Fuku Group Limited Formerly Known As Lionstar Group Ltd v. Rakich Investments Ltd Formerly Known As Computer Dynamics Ltd and Others

HCA 2400/2018 and
HCA 1888/2019

[2025] HKCFI 3881

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 2400 OF 2018 AND 1888 OF 2019

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(By Original Action)

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(By Counterclaim)

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(Consolidated pursuant to the Order of Mr. Registrar S. Kwang dated 30^th June 2020)

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J U D G M E N T

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A.  INTRODUCTION

1.This is a trial involving 2 camps –Transworld Camp and Rakich Camp. Their dispute revolves around an Agreement entered into on 16 March 2018 (“the Agreement”), which culminated in the present action.

2.It is the case of Transworld Camp that the Agreement concerned the sale and purchase of a sportswear business, termed as “Lionstar Business”, together with intellectual property assets. Transworld Camp alleges that Rakich Camp was in breach of the Agreement in failing to perform its contractual obligations, including failure to execute an assignment presented by Transworld Camp that would have the effect of transferring the beneficial rights that Transworld Camp has over Heshan Factory to Rakich Camp. Transworld Camp alleges conspiracy, unlawful interference with and inducement of breach of contractual relationships against Rakich Camp. Transworld Camp seeks specific performance of the Agreement and/or damages.

3.On the other hand, it is the case of Rakich Camp that the Agreement was for the sale and purchase of shareholding in a company (“HSR”) which holds Heshan Factory. The controllers of Transworld Camp, Steve and Vic, represented to Mr Rakich that Fuku held the shareholding in HSR and hence indirectly held Heshan Factory. Induced by the misrepresentation, Rakich entered into the Agreement. In fact, Fuku did not own HSR and had no right to sell it. HSR was instead owned by Generic Enterprise Ltd (“Generic”), now in liquidation. Rakich seeks rescission of the Agreement against Fuku and damages against Fuku, Steve and Vic personally.

B.  TRIAL IN THE ABSENCE OF TRANSWORLD CAMP

4.At the trial, no one from the Transworld Camp turned up. However, I am satisfied that due notice of the trial dates had been given to the Transworld Camp when it was then acting by solicitors, Cheng Yeung & Co (“CY”). CY turned up at the pre-trial review on 21 November 2024 (“PTR"), but came off the record on about 3 December 2024.

5.About two weeks before the trial on 28 February 2025, Steve (i.e Mr Steve Cummins) applied by fax for adjournment of the trial and to have a director to represent Transworld Camp. Plainly, Transworld Camp was aware of the trial date.

6.This court has replied to Steve by fax dated 4 March 2025, expressly pointing out that his letter was not copied to other parties; his letter could not be processed by the Court. A summons cannot be treated as filed by fax.

7.Despite the Court’s reply, Transworld Camp has never issued a proper summons.

8.In any case, the grounds put forth by Steve did not constitute good grounds for adjournment:

(1)  Financial problems of Transworld Camp: Steve only alleged that Fuku and Transworld Capital did not have financial resources to hire lawyers. However, he and the rest of the entities constituting Transworld Camp have not provided evidence of their impecuniosity to back up this litigation.

(2)  Steve’s eyesight problem for years: this was not a recent problem, but Transworld Camp has never before informed the Court, not even at the PTR.

(3)  Even if Steve had eyesight problem, Vic did not. There was no reason why Vic could not have participated at the trial.

(4)  Adjournment would cause prejudice to Rakich Camp who has been waiting for the trial for 7 years. Substantial costs have been incurred for this trial and other related proceedings.

9.For lack of a proper application or good grounds to do so, this Court did not make an order to appoint a director to represent Transworld Camp or to adjourn the trial.

10.As Transworld Camp did not turn up, the Court proceeded with the trial in its absence: Order 35, rule 1(2) of the Rules of the HC (“RHC”). Tranworld Camp’s claim shall be dismissed for want of prosecution. Its witness statements shall not be admitted as evidence: O.38 r.2A(6), RHC. There will be no evidence to resist Rakich Camp’s counterclaim: Forever Property Finance Co Ltd v Barretto Bernice Mary [2023] HKCFI 2629 at §35.

11.Despite absence of Transworld Camp, Rakich Camp still has to prove its counterclaim: Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd [2023] HKCFI 1292 at §5):

“Although the Defendants are absent, the Plaintiff still has an obligation to fairly present its case and identify points of factual or legal note which may be of benefit to the Defendants. The Plaintiff should not pursue claims that are not sustainable and should identify to the court points which a Defendant had taken before it decided to play no further part in the action. The Plaintiff should also consider and bring to the Court’s attention points which had not been taken by the Defendants but which might well have been had they decided to defend the proceedings.”

12.When assessing the credibility of witnesses, the Court takes into account the internal consistency and logic of a witness’ evidence and views his evidence against the undisputed or indisputable evidence. As this action involves facts happening 7 years ago, great weight is placed on contemporaneous documents and documents that came into existence before the disputes arose. See Hui Cheung Fai & Ors v. Daiwa Development Limited & Ors, HCA 1734/2009 (unreported, 8 April 2014) at §§76-82, DHCJ Eugene Fung SC.

13.The party present at the trial has no duty to put the case of the absent party to the former’s witness. It is not for the Court to cross-examine the witness of the party present either. Unless the witness statement of the party present is internally inconsistent or manifestly incredible on its face, the Court can only consider whether the evidence adduced is sufficient to make out the claimant’s case, on the basis of that evidence and the inferences which can properly be drawn from it. See AMNS Middle East FZE v LIQS Pte Ltd [2025] EWHC 150 (Comm), §36.

14.Only Mr Peter Rakich gave evidence on behalf of Rakich Camp. His evidence is internally logical and consistent. Mr Hui has fairly put Transworld Camp’s defence in broad terms to Mr Rakich for comment and Mr Rakich has briefly answered the same in the witness box. The evidence of Mr Rakich remains unchallenged, which I accept.

