no repayment of the loans. 388.When asked about these departures in cross-examination, KC Lam’s response was that the Termination Agreements and the comfort letters constituted a new commercial arrangement on new terms. These transactions involved commercial give-and-take by both the plaintiffs and KC Lam to the benefit of both sides. KC Lam revealed the following for the first time in this action.
389.As to the winding up of the SPVs shortly afterwards, it was Desmond Yue and the plaintiffs themselves who decided to wind them up. KC Lam did not play any role in this arrangement, which was an internal matter for the SPVs. What weighed on the plaintiffs’ mind then was the chance to earn significant profit from the IPO. The “money” lies with the shares with the IPO being very likely, not with the car parks. The IPO exercise and further direct subscriptions 390.After the appointment of Collins Stewart, eBiz went ahead with the IPO work. It worked together with Collins Stewart, Stamford Law and a number of professional parties. It was primarily Tommy Lai who liaised with the professional parties. There is a mass of contemporaneous documents generated during this period, ie from around October 2009 up to around November 2010. They include a vast volume of emails and drafts of the IPO offering document. I should say outright that they indisputably show that the IPO exercise was genuine, and that substantial time, expenses and efforts were spent and incurred by eBiz in working towards a listing. I set out below briefly the works done during this period. 391.With a view to enhancing the management and corporate governance of eBiz, INEDs were appointed. Prof Chen was one of them. He has held distinguished positions in the education, public service and business sectors. He was the former President of Lingnan University of Hong Kong and a former member of the Executive Council and the Legislative Council of Hong Kong, to name just a few. Leong Man Wai was another INED. He was an ex-managing director of DBS Vickers Securities Ltd in Singapore and was an experienced investment banker. Loh Weng Whye, another INED, held directorship of many Singapore Stock Exchange mainboard listed companies and was a member of the Consultation Panel for mechanical and production engineering of two Singapore universities. 392.Drafts of the IPO offering document were prepared by Stamford Law and Collins Stewart and discussed at length at various drafting meetings. Due diligence meetings were held in Singapore and Beijing. 393.In about September 2009, eBiz had specifically set up an office in Singapore for access of information and documents by the Singapore investors. Desmond Yue and KC Lam kept the plaintiffs informed of the location of eBiz’s Singapore office. The plaintiffs were at liberty to check the documents of eBiz at that office if they so wished. 394.Upon the advice of Collins Stewart, eBiz engaged various professional parties to compile independent reports to facilitate the listing. For these reports, considerable works were put in, eg, site visits and meetings between the eBiz management and the professional parties. These included:
395.In the meantime, between October 2008 and April 2011, impressed by its business potential of eBiz, the 1st, 4th, 5th, 6th and 7th plaintiffs paid additional sums to invest in eBiz by way of direct subscription. 396.It will be recalled that Collins Stewart had repeatedly postponed the IPO listing dates. Desmond Yue and KC Lam kept the plaintiffs informed of the revised draft indicative timetables by email and also at face-to-face meetings. 397.In about late March 2010, Collins Stewart unexpectedly and for the first time advised that before eBiz could proceed to IPO, the shareholders had to inject further investment in the sum of S$8 million as two-year working capital purpose. Subsequently, they advised that the requirement could be satisfied by the deposit of S$4 million cash into eBiz’s bank account and by a personal undertaking in respect of the other S$4 million. This requirement was not mentioned previously and came as a surprise. 398.In about April or May 2010, KC Lam met with the plaintiffs with a view to raising funds to satisfy this requirement. However, none of the plaintiffs or the other investors were willing to inject additional fund. KC Lam was upset about this because he felt that, as shareholders of eBiz, the investors should share part of the responsibility to inject the required capital into the company. 399.On about 13 September 2010, in order to proceed with the IPO, KC Lam on his own deposited a sum of RMB22 million (equivalent to S$4.3 million at the time) into eBiz Nanjing’s bank account. He also provided from his own personal resources standby assets exceeding S$4 million in order to provide an undertaking to meet the rest of the requirements of Collins Stewart. 400.Notwithstanding that, Collins Stewart became sluggish in progressing with the IPO. In mid-October 2010, they started to raise new requirements, including the preparation of a 10-year profit forecast and the production of a new supporting valuation report. Despite the very short notice, eBiz duly complied with these additional requirements. A 10-year profit forecast was submitted. The second Grant Sherman report was compiled. 401.Then, on about 10 November 2010, Collins Stewart further requested eBiz to provide a business model and marketing plan to show that eBiz could obtain the projected number of users in the forecast. Again, it was a very last-minute request. KC Lam and Tommy Lai were caught by surprise when Collins Stewart only raised at the eleventh hour that sales and revenue would be a major concern in the IPO listing after all the efforts spent in the IPO exercise. eBiz therefore had serious doubt about Collins Stewart’s professionalism and sincerity to achieve an IPO listing. 402.Then, by email dated 13 November 2010, Collins Stewart wrote to KC Lam, Desmond Yue and Tommy Lai saying that it would no longer be possible to issue a pre-admission notification to the Singapore Stock Exchange by 29 November 2010, as planned, as there were still a number of outstanding matters. They proposed to reschedule the pre-admission notification to no earlier than February 2011. 403.The mandate with Collins Stewart expired on 31 December 2010. It became apparent that they were no longer interested in proceeding with the eBiz listing. 404.KC Lam sought legal advice to seek recourse against Collins Stewart. But, in the end, he decided not to incur further cost to fight a difficult legal battle in Singapore. While Collins Stewart had never made clear the reasons for the IPO failure, KC Lam said that the downturn effect caused by the financial crisis in September 2008 on the global economy had been more pronounced than expected, and the market conditions had turned more competitive with the emergence of other e-commerce competitors, and more advanced technologies. 405.As the IPO exercise had dragged on for a long time, the working capital of eBiz was burnt up very rapidly. Substantial sums were incurred to defray the professional fees, including legal fees, auditors fees and consultancy fees, and also to cover the company’s ongoing operating costs, including salaries. 406.KC Lam said that he had made his best endeavours to get eBiz listed and had in doing so injected over HK$46 million of his own money into the company since 2004. 407.As all the working capital had dried up by early 2011, in February of that year, KC Lam had no alternative but to inform the plaintiffs that the IPO listing of eBiz had to be called off. 408.After the calling off, Desmond Yue and KC Lam informed the plaintiffs that they would try to list the software business of eBiz on other stock exchanges. 409.KC Lam decided to cut his loss. In April 2011, he resigned as director and chairman of eBiz. He engaged a law firm to claim against eBiz for the sum of HK$1 million being part of the directors’ loan to owed to him. 410.Tommy Lai as director of eBiz issued a letter dated 9 May 2011 to the plaintiffs informing them that KC Lam would no longer finance eBiz and without such funding, the operation of eBiz Nanjing and eBiz Beijing could not continue, and further that KC Lam’s claim for HK$1 million should be repaid by eBiz selling to him the two subsidiaries. In the letter, it was expressed that other shareholders would be allowed to bid for those two subsidiaries. An EGM notice for that purpose was subsequently issued. 411.On 26 May 2011, the EGM was held. None of the plaintiffs or other investors came forward to bid for the two subsidiaries. Accordingly, they were sold to KC Lam at the price of HK$1 million. 412.KC Lam identified another investment opportunity, namely ZYCC, which was engaged in cloud business in the Mainland with the prospect of being listed on NASDAQ. He informed the plaintiffs about this new opportunity. He never told them that this new venture was a restructuring of eBiz’s business. The plaintiffs would have to put in new money if they were to invest in ZYCC. KC Lam invited them to do so out of friendship and in view of the loss they had suffered in eBiz. 413.KC Lam denies making the Revenue Misrepresentation, whether orally or in writing. 414.As to the 4th plaintiff’s allegation that he made a verbal comment to the effect that “eBiz would earn hundreds of millions in RMB” during the Beijing site visit, KC Lam does not recall whether he made that comment or not. In any event, if he did make such comment, it must have been made in the context that the investment in eBiz involved high risk and potentially high return and it would require substantial funding to materialise its business potential. 415.KC Lam and eBiz contend that the 2005 audited statements and the June 2006 management accounts were sent to the plaintiffs. These documents show that the company was not earning substantial revenues at all. That directly contradicts the Revenue Misrepresentation. 416.As to the key documents relied on by the plaintiffs, KC Lam and eBiz’s position is that they were prepared by Desmond Yue alone and they shall therefore not be liable for the contents. Without prejudice to this primary position, they make the following points. 417.First, the June 2006 Brochure. The section “Our Strategic Partners” was clearly drafted on the basis of a plan, rather than something already realised. The contents therefore do not bear the meaning as alleged. The statement, “We are in the preparation to list our Company in Nasdaq, Tokyo Stock Exchange, HKSE or SGX”, does not necessarily refer to the main boards as these exchanges also have secondary boards. 418.Second, the eBiz Promotional Brochure. As regards the statements regarding Digital China, KC Lam and eBiz say that the word “will” was used to describe the projected profits. The statements would therefore not amount to an actionable representation. On the other hand, KC Lam accepts that the statements regarding China Telecom are not accurate. He said in cross-examination that if he had prepared the document, he would not have put down China Telecom. 419.Third, the June 2006 Key Points 1. The bullet point “500 Millions RMB Contract on Hand” is not false. It means the contract is ready and available, which is true. It does not have the meaning as alleged by the plaintiffs. 420.Fourth, the General Information on Pre-IPO Investment. The mere fact that NASDAQ, HKSE and SGX were mentioned does not mean that they must be references to primary boards. Each of these exchanges have secondary boards for start-up companies. 421.Fifth, the emails sent by Desmond Yue to the 6th plaintiff referring to various stock exchanges. The mere fact that the Tokyo Stock Exchange was mentioned does not mean that the intention was to list eBiz on a primary board, as the Exchange also has a secondary board. 