Ch'Ng Poh v. China Everbright Ltd.
Read the full judgment text of HCA 427/1998 on BabelCite. This High Court CFI judgment was delivered on 31 October 2001.
1. At the beginning of 1993, the plaintiff was the Chairman and a director of the defendant company, then known as IHD Holdings Ltd ("the company"). He also was its Chief Executive.
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HCA000427/1998 HCA 427/1998 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 427 OF 1998 ____________
____________ Coram: Deputy High Court Judge Longley in Court Dates of Hearing: 8-12 October 2001 Date of Judgment: 31 October 2001 _______________ J U D G M E N T _______________ 1.At the beginning of 1993, the plaintiff was the Chairman and a director of the defendant company, then known as IHD Holdings Ltd ("the company"). He also was its Chief Executive. 2.His services as the company's Chairman and Chief Executive had been secured by a management agreement of 16 June 1988 between the company and Avon Investments Ltd ("Avon"), a family company of the plaintiff. One of the terms of that agreement was that as Chief Executive he would be entitled to "first class accommodation of his own choice that would reflect his seniority". The company fulfilled this term of the agreement by acquiring a house situated at No. 2 Moorsom Drive, Jardines' Lookout, Hong Kong ("the house") through a wholly owned subsidiary Keepmore Ltd ("Keepmore"). Keepmore was a shell company used by the defendant solely to hold the house. Keepmore had no other assets. 3.In March 1992, the plaintiff was arrested by the ICAC in the course of their investigations into alleged fraud on his part. 4.On 19 February 1993, the plaintiff tendered his resignation as Chairman and director of the company. In the words of the public announcement his decision to resign was "aimed at helping to sever unnecessary and unfair speculation about him which is damaging the company's restructuring plan". His wife Madam Kong Yuk Chu, also a director of the company, was elected as Chairman in his place. He however continued as Chief Executive of the company. 5.The ICAC investigations eventually led to the defendant facing trial in the High Court between April and July 1994. On 5 July 1994, he was convicted of one count of conspiracy to defraud and one count of publishing a false statement contrary to s.21(1) of Theft Ordinance, Cap. 210 and was sentenced to a total of 5 years' imprisonment. 6.In the period prior to the trial, an agreement was reached between Avon, which was in control of the majority shareholding in the company, and China Everbright Holdings Ltd whereby China Everbright Holdings Ltd would acquire a substantial shareholding in the company. China Everbright Holdings Ltd's first acquisition of shares (through a subsidiary) under the agreement occurred in December 1993. By November 1994 it held over 59% of the shares of the defendant company. 7.On 5 March 1994, shortly before the start of the plaintiff's trial, a board meeting of the company was held in Singapore. Although no longer a director, the plaintiff as Chief Executive, in accordance with the company's normal practice, attended that meeting. Three officers of China Everbright Holdings Ltd were welcomed to the board. Madam Qiu Qing and Mr Wang Yake and a Mr Tong Xin who was to serve as an alternative director to Madam Qiu Qing. 8.The minutes of the meeting recorded (presumably because of his impending trial) that the plaintiff would shortly be taking leave and would not be able to spend full time in the office but that he would still be attending to the daily operation of the company during his coming leave. 9.At the meeting the plaintiff raised the question of the house. The minutes of the meeting read as follows:
10.The plaintiff's case is that these minutes confirmed and evidenced a binding agreement between the plaintiff and the defendant company for the plaintiff to buy and the defendant to sell the entire issued shares of Keepmore at a price of $20.52 million, thus enabling him to acquire the house. The plaintiff himself gave evidence about this meeting. He said that at the meeting he had expressed a wish to buy the property at $22.8 million, the value placed upon the property by an independent valuer, and that the board had agreed and at the same time offered him a discount by way of bonus. He said that he had accepted "with great appreciation". The plaintiff's case is therefore that there was an offer and acceptance. He had agreed to buy the shares at a discount. 11.No agreement or documents relating to the sale were ever executed by either party. 12.On 4 August 1995, some 17 months later there was a board meeting of the company in Beijing attended by the plaintiff's wife. At that meeting it was resolved that the management be authorised to sell the house, but that the company should give the plaintiff a first right of refusal to purchase the property at a price equivalent to the then current valuation of the property in August 1995, such offer to be valid for between 2-4 weeks. 