Kevin Hon v. Leung Cheuk Yin David
Read the full judgment text of DCCJ 3619/2002 on BabelCite. This District Court judgment.
1. The Plaintiff (“ Hon ”) and the Defendant (“ Leung ”) (the “ Parties ”) read law together and are now practising or employed legal practitioners. In/about July 1997 when they were still good friends, the Parties agreed (the “ July 1997 Agreement ”) to invest in Shop No.128, 1 st floor of In’s Point (the “ Plaza ”), Nos.530, 534-538 Nathan Road (the “ Shop ”) in equal shares (the “ Investment ”). Hon entered into the formal agreement for sale and purchase (the “ FASP ”) in his name and the Par
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DCCJ3619/2002 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO. 3619 OF 2002 ____________ BETWEEN
____________ Before : Her Honour District Court Judge Marlene Ng in Court Date of Hearing : 6th, 7th and 8th June, 22nd, 23rd and 24th August and 17th and 18th October 2005 Date of Handing Down Judgment : 1st March, 2006 ______________________ JUDGMENT ______________________ I. Introduction 1.The Plaintiff (“Hon”) and the Defendant (“Leung”) (the “Parties”) read law together and are now practising or employed legal practitioners. In/about July 1997 when they were still good friends, the Parties agreed (the “July 1997 Agreement”) to invest in Shop No.128, 1st floor of In’s Point (the “Plaza”), Nos.530, 534-538 Nathan Road (the “Shop”) in equal shares (the “Investment”). Hon entered into the formal agreement for sale and purchase (the “FASP”) in his name and the Parties each contributed HK$255,000.00 as partial deposits. In/about October 1997, the Parties agreed to bring in Conrad Yung (“Yung”) as a third investor in equal shares. Yung paid further deposits of HK$255,000.00 for the Shop. On 27th December 1998, Hon, Leung and Yung (the “Investors”) met (the “December 1998 Meeting”) and agreed to complete the purchase of the Shop, which eventually took place in January 1999. 2.Hon claims for loss/damages of HK$435,168.39 for Leung’s breach of contract in failing to pay his share of the costs/expenses of the Investment. Leung claims he was entitled to rescind/terminate the agreement reached at the December 1998 Meeting (the “December 1998 Agreement”) by reason of Hon’s misrepresentations or (if they became contractual terms) breach of contract. Leung counterclaims for a declaration/order to such effect. He further avers that Hon’s subsequent dealings with the Shop, the lender/mortgagee and the Investors show Hon has accepted Leung’s rescission/termination. 3.Mr Bruce SC and Mr Leung, leading and junior counsel for Leung, accepted that the Parties were contractual joint venture parties and not partners. Mr Leung further confirmed that Leung’s defence and counterclaim did not rest on any partnership relationship or breach of fiduciary duty, which has not been pleaded. II. Issues 4.The following are the relevant issues :
III. Overall impression of the witnesses 5.The Parties gave evidence; Yung did not although he gave a witness statement for Hon. I have warned myself that although the Parties’ demeanour is a relevant factor in assessing credibility, it may not necessarily be indicative. 6.I find on balance on the evidence that Hon is a reliable witness on the core issues. Although I have some reservations over some aspects of his evidence, they do not affect his overall credibility/veracity. Hon was not a prudent investor. He was prone to making snap decisions (sometimes with ill-considered impetuosity) to invest for quick profit and/or to sell to cut loss. He had little financial planning and even less interest in paperwork/details. In face of financial predicament, he would impose on the generosity of his friends, stall/negotiate his way out or borrow further to pacify his creditors temporarily. But he was frank about his financial embarrassments and willing to accept tough terms for financial assistance. 7.Mr Bruce SC criticised Hon’s “forgetfulness”. Hon claimed he was disorganised over his own affairs. In the course of giving evidence he also appeared impatient with what he regarded as unimportant trivialities. But on the whole I do not think the limitations to Hon’s recollection reflect deliberate concealment. I find they demonstrate that Hon paid little/no attention to certain matters and/or he shied away from other matters that might upset his precarious financial position. 8.On the other hand, Leung was more given to financial details/planning. Although Hon as titleholder was sometimes involved with the formalities of the Investment, Leung’s prompting featured strongly in their dealings. When the property market fell, Leung was careful of his interests when assessing his financial obligations and weighing his options. He was less prepared to cut loss and more inclined to wait for a reasonable recovery of his investment contributions. As Mr Bruce SC submitted, “forgetful is not a word …… you would necessarily attribute to [Leung]”. In the circumstances, Leung’s claim of misrepresentations by Hon lacks a convincing note. In my view, such claim reflects a poor attempt to justify his repudiatory decision to unilaterally pull out of the Investment. IV. Investment 9.Prior to the Investment, the Parties had invested together in shares and in a flat in Robinson Road (in Hon’s name). The Parties together with Wendy Lam (“Lam”), their classmate and a solicitor at Messrs Y T Szeto & Co (“YTS”), also invested in a flat in Panorama Garden (the “PG Flat”) in Lam’s name. For these previous investments, the investors agreed to share loss/profit according to their contributions. In/about June 1997, Hon asked Leung whether he would be interested to invest in a shop at the Plaza, which property was introduced to him by Cindy Tung (“Tung”, Hon’s friend and an estate agent). Hon explained the investment would be in equal shares with each Party initially paying 10% of the price and later a further 5% (the “Further Deposits”) unless the property was sold quickly. Leung agreed to the proposal and the Parties eventually picked the Shop. V. July 1997 Agreement 10.I find on balance that under the July 1997 Agreement the Parties agreed inter alia that (a) Hon shall enter into the FASP in his sole name, (b) the Shop shall be a short-term investment for resale before completion, and (c) (as agreed by Leung under cross-examination when Hon’s witness statement was put to him) the Parties shall bear the purchase price of the Shop, the costs of the purchase, running costs and profits/loss (the “Shop Expenses”) in equal shares. YTS was appointed to handle the conveyance for the Parties. I accept Hon did not say Leung should be responsible for the documentation/formalities or for managing the Investment. But I find Hon casually mentioned that Leung would take care of the details. In my view, this is insufficient to put Leung “in the driving seat” of the Investment. VI. FASP 11.Hon signed the FASP on 15th July 1997 to purchase the Shop for HK$2,550,000.00 (the “Original Price”). The property market was bullish and the Parties had no thought of loss. Each Party paid partial deposits of HK$255,000.00. The Further Deposits (HK$255,000.00) were due in October/November 1997. The balance of the purchase price of HK$1,785,000.00 (the “Original Balance”) was payable on completion, which should take place between 31st March and 31st December 1998 and within 14 days from the notice by the vendor/developer (the “Vendor”) of the completion of the alteration works of the Plaza (the “Notice”). Hon hoped to resell the Shop for profit before completion, so he asked Tung to look for a purchaser. He contacted Tung from time to time, but there was no offer. VII. Yung 12.In August 1997 Leung wanted to talk to Hon about their investments. The Parties were concerned that the Shop might not be resold before the Further Deposits (which the Parties did not want to pay) were due and thought it would be good to bring in a third investor. In/about September/October 1997, Hon liaised with Yung (a colleague of Hon’s then girlfriend, Teri Han) who expressed interest in the Investment. Hon told Yung he had to pay the Further Deposits to become entitled to a ⅓ interest in equal shares with Hon/Leung in the Investment and in its profit/loss. Hon must have reported to Leung about such developments. VIII. October 1997 Agreement 13.I prefer Hon’s evidence and find on balance that at Yung’s request the Investors informally met in October 1997 (the “October 1997 Meeting”) and agreed that (a) the Shop was to be held in Hon’s name with the Investors as joint equitable owners, (b) the Shop shall continue as a short-term investment for resale before completion if there was an available buyer, (c) the Investors shall bear the Shop Expenses in equal shares and (d) Yung would pay the Further Deposits (the “October 1997 Agreement”). Similar to the July 1997 Agreement, I further find Hon only casually mentioned that Leung would take care of the details, but did not say Leung would continue to take care of the documentation/formalities and manage the Investment. In/about October/November 1997, Yung paid the Further Deposits and became an Investor in equal shares with Hon/Leung in the Investment. 14.Leung admitted the above agreed terms, but denied that the October 1997 Meeting took place. Mr Bruce SC criticised Hon’s credibility as follows : (a) the averment in Hon’s original pleadings/witness statement that the meeting took place in September 1997 could not be right (see Leung’s email of 5th October 1997) and the amendment of Hon’s pleadings to aver October 1997 as the date of the meeting was insufficient to salvage Hon’s credibility, and (b) the demand letter by Hon’s solicitors dated 17th January 2000 (“Hon’s Letter”) did not expressly refer to the October 1997 Meeting at all. However, the date of the meeting is immaterial to the contested issues and Hon frankly admitted to his error when he gave evidence. Having considered the totality of the evidence, I find such error does not undermine Hon’s credibility. 15.In my view, it is implausible for the Investors not to have met/communicated about the Investment right up to December 1998. Although the Parties in October 1997 still hoped to resell the Shop before completion and might not be too interested in Yung’s financial/other attributes as a long-term Investor, it is commercially sensible for Yung (who did not know Leung) to request and the Parties to attend a meeting for Yung to map out where he stood with Hon/Leung vis-à-vis the Investment before paying the Further Deposits. The Investment was a venture for profit and the Investors’ contributions were not for paltry sums. I also note that since May 1998 Leung from time to time enquired about the completion date for the Shop. In May/June 1998 he even got ready for possible completion by depositing a cheque for his share of the completion monies with YTS. I find it unlikely that Leung would contemplate completion without meeting Yung at all. 16.Mr Bruce SC submitted that the reference to “Teri’s colleague” in Leung’s email of 22nd October 1998 to Hon suggested that Leung did not know Yung’s name, so the natural inference was there was no October 1997 Meeting. Hon claimed it was unsurprising if Leung had forgotten Yung’s name more than a year after the informal October 1997 Meeting during which there was only limited discussion amongst the Investors. Leung claimed that during a social visit to Hon’s home in 1998, Hon specifically identified Yung to him from amongst Teri Han’s colleagues and Leung greeted Yung by saying “hi”. Despite Leung’s email of 6th December 1998 (see below), on balance I reject his evidence about the alleged social visit. I find it improbable that Yung’s name was not mentioned during such exchange. It is also unnatural/unconvincing that Leung would just say “hi” to Yung without even some light conversation about the Shop when (a) Yung had paid the Further Deposits, (b) there was as yet nopotential purchaser of the Shop when the Investors had hoped for an early resale and (c) this was allegedly the first time Leung/Yung met. 17.Mr Bruce SC next argued that Leung’s email of 6th December 1998 to Hon showed there was no October 1997 Meeting. Such email was a reply to Hon’s proposal for Leung/Yung to take up his share of the Investment. In the email, Leung complainedthat if Hon backed out of the Investment, he would have to hold the Shop with Yung when “I do not know him. I think I have met him once. I have not even talked to him. I have no idea of what kind of person he is (and his resources). You are in effect asking me to be in partnership with a stranger.” Hon understood (and I agree) that Leung’s email could not be read literally. I have rejected Leung’s evidence on the alleged social visit. I further find that the email in fact meant (a) Leung did not know Yung personally and/or was not familiar with Yung, and (b) he never had discussions with Yung to appreciate Yung’s resources and/or the kind of person Yung was. Consequently, Mr Bruce SC’s further argument (ie Hon’s failure to “correct” Leung’s assertions in his email was indicative that there was no October 1997 Meeting) also falls away. At that time, the Parties were still friends and Hon was seeking Leung’s indulgence, so Hon had no reason to respond in a confrontational manner to “correct” Leung’s assertions. IX. PG Flat 18.When the property market crashed at the end of 1997 or early 1998, Hon was prepared to sell the PG Flat to cut loss but Leung did not wish to do so. It was eventually agreed that Hon would sell his share in the PG Flat to Leung/Lam for HK$650,000.00 (the “PG Flat Share”) of which HK$200,000.00 was to be paid on 1st July 1998 and the balance (the “PG Flat Balance”) upon resale of the PG Flat. 19.By May 1998, some of Hon’s creditors were pressing for payment. Hon asked Leung for a loan on or early payment of the PG Flat Share. On 19th May 1998, Leung declined and said that bank lending was tight and he/Lam could not pay without selling the PG Flat, but he promised to monitor the property market to effect a resale as soon as possible. Hon became more pressed for cash and chased Leung for a response to his proposal. Leung/Lam offered to pay HK$172,322.00 on 1st July 1998 (which they did). In late June 1998, Hon confessed to Leung that a bank cancelled his overdraft facilities and he was trying to negotiate repayment by a 12-18 months’ term loan. Hon expressed pessimism over the future property market and urged Leung to consider discounted cash prepayment or monthly instalment payments of the PG Flat Balance. Leung was unenthusiastic (see Leung’s email of 1st July 1998) but promised to talk to Lam. Leung reminded Hon inter alia that Hon knew at the time of the PG Flat deal (see the above paragraph) that (a) Leung/Lam had to sell the PG Flat before they could pay the PG Flat Balance and it might take some years for the property market to gain momentum for such resale and (b) Leung/Lam had to pay increased monthly mortgage instalments for the PG Flat as a result of taking up Hon’s share. Leung added that he could not afford Hon’s proposal otherwise he would not have to sell his own property. On 4th July 1998 Leung confirmed by email (with copy to Lam) that he/Lam were unable to assist. 20.On 3rd September 1998, Hon told Leung he had exhausted his resources and his landlord had sued him for arrears of rent and vacant possession. He urged Leung to reconsider, but Leung replied he was unable to assist. Leung said he had just purchased a new property and the purchaser of his existing property threatened not to complete. On 9th October 1998, Hon told Leung his landlord had entered judgment against him and he could not obtain banking facilities. He appealed to Leung to reconsider and indicated willingness to consider any discount. Alternatively, he asked Leung to obtain an overdraft facility for him. Leung replied he/Lam could only offer HK$120,000.00 out of their limited overdraft facilities to settle the PG Flat Balance. On 17th/19th October 1998, Hon accepted their offer even though he thought it was on the low side. He would not bargain if such offer was Leung’s bottom line. Leung deposited HK$120,000.00 into Hon’s bank account, so Hon recovered HK$300,000.00 for his investment of about HK$1,700,000.00 for the PG Flat. 21.I make the following findings/observations. Hon was financially straitened since May 1998 and was looking for ways and means to keep financially afloat. He was all along frank with Leung about his financial embarrassments. This puts cold water on the suggestion (which I reject) that Hon might have tried to hide his banking facilities in 1999-2000 (see below). 