Mandecly Ltd and Another v. Hao Wei and Others
Read the full judgment text of HCA 1216/2002 on BabelCite. This High Court CFI judgment was delivered on 17 August 2006.
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HCA1216/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 1216 OF 2002 --------------------- BETWEEN
-------------------------- Before : Hon Yam J in Court Dates of Trial : 6–7, 10–14, 17–21 and 24–26 January 2005, 13–16, 20–24, 27–29 and 31 March, 2006, 3–7, 10, 12–13 April and 22–23 May 2006 Date of Judgment : 17 August 2006 ----------------------- JUDGMENT ----------------------- 1.1The dispute in this action concerns with a new estate development called Greenlake Garden (碧湖居) in Chaoyang District in the Eastern part of Beijing (北京朝阳[1] 区). It is also in the Eastern side of the Embassy District [2]. All witnesses herein are from Beijing including expert witnesses in respect of the law and regulations of Tax and Land Grant Fees (土地出让金) in the Mainland. One would therefore wonder why this case is tried in a Hong Kong court with jurisdiction. It all happened in the following story. 1.2In early 1990s, the Beijing Government would like to develop part of the Chaoyang Park into a high-class residential/commercial district. They invited Hong Kong investors to participate in a joint venture. The Government would provide the land whereas the foreign investor would provide the finance for the development. 1.3Mr Chan Tat Man (陈达文先生) was the sole owner of a Hong Kong company, Mandas Real Estate Ltd (referred to as “Hong Kong Mandas” (香港明达) in the documents herein) i.e. D3 herein. He owned such a company through his another company Mandecly Ltd (i.e. P1) which owned 99% of Hong Kong Mandas and he owned the other 1% in his own name himself. He negotiated and eventually agreed with the Chaoyang Park (previously known as Jingchao) Development and Operation company (朝阳公园经营(前北京市京朝城乡建设)开发公司) for a joint venture of a piece of land within Chaoyang Park and it was later on named as Greenlake Garden. 1.4Consequently a PRC company called Beijing Mandas Real Estate Development Co. Ltd (北京明达房地产开发有限公司) was established in 1993. Mr Chan owned 52% shareholding through his company Hong Kong Mandas whereas Chaoyang owned 48% shareholding. 1.5The “Certificate of Approval for Establishment of Enterprises with investment of Taiwan, Hong Kong, Macao, etc.” (台港澳侨投资企业批准证书) was issued by the Beijing Government on 17-3-93 [3] (5A/P8/56)[4] and the Business Licence (营业执照) was issued for operation from 22-6-93 onwards (5A/P9/562). 1.6Basically, the PRC partner was to provide the land for the development and be responsible to clear, compensate and re-locate the occupiers, and to level the piece of land for building purpose (“三通一平”：即拆迁、补偿、安置以至提供一块平地作建房之用). They would have 3 directors on the Board and the right to nominate an assistant manager of Beijing Mandas. 1.7Hong Kong Mandas was to provide 52% of the registered capital, namely US$10.14 million, by cash and equipment. They would have 4 directors and the right to nominate 1 of them to be the legal representative (法人代表) and one general manager. Mr Chan became that legal representative. The plaintiffs contended that the PRC partner failed to remove (拆迁) the indigenous occupants from part of the designated site. Thus the development had to be done in 2 phases : Phase 1 and Phase 2. 1.8Construction works for Phase 1 were commenced in 1994 and completed in early 1996 with the following relevant particulars :
1.9However, by the time of completion of Phase 1, Mr Chan fell out with the PRC partner in Chaoyang when Phase 2 had just developed to three quarters of the buildings thereof just above the ground level. It was then put on hold. Mr Chan therefore intended to sell his 52% shareholdings in Beijing Mandas. 1.10Mr Hao Wei (郝巍先生) was introduced to Mr Chan by their mutual friend Mr Zao Hua (邵华先生) who is also a developer in another part of Chaoyang. That was about the end of 2000. Mr Hao himself was a developer, though on a small scale at Hepingyuan (和平苑) through his company called Jin Tung Century (金道世紀). 1.11After several meetings and negotiations, Mr Chan and Mr Hao signed the first Transfer of Shares Agreement (股权转让协议书) “TA1” on 12-4-01 (5B/P19). Thereafter there were a series of some 15 agreements and documents between 12-4-01 and 27-9-01 (5B/P19 to P43) signed by the parties, dealing with specific matters and difficulties arising from the transaction as they proceeded with the deal. (All relevant agreements/documents are set out in the flier in Appendix 1 hereto and a reader can easily refer to their names, dates and abbreviation as he is reading this judgment.) 1.12Mr Chan explained that it would be difficult for Mr Hao to just step into the shoes of Mr Chan. Given to the then poor relationship between Mr Chan and Chaoyang, they would probably raise objection. The best way was for Mr Hao to buy the shares of Mr Chan in Hong Kong Mandas (i.e. D3 herein) which would then hold 52% of Beijing Mandas and Chaoyang would have no right of objection. But then Beijing Mandas was still a going concern carrying Phase 1 with all its liabilities and receivables. That explains why specific matters and difficulties would have to be dealt with as they proceeded with this deal of shares transfer. 1.13Since the dispute of the Action herein involves the sale of these shares in a Hong Kong company, our court became seized of the matter with the necessary jurisdiction, although everything happened in Beijing. 1.14In summary, the overall effects of these documents/agreements are as follows :
1.15By the due date of 28-9-01 for the Ұ12 million balance payment, Mr Hao did not pay the same. Mr Chan by a letter dated 31-10-01 demanded for the same. 1.16Nearly 2 months later Mr Hao replied by his letter dated 27-12-01. He alleged that he had raised the followings at a meeting on 17-12-01 with the plaintiffs' representative, namely :
1.17By the time pleadings were joined until trial, a number of other defences were raised. They concerned with a number of alleged liabilities of Beijing Mandas which the defence said were not disclosed by the plaintiffs. I would not repeat them one by one here. A list of them could be found in the Index to the Chapters from Chapter 4 to Chapter 11. The dispute on Land Grant Fees 1.18Mr Chan's case is that the Land Grant Fees in respect of 13,200 m2 of flats to be transferred to Mr Hao should be paid by Mr Hao as agreed between them. However, Mr Hao said there had never been such an agreement or understanding. This became the hottest issue of dispute here. I must point out here that it is not quite correct in the plaintiffs' final submissions to say that one of the effects of the terms of those 15 agreements was for Mr Hao to pay the Land Grant Fees of the 13,200 m2. The written documents were simply silent on this point.] 1.19Mr Jat Siu Tong, SC, who appeared with Mr Anthony Chan, counsel for the defendants, in the resumed hearing of the trial this year, described this issue as the strongest case for the defence. Mr Patrick Fung, SC, appearing with Mr Lee Tung Ming, counsel for the plaintiffs, considered that the issue of credibility could be resolved by what he described as the most important document in this case — “YLH23”. I shall start with the plaintiffs' case on credibility in respect of this document “YLH23” and consider the issue of Land Grant Fees thereafter, though each issue would obviously be considered separately and independently first without taking the other one into account. 2.1Under the Agreement on Share Transfer Deposit (关于股权转让订金的协议) (“DA1”) of 16-4-01 (at 5B/P22), the verification of the financial situation of Beijing Mandas was supposed to be completed within 10 days by 26-4-01. By DA1, Mr Hao had paid Ұ1 million to Mr Chan, with whom he had not had any previous business dealings. He obviously would like to start the verification work as soon as possible. The weekend of that week was 21 and 22-4-01, which was within the 10-day period. According to the plaintiffs' side, i.e. Mr Chan and Ms Yang Li Hua (杨丽桦), the manager of the Financial Department of Beijing Mandas, those two days were chosen so that the other staff of Beijing Mandas would not be working in the office. This would keep the Transfer of Shares Agreement (股权转让协议书) (TA1) between Mr Chan and Mr Hao from the staff for some time. Mr Chan would not like their staff to know at an early stage that he was selling his shares and eventually Beijing Mandas to Mr Hao. 2.2According to Ms Yang, for that purpose she was instructed by Mr Chan to prepare an account and she in turn instructed the accountants of Beijing Mandas to prepare the ledger balance from the computer accounts. That was done by one Ms Ren Yi Ying (任宜颖). That was document labelled “YLH23”, made out in the handwriting of Ms Ren Yi Ying. 2.3According to Mr Chan and Ms Yang, both Mr Hao and Ms Qin Jian Ping (秦建平) (“Ms Qin”) and others from Mr Hao's side went to the office of Beijing Mandas for the verification work on 21 and 22-4-01 (and also the weekend on 28 and 29-4-01). Ms Yang gave a photocopy of “YLH23” to Ms Qin and Ms Yang herself also had a copy. Ms Yang switched on the computer to show Ms Qin the ledger balances as recorded on the computer and gave her various explanations on the items shown in “YLH23”. Ms Qin then dropped down notes of such explanation on “YLH23”. Some primary documents were also shown to Ms Qin for her checking as she requested. 2.4However Ms Qin denied that she had ever received this “YLH23” on or about 21, 22-4-01. She said that the document was only given to her and she made her handwriting thereon after 28-5-01. 2.5Further she said in her examination-in-chief that the document given to her did not have the words and date “position as at 20-4-01” (2001 年4 月20 日统计). Ms Yang gave her this document because Mr Hao asked Mr Chan's side to provide the ledger balances of Beijing Mandas as at the end of 4-2001. In the course of her evidence, she produced new documents including computer print-out ledgers of Beijing Mandas. They were produced in order to show that the figures on “YLH23” could not have been the ledger balances of Beijing Mandas as at 20-4-01 as the figures in the computer records on 20-4-01 and “YLH23” were different. 2.6Ms Qin further said that she was only contacted by Mr Hao over the phone some days before the weekend of 21 and 22-4-01. She was working with another company in their account department at that time. She promised Mr Hao to assist in the verification work of a company Mr Hao was about to acquire. She was not even informed of what company or what property project. She was asked over the weekend, probably 21-4-01 to wait outside Greenlake Garden for Mr Hao and then she accompanied Mr Hao to see Mr Chan at the Greenlake Garden. That was just a short introduction to Mr Chan that she would assist in the verification work. She left after a short while, about half an hour to an hour. She did not do any verification work. THE ORIGINAL “YLH23” ON PAGE 1 2.7However, when the original of “YLH23” was produced to court and put in front of Ms Qin during cross-examination (in fact it is a photocopy bearing the original handwriting of Ms Qin written with a blue ball pen), it is very clear that the original “YLH23” in the possession of Ms Yang showed that there were a number of figures and characters appearing on page 1 which was taken up from page 2 during the photocopying process. This was not clear from the photocopy of the original “YLH23” in Bundle 8. 2.8Ms Qin confirmed that her own handwriting appearing on the 1st page of the original “YLH23”, was written with a blue ball-pen. There is no dispute therefore that the 1st page of “YLH23” is a genuine document given to her, although the time of delivery to her is in dispute. However, there was no handwriting of Ms Qin on the 2nd page but there was some handwriting of Mr Yang thereon instead. 2.9Further, on the original 1st page of “YLH23” the following appeared quite visibly as some figures and characters were taken up from the 2nd page during the photocopying process. The most important pick-up was the clear wordings at the right bottom corner of “position as at 20-4-01” (2001 年4 月20 日统计), although the image of “Day 20” (20 日) was a bit faint. It was quite clear that the original “YLH23” had picked up these characters and figures from page 2 during the photocopying process before the same was given to Ms Qin. 2.10Counsel for the plaintiffs have listed out the photocopying images of many parts of the 2nd page seen through to the 1st page as follows :
2.11Having seen the original as put to her, Ms Qin changed her evidence a little bit and said that she was given the 2nd page as well but she did not recall whether there was any date on it, but surely, she said, it was not 20-4. She further said that she was then asking Ms Yang for the ledger balance as at 28-4-01 and not 20-4-01. As aforesaid said, she relied on the ledger balances of Beijing Mandas for the month of 4-2001 as retrieved from the computer to support her evidence that “YLH23” could not be the ledger balance as at 20-4-01. In effect the balances as at 20-4-01 as shown on the computer print-out ledgers could not tally with the figures on “YLH23”. Indeed by Ms Qin's exercise, it can also be seen that some of the figures on “YLH23” do not tally with the balances of the entries as at 28-4-01 either. 2.12However, a more spectacular thing happened after the plaintiffs sought for discovery of and obtained thereafter the full set of ledgers and documents for 4-2001. Ms Yangthen instructed the plaintiffs' lawyer and pointed out that the way the staff of Beijing Mandas did the bookkeeping of accounts (入账) and/or in-put of accounts information into the computer (输入电脑) shows that the figures in “YLH23” were the exact ledger balances of Beijing Mandas as would have appeared in the computer on 20-4-01. The plaintiffs' side made out Bundle 8A consisting of 10 items. Ms Yang could demonstrate from the way the staff of Beijing Mandas entering items into the computer account which would show clearly that, as at 20-4-01, all items would have the exact figure to two decimal points as exactly written in “YLH23”. 2.13Basically the staff would enter item of transfer account (转账) immediately on the day of the happening even though the happening of such an event was before the end of the month, whereas for items like ‘Yin' (银)-number and ‘Wai' (外)-number, they would only be entered at the end of the month and not on the day of the happening. By following this invariable practice, Ms Yang could demonstrate in Bundle 8A that all the various amounts as shown in the computer ledgers as at 20-4-01 would be the exact amounts to 2 decimal figure in “YLH23” with no exception. Accordingly, Ms Yang has been convincingly shown that the figures in “YLH23” were the ledger balances of Beijing Mandas as appearing in the computer on 20-4-01. 