13.Following this meeting, a letter was sent to the plaintiff dated 5 September 1995, who was then on bail pending an unsuccessful appeal, offering the property at a purchase price of $23.5 million valid until 30 September 1995. 14.In the absence of acceptance of this offer by the plaintiff, on 30 October 1996 Keepmore sold the house to Franchise Ltd at $22.25 million. I have not heard evidence on the matter but that price may well reflect the fact that at the time the defendant was still taking action against the plaintiff's wife in order to gain vacant possession of the property. 15.The plaintiff claims that this sale of the house to Franchise Ltd was in breach of the alleged oral agreement for sale of the property of 5 March 1994. He claims as damages the difference between the market value of the house on 3 October 1996 and the alleged agreed price of $20.52 million. 16.The defendant's principal position on the plaintiff's claim is that the resolution of the board on 5 March 1994 did not and was never intended by the defendant to create any legal relationship between the plaintiff and the defendant in respect of the sale and purchase of the shares. 17.It is important to bear in mind that what the plaintiff is alleging is that on 5 March 1994 there was a concluded oral agreement binding on both him and the defendant company to buy and sell the shares. On his case he would have been bound to buy the shares even if property prices had fallen. It just so happened that they rose. 18.There would be no contract as alleged by the plaintiff unless both parties intended to create legal relations and be bound. 19.In deciding issues of contractual intention the courts normally apply an objective test. In this case, this involves looking at the evidence of what happened on 5 March 1994. This evidence comes from the plaintiff as well as that Miss Heidi Chu, the company secretary, who wrote the minutes and who gave evidence for the defendant. Subsequent conduct 20.It is well established law that where there is a written agreement the court may not look at the subsequent conduct of the parties to interpret that agreement (Green House Property Agency v. Yu Ma Kwai & Others, HCA 10345/97, Lewison on Interpretation of Contracts 2nd ed. para. 2.11). That however does not preclude the Court from looking at the subsequent conduct of the parties in the case of an alleged oral agreement for the purpose of assessing the credibility of their evidence as to what occurred at the time it is alleged that the oral agreement was reached, and for the purpose of deciding whether a mutually binding agreement was entered into at all. 21.The significance of subsequent conduct in this case is that since the board meeting on 5 March 1994, the plaintiff has, on a number of occasions, referred to simply having been "offered" or given "an option" to purchase the house (or the shares of Keepmore). 22.In a letter to the Board of Directors dated 10 April 1995 drafted by the plaintiff but signed by his wife, he referred to the "agreed offer of the Board" at the meeting on 5 March 1994. In a letter to the Board of Directors dated 17 September 1996, he twice referred to having "an option" on the house. In the letter before action dated 17 January 1997 sent by his solicitors, Messrs Pang, Tang, Wan & Choi on his instructions they repeatedly referred to the plaintiff having been given an option to purchase the house. Even in his witness statement of 21 September 1999 prepared for the purpose of trial, the plaintiff said this:
23.These remarks are at variance with the plaintiff's account at trial that there had been a binding agreement to buy the shares on 5 March 1994. 24.The suggestion that the plaintiff was given an option is therefore contrary to the plaintiff's case and to the primary case of the defendant that the resolution of the board on 5 March 1994 did not and was never intended by the defendant to create any legal relationship. 25.It is not disputed between the parties that if the plaintiff was given "an option to buy" that could have been no more than "an offer to sell" by the defendant, since the option was not supported by consideration and was therefore revocable at any time before acceptance. It would therefore had been revoked by the letter of 5 September 1995 offering the plaintiff the house at a higher price. It is not suggested that the plaintiff accepted the offer before that date. 26.There were other aspects of his conduct which are curious if he had concluded an agreement to buy the shares in March 1994 at a price of $20.52 million. For instance in a letter of 10 September 1995 from him but signed by his wife immediately after the offer of 5 September 1995 to sell him the house at an increased price of $23.5 million, he raised no protest that the company was reneging on its agreement but referred to an earlier document he had previously sent on 10 April 1995 asking for a discount of $1.5 million to reflect the cost of demolition of illegal structures. 