C.  THE PARTIES

15.The parties are summarized as follows:

Name	Former name	Designation	Description
Entities under the Transworld Camp
Fuku Group Limited (“Fuku”),	Top World Group Ltd Lionstar Group Limited w.e.f. 12 January 2018 Current name w.e.f. 28 March 2018	P by original action D3 by counterclaim	Incorporated in Hong Kong on 6 December 2017; No or no substantial business since incorporation Vic was and is director
Stephen John Cummins (“Steve”)		D1 by counterclaim	Director of Zoo; Chairman, founder and controller of Transworld Camp claimed to have been admitted as a lawyer in UK and Australia and in-house legal counsel for Transworld Camp
Victor Edmond McCluskey (“Vic”)		D2 by counterclaim	Sole director of Fuku and a director of Zoo; following sale of Lionstar Business, he was also the sole director of Generic until Generic was wound up; controller & CFO of Transworld Camp
Transworld Capital Limited (“Transworld Capital”)		D4 by counterclaim	Incorporated in Isle of Man on 20 March 2007; associated company of Zoo
Generic Enterprises Ltd (“Generic”)	Lionstar Enterprises Limited Current name w.e.f. 22 February 2018		Incorporated on 16 May 1995. Vic was director Wound up on 3 October 2019 in HCCW 123/2018
Zoo International Pte. Ltd (“Zoo”)	Zoo Sport International Pte Ltd		Incorporated in Singapore on 17 July 2024; acquired entire shareholding in Generic; Steve and Vic thereby acquired indirect control over HSR and hence Heshan Factory. Steve and Vic were and are directors
Transworld Holdings PCC Ltd (“Transworld Holdings”)			Incorporated in the Isle of Man which wholly owned Zoo at all material times
Transworld Management Ltd (“Transworld Management”)			Incorporated in the Isle of Man on 20 November 2008 Steve was and is director
Entities under Rakich Camp
Rakich Investments Limited (“Rakich Investments”)	Computer Dynamics Limited (“CDL”) Current name since 3 April 2018	D1 by original action and P1 by counterclaim	Incorporated in New Zealand on 1 June 1989; Rakich Family Trust holds 998 out of 1,000 shares.
Lionstar Manufacturing Limited (“Lionstar Manufacturing” or “Newco”),		D2 by original action P2 by counterclaim;	Incorporated in Hong Kong by Mr Rakich on 16 March 2018 pursuant to the Agreement; Mr Rakich is the sole shareholder and director
Direct Sports Ltd (“Direct Sports”)			Incorporated in New Zealand In the business of trading sports apparel
Rakich Family Trust			Set up by Mr Rakich on 20 June 2000 in New Zealand which holds 998 out of 1,000 shares in Rakich Investments

16.Lionstar Business was a business owned by Generic, conducted under the name, trademarks and logo of Lionstar along with other intellectual property rights of Generic.

17.HSR (i.e. Heshan Star Jin Hui Garment Company) was a factory at which Lionstar products were manufactured. It was the owner of assets including the lease of Heshan Factory, a factory in Chi Ken Industrial Zone, Shaping Town, Heshan City, Guangdong, PRC.

D.  RAKICH’S HISTORICAL DEALINGS WITH HESHAN FACTORY

18.Since around July 2013, through Direct Sports, Mr Rakich had been engaged in the business of trading sports apparel manufactured by Heshan Factory. Heshan Factory was held by HSR, which was in turn held by Generic (then known as Lionstar Enterprises Ltd).

19.Over the years, under the control of Mark and his business partner, Gordon, Heshan Factory had suffered from cash flow problem. This slowed down its operation and its manufacturing process. In turn, the supply of sports apparel was affected. As Heshan Factory was a major supplier, the business of Direct Sports was also affected.

20.Out of goodwill and Rakich’s good business relationship with Mark, from time to time and at Mark’s request, Rakich would cause Direct Sports to make pre-payments for orders so as to ease the cash flow problem and to ensure Heshan Factory’s stable supply of products to Direct Sports.

E.  ACQUISITION OF HESHAN FACTORY BY TRANSWORLD GROUP

21.On 14 December 2017, Zoo (directed by Steve and Vic) acquired the entire shareholding in Generic (then known as Lionstar Enterprises Ltd). Steve and Vic thereby acquired indirect control over HSR and hence Heshan Factory.

22.Rakich was not aware of this acquisition but only found out about it from company search records of Generic after the present dispute arose.

23.Also, Rakich had no knowledge of any other dealings between Mark/Gordon and Transworld Group, especially those regarding Generic, HSR and Heshan Factory.

24.Therefore, at all material times, Mr Rakich was under the false impression (reinforced by Steve and Vic) that it was Fuku (not Generic) which held the shareholding in HSR and hence, indirectly, Heshan Factory.

F.  INVESTMENT PLAN PITCHED BY STEVE TO RAKICH

25.On around 17 November 2017, Mr Rakich first met Steve. During their meeting, Steve pitched to Mr Rakich an investment plan featuring the idea of “Zoo Sport journey” and the concept of joint factory and brand initiative.

26.In doing so, Steve made the following representations to Rakich:

(1)  That the Transworld Group had a plan to raise capital for the continual operation and even possible expansion of Heshan Factory;

(2)  That the plan was to secure 5 investors, each of whom would inject a sum of US$1,000,000 into Transworld Capital;

(3)  That the funds raised would be used as working capital for Heshan Factory;

27.Steve invited Mr Rakich to be one of the investors. Mr Rakich accepted Steve’s invitation to invest in Heshan Factory on around 8 December 2017. On that basis, Mr Rakich caused Rakich Investments (then known as CDL) to advance a loan of US$1,000,000 to Transworld Capital (“the Rakich Loan”) for a short term of 180 days at an interest rate of 4% per annum.

28.Subsequently, Transworld Capital issued a loan note certificate dated 8 December 2017 (the “Loan Note Certificate”) evidencing the Rakich Loan, and providing that Rakich Investments would have the right to convert the Rakich Loan into shares in a company within the Zoo Group which directly held HSR (and hence Heshan Factory).

29.It transpired that there were no other investors. In fact, the situation was worse. Emails disclosed that Steve and Vic relied on the Rakich Loan to fund its acquisition of Generic/HSR/Heshan Factory from Mark and Gordon. Transworld Camp paid nothing.

G.  NEGOTIATIONS LEADING TO AGREEMENT FOR TRANSFER OF HSR

30.In or around early February 2018, Heshan Factory was in a dire situation, in that:

(1)  Wages and social security of the workers were unpaid;

(2)  Debts due to suppliers could not be met;

(3)  Suppliers threatened to cease the supply of raw materials;

(4)  Heshan Factory might be mandatorily closed down as a result of the foregoing if there were no rescue plan.

31.These problems were well known to Steve and Vic, and evidenced by emails among the staff of Heshan Factory, Steve, Vic and Mr Rakich in February to March 2018. At that critical moment, Steve and Vic approached Mr Rakich and explored the possibility of selling and transferring the ownership of HSR (and therefore Heshan Factory and its underlying assets) to Mr Rakich.

32.On around 16 March 2018, Fuku (then known as of Lionstar Group Ltd), Rakich Investments (then known as CDL) and Transworld Capital entered into the Agreement.  Vic signed on behalf of Fuku, and both Steve and Vic signed on behalf of Transworld Capital.