2.14Further, the figure of Beijing Hualun Law Firm (北京华伦律师事务所) (“Hualun”) in the sum of “415,000” on the 2nd page showed that “YLH23” was prepared on 20-4-01 or in any event before 24-4-01. It was because they were paid Ұ200,000 on 24-4-01 as appearing in B8A/[Hualun]. In other charts prepared after 28-4-01 for the position as at 28-4-01 (i.e. after 24-4-01), like [P54], [P56] and [P58], all had the figure for Hualun reduced to Ұ215,000. 2.15In the defendants' oral closing submissions, Mr Jat suggested that the accounts of Beijing Mandas had not been updated. Thus, at the end of 5-2001 when “YLH23” was given to Ms Qin, it contained figures for 20-4-01 copied from somewhere and on the 2nd page of “YLH23”, such a date was put-in in order to deliberately mask/cover up so that it would not arouse suspicion. 2.16However, I accepted submissions of the plaintiffs that there is no reason why the plaintiffs' side would have given the document for the financial position of Beijing Mandas as at 20-4-01 unless it was for the verification work for the weekend on 21/22-4-01. The cut-off date was later on agreed as at Saturday 28-4-01. 2.17In any event it was Ms Yang's clear evidence that every month Beijing Mandas has to do monthly report at the beginning of the next month. In other words, at the beginning of 5-2001, Beijing Mandas would have done the monthly report for 4-2001. There was no evidence that that was not done. Further if anything were to be copied at the end of 5-2001, it would be the end of 4-2001 figures and not 20-4-01 figures. 2.18Ms Qin said “YLH23” came about because she asked for the 28-4-01 figures. The plaintiffs' side would not have given her the figures as at 20-4-01. It is later on agreed that the cut-off date would be 28-4-01. This was not suggested to Ms Yang when she was recalled to give evidence and to produce the Bundle 8A. 2.19In conclusion, in respect of “YLH23”, which counsel for the plaintiffs described as the most important document in this trial, must most probably be made on 20-4-01 to show the financial position of Beijing Mandas as at that day as stated in the document. More importantly, Ms Yang's evidence and Mr Chan's also, on a balance of probability, must be accepted much more than the evidence of Mr Hao and, in particular, Ms Qin. This finding of credibility on the plaintiffs' witnesses and the lack of same on the defendants' witnesses are more enhanced on the second document, and that is [P55]. 2.20Ms Yang said [P55] was created by Ms Qin on 22-4-01 as a summary of the result of an investigation into the affairs of Beijing Mandas. Ms Qin, however, denied that and she said that it was made very late in 7-2001. I will explore [P55] more in detail here. 2.21The plaintiffs' case is that after Ms Qin got the explanation from Ms Yang on “YLH23”, and after she had access to the accounts of Beijing Mandas in the computer and checked some documents on 22-4-01 she also produced [P55] by working on the computer. It was a summary of the result of her investigation into the financial affairs of Beijing Mandas. However, Ms Qin said she made out [P55] at a very late stage in or after 7-2001. 2.22Which one of the two versions is more credible, Ms Yang or Ms Qin's? Apart from the general credibility, I found in favour of Ms Yang in respect of [P55] by reason of the circumstantial evidence. 2.23From the remarks column in [P55], it can be seen that those remarks were largely based upon the information obtained from Ms Yang by Ms Qin which she had written down herself in “YLH23”. Ms Qin also agreed that those remarks she put down in page 1 of “YLH23” came from Ms Yang. 2.24Ms Yang eventually came up with an explanation as to why “YLH23” page 2 bore no handwriting of Ms Qin. She said that probably each one of them had a photocopy of “YLH23”. She was giving explanation to Ms Qin by referring to the computer. Ms Qin then wrote down those pieces of information onto “YLH23” both on page 1 and page 2. However, eventually the two copies got mixed up. Ms Yang ended up with Ms Qin's page 1 copy with her handwriting on it and Ms Yang's own page 2 without Ms Qin's handwriting but her own. (That means Ms Qin should have kept Ms Yang's page 1 possibly with Mr Yang's handwriting on it, and Ms Qin's own page 2 with her writing on it.) Although this came at very late stage of the proceedings, I find it to be the most probable explanation. Otherwise, even Ms Qin could not explain why on page 2 there were only handwriting of Ms Yang herself but not Ms Qin's. 2.25In any event, Ms Qin could not give an explanation as to why her own copy of “YLH23” was lost. She said categorically that she must have kept it after “YLH23” was given to her and after she had written down the information provided to her. She only said that it was three to four years already and she had not kept the copy. There is no reason why she, as an experienced account bookkeeper, did not see fit to keep this important document which was probably the first document shown to her side as to the financial status of Beijing Mandas. Now her own copy was mysteriously lost and she could not make discovery of it in order to prove or disprove Ms Yang's version. I find her explanation not credible at all. 2.26Counsel for the plaintiffs compared [P55] and submitted that there were a number of entries which were largely based upon the information obtained by Ms Qin from Ms Yang in “YLH23”. They are as follows :
2.27Some of the figures on “YLH23” were the same as the corresponding figures on [P55]. The entry for “Nishimura Fumitaka” (西村文孝) in both page 2 of “YLH23” and [P55] are most illustrative. In “YLH23” the original figure on the ledger balance for Nishimura Fumitaka was Ұ817,550.95. That was corrected by Ms Yang in her handwriting to Ұ510,927.95. (It has already been explained that page 2 of “YLH23” bore only the handwriting of Ms Yang.) 2.28(1) In [P55], page 4, the figure against Nishimura Fumitaka was also the exact sum of Ұ510,927.95. But under the remarks column it was stated that there was a difference of Ұ306,623 with the figure on the accounts and should be adjusted (与帐面差Ұ306,623 元应调回). Obviously, Ұ510,927.95 + Ұ306,623 equals to exactly Ұ817,550.95 and these figures appeared in “YLH23”.
2.29The entry of ‘Engineering Department directly under Zhong Hai Engineering Head Bureau' (中海工程总局直属工程处) also shows that [P55] must have been made out in the table on the basis of “YLH23” as follows :
2.30The plaintiffs' counsel submitted that, which I accept, the figure of Ұ88,858.86 remained in 2 further accounts, namely both [P53] and [P57] because that was an item of “prepaid accounts” paid before 28-4-01 and thus it would remain as a “prepaid account” in both [P53] and [P57], which were to show the balances of various items. The version of Ms Qin that [P55] was prepared only after mid-7-2000 is quite contrary to the contents of [P55] itself. 2.31In this respect I also accept the further submissions of counsel for the plaintiffs. They are as follow :
2.32In conclusion, in respect of [P55], it was prepared by Ms Qin on 22-4-01 as contended by Ms Yang. Further and more importantly it is quite clear that by 22-4-01, the plaintiffs must have given the defendants very comprehensive information about the financial situation of Beijing Mandas. That was given on 21-4-01 in the form of “YLH23” together with Ms Yang's explanation which Ms Qin had written down on “YLH23”. Basing on those pieces of information Ms Qin made out [P55] on 22-4-01. Although Ms Yang might have some exaggeration in saying that Ms Qin could have made out [P55] in half an hour to one-hour time, that was not a deliberate untruthful statement on Ms Yang's part. That probably is an exaggeration due to her faulty memory and her impression that the document was made out quickly by Ms Qin showing that she was truly a competent financial person. 2.33Accordingly, I find that Ms Qin's evidence that [P55] was only prepared after mid-7-2000 was not truthful. It was put forward by her to show that it was only at very late stage that the defendants got access to the important financial information of Beijing Mandas. Further, the sum of Ұ1 million had been paid by Mr Hao and that was intended to secure the right to verification and access to confidential information and documents on Beijing Mandas. By late May very substantial sum had been paid to the plaintiffs or otherwise lent to Beijing Mandas. There had never been any complaints at all material times about the plaintiffs' refusal to provide documents, information or access to them. 2.34The defendants raised the query that if [P55] had been prepared on 22-4-01, why those figures were not incorporated in any of the agreements before SA3 of 6-8-01 (5B/[P37]). However, I accept the plaintiffs' submission that [P55] only represented the start of the verification work which was only completed by late 7-2001 or early 8-2001. Only precise figures obtained after complete verification against supporting documents that Mr Hao would incorporate those figures into the subsequent agreement. It is therefore only logical that those figures were only incorporated in SA3 of 6-8-01 but not any other intervening agreement/document. It actually fortified my finding that [P55] was prepared on 22-4-01 for the position as at 20-4-01. Later on the cut-off date was agreed at 28-4-01 (a week later). There would bound to be slight variation after a week. 2.35Further Mr Hao left the Mainland for the States shortly after he had paid the deposit of Ұ1 million. It is common ground that he introduced Ms Qin to the plaintiffs' side before he left. There is no reason why the verification was not done at all after he had specifically agreed with Mr Chan that the same would be done in the next 10-day period after 16-4-01 knowing full well he would be leaving Beijing himself. The sole purpose of introducing Ms Qin to Mr Chan was to enable her to start working at once. 2.36The plaintiffs produced [P52] which is titled “List of loans” (贷款清单) dated 9-4-01 (2001 年4 月9 日). Ms Qin said both in her witness statements and oral evidence that :
2.37The defendants' side had not provided such so-called list of loans similar to [P52] and such so-called charts without any date. They had only produced D1 in B8 and QJP23 which the plaintiffs contended that they are mysterious exhibits. 2.38Ms Qin said [P52] was a document in the briefcase of Mr Hao, who only handed it to her when they were in Greenlake Garden for her to do the verification work. She was asked to verify mainly those liabilities. Later on in her oral evidence she said that it was in mid 5-2001. 2.39After the verification work was done she put it back into her own bag but she has not kept the same. She even asked rhetorically “why should I keep such a document after four to five years?” 2.40If Ms Qin's evidence is credible then there is no reason why she did not keep such an important document from the plaintiffs' side. After all it was the plaintiffs' version of the liability upon which she was asked to verify. If anything would be discovered later on at a later stage this should be important for the defendants' side to prove that they were misled. As contended by counsel for the plaintiffs, disputes between Mr Chan and Mr Hao arose very shortly after the transfer of management in late 9-01 and since then Mr Hao had all along been complaining about being kept in the dark about the true situation of Beijing Mandas. Why Ms Qin did not there and then keep this document if she still had it? If not, why did she quickly throw it away? It does not make any sense at all. 2.41Further, [P52] disclosed a total liability of Ұ93.88 million which is different from the liabilities kept at Ұ87 million. However there were two sums which were included in the total namely :
2.42Thus the total sum would be about Ұ86.08 million (Ұ93.88 million - Ұ4.50 million -Ұ3.32 million). The net sum would then be rounded up to Ұ87 million as both parties agreed that they were only concerned with the main sum (大数). 2.43Further in [P55] two items were not stated as liabilities namely, loan due and owing to Economy Guarantee Company (经济担保公司) and Nanyang Commercial Bank (南洋商业银行). They were eventually agreed by Mr Chan to be borne by him as part of the total sum of Ұ8.5 million odd under SA3 of 6-8-01 at 5B/[P37]. This is consistent with Mr Chan's case as they were not in [P55] and therefore did not form part of the Ұ87 million liabilities. By 22-4-01, in [P55] Ms Qin already put it under the remarks column that those were to be dealt with by Mr Chan and the matter was settled quite clearly by SA3 which stated that they would be borne by Mr Chan. 2.44Lastly the defendants submitted that [P52] listed out some over 14,000 m2 of flats and not 13,200 m2. 2.45However, I accept the submissions of counsel for the plaintiffs. The agreement between the parties was that 13,200 m2 of flats would be left to Mr Hao to settle the Ұ87 million liabilities to be borne by him. [P52] only shows that there would be more than 13,200 m2 of flats available for Mr Hao. There and then, it was not precisely stated what those flats would be. Eventually, in the “Declaration on the Question regarding 13,200 m2 floor area and property already sold in the Shares Transfer of Beijing Mandas Company” (关于北京明达公司股权转让中有关13200 百平方米房屋及已售出房屋问题的声明) of 7-8-01 at 5B/[P42], it was eventually worked out that some of the flats stated in [P52] became those flats making up 13,200 m2 left to Mr Hao. Some of the flats therein eventually became the Schedule 1 Properties — Flats 1283, 1414, 1517, 1518, 1527, 1528, 1763, 1814 and 1822. A few other flats — Flats 1162, 1171, 1282 and 1452 — had apparently been sold. 2.46All in all I accept the plaintiffs' version that :
2.47The version of Ms Qin and Mr Hao in turn in respect of “YLH23” is not credible. Instead Mr Chan and his staff and in particular Ms Yang had frankly disclosed the financial position of Beijing Mandas to Mr Hao and his staff, in particular, Ms Qin. 2.48With all the full disclosure, the next question is whether Mr Chan should pay for the Land Grant Fees for the 13,200 m2 of flats to be assigned to Mr Hao. I shall consider this question in the next chapter. 3.1This is what counsel for the defendants described as the strongest point of the defence. The dispute is that Mr Chan said there was an agreement that Mr Hao would have to pay the Land Grant Fees for the 13,200 m2 of flats in Phase 1 assigned to Mr Hao. 3.2Mr Hao said there was no such agreement and the Land Grant Fees were enormously outstanding and Mr Chan had misrepresented the position that only possibly Ұ2.027 million would be in arrear. 3.3Both parties however agreed that the plaintiffs' side would have to assign 13,200 m2 of property in Phase 1 to the defendants' side. This was meant to offset the liabilities of Beijing Mandas to the extent of Ұ87 million. As a matter of calculation, this will mean that the property would be valued at Ұ6,590.91 i.e. about Ұ6,600 per m2 in order to make up the sum of Ұ87 million. 3.4However, Mr Chan said that up to then, properties in Phase 1 had never been sold below Ұ8,000 per m2. This was not disputed by Mr Hao. 3.5The Land Grant Fees arising therefrom would be levied by the government at 1,100 per m2. Thus, if Mr Hao had to pay them, that would still be less than Ұ8,000 per m2 (Ұ6,600 + Ұ1,100 = Ұ7,700), by Ұ300 per m2. 3.6Mr Hao however said there was no such agreement and therefore there is a huge sum of Land Grant Fees over and above the amount of Land Grant Fees already paid for by Beijing Mandas before the share transfer and the effective date of 28-4-01. 3.7Counsel for the defendants submitted very strongly on this issue as a matter of credibility for the defendants. They queried why no such term of agreement was ever set out in any of the 15 agreements or declarations between 12-4-01 and 27-9-01. They submitted that for the span of nearly five months, if there were such an agreement, they would have spelt out in one of those agreements which was meant to set out all the agreements between the parties in writing. In fact, counsel for the defendants contended that this is the strongest point for the defence and invited the court to find credibility for the defendants and their witnesses as a starting point. 3.8As a starting point, I shall refer to a document on 27-4-01 made by Ms Yang at 7B/YLH-2/1480. It stated clearly thereon that Beijing Mandas had by way of Land Grant Fees, paid the sums of :