22.The above events highlight a clear contrast between the Parties’ different approaches to property investment, which eventually carried over to their dealings in respect of the Investment. Leung was meticulous/anxious for a reasonable return whilst Hon was impetuous/eager to cut loss. Leung’s handling of the PG Flat investment vividly demonstrates his willingness to wait for the property market to pick up (and to suffer higher mortgage instalments in the meantime) before reselling to minimise loss. Leung’s careful nature can be further seen from his precise deduction of Hon’s share of the May 1998 mortgage instalment for the PG Flat (HK$7,500.00) and penalty interest charged by the bank (HK$178.00) from the sum of HK$180,000.00 to arrive at the first instalment of the PG Share (HK$172,322.00) paid to Hon on 1st July 1998. Still further, although Leung was also under some financial strain, he prudently sold his property and moved to an affordable one. 23.Hon, on the other hand, flitted from one proposal for prepayment of the PG Flat Balance to the next on a range of rough discounts. Such offers were driven by his need for immediate cash instead of any considered calculation of an optimal discount. Hon was not given to bargain and he ultimately accepted HK$120,000.00 for the PG Flat Balance without any quibble. Hon fairly accepted that Leung was also under financial strain after 1997 and was not trying to undercut his entitlement by offering HK$120,000.00 for the PG Flat Balance. I agree that such offer is undoubtedly a bail out for Hon, but it nevertheless represents a substantial discount of Leung’s/Lam’s liability for the PG Flat Balance. X. May to October 1998 24.By mid-1998, Hon’s financial position weakened and he was pessimistic about the property market. Since May 1998 Leung (but not Hon) was already mindful of the possibility of having to complete the purchase of the Shop. Leung said he was aware of the provisions of the FASP that the Vendor only had to give the Notice for completion to take place between March and December 1998. Leung told Hon to ask Tung about the completion date (see Leung’s email of 19th May 1998). On 29th May 1999, Leung informed Hon he had deposited his share of the completion monies with Lam’s secretary (even though no Notice had been issued) in case completion of the Shop took place whilst he was out of town. When Lam reported to Leung that the Vendor’s solicitors (namely, Messrs Yuen & Partners (“YP”)) had delivered the title deeds of the Shop and further advised that the Plaza’s alteration works were expected to be finished on time, Leung reported such progress to Hon on 21st June 1998. On 26th June 1998, Leung reiterated to Hon his belief that the completion of the purchase of the Shop would be on time. Leung’s enquiries revealed that banks either would not grant any mortgage for the Shop or would only grant a mortgage loan for 50% of the purchase price. On 1st July 1998 Leung told Hon that on such basis his own share of the balance of the completion monies was probably HK$170,000.00. 25.Mr Bruce SC submitted that Leung was only acting as a responsible joint venture party trying to get his fellow Investors focused on what needed to be done. I find it unnecessary to conclude whether Leung at this stage was “in the driving seat” of the Investment. But what is plain is that Leung was keener than Hon to gear up for possible completion. It also cannot be said that the Investment was left largely in Hon’s hands. At this time, Hon was primarily concerned with repayment of his more pressing debts. In my view, the possibility of completion of the purchase of the Shop, which required further payment (not receipt) of monies, would not have featured strongly in his mind then. 26.YTS’/Lam’s role was limited to handling the formal conveyance of the Shop. But as noted above, Lam reported to Leung on progress. Leung claimed that was because Lam knew he had ⅓ interest in the Shop, but he said there was in fact fairly little contact between them over the Shop. In my view, the latter observation also applies to Hon and Lam. There is little evidence of Hon giving express instructions to YTS/Lam about the conveyance. Further, apart from being the formal purchaser, Hon seemed to have left the conveyancing formalities to YTS/Lam. Indeed, Hon even asked Leung (see his email of 20th December 1998) to liaise with Lam for formal confirmation of the reduction of the purchase price of the Shop with the Vendor. XI. October to mid-December 1998 27.Leung inspected the Shop and discovered the works were nearly finished. On 22nd October 1998, Leung told Hon the Vendor would be in a position to complete by the end of the year. Leung enquired about Hon’s/Yung’s position. On 30th November 1998 Lam also confirmed to Hon/Leung that the Vendor would want to complete since she had received the draft sub-DMC for the Plaza. 28.Hon adopted a passive attitude. He was having financial problems and wished to cut loss by selling the Shop as soon as possible. Leung was concerned over Hon’s financial ability to complete. On 3rd December 1998, Leung reminded Hon that completion (if it were to go ahead) would take place on/before 31st December 1998 and time was required to arrange for the mortgage finance and the balance of the completion monies. He asked for Hon’s position as a matter of urgency. On 4th December 1998, Hon replied that no financial institution would extend loans to him. He said Tung told him the bank could arrange mortgage for “70% of the purchase price of [the Shop]” and the estate agent would probably find a tenant, but he would be unable to pay his share of the future expenses. Hon proposed to surrender his interest in the Shop to Leung/Yung and have the Shop conveyed into Leung’s name for arranging a mortgage since he had difficulty in obtaining bank loans. 29.On 6th December 1998, Leung complained that Hon’s proposal amounted to assigning liabilities to him/Yung (given that the Shop’s then market price was less than 70% of the Original Price) and asking him “to be in partnership with a stranger”. Leung said banks were generally reluctant to grant mortgages over such shops and any mortgage loan would only be for 50% of the current market value. In the meantime, the PG Flat substantially increased Leung’s financial commitment. To consider Hon’s proposal, which seemed to Leung to be another “dumping” exercise, Leung requested information on inter alia (a) the banks Tung said would be prepared to grant mortgage on 70% of the purchase price of the Shop and the terms thereof, (b) Hon’s view of the approximate market value of the Shop, (c) the approximate completion date according to Tung, and (d) the likely monthly rental the Shop could generate. Hon could not remember clearly but he probably also asked Yung to take up his share of the Investment. If he did, Yung’s response was negative. Hon suspected Yung was also financially tight. 30.In my view, Hon’s proposal is an attempt to fob off the financial burden of his share in the Investment onto Leung/Yung. Leung’s lack of enthusiasm and eventual refusal are unsurprising, especially when his finances were also stretched though not as badly as Hon’s. 31.On 8th December 1998, Hon emailed Leung to say he had asked Tung to contact Leung for arranging the mortgage and for exploring (a) whether the Investors could be released from liabilities if they did not complete and/or (b) whether there could be an outright sale with no further cash payment. Hon said otherwise completion would have to proceed in Leung’s name (since he was unable to obtain any bank loan) and he would have to ask Leung for a loan to pay the cash balance required for completion. Hon was looking for a new job and said he would try his best to pay the monthly mortgage instalments for the Shop (the “Mortgage Instalments”). 32.Leung claimed he did not know why Hon asked Tung to contact him to arrange the mortgage for the Shop. In my view, it is quite understandable. Due to his financial constraints and as borne out by the emails between the Parties, Hon all along adopted a passive attitude. He was not thinking about completion but how to avoid it without paying the resulting price difference to the Vendor. On the other hand, Leung was conscious of the steps required to meet the looming possibility of completion. In the circumstances, it is little wonder Hon passed the mortgage issue onto Leung. 33.On 9th December 1998, Leung reported to Hon that Tung had called and he was working on a plan, but Hon had to find his own financial resources to pay for the completion. He suggested that the Investors should have a discussion the following week since the Vendor would probably issue the Notice before Christmas. On 11th December 1998, Leung reported to Hon by email that Tung advised that (a) the occupation permit issued that afternoon meant completion should take place in 14 days, (b) the chance of an outright sale was slim, (c) the Vendor would arrange some banks to provide mortgage up to 60% or possibly 70% of the purchase price depending on the circumstances and (d) the monthly rental of the Shop would be HK$10,000.00 odd (close to HK$20,000.00). Leung said if the mortgage was up to 60% of the purchase price, each Investor would still have to pay about HK$80,000.00 odd for completion and each Mortgage Instalment would be about HK$18,000.00-HK$20,000.00 (depending on the interest rate and the repayment period). Leung suggested that the Shop be transferred into the joint names of the Investors who should enter into a joint venture agreement the terms of which were to be discussed. On the following day, Leung chased Hon for his position. 34.In my view, although Hon floated various alternatives and Leung wanted to discuss various options, the Parties by this stage began to realise (a) it would be unrealistic to achieve a resale of the Shop anytime soon and (b) completion was fast becoming a reality. I make the following findings/observations on the above events, which are quite consistent with the Parties’ handling of the PG Flat investment. 35.By this stage, the market value of the Shop had dropped drastically and there was no potential purchaser. I find the Investors knew the Vendor would want to complete the sale and purchase of the Shop soon and the Shop was going to be a financial burden. Hon’s pessimism was not unjustified. He was undoubtedly troubled by his financial situation, so he was reluctant to proceed with completion. He wished to cut loss by exploring, say, an outright sale of the Shop or a release by the Vendor. He was open to any option that did not require further payment, failing which he intended to (a) urge Leung/Yung to take up his share of Shop or (b) ask Leung to become the purchaser/mortgagor and further grant him a loan for his share of the balance of the completion monies. In short, Hon wished to back out of the Investment financially in any way he could. But Hon is not unintelligent and I find that he knew the chances for these proposals (which came from financial constraint rather than commercial practicality) to succeed were quite slim. 36.On the other hand, Leung took pragmatic steps in anticipation of the nearing completion. He checked out the banks’ lending policies; he inspected the Shop to ascertain its status; he warned Hon that completion would likely be on time; he reminded Hon that time was required to arrange the mortgage and the balance of the completion monies; he calculated each Investor’s approximate share of the balance of the completion monies and the likely amount of each Mortgage Instalment; he logically analysed Hon’s proposals and rejected them; and he alerted Hon of the imminent issuance of the Notice. 37.Mr Bruce SC reiterated his submissions that Leung only did what a responsible joint venture party would do when completion was nearing. He argued that Leung was not an administrator “in the driving seat” or “in the know”. Again there is no need for me to come to either conclusion. Suffice to say Hon was evidently not “in the driving seat” and Leung plainly gave attention to the steps required for the anticipated completion. 38.In my view, Leung was vexed by Hon’s passive (and what he considered to be unhelpful) attitude. He was skeptical of Hon’s ability to complete and troubled by Hon’s willingness to cut loss with little thought of recouping their investments or minimising loss. In my view, Leung’s budding concern about the Investment had its roots in Hon’s handling of the PG Flat investment and it led to his various proposals for (a) a meeting of the Investors, (b) conveying the Shop into the Investors’ joint names, and (c) entering into a joint venture agreement. XII. Pre-December 1998 Meeting 39.Pursuant to the Notice, YTS informed Hon by letter on 15th December 1998 that completion was to take place on 28th December 1998. Leung confirmed that Tung also informed him of the scheduled completion date. 40.Mr Bruce SC criticised Hon for suggesting it was Leung who liaised with Tung through whom the Parties negotiated with the Vendor for a reduction of the Original Price. He argued that Hon’s further and better particulars of the Statement of Claim stating that such negotiations were “conducted between [Leung] on behalf of [Hon], [Leung] and [Yung] and the Vendor through [Tung]” were at best half-truths because Hon also liaised with Tung. But nothing turns on this because both Parties when they gave evidence admitted they liaised with Tung over the reduction of the purchase price of the Shop. Leung said he did so because Hon adopted a passive attitude and preferred not to complete. Hon also frankly disclosed his contact with Tung by the emails he discovered in the course of these proceedings. 41.On 19th December 1998, Leung reported to Hon by email his conversation with Tung inter alia as follows :
Leung asked for Hon’s/Yung’s position, especially whether they were prepared to proceed with completion and whether Hon could set aside HK$9,000.00 for each Mortgage Instalment if there was no tenant. Since the completion was scheduled to be on 28th December 1998, Leung said they had to decide quickly. 42.Mr Bruce SC submitted that the above email did not suggest that Leung took “the driving seat” because it was Hon who asked Tung to contact Leung to arrange for the mortgage (see Hon’s email of 8th December 1998). However, Hon did so because of Leung’s enquiries in his email of 6th December 1998. But no matter who initiated the contact, the practical reality is that Leung actively dealt with Tung on the price reduction and mortgage issues. 43.On 20th December 1998, Hon replied to Leung to say he had sought financial assistance from Yung and had asked Yung to contact Leung directly. Hon did not want to complete. He asked about their future liabilities if they did not, but accepted they would have to complete if there was no way out. He asked Leung to direct Lam as suggested. 44.Consequently, Leung told Lam to write to the Vendor’s solicitors, which Lam did on 21st December 1998 (with copy to both Parties) asking the Vendor to reduce “the purchase price by 15% to HK$1,785,000.00 (sic)” (should be HK$2,167,500.00 (the “Reduced Price”)) and to postpone the completion. Leung did not explain why this letter requested a 15% price reduction when his email of 19th December 1998 referred to a 5-10% reduction of the Original Price. In my view, he probably either had further negotiations with the Vendor through Tung or instructed YTS to bid for a more ambitious price reduction. 45.Leung told Hon to contact Tung himself for the Vendor’s position on Hon’s suggestion not to complete. With only 4 working days left, Leung urged Hon to contact Mr To quickly to sort out the mortgage if they had to complete. To save future argument or difference in opinion, Leung also suggested that the Investors should agree on a price (profit/loss) margin above which any Investor could require the Shop to be sold, failing which consent from all Investors should be required. Leung was anxious over the imminent completion (with 25th to 27th December 1998 being public holidays and 24th December 1998 usually not a fully active commercial day) and wondered how long the Investors had to carry the Investment. 46.On 22nd December 1998, Leung noted in his email that Yung had not called. He also reported that Tung had told him the Vendor was prepared to reduce the purchase price of the Shop by 15% but refused to postpone completion. Hon supposed the Vendor did not wish to have him default completion of the sale and purchase of the Shop. Leung chased for Hon’s/Yung’s position on the time/mode of the resale of the Shop and on the progress of the mortgage application from Mr To. So by 22nd December 1998 the Parties knew a reduction of 15% off the Original Price would be no problem. No matter how welcome the thought was, there is little evidence further reduction of the purchase price was likely or forthcoming. Hon eventually regarded the Reduced Price as the Vendor’s final position and the outstanding balance payable on completion was therefore reduced to HK$1,402,500.00 (the “Reduced Balance”). 