33.The Agreement contained, amongst others, the following terms:

(1)  Rakich Investments shall waive its claims under the Rakich Loan in the sum of US$1,000,000 (Clause 4(d));

(2)  Rakich Investments would assume the liability to discharge a charge owed by Generic to Standard Chartered Bank (“SCB Security”) (limited to HK$3 million) (Clause 6);

(3)  Rakich Investments would assume the liability for all past, current and future liabilities of HSR and Heshan Factory, including but not limited to the outstanding employee wages, social security, factory rent and supplier payments (Clause 4(a));

(4)  Rakich Investments would assume the liabilities and obligations under the “Third Party Contracts” as disclosed to Rakich Investments (Clauses 4(b) and 3(b)(ii));

(5)  Rakich Investments shall be entitled to the benefit of Lionstar Business trade debtors as at 16 March 2018 (which would include the account receivables of both Generic and Fuku), except for any outstanding receivables from Zoo Sport or Zoo (Clause 4(f));

(6)  Fuku would remain liable for its past, current and future accounts payable, including operating expenses and employee costs, with the only exceptions being those payable to HSR, those arising from Third Party Contracts as disclosed to Rakich Investments, and the advance or pre-payment from Rakich Investments or Direct Sports (Clause 3(b));

(7)  Fuku shall

(a)  transfer and assign to Newco all its rights, title and interest in the ownership of HSR along with the business conducted by HSR and all rights and liabilities of the same (Clauses 5(a), underline added); and

(b)  assign to Newco all rights, title and interest in relation to its trademark, logos, intellectual property and good will in the Lionstar Business (Clauses 5(b)).

34.The Agreement was excuted in haste without due diligence on the title and financial status of HSR/Heshan Factory. Mr Rakich explained that it was due to the pressing need to save Heshan Factory from being closed down. He did so in reliance on the Representations (defined in paragraph 57 below). He believed, in particular, that Fuku held the shareholding in HSR and hence indirectly owned Heshan Factory, and trusted that it was all the parties’ mutual goal and interest to save Heshan Factory.

35.After signing the Agreement and on the same day, Mr Rakich emailed Steve and Vic immediately enquiring if Vic could prepare the necessary documentation for the transfer of Heshan Factory/HSR. By his reply email, Steve confirmed that to effect the transfer, they would need details of Newco to be “the transferee of the share entitlement”. They would need PRC lawyers to follow up on this matter.

36.That was reflective of the true objective of the Agreement for Newco to acquire ownership of the HSR/Heshan Factory. Contrary to the Transworld Camp’s assertions, it was not the parties’ intention or agreement to transfer the so-called “Lionstar Business”, “Lionstar Asset Rights” as alleged by Transworld Camp, which had never been discussed in detail or defined clearly by the parties.

37.Following the execution of the Agreement, Vic and Fuku made announcements to their customers that Fuku agreed to transfer its ownership of Heshan Factory through the sale and purchase of its Chinese subsidiary (thus referring to HSR) to an associated company (thus referring to Newco) of Direct Sports of New Zealand.

H.  STEPS TAKEN IN PERFORMANCE OF THE AGREEMENT

38.As pleaded by Transworld Camp, on around 16 March 2018, Fuku (then known as Lionstar Group Ltd) ceased undertaking the Lionstar Business. Further, on around 28 March 2018, Lionstar Group Ltd changed its name to Fuku Group Ltd, thereby removing from its name the reference to “Lionstar”.

39.On 16 March 2018, Mr Rakich caused Newco to be incorporated in Hong Kong as a private limited company under the name of “Lionstar Manufacturing”, with Mr Rakich as its sole shareholder and director.

40.Pursuant to Clause 4(a) of the Agreement and in order to save Heshan Factory:

(1)  On around 16 March 2018, Rakich Investments immediately made payment of US$477,189.07 to HSR to enable its imminent discharge of the outstanding liabilities of HSR/Heshan Factory.

(2)  On around 23 March 2018, Rakich Investments remitted a further sum of US$588,806.50 to HSR.

41.These funds were used by HSR / Heshan Factory to settle its outstanding indebtedness, which included:

(1)  Outstanding rents of Heshan Factory in the total amount of RMB810,000;

(2)  Outstanding social security for Heshan Factory’s workers employed by HSR, in the total amount of RMB570,312.83;

(3)  Outstanding wages including unpaid bonus for Heshan Factory’s workers employed by HSR in the total amount of RMB4,133,155.48.

Mr Rakich explained in the witness box that creditors’ payments had not been met then. Helen of HSR assembled a list of payments to enable Heshan Factory to continue operating.

42.Further, pursuant to the terms of the Agreement, Rakich Investments had not demanded for repayment of the Rakich Loan and any interest accrued thereon.

I.  DISPUTE OVER THE AGREEMENT

43.Disputes arose among Steve, Vic and Rakich in relation to the performance of the Agreement[1] including the following:

(1)  The transfer and assignment of the shareholding in HSR to Newco;

(2)  The timing at which Rakich Investments should discharge the SCB Security;

(3)  Mistaken payments or pre-payments made to and received by Fuku, which should have been paid to Rakich Investments instead.

44.Pursuant to Clause 4(f) of the Agreement, Mr Rakich requested Steve to provide Rakich Investments with the books of account receivables of Generic and Fuku, In reply, on 20 March 2018, Vic claimed that there were no account receivables as at 16 March 2018 for Generic and Fuku. Steve and Vic did not provide the books as requested and even denied that account receivables of Generic formed part of the Agreement.

J.  LEGAL PROCEEDINGS BETWEEN TRANSWORLD CAMP AND RAKICH CAMP

45.Amidst the disputes between the two Camps, CY, on behalf of Transworld Management and Zoo issued 2 statutory demands dated 17 August 2018 to Newco (Lionstar Manufacturing). They were followed up by a winding up petition in HCCW 263/2018 by Transworld Management against Lionstar Manufacturing on 11 September 2018. None of these were copied to WK To & Co (“WK To”) despite the fact that CY knew that Lionstar Manufacturing was already legally represented by WK To.

46.Upon the application of Lionstar Manufacturing, on 5 October 2018:

(1)  In HCCW 263/2018, DHCJ William Wong SC granted an injunction restraining Transworld Management from publishing the petition in the Gazette or any newspaper.

(2)  In HCMP 1679/2018 (winding up petition by Zoo against Lionstar Manufacturing), DHCJ William Wong SC granted an injunction restraining Zoo from presenting a winding up petition against Lionstar Manufacturing based on the Statutory Demand dated 17 August 2018.

47.These 2 sets of proceedings were withdrawn by consent of the parties on 23 October 2018, with leave of Harris J. Costs were awarded to Lionstar Manufacturing on 28 June 2019 by Coleman J.