3.9The document was titled “Payment situation for Land Grant Fees of Beijing Mandas Real Estate Company” (北京明达房地产公司土地出让金的交纳情况). 3.10Ms Qin denied that the document was given to her at her request when Yang told her orally the two sums and the dates whereupon she requested a written document. 3.11However, I would accept Ms Yang's version rather than Ms Qin's version. Apart from the general credibility of the two persons which I have decided earlier on, it would make sense that Mr Hao would like to know how much Land Grant Fees has been paid so far as a property developer himself. Greenlake Garden consisted of one stretch of land vis-a-vis the government in terms of Land Grant Fees payable. Thus the amount of Land Grant Fees paid so far for Phase 1 would affect Phase 2 and the general liability therefor by Beijing Mandas. It would only make sense that Mr Hao would like to know how much had been paid so far so that he would have a secure position as to the development of Phase 2. 3.12I would set out the various calculations in order to give an overall picture of the Land Grant Fees paid and later on payable :
Thus the amount of Land Grant Fees paid by the plaintiffs (Ұ30,186 million) is more than the liability of Land Grant Fees and penalties for Phase 1 (Ұ28,910,500). 3.13I have taken the balcony at half of its area instead of full area. It is agreed by both sides that the law provided that for open balcony, only half area would be chargeable as the full Land Grant Fees rate. The government documents clearly stated that half balcony would be chargeable — see B14/[18] and B13A/247. Even if the government eventually charged the balcony at full rate, it would be for Beijing Mandas, the defendant's side who is now in charge of Beijing Mandas, to pursue the refund instead of for Mr Chan to shoulder the difference. He would have no recourse against the government now since he has lost the controlling power of Beijing Mandas which had been given to Mr Hao already. 3.14By reason for the aforesaid matters I accept Mr Chan's version that there was an oral agreement and understanding between him and Mr Hao that the Land Grant Fees in respect of 13,200 m2 is meant to be paid by Mr Hao. It would not make sense that the flats assigned would be free of Land Grant Fees when the property there and then was never sold under Ұ8,000 per m2. It is true that these flats were not sold and it would be subject to the risk of the market price which would go down instead of going up. However, Mr Hao purchased Phase 2 at such an enormous amount because he considered that the 2008 Beijing Olympics would push up the market value of land property in Beijing together with other incumbent factors. Thus, it is for him to take the risk by accepting the property comprising 13,200 m2 in order to pay out the Ұ87 million liability of Beijing Mandas. After all, the money worth of 13,200 m2 even with the Land Grant Fees he would have to pay would be more than enough in terms of the money value of the flats to pay off the Ұ87 million. 3.15In making the aforesaid finding, I am fully conscious that not a single word was said about this 13,200 m2 agreement. It could be reduced into writing in any one of these 15 documents. This is the difficulty Mr Chan would have to face. However, that was what the parties have done or have not done and people would of course be wiser after the event. After all, Mr Hao himself has some legal training as stated hereinbefore, whereas Mr Chan, though an experienced businessman, was not legally trained as Mr Hao. I believe Mr Chan's version in this respect. 3.16I further accept Mr Chan's version that the document at B14/[18] issued by Beijing Real Estate Authority (北京市房居土地管理局) on 26-4-99 was obviously a wrong calculation. Mr Hao also knew, as a property developer himself, that the calculation was wrong. This internal memo assumed on the wrong premise that Land Grant Fees for 34,300 m2 had been paid and thus only the extra 1,843 m2 would attract additional Land Grant Fees at Ұ1,100 per m2 i.e. a further sum of Ұ2.0273 million. In fact as aforesaid Ms Yang had told Ms Qin as early as 27-4-01 that only Ұ30.186 million of Land Grant Fees had been paid. That would have covered an area of 27,442 m2 only. 3.17I further accept Mr Chan's version that it was Mr Hao, when shown with such a document, who made use of the sum of Ұ2.0273 million to offset the Ұ2.6 million accounts receivable on the ground that these accounts receivable might not be receivable for a long time or even at all. Mr Chan had no other way but to accept the “off-set” put forward by Mr Hao reluctantly. 3.18I shall consider the position of tax payment or payable of Beijing Mandas as at 28-4-01 in the next chapter. TAX — BUSINESS TAX (营业税) AND PROFIT TAX (所得税) 4.1In respect of tax paid and payable to various government departments, it had been previously provided both in TA1 of 12-4-01 and SA2 [P-31] of 12-7-01 that Beijing Mandas had already paid various items of tax not less than Ұ10 million. Mr Hao's side would be responsible for any further tax not more than Ұ5 million.2 4.2However, by SA3 it was provided as follows :
4.3It was further provided under Clause 10 (十) that :
4.4At the end of this SA3 it was provided that :
4.5The defendants' case is that they entered into SA3 on the misrepresentation of Mr Chan in respect of the extent of the outstanding tax liability of Beijing Mandas. They alleged that Mr Chan's side had concealed from the defendants' team in respect of the very huge exposure Beijing Mandas to tax liability in respect of business tax. This arose from the sale of those flats in Phase 1. In particular, they alleged that by the time of SA3 of 6-8-01, Mr Hao had been told by Mr Chan or Mr Chan's side and Mr Hao relied on the same and believed that only :
4.6However both sides agreed on the way of calculating business and profit tax as follows :
4.7The calculation of the defence for business tax is as follows :
4.8Thus the defence alleged that Ұ3,974,491.27 paid by the plaintiffs would be insufficient and that they have concealed from Mr Hao the sum of Ұ16,643,986.06 payable. It is interesting to note that the document disclosed by Mr Hao at B8/[D1] is only the page 2 of the plaintiffs' document at B6A[P53] comprising three pages. That document of three pages was titled as “Statement on the balance of Current Account of Mandas Company on 28-4-01” (明达公司2001 年4 月28 日往来款余额说明). 4.9However as submitted by the plaintiffs, the sum of Ұ3,974,491.27 would only represent (by dividing the same by 5%) the total sales of flats in Phase 1 for the amount of Ұ79,489,825.40. But by 6-8-01, the total sales of flats in Phase 1 must have been substantially higher than Ұ79 million. Mr Hao, as a property developer himself, should have realised it and would not have been misled. Then why did he enter into SA3 on 6-8-01 and agreed to pay all taxes outstanding even without any limit (whereas previously in SA2 it was limited to Ұ5 million)? The wordings of this agreement covered :
Thus, it does not just cover business tax but all past and future tax liability of Beijing Mandas, and Mr Hao agreed to be responsible for them all. Why? 4.10Here I accept the plaintiffs' submission that Mr Hao is not a fool and had not been misled. The agreement stated clearly that in reaching the liability of the plaintiffs up to 28-4-01 to the round amount of Ұ8 million, the defendants had gone through the accounts of Beijing Mandas in detail — “after detailed audit of accounts and reconciliation, the three of parties A, B and C confirmed that parties A and B were required to bear liabilities of a net value of Ұ7,871,778.48 … taken as the round figure of Ұ8,000,000” (经过详细查帐对数，甲乙丙三方确认明达公司帐内、帐外之债权、债务相抵后，甲、乙方需承担债务净值，Ұ7,871,778.48……取整数为Ұ800万). 4.11First of all, in respect of all the sales contracts which would attract business tax, the defendants' side should have inspected all the sales contracts for Phase 1 by 5-2001. Mr Hao has previous experience in property development and his business associate Ms Xie Yam Yan (解艳燕) was also familiar with property development. Even on the defendants' case, Ms Xie had involved by July (which contention I do not accept and she would have involved at an earlier stage in 5-2001), by 16-7-01, all of the 231 sales contracts had already been handed over to the defendants' side for inspection. This is apparent from Mr Hao's expert in his “List of Confirmed Contracts” (确认合同表) in respect of the 231 sales contracts (B12A-F). 4.12From the sales contracts in Bundle 12A-F, the defendants' expert, Mr Huang Yuan (黄远) (“Mr Huang”) — a Chinese Lawyer (律师) made out a table at 13B/369-374 : “List of Confirmed Contract Amounts” (确认合同金额表). According to his calculations, as stated previously in para. 4.7, the amount of business tax is Ұ20,339,237.70. 4.13Although Mr Hao has agreed under SA3 of 6-8-01 that he would be liable for the past and future tax liability of Beijing Mandas , it is not irrelevant and unnecessary to consider the background and the state of affair there and then in order to understand why he had so agreed. This would assist in understanding why he was not misled by the plaintiffs but, on the contrary, he was under the clear and unequivocal impression that the sales of flats in Phase 1 would not just amount to Ұ79 million. In this area there are three relevant matters, namely :
4.14Evidence was adduced by the plaintiffs as to certain sales to persons who apparently “paid” for the deposit and obtained the mortgages therefor. However, these persons at the same time signed a cancellation agreement of the sales and purchase. They in fact did not actually pay the deposits and no money was received by Beijing Mandas for the deposit at all. This was known to the mortgagee who was willing to lend money on the security of a charge on the flats in question.[6] The question is whether these deposits which were not paid and the money advanced under the mortgage are taxable for business tax. 4.15Here I accept the plaintiffs' expert Wang Shu Tong (王书桐) (“Mr Wang”) rather than the defendants' expert, Mr Huang. 4.16Business tax is a kind of tax charged on the sales of an enterprise. There was no actual sales in a false sales or false mortgage. Experts for both sides relied on the PRC tax law commonly known as “Clause 9” (第九条). Under this regulation the charging of business tax is based on “amount of business income received” (收讫营业收入款项) or “receipt of proof of business income demand” (取得索取营业收入款项凭据). The relevant phase is business income (营业收入). Three reasons were advanced by the expert Mr Wang which I accept and they are :
4.17Further, the plaintiffs' expert Mr Wang said in re-examination that the tax authority would look at the substance rather than the form (something like the principle in equity). This is in fact a common ground between the two experts. Mr Wang said specifically that the tax authority adopted an attitude or approach of “substance to take precedence over form” (实质重于形式) (B20/Day 34/35G-I). This was actually accepted by the defendants' expert Mr Huang (B20/Day 34/47C-F). Thus the substance of the transaction for “false sales or false mortgages” is no doubt not any “sales” but “loans” for the following reasons :
4.18In fact, the plaintiffs' expert Mr Wang said he had experience of three projects involving such false transactions. One of them involved 20 to 30 flats with “false sales” or “false mortgages”. The tax authority had raised queries but upon explanation, the tax authority did not charge any business tax. For the other two projects, the tax authority did not even raise any query. It was his understanding that the tax authority acquiesced or otherwise connived with such practice in those days when the property market had been experiencing a difficult time and that was the way of life for a property developer to raise money in order to complete the development. 4.19Of course for those true mortgages which Beijing Mandas created to obtain a loan from finance companies, the loan received by Beijing Mandas was not chargeable for business tax either. For example, CFTTI made a loan of US$2 million to Beijing Mandas (B8/[YLH7] 1774-1778), it also got sales contracts from Beijing Mandas for a number of flats which was in fact a security for such a loan (at p.1784 of [YLH7]) and others. It was specifically agreed in writing that the sales contract signed by Beijing Mandas was for the sole purpose of obtaining a loan from CFTTI. If Beijing Mandas repaid the loan in full, the sales contract would be released. But if Beijing Mandas could not repay the loan, the flat would then be taken by CFTTI and the loans made would then be treated as the purchase money (see [YLH7] pp.1780-1781, Clause 1). There was no change of ownership of those flats at the time of signing the sales contract and Beijing Mandas actually retained possession of the same. 4.20On the contrary, the defendants' expert Mr Huang actually had no personal experience of dealing with tax authority about false sales or false mortgages. He insisted in his report and in his oral evidence that those transactions would still be chargeable for business tax. 4.21By the time he gave evidence and he was pressed to give a reason to support his opinion, he said that he had made oral enquiry with the tax authority about the practice before preparing his report. He insisted that even when the purchaser had gone bankrupt and could not continue on with the payments, business tax would still be chargeable. The result of his enquiry was directly contrary to the evidence of Mr Wang. However, he could not explain why the result of his enquiry was not put in his report as he agreed that was the main issue between the parties in respect of false sales and false mortgages. It was not even led in evidence-in-chief. I must say that his insistence without giving a reason and his alleged result of his enquiry with the tax authority was something created by him in order to give support to his view that business tax was still chargeable on the false sales or false mortgages. His suggestion, to my mind, is quite unreasonable and unreal. 