422.Sixth, the January 2007 Sales Getting Strong Email. The remark “eBiz Sales are getting strong” was not false. As shown by the audited accounts, eBiz’ s revenue for the period ended 31 December 2005 was nil and it increased to HK$513,045 in 2006. The Company Valuation Misrepresentation 423.The primary issue as regards the Company Valuation Misrepresentation is whether it was false. More specifically, the question is whether eBiz’s sales projections underlying the valuations are wholly idealistic and unrealistic, and there is no or no sufficient factual basis for them. 424.KC Lam and eBiz’s position is that the sales projections were reasonable and not unrealistic. They were based on eBiz’s potential to generate sales and revenue, instead of actual revenue already generated. It is eBiz’s potential to achieve the projected growth based on the prevailing industry and market conditions at the material time which is critical. It is therefore denied that the lack of actual revenue for 2008 and 2009, cited in the pleadings, reflects the lack of factual basis behind the protections. 425.BI Appraisals and Grant Sherman are both professional and experienced valuers which provide valuation services for listed companies in Hong Kong, Mainland China and countries in the Asia Pacific region and for a wide range of industries. It was totally reasonable and within generally accepted valuation practice for the valuers to assess eBiz as a typical start-up IT company in its infancy stage, which lacked reliable past performance on the basis of reasonable assumptions and qualifications. 426.The valuers did not rely entirely on the assumptions provided by eBiz. They conducted their own investigations to test and challenge the reasonableness of eBiz’s assumptions, formed their independent opinion and made relevant adjustments to the assumptions. Keith Yan gave evidence to that effect. 427.In his witness statement, he set out the steps taken by Grant Sherman in compiling their valuation reports. They included making enquiries with eBiz, determining the appropriate valuation methodology, collecting both qualitative and quantitative information from eBiz, analysing the market trend and situation, cross-checking the projections and other information provided by the company, and following up with the management on queries that they had. 428.In the process, Grant Sherman would look for data and industry research papers which might support or challenge eBiz’s projections or assumptions. It is accepted that projections are inevitably matters involving judgment and opinion. They cannot be verified as if they were facts. However, Grant Sherman would not simply reproduce the projections without questioning. In other words, Grant Sherman did not merely “rubber stamp” the assumptions provided by eBiz. 429.Keith Yan gave an example to illustrate the point. When analysing eBiz’s financial projection, how eBiz’s “guanxi” (關係) with CCPIT could help project the business to the level expected could not be readily verified as such. However, since CCPIT had its own database, Grant Sherman could and did try to ascertain the source and foundational units adopted by eBiz based on such data and double-check the reasonableness of eBiz’s assumptions underlying the growth and sales figures projections. For example, Grant Sherman would consider the number of SMEs which were members of CCPIT and the proportion of SMEs which might make use of WebExpress. 430.Keith Yan highlighted that eBiz was a start-up IT company in its infancy stage and its existing or actual revenue would not therefore be the most relevant factor in their valuation. Instead, the crucial factor was the company’s potential. He said:
431.In his witness statement, Keith Yan concluded:
432.For these reasons, KC Lam and eBiz say that by merely pointing at the disparity between the actual revenues and the projected revenues, the plaintiffs have failed to prove that the Company Valuation Misrepresentation was false. The High Profile Partners Misrepresentation 433.KC Lam denies making the High Profile Partners Misrepresentation in respect of the Temasek group, the Malaysia Telecom group or the Hutchison group, whether orally or in writing. 434.It is KC Lam’s evidence that between 2006 and 2008, in meetings with the plaintiffs, he would have mentioned eBiz’s agreements with Digital China, CCPIT, CNNIC and Lenovo. However, he had never represented to them that the Temasek group, the Malaysia Telecom group or the Hutchison group (not including Hutchison GCL) had already become or had agreed to become partners of eBiz. 435.As regards the email sent by Desmond Yue to the 6th plaintiff on 24 August 2006 saying “4th Sep in Singapore, eBiz will finalize the JV with Tamasek member firm, MSPS Pte Ltd”, KC Lam and eBiz’s primary position is that they should not be held liable for the contents of what Desmond Yue alone had written. Without prejudice to this position, they point out that the word used in the email was “will”. The statement would not therefore amount to an actionable representation in any event. The High Profile Investors Misrepresentation 436.KC Lam denies making the High Profile Investors Misrepresentation in respect of Cheng Yu Tung, Li Ka Shing, a French telecommunications giant, the Hutchison group and a Malaysian blue chip company, whether orally or in writing. 437.It is KC Lam’s evidence that he had never told the plaintiffs that Cheng Yu Tung, Li Ka Shing, a “France TelCo giant” or the Hutchison group had already invested in, or had agreed to invest in, or were in serious discussions about investing in eBiz. 438.He denies that he had mentioned that Li Ka Shing “[had] expressed keen interest to invest or join the eBiz project”. 439.As to the key documents relied on by the plaintiffs, KC Lam and eBiz’s primary position is that they should not be held liable for the contents of what Desmond Yue alone had written. Without prejudice to this primary contention, they make the following points. 440.First, the email sent by Desmond Yue dated 15 December 2006 regarding Cheng Yu Tung. KC Lam and eBiz make the observation that the sentence is grammatically incorrect and, when properly construed, the obviously correct meaning is that “if Cheng Yu Tung participates in eBiz, it will be great”. In fact, the 4th plaintiff agreed with this interpretation in cross-examination. As such, it is not an actionable representation. 441.Second, the email sent by Desmond Yue on 7 July 2006 regarding the French telecommunications giant. First, the company is not even named. It is wholly fanciful to suggest that a reasonable reader would rely on this email to make a decision to invest. Secondly, the email refers to “discussions”. This cannot possibly induce a reasonable reader to invest in eBiz. 442.Third, the emails sent by Desmond Yue dated 6 May 2009 regarding the Malaysian blue chip company. Properly construed, the message is that there will be a blue chip company from Malaysia which will invest in eBiz. The email therefore does not amount to an actionable representation. In any event, if the representation is actionable, it would have been true. There were discussions about an investment of S$2 million and that was why the EGM notice attached to the emails was issued. The KC Lam Credentials Misrepresentation 443.KC Lam denies making the KC Lam Credentials Misrepresentation, whether orally or in writing. 444.His evidence is that in his meetings with the plaintiffs, he orally informed them of some of his credentials, his business networks in the Mainland and overseas, his acquaintance with some political and business leaders. 445.He had never mentioned that he was the one who founded or set up Ninetowns. He would mention only about the role he played in its successful listing. 446.He would have shown a picture of him standing outside NASDAQ to some plaintiffs when he shared his experience. 447.As regards the statement “他在北京投資設立一家開發電子報檢技術的軟體公司” appearing in the 2005 Magazine Article, KC Lam and eBiz say that there is no evidence that any of the plaintiffs had paid any particular attention to this one sentence in a four-page Chinese article. It is also completely unrealistic for the plaintiffs to suggest that the one sentence was material to their decision to invest in eBiz, having regard to all the other information provided to them. 448.As to the other two key documents relied on by the plaintiffs, KC Lam and eBiz’s primary position is that they should not be held liable for the contents of what Desmond Yue alone had written. Without prejudice to this primary contention, they make the following points. 449.As regards the June 2006 Key Points 1, KC Lam accepts that the remark “Company Management with the listing experience in Nasdaq, USA” made in respect of Ninetowns is incorrect as he never participated in the management of that company. 450.As regards the remark, “Dr Lam 1st company listed in Nasdaq”, appearing in the General Information on Pre-IPO Investment, KC Lam and eBiz say that it is at the very most an ambiguous statement. It does not say that KC Lam founded the company. This is to be contrasted with the first point in the document which described KC Lam as the “Founder of the Company [ie eBiz]”. The Car Park Security Misrepresentation 451.KC Lam denies making the Car Park Security Misrepresentation, whether orally or in writing. 452.KC Lam never represented to the plaintiffs that the value of the car parks was sufficient to fully secure each investment. 453.As to the key documents relied on by the plaintiffs, KC Lam and eBiz’s primary position is that they should not be held liable for the contents of what Desmond Yue alone had written. Without prejudice to this primary contention, they contend that the statements contained in those documents are not representations that there would be full security. To take such statements to mean full security would be contrary to common commercial sense as it is well known that the value of property can go up and down. Furthermore, there is no mechanism provided for in the Loan Agreements for topping up the security if the value drops below a certain threshold. In this situation, no reasonable investor would expect that the loans would be fully secured at all times. 454.As a fallback position, KC Lam and eBiz contend that even if the Car Park Security Misrepresentation was made, the plaintiffs have failed to demonstrate that it was false. The Full Star valuation of the car parks was prepared in October 2006. The investments made through Radiant Sun, Top Gain, Liberty Star and Kingston Profit took place at later times. In this action, the plaintiffs have not adduced any evidence to show the value of the car parks as of the dates of the subsequent Loan Agreements. Hence, there is no evidence showing that the value of the car parks was insufficient to secure the full amount of each of those subsequent loans. 455.Solely to illustrate the point, attached to KC Lam and eBiz’s written closing submissions is a copy of the Centa-City Index (which is described as the commonly referred to monthly index of Hong Kong property prices) for October 2007 to May 2008 showing that the property prices in Hong Kong increased by more than 35% on average during that period. I should record here that this is not evidence previously disclosed or produced by the witnesses. The IPO Prospects Misrepresentation 456.KC Lam and eBiz’s primary position is that the IPO Prospects Misrepresentation as pleaded fails in limine because the words “on its own” does not have a clear and well-defined meaning. It follows that the plaintiffs are not able to establish that the representation had been made. 457.Without prejudice to that position, KC Lam denies making the IPO Prospects Misrepresentation, whether orally or in writing. 458.It is KC Lam’s evidence that he would have mentioned about eBiz’s plan and strategy to get an IPO listing with a view to generating funding for its future business growth. 459.It is also his evidence that he would have made comments orally to the effect that eBiz’s business was good enough to proceed to IPO within two to three years, and a successful listing would very likely lead to investment returns of 5 to 10 times, or even 10 to 20 times. However, such comments would be made with qualifications that the returns would depend on whether the company could be successfully listed, and that in turn would depend not on its track record of sales revenue, but on its business potential and other factors like good timing and market conditions, supportive investors and quality management. The prognosis of favourable returns between 5 to 20 times upon listing was fair and in line with the valuation reports obtained. 460.It was the common understanding between eBiz’s management and the plaintiffs that any concrete listing time would depend on the works in progress of the professional parties in the IPO team. In this context, KC Lam denies having claimed to any of the plaintiffs that eBiz would be listed “very soon”. Important facts providing the context for KC Lam and eBiz’s case 461.In summary, KC Lam and eBiz deny that they were perpetuating the Fraudulent Scheme. They deny that they made any of the Fraudulent Misrepresentations. They point to the following material factual matters. A number of them have been identified under the headings “the 12 sets of “Facts” (in their opening submissions) and “the Objective Undisputed or Indisputable Facts” (in their closing submissions). 462.First, WebExpress is a genuine product. It has been reviewed favourably by industry experts and has received industry awards in the Mainland. During the material period, there was a huge market demand for the software as the target market (Mainland SMEs) was largely untapped. 463.Second, knowledgeable individuals were impressed by eBiz and joined its management. Among them, Prof Chen gave evidence for KC Lam and eBiz. He confirmed in his testimony:
464.Third, big players well versed in IT and the Mainland market had agreed to collaborate with eBiz. The list of partners include Digital China, Lenovo, CCPIT, CNNIC, China-ASEAN Association and Hutchison GCL. Andrew Lee, formerly of Hutchison GCL, gave evidence for KC Lam and eBiz. He was engaged in negotiations with eBiz which eventually led to the signing of the collaboration agreement. He confirmed that he and his team had carefully considered the business model and plan of eBiz. He concluded that eBiz had a great business potential. Under the collaboration agreement, Hutchison GCL granted to eBiz a non-exclusive right to sell packaged telecom services (including, eg, China IDD, eFax) to eBiz’s customers in Hong Kong. Under this arrangement, Hutchison GCL’s telecom services would be bundled with WebExpress. Andrew Lee considered that while the collaboration was at an initial stage, it was a rewarding one. 465.Fourth, investors like Ho Hau Wong invested in eBiz. Ho gave evidence for KC Lam and eBiz. He referred to his experiences in investing in IT ventures before eBiz. He understood that investments in start-up IT companies inherently carry high risks but potentially high returns. At that time, he considered that eBiz had promising business potential. Despite the loss he made on eBiz, he remains on good terms with KC Lam. 466.Fifth, the “high risk and high return” feature of the eBiz investments was a fact well-known to eBiz’s INEDs and all professional teams in the IPO exercise. KC Lam and eBiz in particular rely on an email from a Mr Freddy Ong, another Singapore investor, sent to Desmond Yue on 22 November 2009 enquiring about the IPO progress. It read:
467.Sixth, it is precisely because of the inherent high-risk feature that the Investment Structure was put in place so that the plaintiffs had more time to assess the business potential of eBiz. 468.Seventh, eBiz was valued by professional valuers whose independence is unchallenged by the plaintiffs. 469.Eighth, it is clear from the plaintiffs’ personal background that they are not the kind of unsophisticated, inexperienced investors who would be easily tricked into investing in a company such as eBiz. The more prominent examples are:
470.Ninth, KC Lam personally made substantial investments in eBiz. 471.These objective factual matters all go to undermine the plaintiffs’ case of Fraudulent Scheme. 472.I now set out Tommy Lai’s case. 473.He is a certified public accountant in Hong Kong and has over 30 years of experience in business and financial management. He was introduced to KC Lam by a former colleague of Price Waterhouse in 2006. 474.In his capacity as the director and consultant of Full Star, he provided consulting services to eBiz from late 2006 to early 2007. It was during this time that he prepared the valuation of the 15 car parks for eBiz. Both he and Full Star were then independent from KC Lam and eBiz. 475.He joined eBiz in April 2007. He did so mainly for two reasons. First, KC Lam invited him to join with great sincerity. Tommy Lai found him to be a nice and trustworthy person with whom he could work. He was also impressed by KC Lam’s huge business networks. Secondly, Tommy Lai believed that eBiz had very good business potential. He found the software a unique product. He is not aware that there were similar products in the market at the time. 476.When he joined eBiz, he was the Chief Executive Officer. His title was changed to Chief Financial Officer in August 2009 when eBiz appointed Collins Stewart as its IPO sponsor as he was in charge of the IPO project. 477.During the material period, it was the role of KC Lam and Desmond Yue to maintain the communication with the investors, including the plaintiffs. They were responsible for fund raising and investor relations. Tommy Lai was not involved in these areas at all. He only met the plaintiffs occasionally and usually during lunches with KC Lam and Desmond Yue during his visits to Singapore. He also met those plaintiffs who went to Beijing for site visit. 478.In respect of the first and second Grant Sherman reports, Tommy Lai was responsible for providing the projections on sales and growth and other relevant information to Grant Sherman. He was also responsible for answering their questions and attending to their email correspondence and meetings with them. 479.In his witness statements, he explained in detail how he came up with the projections. They were based on three groups of projected figures, namely (1) the number of “suppliers”, ie the number of SMEs which would use WebExpress, (2) eBiz’s income streams, and (3) cost structure. For instance, for the number of suppliers, he made use of (among other things) the statistics from data.ChinaByte.com showing the huge SMEs market which eBiz could tap. He contended that it formed a solid basis for the projected sales figures. 480.In respect of the IPO, Tommy Lai was responsible for all aspects of the paperwork, the preparation of business plans, accounts and budgeting, the communications with other professional parties, including Collins Stewart, Stamford Law and Deloitte. He worked almost full time on the project from August 2009 to November 2010. He travelled frequently to Singapore for drafting meetings, audit meetings and all other meetings relating to the IPO. In this action, he relies on the extensive contemporaneous emails exchanged between him and the professional parties to demonstrate the works which had been put in. 481.In his witness statement, he explained that a listing on Catalist is relatively simpler than on the main board of the Singapore Stock Exchange, mainly because Catalist has no requirements for minimum net profits and business history. The critical part is whether the IPO candidate is able to appoint a full sponsor out of the 10 to 20 full sponsors approved by the Singapore Stock Exchange. eBiz’s appointment of Collins Stewart was therefore a good start. 482.It is Tommy Lai’s evidence that the IPO project is undoubtedly genuine. 483.However, the process had taken much longer than expected and the indicative timetable was revised three times by Collins Stewart within 13 months. Additional and substantial costs were incurred as a result. In February 2011, as the costs were running too high and eBiz was running out of operating funds, the management had to come to a decision to cancel the proposed IPO. 484.It is also Tommy Lai’s evidence that funds raised from the investors, including the plaintiffs, were used by eBiz to pay for operating costs, software development, marketing promotion, development of sales channels and partners, and the engagement of professionals and consultants for the IPO project. 485.Tommy Lai denies that he made the misrepresentations to the 1st, 5th and 7th defendants as alleged. He also denies any fraud on his part or any involvement in the Fraudulent Scheme as alleged. 486.He concludes his case by saying that this is a case of an unsuccessful IPO resulting in all parties suffering loss in terms of money, time and even hope. While the majority of investors have accepted the loss caused by this “high risk and high return” venture, the plaintiffs have joined together and created a false claim to try to recover their investments. 487.Having set out the parties’ respective cases, I now address the working capital point. 488.I take the view that the plaintiffs should not be allowed to run the working capital point because the point ought to have been pleaded but was not. If they are allowed to pursue the point, it would cause unfairness to KC Lam and eBiz. 489.The working capital point concerns the Company Valuation Misrepresentation. This misrepresentation is of course part of the plaintiffs’ causes of action. As a matter of pleadings, it is incumbent on the plaintiffs to set out their case on the essential elements of the misrepresentation. One key element is the falsity of the representation. Put simply, the plaintiffs should set out their case explaining this – why do they say the representation was false? Another essential element is the fraudulent intent when the defendants made the representation. Again, in their pleadings, the plaintiffs should spell out why they say the defendants knew that the representation was false or might be false or was reckless as to whether it was false or not. These are material facts which must be pleaded in respect of the Company Valuation Misrepresentation. 490.The principles on pleadings are trite. It is the pleadings, not evidence, which define the issues that are to be resolved at a trial. It is extremely important that each side knows exactly what the live issues are. The primary responsibility for ensuring that any issues properly before the court is on the party seeking to advance the issue. He must do so clearly and not unambiguously: see, eg, Wing Hang Bank Ltd v Crystal Jet International Ltd [2005] 2 HKLRD 795 at para 6(2). In a case alleging fraud, the need to plead properly and with the necessary particulars is formally spelt out in the rules: see Order 18, rule 12(1). 491.In a case where fraud is alleged, since dishonesty is usually a matter of inference from primary facts, a defendant is entitled to know not only that he is alleged to have acted dishonestly, but also the primary facts which will be relied on at trial to justify the inference. Hence, the court will not normally allow proof of primary facts which have not been pleaded, and will not do so in the case of fraud. It is not open to the court to infer dishonesty from facts which have not been pleaded: Three Rivers District Council v Governor and Company of the Bank of England (No 3) [2003] AC 1 at 291-292. 492.According to the present pleadings, the plaintiffs say the defendants represented to them that the three valuations were fair valuations. The plaintiffs then plead the following on falsity:
493.There is no further elaboration in the pleading on why the plaintiffs say that there was no or no sufficient factual basis for the projected figures. Any reasonable reader would however understand that the plaintiffs are relying on what Mr Chain describes as “the extraordinary disparity” between the actual figures and the projected figures to show the lack of factual basis. I shall call it “the disparity point”. 494.Under the working capital point, the plaintiffs now say that there was no or no sufficient factual basis for the projected figures because eBiz did not have the available working capital to earn the projected figures. 495.It is plain and clear to me that the working capital point is a totally different and distinct point from the disparity point. One may readily come to this conclusion by simply taking a look at the written formulation submitted by Mr Chain: see para 162 above. They are two different and separate reasons for saying that the projected figures lacked factual basis. In other words, they are two different and separate reasons for saying why the representation was false. As currently pleaded, the case which KC Lam and eBiz have to meet is the disparity point and not the working capital point. 496.How have KC Lam and eBiz pleaded to the alleged falsity? They say that when it comes to the valuation of an IT start-up like eBiz, one cannot look at the projected figures with hindsight, the projections were based on the potential of eBiz.