47.Hon was unable to obtain finance elsewhere so he followed Leung’s email to approach the finance company referred therein through Mr To. The finance company was later known as Famous Place Limited (“FPL”) and understood to be related to the Vendor. Hon claimed he did not know the exact relationship between FPL and Mr To but believed Mr To was a credit agent (see his description of Mr To as a “finance agent” in his email of 11th January 1999 to Leung). Mr Bruce SC conceded that finance from FPL was not realistically obtainable absent Mr To. Hon had the impression that (a) Mr To knew something about the Investors’ purchase of the Shop and their dealings with the Vendor and (b) the mortgage loan had been tentatively arranged so he was merely going through the motions. Consequently and also because he considered they had no bargaining power or choice, Hon did not try to negotiate with Mr To. After his liaison with Mr To, Hon was confident the Investors would be able to obtain the necessary finance to complete the purchase of the Shop. 48.On 22nd December 1998, Hon in his email to Leung promised to follow up with Yung. Hon had no problem with registering the Shop either in his name or in the joint names of the Investors. He advised Leung that Mr To would charge HK$15,000.00 as commission (the “Commission”) for arranging the finance. “If everybody is happy about it, I will arrange finance tomorrow.” “We can even get some cash if we can raise the finance with Mr. To.” 49.I find on balance (and Leung must have understood from the above) that Hon suggested applying for a mortgage loan exceeding the balance of the purchase price payable on completion so there would be some surplus cash. But I reject Leung’s suggestion that by this stage he still understood the mortgage finance could be up to 70% of the Original Price. It is true that Hon’s/Leung’s earlier emails of 4th and 11th December 1998 respectively referred to Tung saying that depending on the circumstances banks could arrange mortgages up to 70% of the purchase price. But these emails were overtaken by Tung’s advice that the Vendor was willing to reduce the Original Price by 5-10% and that a specific finance company through Mr To was prepared to lend “60% of the contract price of the shop on the security of a mortgage” (see Leung’s email of 19th December 1998). 60% of the FASP contract price amounted to HK$1,530,000.00. In my view, the Parties had a rough idea at the time that the finance obtainable through Mr To would be about HK$1,500,000.00. By this time, Hon had not approached any other finance company and there was no further mention of 70% of the Original Price. 50.Leung then replied on the same day (ie 22nd December 1998) to ask Hon inter alia the exact terms of the loan and the solicitors’ charges for the finance company. He further suggested that it would be good for the Investors to agree on the mode of dealing with the Shop (particularly as to when it should be sold) before completion so to avoid future arguments. In my view, it is probable that Leung was affected by the difference in opinion between himself and Hon over the PG Flat investment and he wished to have an exit strategy in place for the Investment to protect his interests. Leung said he also feared Yung (whom he barely knew) and Hon would join up to outvote him. Leung further thought it was inappropriate to get further cash in excess of the amount required for completion because with Hon in financial difficulties and the Shop to be conveyed into Hon’s name Leung had a lurking worry he might lose control over the extra cash. I believe Hon’s earlier plea for financial assistance in the form of a loan from Leung or an overdraft facility to be obtained by Leung for him was still fresh in Leung’s mind. Leung also said he preferred to have the Shop in Hon’s name with a declaration of trust in favour of his nominee and asked Hon to raise it with Yung. 51.To be fair I do not think Hon was thinking of getting extra cash and siphoning it for his personal use. He was probably trying to raise finance for the other necessary payments (apart from the balance of the purchase price) required for completion so that the Investors did not have to put up any further cash. As evident in his email of 23rd December 1998, it appears that Hon was more concerned with surviving the imminent completion than worrying over any exit strategy. Hon did not directly reply to Leung’s request for discussion about the mode of dealing of the Shop in such email but said he would get Yung to liaise with Leung, and at the same time he reminded Leung that the following day was the practical deadline for making all decisions including the loan. Hon also pointed out that Mr To would charge the Commission at 1% on the loan amount. “If there is other alternative, I will be more than happy to go along with it. If not, we have no choice.” 52.In my view, despite his wish for discussion on the exit strategy, Leung was pragmatic enough to realise that completion was most likely a practical reality. He therefore worked with Tung/Lam on the reduction of the purchase price of the Shop. He also actively urged Hon to deal with the mortgage and chased Hon for progress on that front. I also find on balance that by this time Leung himself also had a fairly good idea of the key terms of the proposed mortgage loan. He would have known from Mr To’s request of the Commission of HK$15,000.00 (ie 1% of the loan amount) that the mortgage loan was expected to be roughly HK$1,500,000.00 (which was consistent with Tung’s earlier advice that the finance company would be prepared to lend 60% of the contract price (ie HK$1,530,000.00)). On the basis of the Reduced Price as agreed by the Vendor according to Tung, there would be a slight surplus of about HK$100,000.00 in excess of the Reduced Balance. Tung had already told Leung the interest payable was at a fixed rate of 12% pa and the repayment period was 7 years. I further find that Hon did not bother with the other mortgage terms (which he expected would lean heavily in favour of the finance company anyway) and therefore did not tell Leung about them. 53.I reject Leung’s contention that he considered it prudent for Hon to apply for a mortgage loan of 70% of the Original Price in case the Vendor refused to reduce the purchase price. By this time the Parties were already working on the premise of the Reduced Price. Indeed, on 24th December 1998, YTS wrote to YP to formally confirm their respective clients had agreed to reduce the purchase price to the Reduced Price and to ask YP to revert on an urgent basis. 54.Returning to 23rd December 1998, Leung emailed Hon to say he had not heard from Yung. He told Hon that “[to] protect our interests, you better go ahead with the mortgage for the time being pending our resolution of the outstanding matters.” When he read such email, Hon thought “the outstanding matters” related to the terms for the future disposition of the Shop that Leung had referred to earlier. Hon replied on the same day he would arrange for the mortgage “tomorrow at 1500hrs.” Hon did apply to FPL on 24th December 1998 for a mortgage loan (the “Mortgage Loan Application”) and he probably signed some application form, but did not ask for a copy. He could not recall whether Mr To gave the form to him, where he signed it or whether he had to furnish income proof (but he doubted it). Time was running out. The main thing for Hon was to secure the finance whereupon YTS would take care of the conveyance. Hon said he was not even concerned about the identity of the lending institution so long as the interest rate was manageable. 55.In my view, given the limited time to the scheduled completion date, the Parties plainly knew (despite talk about leaving all options open) that completion was a probable reality. Hon seemed resigned to proceed with completion if there was no way out. Leung said he had a plan and proceeded to work with Tung to reduce the purchase price of the Shop and to identify a source of finance for completion. 56.More importantly, with the above developments, I find on balance there was a gradual shift in the Parties’ respective approach to the Investment. Hon’s previous reluctance to complete in face of his financial difficulties gave way to a more positive stance in light of (a) the Vendor’s agreement to the 15% price reduction and (b) his impression from Mr To that the necessary finance would be secured. Hon believed he would not have to come up with the completion monies and associated costs/expenses. His financial concerns were eased to such an extent that he even proactively reminded Leung on 23rd December 1998 that the following day was the deadline to make all practical decisions for completion. Further, Hon’s former pessimistic view that he would be unable to pay his share of the future expenses also changed with his intention to look for a new job. He explained that if he left his then employer he would be entitled to access his provident fund (about HK$1,000,000.00) which would improve his cash flow. So Hon thought he would be able to find a way (whether with assistance from family/friends or by seeking further loans or otherwise) to pay for the Mortgage Instalments and he told Leung he would try his best to do so. 57.On the other hand, there is some gradual surfacing of Leung’s queries over the future of the Investment and on the threshold price for the resale of the Shop. This no doubt stemmed from the possibility he perceived of future arguments or differences in opinion (as alluded to in Leung’s emails) and/or that Hon/Yung might outvote him. There is also his previous experience of Hon wanting to sell the PG Flat to cut loss. Leung also suggested having a declaration of trust in place to safeguard his interests in the Investment. He also had some unease over the possible dissipation of any extra cash that might pass from FPL into Hon’s hands. Leung wanted to air these issues (the “Underlying Issues”) and resolve them at a meeting of the Investors. This eventually led to the December 1998 Meeting. Just prior to such meeting, Leung on 25th December 1998 asked Hon to keep him updated “on the particulars of the mortgage, the terms of the loan, the position of Mr. To and the outcome of your application.” However, Leung was also very much alive to the practical reality that the scheduled completion was only 2 working days away and 24th December 1998 was normally not a fully active commercial day. Interestingly, Leung was unwilling to directly explore with the Vendor the possibility of non-completion and said it was up to Hon to do so himself if he did not want to complete. XIII. Mr To 58.On 22nd December 1998 Leung emailed Hon to say inter alia that he did not think it was a good idea to pay any commission to Mr To without knowing his relationship with the lending institution although he was not against the idea of paying lawful commission. Leung also thought HK$15,000.00 was too high. I also refer to the emails of 22nd, 23rd and 25th December 1998 discussed above that referred to Mr To. 59.Leung was concerned that payment of commission to Mr To might be an illegal advantage if he was not authorised to accept such commission (see section 9 of the Prevention of Bribery Ordinance Cap.201). Leung was working at the Department of Justice’s prosecution division and feared that payment of the Commission might result in investigation/prosecution against him that would adversely affect his professional career and cause publicity/embarrassment even if he were exonerated. 60.For the avoidance of doubt, Mr Bruce SC conceded he could not say whether the Commission payable (and, according to Hon, eventually paid) to Mr To was unlawful and it was conceivable Mr To was properly authorised. Mr Bruce SC further accepted that such unlawfulness (if any) would not vitiate the sale and purchase of the Shop. Leung also agreed in evidence that it would not taint the substantive loan itself. 61.According to Hon, Leung’s emails of 19th, 20th and 22nd December 1998 (see above) suggested that his first discussion with Mr To (whose full name Hon could not say) should be on 21st or 22nd December 1998. Hon remembered speaking to Mr To by telephone, but could not recall how many times or whether he had met Mr To. Hon remembered giving a copy of his identity card to Mr To but could not recall whether it was by fax or not. But Hon remembered he told Mr To that the finance was required for the balance of the purchase price and the completion expenses. 62.Hon claimed he thought Leung over-cautious in his queries over the payment of the Commission when there were no suspicious circumstances. Mr To was introduced by Tung. Mr To requested commission quite openly and did not ask Hon to keep it secret. Further, Hon believed that Leung who had no knowledge of the details of the negotiations could not be even remotely implicated. Hon was unenthusiastic about making the suggested enquiries and eventually did not do so. He said he had probably told Leung there would be no problem. 63.Mr Bruce SC criticised the paucity of details about Hon’s dealings with Mr To, including the circumstances surrounding the payment of the Commission discussed below. However, having considered the totality of the evidence, I accept on balance Hon’s evidence that he did attempt to brush aside Leung’s queries as being over-cautious, but I have some reservations whether he did so in earnest. 64.Hon confessed his inability to obtain loans from banks. He had no means and knew it was unlikely that he would be able to obtain funds to pay his share of the balance of the completion monies (if the Investors proceeded to completion) or the price difference that the Vendor would inevitably claim against him (if the Investors did not complete). Obviously Hon did not want to be sued, which might cause other creditors to call in their facilities and perhaps even lead to his bankruptcy. He was between a rock and a hard place, hence his attempts to “get out” of the Investment financially as explained above. 65.However, although the Investors mouthed the ideal option of the Vendor releasing them from their obligations under the FASP, I have found that they knew by late December 1998 such option was probably unrealistic, especially with the Vendor unwilling to postpone the scheduled completion date. I find on balance that once FPL (through Tung/Mr To) arrived on the scene with a tentative assurance of finance, Hon began to perceive that the Investors might be able to complete without having to put up further cash. This, in my view, explains Hon’s increased animation (in contra-distinction to his earlier passive stance) in dealing with completion matters after he had liaised with Mr To. So when he reported to Leung by email on 22nd December 1998, Hon pushed to get extra cash and to arrange the finance on the following day. On 23rd December 1998, Hon again by email urged Leung to decide on the loan by the following day and reminded they probably had no choice. He also proceeded with due speed when Leung said he could go ahead with the mortgage. 66.I accept Hon’s evidence that Mr To did ask for the Commission for arranging the finance. Hon must have understood Leung’s queries over the Commission as alluded to in his emails. However, I find on balance that Hon was unwilling to let these queries rock the boat to completion by making the enquiries suggested or by asking too many questions. Time was running out and no other source of finance was available. Hon admitted the only important thing to him then was to obtain the finance from FPL through Mr To, so much so that he was unconcerned about the identity of the lending institution (so long as the interest rate was manageable) and he would not bargain at all over the terms of the loan. It is with this mindset that Hon went into the December 1998 Meeting. XIV. December 1998 Meeting 67.The following matters are not disputed :