4.22In fact Mr Huang had made some mistakes in terms of the figures. It is already common ground between the parties that the amount of business tax paid by Beijing Mandas for pre-sales of flats in Phase 1 was Ұ3.9 million odd. However, Mr Huang's staff got the wrong figure of Ұ3.69 million. This figure of Ұ3.69 million actually represented business tax paid for rental of flats and not sales of flats (see FB8/[YLH9] 1795, 1800 and 1801 and B13B/375). Apparently, Mr Huang's staff somehow got the figure wrong and Mr Huang himself just endorsed whatever was reported to him by his staff without checking the figure himself. 4.23By taking into account of those “false sales/false mortgages” and the fact that those loans received by charging those flats were not taxable under business tax, the amount of business tax payable by Beijing Mandas would only be Ұ13,763,059.16 (B13B/487 as ratified by Mr Wang on B20/Day 33/8L-O). 4.24There is no dispute that business tax exemption policy has been in place for flats built before 30-6-98 but sold after 1-8-99. This policy has been extended to the end of 2002 so long as the report for tax exemption was returned before 20-8-02 (B13B/427-428/#4.2.2 and 4.2.3). This policy was to help the developers in promoting the sales of old flats which were built before 30-6-98. 4.25The only difference between the two experts lies in whether rental receipts of those flats rented out would be exempted for business tax. Mr Wang said “Yes” but Mr Huang said “No”. Both sides had not produced any documentary evidence to support their view. The documents suggested only sales of flats were exempted. The plaintiffs submitted that the defendants had not produced any evidence to support they are not subject to tax exemption. I am afraid this cannot be the guiding principle in deciding who is more acceptable since the burden is on the plaintiffs to convince me that such receipts would also be subject to tax exemption. However, on general credibility, as I have pointed out hereinbefore, I prefer the evidence of Mr Wang rather than Mr Huang. In any event, this is a very small point and the amount involved would not affect the main issue and that is whether the defendants were misled into entering SA3 by agreeing to shoulder all the tax liabilities. This point could not decide the case at all. 4.26Counsel for the plaintiffs submitted that the only issue to be tried by the court in respect of tax is business tax. The fact that Ms Yang adduced evidence of profit tax was to show that the defendants knew at the time of SA3 that they probably would get a refund from the profit tax. According to Ms Yang's calculation, the costs of development of Phase 1 would be about Ұ484.95 million. Thus there would be a significant loss to the extent of Ұ39 million. Accordingly the provisional profit tax paid in the sum of Ұ7,104,572.79 would be refunded and the estimated further profit tax payable in the sum of Ұ2,015,371.70 would not have to be paid. Further, the loss incurred in Phase 1 could be used to setoff against any profit to be made in Phase 2 since this is overall one development. 4.27Furthermore Counsel for the plaintiffs submitted that there was no pleading of profit tax in the Defence and Counterclaim and therefore Ms Yang's evidence was to explain why Mr Hao agreed in SA3 that he would be responsible for all tax liabilities of Beijing Mandas after 28-4-01 instead of limiting his liability up to Ұ5 million as previously agreed. 4.28Counsel for the defendants submitted that it is wrong to say the only issue is business tax. It was stated in the Defence and Counterclaim that business tax was only the “best particulars” that could be pleaded and there was a claim for damages arising from misrepresentation in relation to “tax”, i.e. tax in general. 4.29However, I do not agree with counsel for the defendants. Since business tax, though was only stated as the best particulars they could be given by the defence, is nonetheless the only item pleaded specifically in the Defence and Counterclaim. It is however true to say, as submitted by the defence, that the defendants should be allowed to negate the plaintiffs' point that the amount of profit tax paid would be a tax benefit to the defendants by way of refund. 4.30In deciding this issue, I agree that SA3 has the effect of overriding the warranties of SA2 Clause 1.8 as I have said herein before. In other words, by SA3 Mr Hao agreed that he would be responsible to pay all tax liabilities, if any, of Beijing Mandas after the cut-off date of 28-4-01. It is also not open to the defence to say that since under Clauses 1 and 2 of the August declaration dated 7-8-01 in [5B/P41/706], Beijing Mandas stated that it and Mr Chan's representation in the appendices to SA3 were correct, otherwise they would be responsible for the same. Thus if anything in the appendices were wrong, they would be responsible for the mistake. (Clause 2 concerns with the court's seizure of the documents up to the end of 12-1999. In the end, it was not pointed out by the defence that there is anything in those documents would have affected the financial position of Beijing Mandas since 1-2000.) In any event under Clause 1 thereof I do not find any misrepresentation by the plaintiffs in the appendices of SA3. 4.31I now consider the evidence from the defence and their submissions as to the profits or loss position of Beijing Mandas in respect of Phase 1. 4.32The defendants relied on the report QJP30 in B8 of Zhong Ze Sheng, (中泽晟) (“Zhong's Report”) (B8/QJP30). I accept the plaintiffs' submission that the Zhong's Report did not have a full picture of the situation of Beijing Mandas and much of their results were guesswork. 4.33In any event Ms Yang has demonstrated in her re-examination that even on the Zhong's Report together with taking into account those matters happened after the report since 2000, the costs of redevelopment for Phase 1 would still be around Ұ480.02 million. This figure was very close to Ms Yang's original estimation of Ұ484.95 million. 4.34Although Mr Hao's expert, Mr Huang on tax matters criticized Ms Yang's estimation, his own comments and calculations were only guesswork. He admitted in cross-examination that he had never done any auditing on the books and accounts of Beijing Mandas. He had not considered the auditor's report of Beijing Mandas which was prepared for the year 2000 by a large auditing firm in Beijing in the name of Beijing Yongtuo Certified Public Accountants Co. Ltd (北京永拓會計師事務所有限責任公司) (“Yongtuo” (永拓)). He himself had never gone to Beijing Mandas. He just relied on his staff and therefore he was in no position to make any comment about Ms Yang's estimation of profit/loss of Phase 1. 4.35Yongtuo's auditor's report for the year 2000 shows that Beijing Mandas had suffered losses over the years with accumulated loss of over Ұ32 million by the year 2000. 4.36Thus it is probably the case that Mr Hao knew Beijing Mandas would most probably had a refund of the profit tax of more than Ұ7 million already paid and further there would be losses for Phase 1 from which Beijing Mandas could use to set-off against any profit made in Phase 2 as a kind of tax advantage. Since profit tax is chargeable at a rate of 33% the amount of tax to be saved, even on Yongtuo's report would be Ұ32 million divided by 33% i.e. Ұ10.56 million. 4.37In sum, Mr Hao must have realised that :
4.38The aforesaid evidence of Ms Yang in the area of profit tax would explain why Mr Hao had agreed to shoulder all tax liabilities of Beijing Mandas since 28-4-01 in SA3 instead of limiting his liability to Ұ5 million only. 4.39First of all Mr Hao must have a full investigation into the tax position of Beijing Mandas since April up to the time of the transfer of the sales contract to his side (as he said) on 16-7-01. By SA3 of 6-8-01 Mr Hao's side should have gone through the accounts and books of Beijing Mandas and would know the position of tax liability of Beijing Mandas, past or future. By 8-2001 Mr Hao actually took over Beijing Mandas and became the legal representative of the same in 10-2001. Litigation between the parties in the action herein has been instituted since 2002 thus, as submitted by the plaintiffs' side, if the defence was serious about this claim of over Ұ11 million it would not have raised this very matter by way of an amendment at the eleventh hour, i.e. in 12-2004, just two weeks before the commencement of this trial in 1-2005. 4.40For the past five years, since 2001, there is not a single document showing that Beijing Mandas, under Mr Hao's management, had been demanded by the tax authority to explain or to pay the unpaid business tax and/or profit tax. Mr Hao actually tried to explain why the counterclaim was made so late in 12-2004. He said that he was repeatedly demanded by the tax authority in 9 and 10-2004 in respect of Beijing Mandas's “operation situation, income and amount of taxes payable of Beijing Mandas” (北京明达的经营情况，收入和要付税款情况). 4.41By the end of the trial which is nearly one and a half years later, the defence did not inform the court nor lead any evidence as to what explanation they have given to the tax authority and what was the result of the investigation by the tax authority. Thus it is reasonable to accept the plaintiffs' submission that the allegations of the defence about the tax problems were unreal. Otherwise Beijing Mandas would have already been demanded by the tax authority for payment of business tax. 4.42In fact Mr Hao's expert, Mr Huang, on tax matter, who had been engaged by Mr Hao by 12-2004 at the latest and who had produced a report dated 3-1-05, had not even been told of any enquiry by the tax authority (see Day 35/40Q-41M). 4.43On the contrary, according to the undisputed evidence of Mr Chan's expert, Mr Wang, the tax authority and the government in PRC had a very elaborate system of investigation into the tax position of an enterprise, with a particular focus on the real estate development enterprises. There is a 3-tier of control and management (有三级税务机关讯号进行管理). They are as follows :
4.44When tax authority was conducting investigation on the enterprises, they would have an on-site investigation at the enterprises, going through the documents, books and accounts, etc., in order to investigate the income and expenses of the enterprises to see if there was any problem with the tax payment position. 4.45Further still, every year, enterprises with foreign investment like Beijing Mandas, would have to submit their auditor's reports or joint inspection by various departments including Administration of Foreign Exchange (外汇管理局), Administration of Industry & Commerce (工商局), Bureau of Commerce (商务局), Taxation Bureau (税务局), etc. 4.46In conclusion, given the elaborate system of the investigations into the tax position of enterprises by the tax authority of the government, if the tax problems of Beijing Mandas were real or as substantial as alleged by the defence, it is quite impossible that the problems would not have been discovered by the tax authority over the years. However, in the past five years, Beijing Mandas had not been demanded by the tax authority to make any outstanding payment for tax, otherwise Mr Hao would have produced the same. Further SA3 must have superseded the previous old provisions in relation to tax since those provisions provided that the payment of such tax liability is subject to tax payment receipt (应以税务部门开具的税票为准) (for example, see Clause 5.3 in TA1 of 12-4-01). There is no tax receipt issued by any tax authority produced to the court. 4.47I accept Mr Wang's estimation that the amount of business tax payable by Beijing Mandas is only Ұ13,763,059.16 by taking into the account of “false sales/mortgages” and a small amount of tax exemption under the tax exemption policy. 4.48However, in respect of profit tax which the defendants have already paid the provisional profit tax of more than Ұ7 million, Beijing Mandas would have a refund of the same since Beijing Mandas would have suffered a loss in the development of Phase 1 in the amount of about Ұ30 to Ұ39 million. 4.49The losses of Ұ30 million to Ұ39 million in Phase 1 would have attracted a deduction of profit tax from nearly Ұ10 million to Ұ12.87 million against any profits to be made in Phase 2. 4.50Mr Hao entered into SA3 and agreed to shoulder all tax liabilities of Beijing Mandas before and after 28-4-01 because he knew that Beijing Mandas would not have to pay any more tax and would have a refund to the company instead. Further, the losses in Phase 1 could be used by Beijing Mandas to setoff against any profits to be made in Phase 2. 4.51It goes without saying that the defence of misrepresentation in respect of tax also failed. CHINA XIN XING CONSTRUCTION DEVELOPMENT 5.1In respect of the outstanding payment to Xin Xing, it has been agreed clearly that Mr Hao would be responsible for the construction charges payable to Xin Xing for not more than Ұ60 million. However the defence raised three issues in their defence as follows :