497.As regards the issue of falsity, the only live issue before the court, as disclosed by the pleadings, is whether one can simply point to the disparity between the actual figures and projected figures and conclude that there was no factual basis for the projected figures or whether it was reasonable for the valuations to take into account eBiz’s business potential. 498.The working capital point is a totally distinct issue. KC Lam and eBiz’s pleaded response simply does not apply and cannot serve as a proper response to that point. 499.Going back to the purpose of pleadings, it is for the plaintiffs to explain why they say the representation was false. If they want to run the working capital point at the trial, it is for them to plead that eBiz in fact did not have the availability of working capital to generate the projected sales figures. It is also for the plaintiffs to then spell out why they say the defendants were dishonest when they provided the projected figures to the valuers. These pleas are completely absent. In the circumstance, it is impossible for KC Lam and eBiz to answer the working capital point. The issue of whether the projected figures lacked factual basis because eBiz did not have the working capital to generate them is simply not before the court. 500.If the plaintiffs are now allowed to run this point, it would undoubtedly be unfair to KC Lam and eBiz. They would be deprived of the opportunity to answer the case. 501.As it turns out, Tommy Lai, when cross-examined by Mr Wong, gave oral evidence in respect of the first Grant Sherman report as follows:
502.Whether Tommy Lai’s evidence is to be believed or not is one thing. But the fact that he was able to give an answer on the spot without any prior notice shows that had KC Lam and eBiz been given proper notice of the working capital point, they would have had a chance to prepare their case differently, for example by approaching Tommy Lai for information. 503.The plaintiffs make a number of points to argue that there is no need to plead the working capital point. 504.First, fundamentally, the material fact regarding the issue of falsity is the lack of any or sufficient factual basis for the projected sales figures. And that has already been expressly pleaded. The disparity point is a matter of evidence. So is the working capital point. It is unnecessary to plead either of them. It is true that the plaintiffs have pleaded the disparity point. But they have done so for illustration purposes only. In his oral closing submissions, Mr Chain said that it was pleaded in the spirit of good practice. Just because it is pleaded, it does not mean that all other evidence would then be elevated to the status of “material fact”. It should be noted that in the plea, the disparity point is explicitly cited as an example. Mr Chain reminds the court that the distinction between material fact and evidence remains relevant in cases of fraud. 505.In his oral closing submissions, he formulated his argument to the same effect in a different way. The plaintiffs have pleaded the broad point, which is that the projected figures had no factual basis. What they now want to do is to simply take a narrower point within the broad point, the narrower point being that eBiz had no capability to generate the projected figures. 506.Secondly, KC Lam himself have all along admitted unequivocally that eBiz could not generate significant revenue in its first few years of operations, that it required substantial funding to implement mass sales and marketing programmes in order to generate extensive revenue, and that he planned to obtain such funding via IPO. That is what he said in his witness statements and his oral testimony. In other words, it was KC Lam’s understanding from the outset that eBiz had no capability of generating extensive sales before IPO. Therefore, it cannot be disputed that there is no factual basis for the projected sales figures. The court should not just ignore such undisputed facts and admissions. 507.Thirdly, it follows that there cannot be any surprise that the plaintiffs are now raising the working capital point. Mr Chain also points to the 4th plaintiff’s witness statement, in which he said that the projected sales figures were unrealistic as “KC Lam knew all along that eBiz had no sales, and no capability of generating sales pre-IPO”. 508.Fourthly, Mr Chain submits that the working capital point is not something which the plaintiffs could have pleaded because it really emerged for the first time in the cross-examination of Keith Yan. What he is referring to is the latter’s oral evidence that in the course of preparing the first Grant Sherman report, Tommy Lai sent to Grant Sherman a document containing answers to a questionnaire (which was previously provided to Celestial) in which it was stated that eBiz expected that there would be capital injection of HK$50 million to 100 million in June to August 2008 for 10% to 20% equity interest in the company. (Tommy Lai in his oral evidence denied that he sent the Celestial questionnaire to Grant Sherman.) 509.He refers the court to the principle set out in Waghorn v George Wimpey & Co Ltd [1969] 1 WLR 1764 at 1771B. Where evidence at trial may establish facts which are different from those pleaded, as long as they are merely variation or modifications that are not radical departure from the pleaded case, the court may in appropriate circumstances allow the case as so varied or modified to be run. If matters of technicality which could not be foreseen emerged during a case, it would be quite wrong to dismiss a plaintiff’s claim because his pleadings have not measured up to the technical facts which have emerged. 510.The evidence that Grant Sherman had been told by eBiz about its expected working capital, Mr Chain submits, is a new piece of evidence. Applying the principle in Waghorn, the plaintiffs should be entitled to rely on it to run the working capital point. 511.I do not accept these submissions. 512.For the reasons already given above, I am of the view that the allegation that the projected figures lacked factual basis because eBiz had no capability or working capital to generate extensive sales is a material fact insofar as the issue of falsity is concerned. It does not matter that the plaintiffs have pleaded the disparity point as an example. Whether one classifies the disparity point or the working capital point as examples or not, the burden is on the plaintiffs to say why the representation was false. According to the present position of the plaintiffs, the answer is twofold. First, the disparity point. Second, the working capital point. They are distinct cases which the defendants have to meet. Hence they are material facts. 513.KC Lam’s stance, which is made known throughout these proceedings, that eBiz would require substantial funding pre-IPO is beside the point. First, that stance is not taken in the context of the Company Valuation Misrepresentation. Second, it is the pleadings which define the issues. There is simply no plea on the working capital point in the context of the Company Valuation Misrepresentation. The plaintiffs’ attempt to try to run it at the trial has come as a surprise as KC Lam and eBiz were totally unprepared for it. 514.As to Keith Yan’s evidence, it is unnecessary for me to make a finding as to whether Grant Sherman was in fact given the Celestial questionnaire by Tommy Lai. For the purpose of the pleading point, I accept that Keith Yan’s evidence is a new piece of evidence. However, this is not a case where the Waghorn principle would apply. First, the Celestial questionnaire has been disclosed before the trial. It shows that, when preparing the projected figures in respect of the first Grant Sherman report in mid-2008, Tommy Lai was working on the expectation that there would be available to eBiz working capital of HK$50 million to HK$100 million. On the basis of that document, the plaintiffs could have picked up the point that it did not sit comfortably with KC Lam’s position that eBiz in fact required substantial funding via the IPO. In other words, the plaintiffs could have made the working capital point before the trial. They did not do so. There is no reason why they should be allowed to do it now. 515.This case is all about credibility. The proper approach to assess credibility is well-known. 516.Mr Wong refers the court to what Goff LJ said in The Ocean Frost [1985] 1 Lloyds’ Rep 1 at 57:
517.Mr Chain submits that where a version of events is well-supported by documentary evidence, the court should not overly concentrate on minutiae of oral evidence of witnesses who may be confused, forgetful, or self-serving, and instead consider the bigger picture of inherent probabilities. In support, he cites the observations of the Court of Final Appeal in Big Island v Wu Yi Development Co Ltd (2015) 18 HKCFAR 364 at para 34. Tang PJ said:
518.I shall adopt the above approach in evaluating the conflicting evidence before the court. 519.The present case is a document-heavy case. The bundles of witness statements run to about 800 pages. The bundles of documents comprise nearly 9,000 pages. In addition, counsel have lodged extensive closing submissions. It would be impossible to recite all the arguments (and counter-arguments) in this judgment. Nor do I do consider that to be necessary. What I will do is to set out a number of observations on the evidence, which I believe shed the most light on the issue of credibility. The plaintiffs’ contradictory position on the Revenue Misrepresentation 520.The Revenue Misrepresentation, which was introduced for the first time in 2020, undoubtedly forms an essential part of the plaintiffs’ case. But it is directly contradictory to the case which they pleaded in the original pleadings filed in 2012. 521.The original statement of claim pleaded, at para 9:
522.The original reply pleaded, at para 29(1):
523.The original reply further pleaded, at para 30(1):
524.Lastly, the original reply pleaded, at para 36(1):
525.In the original pleadings, the case which the plaintiffs were putting forward was thus:
526.This case is diametrically opposite to the present case run by the plaintiffs, which is that eBiz was sold to them as a company that had generated or would, as a matter of guaranteed certainty, shortly generate extensive revenue. The contradiction goes to the core of the Revenue Misrepresentation. The contradiction is more pronounced when one takes into account what has been stressed by the plaintiffs in this action, namely that such representation was repeatedly made, bolstered and refined through the Indoctrination Method throughout the material period. 527.Predictably, the plaintiffs were cross-examined on this. They were asked to explain why their case contains such a contradiction. None of the plaintiffs were able to give a credible or convincing answer. In fact, many of the answers were incoherent and difficult to understand. I would summarise the answers broadly as follows. 528.The more common response is that the original plea does not apply to the individual plaintiff but applies to some other investors. As the plaintiffs managed to gather more information and find out more from other investors as this action progressed, they made “amendments”, “adjustments” or “changes” to their case, which resulted in the different versions. This would appear to be the answer given by the 1st, 5th, 7th, 9th and 11th plaintiffs.
529.These answers are not easy to understand. Doing the best I can, these plaintiffs seem to be saying that there were indeed some other investors who encountered what was described in the original pleadings and that was why the pleadings were drafted that way. But as the action moved on, more information emerged and the plaintiffs made changes to the documents accordingly. 530.However, this answer does not address the contradiction point at all. When the action was commenced, there were only the 1st to 11th plaintiffs. There were no “other investors” who were joined. The original pleadings were drafted by solicitors and were supported by statements of truth signed by each of the plaintiffs. The original plea is not difficult to understand. Any reasonable reader would understand that to mean that each of the plaintiffs encountered what was described there. If what was stated there did not apply to a particular plaintiff, there was no good reason why he or she could not have said so in the original pleadings. The above answer completely fails to explain why the plaintiffs put forward a totally opposite and wrong case in 2012. 531.Furthermore, to say that the change from the original pleadings to the present pleadings are “adjustments” or “amendments” is a gross understatement. The present case is a wholesale replacement and a turnaround of the original case. 532.The 2nd plaintiff gave a similar response. However, his answer was more concrete as he referred to a specific timeframe, and later on in his answers, he readily admitted that there was a mistake in the original pleadings insofar as it concerned him. In that sense, his answer is slightly better than the one above. Here is the relevant exchange in cross-examination:
533.While the 2nd plaintiff seemed to be more forthcoming when he dealt with the contradiction point, his answer is still not satisfactory for the same reasons given above. 534.The 3rd plaintiff surprisingly claimed that the version in the original pleadings was true. That must mean that his present case on the Revenue Misrepresentation cannot stand. This also casts serious doubt on the reliability and credibility of his evidence as a whole. 535.The 8th plaintiff also said that the original plea did not apply to him and he would like to correct it. He was pressed with an explanation for such a fundamental contradiction. He said:
536.This was then followed by the admission that the original plea was not correct because he did not understand it:
537.The 8th plaintiff’s answer is absurd and alarming. He signed the statements of truth which accompanied the original pleadings. Yet he now says that he did not try to get an understanding of the contents of the documents the truth of which he has vouched for. 538.The 10th plaintiff similarly also said that the original pleas did not apply to him. When asked whether the original pleas were true or not, he said that he could not answer the question. 539.This answer is equally absurd and alarming. The 10th plaintiff is unable to either stand by or disown what he himself previously confirmed to be true. That must cast doubt not only on his case on the Revenue Misrepresentation, but also the overall credibility of his evidence. 540.In respect of the contradiction, Mr Chain submits that undue emphasis should not be placed over these “imperfect superseded pleadings”, as the legal case had to be refined over time to more accurately reflect the plaintiffs’ instructions and truthful recollection of events. He further submits that as laymen who are not versed with the technicalities of legal procedure and jargon, the plaintiffs were genuinely confused about the superseded pleadings which were filed more than 10 years ago. It is evident, he submits, that the plaintiffs had tried their best to understand the questions put to them and they gave honest responses and gave frank admissions when there is an oversight or mistake. The situation is compounded by the inherent difficulties of putting together one collective pleadings on behalf of a large number of plaintiffs, which is naturally more prone to inadvertent errors. Considering the complex nature of the case involving 11 plaintiffs, the slight imprecision in superseded pleadings should not be over-magnified and clearly does not impinge on the overall credibility of the plaintiffs. 541.I am unable to accept these submissions. It should be remembered that when the original pleadings were filed, the 11 plaintiffs were represented by their solicitors. There is nothing technical about the original allegations. If a particular plaintiff’s situation is different from the others, I can see no good reason why his case cannot be carved out from the general averments applicable to all other plaintiffs and his individual factual narrative be included. Furthermore, as remarked above, the present case can hardly be described as a refinement of the previous case. It is a diametrically opposite case. 542.Separately, in the original pleadings, it was stressed that the plaintiffs “repeatedly asked” the defendants for sales and profit figures (which they considered to be “important matters” for their investments). Yet, in cross-examination, with the exception of the 3rd and 6th plaintiffs, all the plaintiffs claimed that they did not ask for any accounts. Such evidence is again directly contradictory to the pleas made in 2012. 543.In the absence of any convincing answers explaining the contradiction in relation to the Revenue Misrepresentation, the plaintiffs’ contradictory position not only severely damages their case on this particular representation but also casts serious doubt on the overall credibility and reliability of the their evidence. The plaintiffs’ incoherent position on the False IPO Notification 544.As confirmed at the trial, the False IPO Notification is not itself a cause of action. Nonetheless, it is a very important part of the plaintiffs’ case. By way of the False IPO Notification, the protection afforded by the Investment Structure was unravelled. The plaintiffs therefore say that the False IPO Notification is strong evidence demonstrating the fraudulent intent of the defendants. 545.However, the plaintiffs’ position on this very important part of their case is incoherent. 546.It is necessary to reproduce here the relevant pleas and the corresponding written evidence. The letter numbering (as underlined below) is inserted by me for easy reference:
547.The incoherence lies with para (b). 548.Mr Wong submits, and I agree, that the complaint as disclosed in the above pleas is that at that time, the defendants told the plaintiffs that Collins Stewart had issued some kind of formal notification in relation to the IPO. Para (d) supports that reading. But that was a lie because Collins Stewart had never issued any such notification. 549.In the master statement of the 4th plaintiff, he said this about the False IPO Notification:
550.Later on, in the same statement, he added:
551.Such evidence is consistent with and in support of the above pleas. Once again, para (f) clearly refers to some kind of formal notification issued by Collins Stewart in relation to the IPO. 552.However, all the plaintiffs made a correction in their supplemental witness statements to the effect that in para (e), they were in fact not referring to any formal notification. Their written evidence is identical:
553.I should note immediately that in the supplemental witness statements, the plaintiffs did not go on to clarify what exactly was meant by the words “an IPO notification” which appeared in para (e). For instance, a notification to whom? 554.Some of the plaintiffs were cross-examined on this issue. The 2nd plaintiff said that there was some miscommunication in relation to para (e). He accepted that the defendants in fact did not make the representation that Collins Stewart had issued the IPO notification. The 3rd and 8th plaintiffs’ answers on this issue are difficult to follow. They did not seem to be able to understand the issues surrounding this topic. 555.But what really stands out from the oral testimony is the 4th plaintiff’s express and repeated confirmation that in para (e) of his master witness statement, he was in fact referring to a pre-IPO notification issued by the sponsor to the Singapore Stock Exchange. That confirmation was unequivocal. One immediately sees that this goes directly contrary to his correction in the supplemental witness statement. 556.Notwithstanding the 4th plaintiff’s oral testimony, Mr Chain, in closing, reiterates that in para (b), the plaintiffs were not referring to a technical notification to the stock exchange. He acknowledges that some confusion may arise out of the use of the word “notification”. However, he submits:
557.It is plain from the documents highlighted above that the plaintiffs’ position on the False IPO Notification has been shifting quite dramatically in the course of these proceedings and is thus incoherent. The 4th plaintiff’s oral evidence contradicts his latest written evidence, which itself overrides the plain meaning of the pleadings. The explanation that the plaintiffs are not familiar with technical terms is not convincing. Even though the plaintiffs had made use of various occasions to try to clarify the plea in para (b), yet at the conclusion of the trial it remains unclear as to what the word “notification” as used in that paragraph means. 558.In my view, the incoherent stance of the plaintiffs on the False IPO Notification, which forms a very important part of their case, considerably undermines not only the credibility of this part of their case but also their case as a whole in this action. The plaintiffs’ case against Tommy Lai is not made out on their own evidence 559.Tommy Lai’s case is that he was not responsible for investor relations and he only met the plaintiffs occasionally during the material period. That is specifically denied by the plaintiffs. They say that Tommy Lai was one of the three fraudsters perpetuating the Fraudulent Scheme. 560.In the amended reply, they say:
561.In the re-amended statement of claim, the following conduct of “the Defendants” or “the 1st to 3rd Defendants” is pleaded:
562.In the master statement of the 4th plaintiff, he spoke about the various meetings attended by Tommy Lai with the plaintiffs and Tommy Lai’s involvement in the Fraudulent Scheme. 563.I quote below the passages in which the 4th plaintiff either referred to Tommy Lai by name or included him by using the phrase “the Defendants”:
564.A plain reading of the above passages would suggest that Tommy Lai had active and frequent interactions with the plaintiffs throughout the material period. However, as it emerged in cross-examination, most of the plaintiffs now say that they hardly met or spoke with Tommy Lai and only did so perhaps just once or twice during the five-year period. 565.In particular, when cross-examined by Tommy Lai, the 4th plaintiff confirmed that he only met Tommy Lai in person once in Beijing and received two emails from him in 2011, one in relation to the direct subscription in April 2011 and the other in relation to the HK$1 million debt owed by eBiz to KC Lam. That was all the interactions he had with Tommy Lai. He then confirmed that some of the above references to “the Defendants” and “the 1st to 3rd Defendants” do not include Tommy Lai. For other references, he could not recall whether Tommy Lai should be included. 566.This was of course a very surprising answer and gave the court great concerns. First, the evidence goes directly contrary to the picture portrayed in the plaintiffs’ pleadings and written evidence that Tommy Lai made frequent appearances and had constant interactions with the plaintiffs. Secondly, it seems that when the words “the Defendants” are used in the plaintiffs’ court documents, one cannot take it literally to mean all the defendants, including Tommy Lai. 567.At the trial, I had the following exchange about the latter point with the 4th plaintiff. In that exchange, he made other equally (if not more) surprising revelations. He said that the plaintiffs have somehow “generalised” the pleadings and the witness statements and have used the term “the Defendants” in such a way that sometimes it was intended to refer to all the four defendants and some other times it was intended to refer to some particular defendant(s). It depends on the context. That is so, notwithstanding that the obvious literal meaning of “the Defendants” must include all the four defendants. At the end of the exchange, I pointed out to the 4th plaintiff that one would simply not know what to make of the allegations made against Tommy Lai, which are serious fraud allegations made against a person holding a professional qualification. He said that he did not have an answer to that.
568.It seems to be the case that even at the trial, the 4th plaintiff was still trying to work on and come up with a good case against Tommy Lai. His remark, “or is there a better way to give better clarity or the truth to that?”, is alarming. Of course, the only way to tell the truth is to tell the truth as it is. He however seemed to be suggesting that there are some other methods by which he could put together or “construct” (a term used by Mr Wong in his closing submissions, to which I will return in the next subsection) a case with some advice. 569.It is necessary to set out some other plaintiffs’ oral evidence which similarly goes to contradict their pleaded case and their written evidence. This further demonstrates that the plaintiffs’ case against Tommy Lai is not even made out on their own evidence.
570.The oral evidence of the plaintiffs as regards Tommy Lai (no or minimal interaction) starkly contradicts their pleaded case against him (“frequently met”) and their written evidence (“multiple group meetings”). Separately, some of the plaintiffs are accusing Tommy Lai of fraud merely because he was the CFO of eBiz and therefore must have participated in the fraud. There is not how the case is presented either in their pleadings or in their written statements. In any event, it is plainly not enough for the plaintiffs to establish fraud merely by relying on Tommy Lai’s title. 571.It is worth repeating what I said in the trial. In this action, the plaintiffs are making very serious and extensive allegations against Tommy Lai. Yet, through their oral testimony, it has become abundantly clear that (1) their case against him is not pleaded properly because of the indiscriminate use of the words “the Defendants” and “the 1st to 3rd Defendants”, and (2) their evidence falls far short of establishing fraud against him. In fact, one may even say that their case is disproved by their own oral evidence. 572.Mr Wong submits that how the plaintiffs have conducted their case against Tommy Lai is highly relevant in the assessment of the overall veracity of their case against all the defendants. I agree. The unsubstantiated case which the plaintiffs put forward against Tommy Lai puts the reliability and credibility of their evidence in a bad light. 573.So far, we have seen a number of contradictions and inconsistencies within the plaintiffs’ case and their evidence. There are in fact other inconsistencies which are apparent on a plain reading of their documents. All these have given fertile ground for cross-examination by Mr Wong (and Tommy Lai). There was a general theme which emerged in the course of their cross-examination and I have already discussed this in the context of the Revenue Misrepresentation. According to the plaintiffs, at the initial stage after the Fraudulent Scheme was exposed, they did not really know what had gone wrong and had only limited information. As time went by, some of the investors grouped together and shared information and documents in their possession among themselves. This took place even after the present action was commenced. As more and more information was shared and documents disclosed, the plaintiffs made changes or adjustments to their case. And that explains why some of the later versions of events are different from the earlier ones. 574.Separately, there was a line of cross-examination in which Mr Wong asked the plaintiffs why they seemed to be able to say more and recall better about the same events in the supplemental witness statements than in the first witness statements. This phenomenon has been described by Mr Wong as “concerted escalation” of the plaintiffs’ evidence. There are two aspects to it. First, the evidence is “escalated” in that the later evidence is either fuller in detail or there are more details. Second, every plaintiff was able to “escalate” in the same manner. The general theme, as revealed by many of the plaintiffs’ answers, was similar to that when they were asked about the inconsistencies in their documents. 575.It is inherently plausible that the plaintiffs would initially have difficulties in finding out why the IPO was called off. This is so given that according to their case, they are the victims of an elaborate fraud perpetuated over a time span of five years. Before their investments in eBiz, they largely did not know each other. And there is no suggestion that during the material period, they were closely interacting with each other in respect of their investments. It is inherently plausible that each of them would have limited information at the initial stage immediately after their discovery of the fraud. They might not be able to remember the many things that were said or presented to them over the past five years. To compound the problem, I also accept that for a period of time, they might only have “messy information” (using the 2nd plaintiff’s words). This is because there were so many investors involved and they made their investments at different times (“there were a number of batches of people and different times were involved” in the 8th plaintiff’s words). 576.In cases such as the present one, when contemporaneous documents later become available, they may help jog the memory of a party (or a witness) such that he may be able to remember more details about what had happened and give further evidence accordingly. That happens. Whether the court believes the further evidence would depend on all the circumstances of the case, applying the well-known yardstick by which credibility is usually measured. 577.If new documents help bring back a memory which previously eluded a party, it is quite legitimate for him to put in facts as he now remembers them in the court documents and assert those facts as true, as they would be based on his own personal recollection and knowledge. 578.What is not legitimate, and what seems to be happening in this case on the plaintiffs’ part, is when (1) a party says in a court document that something happened to him when in fact it only happened to others, or (2) he states that a certain event happened as a matter of fact without any qualification and vouches for its truthfulness by signing a statement of truth when he has no personal knowledge about the event. In the present action, the filing of the original pleadings asserting that all the plaintiffs had asked for financial information from the defendants when the overwhelming majority of them had not is an instance of the first type. The allegation made against Tommy Lai that he attended “multiple group meetings” when the plaintiffs could not confirm that to be true at the trial is an instance of the second type. 579.Mr Wong points to many other similar instances in his closing submissions and says that in these cases, the plaintiffs did not actually remember the facts about which they were giving evidence, but retrospectively constructed a case based on information and documents in the possession of other plaintiffs. He submits that the plaintiffs are engaging in a collective exercise of reviewing the documents and adjusting their evidence, in order to present what they thought would be the most convincing case to the court, as opposed to the true facts within their own knowledge. I shall call what Mr Wong has described as “the collective construction exercise”. He seeks to make good the point by referring to what appears to be “admissions” made by some of the plaintiffs at trial. 580.Mr Chain disagrees that the plaintiffs made these “admissions”. He cautions that the oral evidence must be considered in proper context and one must scrutinise the relevant Q&As with care to ascertain what the party in question really meant. The style in which the party generally answered questions should also be taken into account. Both Mr Chain and Mr Wong have set out the relevant parts of the transcripts in their written submissions, accompanied by an almost sentence-by-sentence analysis of what the Q&As show and whether they should be construed as “admissions” or not. I will not reproduce those transcripts in full in this judgment save to highlight the evidence of the 4th and 8th plaintiffs which, in my view, either overwhelmingly shows that the plaintiffs had engaged in the collective construction exercise or contains an admission that such an exercise was undertaken. 581.I first discuss the 8th plaintiff’s evidence when he was cross-examined in relation to the High Profile Investors Misrepresentation, the alleged high profile investor in question being Li Ka Shing. He was challenged on why his evidence could be “escalated” as this action progressed. I agree with Mr Wong that at the end of the exchange with counsel, the 8th plaintiff admitted that he made his written evidence without any independent recollection of the matter. 582.It is necessary first to set out the written evidence. The first extract below is from the witness statement and the second extract from the supplemental witness statement.