68.Mr Bruce SC criticised Hon for (a) pleading 27th December 1998 as the date of the December 1998 Meeting but referring to “late December 1998” in his witness statement and (b) erroneously (as Hon frankly admitted) asserting in Hon’s Letter and his pleadings/witness statement that the Investors would further negotiate with the Vendor to reduce the purchase price of the Shop. Nothing turns on these matters in light of the above undisputed facts and Hon’s disclosure of the relevant emails during discovery. The documents also show that the Reduced Price was the final agreed price. 69.In my view, the Investors (particularly with Hon/Leung being lawyers) must have known that if they did not complete, the Vendor would inevitably sue Hon for the price difference and the conveyancing costs. Leung said there was discussion as to whether they should bid at the subsequent auction of the Shop by the Vendor after default in completion to prevent a resale at an unreasonably low price. Hon claimed they believed the market price of the Shop was less than the balance of the purchase price although they did not have the figures. Leung claimed the then market value of the Shop was probably below the Reduced Balance but close. It suffices for me to find on balance that the Investors believed there was no real market for the Shop and any resale would be for a very low price. The reality was that Hon did not want to be sued and the Investors were unwilling to put up cash for the aforesaid price difference. So although the options of not completing or of negotiating with the Vendor for postponing or releasing them from completion were floated, I find on balance that such options were quickly discarded at the December 1998 Meeting in favour of a decision to complete. In my view, the Investors plainly knew such other options were impractical. Completion was scheduled for the following day and the Vendor would not agree to any postponement. 70.Leung said the most hotly debated topic at the December 1998 Meeting was the Future Disposition. Leung suggested the Investors should hold the Shop for at least a year or recover ¼ of their investments. Leung claimed (and Hon conceded it was possible) Yung indicated he would prefer to recover at least ½ of his investment. The Investors failed to reach consensus. Mr Bruce SC submitted that an agreement on the Future Disposition was essential because the Investors originally understood the Shop was for short-term investment. However, since those early days, the property market has fallen significantly and the Parties’ respective approach to the Investment has evolved as aforesaid. In my view, by the time of the December 1998 Meeting, although Leung still had some queries about the future of the Investment and about Mr To, Hon was not concerned about these matters but was focused on the completion (after discarding the other options). In my view, the Investors realised that obtaining the loan from FPL and completing the purchase of the Shop was the least bad (and probably the only practical/viable) option despite some unresolved issues on the Future Disposition and they acted accordingly. Indeed, Leung when he gave evidence admitted that proceeding with completion was for controlling loss and for getting back certain of their paid deposits. (a) Alleged representation as to the loan amount 71.1st Representation Leung claimed that at the December 1998 Meeting Hon represented to Leung/Yung the mortgage loan had been approved at 70% of the Original Price, so the surplus (ie about HK$382,500.00, being the Original Balance of HK$1,785,000.00 less the Reduced Balance of HK$1,402,500.00) would be sufficient to cover the necessary completion costs and expenses (the “Completion Expenses”, which include inter alia stamp duty, the solicitors’ charges for the Vendor, the purchaser and the mortgagee, deposits for the management company and charges for certified title deeds) as well as the first 3 Mortgage Instalments of about HK$30,000.00 each, which in turn would give time for the Investors to meet within 3 months after completion to set the time, manner and particulars for the resale of the Shop (the “1st Representation”). Leung claimed it was understood such surplus would be available at the drawdown of the mortgage loan and credited into Hon’s bank account. 72.Factual background and arguments According to Leung, the 1st Representation was important because the Investors failed to agree on the Future Disposition at the December 1998 Meeting. It would give the Investors 3 months to further discuss and reach agreement before they had to make payment in April 1999. Leung claimed that if Hon had not made the 1st Representation at the December 1998 Meeting, he would have insisted that the Investors (a) negotiate with the Vendor to postpone the completion on terms or (b) not proceed with the completion at all. I refer to paragraphs 69 and 70 above and reject such assertion. 73.By 22nd December 1998 the Investors knew that the Vendor had agreed to the Reduced Price pending formal confirmation via solicitors. I accept that at the December 1998 Meeting the Investors (who did not wish to put up further cash payments) discussed the mortgage arrangements required for paying the balance of the purchase price and the Completion Expenses. They thought stamp duty was chargeable at 2.75% of the Reduced Price at about HK$60,000.00. In respect of the solicitors’ charges, Hon said YTS’ charges would be more negotiable since Lam was their friend/former classmate, but he had no firm idea of YP’s charges. Precise information was not available (note the absence of split cheque instructions or communications between the Investors and YTS on such topic up to that stage) but, in my view, Leung (a former solicitor with conveyancing experience) had some idea of the ballpark figures (see below). 74.I find on balance Hon reported to Leung/Yung that he had made the Mortgage Loan Application for a loan of about HK$1,500,000.00 which would cover the Reduced Balance with a surplus of about HK$100,000.00 for the Completion Expenses. Hon’s reading of the commercial reality was that the Vendor/FPL would not wish to see him default completion, so at the December 1998 Meeting he expressed confidence in securing such mortgage loan (even though it was not formally approved yet). He believed the Investors would be able to complete without having to put up further cash, but they could always apply for a further/bigger loan if there was any need. 75.Hon frankly accepted he had the timing wrong when his pleadings/witness statement stated it was agreed at the December 1998 Meeting that he should make the Mortgage Loan Application. He picked up such error shortly before the trial when he revisited the emails. In my view, nothing turns on this since it is common ground that Hon made the Mortgage Loan Application prior to 27th December 1998 (see the Parties’ evidence as well as the emails of 23rd December 1998 which Hon disclosed in the course of discovery). The crux of the dispute is not the timing but the amount of the loan. 76.Analysis Upon considering the totality of the evidence and on the balance of probabilities, I reject Leung’s claim in respect of the 1st Representation. In particular, I do not believe Hon represented that the loan was for 70% of the Original Price. 77.First, as explained in paragraph 49 above, the emails show that by the December 1998 Meeting the Parties no longer contemplated a mortgage loan at 70% of the Original Price. Hon approached Mr To for a loan from FPL on the basis of Leung’s email of 19th December 1998, ie “60% of the contract price of the shop on the security of a mortgage”, and he did not bargain/negotiate over the amount of the loan. The subsequent emails did not report differently and the letter from Leung’s solicitors dated 24th January 2000 in reply to Hon’s Letter (“Leung’s Letter”) also did not make any specific reference to 70% of the Original Price. 78.Secondly, Hon reported clearly in the emails to Leung that Mr To’s Commission of HK$15,000.00 was 1% of the loan amount, so the Parties must have contemplated that the loan would be about HK$1,500,000.00. This was less than 70% of the Original Price (ie HK$1,785,000.00). If the loan amount were 70% of the Original Price, Leung was unable to satisfactorily explain Mr To’s complacence in agreeing to HK$15,000.00 as the Commission or why no Investor queried about the discrepancy at the December 1998 Meeting. 79.Thirdly, Leung claimed he understood the then market value of the Shop was probably below the Reduced Balance but close. So when Mr Chow, counsel for Hon, suggested to himFPL had no legitimate reason to grant a mortgage loan at 70% of the Original Price (ie substantially above the market value), Leung was constrained even on his own case to acknowledge it was not normal to grant a mortgage loan in excess of the value of the mortgaged property. Leung attempted to explain this away by saying the loan could have been a mortgage loan coupled with some other type of loan. However, such explanation does not sit well with Leung’s Letter or his pleadings/witness statement/evidence-in-chief, which consistently referred to a mortgage loan of 70% of the Original Price. I find Leung’s explanation unconvincing. 80.I also disagree that Hon represented that the loan had been approved. I find on balance it was more probable that Hon only expressed confidence that the finance company would approve the mortgage loan. The Mortgage Loan Application was only made in the afternoon of 24th December 1998 and there is no evidence of approval before 27th December 1998. In my view, Hon had no sensible/commercial reason to lie about or boast of FPL’s approval at the December 1998 Meeting. I also note that Leung’s Letter alleged that Hon represented he would take out a mortgage loan on the Shop, which is different from the 1st Representation. 81.In any event, the 1st Representation is unnecessary to tempt Leung/Yung to proceed with completion because (a) Leung’s earlier emails (eg those of 11th and 19th December 1998) show Leung already anticipated completion and a possible need to pay his share of the balance of the completion monies and the Mortgage Instalments and (b) the Investors (as I have found) discussed, realised and concluded at the December 1998 Meeting that defaulting completion was not a realistic option. Further, on Leung’s case, Hon must have known Leung/Yung would discover the falsity of the 1st Representation almost immediately when he asked for their contributions to the Completion Expenses and/or the first Mortgage Instalment. This is plainly a serious disincentive against making the 1st Representation. 82.In any event, I find on balance that the 1st Representation is inherently implausible even on Leung’s case. I also note that the Completion Expenses referred to broadly at the December 1998 Meeting were more in line with the surplus Hon anticipated of about HK$100,000.00 instead of the surplus of HK$382,500.00 alluded to by Leung. 83.According to Leung, after deducting about HK$90,000.00 (the Mortgage Instalments for the first 3 months) and about HK$60,000.00 (the expected amount of stamp duty) from the alleged surplus of HK$382,500.00, the remaining surplus of about HK$232,500.00 would be for solicitors’ charges and miscellaneous disbursements for the purpose of the completion. Yet Leung was unable to satisfactorily explain why he or the Investors would regard such sum as reasonable and/or appropriate for the acquisition of a property for only HK$2,167,500.00. 84.Leung tried to sidestep this by saying he could not remember the rough figures Hon gave at the December 1998 Meeting. But on the 5th day of trial, Leung said under cross-examination “at the time, during that meeting, the stamp duty was mentioned to be 2.75 per cent of the purchase price [ie about HK$60,000.00]. There were solicitors’ costs in the regions of tens and twenties of thousand dollars for the vendor, for the head vendor and also for the mortgagee. There were also fees for certified copies of the title deeds, and deposits to be paid to the management company on completion. From memory Mr Hon said roughly monthly instalment for the mortgage would be in the region of $30,000” (my emphasis). Even with such approximate information, Leung (who exhibited care about figures in his emails and who had prior conveyancing experience as a solicitor) would have instantaneously called into question the alleged surplus because the 1st Representation suggested that the solicitors’ charges and miscellaneous disbursements were about HK$230,000.00, which is obviously contrary to his evidence above. 85.Leung was therefore constrained to concede under cross-examination that the figures Hon provided at the December 1998 Meeting were stretched or cushioned. On balance I reject Leung’s claim, namely, that he relied on Hon implicitly and did not address his own mind to the conveyancing costs, as unreliable in light of Leung’s conveyancing experience, his own strained finances and his unwillingness to obtain extra cash from FPL. After all, any larger than necessary loan contemplated under the 1st Representation would result in the Investors having to make increased repayment to the finance company. 86.Further, Leung never followed up on the alleged surplus after 27th December 1998. He claimed it was for Hon to report to him of any substantial changes. But this does not sit well with Leung’s claimed knowledge/expectation that the finance company would issue a facility letter or confirmation upon approval of the loan. Leung never bothered to ask for sight or copies of such documents at the December 1998 Meeting or thereafter despite his suspicion that the alleged surplus was stretched or cushioned. 87.I also do not accept Leung’s claim that 3 months of breathing space for the Investors to have another meeting to agree on the Future Disposition was of paramount importance to him, so much so that otherwise he either would have refused to complete or would have insisted on reaching consensus at the December 1998 Meeting. Essentially the advantage in partially using the alleged surplus to pay the first 3 Mortgage Instalments is the convenience of not having to put up cash for the first 3 months, but such alleged surplus would still have to be repaid with interest. In my view, the alleged gain in time/convenience is more apparent than real and was not of such importance to Leung as suggested. There is no suggestion that Leung could not pay his share of the Mortgage Instalments. Further, with or without the alleged surplus, there is nothing to prevent the Investors from holding a further meeting at any time after completion to discuss the Future Disposition. 88.I am not persuaded by Mr Bruce SC’s submission that although there was an opportunity cost (ie interest payable on the surplus) for gaining time/convenience, it helped to keep the Investors’ relationship and was the least bad option in all the circumstances. The fruitless efforts in 1998 demonstrated it was unrealistic to expect the Shop to be sold within 3 months after completion and I believe the Investors knew this. Leung in his email of 11th December 1998 also acknowledged that the chance of an outright sale was slim. His email of 19th December 1998 plainly noted there was no interest in the market in renting the Shop. At the December 1998 Meeting, Yung/Leung were talking of holding the Shop for, say, up to a year, or until there would be some reasonable return or recovery of the paid deposits. Leung was clearly ready to pay the Mortgage Instalments irrespective of the breathing space of 3 months once completion took place. Further, Leung said he did not think the Investors would reach agreement if a further meeting was called too soon after the December 1998 Meeting. There is simply no indication that the Shop would likely be sold/let or that consensus amongst the Investors would likely be reached within the first 3 months of the completion. 89.Mr Bruce SC argued the 3 months of breathing space must also be important for Hon because he was struggling to keep his head above water financially and therefore likely to play for time as well. However, I have found that Hon was at this stage focused on getting through the completion to avoid immediate crystallisation of his liabilities on default and was less concerned with his future payment obligations. I have also concluded in paragraph 56 above (see discussion below as well) that Hon at this stage believed he could have found a way to pay his share of the Mortgage Instalments. Indeed, this was how he usually responded to financial adversities. In all the circumstances, I find it unlikely that the Investors insisted on a three-month spell to agree on the Future Disposition. (b) Solicitors’ correspondence 90.Leung’s arguments and overview Leung’s reading of the solicitors’ correspondence between YP and YTS was that by 28th December 1998 a sum of HK$1,785,000.00 (ie 70% of the Original Price) had been paid to the Vendor/YP pending completion. Leung said this was evident from the draft/issued undertaking letter by YTS (see below), which must have been prepared on Hon’s express instructions and to which YP did not protest. Leung argued this meant there was a surplus in excess of the Reduced Balance to pay inter alia miscellaneous expenses payable on completion, which was consistent with the 1st Representation that the surplus would inter alia be partially used to defray the Completion Expenses. Leung said the Vendor/YP holding the sum of HK$1,785,000.00 had to account to Hon for the overpayment “in due course”. However, Leung conceded he had no personal knowledge of such solicitors’ correspondence or of the dealings between YTS and Hon. 91.Having carefully read the solicitors’ correspondence and considered counsel’s submissions, I am unable to conclude on the balance of probabilities that such correspondence necessarily admit of Leung’s interpretation. 92.Solicitors’ correspondence On 21st December 1998, YTS wrote to YP to say they had “instructions from their client to request your client’s assistance to help our client to complete the purchase by reducing the purchase price by 15% to HK$1,785,000.00 (sic)”. Such amount was a mistake since the Reduced Price should be HK$2,167,500.00. On 24th December 1998, YTS wrote to YP to say their respective clients had agreed to the Reduced Price and asked YP to take instructions and revert urgently. On 28th December 1998, YP replied they had passed the request to the Vendor for consideration/confirmation and would revert as soon as practicable. YTS followed up with another letter to YTS on the same day and referred to the telephone confirmation between solicitors that their respective clients had agreed to the Reduced Price. YTS also noted in the letter “that the balance of the purchase price in the sum of HK$1,402,500.00 [ie the Reduced Balance] is already in [YP’s] possession and to be tendered to the Vendor by [YP] for the completion of [the Shop].” YP eventually wrote to YTS on 30th December 1998 to confirm the Reduced Price. 