5.2Mr Hao's version was that he knew nothing about the agreement dated 8-4-01 and Mr Chan did not mention the same to him when he signed TA1 on 12-4-01. He further said that he knew nothing about the writ, the Freezing Order, and the enforcement order until very late in 10-2001. Although he agreed that he had been introduced to the representative of Xin Xing, one Mr Li Zhan Shan (李占山), over a dinner with Mr Chan, he said that that was not in 4-2001 as Mr Chan said, but in 6-2001 and nothing was said about the money due and owing, the payment agreement, nor the writ, the Freezing Order, and the enforcement order. 5.3Mr Chan said instead that it was fully disclosed to Mr Hao about the Xin Xing agreement and the same had been shown to Mr Hao when they signed TA1 on 12-4-01. Mr Chan had indicated to Mr Hao that, although the amount had already been agreed, it was still negotiable if Mr Hao negotiated with Xin Xing for the construction works of Phase 2. That was why he introduced Mr Hao to Mr Li of Xin Xing over a dinner in April and not later on. It was the responsibility of Mr Hao to negotiate with Xin Xing and to pay Ұ60 million to them as agreed. However, Mr Hao did not negotiate with them and did not commit Beijing Mandas to contract Xin Xing for the construction works of Phase 2. That was why Xin Xing took out a writ in May, obtained the judgment and enforced the same in early June. Eventually, Mr Hao contracted another contractors for the works in Phase 2 but reverted to Xin Xing for the construction works in Phase 2 later on. All in all, Mr Hao knew of the litigation instituted by Xin Xing and there was no non-disclosure on the part of him for and on behalf of Beijing Mandas. 5.4Quite apart from the general credibility of Mr Chan and the lack of the same on the part of Mr Hao as found earlier, I find Mr Hao's version here, on a balance of probabilities, to be quite incredible by itself. 5.5First of all, Mr Chan stated clearly that the amount now due and owing would be not more than Ұ60 million. This figure is exactly the same as the Xin Xing agreement. Although the words used in TA1 were “not more than Ұ60 million”, yet it is reasonable to accept that it was still open to negotiation on the strength of the possibility of contracting Xin Xing again for the construction works in Phase 2. It is quite common in the PRC, according to their culture, that many things are negotiable and especially where there would be some incentive on the part of Xin Xing to negotiate further on the already agreed amount of Ұ60 million when another bigger construction works were available to them on a give-and-take basis. 5.6Further, and more importantly, there was no reason for Mr Chan to cover up the agreement which would be revealed very shortly in May or June when Mr Hao's team of staff would take over the management of the companies which they did as I found since May. Further, the Xin Xing agreement was one of the documents officially handed over to Mr Hao's side in 7-01 and thus it could not be said by Mr Hao that he only knew of such an agreement in 10-01. 5.7Furthermore, it cannot be said that Mr Hao himself did not know the litigation since the papers before me shows clearly that when Beijing Mandas was under the management of Mr Hao's team, they had paid the lawyer Hualun (華倫律師) $100,000 for the litigation with Xin Xing. 5.8If the amount was not fixed at all, the provisions of “not more than Ұ60 million” would therefore be a mere warranty from Mr Chan. However, the contract was silent as to what would have happened if the amount was more than Ұ60 million. It would be reasonable for both parties to say clearly (at least Mr Hao would insist to add in the same) that the excess amount would be payable by Mr Chan. Thus, I accept the plaintiffs' submissions that Mr Hao must be very concerned about this substantial amount owed to Xin Xing which represented about 40.8% of Beijing Mandas's liabilities when the other liabilities amounting to Ұ87 million were taken into account. It is reasonable to accept Mr Chan's version that he was given the green light from Mr Hao to negotiate the outstanding amount by agreeing on the sum of Ұ60 million. 5.9By reason of the aforesaid matters I consider that Mr Hao's version that he knew of the Xin Xing agreement and the litigation papers only by 10-2001 to be quite incredible. As indicated before, in “YLH23” which I accepted as a document made by Ms Ren at the instructions of Ms Yang and was given to Ms Qin on 21-4-01, it was shown that the amount owed to Xin Xing was only Ұ44 million. Thus by that day the Ұ44 million odd would not be the latest figure otherwise Mr Chan would not have chosen Ұ60 million in TA1 about a week before. Any businessman would ask in the circumstances as to why it was not more than Ұ60 million and not Ұ70, Ұ80, Ұ90 or even Ұ100 million as submitted by the plaintiffs. 5.10The timing of the dinner (which Mr Chan said was in 4-2001) was more credible since the liability due and owing to Xin Xing was an enormous amount and Mr Hao would obviously like to meet their representative as soon as possible in order to establish contact and further negotiation on the strength of contracting them for the Phase 2. Thus in SA2 dated 12-7-01 [5B/P31], Clause 1.12 provided that :
In other words, it was contemplated at the time of SA2 that as soon as it was signed, Mr Hao would negotiate with the people of Xin Xing for payment of the money unpaid. How could Mr Chan still hide the confirmation document from Mr Hao by the time of SA2? As soon as Mr Hao approached the people of Xin Xing discussed with them about the payment, the confirmation document would be exposed. Mr Hao did not write, as he did on other issues, to complain about the non-disclosure of confirmation document between 7-2001 and 10-2001. It was strange that Mr Hao professed not to know that Beijing Mandas had not paid up Xin Xing until late 10-2001. In any event, it was always Mr Hao's obligation to back-pay that sum up to that limit as his obligation under TA1 and his obligation under SA2 to negotiate with Xin Xing for such a payment and it was not the responsibility of Mr Chan to pay that amount Ұ60 million. It was therefore, as submitted by the plaintiffs, patently impossible that Mr Hao only learnt of the non-payment by late 10-2001. 5.11Further, in SA3 of 6-8-01 at 5B/[P37] it was also provided that :
5.12These provisions are also quite telling. They clearly referred to litigation with Xin Xing. Though it only referred to jurisdictional dispute (“审限”官司) at that stage, it clearly stated that that was not the only thing in issue. (Beijing Mandas' application was made on the ground of the arbitration clause.) How could Mr Hao not know of the litigation by 6-8-01 with Xin Xing when the fact of litigation was stated in the provision of SA3 already. Further, when that provision was entered into, Mr Hao must have asked for the sight of the writ for the commencement of action and other documents together with it like the Freezing Order and the enforcement order in early 6-2001. Once Mr Hao had the sight of the writ he would have known the confirmation document which was the basis of Xin Xing's action. 5.13Further, Beijing Mandas appointed Hualun in the litigation and raised the jurisdictional dispute on the instructions of Mr Hao because by that time, he would be in de facto control of Beijing Mandas, (although it was Mr Chan who had signed the instructions letter as he was still officially the legal representative). 5.14In any event, the confirmation document was formally handed over to Mr Hao's side by 20-8-01 [B8/D16/1741]. It was simply impossible that this one-page confirmation document (at 6B/P87/1081) could have missed the attention of Mr Hao's side. 5.15It is even more “ridiculous”, as submitted by the plaintiffs' side to suggest that Mr Hao only knew of the litigation and the employment of lawyers of Beijing Mandas in late 10-2001 for the following reasons :
5.16Finally it can also be shown that there was an evolution on the description of this Ұ60 million from TA1 of 12-4-01. Mr Chan confirmed that the construction charges due and owing to Xin Xing would not be more than Ұ60,000 million. Same provisions were made in TA2 (股权转让合同) of 28-4-01 and SA2 of 12-7-01. However by SA3 of 6-8-01 it was stated that :
5.17Thus it is quite clear that between April and July, the parties were still hopeful that the amount was still negotiable to the upper limit of Ұ60 million. However by August when the two parties were already in full litigation, they only stated that the total amount of main contractor's works was Ұ60 million outstanding and Mr Hao would be responsible to pay the same. 5.18In respect of the defence of Xin Xing, I find :
5.19All in all Mr Hao had no defence at all under this item of Xin Xing. 5.20Apart from not being able to raise any defence under this issue of Xin Xing, Mr Hao himself has seriously destroyed his own creditability by saying, inter alia, that he only knew of the confirmation document and the litigation by 10-2001. CLAIMS BY PURCHASERS AGAINST BEIJING MANDAS 6.1Mr Hao's allegations under these claims are that the plaintiffs' side had failed to disclose to his side the liabilities or potential liabilities of Beijing Mandas vis-a-vis purchasers in Phase 1 in respect of :
(I) PROPERTY TITLE CERTIFICATES 6.2The defence alleged that a number of purchasers had lodged claims against Beijing Mandas on the ground that no property title certificate had been issued in respect of their flats and allegedly they had suffered loss. Consequently Beijing Mandas had to compensate these purchasers and incurred legal costs therefor. They are summarized as follows :
6.3This claim of the defendants is related to his claim under the land grant fees (土地出让金) for the 13,200 m2. After I have decided hereinbefore that it was Mr Hao's responsibility as orally agreed between the two parties to pay for the land grant fees for this area, the claim of the defence would fail for those reasons herein below. 6.4When it was the responsibility for Mr Hao to pay for the land grant fees for the 13,200 m2, then the amount of the land grant fees paid by Mr Chan before the transfer would be more than sufficient for all the purchasers of the other flats for the issuance of their property title certificates. In fact the amount paid by Mr Chan for Phase 1 had already exceeded what Mr Chan's side should be responsible for as I had found earlier hereinbefore. 6.5Further Mr Hao must have realized that only a few flats had property title certificates issued for them, and the other purchasers had not yet got their property title certificates for their flats. This could be gathered from the documents relating to the title to Phase 1 available to him, such as the head property title certificate (大房产证) and land grant certificate (国有土地使用证). 6.6Thus it is the responsibility of the defendants to deal with this matter of property title certificate for those flats sold to purchasers who had not yet obtained their individual property title certificate also known as sub property title certificates (小房产证). According to the plaintiffs' expert evidence, Zhang Xue Bing (张学兵) (“Mr Zhang”), which is uncontroverted by the defence, Beijing Mandas could have made use of those areas covered by the head property title certificate obtained with the land grant fees already paid to procure sub property title certificates for those flats. Mr Zhang said (at 13B/245/#3) :
6.7Accordingly, it is not open to the defence to say that they could not issue Property Title Certificates to the various purchasers because Mr Chan had not paid enough the land grant fees. At the time Mr Hao took over Beijing Mandas, the amount of the land grant fees and the head property title certificate already obtained had ample areas available for use by Beijing Mandas to obtain Property Title Certificates for at least those few flats referred to in the aforesaid table. From the document property title certificate — Chart on Property Registration in Beijing (房权证北京市房屋登记表) dated 4-11-99 at B8/D10, the areas still available thereunder for the issuance of property title certificate were about 19,880 m2, (i.e. 22,168.6 m2–2,288.6 m2). Apparently from the Head Property Title Certificate, after 2002 there were still areas of 14,923 m2 available. Thus the nearly 15,000 m2 or 20,000 m2 available at different times would have been more than sufficient to satisfy those “pressing” purchasers for those few flats who were said to have made claims against Beijing Mandas as listed hereinbefore. 6.8Further Beijing Mandas had paid the land grant fees payable under the Land Grant Contract in full and had in 3-2004 obtained another head property title certificate for another 20,807.88 m2 (B14/[32]). Thus if Mr Hao had paid off all the land grant fees payable under the Land Grant Contract earlier (as he should have done pursuant to the agreement between the two parties), he would have extra areas available for the issuance of sub property title certificates for all other purchasers. 6.9In short, since Mr Chan had paid more than what they should bear for the land grant fees, any deficiency in the land grant fees for Phase 1 should be borne by Mr Hao and he should have paid for the same to procure property title certificates for the purchasers. The failure of Mr Hao to have those property title certificates procured in time for the purchasers was therefore not the fault of the plaintiffs. Instead Mr Hao should bear the consequences. 6.10Accordingly unnecessary litigation could have been avoided and costs incurred thereof should not be the responsibility of Mr Chan. 6.11Further for those claims which were dismissed by the court, Mr Chan could, in no circumstances, be liable for the legal costs or otherwise. There might well be legal costs, which are now claimed by Mr Hao, comprising costs for those misconceived proceedings brought by the purchasers. 6.12More particularly in respect of Guo & Zhang, Flat 1742 was purchased by the purchasers at Ұ1.39 million. It is unreasonable for Beijing Mandas to purportedly settle with the purchasers at the cost of more than Ұ1.11 million. The purchasers had been using the flat for years apparently without having to pay rent. With the property title certificate obtained by Beijing Mandas for the purchasers, the flat would have attained its full value. 6.13When compared with the case ofWang Xiao Hong (王晓红), Wang's flat is 1264 (142.74 m2) significantly larger than Flat 1742 (101 m2) here, the Beijing court on Mr Hao's case only ordered damages of Ұ100,000 to Wang for failure to obtain the property title certificate. 6.14Thus the alleged settlement was so unreasonable and could not be any bona fide settlement for which Mr Chan should be responsible. 6.15In respect of Wang Xiao Hong (Flat 1264) itself, Mr Hao originally has, very properly and rightly, agreed to procure the property title certificate for the purchaser back in 2001. It was only because Mr Hao's aforesaid breach of settlement agreement which led to the litigation. It has nothing to do with Mr Chan. 6.16In any event the litigation was instituted by the purchaser only in 4-2004, nearly three years after Mr Hao had taken over Beijing Mandas and over two years after he had reached a settlement with the purchaser. Mr Hao should have had ample time to obtain the property title certificate for the purchaser as aforesaid but he had failed to do so. Accordingly he must bear the consequences of his own default. (His other claim for area difference will be considered herein below). 6.17The defendants' counterclaim herein is for the claims or potential claims by purchasers for difference in areas between contractual and actual areas. However, Clause 1.6.4.2 of SA3 of 6-8-01 at 5B/P37 provided that :
and at the end of Clause 6 (六), it was provided :