583.In cross-examination:
584.Mr Chain’s take on this exchange is that the 8th plaintiff might have had to rely on information provided by other plaintiffs so as to refresh his memory, and when he agreed with counsel that he had no independent recollection, he meant that he could only recall the events after his memory was refreshed. I do not agree with that interpretation. The 8th plaintiff did not say anything about his memory being refreshed. Further, as cautioned by Mr Chain, the answers need to be considered in context. The context was made clear in Mr Wong’s question. The context was the “escalation” of the evidence. In this context, the 8th plaintiff’s answer was that he was able to “escalate” because he referred to others’ statements, with which he had no independent collection. 585.There is similar “escalation” in the context of the High Profile Partners Misrepresentation and High Profile Investors Misrepresentation in the other plaintiffs’ evidence. In gist, the representations about the participation of the alleged investors and partners have evolved from being a potential involvement (eg “would soon be investing” or “was interested in investing”) to an “existing” involvement or the investment being “simply a matter of time and guaranteed”. 586.This goes to support Mr Wong’s submission that there was a collective exercise to “escalate” the evidence. 587.Next, I turn to the 4th plaintiff’s evidence. It can perhaps be similarly characterised as an “escalation” of evidence, but this time it was done in the context of the Revenue Misrepresentation. 588.In his supplemental witness statement, the 4th plaintiff spoke about the Beijing meeting in about June 2007:
589.In cross-examination, it was pointed out to him that he did not say in para 115 of his first statement that KC Lam said those things at the Beijing meeting. Unlike the 8th plaintiff, he gave a lengthy response:
590.On these answers, Mr Chain submits that the 4th plaintiff should be taken to mean that he was refreshing his own memory by reference to corroborative information from other plaintiffs, which is entirely legitimate. I do not agree with this submission. The 4th plaintiff’s answer is very clear. He did not have memory of what was said at the Beijing meeting – see the underlined words. Contrary to Mr Chain’s submission, his memory was not refreshed. He was simply reciting what other said when he had no personal memory. 591.On the whole, I consider that there are ample materials before the court which show that some of the evidence given by the plaintiffs, which go to the crux of some of the Fraudulent Misrepresentation, was not in fact based on their own recollection of events, but was constructed subsequently based on documents and information obtained from others. No weight should be given to such constructed evidence. Not only that, the overall credibility and reliability of the plaintiffs’ evidence is much impinged. The plaintiffs’ case of fraud is at odds with contemporaneous documents 592.Where there exist contemporaneous documents, they would very often be useful tools which can be used to assess the credibility of rival narratives of events. In this case, I consider that the following are some of the most material contemporaneous documents which I should take into account to assess the parties’ cases (and the contents of which are reproduced in the paragraphs stated in brackets below):
593.While I consider that the second Grant Sherman report is also relevant in respect of the question of whether the plaintiffs knew about the start-up nature of eBiz during the material period, I do not include this in the above list mainly because it was only sent to the plaintiffs in late 2010, which was after most of the investments had been made. 594.The importance of the above documents is obvious in two ways. A reasonable person who receives and reads some or all of these documents would be able to readily find out (1) the true financial position of eBiz at the time, and/or (2) the fact that documents containing financial information of eBiz had been compiled and were available and that, if they wished, they could ask for copies or follow up in some other way. 595.The 31 October 2006 email, accompanied by the 2005 audited statements and the June 2006 management accounts, would show that eBiz did not have any significant sales or revenue and was making a substantial loss. The June 2006 Key Points 2 was stated to have as attachments the “[l]atest Auditor Report by reputable Audit Firm” and the BI Appraisals Report. And, if those attachments were not attached, the document would inform the reader that these documents were available. Similarly, the 28 September 2006 group email would show that the auditor’s report of eBiz from Deloitte would be ready shortly. The BI Appraisals report and the first Grant Sherman report would show that eBiz was an IT start-up venture and the technology was still “in its infancy”, and that (as of 2008) the company had just launched the WebExpress services and was “still in the initial stage of marketing”. 596.These contents directly contradict any allegation that eBiz was a wildly successful company, already earning substantial revenue.
597.Hence, if, according to KC Lam and eBiz’s case, Desmond Yue in fact had given or sent copies of these material contemporaneous documents to the plaintiffs during the material period, that would severely, if not completely, undermine (1) the plaintiffs’ case on the Revenue Misrepresentation, and (2) the alleged fraudulent intent on the part of the defendants. 598.Now in this action there are heated disputes over what had been sent to the plaintiffs and, if sent, whether and to what extent they had read them. I do not need to decide that now. Even on the plaintiffs’ own case, some of the material contemporaneous documents identified above were in fact sent to some of the plaintiffs during the material period. Regardless of whether they had been read or not, the significance of this is that the very act of sending the documents itself is very much inconsistent with the making of the Revenue Misrepresentation and KC Lam, Desmond Yue and Tommy Lai being fraudsters. 599.One asks rhetorically – if KC Lam and Desmond Yue were acting in concert and were relentlessly pushing a “seamless, continuous and extended sales pitch” saying falsely that eBiz was a wildly successful company earning substantial revenue, why would they at the same time send documents to some of the plaintiffs which would have the effect of disclosing the true financial position of eBiz? If they were relentlessly applying the Indoctrination Method to the plaintiffs making, repeating, expanding, refining, and bolstering the Fraudulent Misrepresentations on almost every occasion of contact, why would they at the same time send documents to some of the plaintiffs highlighting the start-up nature of eBiz and the high risks associated with an investment in it? 600.There is never any suggestion in this action that KC Lam and Desmond Yue sent these documents to some of the plaintiffs knowing that they would not be read so that they would remain in the dark as to the true state of the company. Furthermore, the personal background of the plaintiffs is relevant here. Some of them are highly educated. Some of them run their own businesses. Some hold respectable positions in their specialised fields. Their investments are in the range of hundreds of thousands of dollars to a few million dollars, which cannot be described as insignificant. If KC Lam and Desmond Yue were really trying to cheat them, the two of them could not have assumed that the plaintiffs would not read the documents or they would not have asked for copies of documents. 601.On this issue, Mr Chain makes the following submission:
602.I do not think that this submission advances the plaintiffs’ case in any way. Their case against the defendants is mounted solely in fraud. Being piecemeal, haphazard and ad hoc is not fraud. That may suggest that KC Lam was not being careful with the disclosure of documents. (I am not making a finding to that effect here.) But the plaintiffs are suing him for fraudulent misrepresentations, not negligent misrepresentations. 603.For the reasons given above, I am of the view that the plaintiffs’ case on the Revenue Misrepresentation and their overall case of fraud is at odds with the contemporaneous documents. 604.In my view, what differentiates KC Lam’s evidence from the plaintiffs’ is that the former has much fewer internal inconsistencies than the latter. Taking a step back and applying a holistic mindset to the evidence, one gets a distinct impression that the plaintiffs’ case is tainted with contradictions and inconsistencies and the contradictions are stark and the inconsistencies many and serious. On the other hand, KC Lam’s evidence seems to be generally consistent internally. 605.As regards consistency, the main criticism made by Mr Chain against KC Lam’s evidence is that KC Lam is backtracking from his original case that the plaintiffs’ investments are high risk when it is indisputable that the investments made under the Investment Structure is low-risk. His argument is as follows. 606.In this action, KC Lam has all along emphasised that the pre-IPO investment in eBiz carried high risks. That is what he said in both his witness statements, which contention is repeated in his opening submissions. However, as reflected in the undisputed legal documentation, an investment under the Investment Structure is practically risk-free. Upon being cross-examined on this, he eventually accepted that the investments under the Investment Structure are not high-risk investments. In his own words, the protection offered by the Investment Structure is “watertight”. 607.Here is the exchange at trial:
608.This, Mr Chain argues, represents a significant shift and a complete contradiction of KC Lam’s original case that the plaintiffs were disgruntled investors bringing a baseless claim to recover losses which they suffered in a “high risk and high return” investment. 609.I do not agree that there is any backtracking. 610.The starting point here must be that without the Investment Structure, a pre-IPO investment into eBiz is high risk by nature. KC Lam and eBiz’s case is that it is precisely because of this high-risk nature that he agreed with the plaintiffs to put in place the Investment Structure in order give them more time to assess the business potential of eBiz. While the Investment Structure is in place, the investment is low risk. That is the whole point of the design. Hence, on KC Lam and eBiz’s own case, there is nothing contradictory in KC Lam accepting that an investment under the Investment Structure is low risk or risk-free. 611.Equally importantly, upon the signing of the Termination Agreements, the high-risk nature of the plaintiffs’ investments springs back. It is KC Lam and eBiz’s case that the plaintiffs made the commercial decision in relation to the Termination Agreements and hence voluntarily took on the risks. 612.Apart from it being generally consistent internally, I find that KC Lam and eBiz’s case is also, on the whole, more coherent and inherently plausible than the plaintiffs’. My only reservation is that there are a couple of new revelations made by KC Lam in his cross-examination and the doubt I have is why they were not made earlier if they are true. But I will return to this shortly below. Separately, the attribution point, ie whether he had any part to play in some of the documents given to the plaintiffs by Desmond Yue such that he should bear responsibility for the contents will have to be considered with care. 613.At this juncture, I need to deal with a forensic point made by Mr Chain on KC Lam’s evidence in relation to what he said orally to the plaintiffs during the material period. He submits as follows:
614.I can understand the logic of this submission. It is also in line with the well-recognised approach that the court should test a party’s case against contemporaneous documents where available and relevant. However, the submission has its limitations in the present case. 615.In the China Telecom example, it appears to be KC Lam’s case that he did not orally say anything about China Telecom. If that is true, this would not be a situation where KC Lam would be saying significantly different things from what was stated in the contemporaneous documents. Hence, there would be no room for the plaintiffs to complain about any inconsistency or inaccuracy in the first place. 616.In the Digital China example, KC Lam’s evidence is that he repeatedly told the plaintiffs that eBiz was a start-up company with no track record. On one view, it may be argued that he was saying something significantly different from point 5 of the eBiz Promotional Brochure, as submitted by Mr Chain. However, on another view, it may be said that there is no inconsistency between what KC Lam said and the contents of point 5 because in light of what he said, that point would be taken to mean that eBiz will at some point in the future generate substantial sales, but not now. 617.Mr Chain’s submission takes the contemporaneous documents as the starting point of the analysis and uses that to test KC Lam’s evidence. However, one can also approach the matter by looking at all the evidence in one go and consider its combined effect. Different conclusions may flow from the different approaches. For this reason, I do not consider that much can be gained from this submission in terms of assessing KC Lam’s credibility. 618.On the whole, I accept that the matters set out in the “Important facts providing the context for KC Lam and eBiz’s case” section, with the exception of para 466 concerning Freddy Ong and para 470 regarding KC Lam’s own personal investments, provide a credible context for KC Lam and eBiz’s case. These matters are supported by contemporaneous documents. Some of them are supported by testimony of witnesses who appear to be independent and whose evidence is largely unchallenged and is inherently credible. I accept the evidence of Prof Chen, Ho Hau Wong, Andrew Lee and Keith Yan (not including his evidence in relation to the working capital point) as true. It is true, as submitted by Mr Chain, that these witnesses are not in a position to testify on the core issue in this action, namely what KC Lam did tell or did not tell the plaintiffs during the material period. However, they are in a position to testify on other less core aspects which provided the important context for KC Lam and eBiz’s case. 619.KC Lam made a couple of new revelations in his cross-examination. One of them is his allegation that it was the plaintiffs (among other investors) who devised and came up with the idea which materialised into the Investment Structure. See the extract reproduced in para 607 above, in which he said twice that he admired the investors for that. Another new revelation concerns the point that in about July and August 2009, the conversion formula was changed from opening price to listing price. KC Lam said for the first time that it might have been the investors who proposed this change. 620.As I have already commented above, if these new revelations are true, why didn’t KC Lam mention them before the trial? As a witness, he certainly came across as smart, astute, articulate and careful. He would often give lengthy answers with many details. He is very familiar with the legal documents. At one point in the trial, I described him as “a very keen communicator”. Previously, he made two very long witness statements, covering all aspects of his case in detail. Hence, I find it puzzling why he would only make those allegations for the first time in the trial. I have reservations about the truthfulness of those allegations. I am not prepared to make any factual finding in this regard. 621.Notwithstanding that, for the reasons given above, I find that KC Lam’s case, on the whole, is more coherent and inherently plausible than the plaintiffs’. 622.An issue arises as to whether the plaintiffs can use the key documents concerning the Fraudulent Misrepresentations which were given to them by Desmond Yue against KC Lam. These documents include:
623.KC Lam categorically denies any involvement in the preparation or review of these documents. His evidence is that he did not give any instructions to Desmond Yue to produce them, nor did he review them prior to their circulation to the plaintiffs. Desmond Yue had liberty to prepare presentation material as he saw fit as his role was to identify and introduce investors to eBiz. And he put together those documents on his own volition. On that evidential basis, Mr Wong submits that KC Lam should not be liable for the contents of the documents. 624.On the other hand, it is the plaintiffs’ case that Desmond Yue was a subordinate of KC Lam. They observed that Desmond Yue would faithfully follow KC Lam’s instructions. Desmond Yue acted as a messenger, passing messages between KC Lam and the Singapore investors. It is therefore absurd for KC Lam to now disavow any responsibility for the above documents. He should not be allowed to shift all the blame to Desmond Yue. 625.The resolution of this issue turns on inherent probabilities and the overall credibility of the plaintiffs and KC Lam. The relevant matters which I should take into account include the background and role of Desmond Yue and his relationship with KC Lam. 626.The starting point of the discussion is the objective fact that before he acted as the adviser to eBiz, Desmond Yue was completely new to the company and all information which he later had about eBiz must have come from KC Lam. It is KC Lam’s own evidence that he would keep Desmond Yue updated of eBiz’s business development so that he could divulge proper information to the investors in Singapore. 627.The material question is whether the documents were compiled under the instructions of KC Lam or subject to his review or vetting prior to distribution to the plaintiffs. 628.On the one hand, it is inherently plausible that KC Lam would have a role to play in these documents because, as Mr Chain submits, he would be concerned about raising funds from the Singapore investors and he would therefore want to know what Desmond Yue was communicating to the Singapore investors. On the other hand, Desmond Yue worked as a remisier at OCBC Securities and had professional knowledge about investments in general. He had existing relationships with some of the plaintiffs. He would also receive handsome commissions for introducing investors to eBiz. It is therefore also inherently plausible, as Mr Wong submits, that he acted on his own initiatives when compiling the documents and came up with his own presentation materials in a manner which he considered best to attract investments, as that was what he was appointed as an adviser for in the first place. 629.On this issue, the burden is on the plaintiffs to show that KC Lam had a part to play in the documents which they now rely on in support of the Fraudulent Misrepresentations. As pointed out by Mr Wong, there is no documentary evidence at all which shows that Desmond Yue prepared the documents under KC Lam’s instructions or had sought his approval. Even though the plaintiffs have the benefit of receiving two large bags of documents from Desmond Yue, there is no one single email disclosed in this action showing communication between Desmond Yue and KC Lam in relation to these documents. 630.It should also be borne in mind that the issue forms part of the plaintiffs’ case of fraud against KC Lam. As such, the plaintiffs should be adducing compelling and cogent evidence in support of their position on this issue. 631.On the whole, I consider that what they have come up with in terms of evidence does not measure up to the “compelling and cogent” requirement. They have therefore failed to prove that KC Lam was involved in preparing the key documents concerning the Fraudulent Misrepresentations. For that reason, KC Lam should not be held liable for misrepresentation, if any, arising out of those documents. 632.In coming to the above conclusion, I have considered Mr Chain’s submission that KC Lam is cherry-picking. When it suits his purpose and is advantageous to his case, he would rely on documents which Desmond Yue passed to the plaintiffs, eg the 2005 audited statements. When it is disadvantageous, he would disclaim responsibility and disavow any role in those documents which may incriminate him. 633.I think the submission is helpful in the sense that it is a way to cross-check the conclusion by looking at the evidence holistically, instead of focusing on each document in isolation. In my view, it is legitimate for KC Lam to rely on those documents which had been indisputably sent to at least some of the plaintiffs. On the other hand, as analysed above, he has his own case about the other documents, which I have found to be inherently plausible. It is therefore also quite legitimate for him to put forward that case. Hence, I would say that the apparently different treatments afforded to the two groups of documents do not come about as a result of cherry-picking. Tommy Lai is a credible witness 634.I find Tommy Lai to be a credible witness. His case is consistent throughout these proceedings. His evidence is straightforward, consistent, coherent, inherently plausible and well supported by contemporaneous documents. 635.As discussed above, the plaintiffs’ pleaded case against him fails on their own evidence. 636.I have set out above the matters which I believe shed most light on the assessment of credibility. I have also taken into account other matters which have been extensively covered in parties’ closing submissions in coming to my conclusion on credibility. Among them, I would highlight the following, as they have been addressed in detail or repeatedly in cross-examination or closing submissions or both. However, I am of the view that in terms of assessment of credibility, these matters do not carry as much weight as the matters set out in the previous subsections. I shall briefly state my views below. 637.First, as regards the plaintiffs’ case on the False IPO Notification, some of them say that their understanding at that time was that the launch of the IPO would be definite. But allegations such as these are contradictory to the contents of the comfort letters which, as part of the agreed facts, were sent to most of the plaintiffs and which expressly contemplated the possibility that the IPO might not happen within one year. This is another instance of contradiction in the plaintiffs’ case. 638.Second, Mr Wong submits that the use of the standard formula that the plaintiffs did not read the “fine print” of the valuation reports is a striking illustration of the falsities common to many or all of the plaintiffs’ evidence. First, there is simply no “fine print” as such as the body of each of the three reports was typeset in the same font size. Second, as revealed in cross-examination, the individual plaintiffs did not actually know what the term means and ultimately had to abandon it in favour of new versions. 639.On this point, the relevant issue in dispute is whether and to what extent each of the plaintiffs had read the valuation reports. However, I am inclined to think this issue cannot be helpfully resolved by just focusing on the use of the term “fine print”. This is a term adopted in all the witness statements and is likely to be an expression come up with by the lawyers. I also tend to agree with Mr Chain’s submission that it is only a figure of speech to convey the message that the plaintiffs generally did not read or take a close look at the finer details of the valuation reports. Whether that message is true factually is another matter but the use of the expression itself does not, in my view, shed much light on it. However, what is striking from this line of cross-examination is that some of the answers given by the plaintiffs seem inherently incredible. For example, the 1st plaintiff, a matrimonial lawyer, insisted that she did not read the BI Appraisals report and was only interested in the valuation figure. See para 167(3). The 9th plaintiff, an IT specialist, insisted that she did not read the report at all after Desmond Yue told her the valuation figure. See para 175 above. 640.Third, KC Lam and eBiz highlight as one of the 12 “Objective Undisputed or Indisputable Facts” that KC Lam personally made substantial investments in eBiz. This is relied on as part of the factual context to show that there is no Fraudulent Scheme as alleged. There is a dispute as to precisely how much KC Lam had put in eBiz and how much he had taken money out by way of, eg, consultancy fees over the years. In my view, that has not been a live issue between the parties and the information before the court is bound to be incomplete. It would not be appropriate for the court to come to any finding on this and then to weigh it as one of the factors in the deliberation exercise. This allegation therefore has little weight in my assessment of the parties’ cases. 