27.The plaintiff did not appear to be frank with the Court in attempting to explain his conduct. As an experienced businessman he would have been well aware of the difference between an option which did not bind him, and an agreement which did. His attempts to explain his conduct, by reference to not having access to the minutes (which in any event would not have applied at the later stages) and by attempting to explain his use of the word "option" by reference to his option to choose the name of the recipient of the shares and the defendant's option either to give him the deduction in price from the current valuation by way of a bonus or by granting him a discount, was wholly unconvincing. 28.Mr Chan in his closing submissions referred me to some aspects of the evidence including the plaintiff's conduct which he argued was consistent with a concluded agreement. Mr Shieh for the defendant had earlier effectively dealt with those points in his submissions. I felt those matters at best inconclusive. They did not demonstrate a probability that the plaintiff had entered into a binding contract on 5 March 1994. 29.Mr Chan has pointed out that the defendant did not call any witness to contradict the plaintiff's version of the meeting on 5 March 1994. However, Miss Heidi Chu the company secretary in her witness statement of 14 January 1999 which she adopted as her evidence said of the minutes of that meeting: "I took notes of the matters discussed and resolved upon in the course of the meeting and thereafter reduced them to printed minutes for the signature of the meeting's chairman ... I verily believe that what is written in that paragraph truthfully and correctly reflects the substance of the discussions and of the collective views of the board regarding the Keepmore shares in the house". 30.It is, in my view, significant that Miss Chu, an obviously competent solicitor, in recording the substance of the discussions made no reference to an offer or option being granted to the plaintiff or to his acceptance thereof. Nor did she refer to any agreement having been entered into between the plaintiff and the board of the defendant company. 31.The plaintiff in purporting to recall the substance of the meeting of 5 March 1994 has shown that there are shortcomings in his memory. He has for instance described the board as discussing the sale of the house rather than the sale of the shares of Keepmore. What is more significant, however, is the contrast between what he now says occurred at the meeting (a concluded contract) and his previous account (an option granted or an offer made to him). This contrast between what he now says at the meeting and his previous descriptions of its effect renders, in my view, unreliable anything he said of that meeting beyond that recorded by Miss Heidi Chu. 32.I do not find that an objective evaluation of Miss Heidi Chu's minutes leads to a probable conclusion that an agreement was concluded between the plaintiff and the board. I have been referred by Mr Chan to a number of phrases used in the minutes which he argues point to a concluded sale. I find those phrases inconclusive and equally capable of a contrary interpretation. 33.I find that the record provided by the minutes is entirely consistent within the interpretation that the defendant puts on it, namely that the plaintiff had expressed his wish to purchase the shares of Keepmore whereupon the directors had resolved to authorise such a sale which was to be entered into on their behalf by Tan Sri Dato Shariff Ahmad. 34.I agree with Mr Shieh for the defendant that the cumulative effect of the unresolved "loose ends" (the absence of any decision as to the time of the transfer of the shares, the identity of the transferee or indeed whether the plaintiff was to pay a price of $22.8 million and receive a bonus of $2.8 million or pay $20.52 million) is consistent with the interpretation for which the defendant argues. 35.That the defendant's interpretation is the correct one is put beyond doubt in my mind by what was clearly the plaintiff subsequent understanding of what had occurred. A non lawyer in the position of the plaintiff knowing of the board's resolution to authorise a sale to him might well believe that he had been offered or given an option in the shares of Keepmore. 36.I find that there was no concluded oral agreement between the plaintiff and the board of directors of the defendant for the sale of the shares of Keepmore at the board of meeting on 5 March 1994. I therefore dismiss the plaintiff's claim. 37.Although unnecessary for me to do so, I would add that even if I had been satisfied that an agreement had been reached between the plaintiff and the board of the defendant on 5 March 1994, I would have found the plaintiff's claim fell foul of the provision of s.163 of the Companies Ordinance, Cap. 32. I would have found following the reasoning of Lord Evershed MR in White v. Elmdene Estates Ltd [1961] 1 QB 1 at 16, in relation to another statutory provision that the discount to be offered to the plaintiff amounted to a "payment". The plaintiff himself had in a document by him for submission to the board on 10 April 1995 described the board's alleged approval to sell the house to him and the price agreed as being in the spirit of a "golden handshake". The plaintiff would have been unable to show that the relevant time the