6.18Mr Hao claims that the excess areas are 254.15 m2 and according to his calculation the amount repayable to purchasers for refund would be Ұ1,907,205.80 and therefore the amount repayable exceeded the sum of Ұ600,000 stated in the aforesaid Clause 1.6.4.2 by some Ұ1,307,208.80. (Mr Hao's claim was at about Ұ7,504.25 per m2.) 6.19However, according to Clause 1.6.4.2 the estimated excess areas was about 200 m2 in total. Of course the actual excess areas are now about 25% more. But in the context of this clause it was agreed between the parties that the possibility of the need of refunding to purchasers would be very few and both sides had accepted an ‘educated' guess that the sum would not be more than Ұ600,000. It was not the total amount of money refundable if all the purchasers would ask for a refund. In short both sides at the time of agreement were taking a chance as to how many purchasers would be making request for refund. If no one made any request for refund or very few, then the amount would not be more than Ұ600,000, Mr Hao was to benefit. On the contrary, if more purchasers than expected made requests for refund, Mr Hao was to lose out. 6.20By the time of SA3 of 6-8-01, all the sales contracts had been inspected by Mr Hao's side since 5-2001 and they were also transferred to his side by mid 7-2001. Thus by the time of SA3 Mr Hao should know full well the possible extent of refund if all purchasers asked for refund. However given his experience in property development, he must have known full well that only few purchasers would ask for refund. Thus they agreed upon such a provision in the agreement. 6.21Eventually Mr Hao's estimation turns out to be correct and only few purchasers asked for refund. By now, nearly five years after Mr Hao has taken over Beijing Mandas and 10 years or so since the purchasers have obtained possession of the flats, even on Mr Hao's case, only eight purchasers had asked for refund and the total amount of refund which Beijing Mandas had made was some Ұ505,411.51 (1B/334B34/#62P). There is no evidence of any other claims having been made by purchasers for refund. Thus, it is well within the estimated range of Ұ600,000 contemplated by both sides in the agreement. 6.22According to the plaintiffs' calculation the total amount Beijing Mandas would have to refund to the purchasers would only be about Ұ315,495.52 which is even lower than the amount actually paid by Mr Hao's side. However there is no need to consider the detail of the plaintiffs' calculation as opposed to the defendants' version of the actual refund. Suffice it for me to say that in accordance with the sales contract with a purchaser, only a difference of more than 5% of the total area could a purchaser launch a claim for refund. Mr Hao's side had not taken this clause into consideration but just lump up the total differences. Thus, the plaintiffs' calculation should be more correct. 6.23Accordingly Mr Hao and/or Beijing Mandas has and could have suffered no loss on top of what Mr Hao had already agreed to bear, namely Ұ600,000. 6.24This claim of the defendants would at least have some slight effect on the lack of credibility on the defendants' claim and version. 7.1Under this heading the defendants' case falls into two groups of accounts receivables and they alleged that they were not readily recoverable, namely :
GENERAL CONSIDERATION OF RISK OF COLLECTION 7.2The only complaint of the defendants is that it was not easy or quite difficult in recovering those debts. However I accept the plaintiffs' submission that the difficulty in such a recovery should be quite obvious to Mr Hao at the time of the agreement. By 2001 the balance of purchase price had been outstanding for quite some time ranging from two years to nearly six years. In acquiring the 52% share holdings in Beijing Mandas, Mr Hao also acquired the accounts receivables and the risk of not being able to collect them directly from the purchasers in the future. Mr Hao should have known full well that he would have to make some efforts to collect those sums of money. However should Mr Hao failed to collect them, he could still have the recourse of selling those flats. In a rising market, he would be able to recover all outstanding debts eventually. (I) The sum Ұ2,599,655.02 accounts receivables 7.3Mr Hao alleged that Mr Chan represented to him that those sums would be collected very soon (3A/Hao/#108). 7.4However Clause 1.6.4.1 of SA3 only provided that those sums could be collected when the time came or certain conditions fulfilled, as follows :
7.5Further by the time of SA3 of 6-8-01, Mr Hao had become the General Manager and the Acting Legal Representative of Beijing Mandas for quite some time. He and his team of staff should have no difficulty in ascertaining from the purchasers their stance about the payment of the balance purchase price. He could not make the excuse on the ground that he was being misled by Mr Chan. 7.6Further in Clause 1 of SA3, the parties said that they had “conscientiously sorted out” (认真淸理) the accounts and finance of Beijing Mandas in order to reach the conclusion on the figures following, including the provision relating to this group of accounts receivables. 7.7Thus Mr Hao and his team of staff must have read the relevant sales contracts and investigated on the recoverability of these accounts receivables before signing the agreements. He could not have been misled by Mr Chan. 7.8Certain specific allegations were made by Mr Hao in respect of failing to receive payment from the purchasers. They are considered as follows : 7.9The purchasers complained about the poor quality of the flats after receiving the demand for payments from Beijing Mandas. In respect of Flat 1245, there was an agreement for replacement of flat in 1998 and Mr Hao alleged that that agreement had not been disclosed to him. 7.10However, Mr Chan's testimony and argument is that there is no substance in the alleged complaint about the quality of the flats (3A/Chan/#265-266; 3B/Chan/S2/#16) as follows :
7.11Mr Hao's case was that the purchaser complained about the failure of Beijing Mandas to obtain property title certificate for the flat and that was why they refused to pay the balance of the purchase price. As considered hereinbefore, it was the responsibility of Mr Hao to obtain the property title certificate for the purchaser. Thus if he failed to do so and the purchasers refused to pay the balance of the purchase price, he could not blame Mr Chan for that. 7.12Mr Hao said that the purchaser contended that the actual size of the flat was small than that stated in the sales contract and thus only a smaller sum ought to be paid (3A/Hao/#120-122). The contract size was 242.74 m2. but the purchaser alleged that the actual size was only 238.52 m2. Thus there is an alleged difference of 4.22 m2. 7.13However, according to Clause 2 of the sale contract (7A/P126/1433) which provided expressly that only if the size difference exceeded 5% would adjustment be made to the purchase price. 4.22 m2 out of 242.74 m2. is less than 2% of the size. Accordingly, no adjustment would be made for such a variation. 7.14Mr Hao contended that those purchasers had disappeared without paying the balance purchase price. When this case was put by the original counsel for the defendants, Mr Wong Yan Lung SC, he was reminded by the court that such a version would not assist the defence and would actually put the defendants in a very bad lime light. It is not a case where debtors disappeared and therefore there is no recourse to recover the debt. It is a case of purchasers of landed property. Even when purchasers disappeared or could not be found, the flats would still be there. It is common general knowledge that real property in Beijing has risen a lot since 1996 when Phase 1 was completed to 2001 and then to 2005 when the case of Mr Hao was put to Mr Chan. In fact, the increase has been quite drastic. 7.15Accordingly, even when the purchasers had disappeared, Beijing Mandas could sue them for the balance of the purchase price and execute on the judgment by way of sale of the flats to recover the balance. On a rising market, Beijing Mandas could suffer no loss at all. 7.16Mr Hao's pleaded case is that the purchasers had defaulted in making the mortgage payments but Mr Chan's side did not make any disclosure of such guarantee liabilities to Mr Hao's side. Further, such sums were in fact not receivable (1B/334B-40/#69A and 69B). However, SA3 shows very clearly that Mr Hao must have known the nature of this group of accounts receivables, namely, money paid Beijing Mandas for settling purchasers' mortgages. 7.17Beijing Mandas's liabilities arose out of their guarantee for mortgage loans advanced by the banks to the purchasers. Mr Chan said that was the common practice in Beijing whereby property developer would have to guarantee invariably for the repayment of the purchasers to the lender bank. Mr Hao should be aware of such a practice which would apply to his own company Jin Tong (金通) for the sale of flats in Hepingyuan (和平苑) (3A/Chan/#244; 3B/Chan S2/#35). 7.18Three documents would reveal such a guarantee, as follows :
7.19In various charts on the financial position of Beijing Mandas provided by Mr Chan's side to Mr Hao's side during the verification process, it was clearly shown that Beijing Mandas had made payments for purchasers' mortgages. It is evident from 8/YLH23 and 6A/P55, which respectively contained Ms Qin's handwriting saying “client's mortgage” (客户按揭). The remarks of client's mortgage put by Ms Qin in her own handwriting showed that Ms Yang must have explained to Ms Qin as early as 21/22-4-01 that those were money paid by Beijing Mandas for the mortgages of purchasers (see also 6A/P53 and 7B/YLH 3). 7.20In any event, it is submitted by the plaintiffs' counsel, it is difficult to see and understand how Beijing Mandas could have suffered any loss as a result of such accounts receivables on the assumption that those sums were not paid back by the purchasers to Beijing Mandas. Those amounts owed by the purchasers to Beijing Mandas were quite small as compared to the value of the flats. As aforesaid, Beijing Mandas could go after the purchasers' flats for repayment when they are in default. 7.21There is absolutely no basis on this defence of accounts receivables and the same is totally unsustainable. But more importantly, the allegations made by Mr Hao and Ms Qin had further seriously damaged their credibility in putting forward such kind of unsustainable claim. FURTHER ALLEGED UNDISCLOSED LIABILITIES OF 8.1Those alleged undisclosed liabilities comprised four items as follows :
8.2Mr Chan in his oral evidence agreed to take up the responsibility for the Ұ1 million and compensate Mr Hao's side for such a payment paid by Beijing Mandas to Jin Ri (16/Day 10/15P-V). It is therefore not necessary to consider this sum but to deduct the same from the plaintiffs' claim of Ұ12 million against the defendants. 8.3Mr Hao alleged that only after he had taken over Beijing Mandas, he discovered there was a loan from Ludi to Beijing Mandas in the sum of Ұ1.5 million which had been due on 30-12-00 but remained unpaid. I am afraid this is disingenuous for Mr Hao to make such a claim and it would again affect his own credibility. 8.4The plaintiffs' case in this respect is that Lu Di is a subsidiary of Chaoyang. Although the defence admitted that there was no documentary evidence that Lu Di is the subsidiary of Chaoyang, the circumstantial evidence from the documents suggested strongly that it is a subsidiary of Chaoyang. In fact Mr Hao had never challenged Mr Chan's evidence that Lu Di was in fact a subsidiary of Chaoyang. 8.5According to Mr Chan, the so-called loan agreement of Ұ1.5 million was rather an arrangement between Beijing Mandas and Chaoyang whereby Chaoyang was to provide funding for the costs of installation of the heating system for Phase 1. Chaoyang agreed to pay up to Ұ1.5 million and Beijing Mandas agreed to repay Chaoyang later. 8.6The so-called “loan agreement” had been transferred to the defendants' side on 13-7-01, as pointed out in the defendants' closing submissions (DCS/#451 at p.163). The terms of the so-called loan agreement stated that it was for paying for the works of the heating system. It further provided that Lu Di was to make direct payment to the heating works company first up to Ұ1.5 million. 8.7Mr Chan wrote for and on behalf of Beijing Mandas by a letter dated 10-5-01 to Chaoyang (at 6A/P60/789A). He requested the other side to press the installation company to come forward and deal with the actual construction costs and in order that Beijing Mandas could pay the same back to Chaoyang. It was stated that Beijing Mandas considered that the works had been completed by 1-11-00 and the amount had examined and verified (审核) amounted to Ұ1,263,840.16 only instead of the project quotation from the Municipal Company (市政公司工程报价) of Ұ1,565,252.42. He said that “as there was difference between the two sides, therefore we had on many occasions urged Party B (i.e. Main Municipal Engineering Company at Beijing) to come to deal with matters relating to costs of works settlement and inspection of works for acceptance. Party B had so far been unable to complete.” (由于双方有差距，故我司多次催促乙方 (即北京驻总市政工程公司) 前来辨理施工结算及工程验收事宜，乙方至今未能完成.) According to Ms Yang, this document has already been handed over to Mr Hao's side between 5-2001 and 7-2001. 8.8Thereafter, in SA3, after Mr Hao's team had “conscientiously sorted out” (认真清理) the finance and accounts of Beijing Mandas, it had been verified that there was this amount of Ұ1,263,840.16 which Chaoyang had made advance payment (代垫) for Beijing Mandas for the heating works. Clause 1.4.2 specifically provided that :
Thus, as I have said earlier, it is disingenuous for Mr Hao to claim the Ұ1.5 million so-called loan when the same was an advance payment made by Chaoyang for and on behalf of Beijing Mandas in respect of the heating system. He should have known full well that the actual amount was Ұ200,000 odd less and the same had already been agreed by he himself to pay under SA3. 8.9In fact, Mr Chan's aforesaid letter of 10-5-01 had been made part of the Annexure 5 to the original draft of SA3 and the same had already been produced in Mr Chan's first witness statement. 8.10Thus, there is absolutely no liability on the part of Mr Chan under this claim of Ұ1.5 million in respect of an alleged loan by Lu Di. In fact, after five years there was absolutely no claim from Lu Di to Beijing Mandas for such an amount or at all. (III) BEIJING MANDAS'S GUARANTEES — BOC CLAIMS AND OTHER POTENTIAL CLAIMS 8.11Mr Hao's case is that he only discovered the guarantees given by Beijing Mandas to various banks for the purchasers' mortgages in 10-2001. However those documents transferred by Mr Chan's side to Mr Hao's side comprised those guarantees given by Beijing Mandas for the purchasers' mortgages. Mr Hao then said his side was more concerned with clearing the books and accounts and did not pay attention to those documents (3A/Hao/#148). 8.12This point has already been considered in the previous chapter when the liabilities of Beijing Mandas for purchasers' mortgages were considered. I have concluded that it is disingenuous for Mr Hao to raise this point and it had seriously reflected negatively against him in terms of his credibility and the credibility of Ms Qin. In recapitulation, the main point is that in Annexure 6 to SA3 of 6-8-01, the accounts receivables of Beijing Mandas had already disclosed the purchasers' mortgages which Beijing Mandas had paid for and on behalf of them. Mr Hao and his side must have known of the existence of such guarantees. It is not possible at all that Mr Hao's side would have omitted to look at those important documents transferred to them. They comprised the master agreements between Beijing Mandas and the banks, guarantees, mortgages and self-contracts, the mortgages and the guarantees signed by Beijing Mandas guaranteeing the purchasers' repayments. 8.13Further, the court documents issued by BOC and produced by Mr Hao showed that the first claim made by BOC was on 11-9-01 (4B/HW17). Thus, Mr Hao should have been aware of that claim earlier than 10-2001. However, in his letter dated 27-12-01 in response to Mr Chan's demand for payment of the balance of the purchase price for the shares, Mr Hao made no mention of these claims by BOC at all. It was not mentioned in Mr Hao's solicitor's reply letter to the demand from Mr Chan's solicitors either (6A/P47). As it was said earlier, Beijing Mandas did not suffer any loss arising from these claims by BOC since it could have recourse against the purchasers and their flats (3A/Chan S2/#39). 