93.Continuing with the correspondence on 28th December 1998, YTS sent for YP’s approval inter alia a draft undertaking specifying that “…… we send you herewith the following cheque(s) …… for the total sum HK$ representing the total amount payable to complete the purchase and to obtain possession thereof ……”, which was the usual form of solicitors’ undertaking adopted for completion by undertaking. The blank amount suggested that YTS did not yet have split cheque instructions at that stage. 94.Later on the same day YTS sent to YP inter alia the 2nd and later the 3rd revised draft undertakings which specified that “…… we are instructed that our client has paid to your client direct in the sum of HK$1,785,000.00 today being the total amount payable to complete the purchase and to obtain possession thereof”. YTS issued the undertaking as per the 3rd revised draft on the same day. However, the scheduled completion on 28th December 1998 was postponed despite the availability of the Reduced Balance (ie the mortgage loan agreement and the mortgage deed of the same date only granted a mortgage loan for the Reduced Balance) because the Vendor did not receive the payments for (a) the solicitors’ charges of the Vendor and the head vendor, (b) the management deposits and fees and (c) the fees for certified copies of title deeds. 95.On 30th December 1998, YP confirmed that completion shall take place on the date of receipt of YTS’ fresh undertaking and all outstanding cheque payments payable to the Vendor, which included the Reduced Balance, solicitors’ charges for the head vendor (HK$9,875.00), management and air-conditioning fees and deposits (HK$16,684.40), YP’s charges for the Vendor (HK$12,025.00) and YP’s charges for certified copies of title deeds (HK$4,106.00). By another letter of the same day, YP confirmed they were holding the Reduced Balance (ie HK$1,402,500.00) “being the agreed loan amount to be advanced to [Hon] in financing the acquisition of the [Shop]” and the loan amount would be tendered to the Vendor against YTS’ undertaking. YP also requested YTS to send cheques for the other payments. On 31st December 1998, YTS wrote to YP to say it had “no objection to [YP’s] amendment to the undertaking letter dated 28th December 1998”. 96.On 4th January 1999, YTS wrote to Hon to remind that unless monies for the cheques identified in YP’s letter of 30th December 1998 other than the Reduced Balance were forwarded to them, the transaction might not be completed. Hon was urged to arrange the relevant cashier orders. Hon claimed that when he found out (probably from such letter) about the monies payable to YTS, he probably told Leung/Yung by telephone they had to pay further amounts and gave them a range of payment without specific details. Leung denied this (see below). FPL granted a further loan to Hon on 14th January 1999 (see below) and the assignment for the sale and purchase of the Shop was duly executed on the same day. 97.Analysis Although the burden falls on Leung to establish the 1st Representation, Mr Bruce SC criticised Hon for not returning to the witness box and/or for not calling Lam as a witness to deal with the solicitors’ correspondence discovered only after Hon finished his evidence. But irrespective of which party carries the legal/evidential burden of proof, I am not satisfied on balance that Leung’s contention is probable/likely and I cannot discount the real probability that YTS made an error. 98.YTS had not been error-free. On 24th December 1998, YTS mistook the Original Balance for the Reduced Price in its letter to YP. Such error was not remarked on in the subsequent correspondence, so it is doubtful whether either YTS/YP noticed the error. But YTS got the amount right when its letter of 28th December 1998 to YP stated the Reduced Balance of HK$1,402,500.00 was already in YP’s possession to be tendered to the Vendor upon completion. This is echoed in YP’s letter to YTS dated 30th December 1998 confirming they were holding HK$1,402,500.00 “being the agreed loan amount advanced to [Hon] in financing the acquisition of the [Shop]”. There is no indication in these 2 letters that the Vendor/YP held any further loan sums. 99.Leung suggested this did not mean the Vendor was not holding the alleged surplus. But if the statement in YTS’ draft/issued undertaking that the sum of HK$1,785,000.00 was already with the Vendor and “payable to complete the purchase” is correct, there would have been more than sufficient monies to complete the purchase on 28th December 1998. There is no or no satisfactory explanation why YTS/YP did not in their correspondence mention about using part of such sum (ie part of the alleged surplus) to pay the Completion Expenses in line with the 1st Representation or why they actually did not do so. Further, the reality was that completion did not take place on 28th December 1998 for the very reason that the Completion Expenses were outstanding. Even if completion had to be postponed for some other reason (which I disagree), there would have been no need for (a) YP to demand various cheque payments, (b) YTS to request Hon for such monies or (c) FPL to grant the further loan (see below) if the Vendor/YP were holding the sum of HK$1,785,000.00 which could be partially used for paying the Completion Expenses. In my view, the above facts are more consistent with Hon’s case that as at 28th December 1998 there was just the mortgage loan of HK$1,402,500.00 from FPL sufficient only to pay the Reduced Balance. 100.Further, Leung’s contention that the sum of HK$1,785,000.00 was already with the Vendor/YP is premised on his claim that HK$1,402,500.00 was from the mortgage loan and the alleged surplus was from another type of loan. I have found such contention unconvincing. 101.Coming to the wording of YTS’ revised draft/issued undertaking, I repeat that Leung was unable to satisfactorily explain why it should state that the sum of HK$1,785,000.00 was paid to the Vendor “to complete the purchase” when the Reduced Balance and the Completion Expenses payable at the time of completion were, even on Leung’s own case, less than such sum. Indeed, such statement in YTS’ revised draft/issued undertaking is incorrect and erroneous on either Party’s case. Leung’s feeble answer was to brush this aside by saying he did not draft/revise YTS’ undertaking. In my view, there is no or no satisfactory reason for the sum of HK$1,785,000.00 to be paid to the Vendor/YP. Even assuming (as Leung claimed) that 2 types of loans were involved, there is no reason for YTS to refer to the discrete non-mortgage loan in its conveyancing-related undertaking. Leung was constrained to suggest it must have been Hon who gave instructions for both loan sums to be paid over to the Vendor/YP and for the alleged surplus to be returned to him “in due course”, but it still begs the question why Hon would want the non-mortgage monies to go through such a circuitous route. There is also no evidence before me that Hon gave express instructions to YTS to such effect. In fact, I find it more likely that he would leave the technicality of the conveyance to YTS after he executed the mortgage documents on 28th December 1998. 102.Mr Bruce SC submitted that YP did not protest against YTS’ draft/issued undertaking and such silence was deafening. However, there is no evidence that YP commented on or approved the draft/issued undertaking. Completion did not take place on 28th December 1998 and when YP responded on 30th December 1998 they confirmed they were holding HK$1,402,500.00 (not HK$1,785,000.00) as the agreed loan amount to be advanced to Hon for financing the acquisition of the Shop. It is evident from YTS’ letter of 31st December 1998 that YP had proposed amendments to YTS’ undertaking letter of 28th December 1998 (the nature of which is unknown) and YTS had no objection to the amendments. The eventual YTS’ fresh undertaking letter for completion in January 1999 was not discovered. But it is plain that the undertaking YTS issued on 28th December 1998 was not the final one and that YP confirmed it held HK$1,402,500.00 for the acquisition of the Shop. 103.Mr Bruce SC argued that the remarkable coincidence between the sum of HK$1,785,000.00 stated in YTS’ draft/issued undertaking and the 1st Representation removed any possibility of error or oversight. However, such argument carried with it all the problems referred to above which could not be reasonably or satisfactorily explained on either Party’s case. But such awkwardness falls if one adopts the interpretation that YTS erroneously inserted the amount of HK$1,785,000.00 in place of the amount of the Reduced Balance in its undertaking letter. It is unnecessary for me to come to a definitive view on this although I am inclined to support such interpretation. Suffice to say that on balance the solicitors’ correspondence does not necessarily admit of Leung’s interpretation. 104.Findings In the circumstances, I conclude on balance that at the December 1998 Meeting (a) Hon told Leung/Yung he had applied to FPL for a mortgage loan of about HK$1,500,000.00 which was likely to be granted, so the Investors would not have to pay cash for the Completion Expenses, (b) the Investors agreed that Hon could proceed to deal with FPL to secure such loan and (c) the Investors also agreed to complete the purchase of the Shop on such basis. (c) Alleged representation in relation to Mr To 105.2nd Representation Leung averred in his pleadings that Hon represented at the December 1998 Meeting that (a) he would make enquiries into the relationship between FPL and Mr To as well as the lawfulness or otherwise of the Commission of HK$15,000.00 payable to Mr To and (b) if the payment was lawful, he would obtain a receipt signed by Mr To with his name thereon. In Leung’s Letter, Leung claimed Hon represented inter alia he would at the very least get a receipt from Mr To to include his name and identity card number. In his witness statement dated 7th April 2003, Leung said inter alia he had asked Hon to obtain a receipt from Mr To stating his full name, identity card number and his capacity in accepting the Commission, to which Hon agreed. The above alleged representation by Hon is referred to as the “2nd Representation” below. 106.Leung’s case Leung said he could not afford the slightest whiff of any potential criminal investigation, but went along with the completion because he believed Hon would resolve the issues relating to Mr To and satisfy himself as to the lawfulness of the payment of the Commission before the drawdown of the mortgage loan. Leung relied on Hon to make enquiries because he did not have the locus to do so. He was not the formal purchaser/borrower, so Mr To would probably not be prepared to deal with him. Leung also believed Mr To’s receipt would probably state the name of his company and his capacity in receiving the Commission. Leung claimed he would have refused to complete or would have sought alternative finance arrangements if Hon had not made the 2nd Representation. 107.Hon’s case Hon claimed he could not remember whether the issue of the the Commission payable to Mr To was raised at the December 1998 Meeting, but he denied having made the 2nd Representation or that Leung asked him for a receipt from Mr To. He brushed aside Leung’s concerns. He further admitted he had no intention to obtain a copy of Mr To’s identity card or to find out Mr To’s precise relationship with FPL. 108.Analysis Upon considering the entirety of the evidence, I find as a fact on the balance of probabilities that Hon did not make the 2nd Representation even though the matter of Mr To was raised at the December 1998 Meeting. In coming to this view, I have also considered the following reasons as well as the circumstances of the payment of the Commission to Mr To discussed below. 109.I accept that Leung had some queries over the payment of the Commission to Mr To shortly before the December 1998 Meeting. I also note that Leung’s email of 23rd December 1998 placed this item on the agenda for the meeting. I therefore accept this issue was canvassed at the meeting. But how the Investors dealt with such issue must be considered against the background facts as well as what happened at the meeting. My rejection of the 1st Representation, which was allegedly made simultaneously with the 2nd Representation, certainly casts a shadow over Leung’s veracity in relation to the 2nd Representation. 110.I am not persuaded by Mr Bruce SC’s submission that Leung was given to understand that Hon shared similar concerns as Leung and it was not a one-sided promise by Hon to produce the receipt from Mr To or to make enquiries into the legality of the payment of the Commission. I do not think Hon was prepared to make enquiries about Mr To or that he was “similarly concerned”. I refer to my earlier analysis and findings in this respect. Immediately after liaison with Mr To, Hon sent an email to Leung reporting on the Commission payable to Mr To and saying that he would arrange the finance on the following day if everyone was happy. When Hon next reported by email on 23rd December 1998 that Mr To would charge commission at 1% on the loan amount, he added he would be happy to go along if there was any other alternative, but “if not, we have no choice”. It appears that Hon was quite prepared to proceed with the loan and (as a corollary thereto) pay the Commission to Mr To even in face of Leung’s queries. 111.Mr Bruce SC argued that Leung’s reliance on Hon was logical and reasonable because (a) Hon (a lawyer) could be entrusted with such task, (b) Leung was not the formal purchaser/borrower and (c) the limited time to completion left him with no choice. In fact, the real nub of the issue was the limited time to completion which left the Investors with practically no choice. The scheduled completion date was the day following the December 1998 Meeting. I have found that the Investors discarded the other options as impractical and that they favoured proceeding with completion. Further, they knew the only source of finance was from FPL and, as Mr Bruce SC accepted, it was not available absent Mr To. Any talk about seeking alternative finance was unrealistic especially when the Vendor made clear it was not prepared to postpone completion. Leung expressed wish was to have the Shop purchased in Hon’s name and he knew no other financial institutions were willing to offer finance to Hon. The Investors are not unintelligent; I find on balance they knew that without Mr To there would be no mortgage loan and no completion of the purchase of the Shop, a scenario they did not wish to contemplate given their unwillingness to pay the price difference to the Vendor upon crystallisation of liabilities following non-completion. 112.It has also been suggested that Leung’s queries were so serious that he would not have ignored them. I have carefully considered this factor, but am satisfied on balance that when faced with the harsh reality of completion the following day and the lack of any acceptable financial alternatives, Leung chose to complete (thereby acknowledging the inevitable payment of the Commission to Mr To) despite his reservations. There was no obvious case of illegality then (or even now). Further, Leung admitted he wanted to keep the Investment for a while (say, up to a year) in order to minimise loss and to wait for a reasonable recovery of his contributions. That can only be achieved by way of completion. 113.Mr Bruce SC submitted that the mortgage loan could not be disconnected from the Commission because Mr To opened the door to the finance, so if Hon had not given the assurance that he would ascertain the legality of the payment of the Commission, it might have been necessary to look for alternative finance arrangement at the last minute or Leung would have refused to complete. For the reasons discussed above, I have found that the Investors rejected such options. Further, the Mortgage Loan Application was made (and approved as Leung claimed under the 1st Representation) as a result of Mr To opening the door to the finance. Yet Leung did not fear having utilised this doorway opened by Mr To. Indeed, when he asked Hon to proceed with the Mortgage Loan Application even before Hon allegedly made the 2nd Representation, he said such step was “[to] protect our interests”. I note that the mortgage loan was not yet drawndown, but having carefully considered all the circumstances, I am not persuaded that Leung’s concerns were so great that they could not be overcome by a considered decision to complete. 