48.As Transworld Camp failed to push through the winding up petitions, on 12 October 2018, Fuku and Generic commenced HCA 2400/2018 against Rakich Camp. Fuku claims, amongst others, damages and specific performance of the Agreement; and Generic claims damages and for an order that Rakich Investments fully discharge and settle all of Generic’s liability under the SCB Security. Subsequently, Generic ceased to be a plaintiff as it was wound up on 3 October 2019 by the Court for its failure to discharge a debt owed to the petitioner (an entity wholly unrelated to Rakich Camp).

49.On 14 October 2019, Rakich Investments commenced HCA 1888/2019 against Steve, Vic, Fuku and Transworld Capital, claiming:

(1)  against Fuku and Transworld Capital, a declaration that the Agreement has been rescinded;

(2)  against Transworld Capital, return of the sum of US$1,000,000;

(3)  against Steve, Vic and Fuku, damages for misrepresentation; and

(4)  against Fuku, damages for breach of the Agreement and restitution of sums paid to

50.By the Order of Registrar Kwang dated 30 June 2020, HCA 2400/2018 was consolidated with HCA 1888/2019 and carried on as one action.

K.  ISSUES

51.As Transworld Camp’s claim shall be dismissed for want of prosecution, what Rakich Camp needs to establish on its counterclaim are as follows:

(1)  Whether the subject matter of the Agreement was transfer of Fuku’s rights and interests in the Lionstar Business, goodwill and intellectual property assets or the shareholding of HSR which held Heshan Factory?

(2)  Whether there was fraudulent misrepresentation by Steve, Vic and Fuku?

(3)  Whether the Agreement should be rescinded by Rakich Camp?

(4)  What are the damages for fraudulent misrepresentation?

52.Rakich Camp’s alternative case is that Fuku is liable to pay Rakich Camp money wrongfully withheld by Fuku, being pre-payments and payments. Fuku also needs to repay money which customers have mistakenly paid to Fuku in relation to their purchase orders made to HSR/Heshan Factory, when it should have been paid to Newco. Rakich Camp will not pursue these claims in the event this Court comes to the view that the Agreement has been effectively rescinded.

L.  SUBJECT MATTER OF THE AGREEMENT

53.Based on the facts in Section G, in particular, Clause 5(a) of the Agreement, I have no doubt in finding that the subject matter of the Agreement was for the sale and purchase of shareholding in HSR which held Heshan Factory and not that of the Lionstar Business. That was the common intention of the parties to the Agreement. It was borne out by Fuku’s own announcements to its customers about the transfer of ownership of Heshan Factory, and Steve’s request for details of Newco to be the transferee of the share entitlement.

M.  FRAUDULENT MISREPRESENTATION

M1.  Legal principles on fraudulent misrepresentation

54.The elements to fraudulent misrepresentation have been recently stated in Luen Ming Supreme Fabricator Company Ltd v Ng Chi Wah [2021] HKCFI 1501 at §76-78, Recorder Yvonne Cheng SC (as she then was):

(1)  there must be a representation of fact made by words or conduct;

(2)  the representation must be made with knowledge that it is, or may be, false. It must be willfully false, or at least made in the absence of any genuine belief that it is true;

(3)  the representation must be made with the intention that it should be acted upon by the claimant, in the manner which resulted in damage to him;

(4)  the claimant has acted upon the false statement;

(5)  the claimant suffered damage by so doing.

(6)  the burden of proof lies on the person alleging fraud.

55.These principles apply as much to a contractual context (eg Luen Ming) as to non-contractual context (Crowe, Christopher Paul Andrew v Wen Xingshun [2024] HKCFI 980 at §22, DHCJ KC Chan.

M2.  Representations made to Rakich Investments

56.The representation effectively concerned Fuku’s ownership of HSR and hence Heshan Factory.

57.By email dated 28 February 2018, Steve forwarded to Mr Rakich (copied to Vic) a draft memorandum of agreement (“the Draft MOA”) for the proposed sale of 90% stake in Zoo to Rakich Investments (then known as CDL). The Draft MOA contained, amongst others, the following representations (“the Representations”):

(1)  That Fuku (then known as Lionstar Group Ltd) was a wholly-owned subsidiary of Zoo, and Fuku was entitled to 100% of the legal and beneficial ownership of HSR (and hence Heshan Factory);

(2)  That HSR was the lessee and operator of Heshan Factory and the manufacturer of products; and

(3)  That Generic (then known as Lionstar Enterprises Ltd) was the former owner of HSR.

58.Whilst the Draft MOA provided for the sale of Zoo to Rakich Investments (then known as CDL), Mr Rakich was only interested in acquiring Heshan Factory/HSR and had no interest in acquiring any interest in Zoo as he had no prior dealings with this entity. Hence, by his email dated 28 February 2018, Mr Rakich suggested to Steve that Heshan Factory/HSR was essentially “a stand-alone entity” and asked if Steve and Vic would be prepared to discuss the purchase of Heshan Factory/HSR only. Rakich explained in the witness box that he only wanted to acquire something that he understood (i.e. Heshan Factory, which he had been dealing with), but not a new brand of apparel (such as Zoo) in another country, the structure of which he had no understanding of.

59.In his email dated 28 February 2018, Vic confirmed to Rakich that Vic and Steve were open to reasonable proposals. It was on that basis that Mr Rakich continued to negotiate with Vic and Steve for the purchase of Heshan Factory/HSR.

60.As reflected in the contemporaneous email correspondence in March 2018, Mr Rakich was willing to purchase (later through setting up Newco), the entire shareholding of HSR at a consideration of around US$l,500,000. Such consideration would be provided by way of:

(1)  Waiving the Rakich Loan under the Loan Note Certificate;

(2)  Agreeing to repay the SCB Security limited to about HK$3,000,000 owed by Generic; and

(3)  Assuming the responsibility of 13^th month unpaid wages and social securities at Heshan Factory.

61.The email correspondence left it beyond doubt that the parties were discussing and talking about the ownership of HSR and Heshan Factory, thereby reinforcing the Representations made by Steve (particularly that Fuku held the shareholding in HSR, and hence indirectly held Heshan Factory):

(1)  In his email dated 1 March 2018, Mr Rakich put forward to Steve and Vic his proposal which amongst others, would entitle Fuku to retain the remaining assets of Generic (then known as Lionstar Enterprises Ltd) together with proceeds of trading up to 24 February 2018, whilst expressly excluding Heshan Factory.

(2)  On the same day (i.e. 1 March 2018), Steve and Rakich exchanged comments in the format of a word document. The remarks underscored the fact that the parties were concerned with transferring the ownership of HSR and Heshan Factory from Fuku to Newco, in particular,

(a)  From Steve:

“It is both our interests to present the change of ownership as positive and will want to see a jointly agreed statement to this effect that is published and circulated to all stakeholders that praises the efforts and actions of Transworld and in turn Transworld makes positive statements with regard to have secured the future of the HS Factory by assigning its interest to you”.