8.14I shall consider the water charges claimed by Mr Hao in a separate section. 9.1I must say at the outset this defence by way of set-off is the strongest point in all the defences, albeit the amount involved is only Ұ780,000. 9.2The claim for water charges arose in this way. From the document at 4A/HW16/200, it is evident that one Yang Jian Xin (杨建新) wrote a letter to the Inspectorate of Beijing Sale of Tap Water Supply Group (北京市自来水集团供水营销稽查大队) on 22-11-01, saying that two days ago there was an investigation on the condition of water supply to Greenlake. Mr Yang reported to them that according to his understanding, Beijing Mandas in or about 1995 contracted with You Lian Company (友联公司) and signed a written agreement to the effect that You Lian would be responsible to install and apply for the proper supply of water. The contract was completed at the contract price of Ұ200,000. The pipes were connected and the water meter was installed. However, Mr Yang did not know what had happened thereafter in respect of the proper supply of water and the procedure involved since the engineer and the manager of the Engineering Department of Beijing Mandas had already left the company. 9.3Since at that time, i.e. 11-2001, Beijing Mandas was at the stage of transfer and instant month before, there was a change of legal representative officially — the old and new Mandas are being changed hands, at the moment dealing with complicated work such as handing over (新老明达公司目前正处于转手，交接等等的复杂工作当中), thus, they were still in the process of searching for the files in respect of the proper and official supply of water. 9.4A month later by a report dated 2-12-01 one Yang Jian Xin (杨建鑫) said on 20-11-01, a team of three inspectors headed by Mr Gong Jin Guo (贡金国先生) (“Mr Gong”) attended Greenlake and found Yang Jian Xin to investigate into the official supply of water to Greenlake. Mr Yang related what he knew about the proper and official application for the supply of water and the engineering works thereof together with drawings information contracts and payment receipts to them. He reported this matter to a manager Ai (艾总) and he also said that he wrote a letter to the Inspectorate (稽查大队) on 22-11-01 as aforesaid. Apparently Yang Jian Xin (杨建鑫) is Yang Jían Xín (杨建新) by another name. 9.5The report also said that on 26-11-01, he went with Assistant Manager Zhao (赵付总) to the inspectorate bureau and discussed the matter with Mr Gong and one Mr Sun (贡先生、孙先生). They also supplied a contract between Beijing Mandas and You Lian and a photo copy of Examination and Approval chart on the Planning of Tap Water Absorption (自来水吸水规划审批表). 9.6Mr Yang reported that according to Mr Gong, after he had perused those documents, he considered that these pieces of information were far from supporting the conclusion that Greenlake had properly and officially obtained water supply. He was even sure that :
(It is not apparent from this report nor from Mr Hao and Ms Qin why Mr Gong could have come to this conclusion and his reasoning therefor.) 9.7Mr Gong further suggested to put aside the question of penalty for the time being and suggested that Beijing Mandas should :
9.8The water supply company gave a written notice dated 20-2-02 to Greenlake in respect of the arrangement about the irregular supply of water (关于对“碧湖居”住宅小居违章用水处理的通知). They considered that the contract with You Lian Construction Engineering (友联建筑工程) in 1995 was improperly done by You Lian. In fact You Lian connected a pipe DN150 to the main pipe DN300 of the water supply company. This had not been approved by the water supply company and therefore an illegal connection for consumption of water (从而形成了违章用水事实). 9.9They further directed Greenlake to apply again for the proper connection of water and upon approval install the same within three months. Thereafter they would disconnect the previous improper connection in order not to affect other users in the area like people in the Embassy District. They would then demand for the water consumption under the improper connection — supply and sale of water inspectorate chased for payment of water charges arising from improper use by Greenlake small houses (供水营销稽查大队追缴“碧湖居”小居的违章水费). 9.10Thereafter Beijing Mandas negotiated with the water supply company and eventually agreed to pay a lump sum of Ұ780,000 for the water consumption between 1994 and 2002. The defendants therefore claimed this amount from the plaintiffs on the ground that this liability was not disclosed to the defendants. It should be noted here in that written notice of the water supply company, it also said : “Considering that the Company (i.e. Mandas Company) is both the victim and beneficiary, in order not to affect the normal use of water by overseas embassy personnel in the small houses, we, the constructors, will dismantle and remove the connecting pipes upon the formal completion of the water supply project” (考虑到该公司 [即明达公司] 既是受益单位，也是受害单位，为不影响该小区的境外使馆等人员的正常用水，待正式给水工程完工通水后，由我施工方再将私接管线拆除。) (4A/HW16/198). 9.11Here counsel for the defendants submitted strongly that the line of questioning by Mr Wong Yan Lung, SC at the first part of this trial casts doubt on Mr Chan's credibility. It was pointed out that Mr Chan half-way through the cross-examination asked Mr Wong whether he was referring to a “bank account” whereas it was submitted that Mr Wong was obviously referring to an account with the water company. In the final submissions, counsel for the plaintiffs therefore concluded that Mr Chan was obviously trying to buy time to search for an answer in respect of payment to the water company i.e. evasive (DCS/166/#454.3 fn.74). 9.12Upon reading the transcript again and again, I do not consider that Mr Chan was trying to buy time at all. In fact Mr Wong was using the term “户口”, which could mean “an account holder”. This term was usually used for an account with a bank. It was then suggested by the court that the proper description should be “帐目”, meaning an item in the books of account. Even Mr Wong apologised for using the wrong term which might have misled the witness (16/Day 10/528L-529M). 9.13It should also be noted that the line of cross-examination concerned with a document at 12/986. This is the copy of the enterprise business certificate of Beijing Wan Guo Property Management Company (北京万国物业管理有限公司) (“Wan Guo Property”). The legal representative was one Wang Xia Shu (王夏舒) and he was also the deputy manager of Beijing Mandas. It should be noted that this document was only produced on the day of cross-examination and that is 19-1-05, which is part and partial of those documents labelled Additional Documents from Bundle 9 onwards. My impression was Mr Chan was genuinely confused with the bank accounts through which Wan Guo Property paid the water charges but in fact Mr Wong was referring to an item in the books of Beijing Mandas when they were paying water charges for and on behalf of Wan Guo Property. 9.14However to my mind, as I have said at the outset, the strongest point of the counterclaim of the defence is on this item of water charges. The documentary evidence is that the water supply company itself had decided after investigation (but without giving any reason) that Beijing Mandas : (a) had no proper application and connection to the main pipe of their company; (b) the connection was illegal and improper; and (c) had not paid any water charges since the commencement of construction works in 1994 and since the occupation of Phase 1 from 1996 up to the time of the investigation in late 2001 and its notice in 2-2002 when a solution was suggested by the water company itself. 9.15The plaintiffs had submitted that according to SA3, after due investigation they had decided that Mr Hao should be responsible for all the liabilities after 28-4-01. Since the question of unpaid water charges arose only in or about 11-2001 and the demand was made in 2-2002, it was Mr Hao's responsibility to bear the same according to SA3. 9.16However I cannot accept such a submission. The water charges incurred actually occurred in the period mainly before 28-4-01 and of course some of the charges after that day should be borne by Mr Hao as continuing liabilities in the operation of Beijing Mandas. But this short period of six months or so would not be comparable to the time frame of more than six years and during the first two years the water consumption was incurred by the construction works. Further the penalty imposed arose from illegal and improper connection at the outset years before 28-4-01. This led to the eventual settlement. 9.17After 28-4-01 Beijing Mandas was only responsible for its own consumption by the offices and those residual flats rented out by it since Ms Yang's evidence is that the rental would include water charges. They are by comparison amounted to a much smaller amount than the overall water consumption during construction and after sale and occupation. Both parties of course had not calculated the portion between 28-4-01 up to 2-2002 when the overall settlement was made for water charges and penalty of Ұ780,000. 9.18However Mr Chan as the managing director and was only concerned with the overall operation of Beijing Mandas in its development and sale of Phase 1. His understanding is that there was an agreement with You Lian to install the water connection including a proper application to the water company for the supply of water. During the construction stage Xin Xing the construction company would be responsible for its own water consumption. Ms Yang said there is a responsible person in the engineering department of Beijing Mandas who would come to her department from time to time and settle the water charges (Day 17/953A-H). 9.19In fact Ms Yang said that she was definite that they had paid water charges before. They are divided into three categories, namely :
9.20She said definitely that it is impossible that they have not paid water charges since 1994. There is simply no reason why Beijing Mandas should steal water for and on behalf of the construction company. There is no benefit at all to enter into such a conspiracy. 9.21Mr Yang's evidence on Day 17/950A-I is relevant :
9.22Ms Yang also referred to the document 7B/YLH5/1486. The title of this document is Explanation notes of the items between Beijing Mandas and Wan Guo Property (北京明达与万国物业往来項目的说明). Ms Yang said she should have made this document in 5-2001 and a copy of the same was given to Mr Hao's side. 9.23In Clause 1 thereof stated that water charges, among other charges, were made for and on behalf of Wan Guo Property, and they were paid by autopay through bank — collected by bank on instruction (由银行托收). She said there should be an entry in the bank statement in respect of the same — “there would only be bank voucher when it was collected by bank on instruction” (銀行托收只有銀行單子 (Day 17/951Q)). When Mr Jat put to Ms Yang that there was no such an entry in the books of Beijing Mandas, Ms Yang said it was impossible. At least in respect of the water charges for the construction works, she was definite that Beijing Mandas had paid for the same since she would have to calculate the amount with them (Day 17/953E and H). 9.24When she was asked about an agreement between Beijing Mandas and Beijing Chaoyang Property Management Centre (北京朝阳物业管理中心) dated 16-8-00 titled “Agreement for Supply of Water and Electricity (供电供水协议), she said that she did not know about this agreement. 9.25At B12/987, there was an agreement between Beijing Mandas and the Second Command Post of the Main Brigade of Principal Logistics Engineering (总后工程总队第二指挥部), and this was the previous name of Xin Xing Company. It has been agreed that :
This document was dated 17-11-94. 9.26It is quite clear that since 1994, the agreement with the construction company was that the construction company would be responsible for its own water consumption. Beijing Mandas would only be responsible for water consumed at the show units (样板楼), meaning model unit for exhibition, and possibly included the workers at Beijing Mandas on-site office. This would be minimal comparing to water consumed by the construction company and its workers. The consumption by workers would be managed by Chaoyang Park and Beijing Mandas would not participate in this management. 9.27Thus there is no motivation at all for Beijing Mandas to conspire with the construction company and Chaoyang Park, a State Enterprise, to cheat the water supply company in order to save up, say, Ұ800,000 odd when compared with the development project at more than hundred of millions. 9.28Phase 1 is a sizeable project and development. The occupation has begun since 1996. There are 326 flats, of which over 180 flats had been sold and the balance was rented out by Beijing Mandas. According to Mr Chan, You Lian was a subsidiary company of the water company and a quasi-designated contractor of the water company for water connection works. 9.29Mr Chan's side had transferred those contracts for water connection works to Mr Hao's side as follows :
9.30There were other documents having been transferred to Mr Hao's side as follows :