114.More importantly, I am not persuaded that Hon (with his mindset when he attended the December 1998 Meeting) made the 2nd Representation. Hon was keen to secure the finance from FPL which could only be obtained through Mr To. He was financially unable to face the consequences of not completing the purchase of the Shop, ie legal action by the Vendor against him for the price difference and the conveyancing costs which might lead to his financial collapse or even bankruptcy. I find on balance that Hon thought asking too many questions about Mr To might rock the boat sailing towards completion. This is borne out by Hon’s admission that he had no intention to make enquiries. With such mindset, it is improbable Hon would have represented to Leung/Yung that he would make enquiries about and get the receipt from Mr To. I find on balance that Hon (as he claimed) tried to brush aside Leung’s concerns as over-cautious. 115.Further, although Mr Bruce SC argued that Hon’s enquiries were more important than the receipt from Mr To, it is unclear how a receipt from Mr To (which by its nature evidences receipt by him of the Commission) would assist in establishing the legality of the payment. Leung was constrained to say he believed the receipt would probably state Mr To’s capacity in receiving the Commission. However, as seen from paragraph 105 above, Leung’s case on the contents of Mr To’s receipt, which relates to a core matter of dispute between the Parties, is a moving feast. I am not persuaded that Leung’s contention is reliable. 116.By reason of the aforesaid, Leung’s defence of misrepresentation based on the 1st and 2nd Representations fails. XV. Further loan 117.On 28th December 1998, FPL granted the mortgage loan in the sum of HK$1,402,500.00 (ie the Reduced Balance) at a fixed interest rate of 12% pa repayable by 84 Mortgage Instalments. Hon signed the mortgage loan agreement and the mortgage deed on the same day. The mortgage loan was therefore about HK$100,000.00 short of the amount Hon anticipated. 118.When Hon realised this, he asked FPL’s officer or Tung or both of them (but he was unsure whether he asked Mr To) about the rest of the loan.The situation was not ideal since Hon had expressed confidence to Leung/Yung about obtaining (and the Investors understood he would obtain) a loan of about HK$1,500,000.00. Hon was anxious to achieve that so the Investors would not have to put up cash payments for completion. Hon tried to obtain a further loan of about HK$100,000.00 from FPL to pay for the Completion Expenses. He said he probably updated Leung/Yung of the need to borrow further from FPL. 119.On the other hand, Leung claimed he had no further communication with Hon until 11th January 1999 (ie the date of Hon’s email to Leung (see below)), so he assumed the mortgage loan had been drawndown and the completion had taken place. Leung intended to convene a further meeting to discuss the future of the Investment after Chinese New Year since the Investors could hardly be expected to change their minds too soon after the December 1998 Meeting. Hon said he was unaware that the completion was postponed to mid-January 1999. 120.On balance I prefer Hon’s evidence. The rejection of the 1st and 2nd Representations undermines Leung’s overall credibility as well as his evidence on the subsequent events flowing from such alleged representations. Although Hon’s email dated 11th January 1999 (see below) did not expressly refer to the further loan, there is no convincing reason for Hon to keep quiet about the need for such further loan. If he were silent about the further loan, there would be a risk that the Investors might not have immediately available funds for completion if the further loan was not forthcoming. Further, the existence of the further loan would have been exposed quite quickly anyway when Hon asked Leung/Yung to contribute their shares for the repayment of the further loan. 121.Hon did not remember when he applied to FPL to arrange for the further loan, but believed he contacted FPL or Tung or Mr To or a combination of them before 11th January 1999 for such purpose. He recalled having signed some documents but could not say whether FPL gave him any copies (Hon probably received but lost the further loan agreement) or indicated whether his application might be approved (Hon would have notified Leung/Yung if there was any such indication). 122.I am satisfied that the further loan and the further loan agreement did exist. YP’s demand letter on behalf of FPL dated 6th May 1999 and the subsequent writ of summons in HCA9744/1999 issued by FPL against Hon referred to the further loan for HK$86,465.00 repayable by 24 instalments (the “Loan Instalments”) granted by FPL pursuant to the further loan agreement made on 14th January 1999. Therefore, the sum of HK$1,488,965.00 referred to in Hon’s Letter is in fact FPL’s total loan sum and not just the mortgage loan sum. 123.Mr Bruce SC criticised Hon for having detached the repayment schedule (which Hon retained) from the further loan agreement (which Hon said was lost). In the course of the trial, Hon’s solicitors willingly wrote to YP and FPL for inter alia copies of the loan application forms and the loan agreements. YP refused disclosure on the ground of privilege. FPL provided copies of various documents but not the loan application forms and the loan agreements. Hon’s solicitors helpfully forwarded requests by Leung’s solicitors to FPL for copies of such documents. FPL confirmed on 13th June and 4th August 2005 that it had supplied all relevant documents in their possession and the documents requested by Leung’s solicitors “was not exist and not in our possession”. On 6th and 15th August 2005, Leung’s solicitors by letter tried to clarify with FPL what it meant by its letter, but there was no reply. Leung did not pursue the threatened application against FPL for discovery and Hon did not make any such application as well for the purpose of the present proceedings. 124.In my view, the existence of the further loan is beyond doubt. I am not prepared to conclude (as Mr Bruce SC wished me to) that the tortured grammar of FPL’s letter and FPL’s non-reply to the enquiries by Leung’s solicitors meant the further loan application/agreement never existed. To fall for such suggestion would mean FPL’s claim in YP’s demand letter and in HCA9744/1999 was premised on lies. The authenticity of these documents is not disputed and there is insufficient evidence to draw such conclusion. 125.I also accept Hon’s evidence that the further loan was paid to the solicitors directly and disbursed for payment of the Completion Expenses. The assignment was executed and the completion took place on the same day as the date of the further loan agreement. The Investors also did not contribute any further cash for the Completion Expenses except that Hon paid the Commission to Mr To. XVI. Payment of the Commission to Mr To 126.Since I have found as a fact that Hon did not make the 1st and 2nd Representations, I reject Leung’s evidence that he assumed Hon would have made the relevant enquiries about Mr To and would have been satisfied as to the legality of the payment of Commission to Mr To. In the circumstances, whether Hon failed to make such enquiries and/or failed to obtain a receipt from Mr To would not assist Leung’s defence of misrepresentation. 127.Hon’s evidence is that in/about January 1999 (probably before 11th January 1999), he paid the Commission to Mr To for arranging the mortgage/further loans (see his email of 11th January 1999 to Leung below). Hon did not expressly ask for Leung’s/Yung’s consent before paying the Commission because (a) the Investors knew from the emails and the December 1998 Meeting that the Commission was payable to Mr To, (b) the Investors also knew there would have been no mortgage/further loans without Mr To and (c) he had authority from Leung/Yung to pay Mr To. Hon could not say whether he paid the Commission by cash or cheque and whether he paid Mr To directly or through Tung. He thought he borrowed (probably from his parents) to pay Mr To. 128.Hon claimed there was nothing wrong in paying the Commission to Mr To in the course of normal commercial practice for acting as a credit agent. Mr To successfully introduced the Investors to FPL, and FPL granted them loans in the total sum of HK$1,488,965.00. Although HK$15,000.00 was about HK$1,000.00 more than 1% of the mortgage loan amount, it was close to 1% of the total amount of the mortgage/future loans. Hon felt it did not make business sense to argue with Mr To over the difference of about HK$1,000.00. He would have paid and did pay HK$15,000.00 to Mr To. Hon said that if Leung/Yung were not prepared to bear their shares of such slight difference, he would “swallow it” in the same way he would not claim for his taxi fares for attending FPL’s office to sign papers. 129.Hon claimed he once had Mr To’s receipt for the Commission, but lost it some time before 11th January 1999. He did not remember whether the receipt was a printed or handwritten one, how he received it or when he last saw it. He did not remember whether Leung asked about Mr To during their telephone conversation after his email of 11th January 1999 (see below). 130.Mr Bruce SC criticised the paucity of particulars concerning Mr To and the receipt, including Mr To’s full name, the circumstances of the payment of the Commission, the contents of the receipt, how Hon obtained it, the relationship between FPL and Mr To, and the relationship between the payment of the Commission and the granting of the loans by FPL. 131.Leung’s solicitors did enquire with FPL on 17th June, 16th September and 26th November 2003 as to whether Mr To was FPL’s staff and whether he was authorised to receive the Commission. There was no substantive reply. Although Leung’s solicitors threatened to apply for discovery against FPL, no such application was eventually made. 132.On 25th and 27th August 2003 Hon’s solicitors wrote to Leung’s solicitors to advise that on/about 20th August 2003 Hon dialled Mr To’s mobile telephone number (as disclosed in Leung’s email of 20th December 1998) and left a message for him. Mr To returned call and thereafter they had a few telephone conversations between 20th and 23rd August 2003. Hon still did not have Mr To’s full name, but Hon’s solicitors reported that Mr To told Hon he was neither FPL’s agent or employee and he could receive commission. At Hon’s request, Mr To was willing to try to locate record of the Commission paid, but he was unwilling to be witness or become involved in the present proceedings. Hon’s solicitors reported to Leung’s solicitors on 9th and 25th September 2003 that Hon had not heard further from Mr To and Hon’s efforts to telephone Mr To again resulted in the calls being forwarded to a pager. 133.Having considered the totality of the evidence and given Hon’s approach of not rocking the boat sailing towards completion, I find he did not make any enquiries about the relationship between Mr To and FPL and/or about the legality of the payment of the Commission. This resulted in the paucity of information about Mr To. However, I find on balance that Hon did pay the Commission of HK$15,000.00 to Mr To. It was clear from the beginning that the loan from FPL could only be obtained via Mr To. The need to pay commission to Mr To was mentioned when Hon first liaised with him. It is improbable that Hon made this up right from the beginning. 134.I further find that (a) the payment of the Commission to Mr To was consistent with the Investors’ knowledge and understanding at the December 1998 Meeting that such payment was inevitable and necessary for obtaining the loan from FPL and (b) Mr To gave a receipt to Hon. Although Leung said he did not believe Hon ever had the receipt from Mr To, I find it more likely that Mr To issued a receipt. It was a commercial deal for Mr To; I do not find it strange that he would ask for commission (as is evident from the emails) or render a receipt on being paid. 135.But on the face of it, the loss of Mr To’s receipt within a few days of it going into Hon’s hands does make one pause, particularly as Hon did not approach the matter of Mr To in earnest. I have reservations about the reliability of Hon’s evidence in this respect. However, in the absence of other evidence, I am unable to come to any definitive finding of fact as to what actually happened to the receipt. Upon careful consideration, such view does not undermine the veracity of Hon’s other evidence. Even if a harsh view were taken of Hon’s involvement in the “loss” of Mr To’s receipt (as Mr Bruce SC urged me to), it would not be inconsistent with Hon’s attitude of distancing himself from the details about Mr To. There is also no alternative plea by Leung in his pleadings of any breach of the joint venture agreement by Hon for having “lost” Mr To’s receipt apart from his defence of misrepresentation based on the 2nd Representation (which I reject). XVII. Hon’s email of 11th January 1999 136.On 11th January 1999, the application for the further loan was still in the air. As a result of information from YTS/Lam (probably on the same date) about the monies required for the Completion Expenses, Hon emailed Leung to say they needed “$44,000+” coupled with the Commission of HK$15,000.00 for Mr To. He proposed that each Investor deposit HK$20,000.00 (not including stamp duty) into YTS’ account for such purpose. As Hon had paid HK$15,000.00 to Mr To, he would deposit HK$5,000.00. Hon asked Leung to notify Yung and have the money ready the following day otherwise they would face a forfeit of deposit by the Vendor. XVIII. Subsequent telephone conversation between the Parties 137.After Hon’s aforesaid email, Leung/Hon had a telephone conversation (the “Tel Call”). Leung claimed it was a day or so after such email (probably before 14th January 1999) although Leung’s Letter put the date in late January 1999. Hon could not remember the exact date. 138.According to Hon, he was very surprised when Leung said during the Tel Call he would not pay for his share of the Shop Expenses because he did not think he was responsible. When Hon pressed him for the reason, Leung replied he did not need to tell Hon. The telephone conversation then ended abruptly. Hon could not remember whether the issue of Mr To’s receipt was raised but, in my view, it was probably raised and Hon told Leung he had lost it. 139.On the other hand, Leung claimed he asked Hon why he had to contribute at such an early stage. Leung’s Letter alleged Hon asked for contribution to the first Mortgage Instalment which was incorrect. Leung explained that at that time he assumed it was for the first Mortgage Instalment since he did not have Hon’s email of 11th January 1999 before him, but he picked up the error after reading Hon’s email again. Leung claimed he was surprised when Hon explained that FPL only approved the mortgage loan for the Reduced Balance. He complained against Hon’s failure to notify him of such material change of circumstances. Hon did not give any direct answer but Leung did not press him for one. 140.Leung claimed he asked Hon about Mr To and Hon replied he had obtained a receipt from Mr. To but lost it already. Leung did not believe Hon and suspected Hon did not enquire into the legality of the payment of the Commission. Leung said he lost faith in Hon completely and was so overwhelmed by the possible unlawfulness of the payment of the Commission that he wanted to disassociate himself from the Shop. Leung said in his anger he told Hon he would not have anything to do with the Investment, ie he would pull out of the Investment, not pay the Shop Expenses and treat his previous contributions as his losses, thereby leaving it up to Hon/Yung to continue with the Investment. Leung asked Hon to relay his decision to Yung because he did not want to say things behind Hon’s back. The conversation then ended. 141.Although Leung claimed that a replacement receipt or any other confirmation that supported the legality of the payment of the Commission to Mr To would have allayed his concern and he would then be prepared to negotiate with Hon and work out his contribution, he did not tell Hon so during the Tel Call or thereafter. He also had not considered whether Hon with his financial difficulties would have been able to manage the loan repayments. 142.I accept Hon’s evidence on the balance of probabilities. The Investors had agreed (under all or any of the July/October 1997 Agreements and the December 1998 Agreement) to bear the Shop Expenses in equal shares. Leung’s conduct of refusing to pay the Shop Expenses (or even on Leung’s assertion that he would have nothing further to do with the Investment and that he would treat his contributions as his losses) was clearly repudiatory of the Investors’ joint venture agreement, namely, the July 1997 Agreement as varied and added to by the October 1997 Agreement and/or the December 1998 Agreement. It is unnecessary for this court to determine Leung’s motive in unilaterally extricating himself from the Investment but queries/mistrust over the unresolved Underlying Issues and the financial future of the Investment (despite the considered decision to proceed with completion) might have played a part. Mr Leung/Mr Chow both confirmed that should I find Leung’s conduct to be repudiatory, it was common ground that Hon had accepted Leung’s repudiation. 