(b)  From Rakich:

“ ... we will still need to have a shared and acceptable narrative for explaining the hand over and that casts a positive light on the transfer of He Shan ownership, set up of new Lionstar etc and that narrative has to be agreed and maintained by each of us.”

(3)  By email dated 9 March 2018, Steve circulated the draft Agreement for the “sale and purchase of the Lionstar business and related assets, comprising primarily the Chinese subsidiary and He Shan factory”. The draft Agreement contained a Clause 3(d) providing that Fuku would “transfer and assign to Newco all its right, title and interest in the ownership of He Shan Star Jin Hui Garment Company Ltd (HSR) a limited company incorporated in the Republic of China...”. This draft Clause 3(d) eventually became Clause 5(a) of the Agreement.

62.When such correspondence is read in context, I am satisfied that representations had been made as to Fuku’s ownership of HSR and hence Heshan Factory.

M3.  Falsity of the Representations

63.Unbeknown to Rakich Camp, at the time of entering into the Agreement, the Representations were false in that 100% shareholding of HSR was and is at all material times held by Generic and not by Fuku. This was discovered when WK To conducted some basic company searches which revealed (on around 2 August 2018) that HSR was (and still is) registered under Generic and that Mark remained (and still remains) HSR’s legal representative. Therefore, the Representations that (1) Fuku was 100% shareholder of HSR or having any title in HSR, and (2) Generic was the former shareholder of HSR, were plainly false. Fuku had no power to cause Generic to assign the latter’s interest in HSR and Heshan Factory to Newco. In the premises, there was nothing which Fuku could assign to Newco under the Agreement. Transworld Camp has never denied the falsity of the Representations in their pleadings.

M4.  Knowledge of the falsity

64.Rakich Camp’s pleaded case is that Steve, Vic and Fuku made the Representations knowing the same to be false, or were reckless as to whether they were true or false.

65.Vic was the sole director of Fuku (as the Agreement represented) who signed on the Agreement. Steve and Vic were both acting on Fuku’s behalf regarding the Agreement. They were involved in formulating drafts for the Agreement. They were both parties to all the important pre-Agreement emails set out in Section G and M2 above. Steve and Vic were in control of HSR and Heshan Factory. As such, they must have known HSR’s shares were not owned by Fuku, but by Generic.

66.The fact that Steve and Vic well knew the falsity of the Representations was also amply demonstrated by the contemporaneous documents before the Agreement was signed:

(1)  Since as early as 21 December 2017 (i.e. not long after Zoo’s acquisition of Generic’s shares, Steve began to take steps to transfer the shareholding in HSR from Generic to Fuku. In Steve’s email dated 21 December 2017 to Crystal (staff working at HSR), Steve expressed that “we need to make sure the ownership of [Heshan Factory] is now fully vested in the ‘newco’ LIONSTAR GROUP LIMITED [i.e. Fuku]…”.

(2)  Steve and Vic eventually engaged a PRC lawyer, Joyce Yang, to deal with the share transfer from Generic to Fuku.

(3)  About 2 ½ months later, by an email from Joyce Yang dated 1 March 2018, Joyce Yang sent draft documents to Steve & Vic for the transfer of HSR shares. Note that just one day ago on 28 February 2018, Steve circulated the Draft MOA to Rakich containing the Representations. Steve and Vic must have known at that time that HSR was not owned by Fuku, and Joyce Yang was still drafting the documents for the transfer of the HSR shares to Fuku.

(4)  On 13 March 2018 (i.e. 3 days prior to the execution of the Agreement), Steve and Vic were informed by Joyce Yang the various steps required to effect the transfer of the HSR shareholding, including the plan to get the documents chopped at Heshan Factory the next day (14 March 2018). Importantly, Steve and Vic were also informed that it would take at least another month to transfer the shareholding in HSR from Generic to Fuku, and this was subject to and contingent upon the approval by the Industrial and Commercial Bureau of Heshan City of the change of legal representative and shareholder of HSR. Steve and Vic plainly knew that the transfer would not be completed in time for the Agreement. This was further proof that Steve and Vic knew that Fuku was not the shareholder of HSR.

(5)  On 14 March 2018 (i.e. 2 days prior to the execution of the Agreement), the PRC lawyers for the Transworld Camp attempted to visit Heshan Factory to obtain the chop and business licence necessary for the application for approval of the transfer of shareholding. However, the PRC lawyers could not even enter Heshan Factory as the aggrieved unpaid suppliers were there demanding for payment. Crystal informed the PRC lawyers that she could not bring out the chop or the business licence due to pressure from the unpaid factory workers. All of these prevented the application for approval for transfer of shares from Generic to Fuku from being completed. Joyce Yang contemporaneously reported this to Steve and Vic by her email dated 14 March 2018.

(6)  Despite all these, Steve and Vic still proceeded to arrange for Fuku to enter into the Agreement on 16 March 2018 purporting to transfer shares in HSR to Newco.

67.This was conclusive proof that Steve and Vic knew, before the Agreement was signed, that Generic could not get the shares in HSR transferred to Fuku, and hence the Representations were false.

68.Steve and Vic’s knowledge of the falsity continued after the signing of the Agreement, as revealed from the correspondence:

(1)  By email dated 23 March 2018, Rakich sent the business registration of Lionstar Manufacturing to Steve and Vic, and informed them that Lionstar Manufacturing was the Newco formed pursuant to the Agreement. Rakich requested that Steve and Vic sign the necessary papers to initiate the transfer of Heshan Factory to Newco.

(2)  By reply email dated 23 March 2018, Steve sent Mr Rakich a draft assignment (“the Draft Assignment”) to be signed by Fuku, Rakich Investments and Lionstar Manufacturing.

(a)  The Draft Assignment provided that Fuku would assign and transfer “all its rights and interest in the Assets (Rights) to [Newco]”. The reference to “title” in HSR was left out.

(b)  As set out in the Schedule to the Draft Assignment, “Assets” included Heshan Factory along with its business and all rights and liabilities of the same, giving the impression that the purpose of the assignment was to transfer HSR’s shares from Fuku to Newco.

(3)  By email dated 25 April 2018, Mr Rakich made clear to Vic that the transfer of shares and control in HSR should be completed before attending to the remaining matters under the Agreement.

(4)  By email dated 30 April 2018, Mr Rakich sent to Steve and Vic a draft equity interest transfer agreement for the transfer of HSR prepared by Rakich Camp’s PRC lawyers (“Rakich’s EITA”).

(a)  The title of Rakich’s EITA was “Equity Interest Transfer Agreement” (股权转让合同).