9.31These documents produced by the plaintiffs' side evidenced the transfer of all the aforesaid documents to the defendants' side. However, the defendants did not produce these documents which are in their possession. Only the gist of the contents of “95年明达公司与友联公司所签的合同” were related in 4A/HW16/200 1st paragraph, i.e the aforesaid document of Mr Yang dated 22-11-01. 9.32I must say I agree with the plaintiffs' submissions that it is inconceivable with all these documents that the plaintiffs had not paid water charges by illegally and improperly connecting water pipe to the main water supply in all these years and thereby avoided paying the same. This could not be done unless there is a conspiracy among Beijing Mandas, You Lian, Chaoyang Park and Wan Guo Property. Why should a state enterprise participate in such a conspiracy basically for Xin Xing? 9.33On the other hand then why there was a report by water company in February 2002? There is no definite answer in this respect. The only thing which had so glaringly happened is that by November 2001 Mr Hao had already taken the stance that he was not going to pay the balance of Ұ12 million. This action has been started in 3-02 with an injunction application to restrain Mr Hao from transferring the shares in Hong Kong Mandas to a third party. The relationship between the two parties since 9-2001 to 2-2002 had been quite acrimonious. 9.34When there was an inspection from the water company to Beijing Mandas in 11-01 cumulating in an internal report of Mr Yang, no one in Mr Hao's side had suggested that Mr Chan's side should be contacted to understand the reason behind the allegations of the water company. 9.35When the water company had decided in 2-2002 that no water charges had ever been paid, no one had referred to all those documents, including agreements with You Lian, main brigade of principal logistics engineering and Wan Guo Property, and compile a comprehensive report as to the water charges payment in the past. If they could not find the water charges payment they should have alerted Mr Chan's side and possibly Ms Yang there and then for their assistance which apparently was an implied responsibility on the part of Mr Chan to assist in this matter. 9.36No doubt Mr Hao was afraid that Mr Chan would raise the question of payment of Ұ12 million outstanding before he could assist. Thus there and then there was no investigation into the matter by those who were there and then in charge of the matter before 28-4-01, the cut-off date. 9.37Now, as Ms Yang has said, all these responsible persons had left the company since the transfer and she was only responsible for the financial department and so she could only say from her recollection that water charges must have been paid in respect of the construction works. How and when those charges were paid she could not give further detail since she was no longer in possession of all the documents of Beijing Mandas. 9.38Mr Hao's side did not produce a comprehensive report as to the result of their investigation apart from saying, as aforesaid, that the water company considered those documents they produced could not support proper connection to the water supply. It is not clear why those documents could not support proper connection at all. 9.39By reason of the aforesaid, it is not fair now for Mr Hao to say that since the water company and Beijing Mandas had settled by agreeing that Ұ780,000 had been left unpaid and the majority of the same fell in the period before 28-4-01, Mr Chan's side would therefore have to be responsible for the same. Mr Chan had never been asked about this matter and could not have access to the company's documents when the problem arose or at all even up to now. They would have to rely on the discovery of the defendants' side. The aforesaid documents were not disclosed to the plaintiffs. 9.40All in all I do not consider the defendants had made out a case that the plaintiffs had been evading water charges by improper connection to the water supply. Even the water company has said in its report of 2-2002 that Beijing Mandas is also a victim of this incident. In what way Beijing Mandas is a victim, they have not elaborated. Is it a case where Beijing Mandas had also been “cheated” by You Lian, Xin Xing, Wan Guo Property and/or Chaoyang Park? If Beijing Mandas is also a victim, the responsibility of course is on Mr Hao's side to sue those next-in-line (excluding Mr Chan) who should be responsible to Beijing Mandas. This part of the responsibility after 28-4-01 falls squarely on the defendants' side since they are now in control of the company. 9.41I conclude by saying that even on the water charges the defendants, Mr Hao's side, is not entitled to counterclaim the same against Mr Chan. THE TOTAL SUM OF Ұ8,506,722.42 10.1The defence alleged that the captioned sum is made up of 3 items of liabilities of Beijing Mandas for which the plaintiffs should be responsible. They are :
10.2Under the 4-Party Agreement (“4PA”) of 27-9-01 (B5/P43/713-715), the plaintiffs' side would have to be responsible for all loans and guarantees given to banks or financial institutions before the cut-off date. Pursuant to such an agreement, the plaintiffs pleaded in their Re-amended Statement of Claim (1A/170/#22(c)) that they repaid the sum of Ұ1.5 million odd to Nanyang Commercial Bank. However, the defence did not admit the same in its Defence and Counterclaim (1B/334B55/#80). In Mr Hao's 1st Supplemental Witness Statement, he raised for the first time that Mr Chan's side had not given him any proof that the bank had been repaid (Hao's S1/#57). 10.3I accept the plaintiffs' submission that clearly Beijing Mandas had never in the past five years been demanded by the bank for repayments. In any event in response to Mr Hao's belated request for proof that this debt had been repaid, Mr Chan in his 2nd Supplemental Witness Statement on 3-1-05 (3B/Chan S2/#53) produced the document dated 13-9-01 showing clearly that the money had been repaid in full as stated by Nanyang Commercial Bank themselves (8/P135). 10.4The closing submission of the defence made no submission on this item. Counsel for the defendants said specifically that they make no submission in light of the evidence produced by the plaintiffs as aforesaid. 10.5Thus it must have been accepted by the defence that this item has been repaid as evidenced by the said document. 10.6As in the case of Nanyang Commercial Bank the defendants have never been demanded by First Civil in respect of this Ұ1 million. The four-party's agreement has specifically mentioned that :
10.7According to Mr Chan, First Civil had agreed that the Ұ1 million would not have to be repaid by Beijing Mandas (3A/Chan/#227). In fact a letter has been drafted for Beijing Mandas to sign confirming that the said amount would not had to be repaid by Beijing Mandas . However Mr Chan said Mr Hao refused to sign it. It was signed by the other three parties namely Zhou Kou Hong Shen Trading Company Ltd, Henan province (河南省周口宏深贸易有限公司), First Civil, and Jian Zhou Investment Company Ltd (建周投资有限公司). They either affixed their chops or signed the same by the legal representative. The document was not dated, apparently because Mr Hao has not signed on it yet (see 6B/P95). 10.8Further First Civil actually issued a letter to Beijing Mandas saying that the Ұ1 million would not have to be borne by Beijing Mandas (6B/[P94]) albeit this letter was only affixed with its chop and the date was left blank. One may say the letter was delivered in escrow. 10.9When the other three parties signed the Liabilities Transfer Agreement (债务转让协议) at [P95], there was no reason why Mr Chan had not asked Mr Hao to sign on it. It is for the benefit of Mr Chan because it would relieve his liabilities under the 4PA with Mr Hao. In turn it would benefit Beijing Mandas under the ownership and management of Mr Hao. Thus I accept the plaintiffs' submission that Mr Chan must have asked Mr Hao to sign on it but Mr Hao refused to do so, for reason best known to himself. 10.10This letter from the creditors and the agreement signed by the other three parties had been produced by Mr Chan in his affirmation as early as 2002 in support of his injunction application in these proceedings (2/482/#69). It was again produced in Mr Chan's witness statement in 12-2003. Thus the document must have been created before Mr Chan's affirmation in 2002. 10.11Therefore it must be the case that Mr Hao refused to sign the agreement without giving any reasons therefor and maintained that this Ұ1 million odd is still outstanding. By so doing Mr Hao wanted to make use of this sum as an excuse to refuse paying the Ұ12 million balance payment notwithstanding that First Civil had no claim against Beijing Mandas for this sum of Ұ1 million. Thus, I do not accept the defendants' submission that Mr Chan has, contrary to his witness statement, never requested Mr Hao to sign the same. The defence quoted 16/Day 11/590T-H. However the transcript shows that when the case was put to Mr Chan that he had never requested Mr Hao to sign, he said he disagreed. 10.12It is clearly evidenced by the letter of I&G dated 11-3-02 that I&G stated clearly that by 11-1-02, Beijing Millennium had already paid for or on behalf of Beijing Mandas all the principal and interest in the total sum of Ұ6,036,260.68 leaving interest of Ұ150,000 outstanding (逾期利息). Mr Chan's side said that he has arranged with I&G that if Beijing Mandas made a request in writing to them, they would waive the Ұ150,000 outstanding interest. A letter to that effect was drafted by Mr Chan (see 6B/P97). 10.13Mr Chan actually produced his copy of this draft letter in his 1st Affirmation of 6-5-02 (2/363/#39(d)). This was further produced in his 2nd Affirmation of 18-7-02. In any event he produced the same as 6B/P97 in his witness statement. 10.14Thus Mr Hao cannot rely on the excuse that he had never seen this letter. He must have seen it at least since Mr Chan 1st Affirmation in the injunction application. Up till now, Mr Hao still refuses to make that request when it was made clear to him that arrangement could be made with I&G as early as 2002 that they would waive this Ұ150,000 interest. 10.15On the contrary the defendants insisted and still insist through their counsel that Mr Chan had never asked Mr Hao to sign this application to I&G to waive the said default interest. 10.16It is therefore disingenuous for the defendants to raise this defence and made the submission through their counsel that “in the premises, the plaintiffs were and are not untitled to demand that Mr Hao to pay the balance of the purchase price for the shares in Hong Kong Mandas”. 10.17There is absolutely no basis for the defence concerning the total sum of Ұ8.5 million odd. In respect of Nanyang Commercial Bank, the sum has already been repaid; in respect of First Civil, the Ұ1 million is no longer pursued by them as someone else has already taken over the guarantee of Beijing Mandas; in respect of I&G the amount could not be as much as Ұ6 million odd since the only outstanding sum was the interest of Ұ150,000 in respect of which Mr Hao has refused even up to now to make the request according to the draft letter to I&G for the waiver of this amount in spite of the fact that he was informed four years ago that Mr Chan had already made arrangement for such a waiver. 10.18This defence under the heading of Ұ8.5 million odd, apart from having no substance at all, had revealed the disingenuous attitude on the defence side and the court is driven to conclude that they have been trying very hard to avoid paying the balance of the purchase price by making whatever allegations they can think of. 11.1The plaintiffs do not have a perfect case. Their evidence is not water-tight either. In some of the areas, their witnesses Mr Chan and Ms Yang could not be exact. In some others, they were mistaken. This however is understandable. Since mid-2001, they had given up management of Beijing Mandas. They are no longer in possession of the books, accounts and all other documents of the company. They could only speak from their memory of incidents which happened a few years ago. However by reason of the aforesaid matters, I found both Mr Chan and Ms Yang to be truthful witnesses. If there is anything which they are mistaken, it is only due to their faulty memory which is just human. No mortal can re-create a complete picture without the assistance of all the documents they were only once in possession some years ago. 11.2On the other hand, I find Mr Hao and Ms Qin to be untruthful. In spite of being in possession of all the documents of Beijing Mandas, they could not explain a number of things as considered hereinbefore. Some important documents were not discovered. Some they said, conveniently, were lost. The culminative effects of those counterclaims which I found to be disingenuous, have seriously undermined their credibility. 11.3All in all, I prefer the evidence of Mr Chan and Ms Yang than that of Mr Hao and Ms Qin. In the end I accept the summary of conclusion in Section M of the plaintiffs' submissions. Perhaps the only exception is that in respect of no liability of the plaintiffs for the defendants' claim of water charges, I prefer my own reasoning than theirs. 11.4(1) There shall be judgment for the plaintiffs in the sum of Ұ11 million together with interest at the contractual daily rate of 0.066% from 28-9-01.
11.5This case has come to trial in early 2005 with only 15 + 5 days reserved. The first witness Mr Chan took 15 days already. There was a gross under-estimation of the length of trial. This has been the subject-matter of adverse comments made by Mr Justice Ma, CJHC in his judgment dated 21 February 2005. I do not want to repeat those criticisms here. 11.6However, when gross over-running became apparent, all counsel appearing on either side together with their solicitors have tried very hard to expedite the matter. They exhibited high degree of professionalism in streamlining the case expeditiously. In the end, I would like to express my appreciation of their joint and several efforts in this respect and at the same time they have ensured to maintain their clients' interests. 11.7I would particularly point out that the new team of counsel and solicitors appearing for the defendants this year have undertaken this difficult task of appearing in the middle of the trial very well. Mr Jat and his junior Mr Chan have quite thoroughly understood the case and conducted their cross-examination with excellent skill and knowledge. It is by no means an easy task. Their mis-reading of the previous Transcript on one very minor matter as aforesaid is by no means a reflection of their failure. On the contrary they have undertaken this task of continuation very well. Their submissions are meticulous and thorough. Although most of them were not accepted by the Court and some were not expressly mentioned in my judgment, it is by no means disrespectful to their efforts. I consider that they have tried their very best to put their clients' case at the best footing. 11.8On the other hand Mr Fung and Mr Lee, counsel for the plaintiffs have also assisted this Court very well throughout the trial. In particular, their efforts in preparing Bundle 8A within a very short period of time had assisted this Court considerably and consequently their clients. 11.9I would also like to express appreciation of the efforts of counsel on both sides in their restraint in cross-examination which eventually has shortened the length of the second part of the trial to a reasonable limit. 11.10In the end I must thank counsel and solicitors for all their assistance rendered to me in this prolonged trial.
Mr Patrick Fung, SC, leading Mr Lee Tung Ming, instructed by Messrs Anthony Siu & Co., for the Plaintiffs Mr Wong Yan Lung, SC, instructed by Messrs Deacons, for the Defendants (6-7, 10-14, 17-21 and 24-26 January 2006) Mr Jat Sew Tong, SC, leading Mr Anthony H.K. Chan, instructed by Messrs Wilkinson & Grist, for the Defendants (13-16, 20-24, 27-29, 31 March 2006 and 3-4, 6-7, 10, 12-13 April 2006 and 22-23 May 2006)
[1] All Chinese documents in this action are in simplified characters and the same are used herein to maintain the original flavour and consistency. [2] See the plan in 12/275/1005-4, i.e. Bundle 12/Tab 275/page 1005-4. [3] The notation Day-Month-Year is used to reduce the length of this judgment. [4] (Bundle Number/Tab number/page number). [5] These fees and interest are payable or delayed payment. [6] It is interesting to note that the Central Government in the Mainland has just announced on 27-6-06 that in future, false sales/false mortgages would not be allowed as a measure to cool down the over-heated property market there. Appeal dismissed: see CACV347/2006 dated 13 November 2007 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Further hearings and rulings under HCA 1216/2002