143.At first Mr Bruce SC argued that the July/October 1997 Agreements were superseded by the December 1998 Agreement, so there was no vestige left of the earlier agreements. However, the Parties/Investors had acted upon these agreements and some of their terms were reiterated in the subsequent agreements. In the end, Mr Leung conceded the July/October 1997 Agreements were spent rather than superseded and that their terms were added to and varied by the December 1998 Agreement so that the composite terms became the final agreement that set out the future obligations of the Investors. Since Mr Leung no longer excluded the earlier agreements, the dispute between the Parties as to the nature of the December 1998 Agreement falls away. In any event, the July/October 1997 Agreements and the December 1998 Agreement all provided that the Investors had to bear the Shop Expenses in equal shares, so Leung’s breach of any or all of these agreements would have the same consequence. 144.Leung tried to suggest there was no repudiation because the market value of the Shop was below the Reduced Balance but close, so if Hon did not proceed with completion, the difference between the Reduced Balance and the market value would not have been large. This is not particularly helpful as Hon actually completed the purchase of the Shop. Leung also conceded the above market value was mere guesswork and a surveyor would be better positioned to say what the market value should be. But no surveyor’s evidence was adduced. I do not find Leung’s estimation reliable, especially when Hon claimed that at the December 1998 Meeting the Investors believed the then market price of the Shop would be less than the balance of the purchase price. What is clear is that the Investors all knew the market value of the Shop was low and there was no real market for either selling or letting the Shop. 145.Leung was plainly in repudiatory breach of contract by refusing to pay his ⅓ share of the Shop Expenses (or even on Leung’s case, by refusing to pay the Shop Expenses or to have anything more than the Shop), and he knew it. He admitted that once he calmed down after the Tel Call, he believed that following his decision to terminate accounts and enquiries should be taken of the Investors’ entitlements/ liabilities as at 28th December 1998 or the date of the Tel Call to work out whether he should make further payments for the costs/expenses of winding up the Investment. I will return to this argument below but suffice to say here Leung knew it was quite possible that he might be liable for more than his past contributions, yet he never told Hon/Yeung about this after the Tel Call. Mr Bruce SC argued Leung should not be criticised because accounts and enquiries followed as a matter of law. Even if this were correct (which I disagree), Leung’s unwillingness (as expressed at the Tel Call) to abide by the legal position on such a fundamental matter must amount to a breach of the joint venture arrangement. 146.Leung’s feeble reply is to say his offer to pay any liability in excess of his contributions was implicitly averred in his pleaded counterclaim. I will return to the matter of accounts and enquiries below, but suffice to say here that such offer (even if the counterclaim could be so interpreted) made only in 2003 is too late to purge Leung’s repudiation which Hon had accepted in January 1999. In any event, Mr Bruce SC made clear in his final submissions that Leung did not seek any accounts and enquiries by his counterclaim. Leung’s alleged offer is illusory. XIX. Post-repudiation 147.Hon told Yung within 1-2 days of Leung’s repudiation. Yung told Hon his means were quite tight and in the end Yung only paid for his share in respect of 1-2 instalments (see below). Hon did not sue Yung because Yung acknowledged his liability for his ⅓ share of the Shop Expenses. Hon knew Yung lost heavily on other investments and was in genuine financial difficulty. Within January 1999 Hon still tried to call Leung but Leung refused to answer or return call. Thereafter Hon gave up contacting Leung. When Hon asked mutual friends to relay a message, Leung never responded. Both Parties accepted Yung/Leung had a telephone conversation. According to Leung, it was in July 1999; Hon could not remember when it took place. I disagree that Yung told Leung Hon failed to tell him the reason for Leung’s decision to terminate or that Leung did not want to say things behind Hon’s back so he did not give any explanation to Yung. XX. Hon’s finances 148.Hon accepted that as at 28th December 1998 he would not have been comfortable in setting aside HK$9,000.00-HK$10,000.00 per month to pay the Mortgage Instalments. His monthly salary was fully committed to his declining financial position. But he believed he would have found a way to pay his ⅓ share of the Mortgage Instalments, perhaps by not honouring some other obligations or borrowing further from his family/friends. He did not wish to trouble his parents, but he could have returned to live with them and save HK$20,000.00 in monthly rent. He could have sold his mortgage-free Ferrari car (which he later did). At that time he did not take these steps, which no doubt would have crimped his style of living, but he had such fall-back if necessary. 149.But by early 1999, Hon’s financial situation turned for the worse. Creditors were lining up to demand payment. One by one his bankers revoked their credit which put severe strain on his cash flow. The disclosed documents from Hon’s bankers show that Hon’s current bank accounts all had overdraft facilities, some of which was paid off by fresh instalment loans. By 1999 Hon was plainly living on credit and would have difficulty in paying his share of the Mortgage/Loan Instalments. 150.Hon omitted disclosure to Leung’s solicitors about the facilities granted to him by United Asia Finance Limited (“UAFL”) because he could not remember whether such facilities were obtained during the relevant period. When Leung’s solicitors pointed out such omission, Hon wrote to UAFL for copy documents and made telephone enquiries with its customer service (not its corporate head office). He was told UAFL did not entertain requests for copy loan agreements for loans that were no longer outstanding. But he gave a written authorisation to Leung’s solicitors to make enquiries with UAFL. UAFL’s corporate head office told Leung’s solicitors it always provided copy loan agreements on request and had no record of receipt of Hon’s letter. 151.There is not much mileage for Mr Bruce SC in this. First, there is no sensible reason for Hon to hide the fact he received finance from UAFL when he disclosed his bank statements and freely gave written authorisations to Leung’s solicitors to get copies of the loan agreements. Secondly, when Leung’s solicitors pointed out to Hon he had a loan from UAFL, Hon volunteered particulars of the loan (ie about HK$200,000.00 repayable in 24-26 months) which matched those in the loan agreement disclosed by UAFL to Leung’s solicitors. Thirdly, Hon even volunteered information that on a date he could not remember he had taken out a further loan of about HK$200,000.00-HK$300,000.00 repayable in 2-3 years with JCG Finance Limited (“JCGFL”). Fourthly, he took the initiative to write to both UAFL and JCGFL even though he did not receive any written reply. I do not think Hon’s credibility is affected by the different responses from UAFL’s customer service and corporate head office. Fifthly, there is no dispute that Hon was at that time in severe financial difficulties and indebted to various financial institutions. Indeed, Mr Leung argued it was Hon’s inability to pay that led to the alleged loss/damages. I will return to this argument below. XXI. Contractual loss and damages 152.Mr Bruce SC/Mr Leung submitted it was for Hon to formulate his claim “on the basis of the alleged breach of contract”. So it is the contractual measure of damages that is relevant in assessing Hon’s loss/damages. (a) Leung’s case 153.Mr Leung submitted that Hon’s pleaded formulation of his loss/damage, which is effectively not different from a ⅓ share of the net loss of the Investment joint venture as if “[Hon] had not terminated the [Investment joint venture]”, is misconceived. 154.Mr Leung submitted that the true measure of damages was as follows :
155.Mr Leung next submitted that the above highlighted a peculiar feature of this case, namely, the mutual trust and confidence amongst the Investors that was tantamount to a fiduciary relationship, so that the Investment joint venture (even though a one-off transaction) was similar to a partnership. Mr Leung argued that whether any Investor backed out of the Investment joint venture rightfully or wrongfully, it would have “terminated the joint venture which should have entailed account and enquiry similar to the dissolution of a partnership in any event”. (b) Loss of bargain 156.It is necessary to return to the first principles of contract law. On Leung’s repudiation, the Investment joint venture is not “terminated” or discharged. Leung had a secondary obligation to pay loss/damages following his repudiation. In Chitty on Contracts 29th ed Vol.1 para.24-047 at pp.1397-1398, it is said that :
157.Under the law of contract, an innocent party is entitled to claim compensation for the loss of his bargain as a result of breach by the other party. This is what is usually described as the normal measure of damages on contract (McGregor on Damages 17th ed. para.2-002 at p.29). The purpose of damages is to restore the innocent party, as far as money can do, to the position he would have been in had the breach never occurred subject to the limitation that recoverable damages should not be too remote (Paul Chen & anor v Lord Energy Limited FACV No.14/2001 (unreported, 4th March 2002) per Chan PJ at para.20 and Shum Yip-ITC (Hong Kong) Co Ltd v Master Company (a firm) HCA7560/1990, Yuen J (as she then was) (unreported, 15th May 2000) at para.42). So long as the innocent party made a reasonable effort to avoid or reduce the loss he can recover actual and not notional loss. In the circumstances, there is little wonder that Hon’s formulation of his loss/damages was not dissimilar to the loss of bargain under the Investment joint venture. There is no merit in respect of the complaint set out in paragraph 153 above. (c) Measure of damages 158.I agree with Mr Chow that the relevant measure of damages can be found in the well-known rule in Hadley v Baxendale. The measure of damages resulting from a breach of contract would be such (a) as may fairly and reasonably be considered as arising naturally from the breach of contract or (b) as the parties should reasonably have contemplated would flow from the breach as having a substantial degree of probability. What both parties contemplated is based on an objective test, ie what the courts believe the parties as reasonable men would have contemplated on the information available to them at the time of contract. Reasonable persons are taken to know the ordinary course of things and consequently what loss is liable to result from the breach in the ordinary course. If, however, there are special circumstances which have been communicated or made known to the contract-breaker, the damages are such that the parties should reasonably contemplate to flow from the breach in such special circumstances. Here, knowledge on the part of the contract-breaker, whether actual or implied, is necessary. I need go no further than refer to Paul Chen’s case (supra, paras.20-24) and McGregor on Damages (supra, paras.6-146 – 6-152 at pp.187-193) for the above principles. 159.As I understand Mr Leung’s submissions, the position amongst the Investors should have been crystallised at the latest by Hon’s acceptance of Leung’s repudiation because Hon/Yung should then choose whether to continue or wind up the Investment. It seems that irrespective of the ultimate option chosen, Leung’s stance was that he would be liable for ⅓ share of the loss (if any) ascertained as at mid-January 1999 but not for any future loss. But at one stage in his evidence Leung conceded he was liable for ⅓ share of the costs/expenses of winding up the Investment. But the concept of consequential loss (still part and parcel of the original loss that was not avoidable) is not unknown to the law of contract. In fact its existence is recognised under the Hadley v Baxendale rule. I need only refer to Chitty on Contracts (supra, para.26-069 at pp.1464-1465) and McGregor on Damages (supra, paras.2-026 – 2-039 at pp.37-48) to illustrate that pecuniary consequential loss is a viable head of claim under the contractual measure of damages. 160.In my view, Leung is not entitled to any future benefit in the Shop because his primary contractual obligation to perform his unperformed promises under the Investment joint venture has come to an end. But it does not follow that his liability to compensate Hon for the original loss/damages (including consequential loss where appropriate) Hon sustained as a result of his failure to perform the unperformed primary obligations under the Hadley v Baxendale rule is also removed. 161.According to Mr Leung’s argument, if Hon paid the Mortgage/Loan Instalments following Leung’s wrongful repudiation as he was legally obliged to do under the mortgage deed and the mortgage/further loan agreements he entered into pursuant to the Investment joint venture, Hon could not recover Leung’s share of the Mortgage/Loan Instalments that he had paid, but could only recover the cost of the additional loan for such purpose (which presumably meant the disbursement expenses for obtaining the loan and the interest payable thereon) after taking into account Leung’s previous contributions. In such circumstances, Leung could by his own repudiation ask for his own previous contributions to be taken into account and then foist the burden of his share of the Investment onto Hon/Yung in a falling or fallen market by just paying some interest and disbursements. 162.This is not only wholly contrary to the well settled contractual measure of damages (see paragraph 158 above), but also creates the inexplicable scenario where Leung’s wrongful repudiation will have the same consequence as where he rightfully retired from the Investment on agreed terms that Hon/Yung would take up his share. Mr Leung in fact noted this anomaly when he stated in his written final submissions that the actual backing out of any Investor “(rightfully or wrongfully) would …… have entailed account and enquiry ……” Since he premised this on the analogy with the partnership scenario (which I reject), I will deal with this argument below. (d) Continuing the Investment on Hon’s own account 163.Leung complained that Hon did not tell him anything about the Shop after the Tel Call. He was unaware of the further loan, Hon’s payment of the Mortgage Instalments, Hon’s/Yung’s subsequent failure to pay the Mortgage Instalments, the letting of the Shop, the tenant’s subsequent failure to pay rent, FPL’s legal actions against Hon, the reduction of the Mortgage Instalment amount, and Hon’s settlements with FPL. Mr Leung suggested these steps indicated that Hon had accepted the Investment on his own account. 164.Mr Leung did not cite any authority for his proposition that Hon (the innocent party) was obliged to inform Leung (the contract-breaker) the formulation of his loss/damages to enable Leung “to mitigate loss”. First of all, the obligation to mitigate loss falls on the claimant, but there is no express plea of any failure by Hon to mitigate. The defaulting party only has a secondary obligation to pay the innocent party’s loss/damages, but no duty to mitigate. Secondly, even if what Mr Leung meant was that Leung should be given information to enable him to work out his share of the loss/damages (if any) payable to Hon, there is still no duty on the innocent party once he has accepted repudiation to inform the contract-breaker before taking steps (or offer the contract-breaker the further opportunity) to deal with the consequences of the repudiation. Even on Leung’s case, there can be nothing more final than Leung saying during the Tel Call that he would not have anything more to do with the Shop and asking Hon to treat his contribution as his losses. It might have been otherwise if the contract-breaker made a reasonable offer, but there was none by Leung here. 165.All that is required is for Hon to act reasonably in the ordinary course. The standard of reasonableness is not high given that Leung is the wrongdoer. Although Hon should act with Leung’s and his own interests in mind, Hon is “not bound to nurse the interests” of Leung (McGregor on Damages (supra, paras.7-064 – 7-067 at pp.249-251). 166.I do not agree that that Hon in paying the Mortgage Instalments to FPL was taking up Leung’s share in the Investment and treating the Investment as his own. Hon had no obligation to take up Leung’s share and he had not done so. After all, his finances were in a bad way at that time. Following Leung’s repudiation, Hon as the innocent party was faced with his legal obligation to pay the Mortgage/Loan Instalments under the mortgage deed and the mortgage/further loan agreements (all of which were entered pursuant to the Investment joint venture but in his sole name). I cannot see how Hon’s attempts to satisfy his legal obligation to FPL to forestall legal enforcement actions would not be loss arising naturally from Leung’s repudiation and/or within the reasonable contemplation of the Investors (bearing in mind that Hon/Leung are lawyers) under the Hadley v Baxendale rule. Hon is plainly entitled to recover damages for costs/expenses incurred in reasonably attempting to mitigate loss or to extricate himself from the disadvantageous position in which he was placed by the breach (Chitty on Contracts (supra, para.26-105 at pp.1486-1487)). (e) Analogy with the partnership situation 167.I disagree that Leung in backing out of the Investment joint venture would “terminate” the joint venture and that the winding up of the Investment would be akin to the dissolution of a partnership. Mr Bruce SC/Mr Leung accepted that the Investment was a contractual joint venture and not a partnership, and specifically disclaimed any primary or even alternative case based on a partnership relationship. 168.All contracts are concerned with the mutual rendering of benefits (see MeGregor on Damages (supra, para.2-002 at p.29)), but it does not necessarily give rise to fiduciary obligations. Even if it does, there is no plea of (and Mr Leung disclaimed any reliance on) any fiduciary relationship, fiduciary obligation or breach thereof. I therefore find it difficult to appreciate the analogy to the partnership situation. 169.Mr Leung referred me to the following passages in Lindley & Banks on Partnership 18th ed :