(b)  One of the preambles stated that “[the] Transferor [i.e. Fuku] lawfully holds 100% equity interest of [HSR] (the “Target Company”). Now the Transferor intends to transfer [100%] equity interest of the Target Company to the Transferee [i.e. Lionstar Manufacturing] and the Transferee is willing to buy such equity interest”.

(c)  Clause 1 stated that “[t]he equity interest to be transferred by the Transferor to the Transferee as defined in the Agreement (the “Target Equity Interest”) shall be 100% equity interest of the Target Company”. The contents of Rakich’s EITA clearly reflected a sale and purchase of HSR shares to Newco and Mr Rakich’s understanding that Fuku was the owner of the HSR shares.

(5)  However, by email dated 2 May 2018, Vic sent Mr Rakich a revised draft (“Vic’s Revised EITA”) which made substantial amendments to Rakich’s EITA:

(a)  The term “Equity Interest” was deleted from the title “Equity Interest Transfer Agreement”;

(b)  The phrase “[Fuku] lawfully holds 100% equity interest of [HSR]” was changed to “[Fuku] is lawfully entitled to 100% equity interest in the ownership of [HSR];

(c)  The subject of the transfer was changed from “100% equity interest of [HSR]” to “Transferor Interest” which was further defined to mean “the extent of [Fuku’s] beneficial ownership rights and interests in [HSR]”; and

(d)  In Clause 1 of Rakich’s EITA, “The equity interest to be transferred by [Fuku] to [Lionstar Manufacturing] shall be 100% equity interest of [HSR]” was deleted.

69.Meanwhile, by email dated 9 May 2018, Vic expressed the view that Rakich’s EITA was in conflict with the terms of the Agreement. This allegation was of course a feign attack on Rakich Camp.

70.The above conduct of Steve and Vic after the signing of the Agreement showed their fraudulent state of mind:

(1)  Steve and Vic plainly knew that Fuku was not the owner of HSR/Heshan Factory.

(2)  They tried to conceal the truth from Mr Rakich by attempting to change the subject matter of the transfer from 100% shareholding in HSR to beneficial ownership rights and interest in HSR through the amendments to Rakich’s EITA;

(3)  Steve and Vic knew that they could not change the ownership from Generic to Fuku in time before the Agreement but proceeded to have the Agreement executed.

71.I find that Steve and Vic knew that the Representations were false.

M5  Representors liable for the falsity

72.Where loss and damage are caused to any third party by an act of an agent that constitutes a civil wrong while the agent is acting on behalf of the principal, the agent is, in general, personally liable, whether or not acting with the authority of the principal, to the same extent as if the agent was acting personally, unless the authority of the principal justifies the wrong: Bowstead & Reynolds on Agency, 23^rd ed, at §9-115.

73.As stated by Lord Hoffman in Standard Chartered Bank v Pakistan National Shipping Corp (No.2) [2003] 1 AC 959 at 968:

“20. My Lords, I come next to the question of whether Mr Mehra was liable for his deceit. To put the question in this way may seem tendentious but I do not think that it is unfair. Mr Mehra says, and the Court of Appeal accepted, that he committed no deceit because he made the representation on behalf of Oakprime and it was relied upon as a representation by Oakprime. That is true but seems to me irrelevant. Mr Mehra made a fraudulent misrepresentation intending SCB to rely upon it and SCB did rely upon it. The fact that by virtue of the law of agency his representation and the knowledge with which he made it would also be attributed to Oakprime would be of interest in an action against Oakprime. But that cannot detract from the fact that they were his representation and his knowledge. He was the only human being involved in making the representation to SCB (apart from administrative assistance like someone to type the letter and carry the papers round to the bank). It is true that SCB relied upon Mr Mehra's representation being attributable to Oakprime because it was the beneficiary under the credit. But they also relied upon it being Mr Mehra's representation, because otherwise there could have been no representation and no attribution.

21. The Court of Appeal appear to have based their conclusion upon the decision of your Lordships’ House in Williams v Natural Life Health Foods Ltd [1998] I WLR 830. That was an action for damages for negligent misrepresentation. My noble and learned friend, Lord Steyn, pointed out that in such a case liability depended upon an assumption of responsibility by the defendant. As Lord Devlin said in Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465, 530, the basis of liability is analogous to contract. And just as an agent can contract on behalf of another without incurring personal liability, so an agent can assume responsibility on behalf of another for the purposes of the Hedley Byrne rule without assuming personal responsibility. Their Lordships decided that on the facts of the case, the agent had not assumed any personal responsibility.

22. This reasoning cannot in my opinion apply to liability for fraud. No one can escape liability for his fraud by saying: “I wish to make it clear that I am committing this fraud on behalf of someone else and I am not to be personally liable.”…”

(underlines added)

74.Applying these legal principles, as the Representations were fraudulent, Steve and Vic are also liable in their personal capacities together with Fuku.

M6.  Reliance of Rakich Investments on the Representations

75.Once it is proved that a false statement was made which was “material” in the sense that it was likely to induce the contract, and that the representee entered the contract, it is a fair inference of fact (though not an inference of law) that he was influenced by the statement, and the inference is particularly strong where the misrepresentation was fraudulent: Chitty on Contracts, 35^th ed, at §10-049.

76.The rule that the misrepresentation must be material does not apply to fraudulent misrepresentations, and that a generous test for reliance is applied in fraudulent misrepresentations in that it is sufficient if the misrepresentation was “a cause” of the representee in entering into the transaction: Sullivan, Law of Recission 3^rd ed, §4.14.

77.In Standard Chartered Bank v Pakistan National Shipping, Lord Hoffmann had this to say: 

“14… Sir Anthony Evans said that the only rule supported by the authorities was that if someone makes a false representation which was intended to be relied upon and the other party relies upon it, it is no answer to a claim for rescission or damages that the claimant could with reasonable diligence have discovered that the representation was untrue…

…it is not necessary to show that the misstatement was the sole cause of his acting as he did. If he acted on the misstatement though he was also influenced by an enormous supposition, the defendants will still be liable.

15… This case seems to me to show that if a fraudulent representation is relied upon, in the sense that the claimant would not have parted with his money if he had known it was false, it does not matter that he also held some other negligent or irrational belief about another matter and, but for that belief, would not have parted with his money either. The law simply ignores the other reasons why he paid.

16… This rule seems to me based upon sound policy. It would not seem just that a fraudulent defendant's liability should be reduced on the grounds that, for whatever reason, the victim should not have made the payment which the defendant successfully induced him to make.”

78.In the present case, the Representations were material as they went to the core of the Agreement, i.e. the subject matter of the transaction. Rakich Camp must have relied on the Representations that Fuku had title to sell “the standalone entity” that Mr Rakich had wanted to acquire.