641.Fourth, KC Lam and eBiz rely on the email from Freddy Ong which shows that he knew that eBiz had no profit. The point here is that it is inherently improbable that KC Lam and eBiz would be deceiving some investors (ie the plaintiffs) but not the others (eg Freddy Ong) about the true financial state of the company. 642.Prima facie, the contents of the email support KC Lam and eBiz’s position. It should therefore carry some weight. However, Freddy Ong has not been called to testify for KC Lam and eBiz. In the materials before the court, there is no information about him. KC Lam has not said anything about the circumstances in which the email was sent. None of these could be explored and tested in cross-examination. As such, the weight which can be given to the email must be limited. 643.Fifth, KC Lam and eBiz highlight that Justin Lye and Philip Ng worked closely with Desmond Yue, Justin Lye being described as Desmond Yue’s placement assistant in some of the emails. Justin Lye and Philip Ng would therefore have the same information about eBiz as Desmond Yue. Since Justin Lye and Philip Ng had close relationships with some of the plaintiffs, it is submitted that they should share such information with the plaintiffs. That would then debunk the plaintiffs’ case on their knowledge of the true financial state of eBiz. 644.Again, I do not consider that one can make much out of this line of argument. It is true that there are some emails showing the involvement of Justin Lye and Philip Ng. How they related information to the plaintiffs during the material period is effectively an unknown. Any inference which can be drawn from these emails would not carry a lot of weight. 645.For the above reasons, I conclude that KC Lam and eBiz’s case is generally more credible than the plaintiffs’, and Tommy Lai’s case is also more credible than the plaintiffs’. 646.Accordingly, to the extent that their evidence is in conflict, I prefer KC Lam and eBiz’s to the plaintiffs’. I find the former as facts, subject to any contrary finding specified below. I accept Tommy Lai’s evidence in whole and find it as facts. More specifically, I find the following as facts. 647.Throughout the material period, KC Lam made known to the plaintiffs that eBiz was a start-up IT business, it had limited track record of business turnover, but its attraction would lie in its business potential, and an investment in it would carry high risks but potentially high returns. He told the plaintiffs on various occasions that eBiz had only mimimal sales and revenue and it would need to generate funding from IPO in order to implement aggressive sales and marketing programmes. 648.The plaintiffs all along knew of eBiz’s lack of revenue or track record. With their background, they understood the risks associated with investments in the company. 649.KC Lam did not make the oral representations as alleged under the Revenue Misrepresentation, the High Profile Partners Misrepresentation, the High Profile Investors Misrepresentation, the KC Lam Credentials Misrepresentation, the Car Park Security Misrepresentation and the IPO Prospects Misrepresentation. 650.KC Lam would have made comments orally to the effect that eBiz’s business was good enough to proceed to IPO within two to three years, and a successful listing would very likely lead to investment returns of 5 to 10 times, or even 10 to 20 times. However, such comments would be made with qualifications that the returns would depend on whether the company could be successfully listed, and that in turn would depend not on track record of sales revenue, but on its business potential and other factors like good timing and market conditions, supportive investors and quality management. 651.KC Lam never mentioned that he was the one who founded or set up Ninetowns. He would mention only about the role he played in the successful listing of Ninetowns, namely that he introduced strategic investors to Ninetowns to support its business and enable it to be listed on the NASDAQ Stock Market in 2004. 652.The 31 October 2006 email, with its attachments including the 2005 audited statements and the June 2006 management accounts, was sent to the 6th plaintiff. Emails with the same or similar contents and attachments were sent to the other plaintiffs. In coming to this finding, I have accepted Mr Wong’s submissions that:
653.Similarly, the BI Appraisals report and the first and second Grant Sherman reports were shown, sent or given to all the plaintiffs as there is no good reason why they would be selectively given to some but not all of the investors. 654.The BI Appraisals report and the first and second Grant Sherman reports were made by independent valuers. The valuations took into account the business potential of eBiz. Grant Sherman conducted their own investigations and tested the assumptions and information provided by eBiz. The projected sales and profit figures provided by Tommy Lai to Grant Sherman were based on, among other things, the business potential of eBiz and the huge market demand. 655.The purpose of the Investment Structure was to hedge against the risks associated with a pre-IPO investment into eBiz and allow more time for the plaintiffs to consider whether in the end they would choose shares in eBiz or repayment of the loans. However, I reject KC Lam’s allegation that the structure was devised by the Singapore investors. 656.In July and August 2009, following the appointment of Collins Stewart as full sponsor, the notification letters from Sun Dynamic dated 22 August 2009 was sent to the SPVs. The plaintiffs agreed to the new commercial arrangements as reflected in the Termination Agreements. With their background, the plaintiffs were capable of understanding and understood what the new terms were, including the immediate return of the car parks to Strong Man and the superseding of the revival clause. They made that commercial decision voluntarily as the atmosphere at that time was that that everyone expected that the IPO would very likely occur following the appointment of Collins Stewart. But they did not act on the understanding that the IPO would definitely occur. On the other hand, I reject KC Lam’s allegation that the change from opening price to listing price in the new arrangements were proposed by the Singapore investors. 657.The IPO eventually failed. KC Lam announced to the plaintiffs in February 2011 that the IPO project had been cancelled. 658.WebExpress is genuine product. eBiz was pursued as a genuine business operation. It had formed partnerships with a number of well-known entities according to the terms it had signed with them. The IPO exercise was bona fide. I reject the plaintiffs’ suggestion that the whole thing was a high-risk gamble of KC Lam to “hook” a tycoon investor by making use of their monies. 659.Tommy Lai was not responsible for investor relations. He had only occasional and infrequent contact with the plaintiffs during the material period. He did not make the misrepresentations to the 1st, 5th and 7th defendants as alleged. 660.Applying the above factual findings and for the reasons set out below, the plaintiffs have failed to make out each of their claims based on the Fraudulent Misrepresentations against each of KC Lam and eBiz and Tommy Lai. 661.The following reasoning applies to each of the Fraudulent Misrepresentations:
662.The Revenue Misrepresentation is not made out. The reasoning in para 661(1) to (3) applies. If I am wrong on the attribution point, I agree with the points made by KC Lam and eBiz in paras 417 to 422 above. In addition, against the factual findings made in paras 647 to 649 above, a reasonable reader would not understand the key documents relied on by the plaintiffs to mean that eBiz was already generating or would generate substantial revenue as a matter of guaranteed certainty. 663.The Company Valuation Misrepresentation is not made out. The dispute here is whether it was false. The plaintiffs have failed to prove that there is no or no sufficient factual basis for the projected sales and revenue figures provided to the valuers by relying solely on the fact that there is a huge disparity between the projected figures and the actual ones. This is because, as found, eBiz was an IT start-up and the projected figures were arrived at by taking into account, among other things, the business potential of the company. 664.The High Profile Partners Misrepresentation is not made out. The reasoning in para 661(1) to (3) applies. If I am wrong on the attribution point, I agree with the points made by KC Lam and eBiz in para 435 above. 665.The High Profile Investors Misrepresentation is not made out. The reasoning in para 661(1) to (3) applies. If I am wrong on the attribution point, I agree with the points made by KC Lam and eBiz in paras 440 to 442 above. In addition, as regards the claim concerning Cheng Yu Tung, I have to say that the meaning of Desmond Yue’s email (“Dr Cheng Yu Tung who participates in our eBiz project will be great”) is unclear. The sentence is ungrammatical and the meaning is rendered unclear for that reason. If the emphasis is put on the word “participates”, the sentence may mean Cheng Yu Tung has already participated and it is therefore good news. If the emphasis is put on the word “will be great”, the sentence may mean that he has not yet participated but if he does, it would be good news. There is simply no clear meaning as conveyed by this email which would give rise to an actionable misrepresentation. 666.The KC Lam Credentials Misrepresentation is not made out. The reasoning in para 661(1) to (3) applies, except in the case of the 2005 Magazine Article. In respect of that exception, I agree with the point made by KC Lam and eBiz in para 447 above. If I am wrong about the attribution point, I agree with the points made in para 450 above in respect of the General Information on Pre-IPO Investment. In respect of the June 2006 Key Points 1, the remark, “Company Management with the listing experience in Nasdaq, USA”, is admitted to be false. However, that needs to be considered in conjunction with what was said by KC Lam to the plaintiffs at the time. I am of the view that the totality of the communications would not give rise to the representation that KC Lam was the company management, the driving force or the main person behind the listing of Ninetowns. 667.The Car Park Security Misrepresentation is not made out. The reasoning in para 661(1) to (3) applies. If I am wrong on the attribution point, I agree with the points made by KC Lam and eBiz in para 453 above. 668.The IPO Prospects Misrepresentation is not made out.
669.As regards Tommy Lai, in light of my factual findings concerning him, the misrepresentation claims made by 1st, 5th and 7th plaintiffs against him also fail. 670.As I have found that the Fraudulent Misrepresentations were not made, the Fraudulent Scheme is not proved. The plaintiffs have failed to prove fraud against each of KC Lam, eBiz and Tommy Lai. None of them should be held liable for the investment losses suffered by the plaintiffs. 671.I dismiss the action against KC Lam, eBiz and Tommy Lai. 672.I make an order nisi that the plaintiffs do pay the costs of KC Lam and eBiz and Tommy Lai in this action, including all reserved costs, in each case to be taxed on an indemnity basis if not agreed, with a certificate for two counsel. The indemnity costs are asked for by both KC Lam and eBiz and Tommy Lai. In this action, the plaintiffs make serious allegations of fraud against the defendants. However, their evidence fall far short of what is required in this type of cases. Worse still, I have found that some of their evidence, which goes to the core of the disputes, are retrospectively “constructed” without the personal recollection of the person who puts it forward. There was also substantial delay on the part of the plaintiffs to bring the action to trial. They made very little progress between 2013 and 2018. When all these matters are taken into account, provisionally, I consider that an indemnity costs order is justified.
Mr Christopher Chain, SC, Ms Sharon Yuen and Mr Sim Jing En, instructed by Li & Partners, for the 1st to 11th plaintiffs Mr Wong Yan Lung, SC and Mr Justin Lam, instructed by Haldanes, for the 1st and 4th defendants The 2nd defendant appeared in person | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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