170.Sir Gorell Barnes, President, and Fletcher Moulton LJ in Oppenheimer’s case (supra, pp.62 and 68) held that the joint purchasers were in fact partners whilst Kennedy LJ held (p.76) held it was unnecessary to so decide. But it was unanimously decided that a joint purchaser owed a duty of good faith (ie a fiduciary duty) to the other joint purchasers in the circumstances of that case. Such duty of good faith or fiduciary duty is sadly lacking in the present case. To accept the analogy contended for is tantamount to allowing an unpleaded defence in by the backdoor, which is not permissible. 171.Even assuming the Investment was a partnership or akin to a partnership, as a matter of law, the acceptance of Leung’s repudiation would not lead to the dissolution of the partnership with consequential accounts and enquiries. The law is clear that a termination of a partnership agreement cannot be brought about by an acceptance of repudiatory breach because the relationship of the partners, while contractual, is also subject to equitable principles and to the principles found in the Partnership Ordinance Cap.38. The grounds on which a partnership can be dissolved are regulated principally by the Partnership Ordinance Cap.38 (see also Lindley & Banks on Partnership (supra, para.24-04 at p.676)) which do not include the acceptance of repudiatory breach (Chitty on Contracts (supra, para.24-049 at pp.1399-1400) and First Supplement to the 18th ed. of Lindley & Banks on Partnership (paras.24-05 - 24-06 at p.91)). Neuberger J in Mullins v Laughton [2003] Ch 250 held that the doctrine of repudiation had no application to partnerships and that as a matter of law dissolution of a partnership by an accepted repudiation was not possible. The above analogy has no merit. XXII. Hon’s loss and damages (a) Payment of the Completion Expenses 172.Hon paid the bills by YTS and YP in the respective sums of HK$10,455.00 and HK$15,620.00 for the acquisition of the Shop as well as stamp duty of HK$31,750.00 and rates from 14th January 1999 to 30th September 2000 (HK$2,371.00 as per the rates demand note). (b) HCA9744/1999 173.Hon/Yung had no choice but to continue to pay the Mortgage/Loan Instalments otherwise FPL would sue Hon (which later happened). Leung as a lawyer must have known Hon was legally obliged to pay the Mortgage/Loan Instalments. Hon claimed he would not have defaulted in making payment if he could have managed it. Since Yung only paid for his own ⅓ share, Hon had to pay his own share and Leung’s share of the Shop Expenses as a consequence of Leung’s repudiation so as to meet his legal obligations entered into pursuant to the Investment joint venture. The Mortgage Instalments for January and February 1999 (HK$34,826.50 and HK$34,985.66 respectively) were paid. Hon/Yung defaulted payment since the March 1999 as evidenced by YP’s demand letter of 6th May 1999. 174.By that time, Hon’s bankers cancelled his overdraft facilities (about HK$1,500,000.00-HK$2,000,000.00) and he had to repay such indebtedness usually with the help of term loans repayable over 24-36 months. This meant his monthly repayments to his bankers jumped from HK$10,000.00-HK$20,000.00 to about HK$50,000.00. Throughout March to June 1999 FPL pressed Hon for repayment. FPL commenced HCA9744/1999 to recover the outstanding balance of the mortgage/further loans of HK$1,506,301.68 with interest. Hon had no choice but to settle with FPL on 30th June 1999 by paying HK$100,000.00 as partial settlement of the further loan, interest and costs. FPL discontinued the legal proceedings on 5th July 1999. FPL/Hon also agreed to a new repayment schedule for the mortgage loan at HK$16,000.00 per month. 175.Hon/Yung hoped to find a purchaser for Shop at any price and then negotiate with FPL to release the Shop. The Shop had been placed on the market for resale since July 1997. After January 1999, Hon retained Tung and other non-exclusive estate agents (especially those located near to the Shop) to market the Shop. They reported to Hon from time to time, but there was no interest in even making an offer. (c) Renting out the Shop 176.Leung’s email of 19th December 1998 shows there was no interest in renting the Shop. Since January 1999 Hon also offered to let out the Shop. Finally Everbright Property Consultants (“Everbright”) successfully arranged the leasing of the Shop to a tenant, whereupon Hon paid Everbright a total commission of HK$3,750.00. By the tenancy agreement dated 28th June 1999 between Hon and the tenant (also signed by Everbright), Hon agreed to let and the tenant agreed to rent the Shop from 2nd July 1999 to 1st July 2000 for a monthly payment of HK$8,312.00 (ie monthly rent of HK$6,500.00 and monthly air-conditioning charges and management fees of HK$1,812.00). The tenancy agreement provided for a rent-free period and payment of commission to the estate agent. Hon said and I accept the tenant only paid a total sum of HK$33,936.00 (ie HK$8,312.00 on 28th June 1999, HK$16,624.00 (deposit) on 2nd July 1999 and HK$9,000.00 on 18th February 2000) to Hon. 177.Hon telephoned the tenant a few times to demand for payment of the outstanding rent. The tenant claimed there was very little business at the Shop and he was in difficulty. The tenant wrote an undated letter (probably at the beginning of 2000) to Hon to request for an extension of the rent-free period or a reduction of the monthly rent. The tenant eventually vacated the Shop in/about early to mid-2000 because there was no business. Hon did not think it would be fruitful to sue him for the outstanding rent. In my view, the letting of the Shop was a proper mitigating step. Further, Hon’s decision not to sue the tenant is not unreasonable since a claimant need not take the risk of starting an uncertain litigation. (d) Management fees and air-conditioning charges 178.Hon as registered owner of the Shop was liable for the management fees and air-conditioning charges at HK$1,812.00 per month from January 1999 to December 2000 totalling HK$43,488.00. (e) HCMP4121/2000 179.FPL’s legal action against Hon in June 1999 made it impossible for him to obtain further loans from financial institutions, thus causing his financial crisis to worsen critically. Hon did not wish to become bankrupt. He was desperate to negotiate with his creditors and to find alternative sources of income and a new job (which would entitle him to access his provident fund). 180.Hon defaulted in payment of the Mortgage Instalments since about April 2000. Hon paid HK$18,000.00 on 29th March 1999. After HCA9744/1999 was settled, Hon paid FPL a total sum of HK$160,000.00 (see YP’s demand letter of 2nd August 2000, pay slips of 14th and 17th July, 30th August 1999, 28th January, 2nd February, 20th March and 12th May 2000 (HK$16,000.00 each) and of 6th October 1999 (HK$32,000.000)). Although there is no documentary support for Hon’s payment of HK$32,000.00 to FPL on 22nd December 1999, given YP’s demand letter, I accept on balance that Hon paid the sums of HK$18,000.00 and HK$160,000.00. 181.YP on behalf of FPL issued a demand letter to Hon on 2nd August 2000 demanding payment of the mortgage loan with accrued interest (HK$1,369,108.00) and further interest. FPL issued HCMP4121/2000 against Hon on 14th August 2000 for such outstanding sum and for vacant possession of the Shop. On 30th October 2000, Master Lung granted judgment in favour of FPL for HK$1,747,034.95 with interest as well as vacant possession of the Shop with indemnity costs. 182.FPL threatened to commence bankruptcy proceedings against Hon, so Hon had no choice but to negotiate with YP for a settlement. At first YP asked for a lump sum payment of HK$1,000,000.00, which Hon rejected as he could not have paid such sum. After some negotiations, Hon reached a settlement agreement with FPL on 2nd February 2001 on inter alia the following terms, namely, (a) Hon would pay HK$800,000.00 to FPL in partial settlement of the judgment debt, (b) Hon would pay all costs on an indemnity basis for HCMP4121/2000 and the settlement agreement, (c) Hon would deliver up vacant possession of the Shop to FPL to enable FPL to exercise the power of sale and (d) FPL would discontinue HCMP4121/2000 and discharge the mortgage loan agreement. 183.Hon borrowed some money from his then employer, his family and some friends and paid the settlement sum of HK$800,000.00. The major part of such sum was a loan from his then employer on the security of his provident fund. Hon also paid YP’s charges in the total sum of HK$53,195.00, being YP’s invoices nos.4401 (HK$9,100.00), 4402 (HK$33,745.00) and 4403 (HK$10,350.00). 184.FPL eventually sold the Shop to a purchaser in March 2001 for HK$500,000.00. It was suggested that Hon’s formulation of his loss/damages failed to take into account Leung’s share of the beneficial interest in the Shop. There is no merit in this suggestion. Pursuant to the mortgage deed, FPL as mortgagee was entitled to vacant possession of the Shop and to exercise the power of sale. The sale proceeds would be used to reduce the outstanding indebtedness. The total indebtedness due to FPL exceeded HK$1,700,000.00, which Hon successfully mitigated by making partial payment of HK$800,000.00 and surrendering all interest in the Shop and/or its sale proceeds. Since the Shop was eventually sold for HK$500,000.00, it meant that Hon got away with paying about HK$400,000.00 less than what was due to FPL (ie HK$1,747,034.95 with interest less HK$800,000.00 and HK$500,000.00). Plainly, Leung’s ⅓ share in the Investment had been taken into account and merged in the settlement/resale of the Shop. (f) Causation 185.Mr Leung submitted that it was Hon’s/Yung’s inability to pay the Mortgage/Loan Instalments that was the sole cause of the loss/damages suffered by Hon, so the pleaded loss/damages were irrecoverable. He cited Galoo Ltd (in liquidation) and ors v Bright Grahame Murray (a firm) and anor [1994] 1 WLR 1360 which held that a breach of contract would sound in damages only if it were the dominant or effective cause of the plaintiff’s loss and not if it had merely given the opportunity for the loss to be sustained and the court would have to apply common sense to the facts of the case. But in applying common sense to the facts of the present case, there can be no doubt that Leung’s repudiation was a effective cause of Hon’s loss/damages, which were a ⅓ share only. 186.The costs/expenses already paid by Hon (eg conveyancing costs for the acquisition/mortgage of the Shop, stamp duty, the Commission, the paid Mortgage Instalments, the commission paid to Everbright, etc) either arose naturally from Leung’s repudiation or must have been within the Investors’ contemplation at the time of contract under the Hadley v Baxendale rule and were unrelated to Hon’s impecuniosity. Mr Leung’s criticism appears to be focused on Hon’s failure to repay FPL by reason of Hon’s/Yung’s impecuniosity. However, the terms of the mortgage deed, YP’s demand letters and FPL’s pleadings/court documents all show that FPL was entitled to demand and sue for the whole outstanding indebtedness upon any default in payment. Mr Leung’s argument ignores the fact that Leung’s refusal to pay his ⅓ share of the Shop Expenses together with Hon’s/Yung’s impecuniosity were part and parcel (and hence effective causes) of Hon’s loss/damages or of the inability to make timely payments of the Mortgage Instalments. Chitty on Contracts (supra, para.26-038 at p.1444) states as follows :
187.It was also suggested that it was Hon’s/Yung’s financial inability to pay that led to FPL’s legal proceedings against Hon, the settlement sums as well as the associated legal costs. Leung knew all along that Hon was financially troubled. Indeed, Leung admitted that Hon had been frank with him about his own financial embarrassments. It must have been within Leung’s reasonable contemplation that his repudiation might aggravate Hon’s already precarious finances by having to pay Leung’s share of the Mortgage Instalments as well in order to hold off recovery proceedings by FPL. If at a later stage Hon did not have the means to so mitigate, Leung must be answerable for the consequence. In the First Supplement to Chitty on Contracts (supra, paras.26-095B – 26-095D at pp.63-64), it was said as follows :
188.Mr Leung next cited the first instance judgment in Galoo’s case (supra, p.1374) that “trading losses …… are losses which by their nature do not flow from whatever statement appears in the accounts as to the state of the company’s assets or profits; they flow from trading. If a company trades, it may suffer losses or it may enjoy profits …… It does not seem to me that trading losses as such can possibly be attributed to statements as to the status of the company before that trading ever takes place …… trading losses as such cannot arguably be said to be damages which flow from the auditors’ negligence.” Mr Leung suggested that by taking the aforesaid post-repudiation steps vis-à-vis the Shop Hon had entered into “trading” on his own. I find on balance Hon never thought of taking over the Investment on his own; he knew he was financially too unsound to do so. Those steps were merely attempts to “extricate” himself from the disadvantageous position in which he was placed by the breach (Chitty on Contracts (supra, para.26-105 at pp.1486-1487)) within the Hadley v Baxendale rule. There is no merit in this argument. (g) Summary of Hon’s loss/damages 189.I accept Hon’s evidence on the above matters. I find the following loss/damages were the natural and probable consequence of Leung’s repudiation and/or they were within the reasonable contemplation of the Parties at the time of the Investment joint venture :
190.In this case, the first and second limbs of the Hadley v Baxendale rule overlap, so it is unnecessary to demarcate between the 2 limbs. In the circumstances, Hon’s loss/damages are HK$429,835.05. Conclusion 191.In the circumstances, I grant judgment in favour of Hon against Leung in the sum of HK$429,835.05 with interest thereon at the rate of 10.88% pa from the date of the writ of summons to the date of judgment and thereafter at judgment rate until payment. Leung’s counterclaim is dismissed. There is no reason why costs should not follow event. I therefore grant a costs order nisi that Leung do pay Hon costs of the action (including costs of the counterclaim and all costs reserved if any) to be taxed if not agreed with certificate for counsel. 192.Last but not least, it remains for me to thank counsel for their industry and assistance.
Mr Kenneth Chow instructed by Messrs Lee, Mok & Wong for the Plaintiff. Mr Andrew Bruce SC and Mr Simon Leung (on 1st to 6th days) and Mr Simon Leung (on 7th and 8th days) instructed by Messrs Yaddy Cheung & Co for the Defendant. |
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