79.As explained in paragraph 34 above, Mr Rakich had executed the Agreement in haste but it is no answer of the fraudsters that Mr Rakich could with reasonable diligence have discovered the true ownership of HSR/Heshan Factory.

80.I am satisfied on balance of probabilities that reliance on the fraudulent Representations is established.

N.  DEFENCES OF TRANSWORLD CAMP

81.The absence of Transworld Camp means that any purported defence to Rakich Camp’s case cannot be established.

82.With regard to the claim in breach of the Agreement, Fuku’s claim is premised on the Agreement being valid and in existence. That basis falls away as this Court has found that Rakich Investments was entitled to rescind the Agreement. In particular,

(1)  Rakich Investments was not in breach of Clauses 4(b), 5 and 13. It did not approve and execute the Draft Assignment, the Revised Draft EITA and other documents for the purposes of giving effect to the Agreement because those drafts did not provide for transfer of the shareholding in HSR to Lionstar Manufacturing. To the contrary, it was Fuku who acted in breach of the Agreement by refusing to execute Rakich’s EITA. Furthermore, the subject matter of the transfer in Vic’s Revised EITA was very vague. It was thus not unreasonable for Rakich not to execute Vic’s Revised EITA.

(2)  Rakich Investments was not in breach of Clause 6 of the Agreement, by failing to discharge the liability under the SCB Security. This is because, on a true interpretation of Clause 6, the obligation thereunder would only arise after Fuku fulfilled its obligation to transfer the shareholding in HSR to Newco, which never happened.

(3)  Rakich Investment, was not in breach of Clause 4(d) of the Agreement. It had duly released and forgiven Transworld Capital of all liability under the Loan Note Certificate. Mr Rakich confirmed in his oral testimony that from 16 March 2018 (i.e. the date of the Agreement) to 31 December 2018 (i.e. the maturity date of the Loan Note Certificate), he had not attempted to demand payment from Transworld Capital. It was only after the rescission of the Agreement that Rakich Investments sought to enforce the repayment under the Loan Note Certificate against Transworld Capital.

83.Transworld Camp has further pleaded that because of a “joint enterprise” between Mr Rakich and Goebel (executive director of Zoo) for a “predatory takeover” of the Lionstar Business, Mr Rakich and Rakich Investments had “actual or constructive knowledge” that:

(1)  Fuku enjoyed and was able to assign only a contingent or whatever beneficial interest it has in the HSR Shares;

(2)  Fuku’s legal title to the HSR Shares was not perfected;

(3)  The HSR Shares formed part of the Generic assets which were subject to a floating charge with the SCB to be discharged.

84.It is difficult to see any logical connection between the alleged joint enterprise and Mr Rakich’s knowledge that Fuku did not own shares in HSR. If there was indeed a conspiracy for a “predatory takeover” of the Lionstar Business, Mr Rakich simply did not need to enter into the Agreement to acquire HSR shares from Fuku, well knowing that Generic was the true owner.

85.Paragraph 83(1) and (2) cannot stand in the light of the pre-Agreement correspondence, the Draft MOA and Rakich’s specific reference to purchasing only HSR as a standalone entity, and the inclusion of Clause 5(a) in the Agreement. The Transworld Camp also never specified what kind of interest in HSR Fuku was able to transfer to Newco pursuant to Clause 5(a) of the Agreement.

86.Paragraph 83(2) is simply incorrect:

(1)  Clause 2.2 of the SCB Security provided that only a time deposit account was charged to SCB pursuant to a fixed and floating charge. The HSR shares were not.

(2)  This was also Steve’s understanding. By an email from him dated 14 March 2018, Steve informed Peter that the charge that SCB held was not over Heshan Factory.

(3)  Understandably, as an outsider, Mr Rakich would not know the details of the SCB Security. He repeatedly requested Steve and Vic to provide information thereof and authority to contact SCB for details.

87.The Transworld Camp also seeks to rely on the entire agreement clause in Clause 11 of the Agreement which provides that “this Agreement is legally binding on the Parties and represents their entire agreement as to its subject matter to the exclusion of all other statements, representations, agreements or arrangements.” However, it is well established that such a clause is not apt to exclude liability for misrepresentation: Mears Ltd v Shoreline Housing Partnership Ltd [2013] EWCA Civ 639 at §16 (Gloster LJ); Law of Rescission at §26.04-26.05. In any case, Rakich Camp has not gone beyond the four walls of the Agreement when relying, in particular, on Clause 5(a) as to Fuku’s obligation to transfer HSR to Newco.

O.  RESCISSION

88.A fraudulent misrepresentation renders a contract voidable, but not void. The victim of a fraudulent misrepresentation is entitled to, at his election, rescind the contract ab initio. But, unless and until he does so, the contract continues to be binding and enforceable: Luen Ming Supreme Fabricator Company Ltd v Ng Chi Wah at §77.

89.The parties to the agreement are restored to their original positions or, where rescission occurs in equity, as near to those positions as may be. The parties are released from the obligations created by the contract, have returned to them any advantages transferred under the contract, and are indemnified for any detriments incurred pursuant to the contract. See O’Sullivan, The Law of Rescission, 3^rd ed, §13.01 to §13.02.

90.Fraudulent misrepresentation being established, I hold that Rakich Investments was entitled to and did elect to rescind the Agreement by issuing proceedings in HCA 1888/2019 on 14 October 2019. Upon rescission, the Agreement is deemed void ab initio.

91.Lionstar Manufacturing confirms its intent to be bound by Rakich Investments’ decision to rescind.

92.Upon rescission, Rakich Camp is no longer under any obligation to perform the Agreement. The practical consequences are as follows:

(1)  Pursuant to Clause 4(d), Rakich Investments had released the Rakich Loan. Upon rescission of the Agreement, such release of liability should be treated as having never occurred, and Transworld Capital still owes Rakich Investments US$1,000,000 under the Loan Note Certificate.

(2)  Under the Loan Note Certificate:

(a)  Paragraph 1 provided that the Note would mature at the end of a period of 180 days from the date of the Loan Note Certificate and, subject to paragraph 2 of the Loan Note Certificate, shall automatically roll over for further consecutive Note Periods each of 180 days.

(b)  Paragraph 2 provided that the Note would cease upon expiry of the period ending 31 December 2018, unless extended in writing by agreement of the parties.

(c)  The interest rate was 4% per annum.

There was no agreement in writing between the parties for extension of the period of the Note. Therefore, the Note ceased on 31 December 2018 and Transworld Capital became immediately liable to repay the US$1,000,000 to Rakich Investments.

93.Accordingly, following rescission of the Agreement, Rakich Investments is also entitled to claim US$1,000,000 from Transworld Capital, pursuant to the Loan Note Certificate with interest.