members of the company would have approved the sale to him. 38.A further matter upon which it is not strictly necessary for me now to rule is the valuation of the house on 30 October 1996. Since it was the subject to fairly extensive evidence from experts called by both sides, Mr Gareth Williams of Vigers for the plaintiff and Mr S H Ng of S H Ng and Company for the defendant, I will briefly indicate what my findings would have been. 39.Mr Williams' valuation of the house was in the region of $49 million. He reached this valuation primarily on the basis of a comparison of the legal floor size of the house (i.e. ignoring illegal extensions) with the legal floor size of 3 comparable properties, 19 Perkins Road which had been sold the previous month (a two storey house which was nearby but not in the same development) and Nos. 3 and 5 Moorsom Road, which were part of the same development as the house and like it of 3 storeys, which had sold within a week of each other some 4 months previously. Mr Williams' evidence was that a back up comparison using the total floor area of the 4 properties (including illegal extension) provided a useful test of the results arrived at by comparing only their legal floor areas. There was no dispute that the legal floor areas of the house and Nos. 3 and 5 Moorsom Road were the same whereas that of 19 Perkins Road was slightly smaller. 40.Mr Williams pointed out that by adjusting the actual sale prices of 19 Perkins Road, 3 Moorsom Road and 5 Moorsom Road by the factors referred to in the Jones Lang and Wootten Capital Value Index to reflect the changes in value between the time of their sale and the 3 October 1996, one arrived at values of $48 million, $53.4 million, and $47.4 million respectively for those properties on 3 October 1996. Both he and Mr Ng took into account an estimate of the cost of repairs to the property, Mr Williams using a higher figure than Mr Ng. 41.Mr Ng's valuation for the house was approximately $38,500,000.00. He derived that figure using only 3 and 5 Moorsom Road as comparables. He did not regard 19 Perkins Road as a useful comparable as it was not part of the same development, was a 2-storey house and in a more prestigious area. He agreed, however, that in the light of the substantial difference in the sale price between 3 and 5 Moorsom Road which had been sold within the same week, it was perfectly proper for Mr Williams to look also at 19 Perkins Road. Mr Ng's valuation was based solely on the legal floor area of the house and the two comparables he used. Unlike Mr Williams he did not regard the illegal structures as having any monetary value to a purchaser but he did not regard it as wrong to use the total areas including illegal structures to do a back up analysis. 42.Ultimately the question of whether it was useful to use 19 Perkins Road as a comparable or to use as a back up a comparison using total floor areas including illegal areas lost most of its significance, as it emerged from the figures that Mr Ng's figures would also produce a valuation of approximately $49 million had it not been for the discounts he had given to the comparables' unit price per square foot to reflect the fact that the house did not like House No. 3 and No. 5 Moorsom Road have an "open aspect" and had a smaller open area surrounding the building. 43.I found Mr Williams' evidence regarding these factors as being more persuasive than that of Mr Ng. 44.Neither witness suggested that the view from either No. 3 or No. 5 was striking. Indeed it appeared that both faced an old block in poor decorative order across the road. Both No. 3 and No. 5 had, however, in contrast to the house, what was described as "an open aspect". I accepted Mr Williams' view that any price advantage gained to No. 3 and No. 5 Moorsom Road as result of its open aspect was counterbalanced by the fact that the house was in a gated cul-de-sac with a watchman at the entrance to the cul-de-sac, thus providing apparently greater security and less noise from passing traffic than No. 3 and No. 5 Moorsom Road which were on a rising slope of a main (though not excessively busy) road. 45.I also share Mr Williams' view that the discount used by Mr Ng to reflect the greater open space on the sites of No. 3 and No. 5 Moorsom Road was excessive. The logical conclusion of Mr Ng's evidence was that the 56.7 square metres extra open space enjoyed by No. 3 Moorsom Drive over the house was worth approximately $13 million and the 26.02 square metres extra open space enjoyed by No. 5 Moorsom Road over the house was worth approximately $6 million. These figures are excessive. I prefer Mr Williams' view that only 10% of the house price per square foot rate should be applied to the open space and that a discount of one tenth of that applied by Mr Ng would be more realistic. 46.I would have found that a realistic value of the house on 3 October 1996 was $49 million.
Representation: Mr Anthony Chan, instructed by Messrs Chan & Tsu, for the Plaintiff Mr Paul Shieh, instructed by Messrs Anthony Chiang & Partners, for the Defendant Remarks: |
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