P.  DAMAGES FOR MISREPRESENTATION

94.As a matter of law:

(1)  A right to rescind is independent of, and cumulative with, any right the plaintiff may also have to damages in tort: Law of Rescission (3^rd Ed.) at §2.03;

(2)  When the plaintiff seeks damages for fraudulent misrepresentation, the normal “but for” rule of causation applies. Thus if the plaintiff would have entered the contract on the same terms even if the misrepresentation had not been made, his claim for damages will fail. The Court is not required to speculate as to what the misrepresentee would have done had he known the truth, and the defendant will not be permitted to argue that the misrepresentee might have entered the contract on the same terms anyway: Chitty on Contracts (35^th Ed.) at §10-063.

(3)  The proper measure of damages for fraudulent misrepresentation is to put the plaintiff in the position he would have been in if the misrepresentation had not been made. The presumption seems to be that if the misrepresentation had not been made, the plaintiff would not have entered into the contract. The plaintiff ought to be awarded such damages as will put him back in the financial position he was in before the contract was made: Chitty on Contracts (35^th Ed.) at §10-064.

95.On top of rescission of the Agreement, Rakich Investments is entitled to claim damages against Fuku. As held in paragraph 74 above, Steve and Vic are liable for damages in their personal capacities.

96.The counterclaim (§57) only makes a general averment that Rakich Investments suffered loss and damage by reason of misrepresentation and repeats §§23(b) and 23(c) of the Defence which stated that Rakich Investments helped HSR discharge its outstanding indebtedness. The quantum is not pleaded. However, Mr Rakich gave evidence that, induced by the false Representations and as a result of entering into the Agreement, Rakich Investments had made payments of US$477,189.07 on 16 March 2018 and US$588,806.50 on 23 March 2018 to HSR.

97.The 2 payments were supported by the bank transfer remittance records. Whilst in the witness box, Mr Rakich disclosed an email chain dated 16 March 2018 (Exhibit “Rakich-1”). As Mr explained by Rakich, the email from him to Helen and Crystal (both being personnel at HSR) set out the wages, insurance cost and the rent that Heshan Factory needed to pay, which were intended to be covered by the US$477,189.07 remittance. Subsequent emails on the same day from Helen expressed gratitude for Rakich’s financial assistance to Heshan Factory, and acknowledged receipt of the sum of US$477,154.07 (presumably after deducting bank charges). As explained by Mr Rakich during his oral testimony, he wired this sum of USD to HSR’s bank account in the PRC in anticipation of the very imminent execution of the Agreement by Vic. At that point in time, Mr Rakich had already signed the Agreement.

98.Although by the time when Mr Rakich gave oral evidence, he could not uncover a similar email for the second remittance of US$588,806.50, Rakich confirmed during his oral testimony that that sum was similarly received by HSR and used to defray Heshan Factory’s expenses. Mr Rakich has been consistent and credible in his evidence, supported by documents. I see no reason why he had to lie in respect of this sum and I accept his oral evidence.

99.The next issue is whether Rakich Investment would not have made the 2 USD remittances but for execution of the Agreement:

(1)  Clause 4(a) of the Agreement (drafted by Steve), provided that Rakich Investment would have the obligation to discharge the debt of HSR and Heshan Factory, including: employee wages, social security and other statutory payment obligations and Factory rent and overhead.

(2)  HSR’s monthly expenses were also known to Steve and Vic. This is evidenced by an email dated 1 March 2018 from Steve to Rakich, in which Steve attached a “breakdown of HK costs”, containing wages and other office expenses.

(3)  It was thus entirely foreseeable to the Transworld Camp that upon execution of the Agreement, Rakich Investments would discharge its contractual obligations under Clause 4(a) and take steps to defray HSR / Heshan Factory’s expenses.

(4)  Despite complaining about a host of breaches of the Agreement, Steve and Vic never complained about breach of Clause 4(a).

(5)  These two payments were mentioned in Mr Rakich’s witness statement (§55), the supporting documents of which were disclosed to Transworld Camp a long time ago. Transworld Camp has not rebutted the existence, nature and purpose of these payments.

100.Based on Section M above, I am satisfied on a balance of probabilities that but for the false Representations, and in anticipation of Fuku’s execution of the Agreement, Rakich Investments made the two payments to discharge HSR’s indebtedness. Thus, it has suffered loss and damage.

Q.  CONCLUSION AND COSTS

101.I am satisfied that all elements of fraudulent misrepresentation are established and the defences are not viable. The proper reliefs for fraudulent misrepresentation are rescission and damages.

102.With regard to the claim:

(1)  Fuku’s claims in HCA 2400/2018 be dismissed;

With regard to the counterclaim:

(2)  There be a declaration that the Agreement has been rescinded, and the Agreement is void ab initio;

(3)  Transworld Capital do pay to Rakich Investments the sum of US$1,000,000 due pursuant to the Loan Note Certificate or the Hong Kong dollar equivalent at the time of payment;

(4)  Interest on the aforesaid sum of US$1,000,000 in sub-paragraph (3) above shall accrue (i) at the rate of 4% per annum from 8 December 2017 until 31 December 2018, (ii) at the rate of prime rate plus 1%[2] (“P+1%”) for the period from 1 January 2019 to the date of judgment, and (iii) at judgment rate thereafter until payment in full;

(5)  Steve, Vic and Fuku do jointly and severally pay damages to Rakich Investments in the sums of US$477,189.07 and US$588,806.50;

(6)  Interest on the sum of US$477,189.07 in sub-paragraph (5) above shall accrue at the rate of P+1% for the period from 16 March 2018 to the date of judgment, and thereafter at judgment rate until payment in full;

(7)  Interest on the sum of US$588,806.50 in sub-paragraph (5) above shall accrue at the rate of P+1% for the period from 23 March 2018 up to the date of judgment, and thereafter at judgment rate until payment in full;

103.Rakich Camp is the winner of the consolidated action, and is entitled to costs. The Transworld Camp was and is in substance directed by Steve and Vic, and the liabilities pursuant to the orders sought are all consequences of rescinding the Agreement. There is no need to apportion cost liability. Therefore, on a nisi basis, I order that costs of HCA 2400/2018, HCA 1888/2019 and this consolidated action (inclusive of all costs reserved) be payable jointly and severally by Steve, Vic, Fuku and Transworld Capital to Mr Rakich, Rakich Investments and Lionstar Manufacturing, to be taxed if not agreed.

104.I thank Mr Hui for his thorough preparation in this case where the facts are not straightforward, and fair presentation of his case in the absence of the other Camp. His assistance to the Court is much appreciated.

The Plaintiff (By Original Action) and the 1^st to 4^th Defendants (By Counterclaim) were not represented and did not appear

Mr John Hui, instructed by W. K. To & Co., for the Defendants (By Original Action) and the Plaintiffs (By Counterclaim)